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Green energy transition and vulnerability to external shocks

Author

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  • Rubén Domínguez-Díaz

    (Banco de España)

  • Samuel Hurtado

    (Banco de España)

Abstract

We use an endogenous growth model calibrated to the Spanish economy to evaluate the effects of a rapid doubling of international prices of brown energy inputs. In the baseline calibration of the model, which resembles the current state of the Spanish economy, this results in a 0.30% drop in GDP on impact. After increasing the share of renewables in the energy mix from 26% to 85%, in line with the 2050 targets for the Spanish economy, the same shock results in a 0.24% fall in GDP on impact, and the recovery is faster: the present discounted value of the full GDP response is reduced by 65%. The three main conclusions that we draw from this exercise are: i) an increase in the share of renewables makes the economy less vulnerable to shocks in international prices of brown energy inputs; ii) this vulnerability reduction is less than proportional: dividing the share of brown energy by approximately five only reduceds the size of the effects on GDP by between 21% and 65%; and iii) the main statistic that determines how much the vulnerability is reduced is not the share of brown energy inputs, but the degree to which final energy prices respond to the shock to brown energy prices.

Suggested Citation

  • Rubén Domínguez-Díaz & Samuel Hurtado, 2024. "Green energy transition and vulnerability to external shocks," Working Papers 2425, Banco de España.
  • Handle: RePEc:bde:wpaper:2425
    DOI: https://doi.org/10.53479/37354
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    References listed on IDEAS

    as
    1. Raj Chetty & Adam Guren & Day Manoli & Andrea Weber, 2011. "Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins," American Economic Review, American Economic Association, vol. 101(3), pages 471-475, May.
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    More about this item

    Keywords

    energy prices; green transition; external shocks; carbon tax;
    All these keywords.

    JEL classification:

    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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