Systems-dynamic analysis of employment and inequality impacts of low-carbon investments

- We present a macroeconomic simulation model which investigates energy transition.
- We analyse three investment strategies to promote a low carbon economy.
- We found a number of trade-offs between environmental and socioeconomic indicators.
- Uncertainty on decoupling leads to opt for the development of renewable energy.

This paper provides a macroeconomic framework to evaluate the social and economic consequences generated by a shift of investment to low-carbon options. We introduce into a standard growth framework a modified Lotka-Volterra model for wage and employment determination to address both the long-run dynamics of the economic system in terms of carbon emission and GDP growth and the short-term macroeconomic fluctuations in terms of unemployment and inequality. We use this framework to compare the results of different combinations of three strategies for carbon emissions reductions: improvement in energy efficiency, expansion of the renewable energy sector, and the direct reduction in carbon emissions. We show that the shift to low-carbon investment required to achieve the targeted reductions increases employment and the labour share but slows down GDP growth and wages.