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Nicoletta Batini, Mario di Serio, Matteo Fragetta, and Mr. Giovanni Melina
This paper provides estimates of output multipliers for spending in clean energy and biodiversity conservation, as well as for spending on non-ecofriendly energy and land use activities. Using a new international dataset, we find that every dollar spent on key carbon-neutral or carbon-sink activities can generate more than a dollar’s worth of economic activity. Although not all green and non-ecofriendly expenditures in the dataset are strictly comparable due to data limitations, estimated multipliers associated with spending on renewable and fossil fuel energy investment are comparable, and the former (1.1-1.5) are larger than the latter (0.5-0.6) with over 90 percent probability. These findings survive several robustness checks and lend support to bottom-up analyses arguing that stabilizing climate and reversing biodiversity loss are not at odds with continuing economic advances.
Jaden Kim, Augustus J Panton, and Gregor Schwerhoff
The current energy crisis has raised important policy questions on how to strengthen short-term energy security while remaining firmly committed to the green transition, a challenge amplified by the recent consensus at COP28 to transition away from fossil fuels. This paper examines the historical determinants of the security of energy supply and analyzes the green transition implications for energy security. Looking back, we find that the diversification of energy trade partners, or the lack thereof, was the main factor that underpinned energy security dynamics within and across countries over the last two decades. Looking ahead, the green transition is expected to have a net positive effect on energy security provided investments are aligned to address new challenges posed by the increased reliance on renewables.
Charlotte Gardes-Landolfini, Pierpaolo Grippa, William Oman, and Sha Yu
The transition to a low-carbon economy, which is needed to mitigate climate change and meet the Paris Agreement temperature goals, has been affected by the supply chain and energy supply disruptions that originated during the COVID-19 pandemic, the Russian invasion of Ukraine, and the subsequent energy crisis and exacerbation of geopolitical tensions. These developments, and the broader context of the ongoing “polycrisis,” can affect future decarbonization scenarios. This reflects three main factors: (1) pullbacks in climate mitigation policies and increased carbon lock-in in fossil fuel infrastructure and policymaking; (2) the decreasing likelihood of continuous cost reduction in renewable energy technologies; and (3) the likely intensification of macroeconomic shocks amid increasing geoeconomic fragmentation, and the associated policy responses. In this context, the note assesses the implications of the polycrisis for hypothetical scenarios used to assess climate-related financial risks. Following an analysis of the channels through which these effects are likely to materialize over short- and long-term horizons and some policy implications, the note proposes potential adjustments to the design of the climate scenarios used by financial institutions, central banks, and financial sector supervisors and regulators within their risk management frameworks.