Long-term Growth Impact of Climate Change and Policies: The Advanced Climate Change Long-term (ACCL) Scenario Building Model

34 Pages Posted: 7 Apr 2020

See all articles by Claire Alestra

Claire Alestra

affiliation not provided to SSRN

Gilbert Cette

Banque de France

Valérie Chouard

Banque de France

Remy Lecat

Banque de France

Date Written: April 2020

Abstract

This paper provides a tool to build climate change scenarios to forecast Gross Domestic Product (GDP), modelling both GDP damage due to climate change and the GDP impact of mitigating measures. It adopts a supply-side, long-term view, with 2060 and 2100 horizons. It is a global projection tool (30 countries/regions), with assumptions and results both at the world and the country/regional level. Five different types of energy inputs are taken into account according to their CO2 emission factors. Full calibration is possible at each stage, with estimated or literature-based default parameters. In particular, Total Factor Productivity (TFP), which is a major source of uncertainty on future growth and hence on CO2 emissions, is endogenously determined, with a rich modeling encompassing energy prices, investment prices, education, structural reforms and decreasing return to the employment rate. We present four scenarios: Business As Usual (BAU), with stable energy prices relative to GDP price; Decrease of Renewable Energy relative Price (DREP), with the relative price of non CO2 emitting electricity decreasing by 2% a year; Low Carbon Tax (LCT) scenario with CO2 emitting energy relative prices increasing by 1% per year; High Carbon Tax (HCT) scenario with CO2 emitting energy relative prices increasing by 3% per year. At the 2100 horizon, global GDP incurs a loss of 12% in the BAU, 10% in the DREP, 8% in the Low Carbon Tax scenario and 7% in the High Carbon Tax scenario. This scenario exercise illustrates both the “tragedy of the horizon”, as gains from avoided climate change damage net of damage from mitigating policies are negative in the medium-term and positive in the long-term, and the “tragedy of the commons”, as climate change damage is widely dispersed and particularly severe in developing economies, while mitigating policies should be implemented in all countries, especially in advanced countries modestly affected by climate change but with large CO2 emission contributions.

Keywords: Climate, Global warming, Energy prices, Government policy, Growth, Productivity, Long-term projections

JEL Classification: H23, Q54, E23, E37, O11, O47, O57, Q43, Q48

Suggested Citation

Alestra, Claire and Cette, Gilbert and Chouard, Valérie and Lecat, Remy, Long-term Growth Impact of Climate Change and Policies: The Advanced Climate Change Long-term (ACCL) Scenario Building Model (April 2020). Banque de France Working Paper No. 759, Available at SSRN: https://ssrn.com/abstract=3569499 or http://dx.doi.org/10.2139/ssrn.3569499

Claire Alestra

affiliation not provided to SSRN

Gilbert Cette (Contact Author)

Banque de France ( email )

Paris
France

Valérie Chouard

Banque de France ( email )

Paris
France

Remy Lecat

Banque de France ( email )

Paris
France

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