Marginson, Samuel Evan (2024) Economic Implications of the Nationally Determined Contributions and Goals of the Paris Agreement. PhD thesis, Victoria University.

Abstract

The Paris Agreement aims to limit increases in the average global temperature due to greenhouse gas emissions to 2℃ above the pre-industrial average. If we ignore the damages caused by emissions, limiting emissions generally makes economic activity more expensive. Countries signed up to the Paris Agreement because it allows them to propose their own reductions, effectively allowing them to choose the cost they’re willing to impose on their own economies. Countries are required to periodically review their commitments to reduce their emissions, known as Nationally Determined Contributions (NDCs). When they do, they compare their targets with those of other countries. Countries often use their economic circumstances to justify their targets, so a key question is, what are the economic consequences of the NDCs? This thesis seeks to address that question through the use of computable general equilibrium modelling. Most NDCs are focussed on reductions by 2030. Most emissions reductions until then will be the result of changes to the way electricity is generated. To represent those changes, the electricity sector in the Global Trade Analysis Project (GTAP) database has been disaggregated using electricity generation cost data for 2017, the base year for the database. I have modified the dynamic computable general equilibrium model “GDyn-E” by disaggregating its electricity sector and adding more gases to initial greenhouse gas accounts. I simulate economic scenarios to 2030 with and without the NDCs. The economic impacts of NDCs submitted to date are most significant in regions that are heavily reliant on fossil fuel exports for income. Impacts on the real incomes of regions with the most ambitious emissions reduction targets are relatively mild, with real incomes with the NDCs being between 0.7-1.1% lower than they are in the base case in the three most ambitious regions (the EU, USA and Japan). To some extent, this is due to reductions in income being offset by additional revenue that is captured by putting a price on emissions. As the economic impacts of climate change are expected to be considerably larger than the reductions in income due to emissions reduction efforts in the most ambitious regions, reducing emissions is good economic policy. At the sectoral level, impacts are mostly limited to changes in electricity generation. Total Final Consumption of most fossil fuels remains relatively unchanged or even increases slightly. This is due to a relative lack of ambition overall - although emissions are likely to peak this decade, they will only decline by approximately 0.3% over the period from 2021 to 2030.

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