The Role of Sustainable Investment in Climate Policy

Reaching the Sustainable Development Goals requires a fundamental socio-economic
transformation accompanied by substantial investment in low-carbon infrastructure. Such a sustainability
transition represents a non-marginal change, driven by behavioral factors and systemic interactions.
However, typical economic models used to assess a sustainability transition focus on marginal changes
around a local optimum, which—by construction—lead to negative effects. Thus, these models do
not allow evaluating a sustainability transition that might have substantial positive effects. This paper
examines which mechanisms need to be included in a standard computable general equilibrium
model to overcome these limitations and to give a more comprehensive view of the effects of climate
change mitigation.

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