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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
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    References listed on IDEAS

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    Cited by:

    1. Frankovic, Ivan & Kolb, Benedikt, 2024. "The role of emission disclosure for the low-carbon transition," European Economic Review, Elsevier, vol. 167(C).
    2. Patricia Sánchez Juanino, 2024. "Climate and Green Transition Policies," National Institute of Economic and Social Research (NIESR) General Election Briefings, National Institute of Economic and Social Research, issue 5, June.
    3. Coenen, Günter & Lozej, Matija & Priftis, Romanos, 2024. "Macroeconomic effects of carbon transition policies: An assessment based on the ECB’s New Area-Wide Model with a disaggregated energy sector," European Economic Review, Elsevier, vol. 167(C).
    4. Marcos Valli Jorge & Angelo M Fasolo & Silvio Michael de Azevedo Costa, 2024. "Mitigating Policies for Pollutant Emissions in a DSGE for the Brazilian Economy," Working Papers Series 591, Central Bank of Brazil, Research Department.
    5. Anaya Longaric, Pablo & Di Nino, Virginia & Kostakis, Vasileios, 2025. "The effects of the Emissions Trading System on European investment in the short run," Economic Bulletin Boxes, European Central Bank, vol. 8.
    6. 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.
    7. Till Köveker & Fernanda Ballesteros & Franziska Klaucke & Antonia Kurz & Karsten Neuhoff & Paula Niemöller & Sangeeth Selvaraju, 2025. "Industry Transition to Climate Neutrality: Comparing Policy Approaches in Times of Geopolitical Fragmentation," Discussion Papers of DIW Berlin 2114, DIW Berlin, German Institute for Economic Research.
    8. Ferdinandusse, Marien & Kuik, Friderike & Priftis, Romanos, 2024. "Assessing the macroeconomic effects of climate change transition policies," Economic Bulletin Boxes, European Central Bank, vol. 1.
    9. Tom Krebs, 2024. "Transformative Investitionen als Treiber eines neuen Wirtschaftsbooms?," Working Papers 1, Forum New Economy.
    10. Nickel, Christiane & Kilponen, Juha & Moral-Benito, Enrique & Koester, Gerrit & Ciccarelli, Matteo & Enders, Almira & Holton, Sarah & Landau, Bettina & Venditti, Fabrizio & Bobeica, Elena & Brand, Cla, 2025. "A strategic view on the economic and inflation environment in the euro area," Occasional Paper Series 371, European Central Bank.
    11. Yannis Dafermos & Andrew McConnel & Maria Nikolaidi & Servaas Storm & Boyan Yanovski, 2024. "Macroeconomic modeling in the Anthropocene: why the E-DSGE framework is not fit for purpose and what to do about it," Working Papers Series inetwp229, Institute for New Economic Thinking.
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    More about this item

    Keywords

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    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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