Many governments, most notably Europe, have ambitious climate legislation in place. Yet, the implementation of these policies is at high risk, with countervailing claims that the net-zero transition will harm the economy get increasing credit. This narrative is becoming prominent and is rapidly eroding climate policy support, with implications for European elections in 2024. Governments must show the public otherwise, but governments often lack the technical capacity and scientific independence to do so. In this project, the European Institute of Economics and the Environment (EIEE) of the Fondazione Centro Euro-Mediterraneo sui Cambiamenti Climatici (CMCC) will provide climate-macro modeling analysis to help redirect the discourse around macro-economics of climate change. It will link a macro-financial agent-based model with a detailed-process coupled climate-energy model to quantify how macro-prudential and fiscal policies can ease the low-carbon transition in Europe or an alternative region.

CMCC role
Coordinator

Activities
Governments need robust and authoritative tools to show the full implications of the climate transition and to design effective macro-prudential policies. But the current modeling toolkit -even in advanced economies like Europe- is often not up to the standards of scientific rigor and of transparency and replicability.
The project plans to overcome this limitation through a first-of-its-kind coupling of an agent-based model (ABM) and an integrated assessment model (IAM). Specifically, it will link a stock-flow consistent macro-financial agent-based model with a detailed process IAM (the WITCH Model) which has been a major contributor to IPCC reports. This bi-directional coupling will allow to quantify the implications of the transition and of policies to smooth the transition for key macro-financial variables, including employment, interest rates, inflation, public finances, and R&D processes. This study will be conducted in collaboration with selected policy stakeholders.
The project will leverage CMCC’s high-performance computing infrastructure, one of the largest in Europe, to carry out extensive simulations to capture key volatility and key uncertainties. 
This effort will be conducted as part of the Green Macroeconomic Modeling Initiative (GMMI) being facilitated by the Bezos Earth Fund.

Expected results
The aim of this project is to arm policy makers with the knowledge they need to put in place policies, investments, and regulations needed to navigate the macro-fiscal challenges of a green energy transition. In specific, we aim to demonstrate a new approach to understanding these challenges and their solutions, and we aim to pull out lessons that will be broadly useful for policy makers beyond those in the country we analyze. By doing this in the context of the GMMI, we aim to rapidly spread these ideas and insights among the community of practitioners that serve finance and economic ministries or that are influential in shaping the tools and thinking that these ministries rely on.