The IMACLIM modeling platform Nogent Marne January 29

The IMACLIM modeling platform Nogent / Marne, January 29 2015 1 Photo : Mairie de Paris

The IMACLIM modeling platform Principles, methodologies and applications Franck Lecocq and IMACLIM modeling team IMACLIM modeling Platform 1 st International Workshop 29 th January 2015 CIRED

What is IMACLIM? • IMpact Assessment of CLIMate policies • A suite of dynamic CGE models designed to assess consistency over the medium and long-run between environment (notably climate mitigation) and development objectives at different scales (World, regions, countries) • Featuring: – Consistent physical / economic accounting – Explicit socio-technical constraints on production and consumption – Second-best economic features • Developed at CIRED, and in collaboration with COPPE/UFRJ (Imaclim-Brazil) and ERC/Cape-Town U. (Imaclim SA) over 20 years

Two versions around the same core Economic signals (prices, quantities, Investments) Bottom-up modules Industry Agricolture Electricity Energy Coal Transport Annual Equilibrium (t 0) under constraints Annual Equilibrium (t 0 +1) under updated constraints Annual Equilibrium (t 0 +n) under updated constraints Technical and structural parameters (i-o coefficients, population, productivity) Representative agent/ N sectors Heterogeneous socioeconomic groups/ N’>N sectors Reduced forms of dynamic evolutions Annual Equilibrium (t 0) Annual Equilibrium (t 0+n) I M A C L I M R I M A C L I M S

The IMACLIM Family (as of 1/2015) IMACLIMS Brazil Nexus Land Use IMACLIMS Af. Sud IMACLIMR World IMACLIMS France IMACLIMR France Nexus - Cities Nexus Elec. Res-IRF IMACLIMS EUROPE

The IMACLIM Team (as of 01/2015) q q q q q Jean-Charles Hourcade Christophe Cassen Frédéric Ghersi Céline Guivarch Aurélie Méjean Eoin O’Bruin Emmanuel Combet Thierry Brunelle Julien Lefèvre Ruben Bibas Meriem Hamdi-Cherif Gaëlle Le Treut Florian Leblanc Elsa Mosseri Jules Schers William Dang 8 ongoing Ph. Ds ; 4 term researchers ; 4 researchers

Examples of recent projects q Global scale with IMACLIM World Ø Long-term scenarios: development styles, technical change and macroeconomic trajectories Ø Resource depletion and energy markets (peak oil) Ø Climate policy analysis: time profiles of costs, sensitivity to technical assumptions, impact of different policy architecture Ø Urban systems and macroeconomic trajectories Ø Energy, land use and food markets (Nexus land-use) q Regional/national scale with IMACLIM “Countries” Ø Ø Carbon tax and (i) distributive justice ; (ii) pensions and public finance ; (iii) labour market and competitiveness (France) Structural change, mitigation and inclusive transition (Brazil) Employment, education and mitigation (South Africa) Energy transition towards a low-carbon economy: sectoral policies, co-benefits and costs in the short-run, impact of different paces of phasing nuclear out (France) q European projects AMPERE, GLOBIS, RECIPE, AUGUR, ADVANCE, expertise for IEA, World Bank, OECD, etc.

