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The Effect of Foregone Productivity Improvements in the Estimation of Macroeconomic Impacts of Greenhouse Gas Mitigation Investment

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This paper explains an important refinement of the methodology to estimate the macroeconomic impacts of greenhouse gas (GHG) mitigation options of Climate Action Plans (CAPS). This is the measurement of foregone productivity improvements of displaced investment in ordinary plant and equipment, an aspect that has been omitted from nearly all assessments thus far. We devise our methodology in the context of the Regional Economic Models, Inc. (REMI) Policy Insight Plus (PI+) Model, which has been used to estimate macroeconomic impacts of CAPs in many U. S. states. We then apply the model to examine the implications of foregone productivity improvements of displaced investment using a major example of a GHG mitigation option. Our results indicate that including the foregone productivity effect can greatly reduce the estimated gains in terms of both Gross State Product (GSP) and employment impacts of the GHG mitigation option. The results in terms of impacts per dollar displaced are robust to major changes in assumptions regarding the extent of investment displacement.
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Document Type: Research Article

Publication date: 01 December 2017

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