Carbon pricing and planetary boundaries

The study addresses whether increasing the global carbon price produces stabilizing or destabilizing spillovers on other Earth system processes (ESPs) within the planetary boundaries framework. While carbon pricing is typically justified by its climate benefits, the authors highlight the risk that policies aimed at one boundary can inadvertently worsen pressures on others through economic linkages (e.g., biofuel-driven land conversion and biodiversity impacts). They propose a stylized, empirically grounded framework that links key economic sectors to all planetary boundaries to explore these interactions. The purpose is to provide a transparent, high-level model to identify directions and magnitudes of cross-ESP impacts from carbon pricing and to assess whether complementary policies (e.g., biofuel subsidy reductions) can keep the system within a safe operating space. The importance lies in informing policy design under multiple planetary constraints, analogous to “parallel parking” among boundaries rather than addressing a single frontier in isolation.

Prior work largely examines policies’ effects on a single ESP or uses large-scale computational IAMs to simulate interactions for pairs of related ESPs (e.g., land-use/deforestation or climate/food security). Noted IAMs like DICE and IMAGE provide integrated analyses but often with complexity and transparency challenges. The literature also documents agriculture and fossil fuel sectors as dominant drivers of multiple planetary pressures, and warns that biofuel expansion can exacerbate land conversion and biodiversity loss. The present study differs by: (1) covering all planetary boundaries and most underlying drivers; (2) offering a transparent, stylized framework to qualitatively trace cross-ESP policy impacts, filling a gap on multi-boundary assessment of carbon pricing and complementary biofuel policies.

The authors develop a global economic policy analysis model linking key sectors to planetary boundaries via market interactions. Sectors include agriculture (producing food and biofuels), biofuels, timber, fertilizer production, phosphate extraction, water extraction, fisheries, industrial manufacturing, energy services, fossil fuel extraction, and non-biofuel renewables. These sectors account for over 90% of drivers behind most planetary pressures.

• Modeling approach: A competitive equilibrium framework with decentralized agents maximizing objectives under market-clearing conditions. The model emphasizes short-to-medium run comparative statics: it computes linearized responses of endogenous variables to small exogenous policy changes (e.g., a one percentage point increase in a carbon tax). Policies are exogenous; no explicit externalities are modeled. The approach enhances transparency and interpretability of parameters.
• Production structure: CES production functions for agriculture (nested CES between land and non-land inputs), energy services, fertilizer production, fisheries, timber, and manufacturing. Extractive and other sectors (phosphate, water, fossil fuels, renewables, and composite “other inputs”) are modeled with cost/extraction functions and price-elastic supplies. Inputs like labor/capital are captured via a composite “other inputs” factor with sector-specific supply elasticities.
• Key trade-offs: Allocation of fixed total land across agriculture, timber, and natural land; agricultural output split between food and biofuels; substitution/complementarity among inputs (e.g., strong complementarity between N and P in fertilizers; limited substitutability between land and non-land inputs in agriculture).
• Households: Utility over food (from agriculture and fisheries) and non-food (manufactured goods, natural land, timber), with higher substitutability within than across these bundles. Natural land enters preferences to represent conservation/recreation demand.
• Equilibrium: 41 endogenous prices/quantities pinned down by 41 equilibrium conditions (first-order conditions, budget constraints, production functions, and market-clearing for land, agricultural output allocation, fossil fuels across uses, and energy services across uses).
• Parameterization: 39 parameters comprising expenditure shares, quantity shares, and elasticities. Shares derived chiefly from the GTAP database; elasticities drawn from literature with ranges for sensitivity analysis (e.g., substitution elasticities across sectors and inputs, supply elasticities, conversion cost elasticities). Baseline values used for central simulations; min–max bounds define sensitivity cases.
• Policy experiments: (1) A marginal global carbon price increase implemented as a tax on fossil fuels (equivalent to pricing emissions via cap-and-trade); (2) a complementary reduction of biofuel subsidies (implemented as an increased biofuel tax) alongside the carbon tax. Effects are interpreted as percentage changes for a one percentage point tax change.
• Mapping to planetary pressures: Direct one-to-one mappings for freshwater use (W), natural land (Lu) for land-system change, phosphate (P), and nitrogen (proxied by fossil-fuel use in fertilizer production). Climate change and ocean acidification pressures proxied by net changes in CO2 emissions assigned across sectors using external inventories; aerosol loading proxied by changes in aerosol optical depth decomposed into fossil/biofuel combustion and biomass burning (linked to land-use change). Biodiversity pressures proxied by percent change in threats to species from IUCN Red List categories mapped to model activities (agriculture, logging/timber, fertilizer/pollution, fisheries, energy sectors, manufacturing). Ozone depletion and chemical pollution assessed qualitatively based on directional changes in contributing activities.
• Sensitivity analysis: Varies key uncertain parameters over literature-based ranges; computes min–max predicted changes to evaluate robustness and potential sign reversals.

