Conference Agenda

The objective of this paper is to examine the macroeconomic impact of the transition to a net-zero economy, how heterogeneous households are affected by this, and to determine the welfare effect of compensation policies. In our framework, these policies fall into two categories: direct transfers to households to sustain their level of consumption; subsidies to businesses to "go green." Both policies require the use of carbon tax revenues. The goal is to determine what share of subsidies and transfers is most beneficial to welfare. A two-agents Environmental-DGE model is developed to quantify the impact of the net zero policy. We simulate the transition to an emission-free economy, in which dirty energy and non-energy firms fully abate emissions. By increasing production costs for the polluting sectors along the transition, resources shift from the dirty to the clean energy producers, which becomes bigger in relative terms in the new steady state. At the same time, distributional effects -price and income effects- due to the increasing energy price and lower wages and capital interest- are detected along the transition. Unless carbon tax revenues are redistributed, all households are worse off at the end of the transition period, and wealth-poor households see their consumption decline the most in relative terms. A full comparison of all possible scenarios is provided to establish which redistribution scheme provides the highest benefit in terms of welfare.

Witnessing the recent unprecedented surge in energy inflation, we are analysing the

distributional as well as welfare effects of energy supply shocks and fiscal policy in-

tervention considering different objectives. In addition to addressing distributional

issues by providing support for the most vulnerable groups, the contradicting goals

are stabilising economic activity, fighting inflation, and keeping national debt in mind.

We build-up a Ten-Agents New-Keynesian (TENK) Model to simulate different pol-

icy scenarios and compare the aggregate, distributive and welfare effects to a scenario

without any fiscal policy reaction during an energy crisis. It shows that targeted trans-

fers to low-income deciles are dominating an energy cost brake in terms of mitigating

losses in consumption and distribution effects as well as from a welfare perspective.

We assess ex ante the distributional impacts of carbon pricing on heating and transport fuels on Belgian households through microsimulation modelling. Our findings reveal that carbon pricing is regressive, affecting lower-income households disproportionately due to their higher energy expenditure share. We highlight significant disparities in carbon payments among households of similar incomes, with heating system types playing a pivotal role. However, we demonstrate that revenue recycling to households can make the reform progressive, as wealthier households spend more on fuels in absolute terms. Redistributing carbon payments equally per household, rather than per capita, per adult or per consumption unit, proves more effective in protecting the most affected households. Targeting transfers towards poorer households and customizing them based on heating system types provides even better protection for vulnerable households.