The Economics of the Net Zero Transition: Policy Scenarios and the Role of Trade and Cooperation
Achieving net zero industrial carbon emissions by 2050 is a key milestone aligned with the Paris Agreement. Over 100 countries have adopted or are developing net zero strategies. To evaluate the economic implications, we apply a general equilibrium Global Trade-Environment Model to simulate the implications of five decarbonization and trade policy scenarios over the 2025-2050 period. The projections indicate large shifts in investment, energy mix, industrial structure, trade, employment, and other macroeconomic indicators. The results suggest that managing the structural transformations involved—rather than the magnitude of aggregate investment costs or output losses—defines the primary challenge of decarbonization. GDP losses from implementing the Net Zero scenario are modest compared to those expected from unmitigated climate change. However, the successful implementation of Net Zero will require unusually effective international cooperation and political management. Some trade policy strategies can advance climate and economic objectives simultaneously, but most solutions involve tradeoffs. These underscore the critical role of regional and global institutions in fostering cooperation, providing analytical support, and mobilizing international finance to leverage national efforts.