The macroeconomic implications of the transition to a low-carbon economy

Claus Brand, Günter Coenen, John Hutchinson and Arthur Saint Guilhem

Economic Bulletin Articles, 2023, vol. 5

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

Keywords: carbon taxation; climate change; euro area; fiscal policy; macroeconomic modelling; monetary policy (search for similar items in EconPapers)
Date: 2023-08
Note: 92649
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbart:2023:0005:1

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