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The EU’s Energy Transition / Benjamin Carton, Geoffroy Dolphin, Romain Duval, Andrew Hodge, Amit Kara, Simon Voigts, Sebastian Wende.
- Format:
- Book
- Government document
- Author/Creator:
- Carton, Benjamin.
- Series:
- IMF Working Papers; Working Paper ; No. 2026/046
- IMF Working Papers
- Language:
- English
- Physical Description:
- 1 online resource (38 pages)
- Place of Publication:
- Washington, D.C. : International Monetary Fund, 2026.
- Summary:
- The EU has ambitious goals for climate and energy security. Its targets and policies may have large macroeconomic implications, but investment impacts are particularly uncertain. Detailed "bottom-up" approaches based on sectoral calculations point to investment increases of 2 to 3 percent of GDP annually, while “top down” general equilibrium models often yield negligible aggregate investment effects. Further, the investment and broader macroeconomic impacts of the EU’s energy transition will depend on how carbon pricing revenues are recycled. This paper addresses these issues using a modeling technique that bridges bottom-up and top-down approaches. A New Keynesian general equilibrium model (GMMET) is extended to feature a detailed representation of energy use in key emitting sectors, including buildings, transport and energy-intensive manufacturing. Simulations suggest that achieving the EU’s 2035 climate goals implies an increase in aggregate annual investment of just around 1 percent of GDP. More broadly, the EU’s energy transition only has modest macroeconomic impacts if it combines carbon pricing and green subsidies, partly because these are complementary—green subsidies lower energy prices and inflation and raise output, carbon pricing has opposite effects, and therefore combining both yields small effects on all accounts. The fiscal cost of the transition is modest provided decarbonization relies sufficiently on carbon pricing; while revenues from ETS1 and ETS2 could eventually reach about 1 percent of GDP, the public investment cost of the transition is less than 0.5 percent of GDP annually, leaving net fiscal space that could be used for other policy objectives.
- Notes:
- Description based on print version record.
- ISBN:
- 979-82-290-4040-2
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