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Combining Top-Down and Bottom-Up Approaches to Energy-Economy Modeling Using Discrete Choice Methods

Recently, hybrid models of the energy-economy have been developed with the objective of combining the strengths of the traditional top-down and bottom-up approaches by simulating consumer and firm behavior at the technological level. We explore here the application of discrete choice research and modeling to the empirical estimation of key behavioral parameters representing technology choice in hybrid models. We estimate a discrete choice model of the industrial steam generation technology decision from a survey of 259 industrial firms in Canada. The results provide behavioral parameters for the CIMS energy-economy model. We then conduct a policy analysis and show the relative effects of an information program, technology subsidy, and carbon dioxide tax on the uptake of alternative industrial steam generation technologies, including boilers and cogeneration systems. We also show how empirically derived estimates of parameter uncertainty can be propagated through the model to provide uncertainty estimates for major model outputs.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy Modeling – Other; Energy and the Economy – Energy as a Productive Input; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance; Energy and the Economy – Energy Shocks and Business Cycles

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
C59 - Econometric Modeling: Other
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Q34 - Natural Resources and Domestic and International Conflicts
F44 - International Business Cycles

Keywords: Energy-economy model, Top-down, Bottom-up, CIMS model, Canada, policy analysis

DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No1-4

Published in Volume 26, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.