cover image: Climate Modeling for Macroeconomic Policy : A Case Study for Pakistan (English)

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Climate Modeling for Macroeconomic Policy : A Case Study for Pakistan (English)

23 Sep 2021

As the effects of climate change become increasingly evident, the design and implementation of climate-aware policies have assumed a more central role in the macroeconomic policy debate. With this has come an increasing recognition of the importance of introducing climate into the economic policy making tools used by central economic policy making agencies (such as ministries of finance and ministries of planning). This paper integrates climate outcomes into a macro-structural model for Pakistan, the kind of model that is suitable for use on a regular basis by ministry staff. The model includes the standard set of variables and economic logic that are necessary for the kinds of forecasting, economic policy, and budgetary planning analysis typically conducted by central ministries. In addition to standard outputs (unemployment, inflation, gross domestic product growth, and fiscal and current accounts), the model generates climate outcomes (tons of carbon emitted and economic and health damages due to higher temperatures and pollution). These outcomes are generated when specific climate policies such as mitigation are analyzed, but also when other policies are analyzed that might have unanticipated climate impacts. The paper describes the changes made to the World Bank's standard macro structural model, MFMod, in integrated climate outcomes, climate policies, and the economic impacts of climate on Pakistan's economy. Notably, carbon-tax scenarios show that a $20 carbon tax can reduce emissions in Pakistan by 36 percent by 2050. Gross domestic product impacts could also be positive, if the revenues from the carbon tax were used to reduce reliance on heavily distorting taxes. The model also quantifies associated co-benefits from reduced local air pollution and better health and productivity outcomes. In the absence of action to restrain climate change, the model suggests that increased temperatures and rain variability could reduce output by as much as 10 percent compared with a scenario where global temperature rises were minimized.
energy carbon tax trade and investment integrated assessment models chronic obstructive pulmonary disease price elasticity of demand input-output table economics of climate change constant elasticity of substitution disability adjusted life years natural rate of unemployment access to financial service purchase of goods and services effect of climate change disaster risk reduction strategies vulnerability to climate change climate co-benefits marginal product of capital cost of climate change threat of climate change business as usual scenario long-run growth generation capacity expansion marginal product of labor agricultural research and extension water use in agriculture impact of climate change on agriculture benefit of climate change economic costs of climate change share of health expenditure tax on corporate income average productivity of capital interest rate on government debt interest on government debt effect of tax policy relationship between income tax rate

Authors

Burns,Andrew, Jooste,Charl, Schwerhoff,Gregor

Disclosure Date
2021/09/23
Disclosure Status
Disclosed
Doc Name
Climate Modeling for Macroeconomic Policy : A Case Study for Pakistan
Originating Unit
EFI-MTI-Global Macro and Debt (EMFMD)
Published in
United States of America
Series Name
Policy Research working paper; no. WPS 9780;
Total Volume(s)
1
Unit Owning
Off of Sr VP Dev Econ/Chief Econ (DECVP)
Version Type
Final
Volume No
1

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