The most important question in economic growth today is how human development and betterment can be managed without very adverse effects upon the Earth system processes we are dependent upon (Steffen et.al 2004). Addressing this concern, a group of 28 internationally renowned scientists recently introduced a novel concept, the planetary boundaries, for estimating a safe operating space for humanity with respect to the functioning of the Earth System (Rockström et.al 2009a,b). This involved a preliminary effort at identifying and quantifying key Earth system processes (ESPs) where each process involved a boundary level that should not be transgressed in order to avoid unacceptable global environmental change.
So far economists, in addressing issues related to global environmental change, have almost entirely focused on the threat of climate-change, following closely the continuous release of reports of the Intergovernmental Panel on Climate Change (IPCC). Using so-called integrated assessment models (IAMs), policy advice has been couched, typically, in terms of estimates for the optimal size and timing of global and regional carbon taxes. In more detail, economic analysis has been focused on how the design of such taxes is likely affected by key aspects such as uncertainty, time preferences, technological change and other economic and social policies in general.
Despite major advances in this field, we are unaware of any serious large-scale investigation or modelling effort to assess a key issue: how are climate-change related economic policies (e.g. carbon tax) affected by interaction with other, possibly related ESPs? In other words, we are unaware of any dynamic economic model which couples both a climate system model and key ESPs such as those identified in the planetary boundaries framework.
The principal goal of the proposed project is to investigate how key ESPs identified within the planetary boundaries framework can be incorporated into existing dynamic climate-economy frameworks, and how this affects model properties and policy outcomes and choices.
Key research questions include:
- What ESPs, apart from climate change, do we have good data on, and how can the processes identified be introduced into existing frameworks of coupled dynamic climate-economy models (IAMs)?
Does the inclusion of additional processes necessitate the use of additional policy instruments (i.e. taxes and subsidies in addition to the carbon tax)?
- How do such interactions affect policies commonly considered for combating climate change (e.g. taxes and subsidies).