Strategic Energy Investments And Climate Policy In A Small Economy

Addressing climate change and advancing toward the European Union’s climate neutrality goal by 2050 requires innovative energy investments and policies. Addressing the dual challenges of climate change and economic sustainability, this study evaluates the macroeconomic and sectoral impacts of strategic energy investments. The analysis focuses on Slovenia, a small open economy within the European Union, comparing the Energy Transition (ET) scenario to business-as-usual (BAU) scenario. The ET scenario focuses on a diverse mix of renewables, advanced nuclear technologies, and energy efficiency measures. The study applies macroeconomic methodologies with a dataset calibrated to reflect the economy's structure in a base year (2019), capturing detailed interactions between sectors and economic agents. It assumes that all agents optimize their behavior within resource constraints. Results indicate significant reductions in carbon emissions, with a 35% decrease by 2030 and nearly 72% by 2040 compared to 2005 levels. Economic growth under the ET scenario is enhanced, with GDP projected to be 1.36% higher by 2050 and overall investments increasing by 3.9%. The transition drives substantial sectoral growth, notably in transport (13.1%) and construction (8.7%) by 2050, supported by expanded public transit and infrastructure investment. The importance of cross-sectoral strategies, such as workforce development and regulatory incentives, is highlighted to align infrastructure expansion with decarbonization goals. This analysis demonstrates how balanced green growth strategies can drive sustainable economic and environmental benefits, paving the way for a resilient energy future. The contribution of this work lies in demonstrating the critical role of quantitative models in assessing the broader economic impacts of energy and climate policies, offering valuable insights to policymakers, researchers, and stakeholders.