Producing a Double Dividend for the EU-27 and USA with the Macro-Economic E4M-GAIA Model: Meeting G8 80% Emissions Reduction Target Leads to Economic Growth

Abstract

The international negotiations concerning climate change, taken place during the UNFCCC conference in Durban at the end of year 2011, have failed to establish a new global agreement to reduce global emissions. Therefore, the G8 commitments on 80% reduction by 2050 seems to be the most realistic climate change mitigation framework for the time being, enhanced by the political will of the EU and USA administrations. For the needs of this paper, the G8 80% target is further extended to cover the whole EU-27 region, where the reduction commitments of the EU-27 member states are allocated based on the relevant allocation weights considered for the Kyoto Protocol obligations. This paper examines the implementation of the EU-27 and USA 80% emissions reduction target using a macro-economic hybrid model E 4M -GAIA of the global economy, standing for Energy-Economy-Environment-Engineering Model of the Earth. The E 4M -GAIA model, which adopts similar theoretical background with the “New Economics” school depicted mainly in the well-established Cambridge University’ E3 models, is used to implement this target and to compare it with a reference scenario, where no reduction target is pursued. Both scenarios consider that impact of the financial crisis, with updated information to the end of 2010. This paper aims to provide evidence that the proper direction of a portfolio of policies including: regulation, behavioral shift, revenue recycling, energy investments, energy and carbon pricing, can lead to double dividend, namely meeting a deep reduction target and providing gains for the economy.