Book Club

The Chair read for you 20 idées reçues sur l’énergie by Raphaël Boroumand, Stéphane Goutte and Thomas Porcher

Published on 28 May 2024

Raphaël Boroumand is a professor of economics at the Paris School of Business, holds an HDR from the University of Paris-Saclay and is a lecturer at the University of Paris-Dauphine. Stéphane Goutte, associate researcher of the Climate Economics Chair, is Professor of Economics at the University of Paris-Saclay, Director of the CEDRIS Chair, and Editor-in-Chief of the journal Development and Sustainability in Economics & Finance. Thomas Porcher is a professor of economics at the Paris School of Business, a member of the Economistes atterrés association and the author of several books, including the best-selling Traité d’économie hérétique.

The three co-authors, all economists, share a common interest in energy and the issues it raises today.

First edited in 2014, “20 Idées Reçues sur l’Energie “/(“20 Miscompceptions About Energy”)[i] aimed to deconstruct the preconceptions surrounding energy economics. It was based on the need to address a dual challenge: ensuring equitable access to energy and combating climate change.  Based on the refutation of certain common received ideas, the aim was to draw lessons and recommendations for the energy and climate policies of today and tomorrow. Certain ideas were particularly widespread at the time of the first edition, such as the liberalisation of energy markets, a single carbon price and the production of shale gas. Because of the simplicity of their economic reasoning, their failure to take account of climate and societal issues, and the specific characteristics of the energy sector, these ideas could be an obstacle to the deployment of a model capable of meeting the dual challenge of decarbonisation and fair supply.

This new edition appears in an energy context that proves the authors right on many of the objections to preconceived ideas that they had marginally advanced, especially given the energy crisis we are facing. For example, the idea (commonly shared by energy economists) that “liberalisation of the energy sector in Europe will lead to lower prices” has been empirically proven wrong ten years on. Electricity prices have risen since opening up to competition, and the share of renewables in national energy balances is not as high as expected.  Liberalisation can, for certain industries and under certain conditions, lead to lower prices. This expected fall in prices would condition the benefits that consumers would derive from it. However, the specific nature of electricity and its market means that we must not give into the simplicity of the economic logic of the “invisible hand”, which would allow a situation of “general interest” to be achieved in the context of liberalisation. The explanation that would simply point to the rise in fossil fuel prices and the growing production of renewable energies as the cause of electricity price rises seems inadequate. The authors favour a global analysis of the failings of this liberalisation, an analysis of the repercussions of variations in spot prices on retail prices, and consideration of specific features such as the inelasticity of demand in the short term and the non-substitutable and non-stockable nature of electricity. They advocate effective regulation to ensure truly effective competition that benefits consumers.

This book also has the merit of highlighting North-South relations, from which the energy sector cannot escape, with the question of oil rent on the one hand, and carbon pricing on the other. The authors warn against placing too much emphasis on the issue of “the proper management of oil revenues”, as this could overshadow other issues further upstream, which are sometimes conditions for the proper management of oil revenues. These issues may relate to the sharing of the rent between the oil-producing state and the oil companies, or to the resources deployed to tackle poverty. While the creation of a fund for future generations is easily envisaged for a developed country, the matter is more complicated for a poor country. So the quick recommendations inherited from some “good” examples, but which are in fact incomparable to the cases of less developed countries, must be qualified in favour of taking into account the levels of development of the oil production/population ratio.

In addition, the issue of carbon pricing is addressed with the same concern to take account of inequalities in development between countries. The authors support the importance of considering this “common but differentiated” responsibility of the climate convention. The idea that “a universal carbon price is the most effective instrument for combating global warming” is thus tempered by the authors. Justifying the effectiveness of a single carbon price in order to prevent certain countries from behaving like free riders or relocating would be equivalent to considering, on the one hand, that each CO2 emission, whether produced in the United States or Bangladesh, has the same negative impact on the climate and, on the other hand, that it has the same social utility. The authors therefore propose defining a carbon price that takes account of countries’ level of development, as well as an approach based on emissions consumed. The carbon price could be set according to a reference price depending on the development index (HDI) and the CO2 emissions consumed, with a gradual adaptation of the price to the level of development, which would encourage countries to transition towards less emissive sources of production as they develop. The difficulty of international cooperation between emerging and developed countries demonstrates the importance of taking these inequalities into account.  Other preconceived ideas regarding the choice of low-carbon technologies, their deployment, their financing and the support policies to be implemented to accompany them are analysed, deconstructed and followed by sound proposals.

The deconstruction of the 20 ideas presented in this book, ten years ago, now proves the authors right. The focus is now on the fundamental issues and major challenges facing the energy sector, inextricably linked to economic, geopolitical, social, and environmental factors. It encourages the adoption of a panoramic vision of the implications of energy policy choices. Through this book, the authors encourage us to reject the ease of traditional economic reasoning in favour of the specificity and complexity of the energy sector. Finally, valuable recommendations are put forward on how best to envisage our energy future.

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists” – Joan Robinson (Contributions to Modern Economics, 1978).

Ibtissem Khelifati, CEC/Paris-Saclay intern research fellow.

[i] Boroumand,R., Goutte, S. et Porcher, T., 20 idées reçues sur l’énergie, Ed. de Boeck,  24/04/2024 (3rd edition) pp.208.