Technical change, inter-fuel substitution, and decarbonization strategies in France: Insights from the translog production framework

Abstract

France has made significant progress toward achieving its Sustainable Development Goals (SDGs), but it continues to face challenges in environmental sustainability. Decarbonizing the energy sector by expanding renewable energy sources and reducing reliance on traditional fossil fuels is widely recognized as a cost-effective approach to mitigating climate change. This study estimates technical change, output elasticities, and substitution elasticities for both non-energy factors (labour and capital) and energy-specific inputs (petroleum, natural gas, coal, nuclear energy, and hydroelectricity) in France, using annual time series data covering the period 1980–2021. Employing ridge regression to a translog production model, the findings reveal that renewable energy sources and fossil fuels act as substitutes, with nuclear energy and hydroelectricity exhibit the highest substitution potential. The output elasticity estimates suggest that all non-energy and energy-specific inputs, except coal, positively contribute to production. Furthermore, technical change estimates provide strong evidence of convergence among all pairs of non-energy and energy-specific inputs. Although nuclear energy constitutes a substantial share (65 %) of France’s energy mix, the study recommends increasing the share of renewables from 15 % to 20–30 % as a viable strategy to accelerate decarbonization. Additionally, it highlights the importance of government policies that promote workforce development and facilitate a fair transition from fossil fuels to clean energy. Further decarbonization strategies, including feed-in tariffs, tax incentives, carbon pricing mechanisms, and emissions trading schemes (ETS), should be implemented to promote the adoption of renewable energy while reducing reliance on fossil fuels.