Economic costs of aggressive climate policy

Whether aggressive climate policy is warranted crucially depends on the economic costs of emission cuts. Different from previous studies, this study estimates the economic costs of emission costs with a reduced-form approach. The major advantages of this approach are its simplicity and less assumption dependence. Based on the study’s parameter estimates, it is found that a 25% aggressive reduction in CO₂ emissions from 1990 levels will lead to a 3.69% decrease in the combined GDP of developed OECD countries. Although the cost is significant, in relation to the benefits of such policy, this study’s finding still suggests that nations should implement more aggressive climate policy.