An Agent-based Stock-flow Consistent Model of the Sustainable Transition in the Energy Sector

Abstract

In this paper, we investigate the effects on the economy of a feed-in tariff policy mechanism aimed to foster investments in renewable energy production capacity. To this purpose, we employ an enriched version of the agent-based Eurace macroeconomic model, where we have included an energy sector with a fossil-fuel power producer as well as a renewable-energy based one. Both power producers take pricing and capacity investment decisions based on the price of imported fossil fuel and the feed-in tariff government policy. 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 with a positive impact on the unemployment rates. Moreover, we observe that its financing costs do not impact government finances, which actually improve following the better economic conditions. For high policy intensity, however, we observe an increasing GDP share of the investment sector in the economy, due to the building-up of renewable production capacity, with a resulting crowding out of consumption, higher interest rates and prices. The final outcome on household well-being therefore depends on what extent the chosen value judgment recognizes the importance of an economically and ecologically sustainable growth path.