This paper presents an integrated model of urban agglomeration economies within a computable general equilibrium (CGE) model of global economic activity, energy use and carbon emissions to explore the theoretical and empirical nature of the interdependence of cities and the world economy in a climate policy context. Based on calibration data for 74 major OECD agglomerations, the integrated model is used to gauge the long-term impact of: i) global carbon pricing on urban systems and the economic activity; ii) urban infrastructure development on the economic costs of curbing carbon emissions. Importantly, it is found that combining urban infrastructure and carbon pricing allows for stringent emissions reduction targets, while still avoiding the economic and welfare costs of the carbon price only.
Suggested citation: Grazi, F., Waisman H., (2015), ‘Agglomeration, Urban Growth and Infrastructure in Global Climate Policy: A Dynamic CGE Approach’, Nota di Lavoro 61.2015, Milan, Italy: Fondazione Eni Enrico Mattei.