Decarbonizing While Creating Economic Growth and Jobs: Green Industrial Policies Offer the Path to a Rapid and Sustainable Transition
Sustainable transition and development: a study coordinated by the Sant’Anna School of Advanced Studies shows that decarbonization can benefit the economy
Meeting the Paris Agreement targets by rapidly reducing global emissions while simultaneously supporting economic growth, employment and financial stability is not only possible but desirable. This is the conclusion of a study published in Nature Sustainability and coordinated by the Institute of Economics of the Sant’Anna School of Advanced Studies in Pisa, in collaboration with Utrecht University. The research shows that a well-designed combination of green industrial policies, targeted subsidies and a moderate carbon tax represents the most effective, stable and socially sustainable strategy to guide the ecological transition. By contrast, a decarbonization strategy based solely on a carbon tax risks being either ineffective for the climate or destabilizing for the economic system.
Industrial policies, employment and stability: a transition that creates jobs and opportunities
The central challenge of global climate policy is to rapidly reduce greenhouse gas emissions while avoiding a transition that is either too slow—exposing society to severe climate risks and rising costs—or too abrupt, with potential recessionary effects.
According to the study, a carefully calibrated package of green industrial policies can accelerate emissions reductions, stimulate innovation and increase employment, all while preserving macro-financial stability.
“Our work clearly shows that there is no trade-off between a fast transition and economic growth,” explains Francesco Lamperti, Professor of Economics at the Sant’Anna School and co-author of the study. “When accompanied by a coherent set of industrial policies, decarbonization can generate investment, employment and innovation instead of triggering negative economic shocks.”
The effectiveness of the proposed measures increases further when they are combined with a moderate and sector-specific carbon tax, primarily designed to support public finances without excessively raising energy costs for firms—costs that could ultimately be passed on to consumers, as seen during recent energy crises.
Overall, the proposed policy package preserves economic growth, ensures macro-financial stability, keeps fiscal costs within 1% of global GDP per year and limits global warming to below 2°C.
The crucial role of green regulatory policies
Green regulatory measures—such as banning the construction of new fossil-fuel power plants and mandating electrification in key sectors—emerge as essential tools to guide the transition. Unlike price-based policies alone, these interventions set clear goals, reduce regulatory uncertainty and steer investment towards low-emission technologies.
“Regulatory policies work because they set clear, time-bound targets,” stresses Lamperti. “They show firms the technological direction to follow, lowering uncertainty and accelerating innovation.”
Once the creation of new fossil infrastructure is banned and credible standards are introduced in energy-intensive sectors, the economic system spontaneously realigns with a rapid decarbonization pathway. “Clear standards and targeted bans do not hinder the economy—they guide it,” adds Andrea Roventini, Professor and Director of the Institute of Economics at the Sant’Anna School. “They boost green investment, make the transition more orderly, foster innovation and reduce macro-financial risks, with tangible benefits for firms and workers.”
By contrast, climate policies based solely on a carbon tax are either ineffective or pose major macroeconomic risks. “Carbon prices that are too high or rise too quickly can destabilize the economy,” Roventini continues, “while prices that are too low have negligible effects and fall far short of driving the structural change needed to decarbonize the economy rapidly.”
An advanced model to assess the global transition
The study employs the DSK (Dystopian Schumpeter meeting Keynes) climate-economic agent-based model, capable of simulating the evolution of technologies, macro-financial dynamics, energy systems and climate between 2022 and 2160. This approach allows for a detailed assessment of how different climate policy packages influence production, employment, economic stability, innovation and global warming trajectories.
The research confirms that the most efficient and stable path to rapid decarbonization is founded on a mix of regulation, public support for green investment and a moderate carbon tax—an integrated approach that combines environmental effectiveness, economic sustainability and social benefits.
