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E-QUEST – A Multi-Region Sectoral Dynamic General Equilibrium Model with Energy Model Description and Applications to Reach the EU Climate Targets

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  • Janos Varga
  • Werner Roeger
  • Jan in ’t Veld

Abstract

This paper describes a micro-founded, fully forward-looking dynamic general equilibrium (DGE) model with energy sectors that is used to analyse the macroeconomic impact of climate mitigation policy in the European Union (EU). The paper presents simulation results for the transitional costs of moving towards a net zero emissions economy. It does not attempt to assess the effects on growth of the green investments envisaged in the framework of the European Green Deal or the Recovery and Resilience Facility. Our model allows for substitutability between fossil fuels and clean energy inputs and considers different recycling options for the revenues collected by carbon taxes. We find that the costs of moving towards a net zero emissions economy can be significantly reduced when carbon taxes are used and are recycled to reduce other distortive taxes, or for subsidising clean energy.

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  • Janos Varga & Werner Roeger & Jan in ’t Veld, 2021. "E-QUEST – A Multi-Region Sectoral Dynamic General Equilibrium Model with Energy Model Description and Applications to Reach the EU Climate Targets," European Economy - Discussion Papers 146, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:146
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    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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