Environmental Subsidies to Mitigate Transition risk

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

No 2022-21, EconomiX Working Papers from University of Paris Nanterre, EconomiX

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 world GDP each year by 2060.

Keywords: Climate change; E-DSGE model; Bayesian estimation; stochastic growth; endogenous market structure; environment-related products (search for similar items in EconPapers)
JEL-codes: E32 H23 Q50 Q55 Q58 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2022
New Economics Papers: this item is included in nep-dge, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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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:drm:wpaper:2022-21

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