Energy transformation cost for the Japanese mid-century strategy

The costs of climate change mitigation policy are one of the main concerns in decarbonizing the economy. The macroeconomic and sectoral implications of policy interventions are typically estimated by economic models, which tend be higher than the additional energy system costs projected by energy system models. Here, we show the extent to which policy costs can be lower than those from conventional economic models by integrating an energy system and an economic model, applying Japan’s mid-century climate mitigation target. The GDP losses estimated with the integrated model were significantly lower than those in the conventional economic model by more than 50% in 2050. The representation of industry and service sector energy consumption is the main factor causing these differences. Our findings suggest that this type of integrated approach would contribute new insights by providing improved estimates of GDP losses, which can be critical information for setting national climate policies. Computable General Equilibrium models can hardly decouple economic growth and energy consumption while energy system models can hardly predict macroeconomic implications of energy system changes. Here the authors investigated the macroeconomic implications of consistently dealing with energy systems and the stability of further power generation and show that GDP losses were significantly lower than those in the conventional economic model by more than 50% in 2050, while industry and service sector energy consumption are the main factors causing these differences.