The Macroeconomic Implications of a Transition to Zero Net Emissions : A Modeling Framework

Analyzing the macroeconomic consequences of a transition to a net-zero economy createsspecific modeling challenges, including those related to the non-marginal nature of the required transformation, the roleof technologies, and the replacement of fossil fuel-based assets with greener ones. To address these challenges, thispaper proposes a hybrid modeling approach that starts from a set of sectoral techno-economic scenarios to construct anillustrative resilient and net-zero decarbonization trajectory. It then assesses the macroeconomic implicationsby linking sectoral dynamics to two macroeconomic frameworks: a multisector general equilibrium framework andan aggregate macrostructural model. This approach combinesthe advantages of multiple tools and captures the various dimensions of the transition, including the need to tacklesimultaneously multiple market failures beyond the carbon externality. The paper illustrates this methodology withTürkiye’s objective to reach net zero emissions by 2053. The multisector general equilibrium framework suggests that thetransition could contribute positively to Türkiye’s economic growth despite the large investment needs, especially whenindirect mitigation benefits are taken into account and if labor market frictions can be reduced. Improved energyefficiency in the transportation and building sectors drives the growth benefits in the short and medium terms. Thegrowth benefits depend on how transition investments are financed: if they crowd out other productive investments,the benefits are significantly reduced and can even become slightly negative in the long term. The macrostructuralmodel focuses on implications for public debt and the current account, using two extreme scenarios in whichadditional investments are triggered by higher productivity or a set of budget-neutral incentives (taxes and subsidies).The model concludes that the transition would have moderate impacts on the current account and public debt. Withbudget-neutral incentives, there is a small increase in gross domestic product (GDP) growth, the debt-to-GDP ratioincreases by 1 to 3 percent, and the current account remains unchanged thanks to the reduction in fuel imports.