One day after the agreement at the Dubai summit to begin a fair and accelerated “transition” from fossil fuels to limit the global warming at 1.5ºthe organization of developed countries OECD has published this Thursday a updating its long-term growth prospects (2060) in which he incorporates, for the first time, the possible effects of energy transition. The result is a slower growth that without the exit of fossil fuels from the economy – the transition subtracts up to 3.7 percentage points from the GDP of developed countries by 2050 and 11 percentage points in the case of large emerging economies, according to OECD estimates – -, but the international organization proposes increasing carbon taxes and using the additional income to lower taxation and salary contributions and thus stimulate the employment.
The OECD estimates that decarbonization can subtract 3.7 points from the GDP of developed economies until 2050 and increase unemployment, which is why it proposes compensatory measures
The organization of developed countries assumes that the current trend is towards annual growth in real GDP for the OECD and G20 countries, which is gradually slows from 3% before coronavirus to 1.7% in 2060mainly due to a “decline in the growth of working age population and a slowdown in the growth of work efficiency in emerging market economies.
From here, and taking into account that “all the countries accelerate your transition [energética] starting in 2026, eliminating the coal as a source of energy by 2050 and reducing the share of oil and gas of primary energy to 5% and 10%, respectively”, the OECD estimates a further slowdown in global growth between 0.2 percentage points in the first years and 0.6 percentage points at the end of the transition period.
This slowdown, he adds, is “more modest” in the area of OECD countries and “more acute” in the emerging markets of the G20 (such as China, India, Saudi Arabia, Brazil, Indonesia or Turkey) due to “a greater intensity of carbon emissions”. The organization projects a lower accumulated growth until 2050 of 3.7% of GDP compared to the reference path (without energy transition) for developed countries and 11% for large emerging economies.
However, the OECD report assures that, at the same time, additional resources equivalent to 3.25% of GDP from carbon fees (carbon taxes, emission rights or excise taxes on fuel).
Specifically, the OECD proposes using these additional tax revenue wholesale price of CO2 for reduce taxation on employment (income tax and social contributions). “It is a possible option to make the transition more viable politically,” he says.
According to the international organization, these potential positive effects on employment could “more than offset” the drop in production associated with the first ten years of the energy transition“which will leave living standards at 2035 higher” than in the base scenario in the euro zone and in most OECD countries.
However, the organization adds that reduce taxation of salaries It is “just one of the ways” that can be used to “redistribute to households” the CO2 tax revenue and warns that a successful energy transition will involve increase unemployment“at least for a while,” so the reduction in wage taxation suggests that active employment policies, such as retraining and occupational change programs, could help boost employment rates, with especially strong impacts on young people. Also, through “family benefits in kind” such as childcare could help boost employment, with “special impact on women.”
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To illustrate the potential of a policy package that would jointly support employment and innovation, the OECD analyzes a scenario in which two-thirds of additional tax revenue related to carbon are used to increase public spending on R&D and the remaining third is used to improve support for child care. Thus, in 2035, the OECD aggregate employment rate would be 0.6 percentage points higher than in the transition scenario with a global redistribution of additional carbon-related income, while the trend in labor efficiency growth is 0.1 percentage points higher.
Another proposal to offset the costs of the transition is through “structural reforms” that hardly have any fiscal costs.