The macroeconomic risks of the transition to a low-carbon economy
The accelerated transition to a low-carbon economy involves structural change at such scale and pace that significant macroeconomic consequences cannot be ruled out. To assess these consequences, economic actors mobilize forward-looking scenarios describing plausible transition paths, which are then quantified with macroeconomic models. However, the state of the art of macroeconomic modelling of energy transitions does not always allow to consider the feedback loops between the energy system and the broader economy at a high regional granularity. In this research, we use the multi-regional ‘hybrid’ KLEM-POLES model to simulate the macroeconomic impacts of four energy transition scenarios. Through coupling, KLEM-POLES combines the strengths of the engineer’s and the economist’s views on energy transition assessment, at the high geographical granularity of 58 countries and regions connected through international trade. Its implementation allows assessing that, notwithstanding physical impacts and compared to a ‘current policy’ benchmark, the low-carbon transition leads to global GDP losses in 2050 of 0.8% when the Nationally Determined Contributions are implemented, 8% when global temperature rise is maintained below 2°C, and up to 13% for the ambitious objective of reaching global carbon neutrality by 2050. Those global estimates, significantly higher than those produced by other prominent studies, are furthermore very unevenly distributed across countries and regions. They call for renewed investigation of the economic trade-offs inherent to climate action.