Luis Reyes-Ortiz, Professor at KEDGE BS hosted the round table: Climate Policy-Mix: Between Efficiency and Social Equity

The trend in emissions reduction is still insufficient to achieve climate targets
Louise Rabier and Pierre-Louis Girard presented the Treasury report entitled "The Economic Challenges of the Transition to Carbon Neutrality," published in January 2025. This report analyzes the main economic challenges of the transition to carbon neutrality for the French economy.
The emission reduction targets set by France and the European Union are ambitious:

• A 50% reduction in gross emissions by 2030 compared to 1990 levels.
• Carbon neutrality to be achieved by 2050.

Achieving these goals requires additional decarbonization efforts. The 2030 emissions reduction target requires doubling the rate of emissions reduction compared to that observed between 2019 and 2022 in France. Some recent developments are encouraging, such as the rapid reduction in emissions observed between 2022 and 2023, but at least a third of this reduction is business cycle-related, according to the High Council on Climate. Achieving carbon neutrality by 2050 will require continued efforts beyond 2030.
The SNBC3 project (national low-carbon strategy 3, in French), the public consultation on which ended on 16/12/2024, aims to break down the emissions reduction trajectory on a sector-by-sector basis and to provide guidance for 2050.

Europe has been a leading region in climate policy for decades. However, a recent legislative proposal announced in January and published in February by the European Commission, entitled "Omnibus Simplification," aimed at simplifying the regulatory environment to stimulate growth and competitiveness, may be seen by some observers as a challenge to certain environmental reporting regulations.
Louise Rabier reiterated that the Omnibus proposal does not reflect a halt to European climate objectives. The objectives and main instruments remain the same, notably through the "Fit for 55" package, the European Green Deal, and the Energy-Climate Act in France. The Omnibus proposal aims to simplify certain non-financial reporting regulations. The Clean Industrial Deal, presented the same day by the European Commission, aims to support the decarbonization of European industries.
Nicolas Lancesseur indicated that this could be an opportunity to clarify reporting requirements deemed too complex for some companies. Simplification could be a source of investment acceleration if it strengthens legal certainty for stakeholders who would be less exposed to the risk greenwashing accusations. The EU must continue to defend a specific model of companies that not only answer to shareholders but are also part of a network of stakeholders and must therefore pay attention to their impact on the rest of society through their activities. This is why we developed this double materiality approach. Having our own accounting standard is a source of sovereignty that allows us to support our sustainability agenda and our future competitiveness.

Decoupling economic growth from emissions is possible, and must be strengthened to achieve carbon neutrality.
Decarbonizing the economy while preserving economic growth is possible if greenhouse gas emissions are sufficiently decoupled from economic activity. However, the transition could result in a temporary and moderate economic slowdown. Well-designed climate policies could reduce the costs and maximize the benefits of the net-zero transition. One of the identified climate policy instruments is carbon pricing (via taxation or emission quota systems), which should be complemented by other measures to be more effective, such as subsidies and regulations, and take into account distributional issues and the international context.
Pierre-Louis Girard presented an analysis of the macroeconomic implications of various climate policy instruments (carbon pricing, decarbonization subsidies, regulations). The transition to carbon neutrality impacts the economy through two main mechanisms modeled in the report:
A. An increase in the relative cost of greenhouse gas emissions
- This increase has a negative impact on economic activity.
- However, this effect can be mitigated if revenues from carbon pricing are reinvested efficiently.
B. An increase in investments in decarbonization
- These investments have a positive effect on economic activity.
- However, their impact can be limited by financing constraints and the loss of productivity linked to the cost of new technologies compared to existing alternatives.
Two economic models were used in the report and presented to assess these impacts:
1. The Mésange model, which studies the effects on the French economy.
2. The Oxford Economics model, which analyzes the impacts on the European and global scales.
Nicolas Lancesseur elaborated on the role of private finance, including capital allocation, and the need for an adequate regulatory framework in coordination with policymakers for the transition. Financing the transition relies largely on private actors. Approximately 80% of the necessary investments will have to be made by households, businesses, and financial institutions. However, the profitability of transition projects remains a central issue. Most investments in the transition are not immediately profitable, which raises the question of economic incentives.

Nicolas Lancesseur had the opportunity to present one of the major challenges of the ecological transition: the perception of the costs associated with climate change adaptation and mitigation. Often misunderstood in public debate, these costs are nevertheless much lower than those of inaction.

From an economic perspective, there are two assessment models:

•  The "cost-benefit" model, which compares the costs of climate action with future benefits in terms of damage reduction.
• The "cost-effectiveness" model, which focuses on achieving climate objectives at the lowest possible cost.

Currently, the damages associated with climate change are not yet fully visible, but it is established that the impacts will increase exponentially beyond a 2°C rise. The effects will not be linear and could become uncontrollable. Uncertainty about the exact consequences reinforces the urgency for rapid action.
Pierre-Louis Girard mentions that, in the report, the NGFS modeling results for damages were retained: a coordinated transition in the world makes it possible to avoid 6 to 9 points of GDP of damage in 2050, compared to the warming implied by current climate policies.

Louise Rabier and Pierre-Louis Girard presented analyses of the implications for public finance in their report. Several decarbonization policy scenarios are constructed, mobilizing different instruments, such as carbon taxes, subsidies, and regulations, which have different effects on the debt-to-GDP ratio.
Some lessons:

•  A scenario relying solely on public subsidies would lead to a sharp increase in the debt ratio;
• Regulations have, a priori, a neutral effect on public finances, with the exception of support measures;
• A transition based on a diversified combination of climate policy instruments, particularly carbon pricing, would have a neutral effect on public debt, despite the decrease in revenue from fossil fuel taxes, assuming unchanged taxation.

Generally speaking, the implications of changes in debt (public and private) on interest rates must also be taken into account.

Louise Rabier and Pierre-Louis Girard emphasized that the effects of the ecological transition will not be the same for all households.
The carbon footprint of French households increases with their income, but less than proportionally, meaning that low-income households are relatively more exposed to the costs of the transition by this measure.
Public policies will play a key role in limiting the potential regressive effects of the transition. Assessing the redistributive effects of climate policies is important in order to anticipate and correct potential imbalances. The adoption of accompanying measures to limit the impact of the transition on low-income households is possible, particularly through low-carbon investment support, which exists in France and is reinforced for low-income households (for example, MaPrimeRenov, electric vehicle leasing).
Nicolas Lancesseur highlighted the importance of the financial sector in the transition. There is no problem with financial resources for the transition (there are more than enough savings in France, both in stock and flow), but rather with sufficient projects to finance them:

•  High initial costs are holding businesses and households back from their sustainable investment choices.
• The regulatory framework must encourage these stakeholders to act through binding standards and tax incentives.
•  Capital allocation must be geared toward low-carbon projects, requiring a stable and predictable policy framework.

Regarding the European Green Deal, it is essential to maintain a high level of climate ambition while simplifying certain regulations to encourage investment.