Conference Agenda

To gain insights into the mechanisms that shape the interaction between economic growth and climate change, we analyze the simplified DICE through the lens of growth theory. We analytically show that this model exhibits a continuum of saddle-point stable steady states. This property carries over to a large set of (analytical and numerical) IAMs. Hence, initial conditions of stock variables, notoriously difficult to calibrate, matter for the long-run economic and climate outcomes. However, we also demonstrate that a numerically mis-specified initial stock of global capital has a significantly smaller impact on simulated future climate and economic outcomes than a mis-specification of the initial GHG stock in the atmosphere. These novel insights have important implications for understanding the consequences of delayed climate policy

implementation and the optimal carbon tax. We employ a calibrated model, solved numerically for the big transition, to show how a postponement of optimal climate policy implementation leads to a higher long-run temperature. We also show that the SCC-to-GDP ratio is in fact largely constant, despite transitional dynamics. However, its level depends strongly on the point in time the policy is implemented. Finally, we employ the setup to better understand the consequences of stronger TFP growth for the climate.

We consider how to integrate CO2 emissions in comprehensive national accounts for the purpose of indicating whether countries’ development is sustainable. We do so under the assumption that emitters pay for the damage that their emissions cause elsewhere, in accordance with the Polluter Pays Principle and the rationale behind the World Development Indicators of the World Bank. We investigate two different interpretations of the Polluter Pays Principle—compensating for current emissions, or for historical cumulative emissions—and show that neither leads to the expression of genuine saving used by the World Bank. The correct expressions involve future capital gains on transfers from emitters and future net cost of increasing emissions. Since current emissions cause future damage, the properties of sustainability indicators in this setting are related to the interesting problem of how to compensate for emissions across time. Our empirical application to recent genuine saving data combined with the social cost of carbon (SCC) estimated from a recent integrated assessment model shows that the performance of developing countries when emitters pay for their current emissions would be worse than the corresponding estimates using the World Bank methodology, while it is mainly early emitters that do not perform well in their sustainability indicator when emitters pay for their historical cumulative emissions. Our results have significance in the design of the loss-and-damage fund currently debated in the international community.

In this study we develop and analyze different scenarios of a climate-neutral energy system in Austria by mid-century, focusing on the key sectors of industry, energy, transport, and buildings. Two distinct scenarios are developed: a TECH scenario reflecting a technology-driven transformation with relatively high energy demand and a RED scenario that is characterized by ambitious changes in economic and societal structures, e.g., implementation of circular value chains, recycling of resources, improved spatial planning, and an increased use of public transport, resulting in a comparably lower energy demand. Additionally, to consider different levels of energy market integration across scenarios, we distinguish between one case where Austria is fully embedded in the international market and has no restrictions to import renewable energy (electricity, renewable fuels, and hydrogen) and one where Austria's capacities to import are limited. The scenario framework builds on several sector models that were applied to estimate Austria’s future energy demand. To access the implications of the different scenarios for the energy system and the economy, we soft-link the energy demand data with the European energy-system model Euro-Calliope, which determines the cost-optimal energy supply mix in each scenario, and the macroeconomic model WEGDYN-AT, which accesses the associated economy-wide impacts. Our findings underscore that Gross Domestic Product, welfare, and employment levels improve in the low-energy scenarios because of efficiency gains. The reduction in energy demand and the associated improvements in efficiency have a positive impact on value added, as they make production processes more cost-effective and less resource intensive. Limited import possibilities lead to significant economic pressure due to higher domestic generation costs, which is particularly harmful in the energy-intensive TECH scenario. Furthermore, we find that negative distributional effects for low-income households can be avoided if low-income households are adequately compensated by government transfers.

Environmental deterioration has become an urgent point of concern for policymakers, evidenced by the recent launch of a set of policy initiatives that aim to transform the European Union and other OECD members towards low-carbon societies. This planned transition carries significant economic and social implications, with the potential for both desired and adverse impacts. To understand if the positive or the negative effects dominate, this study examines the distributional impacts of the stringency of environmental policies in EU countries. This paper provides empirical evidence on the impact of environmental policy adoption and stringency, measured by OECD’s Climate Actions and Policies Measurement Framework (CAPMF), on income inequality, measured by the pre-tax, post-tax national income, and disposable income Gini coefficients. The use of these three measures of income inequality shows the full redistributive effects of environmental policy adoption and stringency. Employing a panel dataset covering 20 EU countries over 32 years, the study addresses slope heterogeneity, cross-sectional dependence, and potential endogeneity by utilizing the Augmented Mean Group (AMG) estimator by Eberhardt & Teal (2010). Influential factors affecting income inequality, including GDP growth, unemployment, inflation, and public social expenditure, are controlled for in the analysis. Robustness checks are conducted using the CCEMG and (MG) estimators, alternative measures of income inequality (such as the pre-tax income share of the top 10 percent), and additional control variables. The findings show that environmental policies initially increase income inequality, disproportionately affecting lower-income groups. However, redistribution through taxation, in-kind transfers, and direct cash assistance neutralizes this effect, making disposable income inequality statistically insignificant. This underscores the role of social welfare mechanisms in ensuring an equitable green transition. We conclude that in higher-income countries, such as those in the EU, increasingly rigorous environmental policies can have unintended adverse economic and social implications. However, the current redistributive policies can mitigate these adverse effects.

Interactions of human economic development with the climate system and ecosystems in the biosphere caused the twin crisis of climate change and biodiversity loss. In this paper, we contribute to addressing the challenge of evaluating socially optimal climate policy in a world with atmosphere-biosphere interactions by combining the work of two influential economists: Partha Dasgupta and Bill Nordhaus. Specifically, we include non-linear ecosystem capital dynamics inspired by the Dasgupta Review on the Economics of Biodiversity in a recently updated DICE model to study the effects on the optimal level of ecosystem capital, economic growth, the social cost of carbon, and the social value of nature. Our results, which are robust to changes in key parameter specifications, indicate the need for more ambitious climate policy in order to limit damages to ecosystem capital. We also highlight the role of reducing natural resource use and waste in order to let ecosystems regenerate and foster the creation of co-benefits for climate mitigation through nature-based carbon removal.

The intensifying global climate crisis and unprecedented biodiversity loss have highlighted the critical need for integrated approaches to environmental policy that recognize planetary boundaries. Current models address climate mitigation and biodiversity independently, thereby missing key interactions between these systems. This paper extends the latest DICE-2023 (Dynamic Integrated Climate-Economy) model to explore the intersection between climate change mitigation and biodiversity conservation by incorporating a land use sector explicitly linked to biodiversity integrity. The extension examines how climate policies and land use changes jointly impact biodiversity, assessing the potential tradeoffs and synergies between climate mitigation and biodiversity conservation. Further, this model allows us to conduct a cost-benefit analysis (as is done in DICE) and further investigate the additional economic cost of remaining within specific temperature or biodiversity targets.