Before revision: Conventional economic analyses of stringent climate change mitigation have generally concluded that economic austerity would result from carbon austerity. These analyses however rely critically on the assumption of an economic equilibrium, which dismisses established notions on behavioural heterogeneity, path dependence and technology transitions. Here we show that on the contrary, the decarbonisation of the electricity sector globally can lead to improvements in economic performance. By modelling the process of innovation-diffusion and  non-equilibrium dynamics, we establish how climate policy instruments for emissions reductions alter economic activity through energy prices, government spending, enhanced investment and tax revenues.
After revision: Conventional economic analyses of stringent climate change mitigation policy generally concludes various levels of economic slowdown as a result of substantial spending on low carbon technology. Equilibrium economics however could not explain or predict the current economic crisis, which is of financial nature. Meanwhile the economic impacts of climate policy find their source through investments for the diffusion of environmental innovations, in parts a financial problem. Here, we expose how results of economic analysis of climate change mitigation policy depend entirely on assumptions and theory concerning the finance of the diffusion of innovations, and non-equilibrium dynamics, we establish how climate policy instruments for emissions reductions alter economic activity through energy prices, government spending, enhanced investment and tax revenues.