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Decarbonizing the Global Economy with Induced Technological Change: Scenarios to 2100 using E3MG

This paper reports how endogenous economic growth and technological change have been introduced into a global econometric model. It explains how further technological change might be induced by mitigation policies so as to reduce greenhouse gas emissions and stabilize atmospheric concentrations. These are the first results of a structural econometric approach to modeling the global economy using the model E3MG (energy-environment-economy model of the globe), which in turn constitutes one component in the Community Integrated Assessment System (CIAS) of the UK Tyndall Centre. The model is simplified to provide a post-Keynesian view of the long-run, with an indicator of technological progress affecting each region�s exports and energy use. When technological progress is endogenous in this way, long-run growth in global GDP is partly explained by the model. Average permit prices and tax rates about $430/tC (1995) prices after 2050 are sufficient to stabilize atmospheric concentrations at 450ppm CO2 after 2100. They also lead to higher economic growth.

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Energy Specializations: Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Environmental Market Design; Energy and the Environment – Policy and Regulation

JEL Codes:
Q54 - Climate; Natural Disasters and Their Management; Global Warming
Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Induced technical change, E3MG model, CO2 mitigation, carbon taxes, permit trading

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI1-12

Published in Endogenous Technological Change, Special Issue #1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.