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The dynamics of technology diffusion and the impacts of climate policy instruments in the decarbonisation of the global electricity sector

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Author Info

  • Jean-Francois Mercure

    ()
    (Cambridge Centre for Climate Change Mitigation Research, Department of Land Economy, University of Cambridge)

  • Hector Pollitt

    ()
    (Cambridge Econometrics Ltd, Covent Garden, Cambridge, CB1 2HT, UK)

  • Unnada Chewpreecha

    ()
    (Cambridge Econometrics Ltd, Covent Garden, Cambridge, CB1 2HT, UK)

  • Pablo Salas

    ()
    (Cambridge Centre for Climate Change Mitigation Research, Department of Land Economy, University of Cambridge)

  • Aideen M. Foley

    ()
    (Cambridge Centre for Climate Change Mitigation Research, Department of Land Economy, University of Cambridge)

  • Philip B. Holden

    ()
    (Environment, Earth and Ecosystems, Open University)

  • Neil R. Edwards

    ()
    (Environment, Earth and Ecosystems, Open University)

Abstract

This paper presents an analysis of possible uses of climate policy instruments for the decarbonisation of the global electricity sector in a non-equilibrium economic and technology innovation-diffusion perspective. Emissions reductions occur through changes in technology and energy consumption; in this context, investment decision-making opportunities occur periodically, which energy policy can incentivise in order to transform energy systems and meet reductions targets. Energy markets are driven by innovation, dynamic costs and technology diffusion; yet, the incumbent systems optimisation methodology in energy modelling does not address these aspects nor the effectiveness of policy onto decision-making since the dynamics modelled take their source from the top-down `social-planner' assumption. This leads to an underestimation of strong technology lock-ins in cost-optimal scenarios of technology. Breaking this tradition, our approach explores bottom-up investor dynamics led global diffusion of low carbon technology in connection to a highly disaggregated sectoral macroeconometric model of the global economy, FTT:Power-E3MG. A set of ten different projections to 2050 of the future global power sector in 21 regions based on different combinations of electricity policy instruments are modelled using this framework, with an analysis of their climate impacts. We show that in an environment emphasising diffusion and learning-by-doing, the impact of combinations of policies does not correspond to the sum of the impacts of individual instruments, but that strong synergies exist between policy schemes. We show that worldwide carbon pricing on its own is incapable of breaking the current fossil technology lock-in, but that under an elaborate set of policies, the global electricity sector can be decarbonised affordably by 89% by 2050 without early scrapping of capital.

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Bibliographic Info

Paper provided by University of Cambridge, Department of Land Economy, Cambridge Centre for Climate Change Mitigation Research in its series 4CMR Working Paper Series with number 006.

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Length: 19 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:ccc:wpaper:006

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Keywords: Transport; Technological change; Emissions; Fuel use;

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