Conference Agenda

Achieving net-zero greenhouse gas emissions by 2040 is a central goal of Austrian climate policy, requiring substantial investments and structural shifts across economic sectors. This study assesses the budgetary and macroeconomic implications of Austria’s transition to climate neutrality using the WEGDYN-AT computable general equilibrium (CGE) model. The analysis integrates structural and technological shifts in energy demand and supply in the sectors of industry, energy, transport and buildings in line with projections for a climate neutral Austrian economy by 2040. Thereby, we consider two financing schemes to cover the associated investment needs – Consumption Displacement and Foreign Debt – under two interest rate settings – 2% and 8%. In the Consumption Displacement scenario, resources are allocated away from consumption towards climate-neutral investments, leading to short-term welfare losses for current generations but a higher capital stock in the future. In contrast, the Foreign Debt scenario maintains short-term consumption levels but transfers the financial burden to future generations through accumulating interest payments. Results reveal that low-interest financing reduces transition costs, amplifies economic growth, and improves public and private welfare, while high-interest rates exacerbate economic challenges. We find that between 2024 and 2040, the transition requires approximately 0.6%-1.1% of GDP in annual additional investments depending on macroeconomic performance. Our findings underscore the importance of supportive policies to lower capital costs, such as scaling up green bonds, fostering public-private partnerships, and advancing the European Capital Markets Union. By providing a detailed analysis of financing strategies and their economic impacts, this study offers valuable insights for policymakers navigating the challenges of achieving climate neutrality while maintaining fiscal sustainability.