Global economic and environmental outcomes of the Paris Agreement

In this paper, we use a ten-region model of the world economy to analyze the economic and environmental outcomes that are likely to result from the Paris Climate Agreement. To construct our modeling scenario, we first convert the Agreement's disparate Nationally Determined Contribution (NDC) pledges into equivalent reductions in CO2 emissions relative to a baseline scenario without the Agreement. We then model the Agreement by solving for a CO2 price path in each region that would gradually fulfill the region's NDC pledge by its target date. The resulting paths are quite different across regions, indicating significant differences in marginal abatement costs. We also find that if all regions achieve their NDCs, the Agreement significantly reduces CO2 emissions relative to baseline. However, global emissions would not decline in absolute terms relative to 2015 levels, let alone follow a path consistent with a 2 °C stabilization scenario. We then construct additional scenarios to explore how the outcomes of the Agreement would change if particular countries (the United States, China, and Australia) were to unilaterally withdraw from it without undertaking alternative climate policies. We find that leaving the Agreement raises GDP for the country that leaves, but it also sharply reduces the domestic co-benefits the country receives as a side effect of controlling CO2. For each country we consider, the net effect of withdrawing is negative: the loss of co-benefits exceeds the gain in GDP. That is, we show that when co-benefits are considered, it is in each country's self-interest to remain in the Agreement.