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Macroeconomic implications of a transition to net zero emissions

Author

Listed:
  • Stephane Hallegatte

    (World Bank)

  • Florent McIsaac

    (World Bank)

  • Hasan Dudu

    (International Monetary Fund)

  • Charl Jooste

    (World Bank)

  • Camilla Knudsen

    (World Bank)

  • Hans Beck

    (World Bank)

Abstract

In 2022 the World Bank Group launched a new core diagnostic tool: the Country Climate and Development Report (CCDR). Published for 42 economies so far, CCDRs use resilient and low-emission development scenarios to identify synergies and tradeoffs between development and climate objectives. There are several modeling challenges associated with the analysis of the macroeconomic consequences of these development pathways, including those related to the nonmarginal nature of the required transformation, the role of technologies, and the replacement of fossil fuel-based assets with greener ones. To address some of these challenges, several CCDRs have used a hybrid modeling approach that combines a set of sectoral analyses with macroeconomic models. Specifically, sectoral techno-economic models are employed to construct resilient and low-emission development trajectories in key sectors. The macroeconomic implications of these sectoral transitions are then assessed by linking the sectoral models with two macroeconomic frameworks: a multisector general equilibrium framework and an aggregate macrostructural model. This hybrid approach combines the advantages of multiple tools and captures the various dimensions of the transition, including the need to tackle multiple market failures, beyond the emissions externality; analyze price and nonprice policies and their interactions; represent explicitly the replacement of assets and infrastructure; assess the macroeconomic feasibility of the sectoral transitions and the required investments. This paper uses the case of Turkey to describe the methodological approach and summarizes the results of the CCDRs that have been published to date. Findings suggest that, despite large investment needs, the transition can contribute positively to economic growth, especially when indirect mitigation benefits are taken into account, but only if structural challenges can be managed, climate and development policies are well designed, and negative impacts on some sectors or communities are mitigated.

Suggested Citation

  • Stephane Hallegatte & Florent McIsaac & Hasan Dudu & Charl Jooste & Camilla Knudsen & Hans Beck, 2024. "Macroeconomic implications of a transition to net zero emissions," Working Paper Series WP24-6, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp24-6
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    More about this item

    Keywords

    Macroeconomic modeling; climate change; technological change;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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