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Diego Mesa Puyo, Augustus J Panton, Tarun Sridhar, Martin Stuermer, Christoph Ungerer, and Alice Tianbo Zhang
The global energy transition is affecting fossil fuel exporters from multiple angles. It is adding to longstanding uncertainties on relative movements of fossil fuel demand and supply—which impact fossil fuel-related exports, fiscal flows, investment and subsequently external and fiscal accounts, economic growth, and employment. While policymakers are very familiar with these challenges, they now also face expectations of a permanent decline in the long-run global demand for fossil fuels. Key factors that could determine country-level impacts include (i) the type of fossil fuel a country exports (ii) extraction costs and (iii) country characteristics. The monitoring and mitigation of fiscal risks will need to be stepped up. Fiscal policy also has a role in reducing domestic emissions, encouraging adoption of low-carbon technologies, and helping those most vulnerable to changes from the transition. Broader macroeconomic risks can be reduced by accelerating ongoing structural reforms that support alternative engines of growth. Low- or zero-carbon emission energy industries could offer new avenues that build on existing fossil fuel knowledge and infrastructure. Concurrently, improved financial regulation and supervision could reduce financial sector exposures. Finally, international coordination on the design and implementation of climate policy as well as international transfer schemes (financing and capacity development) could reduce uncertainties surrounding the transition path and associated adverse economic consequences.
Simon Voigts and Anne-Charlotte Paret
The IMF’s Macroeconomic Model for the Energy Transition (GMMET) is applied to assess the climate-related measures in the U.S. 2022 Inflation Reduction Act (IRA). Explicitly accouting for corporate income tax funding and assuming no permitting delays for energy-related investment, the measures are expected to cut annual greenhouse gas emissions by 710 MMT by 2030, predominantly driven by more electricity generation from renewables combined with a rising share of electric vehicles. Aggregate output and inflation are not impacted significantly, while the fiscal costs amount to about $700 billion through 2030 (another $120 billion of fixed grants and loans are not modelled). In the presence of investment delays from permitting, emission cuts would be reduced by about a third. We also show that the IRA leaves room for sizable additional emission abatement at very low costs; by targeting electricity generation from coal and methane emissions from oil and gas industries.
International Monetary Fund. European Dept.
This Selected Issues paper analyzes inflation in the Czech Republic. The paper analyzes using an adaptive learning structural model. A structural model incorporating adaptive learning features is well suited to project inflation path in the Czech Republic. In Czechia, inflation expectations are notably shaped by past inflation outcomes, creating a feedback loop where rapidly decreasing inflation contributes to a shorter duration of elevated inflation, and vice-versa. Within this model, the central bank influences inflation through three channels. The first is direct-tightening policy reduces demand, lowers the output gap, and thus decreases inflation. The other two channels operate through inflation expectations. Tightening policy not only reduces current inflation but also impacts future expectations. Importantly, in contrast to perfect foresight-rational expectations models, the central bank can shape agents’ learning. Lower-than-expected current inflation leads to adjustments in how past inflation is perceived, influencing future inflation. The model suggests that the speed to reach the inflation target depends on the strength of the monetary policy stance.
Jaden Kim, Augustus J Panton, and Gregor Schwerhoff
The current energy crisis has raised important policy questions on how to strengthen short-term energy security while remaining firmly committed to the green transition, a challenge amplified by the recent consensus at COP28 to transition away from fossil fuels. This paper examines the historical determinants of the security of energy supply and analyzes the green transition implications for energy security. Looking back, we find that the diversification of energy trade partners, or the lack thereof, was the main factor that underpinned energy security dynamics within and across countries over the last two decades. Looking ahead, the green transition is expected to have a net positive effect on energy security provided investments are aligned to address new challenges posed by the increased reliance on renewables.
International Monetary Fund. Middle East and Central Asia Dept.
Le changement climatique est à la fois une menace considérable et l’occasion de nouvelles possibilités de développement pour le Maroc. D’une part, le Maroc est l’un des pays du monde les plus touchés par le stress hydrique et la pénurie d’eau est un sérieux obstacle qui empêche le pays de satisfaire son ambition d’aller vers un nouveau modèle de développement. Les autorités prévoient d’accroître les investissements en infrastructures hydriques, mais elles devront les compléter par des réformes de gestion de la demande pour rapprocher le prix de l’eau de son coût réel et susciter un changement de comportement des usagers. D’autre part, le Maroc peut tirer parti de l’abondance et de la compétitivité de ses ressources énergétiques renouvelables pour réduire sa dépendance encore prononcée à l’égard des combustibles fossiles. Le processus de décarbonation de son modèle énergétique nécessiterait de considérables investissements dans les énergies renouvelables, qui devraient être essentiellement assumés par le secteur privé. Ce processus nécessiterait également de profondes réformes réglementaires, notamment de nouvelles mesures pour libéraliser le secteur de l’électricité. La pleine exploitation de ce potentiel énergétique renouvelable pourrait permettre au Maroc de réduire sa dépendance à l’égard des combustibles importés, de renforcer la compétitivité de ses entreprises sur les marchés voisins qui s’engagent sur la voie de la transition écologique (notamment l’Union européenne) et de contribuer à la création d’emplois. Le fort séisme qui a frappé le Maroc le 8 septembre, entraînant un lourd tribut en termes de vies humaines et de dégâts matériels, souligne l’importance de renforcer la préparation et la résilience du pays face aux catastrophes naturelles, notamment au changement climatique.