Carbon Consumption, the Carbon-Based Ecosystem, and Output

Abstract

This paper studies the effects of the carbon-based ecosystem on a country's output. We propose and estimate a dynamic game production model in which a country's ecosystem, as measured by its reservoir of carbon in land biomass and soils, is a productive input. This reservoir is diminished when higher levels of greenhouse gas concentrations reduce land sink absorption of atmospheric carbon. In equilibrium, a country's land carbon policy accounts for its direct effects on the ecosystem and on diminished land sink as GHG concentrations increase.
We first estimate land sink absorption rates and the output elasticities of land use and the land carbon ecosystem for 152 countries. Calibrating the model to these estimates,
we simulate the model to 2100 under four standard Representative Concentration Pathway scenarios. In the simulations, all countries experience higher average annual GDP growth under lower GHG concentration scenarios. The growth differentials between high and low scenarios are starkest for more developed countries. When compared to a counterfactual constant sink model, the ``active" sink makes little difference in low concentration scenarios, but decreases global GDP growth by around 1.3% per year over the next 80 years in the highest scenario. Again, the differences are most pronounced in developed countries.

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