Selected publications - Brunelle, Th. , Dumas, P. , Souty, F. The Impact of Globalization on Food and Agriculture : The Case of the Diet Convergence, The Journal of Environment & Development March 2014 23 : 41 -65 - Bibas, R. , Méjean, A. , Hamdi-Cherif, M. , 2014. "Energy efficiency policies and the timing of action : An assessment of climate mitigation costs" Forthcoming in Technological Forecasting and Social Change - Riahi, K. , Kriegler, E. , Johnson, N. , Bertram, C. , den Elzen, M. , Eom, J. , Schae er, M. , Edmonds, J. , Isaac, M. , Krey, V. , Longden, T. , Luderer, G. , Mejean, A. , Mc. Collum, D. , Mima, S. , Turton, H. , van Vuuren, D. , Wada, K. , Bosetti, V. , Capros, P. , Criqui, P. , Kainuma, M. (2013) Locked into Copenhagen Pledges - Implications of short-term emission targets for the cost and feasibility of long-term climate goals. Technological Forecasting and Social Change. Bauer, N. , Bosetti, V. , Calvin K. , Hamdi-Cherif, M. , Kitous, A. , Mc. Collum, D. , Mejean, A. , Shilpa, R. , Turton, H. , Paroussos, L. , Ashina, S. , Wada, K. (2013) CO 2 emission mitigation and fossil fuel markets : Dynamic andinternational aspects of climate policies. Forthcoming in Technological Forecasting and Social Change. - Bibas, R. , Mejean, A. (2013) Potential and limitations of bioenergy options for low carbon transitions, Climatic Change (December 2013) - Waisman H. , Guivarch C. , Grazi F. & Jean Charles Hourcade. The Imaclim-R model : infrastructures, technical inertia and the costs of low carbon futures under imperfect foresight, 2012, Climatic Change, Volume 114, Number 1 - Waisman, H. , Rozenberg J. , Sassi O. , Hourcade J-C, 2012, Peak Oil profiles through the lens of a general equilibrium assessment, Energy Policy (2012), pp. 744 -753 - Guivarch, C. , Hallegatte, S. 2011. Existing infrastructure and the 2°C target. Climatic Change 109: 801– 805. - Guivarch, C. , Crassous, R. , Sassi, O. , Hallegatte, S. 2011. ‘The costs of climate policies in a second best world with labour market imperfections’. Climate Policy 11 : 768 – 788. Working Paper version - Giraudet, L. -G. , C. Guivarch, P. Quirion, 2011, ‘Comparing and combining energy saving policies. Will proposed residential sector policies meet French official targets ? ’ The Energy Journal 32, Special issue EMF 25. - Hourcade, J. -C. , Ghersi F. , Combet, E. , Thery D. (2010), "Carbon Tax and Equity : The Importance of Policy Design", in Dias Soares, C. , Milne, J. , Ashiabor, H. , Deketelaere, K. , Kreiser, L. (ed. ), Critical Issues in Environmental Taxation, Oxford University Press, Oxford, pp. 277 -295. - Rozenberg J. , Hallegatte S. , Vogt-Schilb A. , Sassi S, Guivarch C. , Waisman H. , Hourcade J. C, Climate policies as a hedge against the uncertainty on future oil supply, Climatic Change Letter and the supplementary material, DOI 10. 1007/s 10584 -010 -9868 -8, june 2010 - Sassi O. , Crassous R. , Hourcade J. -C. , Gitz V. , Waisman H. , Guivarch C. , 2010. ‘Imaclim-R : a modelling framework to simulate sustainable development pathways’, International Journal of Global Environmental Issues, Special Issue on Models for Sustainable Development for Resolving Global Environmental Issues : Vol. 10, Nos. 1/2, pp. 5– 24. Working Paper version - Mathy, S. , Guivarch, C. 2010. ‘Climate policies in a second-best world - A case study on India’, Energy Policy 38: 3, 1519 -1528. Working Paper version - Guivarch, C. , Hallegatte, H. , Crassous, R. , 2009, ‘The resilience of the Indian economy to rising oil prices as a validation test for a global energy–environment–economy CGE model’, Energy Policy 37: 11, 4259– 4266. Working Paper version - Crassous, R. , Hourcade, J. -C. , Sassi, O. , 2006, ‘Endogenous structural change and climate targets : modeling experiments with Imaclim-R’, Energy Journal, Special Issue on the Innovation Modeling Comparison Project - Ghersi, F. et J. -C. Hourcade (2006), « Macroeconomic Consistency Issues in E 3 Modeling : The Continued Fable of the Elephant and the Rabbit » , The. Energy Journal, numéro spécial Hybrid Modeling of Energy Environment Policies : reconciling Bottom-up and Top-down : pp. 39 -62 - Hourcade, J. -C. , Jaccard, M. , Bataille, C. et F. Ghersi (2006), « Hybrid Modeling : New Answers to Old Challenges » , The Energy Journal, introduction au numéro spécial Hybrid Modeling of Energy-Environment Policies : reconciling Bottom-up and Top-down : pp. 1 -12. - Ghersi, F. , J. -C. Hourcade et P. Criqui (2003), « Viable Responses to the Equity-Responsibility Dilemma : a Consequentialist View » , Climate Policy 3 (1) : pp. 115 -133. - Hourcade, J. -C. et F. Ghersi (2002), « The Economics of a Lost Deal : Kyoto - The Hague -Marrakesh » , The Energy Journal 23 (3) : pp. 1 -26. - Hourcade, J. -C. et F. Ghersi (1997), « Les Enjeux des QELROS : entre Logique Économique et Logique de Négociation » , Revue de l’Énergie 491 : pp. 593 -605

