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  • 6.1 Documentos de trabajo en investigación socioeconómica
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Greenflation: The cost of the green transition in small open economies

Abstract
We propose a new model of a small open economy with efficient energy use to investigate the inflationary dynamics along the green transition. The model incorporates the production of green energy that substitutes exogenous brown energy sources in energy production. Production is characterized by low substitutability between resource and traditional inputs that firms can alter through directed input-saving technical change. We study transitional dynamics induced by exogenous increases of brown energy prices and/or changes in the brown energy taxation; green subsidies and green public investment. Increases in brown energy prices and taxes decrease the usage of brown energy but do not expand significantly the green sector, they simply improve energy efficiency use, surging firm’s marginal costs leading to greenflation and output losses. Public investment and subsidies effectively increase the usage of green energy. Green investment expands output and reduces green energy prices as it increases the productivity of the green sector. Subsidies imply a slower transition with small output costs and elevated green energy prices. We discuss the fiscal costs and welfare implications of the transition using different welfare metrics.
Subject
Energía | Evaluación de impacto | Políticas públicas
 
Country / Region
Chile
URI
https://cafscioteca.azurewebsites.net/handle/123456789/1994
Date
2022-12-28
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  • 6.1 Documentos de trabajo en investigación socioeconómica
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Greenflation_The cost of the green transition in small open economies.pdf (1.295Mb)
Author
Airaudo, Florencia
Pappa, Evi
Seoane, Hernán
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