As carbon emissions reach unprecedented levels and threats of climate change mount, countries all over the world are racing to implement climate change mitigation policies to limit their carbon footprint and minimize climate risk. This dissertation explores the macroeconomic effects of climate change mitigation policies, namely carbon taxes and green energy investments.

The first chapter, co-authored with Tiago Cavalcanti and Cezar Santos, evaluates the aggregate and distributional effects of climate change mitigation policies using a multi-sector equilibrium model with intersectoral input–output linkages and worker heterogeneity calibrated to different countries. The introduction of carbon taxes leads to changes in relative prices and inputs reallocation, including labor. For the United States, reaching its original Paris Agreement pledge would imply at most a 0.6% drop in output. This impact is distributed asymmetrically across sectors and individuals. In the US, workers with a comparative advantage in dirty energy sectors who do not reallocate suffer a welfare loss 12 times higher than workers in non-dirty sectors, but constitute less than 1% of the labor force.

The second chapter estimates the local multiplier of spending in green energy in the United States. I construct a novel state-level dataset, and isolate the exogenous variation in green energy spending by exploiting the institutional characteristics of the green budget allocation by the Department of Energy (DoE). I find that a $1 increase in green investment increases state-level output by $1.1 contemporaneously, and up to $4.2 within two years of implementation. These estimates are large in comparison to the findings of the literature on public infrastructure multiplier, or the multiplier of non-green investments by DoE.

The third chapter builds on the second chapter and provides an empirical and a theoretical breakdown of the local green multiplier in the United States to understand why it is large. Empirically, I find that green energy spending has significant effects on state sectoral output, state-level employment, and state-level investment. Quantitatively, I contrast green and nongreen multipliers by specifying an open economy New Keynesian model with public capital, where each US state is an open economy within a fiscal and monetary union. I calibrate the public capital to green and non-green energy using a transaction-level dataset on awards by the Department of Energy. Model-based counterfactual experiments suggest that 86% of the difference between the green and non-green multipliers is explained by the initial stock of public capital in each energy type. As green public capital is further away from the steady-state, the marginal productivity of investment is higher in the short-run, leading to higher multipliers relative to investment in non-green public capital.