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The European Green Deal aims at climate neutrality for Europe by 2050, implying a significant acceleration of emission reductions. To gain the necessary support, it needs to reduce regional and social inequalities in Europe. We present objectives in terms of jobs, growth and price stability to complement the emission reduction targets and sketch a proof-of-concept investment profile for reaching these goals. Substantial additional annual public investments, of about 1.8% of pre-COVID-19 GDP, are proposed for the next decade. Their allocation includes retrofitting the European building stock, consciously fostering a renewal of the European innovation system as well as complementary measures in the fields of education and health. The scenario outlined in this article is meant as an input to the urgently needed discussion on how the European Green Deal can shift the EU economy to a new development path that realises a carbon-neutral Europe by 2050 while strengthening European cohesion.

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Abstract:The UN sustainable development goals contain environmental, economic, and social objectives. They may only be reached, or at least it would be easier to reach them, if instead of a trade-off between these objectives that implies a need for balancing them, there are synergies to be reaped. This paper discusses how the structures of economic models typically used in policy analysis influence whether win-win strategies for the environment and the economy can be conceptualised and analysed. With a focus on climate policy modelling, the paper points out how, by construction, commonly used model structures find mitigation costs rather than benefits. This paper describes mechanisms that, when added to these model structures, can bring win-win options into a model's solution horizon, and which provide a spectrum of alternative modelling approaches that allow for the identification of such options.

Abstract:Reaching the Sustainable Development Goals requires a fundamental socio-economic transformation accompanied by substantial investment in low-carbon infrastructure. Such a sustainability transition represents a non-marginal change, driven by behavioral factors and systemic interactions. However, typical economic models used to assess a sustainability transition focus on marginal changes around a local optimum, which-by construction-lead to negative effects. Thus, these models do not allow evaluating a sustainability transition that might have substantial positive effects. This paper examines which mechanisms need to be included in a standard computable general equilibrium model to overcome these limitations and to give a more comprehensive view of the effects of climate change mitigation. Simulation results show that, given an ambitious greenhouse gas emission constraint and a price of carbon, positive economic effects are possible if (1) technical progress results (partly) endogenously from the model and (2) a policy intervention triggering an increase of investment is introduced. Additionally, if (3) the investment behavior of firms is influenced by their sales expectations, the effects are amplified. The results provide suggestions for policy-makers, because the outcome indicates that investment-oriented climate policies can lead to more desirable outcomes in economic, social and environmental terms.