A1506
Title: Growth effects of decarbonization under alternative policies: A macroeconomic perspective
Authors: Werner Roeger - DIW (Germany) [presenting]
Abstract: Decarbonisation scenarios are studied for Germany. As shown in previous research, some degree of decoupling between economic growth and emissions has already taken place since the early 70s. A large part of this can be attributed to energy-saving technical progress. However, for reaching the climate targets, additional measures are necessary. For the quantitative analysis, an open economy endogenous growth model is set up for Germany, where a final output is produced with labour, capital, fossil and renewable energy. There is labour-saving and emission-saving technical progress. Firms make cost-minimising decisions concerning tangible and intangible investments, where decisions are constrained by the external balance and the cost of capital in the case of tangible investment and a resource constraint for skilled labour in the case of intangible investment. The model allows for the study of tangible and intangible reallocation options for revenues from CO2 pricing with the aim of minimising the cost of transition to a carbon-free economy. The options are constrained by an equity target, which stabilises the net income of liquidity-constrained households receiving income from labour and transfers.
