IHS Seminar: Michael Miess, Louison Cahen-Fourot, Emanuele Campiglio
Waiting for the transition: The role of expectations in the decarbonisation of the electricity sector
To study the decarbonisation of physical capital, we develop a macroeconomic model of the low-carbon transition of the electricity sector in a closed economy in discrete time. The structure of the modelling framework is based on the representation of the physical and financial stocks/flows of heterogeneous macroeconomic sectors (i.e. a stock-flow consistent model).
Our model main contribution is five-fold. First, it contributes to filling a gap regarding the role of expectations in transition processes. Second, it allows for representing how long-term (policy-dominated) and short-term (market-dominated) expectations influence each other. Third, it can represent a wide set of transition scenarios, ranging from a decarbonisation causing wide assets stranding to a smooth decarbonisation. Fourth, it integrates a taxonomy of transition dynamics following different speeds through logistic and exponential trajectories in slow- and fast-growing economies. Finally, taking advantage of the stock-flow consistent methodology suitability to represent the financial sector, the model allows for simulating the effect of differentiated interest rates applied to high- and low-carbon technologies on the decarbonisation pathways.
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