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 CO<sub>2</sub> 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/tCO<sub>2</sub> by 2050, attained through auctioned CO<sub>2</sub> permits for the energy sector, and carbon taxes for the rest of the economy. This policy <italic>induces</italic> technological change. However, this price is insufficient, and global CO<sub>2</sub> 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 <italic>accelerated</italic> adoption of new technologies leads to lower unit costs. In addition the $100/tCO<sub>2</sub> 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.
