Dynamic General Equilibrium Model of Energy Transition

This Fortran code enables to numerically simulate a dynamic general equilibrium model to study energy transition at a world level. It is intended to solve the optimization problem studied in Fagnart, Germain, and Peeters (2020).

As explained in the paper, although the long-run equilibrium of the economy can be analytically described (see Section 4. Results), solving its transitory dynamics requires to simulate a calibrated version of the model. The calibration is made while assuming that the model describes the World economy. It is detailed in Appendix A.9 and relies on different current values of observed variables at the World level (GDP, energy consumptions, savings rate, etc.) and several reasonable assumptions about the initial NRE stock, the RE flow, and the potential of technical progress in the energy and non-energy sectors. The calibration is included in the Fortran code so that every details are freely available.

Full reference of the paper:

Fagnart, J.-F.; Germain, M.; Peeters, B. Can the Energy Transition Be Smooth? A General Equilibrium Approach to the EROEI. Sustainability 2020, 12, 1176. https://doi.org/10.3390/su12031176

Abstract:

The concept of energy return (EROEI ratio) is widely used in energy science to describe the interactions between energy and the economic system but it is largely ignored in macroeconomics. In order to contribute to bridging a gap between these fields of research, we incorporate these metrics into an endogenous growth model with two sectors (energy and final goods) and use this model to analyze the macroeconomic implications of a transition to lower EROEI resources. An approach in terms of net energy allows us (1) to explicitly link the EROEI to macroeconomic variables, (2) to show how it is related to the growth rate of GDP and (3) to obtain a closed-form solution for its long-run value at a general equilibrium level. There is furthermore a tight and decreasing long-run relationship between the EROEI value and the share of investment that must be allocated to the energy sector. Hence, a transition to lower EROEI resources intensifies the rival use of capital in the energy and non-energy sectors and leads to major economic changes, both in the inter-sectoral capital allocation and in the allocation of final output between consumption and investment. We show that a protracted economic contraction may occur before the completion of the transition to renewable energy. We analyze how (1) the magnitude of this contraction and (2) the possibility of an ulterior recovery depend on the initial stock of non-renewables, the potentials of technical progress in the energy and non-energy sectors and the substitutability between capital and energy