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Energy Journal Issue

The Energy Journal
Hybrid Modeling, Special Issue #2

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Hybrid Modeling: New Answers to Old Challenges Introduction to the Special Issue of The Energy Journal

Jean-Charles Hourcade, Mark Jaccard, Chris Bataille, and Frederic Ghersi 

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI2-1
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After nearly two decades of debate and fundamental disagreement, top-down and bottom-up energy-economy modelers, sometimes referred to as modeling �tribes�, began to engage in productive dialogue in the mid-1990s (IPCC 2001). From this methodological conversation have emerged modeling approaches that offer a hybrid of the two perspectives. Yet, while individual publications over the past decade have described efforts at hybrid modeling, there has not as yet been a systematic assessment of their prospects and challenges. To this end, several research teams that explore hybrid modeling held a workshop in Paris on April 20�21, 2005 to share and compare the strategies and techniques that each has applied to the development of hybrid modeling. This special issue provides the results of the workshop and of follow-up efforts between different researchers to exchange ideas.

A World induced Technical Change Hybrid Model

Valentina Bosetti, Carlo Carraro, Marzio Galeotti, Emanuele Massetti, Massimo Tavoni

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI2-2
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The need for a better understanding of future energy scenarios, of their compatibility with the objective of stabilizing greenhouse gas concentrations, and of their links with climate policy, calls for the development of hybrid models. Hybrid because both the technological detail typical of Bottom Up (BU) models and the long run dynamics typical of Top Down (TD) models are crucially necessary. We present WITCH � World Induced Technical Change Hybrid model � a neoclassical optimal growth model (TD) with energy input detail (BU). The model endogenously accounts for technological progress, both through learning curves affecting prices of new vintages of capital and through R&D investments. In addition, the model captures the main economic interrelationships between world regions and is designed to analyze the optimal economic and environment policies in each world region as the outcome of a dynamic game. This paper provides a detailed description of the WITCH model, of its Baseline, and of the model calibration procedure.

Macroeconomic Consistency issues in E3 Modeling: The Continued Fable of the Elephant and the Rabbit

Frederic Ghersi and Jean-Charles Hourcade

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI2-3
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Starting from a short presentation of the limits of using conventional production functions to hybridize energy-economy relationships, this paper presents a methodology aiming at a better integration of bottom-up policy scenarios in a top-down static general equilibrium framework. Along the lines of Ahmad�s innovation possibility curve, the methodology consists in implementing top-down envelopes of production and demand functions, whose variable point elasticities of substitution provide a flexible interface for calibration on any bottom-up expertise. Numerical experiments assessing the impact of a rising carbon tax on the global 2030 economy compare the application of this methodology to that of two standard CES-based approaches. Results confirm that, in case of large departures from reference scenarios or of strong convexities in bottom-up results, the use of conventional CES production and utility functions may lead to a significant bias in cost assessment.

The objECTS Framework for integrated Assessment: Hybrid Modeling of Transportation

Son H. Kim, Jae Edmonds, Josh Lurz, Steven J. Smith, and Marshall Wise

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI2-4
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Technology is a central issue for the global climate change problem, requiring analysis tools that can examine the impact of specific technologies within a long-term, global context. This paper describes the architecture of the ObjECTS-MiniCAM integrated assessment model, which implements a long-term, global model of energy, economy, agriculture, land-use, atmosphere, and climate change in a framework that allows the flexible incorporation of explicit technology detail. We describe the implementation of a �bottom-up� representation of the transportation sector as an illustration of this approach, in which the resulting hybrid model is fully integrated, internally consistent and theoretically compatible with the regional and global modeling framework. The analysis of the transportation sector presented here supports and clarifies the need for a comprehensive strategy promoting advanced vehicle technologies and an economy-wide carbon policy to cost-effectively reduce carbon emissions from the transportation sector in the long-term.

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

Chris Bataille, Mark Jaccard, John Nyboer and Nic Rivers

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

Combining Energy Technology Dynamics and Macroeconometrics: The E3MG Model

Jonathan Kohler, Terry Barker, Dennis Anderson and Haoran Pan

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

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

Christoph Bohringer and Andreas Loschel

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

Modeling Detailed Energy-Efficiency Technologies and Technology Policies within a CGE Framework

John A. "Skip" Laitner and Donald A. Hanson

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI2-8
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Policy makers and analysts are raising questions about the adequacy of policy and technology representation in conventional energy and economic models. Most conventional models rely on a highly stylized and limited characterization of technology. In these models, any desired changes in energy demand are driven largely by pure price mechanisms such as energy taxes or carbon charges. In this paper, however, we explore the mapping of discrete technology characterizations and examine how cost-effective technologies and programs might prompt desirable increases in energy efficiency. Using the commercial health care sector as an example, we show how changes in energy efficiency and technology investments might be more properly represented in policy models.

Experiments with a Hybrid CGE-MARKAL Model

Andreas Schafer and Henry D. Jacoby

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI2-9
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This paper summarizes the main features of a linked CGE-MARKAL model system capable of simulating the macro-level economy and micro-level technology detail of the transport sector. Emphasis is given to issues of calibration of such a hybrid system, with references provided to already published papers based on this research for coverage of other details.