• Carbon pricing alone (1 percentage point increase in global carbon tax):
  • CO2 emissions: −0.25% (≈ −0.11 GtCO2 yr−1); fossil-fuel emissions −0.36%.
  • Ocean acidification: improves in lockstep with CO2 (−0.25%).
  • Atmospheric aerosol loading (AOD): −0.014% (≈ −0.006 mAOD).
  • Biogeochemical flows: Nitrogen −0.13% (≈ −0.2 Tg N yr−1); Phosphorus −0.01% (≈ −0.9 Gg P yr−1).
  • Biodiversity: decrease in threats to endangered species (≈ −0.01% per Fig. 2; methods indicate −0.018%).
  • Land-system change: worsens slightly, natural land loss +0.5 Mha (≈ +0.01%).
  • Freshwater use: +0.009% (≈ +0.24 km3 yr−1).
  • Chemical pollution: decreases (qualitative). Stratospheric ozone depletion: ambiguous (direction undecided).
  • Sectoral shifts: fossil fuel extraction/use fall (−0.36%); renewables rise (+0.47%); energy services contract (~−0.32%); agricultural land share rises slightly (+0.012%); biofuel output increases (+0.717%), food output slightly declines (−0.032%).
• Carbon pricing plus reduction of biofuel subsidies (each by 1 percentage point):
  • CO2 emissions: −0.26% (≈ −0.12 GtCO2 yr−1); ocean acidification mirrors this.
  • Atmospheric aerosol loading: −0.014% (≈ −0.006 mAOD).
  • Biogeochemical flows: Nitrogen −0.18% (≈ −0.3 Tg N yr−1); Phosphorus −0.05% (≈ −7 Gg P yr−1).
  • Biodiversity: threats decline by ≈ −0.02%.
  • Land-system change: improves; natural forests increase by ≈ 1.5 Mha (−0.04% loss avoided).
  • Freshwater use: −0.036% (≈ −0.93 km3 yr−1).
  • Ozone depletion: decreases (qualitative). Chemical pollution: decreases (qualitative).
  • Mechanism: scaling back biofuel subsidies offsets carbon-price-induced biofuel expansion, reducing pressure on land, nutrients, and water while preserving the climate/ocean benefits.

The analysis demonstrates that a global carbon price reduces pressures not only on climate change and ocean acidification (direct channels) but also indirectly lowers aerosol loading and biogeochemical flows due to fossil energy’s role in nitrogen production and complementarity with phosphorus in fertilizers. However, carbon pricing can increase land and freshwater pressures via induced biofuel demand and substitution toward land-intensive agricultural inputs. Introducing a complementary policy that reduces biofuel subsidies alongside carbon pricing counters these adverse spillovers, yielding simultaneous reductions across all planetary pressures. The findings address the central question of multi-boundary policy coherence: carbon pricing is more compelling when viewed through a planetary boundaries lens, but careful policy design (e.g., managing biofuel incentives) is crucial to avoid shifting pressures from one boundary to another. The results underscore the importance of considering economic linkages and cross-ESP effects in environmental policy to maintain a safe operating space.

The paper contributes a transparent, empirically grounded comparative-statics framework linking key economic sectors to all planetary boundaries, enabling qualitative and semi-quantitative assessment of cross-ESP policy effects. It finds that carbon pricing alone reduces many planetary pressures but slightly worsens land and freshwater pressures via biofuels. Pairing carbon pricing with reduced biofuel subsidies alleviates all pressures simultaneously. This strengthens the case for carbon pricing in a multi-boundary world and highlights the value of coherent policy packages. Future research should extend the framework to incorporate dynamics, uncertainty, feedbacks from ESPs to the economy and welfare, richer regional/sectoral heterogeneity, and evaluation of broader policy instruments.

• No dynamic modeling: short-to-medium-term comparative statics (≈5–10 years) without technological change dynamics or intertemporal optimization.
• No feedbacks from planetary pressures to the economy or welfare; welfare consequences are not assessed.
• Global aggregation may mask regional constraints (e.g., water substitution limits in subsistence agriculture) and distributional effects.
• Linear approximation suitable for marginal policy changes; larger perturbations may deviate from linear responses.
• Parameter uncertainty: although sensitivity analysis is conducted, some elasticities and shares are imperfectly known.
• Biodiversity assessment uses threats as a proxy (IUCN Red List) rather than species loss rates; mapping of threats to sectors may conflate land-use change and production effects.
• Chemical pollution and ozone depletion are evaluated qualitatively only.
• The assumed current biofuel production technology competes with food/feed; results may differ with widespread second-generation biofuels or policy-driven technology shifts.
• A uniform global carbon price is a stylized policy; real-world implementation is heterogeneous.