An agent-based stock-flow consistent model of the sustainable transition in the energy sector

Major structural changes to the current fossil-fuel based economic system are needed in order to address the climate change challenge. To this purpose, effective Renewable Energy Sources (RES) support policies, along with concrete efforts towards the improvement of energy efficiency, have been adopted in many countries. One of these policies is the feed-in-tariff (FiT) mechanism, according to which electricity produced by RES is sold at guaranteed prices (feed-in tariffs), which are higher than market ones, for fixed periods of time. In this paper, we investigate how to foster a sustainability transition of the energy system towards an economically and ecologically sustainable growth path by using an enriched version of the Eurace model. Eurace has been enriched by including an energy sector where electricity is demanded by domestic producers and is supplied by a fossil-fuel based power producer as well as a renewable-energy based one. Both power producers undertake pricing and capacity investment decisions based on the price of imported fossil fuel and feed-in tariff government policy. In particular, we investigate how the economy is affected by the fiscal costs of financing the feed-in tariff mechanism and by the benefits of lower fossil fuels imports, in order to devise the policy with the best cost-benefit trade-off for the macroeconomy as a whole. Results show that the feed-in-tariff policy is effective in fostering the sustainability transition of the energy sector and that it increases the level of investments in the economy with a slightly positive impact on the unemployment rates. Moreover, we observe that its financing costs do not impact government finances in a relevant way. On the other hand, the higher level of investments occurs at the expense of the production of consumption goods, therefore with a negative impact for the living standards, at least according to the perspective of a consumerist society. However, if factors like better employment rates and the reduced GHG emissions are also taken into account, along with consumption, by an appropriate preference function, the final outcome on well-being should be probably deemed as favourable.