Editing IPCC:AR6/WGII/Chapter-18 (section)

===== 18.4.2.2.1 Economics =====

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System transitions towards CRD is contingent on reducing the costs of current climate variability on society while making investments that prepare for the future effects of climate change. Climate change and responses to climate change will affect many different economic sectors both directly and indirectly ( [[#Stern--2007|Stern, 2007]] ; [[#IPCC--2014a|IPCC, 2014a]] ; [[#Hilmi--2017|Hilmi et al., 2017]] ). As a consequence, the characteristics of economic systems will play an important role in determining their resilience ( ''very high confidence'' ). These effects will occur within the context of other developments, such as a growing world population, which increases environmental pressures and pollution. This impact is higher for developing countries than for high-income countries ( [[#Liobikienė--2018|Liobikienė and Butkus, 2018]] ). While looking for sustainable climate-resilient policies, many complex and interconnected systems, including economic development, must be considered in the face of global-scale changes ( [[#Hilmi--2010|Hilmi and Safa, 2010]] ).

[[#Miller--2017|Miller (2017)]] discusses some of the planning for, and application of, adaptation measures that improve sustainability, noting the importance of considering a range of factors including complexities of interconnected systems, the inherent uncertainties associated with projections of climate change impacts and the effects of global-scale changes such as technological and economic development for decision makers. For example, addressing climate impacts in isolation is unlikely to achieve equitable, efficient or effective adaptation outcomes ( ''very high confidence'' ). Instead, integrating climate resilience into growth and development planning allows decision makers to identify what sustainable development policies can support climate-resilient growth and poverty reduction and understand better how patterns and trends of economic development affect vulnerability and exposure to climate impacts across sectors and populations, including distributional effects ( [[#Doczi--2015|Doczi, 2015]] ). [[#Markkanen--2019|Markkanen and Anger-Kraavi (2019)]] highlighted that climate change mitigation policy can influence inequality both positively and negatively. Although higher levels of poverty, corruption, and economic and social inequalities can increase the risk of negative outcomes, these potential negative effects would be mitigated if inequality impacts were taken into consideration in all stages of policy making ( ''very high confidence'' ).

The primary objective of economic and financial incentives around carbon emissions is to redirect investment from high to low carbon technologies ( [[#Komendantova--2016|Komendantova et al., 2016]] ). Recent years have seen policy interventions to incentivise transitions in energy, land and industrial systems to address climate change and sustainability focus on price-based, as opposed to quantity based, interventions. Price-based interventions aim at leveraging market mechanisms to achieve greater efficiency in the allocation of resources and costs of mitigating climate change. For example, carbon pricing initiatives around the world today cover approximately 8 gigatons of carbon dioxide emissions, equivalent to about 20% of global fossil energy fuel emissions and 15% of total carbon dioxide GHG emissions ( [[#Boyce--2018|Boyce, 2018]] ). Meanwhile, environmental taxes and green public procurement push producers to eliminate the negative environmental effects of production (Danilina and Trionfetti, 2019). There are several advantages for environmental taxation including environmental effectiveness, economic efficiency, the ability to raise public revenue, and transparency ( ''very high confidence'' ). These gains can provide more resource-efficient production technologies and positively affect economic competitiveness ( [[#Costantini--2018|Costantini et al., 2018]] ).

Policies encouraging eco-innovation, defined as ‘ ''new ideas, behaviour, products, and processes that contribute to a decreased environmental burden'' ’ ( [[#Yurdakul--2020|Yurdakul and Kazan, 2020]] ), can positively affect economic competitiveness. By implementing policies to encourage eco-innovation, countries enhance their energy efficiency. These gains can provide more resource-efficient production technologies and positively affect economic competitiveness ( ''very high confidence'' ) ( [[#Costantini--2018|Costantini et al., 2018]] ; [[#Liobikienė--2018|Liobikienė and Butkus, 2018]] ). Other than eco-innovation, it is important to also consider exnovation, meaning the phasing out of old technologies, as otherwise the expansion of supply could lead to a rebound owing to cheaper prices for carbon-based products (Arne [[#Heyen--2017|Heyen et al., 2017]] ; [[#David--2017|David, 2017]] ). Hence, decarbonisation strategies that set limits to carbon-based trajectories can be beneficial. Quantity-based interventions—or so-called ‘command-and-control’ policies—involve constraints on the quantity of energy consumption or GHG emissions through laws, regulations, standards and enforcement, with a focus on effectiveness rather than efficiency.

For a transition from dirty (more advanced) technologies to clean (less advanced) ones, market-based instruments such as carbon taxes should be considered alongside subsidies and other incentives that stimulate innovation ( [[#Acemoglu--2016|Acemoglu et al., 2016]] ). Research and development in energy technologies, for example, can help reduce costs of deployment and therefore the costs of operating in a carbon-constrained world. [[#Hémous--2016|Hémous (2016)]] indicates that a unilateral environmental policy which includes both clean research subsidies and trade tax can ensure sustainable growth, but unilateral carbon taxes alone might increase innovation in polluting sectors and would not generally lead to sustainable growth.

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