Carbon tax sectoral (CATS) model: a sectoral model for energy transition stress test scenarios

Pablo Aguilar, Beatriz González and Samuel Hurtado

No 2218, Occasional Papers from Banco de España

Abstract: This paper presents a general equilibrium sectoral model designed to produce macroeconomic scenarios that incorporate transition risks associated with policies to curb climate change (but not physical risks associated with the long-term costs of climate change). The model is calibrated to the Spanish economy, and can simulate the impact of shocks to the price and coverage of greenhouse gas emission allowances, with particular attention to sectoral asymmetries arising from (i) the energy intensity of each industry, (ii) the source of that energy, and (iii) the interdependencies with other industries. We show that for an increase in the price of emission allowances similar to that observed in recent years (from approximately €25 per tonne of CO2 in 2019 to almost €100 per tonne in 2022) the model predicts a cumulative decline in Spanish GDP after three years of 0.37%. The loss in value added is very heterogeneous across industries, ranging from 4% in the most severely affected industries to virtually no impact in the least affected industries. In terms of the use of the model for stress testing, this heterogeneity points to potential risks for financial stability and the importance of the right diversification for banks to diminish their exposure to transition risks.

Keywords: climate change; stress test; input-output matrix (search for similar items in EconPapers)
JEL-codes: H30 Q48 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2022-09
New Economics Papers: this item is included in nep-ene, nep-env and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bde:opaper:2218

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