Project

ROCHADE- Mitigation Policies in a Globalized and Developing World: The Role of Structural Change and Distributional Effects

Start of Project 01/2019
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End of Project 12/2021

The project analyses the distributional effects of climate policies taking the role of structural change into account. ROCHADE, in particular,  investigates in how far ambitiuos mitigation policies slow down the transformation from agriculture based economies towards modern industry and service based economies. The interaction of structural change with economic growth and its impact on poverty reduction is analysed,  as well as the interrelationship between structural change and climate change. Distributional effects are analyzed at the macroeconomic and the household level, and policy measures will be identified that help reducing negative distributional effects. 

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Update on the project´s process

The conceptual and empirical work on structural change and its interrelationship with economic growth, energy use and the production of greenhouse gas emissions is completed. Central results: 

  • We finalized an econometric working paper on the effects of international trade on structural convergence and CO2 emissions using WIOD data.
  • We find that the specific technology chosen for electricity generation has a significant, yet differential impact on economic development: the coming online of coal-fired, hydroelectric, and renewable power capacity is followed by an expansion of regional GDP, while nuclear, gas, and other types of power investments do not have significant effects.  
  • Emerging economies with high trade costs are particularly affected by climate-induced yield decreases in essential agricultural goods, for which the elasticity of substitution is low. Under current trade cost regimes resources will have to shift from manufacturing and services sectors into the production of these essential goods to compensate the shortfall in agricultural production, thus causing countries to remain stuck in a poverty trap.

Within ROCHADE,  a multisectoral growth model - a tool that is able to analyse structural change - was developed as well as structural change scenarios as part of the SSP (shared socio-economic pathways) framework. The major upcoming task of the project is to run a multi-scenario analysis to investigates distributional effects of climate policies. Two case studies are in preparation - one for Germany, one for India.  The latter is designed as multi-scale, multi-model analysis.  This study will estimate the consequences of global and national climate policies - aiming to keep the 2°C climate target - on a sectoral level (changes in labor  and output allocation), subnational level (changes in income allocation) and household level (changes in income allocation and consumption expenditures). We face the challenge of implenting the model interfaces and adopting the involved models (macroeconomic growth model, CGE (trade) models, household model) accordingly. First experiments of model coupling has been conducted with our global trade model simulating policy effects of joint predefined climate policy scenarios for India until 2050.
 

Preliminary results of the project

Many developing countries follow the same path of coal-based development as Western industrialized countries. Poverty reduction, for example in China , Vietnam and Indonesia, has often be accompanied by rapid increases in coal consumption. Some countries (Pakistan, Bangladesh, Brazil) have reduced poverty without expanding coal use. Understanding the conditions for such developments, to what extent are they tansferable to other countries and whether they enable long-lasting growth, is crucial to encounter the challenges of climate change mitigation as well as poverty reduction. The figure (from Kalkuhl et al., 2019) shows changes in poverty rates against the share of coal in total power capacity additions. The changes in poverty rates are calculated as the difference between the average poverty rates in the period 1984-1993 and the average poverty rates in the period 2008-2017. The share of coal in total capacity additions is calculated as the ratio between changes in average coal capacity in the periods 1984-1993 and 2008-2017 and the changes in average total capacity in the same periods. Poverty is measured by the percentage of people below the poverty line of US$3.20 a day.

Flagship-Paper

Kalkuhl, M., Steckel, J. C., Montrone, L., Jakob, M., Peters, J., & Edenhofer, O. (2019). Successful coal phase-out requires new models of development. Nature Energy, 4(11), 897-900.

Leimbach, M., Giannousakis, A. (2019), Burden Sharing of Climate Change Mitigation: Global and Regional Challenges under Shared Socio-Economic Pathways. In:  Climatic Change 

Hübler, Michael and Frank Pothen (2021). Can Smart Policies Solve the Sand Mining Problem? PLOS ONE, doi.org/10.1371/journal.pone.0248882  

Pothen, Frank and Michael Hübler (2021). A Forward Calibration Method for Analyzing Energy Policy in New Quantitative Trade Models. Energy Economics, forthcoming 

Montrone, L., M. Kalkuhl, J.C. Steckel (in review):  The type of power capacity matters for economic development - Evidence from a global panel. Resource and Energy Economics (Revised and Resubmitted)