Smart paths and costly detours towards a sustainable low-emission society

Norway can choose different routes to the low-emission society. The aim of SMART PATHS has been to distinguish smart paths from costly detours. One hypothesis is that setting emission targets along the way could lead to a detour. Measures to meet medium-term climate policy goals can displace more comprehensive and costly transformation measures with larger future mitigation potential but without immediate emission effects. SMART PATHS has investigated whether the danger of lock-in, and costly detours as a result, is present for the Norwegian economy. Stoknes et al. (2021), an SSB DP submitted to Energy Policy, studies emission reductions in the Norwegian offshore industry. The analysis shows that electrification from land and gradual downsizing of the business result in medium-term emission reductions. However, this strategy is more expensive in a longer perspective, both financially and socio-economically, than postponing some of the emission cuts until investments in offshore wind are operative. Then, new wind installations can supply the remaining petroleum industry with power and gradually take over offshore activity and secure sustainable jobs, value added and government revenues. Both technological and behavioural changes take time and effort. The risk with a short-term focus is that society may lock itself into patterns with high emissions. Storrøsten (2020; 2021), in Environmental and Resource Economics and in an SSB DP, respectively, study implications of such inertia. Theoretical results are illustrated with examples from investments in renewable energy and from dietary habits. Both works show that early and vigorous policy is required to bring about change when behavioural changes are hampered. In the three above-mentioned studies of climate strategies in the shorter and longer term, we have developed macroeconomic, dynamic models in which we explicitly model slow investment and restructuring processes. In particular, the topic of habit formation has previously only been scarcely addressed within a dynamic macroeconomic framework. A fourth study, Bye et al. (2021b), models inertia in the replacement of the car fleet in Norway and looks at the use of instruments to accelerate the transition. The work is submitted to Environmental and Resource Economics and available as an SSB DP. A key issue in SMART PATHS is how robust possible Norwegian climate strategies towards 2050 will be. The effects of Norwegian policy and action depend on the global development. To investigate the vulnerability of Norway's possible climate strategies, we study them within various global regimes. Böhringer et al. (2021) focuses on different outcomes for and implementations of the Paris Agreement, while Fæhn and Yonezawa (2021) analyses the robustness of Norway's climate policy goals under different forms of Norway-EU cooperation on climate policy. Both are published in Energy Economics. Bye et al. (2021b) studies Norwegian electric vehicles policies under different assumptions about the international technology frontier. SMART PATHS' work on scenarios was kicked off with a workshop with all the researchers and an expert forum associated with the project in 2017, resulting in set of qualitative scenarios of the global development ? see the SSB-report Fæhn and Stoknes (2018). The IFE-report Lind et al. (2022) follows up by quantifying a scenario-set. In the quantitative scenario work, SMART PATHS has had the focus on how technology-rich energy models and macroeconomic models complement each other. In Lind et al. (2022) insights from existing macroeconomic simulations are used to enrich results from a global energy model. Bye et al. (2021a; 2021b) do the opposite; technology insight is added to macroeconomic models. Fæhn et al. (2020) in Journal of Global Economic Analysis synthesises analytical and technical solutions in state-of-the-art models to exploit the complementary qualities of the technology and economy traditions. In Bye et al. (2021a), submitted to the Energy Journal, the two model types are used separately for the same energy policy analysis to scrutinise how they overlap and complement each other. As part of a climate strategy, the road to the low-emission society should be supervised and possibly adjusted along the way. For this purpose, SMART PATHS uses a model approach to generate indicators that can be compared with observations to monitor the change. The indicators reflect a variety of the UN's sustainability goals (SDGs). In Fæhn and Yonezawa (2021), climate emission reductions, socio-economic costs, business patterns and income distribution are central indicators. In Stoknes et al. (2021), indicators such as energy supply, decent jobs, value creation, investments, innovation, climate measures and governance are highlighted. Lind et al. (2022) discusses which indicators can be monitored and influenced to achieve the energy and climate SDGs.

Målgrupper: primært forskere, men også politiske beslutningstakere. Nasjonalt er metodiske bidrag referert til i forvaltningssammenheng, derunder i Klimakur 2030 (KLD og FIN) og i TBU-klima-utvalgets (KLD) metodegjennomgang for klimapolitikkanalyser. Videre har enkelte resultater fra prosjektet vært trukket fram som deler av kunnskapsgrunnlaget i aktuelle debatter og politiske prosesser. Noen av arbeidene har inngått i modellsammenlikninger som øker potensialet for virkning på forskningsfronten. Resultater fra prosjektet er blant annet blitt lagt fram på internasjonale møteplasser mellom politikk, vitenskap og næringsliv. På feltet scenarioutvikling har forskergruppen økt kompetansen og nettverket både utenlands og innenlands. På lengre sikt kan dette få virkning på prosesser som pågår. Nasjonalt er arbeid i Klimautvalget 2050 og klimarisikoarbeidet som foregår på bank- og finansområdet relevant. Prosjektet har bidratt til den åpne internasjonale scenario-databasen knyttet til IPCC.

This proposal will assess the transitional routes a nation can take to the low-emission society. Our main hypothesis is that crafting climate policies to meet the medium targets could lead the society to pick only low-hanging fruits void of further transformation potential. A myopic bias will not change investments and consumption behaviour sufficiently and choices made for the medium term will lock us into too fossil-fuel-reliant patterns for many decades. If these mechanisms are at play, the climate strategy must include policy action designed to avoid costly lock-in situations. We will both analytically and numerically in a dynamic, macroeconomic framework, investigate the severity of lock-in mechanisms and possible ways out. One merit of our modelling approach is that we will integrate many types of responses to climate policy instruments in a common framework: technological, changes in industry and consumption patterns, and changes in social norms and preferences; the latter virtually unexamined in large-scale models. We will combine two types of lock-in in the numerical model. Besides modelling that investments are long-lived, we will also investigate possible consumer response inertia. Examples can be habit formation, psychological mechanisms or network externalities that call for coordinated action. Our choice among behavioural models will be based on their explanatory power, their compatibility with our framework and data availability. We will also check the robustness of alternative climate strategies to changes in the external surroundings, including technology, demography, and global (particularly European) economic development. We will base these shifts on a set of storylines that we will develop by means of explorative scenario building and global technological and economic model simulations. Finally, we will develop transformation indicators that can be used for monitoring and facilitating adjustments on the way towards the low-emission society.