does not translate into considerable forecast uncertainty of the projected carbon tax.

Public investment in fossil infrastructure decreases from 0.1% of trend GDP to 0.01%. Note that private investment is sensitive to public infrastructure investment. Hence, the – phase-out of fossil infrastructure investment including the sharp decline in the first few – quarters is designed to keep the risk of private asset stranding small.<sup>15</sup> Nevertheless, the 90% HDI of stranded asset purchases indicates a considerable risk of asset stranding already in the early stages of the transition.

To compensate for the negative effect of the carbon tax on low-skilled consumption, transfer payments increase from 8.1% of trend GDP in 2022 to 8.7% in 2026Q4. While the rapid phase-out of fossil investment reduces the risk of asset stranding, it generates uncertainty regarding the required public support of low-skilled households as indicated by the wide 90% HDI during the fiscal-consolidation phase.

Renewable infrastructure investment rises from 0.1% of trend GDP to 0.195% within ten years. We assume that this exactly matches the renewable infrastructure satiation level. It corresponds to the $2bn of annual investment needs in renewable infrastructure identified in – World Bank (2022). By 2027, emissions decline below 340mn tonnes the reference value calculated for T ̈urkiye to stay on the 2°C path in 2030 (Voyvoda and Yeldan 2015).

At the posterior mean, the target public debt-GDP ratio of 34% is achieved in 2027Q1. This is when the phase of the _renewable energy boom_ starts.<sup>16</sup> Instead of reducing public debt, carbon tax revenues are now used to finance renewable energy subsidies while keeping public debt at a constant share of trend GDP.<sup>17</sup> The subsidy peaks in 2029Q1 at $1400 per toe, which amounts to a sizable bill of 0.62% of GDP. As emissions decrease, the revenues from the fuel tax and the carbon tax decline. To continue meeting the public debt target, renewable subsidies are phased out gradually until 2037. During the renewable energy boom, carbon taxes can be temporarily lowered as the renewable subsidies sufficiently reduce emissions to stay on target.

Note that there is considerable parameter uncertainty regarding the size of the renewable subsidy and the duration of the boom. At the peak, the 90% HDI ranges from $300 to $2800 per toe. Regarding phase-out time, the 90% HDI ranges from 2032 to 2042. Given strict public debt and low-skilled consumption targets, the uncertainty about the macroeconomic effects of the policy mix considered translates into uncertainty about how much public funds there will be available for renewable subsidies.

At the posterior mean, revenues will be insufficient to sustain a constant debt-trend GDP ratio, even without subsidies, by 2037. This is the beginning of the phase of the _final push_ . The carbon tax increases from $90 in 2037 to $175 in 2053. The carbon tax required to stay on the path to net zero is subject to only moderate parameter uncertainty. For instance, the

> 15We define stranded capital assets as the private capital stock which F-firms do not wish to hold any longer. Stranded assets are valued at replacement costs.

> 16In the Monte Carlo simulation of the 90% HDI, we fix the start date of the renewable subsidy to 2027Q1 and hold the public debt-trend GDP ratio constant at whatever value it has in that period.

> 17To ensure a smooth transition, the subsidies are phased in already in 2026Q2.

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