Transitions towards a F4 society
A three year modelling program supported by IDDRI
Jean-Charles Hourcade, Renaud Crassous, Olivier Sassi,
Frederic Ghersi, Sandrine Mathy, Vincent Gitz, Henri Weitzman

A specific institutional setting• IDDRI: a Research Foundation funded by French Ministries (foreignaffairs, finance, environment, research, equipment) and 15enterprises• EPE: Enterprises for the Environment; a consortium of 22 energy
intensive entreprises including the cement,steel and non ferrousindustry• Energy enterprises including EDF (Electricité de France) and Total(oil company)• The CIRED (Cnrs, Ehess, Enpc, Engref, Meteo – France, Cirad)• The LEPII (Cnrs and University of Grenoble)

A program based on a shared dissatisfaction between
modellers and industry• A F4 objective cannot be reached without technologicalbreakthrough and deep changes in final demand• This breakthrough will not been achieved unless industry sees the F4
objective as a mobilizing utopia instead of a pure constraint• To help policy discussions the current state of the art in long term
modelling has to be improved in the following directions:– The consistency of the dialogue between macro-economists andsector-based expertize– To scrutinize the transformation of the final demand– Transition mechanisms ‘instead of steady state economies’– Macroeconomic parameters in a world economy under structural
disequilibrium– Sensitivity to controversial judgments

SRESS : the trap of the combinatory explosion?

Source : IIASA, Nakicenovic

Parameters of the KAYA entity are in fact linked byendogenous interplays

GDP Energy ECO2
ECO2 = POP⋅⋅⋅POP GDP Energy

CSM – Paris – 24 mars 2005

Two Main Policy Questions• For minimizing the costs a F4 objective what is the relative role of:– The decarbonisation of energy supply (fuel switching and minimisationon the conversion losses– The end – use energy efficiency– Structural changes in final demand of goods and services(dematerialisation of growth patterns)– Macroeconomic parameters in opened economies• What ‘climate regime’ is capable to incite– Industry to provide responses to the first three challenges (technologies,products)– Goverments to provide the most favorable macroeconomic context andto mobilize –non carbon price only - policies

A scientific strategy with four components ….
• An ‘novel’ modelling framework (Imaclim – Poles)• A representation of alternative development styles• A specific scenario approach• A heuristic approach with a permanent dialogue withindustry and other stakeholders

… and relying on two pre-existing models
Modèle POLES (LEPII-EPE)• Horizon 2050

Investissement• Monde en 38 zones• 24 productions d’électricité• 11 usages finaux de l’énergie• Marchés mondiaux endogènes

Mise en cohérence
quantités/prixEmploi

effet d’éviction, spillovers,
progrès technique induit• 6 gaz à effet de serre

Revenus

Consommations
Matrice
Input Output

Modèle IMACLIM(CIRED)

propagation dessignaux prix

Technologies
Géographie
humaineFiscalité

Calibrage des• Etalement urbain
fonctions• Evolution des modes de travail comportementales
et de loisir• Inerties des infrastructures

Réformes écofiscales,
double dividende ?

Marchés
internationaux(demandes de bienset de facteurs)• Choix modaux

Prospective énergétique
EPE - 6 décembre 2004

Prospective macroéconomiqueWhat would we like to represent?

Productivité
Démographie

Commerce
international

Flux decapitaux

Growth engineDevelopment patterns

EnergyparametersCoût destechnologies

InfrastructuresParc
automobile

Stockd'équipements

Progrès
technique

Stock deressources fossiles

Main modelling principles• An hybrid modelling structure in physical and money flows inorder to secure the dialogue with sector - based expertise andmake explicit– the assumptions governing the dematerialisation of the economy– The sources of technical inertia• A growth engine with disequilibrium:– With imperfect foresight and routine behaviours– Allowing for structural imbalances (endebtedness, unemploymentand informal economy) and endogenous shocks

 An endogenous growth framework to minimize the trap of thecombinatory explosion

A risky departure from the Golden Age growth paradigm?
• The Solow’s advices (1988):– a) economic cycles are not optimal responses to random shocks
around an optimal pathway– b) progress in growth theory requires to better capture the evolutionof the structure of final demand• Computational capacity now exists of overcoming the HarrodDomar’s knife-edged versus steady growth Solow’s paradigms• Back to “Kaleckian” dynamics with equipment vintages andflexibilities in a) the “equipment intensity” of growth b) the use ofenergy, labour and other inputs

A recursive and modular architecture: static equilibria +dynamic relations informed by sector based expertiseTime path

Static Equilibrium t

Static equilibrium t+1

Transport

Electricity,
Fossil fuels

Land-use

Updated parameters(tech. coef., stocks, etc.)

