Carbon Consumption, the Carbon-Based Ecosystem, and Output

Abstract

This paper studies the effects of changes in the carbon-based ecosystem on a country's output. We propose and estimate a dynamic production model in which a country's ecosystem, as measured by its reservoir of carbon in land biomass and soils, enters explicitly as a productive input. Land use is the key endogenous decision in the model. We characterize a country's optimal land use policy given its direct effects on the ecosystem, and the indirect feedback effects from land sink absorption of atmospheric GHG concentrations. We estimate the model's land sink absorption rates and output elasticities with respect to land use, fossil fuel emissions, and land carbon stock for 162 countries. Globally, a 1% decline in a country's land carbon leads to an estimated 0.3% decline in its GDP per year, even after it optimally adjusts its land use policy. We then simulate the model to 2100 under four standard Representative Concentration Pathway scenarios. In the simulations, developed countries experience higher GDP growth by 2100 under low concentration scenarios.

For these countries, GDP initially grows faster in high concentration scenarios. By 2050 it declines in high concentration scenarios but continues to grow in low ones. Developing countries, by contrast, experience higher GDP growth under high concentration scenarios throughout the century. Global growth in GDP is maximal under low to moderate GHG concentration scenarios.

Keywords: Carbon-based ecosystem, land stocks, GHG emissions, optimal land use policy, policy-adjusted elasticity, Representative Concentration Pathways

JEL Classification: C73, D82, F53, Q54, Q58