Carbon pricing, border adjustment and renewable energy investment: a network approach

Mar Delgado-Téllez, Javier Quintana and Daniel Santabárbara
Additional contact information
Mar Delgado-Téllez: EUROPEAN CENTRAL BANK
Javier Quintana: BANCO DE ESPAÑA

No 2506, Working Papers from Banco de España

Abstract: An increase of €100 per tonne in the EU carbon price reduces the carbon footprint but lowers GDP due to higher energy costs and carbon leakage. Using a dynamic multi-sector, multi-country model augmented with an energy block that includes endogenous renewable energy investment, we analyze the macroeconomic and emissions effects of a carbon price. Investment in renewable energy mitigates electricity price increases in the medium term, leading to a smaller GDP loss (up to -0.4%) and a larger emissions reduction (24%) in the EU. Neglecting renewable energy investment overestimates the negative economic impact. We also find that a Carbon Border Adjustment Mechanism (CBAM) reduces carbon leakage but slightly hurts GDP and inflation as the competitive gain is offset by the higher costs of imported intermediate inputs.

Keywords: carbon pricing; renewable energy investment; carbon border adjustment; production networks (search for similar items in EconPapers)
JEL-codes: C6 H2 Q5 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2025-01
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-net
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https://www.bde.es/f/webbe/SES/Secciones/Publicaci ... 25/Files/dt2506e.pdf First version, January 2025 (application/pdf)

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Working Paper: Carbon pricing, border adjustment and renewable energy investment: a network approach (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2506

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