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Abstract

Interactions between climate and the socioeconomic system are investigated with a Multi-Actor Dynamic Integrated Assessment Model (MADIAM) obtained by coupling a nonlinear impulse response model of the climate sub-system (NICCS) to a multi-actor dynamic economic model (MADEM). The core of MADEM describes an economy driven by the opposing forces of business, striving to increase profits by investments in human and physical capital, and the erosion of profits through business competition, enhanced by labour wage pressure. The principal driver of economic growth is the increase in labour productivity (or human capital) generated by endogeneous technological change. In the presence of climate change, these basic interactions are modified by government taxes on CO2 emissions, which are recycled into the economy as various subsidies, by climate-related changes in consumer preferences, and by modified business investment decisions in response to these actions. The combined effect of the climate-response strategies of the different actors determines the form of the induced technological change that ultimately governs the evolution of the coupled climate-socioeconomic system. To clarify the individual roles of the actors, the model is set up in a systems-analytical way, with prescribed control algorithms for the different actors, rather than in the traditional single-actor cost/benefit optimization mode. In the reference dmoderate mitigationT scenario, business investments in energy and carbon efficiency, induced by government CO2 taxes, yield the largest contribution to emissions reduction. Direct government mitigation actions through carbon taxes are more effective with regard to both emission reductions and economic growth if a significant fraction of carbon taxes are recycled into investments in energy and carbon efficiency, i.e. into induced technological change. The influence of consumer preferences, often neglected in integrated assessment analyses, can also be effective in guiding business investments. The chosen examples are intended as illustrations rather than to provide quantitative predictions.