Carbon emissions make the global economy tipsy: Harrison and Lagunoff study a "business-as-usual" scenario in a tipping model.

For better or worse, the global economy runs on carbon. Climate change resulting from dramatically increased fossil fuel combustion and carbon emissions over the last half century has alarmed scientists and policy experts alike. There is widespread agreement that without an effective international agreement to limit carbon emissions, the continuation of the current trend can have catastrophic consequences.

The absence of an international carbon agreement is often described as the "business-as-usual" (or "BAU") setting. New research by Rodrigo Harrison and GCER Fellow Roger Lagunoff considers such as scenario. They study the countries’ incentives to reduce their carbon emissions under BAU. While most economic studies of climate change examine the incentives of consumers and firms, Harrison and Lagunoff focus specifically on the strategic interaction among the largest players --- the countries themselves. Are outcomes under BAU sustainable or is economic collapse inevitable? What determines the transition, if any, from sustainability to collapse?

Departing from standard formulations, Harrison and Lagunoff consider a world in which a country's GDP depends on both its carbon usage and on how well it maintains the ecosystem. Each country therefore faces a tradeoff for purely nationalistic reasons between, on the one hand, extracting and emitting carbon, and on the other, maintaining a "stock" of stored or "unextracted" carbon required to preserve a healthy ecosystem. Countries naturally differ in how they evaluate this trade off, and even the same country can make different tradeoffs if circumstances change.

In a BAU environment, Harrison and Lagunoff lay out scenarios in which consumption and economic output may collapse and shrink if the carbon stock sustaining the ecosystem falls below some critical threshold --- a tipping point.

The results characterize threshold levels of carbon stocks that delineate the safe operating space for humanity --- a notion developed by climate scientists (see Rockstrom, et al. (2009)) --- from carbon stocks from which tipping occurs. In one unsettling result, Harrison and Lagunoff show that if a strong enough relationship exists between carbon extraction and economic output (as measured by the output elasticities of carbon extraction), a tipping point will certainly be breached. The silver lining is that even in this case, there remains a small window in which tipping may be averted if the countries can depart from BAU and sign on to an effective international treaty to limit emissions.

Reference: Rockstrom, J., W. Steffen, K. Noone, A. Persson, F. Chapin, E. Lambin, T. Lenton, M. Scheffer, C. Folke, H. Schellnhuber, B. Nykvist, C. de Wit, T. Hughes, S. van der Leeuw, H. Rodhe, S. Sorlin, P. Snyder, R. Costanza, U. Svedin, M. Falkenmark, L. Karlberg, R. Corell, V. Fabry, J. Hansen, B. Walker, D. Liverman, K. Richardson, P. Crutzen, and J. Foley ~ (2009), `` A Safe Operating Space for Humanity," Nature, 461: 472-75, DOI: 10.1038/461472a