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Environmental Subsidies to Mitigate Transition risk

Author

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  • Eric Jondeau
  • Grégory Levieuge
  • Jean-Guillaume Sahuc

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Gauthier Vermandel

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.

Suggested Citation

  • Eric Jondeau & Grégory Levieuge & Jean-Guillaume Sahuc & Gauthier Vermandel, 2022. "Environmental Subsidies to Mitigate Transition risk," Working Papers hal-04159804, HAL.
    • Handle: RePEc:hal:wpaper:hal-04159804
    Note: View the original document on HAL open archive server: https://hal.science/hal-04159804
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    2. Alan Finkelstein Shapiro & Victoria Nuguer, 2024. "Climate policies, labour markets and macroeconomic outcomes in emerging economies," BIS Working Papers 1204, Bank for International Settlements.

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    More about this item

    Keywords

    Climate change; E-DSGE model; Bayesian estimation; stochastic growth; endogenous market structure; environment-related products;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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