OECD Environment Working Papers

This series is designed to make available to a wider readership selected studies on environmental issues prepared for use within the OECD. Authorship is usually collective, but principal authors are named. The papers are generally available only in their original language English or French with a summary in the other if available.


Public finance resilience in the transition towards carbon neutrality

Modelling policy instruments in a global net-zero emissions

This paper presents a detailed economic modelling analysis of public finance in the transition towards carbon neutrality. It outlines results from a Net-Zero Emission Ambition scenario, which reflects the ambition to achieve net-zero carbon dioxide emissions globally by mid-century, using a broad and region-specific policy package that combines various policy instruments: carbon pricing, removal of fossil fuel support, regulations in the power sector, and other policies that stimulate investments by firms and households to reduce and decarbonise energy use. The analysis relies on the OECD global computable general equilibrium ENV-Linkages model.

Results show that transitioning towards carbon neutrality is feasible when considering economic and fiscal consequences. The scenario achieves carbon neutrality while maintaining continued economic growth, despite a limited negative impact on global GDP and on public revenues. The fiscal effects reflect a trade-off between instruments that increase public revenues (carbon pricing) or reduce public expenditures (fossil fuel subsidies removal), on the one hand, and more costly instruments (subsidies) and indirect effects (tax base erosion and changes in fiscal and economic structure) on the other hand.


Keywords: computable general equilibrium models, public budget, climate mitigation, net-zero
JEL: H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies; C68: Mathematical and Quantitative Methods / Mathematical Methods; Programming Models; Mathematical and Simulation Modeling / Computable General Equilibrium Models; H20: Public Economics / Taxation, Subsidies, and Revenue / Taxation, Subsidies, and Revenue: General; Q54: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Climate; Natural Disasters and Their Management; Global Warming; L68: Industrial Organization / Industry Studies: Manufacturing / Appliances; Furniture; Other Consumer Durables; H61: Public Economics / National Budget, Deficit, and Debt / Budget; Budget Systems; Q43: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Energy / Energy and the Macroeconomy
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