Green policies and transition risk propagation in production networks*

This paper introduces a general equilibrium sectoral model including two types of energy sectors (green and brown) to study the short-run impact of different emission taxes schemes in production networks. The model is calibrated to the Spanish economy at the industry level using the input-output matrix and captures the effective cost of emissions associated to the use of energy in each industry. We show that for an increase in the price of emission allowances similar to that observed in recent years (from approximately euro25 per tonne of CO2 in 2019 to almost euro100 per tonne in 2022) the model predicts a cumulative decline in Spanish GDP after three years of 0.37%. The loss in value added is very heterogeneous among industries, depending on the exposure to the ETS and to their network ETS exposure, with values ranging from losses of 4% in the most affected industries to no impact in others.

Automated summary

This paper presents a general equilibrium sectoral model to analyze the short-term impact of different emission taxes schemes in production networks, specifically focusing on two types of energy sectors. The model uses input-output matrix to calibrate to the Spanish economy at the industry level and considers the actual cost of emissions associated with energy use in each industry. The study finds that an increase in emission allowances price leads to a cumulative decline in Spanish GDP after three years, with varying effects on different industries depending on their exposure to the ETS and network ETS exposure.