Abstract
We compare two alternative approaches for coupling macroeconomic growth models (MGM) and energy system models (ESM). The hard-link approach integrates the techno-economics of the ESM completely into the MGM and solves one highly complex optimisation problem. The soft-link leaves the two models separate and energy supply functions are integrated into the MGM that are derived from the optimal solution of the ESM. The energy supply functions relate the price of energy computed with the ESM to the quantity of energy computed with the MGM. An iterative process exchanges price-quantity information between the models. Hence, the soft-link leads to an energy market equilibrium. But energy supply functions do not consider variable interest rates that influence the energy supply functions. This is due to the fact that ESMs are partial models that assume an exogenous interest rate; however the interest rate is computed endogenously in MGMs. This missing interaction leads to a capital market dis-equilibrium in the soft-link compared to the hard-link approach inducing a mis-allocation of investments. Extending the soft-link approach by also considering the time variable interest rate of the MGM does not improve the results. Though the computational complexity is greater the hard-link approach assures simultaneous energy and capital market equilibrium.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Arrow KJ, Chenery HB, Minhas BS, Solow RM (1961) Capital-labor substitution and economic efficiency. Rev Econ Stat 43(3):225–250
Bauer N (2005) Carbon Capture and Sequestration—an Option to Buy Time? Phd Thesis, University Potsdam. Available online: http://opus.kobv.de/ubp/volltexte/2006/654/pdf/bauer
Bauer N, Edenhofer O (2006) Macroeconomic effects of carbon capture and sequestration within a long-term transition towards a low-carbon society. In: 8th International Conference on Greenhouse Gas Technologies, Trondheim, Norway, accepted for publication
Boehringer C (1998) The synthesis of bottom-up and top-down in energy policy modelling. Energy Econ 20(3):233–248
Bosetti V, Carraro C, Galeotti M, Massetti E, Tavoni M (2006) WITCH: a world induced technical change hybrid model. Energy J (in press)
Dorfman R, Samuelson PA, Solow R (1958) Linear programming and economic analysis, Dover Books on Mathematics. McGraw-Hill, New York
Drouet L, Haurie A, Labriete M, Thalmann P, Vielle M, Viguier L (2006) A coupled bottom-up/top-down model for GHG abatement scenarios in the Swiss housing sector. In: Loulou R, Waaub J-P, Zaccour G (eds) Energy and environment. Kluwer, Dordrecht
Edenhofer O, Bauer N, Kriegler E (2005) The impact of technological change on climate protection and welfare: insights from the model MIND. Ecol Econ 54(2–3):277–292
Frondel M, Schmidt CM (2004) Facing the truth about separability: Nothing works without energy. Ecol Econ 51(3–4):217–223
Gerlagh R, van der Zwaan BCC (2006) Options and instruments for a deep cut in CO2 emissions: Carbon capture or renewables, taxes or subsidies. Energy J 27(3):25–48
Kypreos S, Bahn O (2003) A MERGE model with endogenous technological learning. Environ Model Assess 8:249–259
Manne A, Mendelsohn R, Richels R (1995) MERGE: a model for evaluating regional and global effects of GHG reduction policies. Energy Policy 23(1):17–34
Messner S, Schrattenholzer L (2000) MESSAGE-Macro: linking an energy supply model with a macroeconomic module and solving it iteratively. Energy 25(3):267–282
Pitchford JD (1979) Two state variable problems. In: Pitchford JD, Stephen JT (eds) Application of control theory to economic analysis, Vol 101 of contributions to economic analysis, 2nd edn. North-Holland Publishing Company, Amsterdam, pp 127–154
Rafaj P (2005) Analysis of policies contributing to sustainability of the global energy system using the Global Multi-Regional MARKAL Model (GMM). Thesis Number 16122, ETH Zuerich, Switzerland
Smekens K, van der Zwaan BCC (2006) Atmospheric and geological CO2 damage costs in energy scenarios. Environ Sci Policy 9:221–227
van der Zwaan BCC, Gerlagh R, Klaassen G, Schrattenholzer L (2001) Endogenous technological change in climate change modelling. Energy Econ 24:1–19
Wing IS (2006) The synthesis of bottom-up and top-down approaches to climate policy modeling: electric power technologies and the costs limiting us CO2 emissions. Energy Policy 34(18):3847–3869
Author information
Authors and Affiliations
Corresponding author
Additional information
We would like to thank Leonardo Barreto, Christoph Boehringer, Valentina Bosetti, Elmar Kriegler, Marian Leimbach, Kai Lessmann, Emanuele Massetti, Massimo Tavoni, Hal Turton and Alexander Wokaun for discussions of an earlier draft. Christian Flachsland found many typos and better formulations. All remaining errors are ours.
Rights and permissions
About this article
Cite this article
Bauer, N., Edenhofer, O. & Kypreos, S. Linking energy system and macroeconomic growth models. CMS 5, 95–117 (2008). https://doi.org/10.1007/s10287-007-0042-3
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10287-007-0042-3