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Fiscal tools to reduce transition costs of climate change mitigation

Michele Catalano (), Lorenzo Forni and Emilia Pezzolla
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Emilia Pezzolla: Prometeia

No 265, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: How much the transition out of greenhouse gas emissions will cost to the economy? Current available estimates differ widely. This reflects different methodologies and assumptions adopted by different studies, combined with the inherent uncertainty related to forecasting future greenhouse gas emissions and temperature increases. This paper takes a different approach. In addition to replicating business as usual scenarios, we assume as given widely-used mitigation scenarios for future carbon emissions (as the Paris agreement path for example), and then back out the combinations of fiscal tools (especially carbon price measures and tax incentives for green investments) that can minimize the transition costs. To this end the paper extends the work done in Catalano et al. [2019] by using a global overlapping generations model in the spirit of Kotlikoff et al. [2019] combined with a climate module. The results show that the estimated economic costs of the carbon transition vary significantly depending on the fiscal tools used to reduce greenhouse gas emissions. Due to adjustment costs in the production structure, the world economy would minimize the potential transition costs if sustained by debt financed investment policies.

Keywords: Climate; Global Warming; Government Policy; International Economics; Fiscal Policies and Behavior of Economic Agents (search for similar items in EconPapers)
JEL-codes: F0 H2 H3 Q54 Q58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2020-11
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-reg
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