First-mover advantages of the European Union’s climate change mitigation strategy

Article - August 6, 2016

This paper assesses the costs and benefits for the European Union (EU) as a first mover in climate change mitigation. Scenarios of EU and global climate action to 2050 are quantified using the GEME3-RD model, a global multi-sectoral computable general equilibrium model with endogenous technology progress and detailed representation of the clean energy technologies. The model includes two-factor learning curves (stock and research and development funding) for clean energy technologies, such as electric vehicles, carbon capture and storage, and renewable and efficient appliances. Funding of research and development is endogenously derived as a production factor enabling productivity improvement.

The scenarios compare stylised climate strategies, which are asymmetric by world region and have different emission reduction profiles over time. Assuming that strong climate mitigation action will be undertaken only after 2030, the scenarios compare two main strategies for the EU: pursuing strong emission reduction unilaterally until 2030 versus deferring action for the period after 2030. Asymmetric climate action by region enables asymmetric innovation and manufacturing of clean energy technologies. The macroeconomic assessment of the climate action strategies does not only depend on costs of clean technologies but also on induced technology progress implying asymmetric effects on manufacturing and trade by region, taking into account spillovers. The model-based projections show clear advantages for the EU as a first mover in climate change mitigation compared with a delaying of climate action until 2030. Delayed climate action until 2030 implies higher gross domestic product losses for the EU compared with unilateral action until 2030. The model finds benefits of early action by the EU driven by activity and progress related to clean energy technologies as the EU can achieve competitive advantages over other world regions pursuing climate action later. Copyright © 2016 John Wiley & Sons, Ltd.