Key messages from the report ‘The economic implications of climate action’

• Achieving carbon neutrality is possible, but it requires a transformation comparable to an industrial revolution. This transformation will be global, fast, and primarily driven by public policies rather than by technological innovation. Redirecting technological progress toward clean technologies, reducing energy consumption, and substituting fossil fuels underpin the transition, and there is no permanent trade-off between economic growth and climate action.
• To meet emissions reduction targets by 2030 and achieve carbon neutrality by 2050, efforts must be significantly accelerated, with contributions from all sectors. Binding carbon budgets at both the European and national levels are essential.
• Decarbonization of the French economy demands substantial additional investment, exceeding 2% of GDP per year by 2030. While stimulating demand, such investment could temporarily slow down productivity growth and necessitate labor reallocations, leading to economic and social costs in the short to medium term.
• Understanding precisely the effects and mechanisms at work during the transition toward net zero will require comprehensive analysis and improved tools.

The main models used by public administrations (ThreeMe and Imaclim in France) have three key deficiencies. First, by using a representative household, regressive effects are not captured. Second, the quantitative impact of specific climate measures will depend on their credibility, yet modeling tools do not currently make assumptions about expectations and credibility of public action. Third, to consider the impact of climate action in other countries or of coordinated measures between countries, a multi-regional model would be needed.

Despite climate ambitions converging globally, climate policies remain divergent. With a view to maintaining price signals, the EU, and France in particular, have a better mix of subsidies, regulation, and carbon pricing than, for instance, the United States and China. Challenges associated with the EU’s climate policy landscape include needing to balance climate leadership with competitiveness and sound fiscal policy and its imperfect Carbon Border Adjustment Mechanism (CBAM). Given the EU’s challenges, a new governance framework is needed for effective implementation of its climate strategy.