Advanced Technologies in Energy-Economy Models for Climate Change Assessment

Summary: Accounting for the likely contribution of advanced technologies to the future energy mix is critical in energy-economic modeling, as these technologies, while often not yet commercially viable, could substitute for fossil energy when favorable policies are in place. Simulating the transition from fossil energy to low-carbon substitutes turns out to be challenging, as many of these alternative energy sources have not been widely adopted. Evidence for how quickly they can be adopted at large scale must therefore be obtained mostly from small samples or analogous technologies. At the same time, the speed of being able to transform the energy system to reduce GHG emissions is an important determinant of climate mitigation costs.

This study aims to improve the representation of technology diffusion in integrated assessment models and ground that representation in empirical foundations. Toward that end, the researchers develop an approach to model the penetration of a low-carbon substitute within a global energy-economic computable general equilibrium (CGE) model. Their approach enables the simulation of multiple dynamics related to new technology diffusion, including sunk investments in existing technology, monopoly rents associated with the new technology, adjustment costs related to expanding the new technology, short- and long-run pricing of output of the new technology, and the rate of diffusion of the new technology and how it is influenced by economic factors.