The speed of this adjustment must also be managed. As an economist, implementing a carbon tax seems like a sensible way to price in the externalities associated with high-carbon technologies and products. However, the implementation of such a tax must consider the capacity of the economy to switch to low-carbon products to be as effective as possible.
So even if only a few sectors were expanding enough to absorb the excess capacity in the aggregate economy, we would need to take the appropriate monetary policy action to meet our inflation target. So let us look at how the economy has been performing recently.