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Towards General Equilibrium in a Technology-Rich Model with Empirically Estimated Behavioral Parameters

Abstract:
Most energy-economy policy models offered to policy makers are deficient in terms of at least one of technological explicitness, microeconomic realism, or macroeconomic completeness. We herein describe CIMS, a model which starts with the technological explicitness of the �bottom-up� approach and adds the microeconomic realism and macroeconomic completeness of the �topdown� CGE approach. This paper demonstrates CIMS� direct utility for policy analysis, and also how it can be used to better estimate the long run capital-forenergy substitution elasticity (ESUB) and autonomous energy efficiency index (AEEI) technology parameters used in top-down models. By running CIMS under several possible energy price futures and observing their effects on capital and energy input shares and energy consumption, we estimate an economy-wide ESUB of 0.26 and an AEEI of 0.57%, with significant sectoral differences for both parameters.

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Energy Specializations: Energy Modeling – Other; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation

JEL Codes:
C59 - Econometric Modeling: Other
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: CGE approach, CIMS model, Energy policy, Hybrid modeling, Technological change

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI2-5


Published in Hybrid Modeling, Special Issue #2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.