Using short-term scenarios to assess the macroeconomic impacts of climate transition

Abstract

This paper proposes a set of short-term scenarios that reflect the diversity of climate transition shocks : increase in carbon and energy prices, increase in public or private investment in the low-carbon transition, increase in the cost of capital due to uncertainty, deterioration of confidence, accelerated obsolescence of part of the installed capital, etc. Using a suite-of-model approach, we assess the implications of these scenarios for the dynamics of activity and inflation. By considering multiple scenarios, we therefore account for the uncertainty around future political decisions regarding climate change mitigation. The results show that the magnitude and duration of the macroeconomic effects of the transition to carbon neutrality will depend on the transition strategy chosen. While a number of short-term scenarios are inflationary or even stagflationary, there are also factors that could curb inflation and boost economic growth.