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This paper studies the role of expectations and monetary policy in the economy's response to climate actions. We show that in a stochastic environment, without the standard assumption of the perfect rationality of agents, there is more uncertainty regarding the path and the economic impact of a climate policy, with a potential threat to the ability of central banks to maintain price stability. Market beliefs and behavioral agents increase the trade-offs inherent to the chosen mitigation tool, with a carbon tax entailing more emissions uncertainty than in a rational expectations model and a cap-and-trade scheme implying a more pronounced pressure on allowance prices and inflation. The impact on price stability is worsened by delays in the implementation of stringent climate policies, the lack of confidence in the ability of central banks to keep inflation under control, and the adoption of monetary rules tied to expectations rather than current macroeconomic conditions. Central banks can implement successful stabilization policies that reduce the uncertainty surrounding the impact of climate actions and support the greening process while remaining within their mandate. • This work investigates how expectations can shape a green transition. • Without fully rational agents impacts of climate policy are more uncertain. • Carbon taxes and cap-and-trade's drawbacks are enlarged by non-fully-rational agents. • Delayed action and low credibility in central banks cause major inflationary pressure. • A reactive monetary policy can reduce uncertainty on climate policies' impacts. [ABSTRACT FROM AUTHOR]

Limiting global warming to well below 2 °C may pose threats to macroeconomic and financial stability. In an estimated Euro Area New Keynesian model with financial frictions and climate policy, we study the possible perils of a low-carbon transition and evaluate the role of monetary policy and financial regulation. We show that, even for very ambitious climate targets, transition costs are moderate along a timely and gradual mitigation pathway. Inflation volatility strongly increases for disorderly climate policy, demanding a strong monetary response by central banks. In reaction to an adverse financial shock originating in the fossil sector, a green quantitative easing policy can provide an effective stimulus to the economy, but its stabilizing properties do not significantly differ from those of market neutral asset purchase programs. A financial regulation, encouraging the decarbonization of the banks' balance sheets via ad hoc capital requirements, can significantly reduce the severity of a financial crisis, but prolongs the recovery phase. Our results suggest that the involvement of central banks in climate actions must be carefully designed to be in compliance with their mandate and to avoid unintended trade-offs. • We develop a New Keynesian model with climate policy and financial frictions. • We study the role of financial regulation and monetary policy in a green transition. • The risk of macro-financial instability is limited for a gradual mitigation pathway. • Green quantitative easing programs stabilize the economy after a financial shock. • Differentiated capital requirements can mitigate the severity of a financial crisis. [ABSTRACT FROM AUTHOR]

While global greenhouse gas (GHG) emissions are still rising, a number of countries have emerged with a sustained record of emissions reductions. In this article, we identify these countries and examine their progress, exploring how fast, how deep, and in which sectors they have reduced emissions. We analyse changes in all major GHG emissions sources, with both production – and consumption-based accounting, but exclude very small countries with high volatility, along with land-use, land-use change and forestry CO2 emissions. We find that 24 countries have sustained reductions in annual CO2 and GHG emissions between 1970 and 2018, in total equalling 3.2 GtCO2eq since their respective emissions peaks. In all but three countries, overall GHG reductions are less than energy and industrial CO2 reductions alone. We group countries into three types of emissions pathway: six former Eastern Bloc countries, where emissions declined rapidly in the 1990s and have continued on a downward trajectory since; six Long-term decline countries, which have sustained reductions since the 1970s; and 12 Recent peak countries, whose emissions decline began in the 2000s. In all cases, emissions reductions were achieved primarily in the energy systems sector, specifically in electricity and heat generation, which still remains the largest source of emissions in most countries. By contrast, in the transport sector, emissions tend to be stable or increasing. Transport is the second largest source of current emissions in Recent peak and Long-term decline countries. While the total GHG reductions of these 24 countries are trivial compared to recent global emissions growth, some have achieved a decline of up to 50% in their annual emissions, showing what is possible even under very moderate climate action. Most countries achieved emissions reductions alongside sustained economic growth, and some approached the fast annual rates of change that will be needed across the world in the coming decades to limit warming to 2°C. This raises the hope that more substantive climate policy, as planned in a growing number of countries, may bring about deeper and more rapid emissions reductions than some may expect today. Key policy insights 24 countries have sustained CO2 and GHG emissions reductions between 1970 and 2018 The annual emissions reductions of some countries are within the range of those needed to limit global warming to 2°C, but not consistently, nor across all underlying sectors Most emissions reductions were achieved in the energy sector; transport emissions have remained stable or continue to grow [ABSTRACT FROM AUTHOR]

This article analyses the status and trends of the European Union (EU) residential energy consumption in light of the energy consumption targets set by the EU 2020 and 2030 energy and climate strategies. It assesses the energy efficiency progress from 2000 to 2016, using the official Eurostat data. In 2016, the residential energy consumption amounted to 25.71% of the EU's final energy consumption, representing the second largest consuming sector after transport. Consumption-related data are discussed together with data on some main energy efficiency policies and energy consumption determinants, such as economic and population growth, weather conditions, and household and building characteristics. Indicators are identified to show the impact of specific determinants on energy consumption and a new indicator is proposed, drawing a closer link between energy trends and policy and technological changes in the sector. The analysis of these determinants highlights the complex dynamics behind the demand of energy in the residential sector. Decomposition analysis is carried out using the Logarithmic Mean Divisia Index technique to provide a more complete picture of the impact of various determinants (population, wealth, intensity, and weather) on the latest EU-28 residential energy consumption trends. The article provides a better understanding of the EU residential energy consumption, its drivers, the impact of current policies, and recommendations on future policies. [ABSTRACT FROM AUTHOR]