Basic elements underpinning the IMACLIM models 1. Articulating monetary and physical accountings 2. Articulating technical and economic expertise: Bottom-up / Top-down 3. Articulating growth at different time scales: natural growth / real growth … “Triple hybridization”

Basic elements underpinning the IMACLIM models 1. Articulating monetary and physical accountings Ø Dual and consistent description of monetary flows (from I/O tables) and “physical” quantities (energy balances in MToe, transport statistics in pkm) Ø Technical coefficients in physical units to characterize production and consumption processes

Towards dual accounting systems Objective: Represent consistent monetary and physical accounting Ø Arrow-Debreu axiomatic of general equilibrium w/simultaneous equilibrium of economic and material flows linked by the price system Ø Allows to embark information about technical constraints on production / consumption in a way consistent with engineers’ views Problem: There is no dataset consistent in quantities/values in official statistics Solution: We build our own accounting tables in both monetary values and physical quantities by combining macroeconomic tables and balances of physical flows. A significant amount of work.

Methodology Available energy statistics Step 1 Matrix of quantities (energy unit) FC IC MAT IC Matrix of prices (currency/energy unit) Qij Pij M Step 2 M FC Energy bills (currency) MAT CI CF M Vij = Pij. Qij ENERGY VA ENERGY OTHER M Step 3 CF ‘Hybrid matrix’ for energy Vij Statistical gaps allocated to non-energy goods

Implication #1. A richer, and more accurate picture of the economic system We find that including hybrid accounting has crucial impact on macroeconomic analysis: Energy/GDP ratio, energy bills and CO 2 emissions of households and firms This is because there are important statistical gaps between national accounts and results obtained by combining statistics on physical quantities and prices (gaps in nomenclature)

Statistical gaps in the economic value of energy flows French national accounts (Input-Output table, 116 products) Energy products/sectors Values (2004 millions €) Energy statistics, AIE Statistical gaps Energy bills (2004 millions €) Coal, lignite and peat 1 965 1 558 26% Crude oil and hydrocarbons 26 875 17 234 56% Refined petroleum products 92 974 67 454 38% Gaseous fuels, heat and air conditioning 20 229 15 230 Mineral chemistry (11 596) (-) (109%) Fossil energies, commercial circuit 142 043 101 476 40% (153 639) (51%) inc. mineral chemistry Weight in total value of production inc. mineral chemistry 4, 8% (5, 2%) 3, 4% 33% 1, 4 pts (1, 8 pts)

Statistical gaps in the allocation of carbon emissions Energy statistics (calculated) Total emissions (Mega tons of carbon) From production From households Housing / Individual vehicles NAMEA accounts* (published) Statistical gaps 109 107 111 904 -2, 5% 67 846 (41 261) 76 095 (35 809) -10, 8% (+15, 2%) 16 / 25 17 / 19 -6, 0% / 34, 8% * NAMEA : National Accounting Matrix Including Environmental Accounts Source : Pasquier (2010). Allocation based on national accounts (macro data on expenditures)

Implication #2. Overcoming limits associated with ‘monetary only’ accounting ØIn the description of technical change ØModels using ‘monetary only’ accounting include an a-temporal description of technical possibilities: future technical change are deduced from the past (econometrics on monetary and macro statistics) ØThis representation is valid only in the short-term (‘small deviations’). The technical plausibility of ‘important mutations’ is difficult to control (nor can sectoral forecasts of technical change possibilities be used). Ø In the description of behaviors ØModels using ‘monetary only’ accounting lack ability to explicitely track constraints on consumption associated with, e. g. , basic needs (in calories), location-related transportation needs and their evolution (in km/year), etc.

Basic elements underpinning the IMACLIM models 1. Articulating monetary and physical accountings Ø Dual and consistent description of monetary flows (from I/O tables) and “physical” quantities (energy balances in MToe, transport statistics in pkm) Ø Technical coefficients in physical units to characterize production and consumption processes 2. Articulating technical and economic expertise: Bottom-up / Top-down Ø We aim to ground our projections in a realistic technical landscape Explicit description of infrastructure, equipments and technologies Ø … and to be consistent with economic flows and relative prices Description of investment costs and microeconomic decisions

Two versions around the same core q IMACLIM-S describes socio-economic interactions at a given time horizon (e. g. , 2050) (one-shot projection) Ø Reduced forms of bottom-up approaches (mimic adjustment possibilities) Ø Allows for heterogeneous socio-economic groups and high sectoral resolution q IMACLIM-R describes the trajectories of socio-economic interactions over a given time period (e. g. , 2010 -2050) (step-by-step projection) Ø Representative agents and aggregated description of production Ø Dynamic modules describing the reaction of technical systems, resource availability, preferences and location decisions to socio-economic signals

