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Transitioning to Net-Zero: Macroeconomic Implications and Welfare Assessment

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  • J. Andrés
  • J.E. Boscá
  • R. Doménech
  • J. Ferri

Abstract

We assess the macroeconomic and welfare implications of carbon mitigation strategies using an environmental Dynamic General Equilibrium model. The economy uses energy from both green renewable technologies and fossil fuels. We set an emission reduction target in line with the Paris Agreement and analyze the welfare and macroeconomic impacts of various strategies, including (1) raising the domestic price of fossil fuels, (2) implementing a subsidy on green investment funded through lump-sum taxes, (3) imposing taxes on emissions with rebates to households, and (4) utilizing emission taxes to support green investment. Our model provides a framework for evaluating the welfare consequences of various carbon mitigation strategies, emphasizing the need to balance the short and long-term effects of incentives for investment and innovation in green technologies, as well as taxes and other policies designed to reduce carbon emissions.

Suggested Citation

  • J. Andrés & J.E. Boscá & R. Doménech & J. Ferri, 2024. "Transitioning to Net-Zero: Macroeconomic Implications and Welfare Assessment," Studies on the Spanish Economy eee2024-01, FEDEA.
    • Handle: RePEc:fda:fdaeee:eee2024-01
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