How rich is the 2000 Watt society? Impact of energy conservation policy measures on innovation, investment and long-term development of the Swiss economy

The project has integrated endogenous growth theory into a multi-sector numerical model to evaluate the long-run effects of energy and climate policies in Switzerland. The continuous and sector-specific growth, has provided a successful foundation for predicting the development of the Swiss economy over the long and very long run. We have studied the effects of various measures aiming at realizing the goals of the 2000 Watt society and the carbon reduction commitments of the Copenhagen Accord. We find that these policies cause moderate but not negligible welfare costs, provided that we take development without consideration of climate change as a reference case. However, the reference case with considerable economic costs of undamped climate change is more likely. Compared to such a development, the costs of energy and carbon policies appear to be lower, even when the adopted measures are strict. However, to avoid the costs of climate change, international coordination of climate policies is needed. Specifically, we have to assume that the world as a whole will act according to the Copenhagen Accord; only this will lead to the desired effect on global emissions. Sectoral differences in the simulated growth rates are significant; they reflect energy intensities, sectoral linkages, and distinct specialization in capital goods. Under the considered conditions, all the sectors (except oil) will be able to grow in the future, though not with uniform, but rather sector-specific rates. The targets of the 2000 Watt society for 2035 entail somewhat lower welfare losses than the Copenhagen policy for 2050, because the required CO2 reductions are larger in the second case. The distribution of tax revenues has an impact on consumption and welfare, which depends on the considered time horizon: in the shorter run, research subsidies cannot develop their full advantages for the economy, while in the long run, these subsidies are superior to the redistribution of revenues to households. According to the results, policies implemented in the other countries, as well as the size of the labor force, have an impact on the evaluation of domestic policies. The model assumptions are conservative in several respects. Technology development is modeled in a top-down manner, which excludes the consideration of specific technology potentials that might also be highly influential on energy efficiency. Learning effects are not a focus; accordingly, the build-up of new core competencies to be used as a comparative advantage in international trade does not emerge. Moreover, the entire CO2 abatement has to be undertaken domestically; the option of carbon offsets abroad is disregarded. Finally, all elasticities and parameter values are assumed to be at conservative levels. To complete the evaluation of climate change, one would have to add secondary benefits of energy and carbon policies, such as positive effects on health and local pollution. In additions, the extension of this endogenous growth model to a full-fledged multi-region model would be desirable. This is left to future research. (author)