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 CO2 emissions by 2050 using a large-scale Post Keynesian simulation model of the global energy-environment-economy system. The main policy to achieve the target is a carbon price rising to 100/tCO2 by 2050, attained through auctioned CO2 permits for the energy sector, and carbon taxes for the rest of the economy. This policy induces technological change. However, this price is insufficient, and global CO2 would 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 the accelerated adoption of new technologies leads to lower unit costs. In addition the 100/tCO2 price 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.