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Combining Energy Technology Dynamics and Macroeconometrics: The E3MG Model

This paper introduces a novel approach to the hybrid modelling of technological change climate stabilisation cost literature. We describe how a post-Keynesian macroeconomic model of sectoral demand, E3MG, has been combined with investments in 26 energy technologies from a submodel, ETM. E3MG is a 20-region global energy-environment-economy (E3) econometric, dynamic simulation model. It is a component of the UK Tyndall Center�s Community Integrated Assessment System. Technological change is endogenous, through its effects on general energy use and sectoral demand, and on energy technologies through the cost-reducing effects o f learning by doing and economies of scale. This approach directly challenges the notion that historically estimated models cannot be use for long-term analysis. The paper concludes with an account of how technological progress is induced in this hybrid system by high relative prices of carbon designed to achieve climate stabilization at 450ppmv.

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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: E3MG model, ETM model, Hybrid modeling, Greenhouse gases, Climate change

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI2-6

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