David Robinson, Pedro Linares Llamas, Xiral López-Otero and Renato Rodrigues
In this chapter, we argue that fiscal policy in Europe is not aligned with decarbonization and propose reforms to improve the alignment. We also report on a case study carried out to model the impact of implementing a version of the proposed fiscal reforms in Spain. The case study illustrates that the fiscal reforms are valuable, particularly in reducing carbon dioxide emissions. However, it also reveals the need for a transition plan to send effective investment signals and address the political economy frictions created when new technologies are being introduced, especially in the transport sector.