European green bonds, carbon tax and crowding-out: The economic, social and environmental impacts of the EU's green investments under different financing scenarios

This study provides novel insights into the economic, social and environmental impacts of green energy investments in the European Union using MAGNET, a computable general equilibrium model of the world economy. MAGNET was extended to include sector-specific investment allocation, investment risk premiums adjustment, and technology learning effects to endogenize productivity growth in renewable and bioenergy sectors. In line with the proposals on climate neutrality and the Green Deal, the study simulates an increase in investments in renewable energy and bioeconomy sectors (additional 15 % increase in capital stock) starting in 2025. Three alternative financing scenarios are compared; the European Green Bonds scenario, carbon tax scenario and the crowding-out scenario (assuming green investments are financed from existing resources). It is found that additional green energy investments bring generally positive GDP, social and emission-saving effects. In the case of GDP, the deviation from the baseline reaches +0.9 % in 2050 for the EU if financed from the Green Bond. The other scenarios show that when green investments are not crowding-out other investments in the EU, the economic impacts at EU level are still positive. It is also shown that, on average, the investment policy would increase the size of bioeconomy sector by between 3.2 % and 4.2 % in 2050. However, the impacts across particular countries and industries are very heterogenous. • Green energy investments lead to emission reduction at low economic costs or even with economic benefits. • The most positive GDP impact is achieved with European Green Bonds as a main financing mechanism. • Green energy investments provide positive social spillovers and have a positive impact on the bioeconomy as a whole. • Technology learnings are crucial for the emission saving effect of green investments and enhance positive economic effects. • The CO2 taxation is an effective instrument to speed up the energy transition, however at the cost of higher energy prices.