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The macroeconomic implications of the transition to a low-carbon economy

Author

Listed:
  • Brand, Claus
  • Coenen, Günter
  • Hutchinson, John
  • Saint Guilhem, Arthur

Abstract

This article presents a model-based assessment of the short to medium-term economic impact of carbon pricing aimed at mitigating climate change. It addresses the high level of uncertainty in gauging the effects of carbon price increases by employing a suite of macroeconomic models. Under the main scenario, the loss in euro area annual GDP growth is contained and the inflation impact is modest, implying a limited output/inflation trade-off for monetary policy. The scenario supports the transition to a low-carbon economy, but the implied reduction in carbon emissions makes only a limited contribution to achieving the EU’s intermediate emission reduction target for 2030. Accordingly, reaching the EU’s climate goals will require a mixture of ambitious carbon pricing, additional regulatory action and technological innovation. JEL Classification: C54, E52, E62, H23, Q43

Suggested Citation

  • Brand, Claus & Coenen, Günter & Hutchinson, John & Saint Guilhem, Arthur, 2023. "The macroeconomic implications of the transition to a low-carbon economy," Economic Bulletin Articles, European Central Bank, vol. 5.
    • Handle: RePEc:ecb:ecbart:2023:0005:1
    Note: 92649
    as

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    File URL: https://www.ecb.europa.eu//pub/economic-bulletin/articles/2023/html/ecb.ebart202305_01~a6ff071a65.en.html
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    References listed on IDEAS

    as
    1. McKibbin, Warwick J. & Wilcoxen, Peter J., 1998. "The theoretical and empirical structure of the G-Cubed model," Economic Modelling, Elsevier, vol. 16(1), pages 123-148, January.
    2. Hantzsche, Arno & Lopresto, Marta & Young, Garry, 2018. "Using NiGEM in uncertain times: Introduction and overview of NiGEM," National Institute Economic Review, National Institute of Economic and Social Research, vol. 244, pages 1-14, May.
    3. Coenen, Günter & Lozej, Matija & Priftis, Romanos, 2023. "Macroeconomic effects of carbon transition policies: an assessment based on the ECB’s New Area-Wide Model with a disaggregated energy sector," Working Paper Series 2819, European Central Bank.
    4. Ferdinandusse, Marien & Nerlich, Carolin & Téllez, Mar Delgado, 2022. "Fiscal policies to mitigate climate change in the euro area," Economic Bulletin Articles, European Central Bank, vol. 6.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Frankovic, Ivan & Kolb, Benedikt, 2023. "The role of emission disclosure for the low-carbon transition," Discussion Papers 33/2023, Deutsche Bundesbank.
    2. Darracq Pariès, Matthieu & Dées, Stéphane & De Gaye, Annabelle & Parisi, Laura & Sun, Yiqiao, 2023. "NGFS climate scenarios for the euro area: role of fiscal and monetary policy conduct," Occasional Paper Series 336, European Central Bank.
    3. Ferdinandusse, Marien & Kuik, Friderike & Priftis, Romanos, 2024. "Assessing the macroeconomic effects of climate change transition policies," Economic Bulletin Boxes, European Central Bank, vol. 1.
    4. Ciccarelli, Matteo & Darracq Pariès, Matthieu & Priftis, Romanos & Angelini, Elena & Bańbura, Marta & Bokan, Nikola & Fagan, Gabriel & Gumiel, José Emilio & Kornprobst, Antoine & Lalik, Magdalena & Mo, 2024. "ECB macroeconometric models for forecasting and policy analysis," Occasional Paper Series 344, European Central Bank.

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    More about this item

    Keywords

    carbon taxation; climate change; euro area; fiscal policy; macroeconomic modelling; monetary policy;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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