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Macroeconomic modeling of climate change mitigation and impacts

The development of economies and societies is interrelated with climate change in manifold ways. Understanding these interrelations is a prerequisite of sound climate policy decision-making. Climate change poses challenges of impacts, adaptation and mitigation. While macroeconomic modelling is an integral part of Integrated Assessment Models of climate change it generally lacks the sectoral and social resolution necessary to provide more than a very rough understanding of the development and distributional effects of climate policies and climate impacts. Moreover, assessments studies so far are not able to integrate mitigation, impacts and adaptation in a meaningful way.

This group aims for a better understanding of the interrelation between economic growth, wealth distribution, climate change impacts and mitigation. The overarching research question is about the development perspectives of societies, economies, and different social groups under various scenarios of climate change stabilization. Our research is clustered around three topics:

(i) impacts and inequality

Under the first topic we will push forward the integration of novel damage functions from the literature, in collaboration with ISIMIP and the group on event-based modeling of economic climate change impacts. To this end we will further develop approaches to account for impact channel-specific damages (e.g. on output, capital, labor productivity) and their persistence in integrated assessment modelling, tackling challenges of temporal and spatial aggregation. In parallel we will develop capacities to study the distributional consequences of climate change impacts and mitigation on a global scale. In a first instance this will involve the inclusion of income distributions (and their projections) for regions, but we also aim for higher spatial resolution and possibly links to micro modeling. Furthermore we plan to develop a household model investigating the transitions in and out of poverty due to the effects of extreme events.

(ii) structural transition

We will investigate how macroeconomic structural change (i.e. the transition from an agriculture-based economy via an industry-, towards a services-based economy) interacts with climate change. We ask for example to what extent the rise of industrial activities that are necessary for long-term growth in developing countries is impacted by climate damages and by climate policy requirements that increase the cost of industrial production. Based on profound conceptual and empirical work, we plan to develop a multi-sectoral growth model as a major tool for quantitative scenario analyses.

(iii) global and regional markets

We are interested in the terms-of-trade effects of climate policies. This research, on the one hand, aims to make progress with the representation of imperfect capital markets in integrated assessment models. On the other hand, we want to include bilateral trade flows for parts of the energy trade which can be expected to demonstrate the largest reactions under climate policies. 

While the research of the working group is strongly based on different parts of economic theory (growth theory, welfare theory, trade theory, consumption theory), there will also be strong challenges with regard to model calibration and empirical work (econometrics) as well as numerical work (computational economics) linked to couplings in a modular model framework.

Our research will result in findings that may push the frontiers of climate economics. The long-term objective of the research is to improve the existing Integrated Assessment framework, enabling it to integrate climate change mitigation and impacts, and to take the societal heterogeneity into account.  This will enlarge the scope of IA analyses by allowing a real integrated assessment with state-of-the art damage components, increase the robustness and credibility of results, allow to properly asses sustainable development pathways, and consequently improve the quality of policy decision-making.

Team

Marian Leimbach (leader)

Marcos Marcolino

Franziska Piontek

Björn Sörgel

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