The risks of the wrong climate policy for developing countries: Scenarios for South Africa

In this paper, a demand-driven growth model is used to explore climate change scenarios faced by the South African economy. The focus is on key macroeconomic variables including employment, productivity, income distribution, trade, and fiscal balances. Results show that emission reduction alone will not put South Africa on a sustainable and equitable growth path. Expansionary macroeconomic policies are necessary. We show that, under sufficient global mitigation, expansionary fiscal and monetary policies lead to faster output and productivity growth, higher employment, and lower inequality. By contrast, macroeconomic tightening or "free riding" on global emission reduction lead to inferior outcomes, putting sustainable development out of reach.