Energy transition and structural change: A calibrated Stock-Flow Consistent Input–Output model

The energy transition involves structural changes in the economy. Green utilities increase their investments, while brown utilities and fossil fuel producers shrink. These developments affect supply chains in expansionary and contractionary ways, respectively, and generate multiplier and accelerator effects. We develop a Stock-Flow Consistent Input–Output macroeconomic model of the world economy to analyze these dynamics. It includes a production network comprising 27 industries, differentiating between key mining, manufacturing, service, and both green and brown electricity sectors. It is the first model of its kind to have each industry invest in distinct capital goods based on sector- and asset-specific requirements. All parameters related to production technologies capture real relationships and are derived from real-world data. We have simulated three energy transition pathways envisioned by the International Energy Agency (IEA) by empirically implementing two parallel processes: (i) the increasing share of electricity generated by green utilities and (ii) the electrification of production techniques and household consumption. The resulting dynamics yield several key insights. The net effect of the above-mentioned expansionary and contractionary forces is to boost GDP growth and entails a high investment share. The relative importance of industries supplying machinery and metals increases. Technological changes stemming from the transition yield mildly deflationary effects. Nevertheless, inflation increases because of rising wage rates. Electricity is the only product whose price decreases with the transition. The only scenario capable of achieving a decline in emissions is the one entailing the strongest transition effort. Finally, electricity production is much higher than projections by the IEA.