The economic slowdown due to the COVID-19 pandemic may negatively affect the funding and deployment of climate mitigation policies. This may be unjustified for two reasons.

First, the ThreeME model shows that CO2 emissions are expected to be higher as a result of the pandemic. While a reduction of 6.6% in emissions is projected in 2020, the emissions in the years thereafter are actually higher than in the baseline without the pandemic, due to the collapse of the oil price.

Second, results show that climate action policies such as carbon pricing can in fact speed up the economic recovery, even with low energy prices and the COVID-19 crisis, because of increased investments in low-carbon technologies and increased employment due to the redistribution of carbon tax revenues to households and employees. Link to open source code. Link to publication.

The ThreeME model shows that an energy transition in the Netherlands could lead to nearly 50,000 additional jobs (see red line in graph) by 2030. This is significant if we consider an unemployment of 614,000 persons in 2015.

 

This large effect on job creation is mostly caused by capital investments in wind and solar technologies. We can derive this from the decomposed results (see graph) where the additional multiplier effect of capital investments (Step 3) is much larger than for instance the effect of intermediate consumption (Step 2) or household consumption (Step 4).

The assumed energy transition scenario is adopted from the Urgenda scenario (www.urgenda.nl) assuming a 100% renewable energy mix and a reduction of 50% in final energy use due to technological improvements.

To reach the national target of a reduction of 50% in CO2 emissions in Mexico (compared to 2000), a carbon price is required of 100 USD (per ton of CO2) in 2030 and 700 USD in 2050, as modelled in the ThreeME model. The model also shows that even with this high carbon price, a double dividend – a CO2 reduction and an increase in GDP at the same time – is possible.

To reach this double dividend, it is essential to recycle the tax revenues from energy taxes (in this case a carbon tax and a phase out of energy subsidies) as a reduction in income taxes and labour taxes. Results indicate that without this tax recycling, energy taxes could result in over 8% less GDP in 2050 (see solid blue line). However, this negative effect can be fully offset by recycling the tax revenue, resulting in a GDP that is even a bit higher than in the business as usual scenario (see black line), thanks to the positive effect on employment and household consumption.