- Hybrid bottom-up and top-down modeling of economy-energy-environment interactions (3E)
- Macroeconomic impacts of the energy transition
The macro-economic risks of the ecological transition
PhD supervisor: Frédéric Ghersi
The energy transition needed to mitigate climate change, which is being considered at an ever-increasing pace because of the difficulties in initiating the transformations it requires, entails growing risks for the entire economy. It implies a structural change that poses a direct risk to the most carbon-intensive industries, not only in terms of loss of income but also, given its ever-tightening timetable, in terms of bankruptcy. This risk spreads throughout the economy through credit and financial markets. In order to assess its magnitude, economic actors mobilize forward-looking scenarios describing plausible transition paths and how they affect the levels of activity of different productive sectors.
However, the state of the art of macroeconomic modeling of energy transitions does not allow for a good representation of the financing constraints of economies, notably because the majority of the most prominent models are based on a neoclassical tradition of representing perfect markets. The investment and productive capital of the sectors are thus modeled too schematically, as the consequence of exogenous savings rates for the former, and for the latter by the free mobilization of a fraction of an aggregate endowment available at a single ‘rental price’. So-called ‘Stock-Flow Coherent’ (SFC) models offer a much more relevant representation of macro-financial flows and their dynamics, but have only recently begun to address energy transition issues and have not yet caught up with the state of the art in describing the technical systems that define the constraints and potentialities of transitions.
This thesis project aims at bridging the gap between best practices of ‘hybrid’ modeling of technical systems and SFC modeling of the macro-financial system. It is based on the exploitation of the multi-regional prospective model KLEM-POLES developed in collaboration by CIRED and ENERDATA. KLEM-POLES has the advantage of coupling a simple macroeconomic model with two production factors and two sectors, the KLEM model (Kapital, Labour, Energy, Materials), with the POLES model, which proposes a detailed representation of the energy system of 66 countries and regions covering the whole world. It is thus a ‘hybrid’ model in the sense that it reconciles the points of view of the engineer (POLES model) and the economist (KLEM model) in the description of energy systems. The objective of the thesis project is to extend the KLEM model to the representation of macro-financial flows, in the spirit of the SFC model. This extension implies disaggregating the ‘representative agent’ of each country or region described by the model into six economic agents: households, non-financial firms, financial firms, public administrations, central banks, and the rest of the world, in order to allow the representation of the financial positions of each of these agents, the specification of their own savings and investment behaviors, and the modeling of the resulting financial flows. The model developed will be used to explore stress test scenarios aimed at reassessing the resilience of the world’s major economies to different transition conditions of their energy systems and those of their trading partners, with due consideration of the financing conditions of their activities.