A Stylized Energy-Economy Model for France

Fanny Henriet, Nicolas Maggiar, Katheline Schubert

France has set itself the goal of reducing, by 2050, its greenhouse gas emissions to one quarter of 1990 levels (the EU Factor 4 goal). To meet this target, the introduction of a carbon tax increasing the cost of fossil fuels seems essential, but the question of its level and its increase over time is a thorny one. The “official” response in France comes from the Quinet Commission. It is based on the results of simulations done with the aid of different models, whose great complexity sometimes prevents understanding of how they work and their conclusions.
To contribute to the debate, Fanny Henriet, Nicolas Maggiar and Katheline Schubert present a simplified macroeconomic general equilibrium model. The assumptions about energy substitutes and technological progress are explicit, which facilitates analysis of their influence. Using historical French data (1986-2008), they estimate two variables: the elasticity of substitution between fossil fuels and the other goods and factors, as well as the rates of progress of labour-saving and energy-saving technologies. With this model, simulations using Quinet Commission assumptions about the carbon tax and supposing that the rates remain the same as in the past (1.6 and 2 per cent per annum) show that the reform will result in a reduction in emissions of only 25 per cent. If the tax also contributed to an increase in research into energy sources, the reduction in emissions in the long term would be around 40 per cent. However, even these two scenarios are optimistic in many ways… The model presented in this article stresses that the Quinet recommendations, though they represent an extremely important organized collective effort, are not sufficient to achieve the Factor 4 goal, which seems very hard to reach.
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Original title of the article: A Stylized Energy-Economy Model for France
Published in : Forthcoming Energy Journal, 2014
Download : http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414373
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