Research Group Economics of Climate and Environmental Change

A climate neutral transformation of the economy and society requires a decoupling of socio-economic development from anthropogenic forcing of climate change. There are manifold barriers and enablers to decoupling: (i) rebound effects, as efficiency gains enhance demand, (ii) non-linear costs of abatement rendering the ‘last x% of abatement’ very costly, (iii) correlation between fast growing sectors and pollution, (iv) regional shifts of production and consumption (carbon leakage), (v) issues of social-political feasibility, (vi) low effectiveness of established policies, e.g. due to non-compliance as a consequence of policy design. Enablers cover innovation (e.g. technological progress), integration (e.g. organizational and structural changes such as concepts of circular economy) as well as inversion (e.g. reflection on needs and respective behavioural and societal responses). We explore strategies to overcome these barriers and strengthen respective enablers for a climate neutral transformation, with the following more specific questions:

• Which climate neutral transformation pathways are plausible and how can they manifest at the (sub)national and sectoral level? How can a national greenhouse gas budget be meaningfully allocated across geographical (provinces, municipalities) or sectoral, possibly even firm scales? How can it inform climate policy in target setting and in monitoring?
• What are the socio-economic effects of climate neutral transformation pathways considering objective and subjective dimensions of human wellbeing? Which distributional effects follow from strategies for climate neutrality, including inter-, intra-generational (e.g. urban/rural, North/South) and other relevant justice dimensions?
• How do different policy instruments interact in terms of policy type, sectoral coverage, and policy targets? How can policies be combined to address these interactions and manage trade-offs?
• Which circular economy concepts and demonstration cases show particular potential to contribute to climate neutrality? Which policy frameworks and instrument settings foster such circular economy advancements, and which socio-economic and environmental implications arise?

Many climate and weather-related hazards, such as heat, flooding or drought, affect a number of economic sectors as well as private and public households simultaneously. The resulting climate risks spread via supply chain dependencies, transport and trade networks also to sectors that are not directly dependent on climatic and weather conditions. Similarly, adaptation measures in one sector can increase risks in other sectors, for instance when relying on scarce resources such as water and energy, but can also reduce risks in other sectors. RTEC#2 therefore investigates indirect, cascading and systemic risks, as well as the synergies and tradeoffs of adaptation, from a macroeconomic and multi-sectoral perspective. The specific research questions are:

• How do the socio-economic consequences of multiple climate risks interact, particularly considering the water-energy-land use nexus?
• How does socio-economic change reduce or amplify risk consequences, when considering demographic, economic and land use change?
• Which synergies and trade-offs arise from the implementation of adaptation options, also in relation to SDGs? What are potential distributional and equity issues coming along with adaptation?
• What are the consequences of hard and soft limits to adaptation, both from a bio-physical but also an economic perspective, particularly in high-end climate change scenarios?

Today, economies and their agents are organized in complex networks through trade relationships and different types of social interaction. The local impact of climate and environmental change and policy can be transmitted through these networks. Moreover, the subsequent risk and the governance of dealing with these risks exhibits geographic and societal heterogeneity. Exploring these heterogeneous relationships from a local to a global level is key in assessing the societal impact of climate and environmental change and for understanding behavioral and societal responses in the context of sustainable development.

• How do climate- and environmental policies affect (sub-)national economic development, competitiveness, and international trade? How do these policies lead to heterogeneous economic impacts within and across economies? Which social and institutional factors amplify or dampen these impacts?
• How strongly do climate risks affect regional development over time and space? Which socio-economic consequences and developments arise due to climate risks, both within urban and rural settlements?
• To what extent are local climate risks transmitted across regions over different socio-economic channels, such as supply chains and location choice of firms and people?
• How can adaptation reduce transnational climate risks? Which economic incentive structures are needed to ensure that risks are reduced globally and not only shifted to other regions/countries?
• How does a climate-resilient and climate-neutral transformation influence the use of natural resources globally, and how does this affect economic activity and wellbeing at the (sub)national level?