tiation point only have minor effects on CO2 emissions. For better comparability, consider the 10-year cumulative emission multiplier effects of the carbon tax, the renewable subsidy, and infrastructure investment below the satiation point. Moving $1bn over ten years reduces emissions by 4.3mn, 3.9mn, and 22.2mn tonnes, respectively. These results are highly consistent with Deleidi et al. (2020), whose panel study covering 17 countries suggests that public investment is considerably more effective in mobilizing private finance than carbon taxes or renewable subsidies.

Third, there are critical macroeconomic differences between the policy instruments. The carbon tax contracts GDP by around $0.4bn after ten years. The renewable subsidy raises GDP by around $1bn. At the margin, green infrastructure investment below the satiation point boosts GDP even by $5.6bn. These instruments’ 10-year cumulative GDP multipliers are -0.4, 0.74, and 3.37, respectively. Public investment in generation and infrastructure at the satiation point only have minor GDP effects. The economics behind these results is straightforward: The carbon tax increases energy prices and reduces private consumption and investment. The subsidy encourages private activity by lowering energy prices and stimulating the demand for renewable energy. Public infrastructure investment not only stimulates aggregate demand but also increases the marginal returns of private capital.

Forth, none of the climate-fiscal instruments considered here affects net exports considerably. Nevertheless, the composition of trade changes fundamentally, causing significant friction. Depending on the policy instrument, exports decrease by up to $0.6bn. Only public investment in renewable energy generation has no impact on exports. Infrastructure investment below the satiation point raises non-oil imports strongly by up to $1.5bn. Given an import share of fossil fuels of 87%, the responses of the oil imports mirror those of CO2 emissions. The carbon tax and the renewable subsidy reduce oil imports by up to $0.4bn. Infrastructure investment reduces oil imports by up to $2.6bn.

Fifth, to the extent that climate-fiscal policy instruments push the unemployment rate below (or above) the non-accelerating inflation rate of unemployment (NAIRU), headline inflation may settle above (or below) the inflation target. For instance, the carbon tax increases the labor intensity of production. This tightens the low-skilled labor market and translates into higher wages and, eventually, price inflation of around 0.08%-points above target. Infrastructure investment at the satiation point has the same effect. The renewable subsidy reduces the labor intensity of production, causing inflation to settle 0.1%-points below target. Infrastructure investment below the satiation lowers inflation considerably by up to 1%-point. As discussed in the previous sensitivity analysis, the central bank’s response to transition-induced deviations of inflation from the target critically determines the GDP response.

# **4.2 A climate-fiscal policy mix for net zero under constraints**

The net-zero scenario involves the following targets and constraints: Broadly consistent with (IPC 2021, World Bank 2022), we require CO2 emissions to decrease linearly from 400mn 18