Policies for rapid decarbonization with steady economic transition and employment creation

A large number of countries have by now pledged to undertake policies aimed at reducing greenhouse gas emissions and achieving carbon neutrality. However, evidence for a suitable policy package to induce an effective and orderly transition is scarce. Recent studies suggest that abrupt and aggressive climate policies may trigger significant transition risks, potentially leading to macroeconomic imbalances. Here we extend a macro-financial agent-based integrated assessment model grounded in evolutionary economics and complex systems science to test a variety of policy packages aimed at rapidly decarbonizing the global economy and study how they affect job creation and economic stability. We show that carbon taxation alone is self-defeating: its role at internalizing environmental costs while triggering rapid decarbonization finds little support. However, an ensemble of industrial regulations and public subsidies coupled with a mild carbon tax is the most promising policy toolkit to support a rapid and orderly transition. Such a policy mix can be designed to have a neutral impact on public finances and to boost job creation during the transition process. Carbon taxation serves primarily as a tool for raising public revenues to support government spending, rather than as a direct driver of rapid decarbonization.