The Macroeconomic Implications of a Transition to Zero Net Emissions
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World Bank, Washington, DC
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Analyzing the macroeconomic
consequences of a transition to a net-zero economy creates
specific modeling challenges, including those related to the
non-marginal nature of the required transformation, the role
of technologies, and the replacement of fossil fuel-based
assets with greener ones. To address these challenges, this
paper proposes a hybrid modeling approach that starts from a
set of sectoral techno-economic scenarios to construct an
illustrative resilient and net-zero decarbonization
trajectory. It then assesses the macroeconomic implications
by linking sectoral dynamics to two macroeconomic
frameworks: a multisector general equilibrium framework and
an aggregate macrostructural model. This approach combines
the advantages of multiple tools and captures the various
dimensions of the transition, including the need to tackle
simultaneously multiple market failures beyond the carbon
externality. The paper illustrates this methodology with
Türkiye’s objective to reach net zero emissions by 2053. The
multisector general equilibrium framework suggests that the
transition could contribute positively to Türkiye’s economic
growth despite the large investment needs, especially when
indirect mitigation benefits are taken into account and if
labor market frictions can be reduced. Improved energy
efficiency in the transportation and building sectors drives
the growth benefits in the short and medium terms. The
growth benefits depend on how transition investments are
financed: if they crowd out other productive investments,
the benefits are significantly reduced and can even become
slightly negative in the long term. The macrostructural
model focuses on implications for public debt and the
current account, using two extreme scenarios in which
additional investments are triggered by higher productivity
or a set of budget-neutral incentives (taxes and subsidies).
The model concludes that the transition would have moderate
impacts on the current account and public debt. With
budget-neutral incentives, there is a small increase in
gross domestic product (GDP) growth, the debt-to-GDP ratio
increases by 1 to 3 percent, and the current account remains
unchanged thanks to the reduction in fuel imports.
Palabras clave
MACROECONOMIC MODELING, CLIMATE CHANGE, TECHNOLOGICAL CHANGE, NET-ZERO EMISSIONS ECONOMY, FOSSIL FUEL TRANSFORMATION, DECARBONIZATION, CLIMATE CHANGE MITIGATION INVESTMENT