This document discusses climate change, the energy transition, and related macroeconomic and policy issues. It begins by establishing the negative impacts of climate change from burning fossil fuels. It then examines trends in carbon emissions and GDP across countries. Models discussed indicate that reducing energy intensity and increasing renewable energy share are important for lowering emissions. The document concludes by arguing that policies are needed to conditionally converge energy standards and implement cyclical carbon pricing and subsidies to help meet emissions targets.

1. Motivation Transition? Models Policy Annex
Climate Change and the Energy Transition:
Energy and the Macroeconomy
Luis A. Puch (UCM and ICAE)
@lpuchg nadaesgratis.es
with A. Dı́az, G. Marrero others
IVIE Webinar
Valencia, June 2022
Luis A. Puch (ICAE, UCM) Climate Change Energy Transition 1 / 8

2. Motivation Transition? Models Policy Annex
Preliminaries
We take as given: (i) burning fossil fuels increases CO2 in the atmosphere,
which → (ii) leads to Climate Change, that → (iii) is harmful to our welfare.
Business as Usual: What are the costs?
Damages (losses) and Adaptation (try to prevent the losses).
' 2% of global GDP (as warmed by 0.8o
C at 400 vs preindustrial 280 ppm).
Above 2o
C could trigger potentially devastating events. Reach 6o
C is there.
Consequently, Is Climate Change an urgent problem? Yes!
Is difficult to stop burning fossil fuels? Yes, but we can do a lot more!
Yes, global! Yes, China!
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3. Motivation Transition? Models Policy Annex
How to tackle this CO2 Emissions (GHGs)/Climate Change urgent problem?
Let’s start by looking to the Kaya(∗)
identity
CO2t ≡
intensive margin
z }| {
GDPt
Populationt
×
extensive margin
z }| {
Populationt
| {z }
economic activity
×
energy intensity
z }| {
Energyt
GDPt
×
carbon intensity
z }| {
CO2t
Energyt
| {z }
energy use
A way to relate the level of Emissions with Energy Use and the Macroeconomy...
(∗)Yoichi Kaya (1993)
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4. Motivation Transition? Models Policy Annex
1. ...or The Bad, The Good and The Ugly
All data from the IEA Energy Balances Emissions Database, 2020
GDP: billion USD (PPPs); Population: millions; Energy use: million TOEs;
Carbon Emissions flow: thousands of tones of CO2.
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5. Motivation Transition? Models Policy Annex
CO2 Emissions and GDP per capita Worldwide, in logs, 1970-2019
colors ⇒ high/middle/low
income countries (World Bank).
The Bad
linear slope (elasticity) 1
“for the pool.”
The Good
Heterogeneity within
income groups (slopes 1),
Source: Dı́az, Marrero Puch (2016) updated
Source: IEA PWT data
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6. Motivation Transition? Models Policy Annex
..and The Ugly: for the electricity mix of the virtuous.
Shares of the energy technologies in the electricity mix, 1990-2019
OECD WE16
Key difference: renewables brought about substitution away from coal in WE16! (+Germany in!)
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7. Motivation Transition? Models Policy Annex
2. Transition what?
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8. Motivation Transition? Models Policy Annex
Transition what?
Share of gas in OECD’s electricity mix has been unchanged at about 25%
since 2010. Western Europe didn’t do well either.
Guess: EU-ETS brought mostly substitution away from coal. Not enough!
Also, note electricity (energy sector) is (just) 1/3rd of final energy
consumption.
Then, 1/3rd Transport 1/3rd the Rest (industry, services, residential,... ).
⇒ Problem with the Transport and Energy Models: Are we acting on this?
And the fact is the contribution to carbon concentrations in the atmosphere
by some Western European countries continues to increase. −→ See Annex.
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9. Motivation Transition? Models Policy Annex
Transition what?
The big question
The goal of the European Green Deal is to be climate-neutral by 2050.
Target: Reducing, at least, 55% of 1990 emissions by 2030. Context to this:
Share of EU 2019 CO2 Annual rates of CO2 reductions (%)
CO2 2019 over 2030 target 2020-30 1990-2019 2019-20
EU 1.51 -4.04 -0.84 -13.14
France 10.18 1.52 -4.10 -0.71 -16.01
Germany 23.21 1.33 -2.84 -1.34 -11.24
Italy 11.25 1.58 -4.47 -0.69 -13.06
Spain 9.23 2.28 -7.92 -0.81 -18.68
CO2 Emissions Levels 2019 vs 2030 Target. Source: Own elaboration BP Stats Review 2021
Can we achieve 2030 target without GDP falling?
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10. Motivation Transition? Models Policy Annex
3. Models: Theory and Empirical
Dı́az and Puch (WPuc3m 2013–Revised 2019, BEJM 2018,...)
Dı́az, Marrero and Puch (Ene Ecs, 2019 with J. Rodrı́guez-L,
SERIEs, 2021 with J. Barrera-S, and 2022)
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11. Motivation Transition? Models Policy Annex
Models’ main messages
Accounting for aggregate energy data
Theory: capital-energy substitution takes time, and productivity and output costs.
Investment in energy efficient capital is determined by the interaction of
Technical Change (embodied) with energy prices.
Empirical: Dynamic Panel Data Models (Kaya based), Worldwide Regions.
134 countries worldwide, 1960-2010 vs. WE-16.
Economic growth Worldwide goes with ↓↓ Energy Intensity and ↑↑ Frontier
(wind, solar,...) Renewables in the Mix (large sample; long period).
The cycle matters (GDPpc growth), but Energy Intensity even more. In fact,
it is not GDP growth. It is GDP growth whenever Energy Intensity is high.
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12. Motivation Transition? Models Policy Annex
Models’ main messages
Quantitatively: ↓↓ Energy Intensity; Qualitatively: ↑↑ Renewables
Big margin in ↓↓ Energy Ity Renewable Share still to ↑↑
Key difference: Investing in renewables breaks the link between Energy Intensity and CO2.
Source: Dı́az, Marrero Puch (2022)
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13. Motivation Transition? Models Policy Annex
4. Policy Implications
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14. Motivation Transition? Models Policy Annex
Two steps for 2030 Target
Beyond medium-run targets, short-run action is needed.
Absolute priority for policies to achieve conditional convergence in energy
intensity standards across selected set of countries (fostering integration).
This may favor a bottom-up design of international climatic agreements
according to which regional progresses in regulations expand and integrate to
other countries (Battaglini and Harstad, 2016).
Cyclical concerns
A recommendation for tax-based (and subsidies) cyclical climatic stabilization
(as a complement to cap and trade), in the form of a carbon-dividend.
For instance, procyclical fuel taxes and fuel economy standards in the
transport sector, as well as procyclical regulations towards energy efficiency
and inducement for renewable energies in the power sector.
Pending: Who pays the bill in the end? What are the distributive aspects!
Look into the Households.
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15. Motivation Transition? Models Policy Annex
Climate Change and the Energy Transition:
Energy and the Macroeconomy
Luis A. Puch (UCM and ICAE)
@lpuchg nadaesgratis.es
with A. Dı́az, G. Marrero others
IVIE Webinar
Valencia, June 2022
Luis A. Puch (ICAE, UCM) Climate Change Energy Transition 7 / 8

16. Motivation Transition? Models Policy Annex
Annex
Transition what?
Carbon emissions and economic activity, 1980-2019
Avge GDPpc growth: 1.54% vs 1.69%; Avge CO2pc growth: -1.34% vs -0.01% (in 40 years!)
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17. Motivation Transition? Models Policy Annex
Annex
How can Spain be doing so poorly?
Spain
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