Environmental Subsidies to Mitigate Net-Zero Transition Costs

Eric Jondeau, Grégory Levieuge, Jean-Guillaume Sahuc and Gauthier Vermandel

Working papers from Banque de France

Abstract: We explore the role of public subsidies in mitigating the transition costs associated with achieving a climate-neutral objective by 2060. To this end, we develop and estimate a quantitative macro-climate model for the world economy featuring an endogenous market structure for carbon abatement products. Public subsidies, fully financed by a carbon tax, are found to be an efficient instrument to promote firm entry into the abatement good sector by fostering competition and lowering the selling price of such products. We estimate that the subsidy, optimally distributed between startups at 60% and existing companies at 40%, would save nearly $2.9 trillion in world GDP each year by 2060. Finally, delaying the net-zero transition would require giving an even larger share to startups.

Keywords: Climate Change; Macro-Climate Model; Environmental Goods and Services Sector; Endogenous Market Structure; Stochastic Growth; Bayesian Estimation (search for similar items in EconPapers)
JEL-codes: E32 H23 Q50 Q55 Q58 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2023
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... ocuments/wp910_0.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:910

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().