Green energy transition and vulnerability to external shocks

Ruben Dominguez-Diaz and Samuel Hurtado

No 2425, Working Papers from Banco de España

Abstract: We use an endogenous growth model calibrated to the Spanish economy to evaluate the effects of a rapid doubling of international prices of brown energy inputs. In the baseline calibration of the model, which resembles the current state of the Spanish economy, this results in a 0.30% drop in GDP on impact. After increasing the share of renewables in the energy mix from 26% to 85%, in line with the 2050 targets for the Spanish economy, the same shock results in a 0.24% fall in GDP on impact, and the recovery is faster: the present discounted value of the full GDP response is reduced by 65%. The three main conclusions that we draw from this exercise are: i) an increase in the share of renewables makes the economy less vulnerable to shocks in international prices of brown energy inputs; ii) this vulnerability reduction is less than proportional: dividing the share of brown energy by approximately five only reduceds the size of the effects on GDP by between 21% and 65%; and iii) the main statistic that determines how much the vulnerability is reduced is not the share of brown energy inputs, but the degree to which final energy prices respond to the shock to brown energy prices.

Keywords: energy prices; green transition; external shocks; carbon tax (search for similar items in EconPapers)
JEL-codes: E32 O38 O44 O52 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2024-08
New Economics Papers: this item is included in nep-dge, nep-eec, nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2425

DOI: 10.53479/37354

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