Abstract
The transition to a low-carbon economy is a complex process that, from a technical perspective, requires coordination of different market players, significant technology advancements and sufficient financial resources. The transition to a low-carbon energy system is a capital intensive process. Different technological options at different scales and different time frames will be required for the successful transition to a low-carbon energy system. The economic impact on countries that transform their energy system depends on a multitude of factors including their energy system profile, the access to low-cost financial resources, whether they are market leaders in the production of clean energy technology and their ability to assimilate knowledge that is produced elsewhere. In this study, we use a large scale applied CGE model to compute the macroeconomic implications of the investments required to reduce by 76% as compared to 1990 levels the GHG emissions of the Italian energy system within a context of global concerted GHG mitigation action. The focus of the analysis has been on the Italian economy and energy system as Italy is both an equipment manufacturer, its energy system is largely based on fossil fuels and its financial system is currently under pressure following the elevation of public debt and deficits. The model-based results suggest that the Italian economy can benefit from the low-carbon transition in the coming decades in case Italian firms and households have access to low-cost financial resources, Italian manufacturers acquire market shares in the production of clean energy technologies and technological progress is rapid driven by innovation and economies of scale. The average annual GDP growth of Italy in the period 2015–2050 can be 1.3% in the case that Italy reduces drastically its GHG emissions and the associated cumulative expenditures sum up to one trillion euro.
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Notes
E.g. include the damages from avoiding sea level rise and the health benefits reducing particles
Does not consider the benefits of reduced climate change as well as co-benefits and adverse side effects of mitigation and
Integrated Assessment Models are models that are commonly used for climate policy analysis and endogenously represent the interactions between the energy system, economy, environment and technology progress.
Computable General Equilibrium
Semi-endogenous: Growth is generated endogenously by R&D spending and associated technological change, but the overall rate of growth depends on additional variables that can be exogenous to the model.
Cohen et al. (2019) define the Kuznets elasticity as “the trend relationship between emissions and real GDP”.
For a detailed review on stranded assets see Caldecott (2017)
Green growth is considered as the growth of the economy and of employment while GHG emissions are reduced and the negative impact on environment is limited.
The size of the loan impacts interest rates. That is why, in reality, many small-scale energy-saving projects are aggregated to one sizeable project so that through scale and risk diversification, a lower lending rate can be negotiated with the financial institutions
Population and GDP projections for Italy has been taken from the Ageing Report 2015 (Directorate-General for Economic and Financial Affairs (European Commission) 2015).
Corresponds to 76% reduction from 1990 level
Current cost of borrowing
Historical average interest rate for the period 2003–2018
Corresponds to 68% reduction from 1990 level
Corresponds to 84% reduction from 1990 level
The GEM-E3-WIN is the version of GEM-E3 that has been further extended within the GREEN-WIN EC funded project.
For the exact description of the approach, see Paroussos et al. (2017)
In the current study, an exogenous interest rate have been used and sensitivity analysis on the interest rate has been implemented.
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This research received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement no. 642018 (“GREEN-WIN” project).
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This article is part of a Special Issue on Win-Win Solutions to Climatic Change edited by Diana Mangalagiu, Alexander Bisaro, Jochen Hinkel and Joan David Tàbara
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Paroussos, L., Fragkiadakis, K. & Fragkos, P. Macro-economic analysis of green growth policies: the role of finance and technical progress in Italian green growth. Climatic Change 160, 591–608 (2020). https://doi.org/10.1007/s10584-019-02543-1
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DOI: https://doi.org/10.1007/s10584-019-02543-1