The Distributional Costs of Net-Zero: A Heterogeneous Agent Perspective

Authors: Ghassane Benmir (London School of Economics), Josselin Roman (European Commission)
Presenter: Ghassane Benmir (London School of Economics)
Abstract: This paper investigates the distributional impacts of implementing the net-zero emissions target in the U.S. for the 2050 horizon. We model a heterogeneous household economy and show that 2050 net-zero policy is welfare enhancing in the long run, but induces short/medium-run distributional costs. We quantify this trade-off by a 0.54% consumption equivalent welfare gain (compared to the laissez-faire) in the long run and a 6-10 percent increase of financially constrained households by 2050. We then show how distributing revenue from the carbon policy could partially offset consumption losses and smooth the net-zero transition. We also extend our analysis to the cases of: i) sticky prices, showing how net-zero emissions induces inflationary pressure over the long run, which could represent a challenge for monetary policy conduction in a world with high inflation, and ii) abatement learning, showing how green innovation decreases carbon prices and boosts consumption over the transition.
Login to your account

Cookies help us to give the best experience possible and help us understand how visitors use our website. Privacy policy is here.