Unlike untargeted, broad-based transfers and fossil fuel subsidies that distort incentives, such measures are welcome from a monetary policy perspective: their positive impact on the economy’s productive capacity will help both restore price stability over the medium term and support debt sustainability by boosting potential growth. [15] Several structural measures are equally important.
One is a comprehensive use of carbon prices to spur substitution away from fossil fuels. All else equal, a higher LCOE of renewables requires a higher carbon price to preserve incentives for decarbonisation. Removing red tape is another area where action is urgently needed.