CliPoN - Climate Policy and the Growth Pattern of Nations
1 Motivation
Does climate policy hinder economic growth? The literature on climate economics provides indication that climate stabilization goals can be achieved with moderate GDP losses, but this depends on a number of assumptions, e.g. universal climate policy regimes and world-wide availability of low-cost carbon free technologies. Technological progress and technology diffusion play a crucial role. Still it is unclear whether technological progress and climate policy-induced technology diffusion support convergence or divergence of economic growth in different world regions.
The first aim of our research project is to contribute to a better qualitative and quantitative understanding of the interconnected mechanisms of climate policy, trade, endogenous international technology diffusion, economic development, cross-country convergence and carbon leakage. The second aim is to examine the economic and environmental effectiveness of climate, trade and technology-related policy instruments in tackling climate change under different growth scenarios, which has been neglected so far in the literature.
2 Gaps in the Current State of Research
Achieving emission reductions at acceptable costs requires the inclusion of developing and transition countries into a climate policy regime because their emissions grow most rapidly. Including them requires support of economic development of these regions and requires knowledge about their potential growth pattern. However, existing models that explain growth patterns are suited for developed countries but not for developing ones.
Emission reductions require technical progress directed towards emission savings and international technology diffusion. Directed technical progress and technology diffusion enable economic growth and the necessary emission reductions at the same time. These aspects need to be better understood. Technical progress can lead to substantial structural and sectoral changes (between the agricultural, industry and service sectors and within the industry sector): It is necessary to understand how such changes can affect baseline emission paths and thus the effects of climate policies.
Economic development, technology diffusion and structural change are connected with international trade, foreign direct investment and outsourcing. Effectively using the international division of labor and technological spillovers can help to reduce the costs of climate change. On the contrary, international trade and foreign direct investment combined with a stringent environmental regulation in one country might lead to increasing emissions in non-regulated countries (carbon leakage and pollution haven effect) and the protection of property rights might worsen or improve international technology diffusion. Current research lacks of a detailed examination of all these interconnected aspects, theoretically, empirically and numerically.
3 Planned Research Activities and Work Program
The research program is structured along three main work packages including a number of sub-workpackages that investigate single and combined aspects of the inter-relation between climate policy and the regional pattern of economic growth from a theoretical, empirical and numerical perspective:
- WP 1: Theoretical modeling
- WP 1.1: Models of endogenous growth an technological diffusion
- WP 1.2: Models of trade and international investment
- WP 1.3: Models of structural change
- WP 2: Empirical analysis
- WP 2.1: Data collection, visualization and interpretation
- WP 2.2: Econometric analysis
- WP 3: Numerical Assessment
- WP 3.1: Assessment of climate policy measures from a global point of view
- WP 3.2: Assessment of the carbon leakage phenomenon.
4 Project Events
- Kick-off meeting: 8 November 2011 in Potsdam (presentations, minutes)
- Annual project meting (next in October 2012 in Bielefeld)
5 Relevance of Expected Results
This project addresses what the BMBF-Call on the “Economics of Climate Change” identifies as a gap of economic knowledge – the inclusion of the climate change challenge in the broader context of international trade, development and the environment (including carbon leakage). The call highlights the importance of research on (endogenous) technical progress, innovation and industrial structural change and of assessments of the risks and opportunities of growth and development in a decarbonizing world. This research project contributes to all of these issues.
Based on a better understanding of the interlinked economic and climate-related phenomena, we expect to identify countries, regions and sectors that can be strongly hit by climate policy with respect to economic growth paths under different scenarios. In addition, we expect to identify countries and regions within and outside the EU that are potential pollution havens with respect to carbon leakage. Furthermore, we will define a set of policy measures - such as modifications in trade barriers and in intellectual property rights protection, supplementary to climate policy - that are appropriate for fostering economic growth and cross-country convergence while avoiding carbon leakage. These results are crucial with respect to the acceptance of climate policies by (developing) countries in climate policy negotiations. They are also crucial with respect to the design and combination of policy measures within and outside the EU.
Referring to the requirement of having an empirical foundation and delivering empirical results, a new database regarding global trade and environmental issues will be compiled and made publicly available. The new data may encourage further research.
6 Project Coordination & Contact
Dr. Marian Leimbach
Potsdam Institute for Climate Impact Research
P.O. Box 60 12 03
14412 Potsdam, Germany
Dorothe Ilskens
Potsdam Institute for Climate Impact Research
P.O. Box 60 12 03
14412 Potsdam, Germany
Phone: +49 331 288 2414
7 Project Partners and Personnel
At Potsdam Institute for Climate Impact Research (PIK):
- Prof. Dr. Ottmar Edenhofer
- Dr. Marian Leimbach
- Niklas Roming
- N.N.
At Centre for European Economic Research (ZEW), Mannheim:
- Prof. Dr. Andreas Löschel
- Dr. Oliver Schenker
- Dr. Michael Hübler
- Michael Schymura
- Sascha Rexhäuser
At Bielefeld University:
- Prof. Dr. Alfred Greiner
- Prof. Dr. Christiane Clemens
- Dr. Andre Bondarev
At HHL - Leipzig Graduate School of Management:
- Prof. Dr. Wilhelm Althammer
- Erik Hille