Representation of techniques in IMACLIM-S: reduced forms of bottom-up modules Using detailed bottom-up models to inform a reduced-form production possibility frontier Technical change that is dynamically feasible for different sets of relative prices (Bottom-up information) p 1(t 0) Production Factor 1 ft 0 p 1(t 0+n) p’ 1(t 0+n) ft 0+n Production Frontier (Reduced form) f't 0+n p 2(t 0) p 2(t 0+n) PFt 0+n p’ 2(t 0+n) Production Factor 2

Representation of techniques in IMACLIM-S: reduced forms of bottom-up modules Energy consumption (physical unit, e. g. MTEO) Quantity of energy at base year Price-elasticity Bottom-up models used to inform reducedform production possibility frontier in IMACLIM-S models POLES ; Nexus-Elec. ; MESSAGE-Brazil ; SATIM ; TIAM-EU Issues of BU/TD model articulation Technical asymptote Relatif price at base year Relative price

Representation of technologies in IMACLIM-R: Detailed bottom-up modules q Primary energy (oil, coal, gas) Ø Geological, technical and geopolitical constraints q Energy transformation Ø Electricity : 15 explicit technologies, load curve Ø Liquid fuels : tradeoffs btw. refined oil, biofuels and Coal-To-Liquid q Final energy demand Ø Residential : stock of m 2 building shell, standards of living Ø Industry : energy efficiency, fuel switch Ø Transport: • 5 explicit types of private vehicles • constrained mobility in function of urban forms • transport infrastructure investments across four modes • freight transport intensity of production Data and Resource intensive

Rationale for using the IMACLIM-S version q A tool for sensitivity analyses by comparison of various “conceptions” about Ø constraints and potentials (parametric uncertainty on techniques, resources…) Ø modalities of policy implementation associated to various combination of objectives Ø the structure of interactions in the socio-economic system (nature of labor markets, importance of market imperfections, size of the informal sectors) q Exploring the indirect mechanisms triggered by general equilibrium interactions by abstracting from controversies on dynamic effects Ø Social and Institutional: poverty, inequalities and redistribution mechanisms Ø Investments: financing sources, macroeconomic imbalances

Rationale for using the IMACLIM-R version q A tool for exploring the dynamic effects and investigate the interplay between short-term and long-term mechanisms Ø Short-term inertias and constraints imposed by installed infrastructures Ø Long-term path dependency of trajectories due to cumulative investments decided under imperfect foresight (risk of ‘lock-in’ effects) q Representing the material content of socio-economic trajectories as a result of the interplay between Ø Techniques: incorporation of information from technology-explicit models on production technologies and end-use equipments Ø Resources: constraints on the extraction of fossil resources Ø Locations: representation of land uses at different territorial scales as from the location of transport and housing infrastructure

Basic elements underpinning the IMACLIM models 1. Articulating monetary and physical accountings Ø Dual and consistent description of monetary flows (from I/O tables) and “physical” quantities (energy balances in MToe, transport statistics in pkm) Ø Technical coefficients in physical units to characterize production and consumption processes 2. Articulating technical and economic expertise: Bottom-up / Top-down Ø We aim to ground our projections in a realistic technical landscape Explicit description of infrastructure, equipments and technologies Ø … and to be consistent with economic flows and relative prices Description of investment costs and microeconomic decisions 3. Articulating growth at different time scales: natural growth / real growth Ø The long-term natural rate of growth is given by demographic and productivity trends Ø Transitory disequilibria happen due to market imperfections and past suboptimal allocation decisions under imperfect foresight

Simulating « non-optimal » economic growth q An exogenous growth engine defining long-term trends Ø Demography (total and active population) Ø Labor productivity (catch-up) Ø Saving rates (consistent with demographic trends) q A model of “second best” socio-economic interactions under uncertainty capturing short-term constraints on economic development Ø Ø Imperfect foresight: adaptive anticipations Inertia of capital stocks: past choices constrain future potentials Market imperfections: over- or under-utilization of production factors Physical constraint: availability of natural resources q A flexibility to represent different beliefs/views about those constraints

Thank you www. centre-cired. fr Nogent / Marne, January 29 2015 26 Photo : Mairie de Paris

