5. Modelling (CPAT)
Finance ministries decide on carbon taxes, fuel subsidy reform and climate investment with the help of models they cannot inspect. This section is the paper-length companion to the CPAT-AI project, which rebuilt the Climate Policy Assessment Tool so that every step can be read and tested. It states the mitigation module’s method in fourteen equations; describes the two AI-assisted rebuilds and the legacy bugs they found (231 in the register, 24 of them high priority); gathers the published validation, which supports the model for ranges and policy comparisons but not point forecasts; and checks the price elasticities that drive every result, finding most defaults within the published range and the timing of the response the larger problem. The through-line is that a model a ministry can use must be small enough to state on a few pages, built at least twice, and tested against data and other models. The extensions ministries ask for are written as modular upgrades in section 6.
Section overview (pdf) → · Series slides (pdf) →
5.1 The CPAT Mitigation Module: Methods in Brief
How a Finance-Ministry Climate Model Turns Prices into Fuel Use, Power Investment, Emissions and Revenue
Finance ministries use the Climate Policy Assessment Tool, built by the World Bank and the IMF, to estimate what carbon taxes and fuel subsidy reform would raise, cost and cut. Its mitigation module is simple, but its documentation runs to 57,000 words and its 2023 edition contains twenty errors. A rebuild of the model states the whole method in fourteen equations. This brief explains what the model does, why a carbon price bites on coal far more than on road fuel, why power-sector results rest on two judgment calls, and how ministries and the teams who serve them should read and improve the results.
Policy brief → · Working paper → · Slides (pdf) → · Policy brief (pdf) → · Working paper (pdf) →
5.2 CPAT-AI: Rebuilding a Policy Model as a Transparent, Testable Tool
What two AI-assisted rebuilds of the Climate Policy Assessment Tool found, and how policy models should be maintained
Finance ministries use the Climate Policy Assessment Tool, a large spreadsheet built by the IMF and the World Bank, to judge carbon taxes and fuel subsidy reforms. Nobody had checked all of it. In October 2026 it was rebuilt twice, as a readable workbook and as a Python model, mostly by AI coding agents, under one rule: fix bugs, copy and log deliberate choices. The rebuild found 228 bugs, 24 serious enough to change standard results; the second rebuild found seven bugs in the first. Ministries should require shared variable codes, one register of known problems, a second implementation, and a named owner of every judgment.
Policy brief → · Working paper → · Slides (pdf) → · Policy brief (pdf) → · Working paper (pdf) →
5.3 Validating CPAT: Baselines, Back-Casts and Model Comparisons
What the published checks of the Climate Policy Assessment Tool show, where it fits and where it does not
Finance ministries use the Climate Policy Assessment Tool (CPAT) to estimate what a carbon tax does to emissions and revenue. This brief sets out what the tool’s published checks show. CPAT fits its base year by construction, follows the trend of emissions in back-casts for large economies, and agrees in order of magnitude with other energy models and with the wide range of evidence on real carbon prices. Its results move most with its price elasticities: a G20 emissions cut of 29 percent can be anywhere from 7 to 39 percent. Ministries should read CPAT results as ranges, use them to compare policies, and ask for the checks to be rerun on the corrected model.
Policy brief → · Working paper → · Slides (pdf) → · Policy brief (pdf) → · Working paper (pdf) →
5.4 Are CPAT’s Price Elasticities Right?
A Check Against the Evidence
The Climate Policy Assessment Tool, which the IMF and the World Bank use to estimate what carbon taxes and fuel subsidy reforms do, turns price changes into emission cuts through price elasticities. This brief reports a check of its defaults against the published evidence. Most are consistent, and many are cautious. Two are too high, and road gasoline is twice the estimate corrected for publication bias. The bigger problem is timing: the tool applies the full long-run response in the first year, so it overstates five-year cuts by about half and understates early revenue. Users should read near-term results as upper bounds and show a low-elasticity case.
Policy brief → · Working paper → · Slides (pdf) → · Policy brief (pdf) → · Working paper (pdf) →
5.5 Carbon Prices Cut Emissions
Evidence from Ten Natural Experiments in Fuel Taxes, Carbon Pricing and Subsidy Reform
Finance ministries weighing a carbon tax need to know what it will do to emissions, and most of the numbers they are given come from models. This paper collects ten natural experiments in which a carbon tax, a fuel tax rise, an emissions trading price, a subsidy cut or a market shock raised fuel prices, and in which researchers later measured emissions or fuel use against a credible counterfactual. For each case it reports the fuels and sectors covered, how far the measure raised retail prices over time, the carbon price or its equivalent in dollars per tonne of carbon dioxide, and the estimated cut. Every case shows a cut. In road transport and home heating, prices of 20 to 125 dollars a tonne cut emissions from the covered fuels by roughly 5 to 15 percent over five to fifteen years, about 1 to 2 percent for each 10 dollars. Where power plants could switch from coal to gas, the cut per dollar was five to ten times larger: Britain’s carbon price floor cut power-sector emissions by about a fifth a year. Taxes moved demand more than equal market price changes, and exemptions and offsetting tax cuts weakened the effect. Models used for policy advice should be tested against these cases.