Environmental Subsidies to Mitigate Transition Risk

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

No 22-45, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We explore the role of public subsidies in mitigating the transition risk associated with a climate-neutral objective by 2060. We develop and estimate an environmental dynamic stochastic general equilibrium model for the world economy featuring an endogenous market structure for green products. We show that public subsidies, financed by a carbon tax, are an efficient instrument to promote firm entry into the abatement goods 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%, will save nearly $2.9 trillion in GDP each year by 2060.

Keywords: Climate change; E-DSGE model; bayesian estimation; stochastic growth; endogenous firms; environment-related products (search for similar items in EconPapers)
JEL-codes: E32 H23 Q50 Q55 Q58 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2022-05
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env, nep-mac and nep-res
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Environmental Subsidies to Mitigate Transition risk (2022)
Working Paper: Environmental Subsidies to Mitigate Transition risk (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2245

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