Can the Energy Transition Be Smooth? A General Equilibrium Approach to the EROEI

Jean-François Fagnart, Marc Germain () and Benjamin Peeters
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Jean-François Fagnart: UCL IRES - Institut de recherches économiques et sociales - UCL - Université Catholique de Louvain = Catholic University of Louvain
Marc Germain: EQUIPPE - Economie Quantitative, Intégration, Politiques Publiques et Econométrie - Université de Lille, Sciences et Technologies - Université de Lille, Sciences Humaines et Sociales - PRES Université Lille Nord de France - Université de Lille, Droit et Santé, LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique

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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.

Keywords: energy transition; renewable energy; non-renewable energy; EROEI; growth; savings rate (search for similar items in EconPapers)
Date: 2020-02
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Citations: View citations in EconPapers (4)

Published in Sustainability, 2020, 12 (3), pp.1176. ⟨10.3390/su12031176⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02497034

DOI: 10.3390/su12031176

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