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Global Warming, Climate Policies and their Consequences on the Business Cycle : a general equilibrium Approah

  • Bouter, Maxime Alexandre
Publication Date
Mar 12, 2021
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Recognised by the United Nations as one of the eight Millennium Development Goals, the preservation of the environment and consequently of the climate, requires strong intervention by public authorities in order to limit the negativeconsequences of climate change. This thesis proposes to study some aspects of climate policies and the consequences they have on the economic cycle. We first address the issue of climate reversibility. One of the particularities of greenhouse gases is their particularly long lifetime. While on a geological scale, carbon sinks could in theory absorb a major part of anthropogenic emissions, on a human scale global warming appears irreversible without a transformation of the world economy towards a decarbonised model. In the absence of the discovery of a technology capable of reducing the carbon intensity of energy, public policy seems to be the solution most likely to meet the 2°C limit by the end of the 21st century. Secondly, we compare the consequences of introducing different climate policy instruments (carbon tax, allowances market, intensity target) in an economy that is subject to different exogenous shocks (productivity shock, shock on the price of fossil fuels). To this end, we use an RBC DSGE model to assess the economic consequences of these different measures. The implementation of one of these instruments can indeed have a contractionary effect, or on the contrary be inefficient from a climate point of view in periods of expansion. We therefore recommend the joint use of an allowance market, with the establishment of a floor price for carbon in order to achieve the emission reduction target. Finally, we look at the links between climate policy and monetary policy. We optimise the Taylor rule in the presence of either an allowance market or a carbon tax in order to make monetary policy recommendations. We show that the Taylor rule coefficients that maximise consumer welfare are significantly different with the introduction of climate policy. These effects should therefore be taken into account in order to conduct the most effective environmental policy.

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