APPENDIX: Climate policy analysis

A variety of questions, A common approach in 5 steps a) Delineate precisely the policy question(s) under investigation (project of reform, objectives, domain of dialogue) b) Identify the partners to collaborate with ( « experts » , « policymakers » , « stakeholders » ) c) Elaborate the structure of the model (available data, theoretical issues, controversies) d) Build a picture of the economy at the initial date (hybrid matrix at a base year, statistical synthesis, diagnostic) e) Represent dynamic interactions (modelling economic, social, technical adjustments)

Global cost of climate policy Introducing climate policy Time profiles Source : IPCC, 2007 q Endogenous carbon price to satisfy the emission objective at each date q Global and Uniform (sectors, households) q Recycling: lump-sum transfers q no Cap&Trade q no When Flexibility

Global cost of climate policy Global costs of climate policy Time profiles GDP variations Carbon tax GDP growth rates q High short-term losses Ø carbon price under inertia constraints q Partial medium-term recovery Ø co-benefit of the climate policy (Peak Oil) q Long-term effects, a trade-off Ø CP hedges oil depletion (fuel price) Ø …but … steady increase of carbon prices (high carbon cost)

Global cost of climate policy Global costs of climate policy Regional effects GDP variations

Global cost of climate policy Global costs of climate policy Sensitivity to technical assumptions GDP variations

Global cost of climate policy Global costs of climate policy Complementary measures to carbon pricing q Long-term costs : Weak price sensitivity of transport-related emissions to price increases Ø complementary measures to carbon pricing in order to control mobility : urban form, public transport facilities, logistics organization q Other measures: Cap&Trade, Fiscal reform, recycling options…

Global cost of climate policy Global costs of climate policy Complementary measures to carbon pricing

Carbon taxation in France

Policy questions and debates q Large theoretical consensus among economists A carbon tax is the most efficient instrument in the ‘policy tool box’ q But an implementation gap due to a recurrent ‘refusal front’ § An increase in energy prices will harm activity and employment § entails a negative impact on the most vulnerable households and sectors § Unilateral policy will create harmful competitiveness distortion § Risk to jeopardize other structural objectives (recovery, social protection, deficits) Lessons from a modeling exercise applied to France Evaluation of the mid term impacts of a unilateral CT without border adjustment, q on the CO 2 content of all consumptions, and reaching high levels (200 -300€/t. CO 2) 2 periods: 1984 -2004 (retrospective) and 2004 -2020 (prospective)

The simulation platform IMACLIM-S. 2. 4 Simultaneous equilibria in monetary and physical units (MTOE) Limited adaptation capacity 20 income classes Prices, Incomes limited adaptation capacity (technical constraints) 4 productions Equilibrium unemployment (constraint on the adjustment of wage) Final demand (3 E + 1 ‘Composite’) Transfers (technical constraints & basic needs for energy) Taxes Exports Imports Rest of the world Flows of products & funds Payroll & other taxes Public administrations Public finance modalities (Informational constraint and multiplicity of objectives) International trade competitiveness function of the production costs France in open-economy

A prerequisite: an integrated accountability MACROECONOMY « Physical » data (i. e. energy balance) ws flo yb r n » ida tio ma ter ial of ion lth ea « H ipt ic w om on Disaggregation on SYSTÈME COHERENT DE COMPTABILITE ati reg scr ec of gg De on ti bu tri ENVIRONMENT Dis Monetary aggregates sa Di Physical aggregates Households’ surveys (i. e. income and expenditure) Distribution of aggregates Distribution of natural and produced services DISTRIBUTION

Recycling the tax revenue: lessons from two polar cases Contrasted impacts on the production costs Repayment of the public debt Lower social security contributions Emissions -38. 5% -34. 1% Real GDP -6. 5% +1. 9% Employment -5. 7% +3. 5% Poverty +10. 1% -1. 1% Inequalities +1. 3% +2. 0% Public debt -92. 0% id. 300€ / t. CO 2 and • A ‘consensus’ among economists -> limit le cost of climate action • A controversy: weak or strong ‘double-dividend’?