Bottom-up sub models (reduced forms)
Marco economic growth engine
Price-signals, rate of return
Physical flows

Static equilibria under constraints stemming from technicalendowments and routine micro and macro behaviors

Transports : budget-tempset capacités (infra+équipements)

Ménages
Fonction d'utilité sous contraintes
Taxes
PrixTransferts

Friction sur les
facteurs de production :Sous- ou sur- capacités
Chômage

DemandefinaleÉnergie : induction des besoins
par les transports etle logement (stock de m²)

Salaires
Exportations

Secteurs de production
Sous contrainte de courtterme (capacité+technique)

Marchés mondiaux

Importations

Charges
Taxes

Administrations
Publiques
Redistribution & Infrastructures

Balance commerciale etBalance des capitaux
endogènes

Biens et flux de capitauxSuming up : Main features of the system– Production functions conditional upon sector – based
expertise– (Partially) Endogenous Structural Change: induced interactions
between demand and supply that affect the growth engine– Endogenous Capital flows function of savings, returns on
investment and country-risk and national public policies (amountof domestic savings put in an international pool)– Representation of phases of over and under investment inproduction capacities; the timing of policies matter

EPE - 6 décembre 2004

An illustration with the transportation sector
 Côté consommation finale

Maximization d'utilité :r rξk , jξ k ,iU k Ck , Sk = Π ( Ck,i − bnk ,i ) ( Sk,j − bnk , j )()goods iservices jηkηkηk  pkm ηk  pkm
 pkmk ,cars  pkmk ,nonmotorized  k , publick , air
Sk ,mobility =   + 
 + 
 +    bk ,air  bk ,cars  bk ,nonmotorized  
 bk , public Sous double contrainte :ptck ⋅ Incomek = ∑ pArmCk ,i ⋅ Ck ,i +∑iEnergies Ei

Tdispk =∑means of transport Tj

Capacité=f ( infrastructures, équipements )m²m²
pArmCk , Ei ⋅ ( Skcars ⋅ α kcars, Ei + S k ⋅ α k , Ei )pkmk ,T j∫ τ ( u ) duj

0−ηkSteps of the development of reduced forms (with thecollaboration of industry)– Energy sector (2005 – 2006)– Energy intensive industry (2006 – 2007)• Steel• Cement• Aluminium• Glass• Refining industry– End-use products including transport andbuildings Infrastructures (2007)
EPE - 6 décembre 2004

Scenarisation principles: articulating threemain sets of ‘visions’Consommation
C

Productivité
générale
Démographie(nivaux,flux)

Epargneet flux decapitauxMoteursde lacroissance

Degréd’extraversion
des économies
EPE-IDDRI – Paris – 7 mars 2006

Marchés
del’énergieT
Technologie

LLocalisation

Picturing development patterns
Consumption Patterns
 Buildings, housing equipments
 Obsolescence rates
 Mobility

CTechnological patterns
Location patterns
 Urban forms
 Sea-side vs continental

EPE-IDDRI – Paris – 7 mars 2006

LT

 Economies of scale vs distributedtechnologies
 Material efficiency vs renevable RecyclingIllustrative results: the induction of mobility through higher
efficiency of cars
Mobilité automobile OCDE
2,30E+13

2,10E+13

1,90E+13

1,70E+13

1,50E+13

1,30E+13

1,10E+13

9,00E+12

7,00E+12

5,00E+12

pkmauto BAU OCDE

EPE – 19 Mai 2005

pkmauto 450ppm OCDE

pkmauto 550ppm OCDEInfrastructure policy lightens the required tax burden.
Carbon tax only

Annual tax increment from 2005 to 2100

12450 ppm

Combined: Carbon tax + transportation infrastructure policy

550 ppm

1086420400600

800

1000

1200

Carbon budget 2000-2100 (GtC)

1400

16001800Energy burden for households - Hydro and Nuclear policies
14,0%
12,0%
10,0%
8,0%
6,0%
4,0%
2,0%
0,0%
1990

2000

2010

2020

BAU CHN
Nuke & Hydro policies CHN

2030

2040

2050

BAU IND
Nuke & Hydro policies IND

2060

GDP variations - Hydro and Nuclear policies
4,0%
3,0%
2,0%
1,0%
0,0%
2000

2010

2020

2030

2040

2050

-1,0%
-2,0%
-3,0%
CHN
CHN

IND w/o policies on apital flows
IND with policies on apital flows

2060