Soft-linking a general equilibrium model and an energy system model: towards a carbon–neutral economy by 2050

Abstract

This study examines the macroeconomic impacts of the energy transition in the Netherlands. To capture key energy transition dynamics and improve the assessment of alternative fuels adoption, particularly in hard-to-abate sectors such as steel and chemical production, we incorporate hydrogen-related activities into a Computable General Equilibrium (CGE) model and soft-link it to an Energy System Model (ESM). We evaluate two main scenarios: a business-as-usual (BAU) trajectory and an Energy Transition (ET) pathway aligned with a carbon neutrality target. A variant of the ET scenario with limited capital inflows (ET-CA) is considered to assess the role of financing in the energy transition. Our results show that replacing fossil fuels with renewable alternatives drives GDP growth in the long term, with GDP 1.7% higher in 2050 under the ET scenario compared to BAU. Cumulative GDP over 2025–2050 increases in ET compared to BAU, while it declines by €70 billion in ET-CA. Unemployment peaks around the mid-transition period in ET and declines thereafter, converging to about 0.2% above BAU by 2050. In ET, welfare losses are initially severe but moderate over time, whereas they remain consistently higher under ET-CA. We argue that the negative impacts observed under the ET scenarios should be weighed against the potential climate-related economic damages omitted in BAU, which could otherwise reduce its apparent macroeconomic advantage. Our analysis underscores the necessity of policy frameworks that balance the socio-economic impacts of the energy transition with its environmental benefits, especially under constrained financing conditions.