Bridging the Gap in Macroeconomic Analysis of the Energy Transition: Combining Medium-and Long-Term Approaches

The climate transition has long been considered as a long-term challenge, and the tools used to analyse it have been long-term models. At short- to medium-term horizons, forecasting models generally focus on demand effects of such a shock through the purchasing power of households. In this paper, we bridge the gap between these two approaches in order to study the effect of the Fit-for-55 package of the European Commission on the French economy by 2030, using an energy-augmented two-sector real model, FR-GREEN, as a source of shocks for the nominal forecasting model FR-BDF. We show that the benefit of reducing emissions implies some macro costs during the transition. In the short run, inflation increases substantially because of the direct effect of taxes levied on households. In the medium run, most of the total impact on output and inflation is due to large real supply effects from FR-GREEN. These supply effects come from a loss of apparent productivity implied by the transition from brown to green technologies, in the absence of any favourable assumption regarding technological progress potentially driven by the transition.