{
  "title": "The EU’s Energy Transition",
  "publication": "IMF Working Papers, March 9, 2026",
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  "summary": "The EU has ambitious goals for climate and energy security. Its targets and policies may have large macroeconomic implications, but investment impacts are particularly uncertain.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- The EU has ambitious goals for climate and energy security that may have large macroeconomic implications, with investment impacts particularly uncertain.\n- Bottom-up approaches based on sectoral calculations point to investment increases of 2 to 3 percent of GDP annually.\n- Top-down general equilibrium models often yield negligible aggregate investment effects.\n- The investment and broader macroeconomic impacts depend on how carbon pricing revenues are recycled."
    },
    {
      "heading": "Methodology",
      "content": "- Uses a modeling technique that bridges bottom-up and top-down approaches.\n- Extends a New Keynesian general equilibrium model (GMMET) to feature a detailed representation of energy use in key emitting sectors.\n- Key sectors represented: buildings, transport, and energy-intensive manufacturing."
    },
    {
      "heading": "Key findings",
      "content": "- Simulations suggest that achieving the EU’s 2035 climate goals implies an increase in aggregate annual investment of just around 1 percent of GDP.\n- The EU’s energy transition only has modest macroeconomic impacts if it combines carbon pricing and green subsidies, because:\n  - Green subsidies lower energy prices and inflation and raise output.\n  - Carbon pricing has opposite effects.\n  - Combining both yields small effects on energy prices, inflation, and output.\n- The fiscal cost of the transition is modest provided decarbonization relies sufficiently on carbon pricing."
    },
    {
      "heading": "Fiscal and investment numbers",
      "content": "- Bottom-up sectoral estimates: 2 to 3 percent of GDP annually (investment increases).\n- Model-based simulation: just around 1 percent of GDP (aggregate annual investment increase to meet 2035 climate goals).\n- Revenues from ETS1 and ETS2 could eventually reach about 1 percent of GDP.\n- Public investment cost of the transition is less than 0.5 percent of GDP annually.\n- Net fiscal space exists that could be used for other policy objectives if decarbonization relies sufficiently on carbon pricing."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Combining carbon pricing and green subsidies can be complementary and deliver modest macroeconomic impacts; policy design should account for offsetting effects on prices, inflation, and output.\n- Recycling carbon pricing revenues matters for investment and broader macroeconomic outcomes.\n- Relying sufficiently on carbon pricing can keep public investment costs modest and create net fiscal space for other objectives.\n\nSource: IMF Working Papers — \"The EU’s Energy Transition\", Benjamin Carton, Geoffroy Dolphin, Romain A Duval, Andrew Hodge, Amit Kara, Simon Voigts, and Sebastian Wende; Working Paper No. 2026/046 (March 9, 2026).\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2026/03/09/the-eus-energy-transition-574537"
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    "Authors: Benjamin Carton, Geoffroy Dolphin, Romain A Duval, Andrew Hodge, Amit Kara, Simon Voigts, Sebastian Wende",
    "Published: March 9, 2026",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798229040198.001",
    "The EU has ambitious goals for climate and energy security that may have large macroeconomic implications, with investment impacts particularly uncertain.",
    "Bottom-up approaches based on sectoral calculations point to investment increases of 2 to 3 percent of GDP annually.",
    "Top-down general equilibrium models often yield negligible aggregate investment effects.",
    "The investment and broader macroeconomic impacts depend on how carbon pricing revenues are recycled.",
    "Uses a modeling technique that bridges bottom-up and top-down approaches.",
    "Extends a New Keynesian general equilibrium model (GMMET) to feature a detailed representation of energy use in key emitting sectors.",
    "Key sectors represented: buildings, transport, and energy-intensive manufacturing.",
    "Simulations suggest that achieving the EU’s 2035 climate goals implies an increase in aggregate annual investment of just around 1 percent of GDP.",
    "The EU’s energy transition only has modest macroeconomic impacts if it combines carbon pricing and green subsidies, because:",
    "The fiscal cost of the transition is modest provided decarbonization relies sufficiently on carbon pricing.",
    "Bottom-up sectoral estimates: 2 to 3 percent of GDP annually (investment increases).",
    "Model-based simulation: just around 1 percent of GDP (aggregate annual investment increase to meet 2035 climate goals).",
    "Revenues from ETS1 and ETS2 could eventually reach about 1 percent of GDP.",
    "Public investment cost of the transition is less than 0.5 percent of GDP annually.",
    "Net fiscal space exists that could be used for other policy objectives if decarbonization relies sufficiently on carbon pricing.",
    "Combining carbon pricing and green subsidies can be complementary and deliver modest macroeconomic impacts; policy design should account for offsetting effects on prices, inflation, and output.",
    "Recycling carbon pricing revenues matters for investment and broader macroeconomic outcomes.",
    "Relying sufficiently on carbon pricing can keep public investment costs modest and create net fiscal space for other objectives.",
    "**Working Paper**"
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