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

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 modelling of employment and sluggish supply structures.

The project will address three main topics:

• Employment: Effects on the labour 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 maintain 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 labour 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.

Funder: Norwegian research council (project number 334552)

Period: 2023-2025