Growth, Distributions, and the Environment. A Stock-Flow Consistent Framework for Policy Analysis

The paper presents a benchmark multi-sectoral stock-flow consistent (SFC) macro model which addresses issues of production, energy, and emissions in a demand-driven framework. The model introduces three innovations in modeling the production side of the economy. First, the firms and the energy producers are vertically integrated interlinking output and prices across the two sectors. Second, energy supply is generated from two different sources; a non-renewable input dependent high-emissions energy and a renewable zero-emissions energy. Third, the monetary economy is integrated with the environment through two channels; a non-renewable input extracted for energy production and Greenhouse Gasses (GHGs) accumulated through the production process. Five policy experiments are conducted on a calibrated economy; a reduction in consumption, capital damage function, a higher share of renewable energy, carbon taxes, technological shock to capital and energy productivity. Results show that different policy channels can yield the same macro outcomes although through very different adjustment processes especially in unemployment, prices, and income distributions.