**Table 1. The required level of mitigation in non-long-lived-capital-stock-driven emissions to be on a stabilization path in 2030, assuming no mitigation at all in long-lived capital stock driven emissions**

(in percent adjustment relative to the baseline)

|Stabilization<br>target<br>(CO2-eq)|2030|2050|2100|
|---|---|---|---|
|445-490|>100%|>100%|>100%|
|535-590|73%|90%|>100%|
|590-710|55%|44%|>100%|

_Source: Authors’ calculation_ 14. The theoretical answer is a bit more complicated. Since the issue of increasing returns and path dependency started being discussed in the late 70s,<sup>17</sup> a large literature has emerged providing examples and debating the conditions under which path dependency is likely to be observed. In this literature it has been argued that while increasing returns or positive feedback (as is often observed in network externalities) can contribute to path dependency, it is not a necessary condition, and that any type of negative externality can create path dependency (Page 2006).<sup>18</sup> More importantly, the presence of path dependency does not necessarily mean that the path is economically inefficient. In a seminal work, Liebowitz and Margolis (1995) distinguish three different types of path dependency:

- Type 1: Past decisions affect future decisions. This suggests an intertemporal relationship<sup>19</sup> — i.e., the path is sensitive to initial conditions. This is relatively commonplace, and normal. This type of path dependency does not in itself suggest any inefficiency problem. There can be multiple equilibria, e.g., driving on the right hand or the left-hand of the road (Arthur, 1983), but no sub-optimality.

- Type 2: The chosen path proves to be inferior, but only _ex-post_ (based on counterfactuals or a change in circumstances). Since the regret factor emerges with hindsight, it does not imply an inefficiency emerging from poor decisions, because it could not have been avoided ex ante with available knowledge at the time the initial decisions were made.

- Type 3: The chosen path can be demonstrated to be inferior and avoidable with information available at the time the initial decisions were made. Liebowitz and Margolis identify this last case as the one that does in fact imply _an economic efficiency cost to path dependency_ , but then go on to argue that the necessary

> 17 See footnote nb.13.

> 18 Four related (but separate) causes have been associated with path dependence— increasing returns, self reinforcement, positive feedbacks, and lock-in. “Increasing returns means that the more a choice is made or an action is taken, the greater its benefits. Self reinforcement means that making a choice for taking inaction puts in place a set of forces or complementary institutions that encourage that choice to be sustained. With positive feedbacks, an action or choice creates positive externalities when that same choice is made by other people. Positive feedbacks create something like increasing returns, but mathematically, they differ. Increasing returns can be tought of as benefits that rise smoothly as more people make a particular choice [...] Finally, lock-in means that one choice or action becomes better than any other one, because a sufficient number of people have already made that choice.” (Page, 2006)

> 19 That is, the pair or sequence of events are not independent of each other.

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