A Potential Virtuous Cycle for Activity and Employment If the sharing of the payroll tax cuts actually reduces the relative labour costs Carbon Tax - Lower Social Contributions Oil bill alleviation Reduced levies on national incomes Structural change Increase in employment intensity Higher domestic consumption Higher employment If part of the reallocated tax burden does not ultimately fall back on production costs (rents, transfers) Tax burden transfer Decrease in production price Higher competitiveness Higher production

Conditions for a net employment gain Le sign of the net impact depends on 2 controversial parameters Sensitivity of net exports to domestic prices I et II : Gains I III : Losses II Sensitivity of net wages to unemployment

Conditions for a net employment gain Domaines Unemployment Production I Wages Price Consumption Exports II - + + + + - III + - - + I : The positive impact on real trade is stronger II : The positive impact on wage growth is stronger III : The negative impact on energy bills is stronger

Conditions for a net employment gain • The initial state of the economy is also important • The domain III (activity and employment losses) is reduced with: • A high level of unemployment • A low level of net wages • A high level of energy consumption by households and higher than the energy consumption by productive systems • Other sensitivity tests hardly change the diagnosis: • To energy-savings potentials • To higher margins (‘deadweight effect’ of SSC reductions)

When the « details » of policy design matter 3 types of tested ‘variables’ and robust conclusions are not superior to the option of lower social contributions • Alternative recycling options Lower VAT Lumpt sum transfers to households • Restrictions of the tax base Various exemption devices • Parameters of public finances Various options of budgetary management Various rules determining public expenditures Various indexation rules of social transfers does not solve the issues of purchasing power & competitiveness involve trade-offs between priorities (public debt, current consumtion, production et employment)

And the argument of fairness?

Poverty alleviation… at cost of higher disparities € 300/t. CO 2 & Lower SSC Direct impact Unemployment on the energy bill (% points) 5% poorest +78. 3% -12. 2 Disposable Income Gini inequality index +5. 4% +0. 3 pts 5% richest +72. 0% -0. 9 +7. 3% Main determinants: 1) Budget share devoted to energy, energy saving potential 2) Initial unemployment rates, jobseeker’s allowance-wage gap 3) Relative weights of income sources (activity, property, transfers, etc. )

A Trade-off Between Equity and Efficiency Employment 1. 06 Budget neutral reform (Constant Debt/GDP) € 0/t. CO 2 Historical France (2004) € 300/t. CO 2 - Lower Social Contributions € 300/t. CO 2 - Transfers to households Inverted Gini index 1. 06 0. 94 1. 06 GDP Bottom twentile 1. 06 consumption The 2 schemes reduce CO 2 emissions by 34% over the period 1985 -2004

Contrasted impacts on the production costs • € 300/t. CO 2 and Green Check Lower social security contribution (SSC) Total variation +3. 7% -1. 0% energy costs variation +1. 6% net wages variation +0. 1% +1. 5% Payroll tax variation id. -3. 6% Same direct impact on the energy bill BUT when social contributions tax are lowered: • Limited propagation of the costs increases • Slight alleviation of the tax burden on production • Higher progression of nominal net wages

But there is room for compromises Employment 1. 06 Budget neutral reform (Constant Debt/GDP) € 0/t. CO 2 Historical France (2004) € 300/t. CO 2 - Targeted Compensations & Lower Social Contributions Inverted Gini index 1. 06 0. 94 1. 06 GDP Bottom twentile 1. 06 consumption This compromise scheme also reduces CO 2 emissions by 34% over the period 1985 -2004

But energy vulnerability is ill-explained by ‘income’ Annual energy budget share INSEE 2001 data, authors’ calculation Living standard A variety of technical, geographic and socioeconomic factors

Four main constraints for public policies (2020) 1. Higher competition on resources and markets • AIE: a barrel of oil at 81 -92€ (77€ in 2011) 2. Ageing of the population • COR: funding needs for pensions 41 -48 billions (11 en 2008) • CEPII: important decrease in the households’ saving rate 3. Control of public deficits 4. Ambitious objective of the « facteur 4 » • Reducing CO 2 emissions by 17% over less than 10 years

Reconnecting climate, pensions and deficits issues Consider: 1) A 2020 France ‘COR compatible’ Three structural reforms Higher legal retirement age (>3 yrs) Higher social contributions (+7 pts) 2) an objective: funding pensions over 2004 -2020 € 200/t. CO 2 - Lower SSC & Higher Income Tax (+2 pts) 1. 1 1. 0 0. 9 0. 8 0. 7 0. 6 CO 2 emissions GDP Employment Net wages

Conclusion Economic analysis can contribute to: • verify the consistency in arguments • define viable compromises despite of current controversies Three ‘parameters’ seems crucials 1. The principle of lowering social cotisations and their sharing -> trade-offs between the wage progression and the control of costs 2. The coherence between public policies -> trade-offs between objectives and search for synergies 3. Identification of the most vulnerables to high energy prices -> solving of the equity/efficiency dilemma