Achieving the G8 50% Target: Modelling Induced and Accelerated Technological Change Using the Macro-econometric Model E3MG

This article assesses the feasibility of a 50% reduction in CO₂emissions by 2050 using a large-scale Post Keynesian simulation model of the global energyenvironmenteconomy system. The main policy to achieve the target is a carbon price rising to $100/tCO₂by 2050, attained through auctioned CO₂permits for the energy sector, and carbon taxes for the rest of the economy. This policyinducestechnological change. However, this price is insufficient, and global CO₂would be only about 15% below 2000 levels by 2050. In order to achieve the target, additional policies have been modelled in a portfolio, with the auction and tax revenues partly recycled to support investment in low-GHG technologies in energy, manufacturing and transportation, and no-regrets options for buildings.This direct support supplements the effects of the increases in carbon prices, so that theacceleratedadoption of new technologies leads to lower unit costs. In addition the $100/tCO₂price is reached earlier, by 2030, strengthening the price signal. In a low-carbon society, as modelled, GDP is slightly above the baseline as a consequence of more rapid development induced by more investment and increased technological change.