Higher carbon prices have an impact on carbon emissions, but also on consumer prices. At least during the transformation period, they would make energy more expensive and drive up the production costs of goods. Furthermore, the necessary, accelerated transition to renewable energies inevitably implies new and costly capital investment, while existing capital stock has to be written off more quickly than expected.
However, growth could be another 1.4 percentage points lower in the most severe scenario, according to the ECB (European Central Bank) staff estimations – that is, if all three factors I mentioned were to deteriorate even further. Hence, there are significant downside risks to economic activity at present.