New research argues low carbon economy would deliver GDP boost

Far from being a drag on the global economy, complying with stringent emission reduction targets designed to limit global warming to two degrees above pre-industrial levels could in fact provide a boost to GDP.

That is the conclusion of a new economic model from researchers at the Cambridge Centre for Climate Change Mitigation Research, which predicts the transition to more efficient technologies will lead to net increases in global GDP.

Speaking at the Climate Congress in Copenhagen, Dr Terry Barker, who led the research, said that previous estimates that meeting the two degree target set out by the EU would lead to a contraction of GDP of between one and three per cent were based on a number of flawed assumptions.

"There is some evidence that harder greenhouse gas targets and regulation may actually increase benefits through improved innovation and distribution of low carbon technologies, and increased revenues from taxes or permits," he said. " These revenues can be spent to further support new technology and to lower other indirect taxes, ensuring the fiscal neutrality of these measures."

Barker said that previous models predicting the economy would contract as a result of carbon emission cuts were frequently based on the false assumption that the global economy is operating at full employment and lacks the capacity to make the transition to lower carbon business models.

He explained that the new Cambridge model had taken into account the reality of substantial unemployment within the global economy, and found that as a result the shift to a low carbon economy would deliver a net increase in GDP by creating jobs.

Under this model, the development of a low carbon economy would even become easier as a result of the current economic crisis as there will be more unemployed resources to draw upon.

Barker said the team had modelled the impact of the global economy shrinking 2.3 per cent this year and next, and found that it could mean that even greater GDP benefits are achieved by switching to low carbon technologies.

The Cambridge team's findings come as Lord Nicholas Stern today insisted that the argument the global recession meant the world could no longer afford to invest in low carbon technologies did not stack up.

He argued that the recession meant that the cost of low carbon investments had fallen, while the returns from those investments over the medium to long term remained the same, making them more attractive.