Katheline Schubert

There is a lot of expectation surrounding energy sufficiency as part of the energy transition. It may result from an increase in energy prices, but it could also be a conscious choice. In this case, it would be the consequence of an adjustment in preferences or a reduction in behavioural biases. Changes in preferences can be modelled as an adjustment to the relative weights attributed by individuals to durable goods, energy or even non‑durable goods. Here, we show that the macroeconomic impacts differ largely based on the type of adjustment, which we can use to guide public policy decisions. This then leads to the question of how to bring these preference adjustments in practice. In addition to nudges to reduce behavioural biases, preference changes can stem from a collective organisation and better information, in particular regarding the co‑benefits of energy sufficiency.

International trade contributes directly to global greenhouse gas emissions, as the carbon content of high-emission products is priced differently in different countries. This phenomenon is termed carbon leakage. Thus, not putting a price on carbon is theoretically equivalent to an export subsidy, although that would be difficult to challenge in the context of multilateral trade law. Leakage can be alleviated by pricing the carbon embedded in imported products through a border carbon adjustment (BCA), be it a tax, a carbon tariff, or a regulation requiring the purchase of emissions allowances. The design of a BCA is a compromise between environmental effectiveness in preventing leakage, economic effectiveness in preserving competitiveness and ensuring acceptability, technical feasibility of the implementation, and World Trade Organization compatibility. An import-limited BCA is more effective than free emissions allowances in reducing leakage, but it does not preserve the export competitiveness of the country imposing it.

Confronted with political opposition to the implementation of efficient carbon pricing, climate policy relies on alternative policy interventions, at a cost in terms of welfare and public finance. In order to evaluate this cost, this paper studies, in the context of the energy transition, second best climate policies constrained to keeping a constant level of the carbon tax and combining it with subsidies to carbon-free electricity generation. This subsidies can take the form of a feed-in premium paid to electricity produced from carbon-free sources, or of subsidies to investment in green capacity. Within a stylized dynamic model where energy may be produced with fossil or carbon-free sources and climate policy aims at satisfying a carbon budget, we define and characterize the carbon pricing gap. We show that if the constant carbon tax is small and therefore the carbon pricing gap large, the subsidy to carbon-free sources should be so large to foster rapid build up of green capacity that it would imply large investment costs and huge financial burden on the public budget, and a large welfare loss. We calibrate the model to the European energy market to obtain orders of magnitude of the effects.

Confronted with political opposition to the implementation of efficient direct carbon pricing, climate policy relies on alternative policy interventions, such as subsidies to renewables. This paper uses a dynamic macroeconomic model under a carbon budget to study climate policies constrained to keeping a constant level of the carbon tax. We find that it is possible to implement the optimal trajectory by combing an increasing tax on electricity consumption with a feedin-premium paid to electricity produced from renewable sources. Otherwise, when the climate policy relies on the second instrument only, the subsidy to renewables should be so large to foster rapid build up of specialized capital, that it would imply large investment costs and financial burden on the public budget, unless the carbon tax level could be initially set at a high level. Unfortunately, the two solutions with no or low welfare losses raise concerns on their political acceptability too.

Confronted with political opposition to the implementation of efficient direct carbon pricing, climate policy relies on alternative policy interventions, such as subsidies to renewables. This paper uses a dynamic macroeconomic model under a carbon budget to study climate policies constrained to keeping a constant level of the carbon tax. We find that it is possible to implement the optimal trajectory by combing an increasing tax on electricity consumption with a feedin-premium paid to electricity produced from renewable sources. Otherwise, when the climate policy relies on the second instrument only, the subsidy to renewables should be so large to foster rapid build up of specialized capital, that it would imply large investment costs and financial burden on the public budget, unless the carbon tax level could be initially set at a high level. Unfortunately, the two solutions with no or low welfare losses raise concerns on their political acceptability too.

Confronted with political opposition to the implementation of efficient direct carbon pricing, climate policy relies on alternative policy interventions, such as subsidies to renewables. This paper uses a dynamic macroeconomic model under a carbon budget to study climate policies constrained to keeping a constant level of the carbon tax. We find that it is possible to implement the optimal trajectory by combing an increasing tax on electricity consumption with a feedin-premium paid to electricity produced from renewable sources. Otherwise, when the climate policy relies on the second instrument only, the subsidy to renewables should be so large to foster rapid build up of specialized capital, that it would imply large investment costs and financial burden on the public budget, unless the carbon tax level could be initially set at a high level. Unfortunately, the two solutions with no or low welfare losses raise concerns on their political acceptability too.

Confronted with political opposition to the implementation of efficient direct carbon pricing, climate policy relies on alternative policy interventions, such as subsidies to renewables. This paper uses a dynamic macroeconomic model under a carbon budget to study climate policies constrained to keeping a constant level of the carbon tax. We find that it is possible to implement the optimal trajectory by combing an increasing tax on electricity consumption with a feedin-premium paid to electricity produced from renewable sources. Otherwise, when the climate policy relies on the second instrument only, the subsidy to renewables should be so large to foster rapid build up of specialized capital, that it would imply large investment costs and financial burden on the public budget, unless the carbon tax level could be initially set at a high level. Unfortunately, the two solutions with no or low welfare losses raise concerns on their political acceptability too.

We propose one of the first dynamic models of the optimal transition from fossil fuels to renewables in electricity generation that takes into account the variability and intermittency of renewable energy sources as well as storage. We take as an example solar energy, which is variable (no sun at night) and intermittent (few or no sun at day when there are clouds). We show that when the clouds phenomenon is not too severe, intermittency can be safely ignored and the planner just needs to take into account the deterministic variability of the renewable source. In this case, the optimal transition consists in using fossil fuels at day and night and complement them by solar electricity at day while investing to build up solar capacity; then abandoning fossils at day and keeping them for night electricity generation only; then, when solar capacity is large enough, starting to store electricity; and finally abandoning totally fossils when the carbon budget is exhausted. However, if the cloud problem is severe, intermittency matters a lot and precaution requires to start storage earlier, before fossils have been abandoned at day. We show that renewable electricity generation and storage are complement: absent storage devices, the long run solar capacity is smaller, and so is electricity consumption. We finally provide a quantitative illustration for the case of the Spanish energy transition. We show that in Spain intermittency can be safely ignored. We compute the carbon value corresponding to a 2 C carbon budget, the dates at which storage starts, and the path of investment in solar capacity.