Exploring the Role of Structural Transformation in Addressing Climate Change
45 Pages Posted: 21 Aug 2023
Abstract
We develop a global structural transformation integrated assessment model to study the interactions between the sectoral reallocation of economic activity, climate change and mitigation policies. The model integrates global climate-economy interactions and sectoral heterogeneity in climate vulnerabilities and mitigation capabilities. We quantify distributional effects across regions and sectors due to regional coordination and damages from climate change. We find that global coordination leads to a decrease in global emissions, welfare gains for developing regions, and a decrease in emission intensity in all regions. On the sectoral level, we find that global coordination leads to shift from agriculture and manufacturing towards services, where production is less energy intensive and substitution of energy sources is easier. The exception is SSA, where the manufacturing sector grows in the short-term in order to sustain the increase in investment associated with lower damages and higher economic growth. The contribution of structural transformation in the reduction of emission intensity varies significantly between regions, accounting between 1.5% and 37% of the overall decline, yet remains secondary to the role of sector-level emission intensity reductions. Further results suggest that in low-income countries, increasing climate damages may trap labor in the agricultural sector, threatening to disrupt their development.
Keywords: structural transformation, climate change, integrated assessment model, regional coordination
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