The Distributional Costs of Net-Zero: A HANK Perspective | Ghassane Benmir

Ghassane Benmir will be discussing the paper ‘The Distributional Costs of Net-Zero: A HANK Perspective’

Abstract:

This paper investigates the distributional impacts of implementing the net-zero emissions target in the U.S. for the 2050 horizon. We model a heterogeneous household economy and show that net-zero policy increases consumption and wealth in the long run but induces distributional macroeconomic disparities in the short/medium run (e.g. by 2035, a 6-10% increase in households facing the borrowing constraint). We then show how distributing revenue from the carbon policy could partially offset consumption losses and smooth the net-zero transition. We also extend our analysis to the case of sticky prices and show how net-zero emissions induces inflationary pressure over the long run, which could represent a challenge for monetary policy conduction in a world with high inflation.

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