Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 3
52 Pages Posted: 12 May 2016
Date Written: May 9, 2016
We build up a large scale, New Keynesian dynamic general equilibrium model embodying a cap on pollutant emissions, an electricity sector and fuel consumption to analyse climate-energy policies for the Italian economy. We consider several applications to illustrate how emission mitigation policies are likely to affect the economy. Our results show that a major trade-off may emerge between environmental quality and economic activity. However, we show how this potential trade-off can be effectively overcome by recycling the revenues from the sales of emission permits. Also, we find that the presence of an emission cap may significantly limit the expansionary effects of fiscal interventions as well as of policies aimed at fostering competition and productivity. Finally, a negative shock on gas and oil prices has a positive effect on the level of economic activity but is also found to increase investment in renewable sources.
Keywords: Environmental policy, GHG emissions, dynamic general equilibrium model, simulation analysis, Italy
JEL Classification: E27, E60, Q40, Q58
Suggested Citation: Suggested Citation
Annicchiarico, Barbara and Battles, Susan Elizabeth and Di Dio, Fabio and Molina, Pierfrancesco and Zoppoli, Pietro, GEEM: A Policy Model for Assessing Climate-Energy Reforms in Italy (May 9, 2016). Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 3. Available at SSRN: https://ssrn.com/abstract=2778108