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Promoting Renewable Energy in Europe: A Hybrid Computable General Equilibrium Approach

Abstract:
We illustrate the use of a large-scale computable general equilibrium model to investigate the economic and environmental effects of renewable energy promotion within the European Union. Our hybrid model incorporates the technological explicitness of bottom-up energy system models for the electricity sector while production possibilities in other sectors are described at an aggregate level through top-down constant-elasticities-of-substitution (transformation) functions. The discrete activity analysis of technology options within conventional top-down computable general equilibrium models is possible when adopting the so-called mixed complementarity problem approach � a flexible mathematical representation of market equilibrium conditions which accommodates weak inequalities and complementary slackness.

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Energy Specializations: Energy Investment and Finance – Corporate Strategy; Renewables – R&D and Emerging Technologies; Renewables – Policy and Regulation

JEL Codes:
D92 - Intertemporal Firm Choice: Investment, Capacity, and Financing
O32 - Management of Technological Innovation and R&D
Q52 - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

Keywords: Hybrid CGE model, EU, Renewable energy, Climate policy

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI2-7


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