Simulations
We have performed three kinds of simulations. First, business as usual, i.e. a scenario where Europe stays with the 20% emissions reduction goal as set before the financial crisis. While the 20% goal was a challenge before the crisis, it has become quite trivial in the meantime because the business as usual growth path is now unfolding at a substantially lower level. The second scenario simulated is a 30% reduction goal implemented in the environment of the business as usual growth path. The results are in line with the assessment resulting from previous studies: in the environment of the business as usual equilibrium, the 30% reduction is achievable at the cost of a small reduction of GDP. The third scenario is a 30% reduction goal used as a trigger to switch from a low-growth to a high-growth equilibrium. As this is the new possibility not considered in previous studies, here a series of simulations have been performed, introducing the features defining the new equilibrium step by step. These simulations show that an improvement of the growth rate by about 0.5%, and the creation of about 6 million additional jobs are possible by taking advantage of the combined effects of learning-by-doing, regime change on the labor market, and expectation management. The last point deserves special attention for policy design: if the reduction goal is to contribute to a new growth path, the EU must establish robust credibility about its will to realize this path.
