Promoting Renewable Energy in Europe: A Hybrid CGE Approach

In this paper, we illustrate the use of a hybrid large-scale computable general equilibrium (CGE) model to investigate the economic and environmental effects of renewable energy promotion within the European Union. Our hybrid CGE model incorporates technological explicitness of bottom-up (engineering) energy system models for the electricity sector while representing aggregate technological options in other sectors in the conventional CGE approach by means of constant elasticities of substitution (transformation). The bottom-up technology foundation of top-down CGE models is possible when adopting the so-called mixed complementarity problem (MCP) approach – a flexible mathematical representation of market equilibrium conditions (Rutherford 1995). In the following section, we provide a non-mathematical characterization of the MCP approach. We then demonstrate along a stylized example how the MCP framework can be exploited to combine a simplistic macroeconomic general equilibrium model with a bottom-up technology-based model of energy supply. A large-scale implementation of a hybrid CGE model for the EU-15 is subsequently used to investigate the impacts of renewable energy promotion.

LOESCHEL Andreas;  BOEHRINGER Christoph; 

2007-01-22

INT ASSOC ENERGY ECONOMICS

JRC34350

https://publications.jrc.ec.europa.eu/repository/handle/JRC34350,