Insee Analyses · January 2025 · n° 103

What path to carbon neutrality?

The European Union and France are committed to achieving carbon neutrality by 2050. However, there are several paths to this goal, differing in their emissions reduction profile and economic implications. The consequences of these paths are compared using a stylized model representing the transition from an economy relying on "brown" capital (greenhouse gas emitter) to an economy based on "green" capital (non-emitting).

To limit global warming to a given level, the most effective approach is to plan from the outset to respect a carbon budget, i.e. a cap on cumulative emissions. This approach ensures an allocation of brown and green investments that limits the cost of the transition. For a limited carbon budget, it involves an initial scrapping of brown capital.

Simply setting one-time reduction targets, like those in Fit for 55, does not provide sufficient incentives for the early elimination of brown capital when these targets are too far apart. It is preferable to set frequent targets (at most every five years) aligned with the trajectory respecting the carbon budget. Finally, for the same cumulative emissions between now and 2050, postponing the transition will ultimately lead to higher costs and more scrapped assets, making the adjustment less credible.