A hybrid electricity-economy model to assess the aggregate impacts of low-carbon transition: An application to France

Abstract

The article investigates different macroeconomic channels of transmission of the low-carbon transition in two official scenarios for the French power system under different oil price scenarios. A hybrid model combines, with a two-way soft link, a dynamic general equilibrium model and a partial equilibrium model for the power generation mix. The results show that the decarbonization of the economy and growth can be driven by technical progress and substitution mechanisms triggered by low-carbon transition policies. The main transmission channels are the demand for energy through the relative price of energy and the relative efficiency of energy, and the demand for durable goods. Considering the evolution of relative electricity prices, for an economy transitioning toward mass electrification, seems to be key in our model. And, if recycled, the carbon tax may not significantly harm the economic welfare of households but weigh (slightly) on the firms in the long run.