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MILJØFORSK-Miljøforskning for en grønn samfunnsomstilling

The green transition: Instrument design, employment and long-lived capital

Alternative title: Det grønne skiftet: virkemidler, sysselsetting og realkapital

Awarded: NOK 7.1 mill.

The green transition involves a significant restructuring of the economy. Existing emission-intensive production capacity must be replaced by less polluting means of production, with associated job losses in emission-intensive industries and the phasing out of real capital in sectors being restructured or closed. This project investigates environmental policy instruments that facilitate the green transition, with attention to employment, replacement of real capital and carbon leakage. The focus is on the medium-run, using dynamic models including explicit modeling of employment and sluggish supply structures. The project will address three main topics: - Employment: Effects on the labor market may be one of the most central challenges faced when implementing the green transition, both from a welfare and political acceptance perspective. We will examine how environmental policy instruments can be designed to obtain cost efficient emission reductions and overall employment. - Carbon leakage is perceived as a substantial obstacle to the implementation of the green transition, because emission regulations may result in a competitive disadvantage causing both jobs and emissions to move abroad – neither are clearly not the goal of the climate policy. This research project will investigate how to handle carbon leakage in a setting with imperfect mobility of labor and capital. - Committed emissions from existing and proposed energy production infrastructure represent more than the entire remaining carbon budget if the 1.5°C target is to be achieved. Energy infrastructure has substantial investment costs and can remain operative for decades once in place. This project examines which environmental policy instruments are best suited to direct investment away from emission-intensive fossil fuels and towards low-emission alternatives. Our methodological approach is rooted in economics and combines economic theory with numerical modelling and econometrics.

The green transition involves a significant restructuring and change of the economy. Existing production capacity using emission-intensive technology must be replaced by new and less polluting means of production, with associated job losses in emission-intensive industries and the phasing out of real capital in sectors being restructured or closed. This project will investigate environmental policy instruments for the green transition in a setting with long-lived capital, labor market dynamics and capacity constraints. The focus is on the medium-run, with dynamic models, explicit modeling of employment and sluggish supply structures. Our methodological approach is rooted in economics and combines economic theory with numerical modelling and econometrics. This research project consists of three thematic work packages (WPs), WP1, WP2 and WP3, that all investigates the green transition, but with focus on employment, instruments against carbon leakage, and long-lived capital, respectively. A fourth WP4 will be responsible for synthesis, publications, conferences and administration. The project consists of economists with substantial analytical and quantitative expertise. Statistics Norway will lead the project.

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Funding scheme:

MILJØFORSK-Miljøforskning for en grønn samfunnsomstilling