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General equilibrium, electricity generation technologies and the cost of carbon abatement: A structural sensitivity analysis

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  • Lanz, Bruno
  • Rausch, Sebastian

Abstract

Electricity generation is a major contributor to carbon dioxide emissions, and abatement in this sector is a key determinant of economy-wide regulation costs. The complexity of an integrated representation of economic and electricity systems makes simplifying assumptions appealing, but there is no evidence in the literature on how important the pitfalls may be. The aim of this paper is to provide such evidence, drawing on numerical simulations from a suite of partial and general equilibrium models that share common technological features and are calibrated to the same benchmark data. We report two basic findings. First, general equilibrium inter-sectoral effects of an economy-wide carbon policy are large. It follows that assessing abatement potentials and price changes in the electricity sector with a partial equilibrium Marshallian demand can only provide a crude approximation of the complex demand-side interactions. Second, we provide evidence that widely used top-down representations of electricity technologies produce fuel substitution patterns that are inconsistent with bottom-up cost data. This supports the view that the parametrization of substitution possibilities with highly aggregated production functions is difficult to validate empirically. The overall picture that emerges is one of large quantitative and even qualitative differences, highlighting the role of key structural assumptions in the interpretation of climate policy projections.

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  • Lanz, Bruno & Rausch, Sebastian, 2011. "General equilibrium, electricity generation technologies and the cost of carbon abatement: A structural sensitivity analysis," Energy Economics, Elsevier, vol. 33(5), pages 1035-1047, September.
  • Handle: RePEc:eee:eneeco:v:33:y:2011:i:5:p:1035-1047
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    Cited by:

    1. Martin T. Ross, Patrick T. Sullivan, Allen A. Fawcett, and Brooks M. Depro, 2014. "Investigating Technology Options for Climate Policies: Differentiated Roles in ADAGE," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    2. Florian Habermacher, 2015. "Carbon Leakage: A Medium- and Long-Term View," CESifo Working Paper Series 5216, CESifo Group Munich.
    3. Stefan Nabernegg & Birgit Bednar-Friedl & Fabian Wagner & Thomas Schinko & Janusz Cofala & Yadira Mori Clement, 2017. "The Deployment of Low Carbon Technologies in Energy Intensive Industries: A Macroeconomic Analysis for Europe, China and India," Energies, MDPI, Open Access Journal, vol. 10(3), pages 1-26, March.
    4. Arndt, Channing & Davies, Rob & Gabriel, Sherwin & Makrelov, Konstantin & Merven, Bruno & Hartley, Faaiqa & Thurlow, James, 2016. "A sequential approach to integrated energy modeling in South Africa," Applied Energy, Elsevier, vol. 161(C), pages 591-599.
    5. repec:spr:joevec:v:27:y:2017:i:5:d:10.1007_s00191-017-0516-6 is not listed on IDEAS
    6. Bruno Lanz & Sebastian Rausch, 2013. "Cap-and-Trade Climate Policy, Free Allowances, and Price-Regulated Firms," CER-ETH Economics working paper series 13/178, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    7. Nicholas Rivers & Steven Groves, 2013. "The Welfare Impact of Self-supplied Water Pricing in Canada: A Computable General Equilibrium Assessment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(3), pages 419-445, July.
    8. Fortes, Patrícia & Pereira, Rui & Pereira, Alfredo & Seixas, Júlia, 2014. "Integrated technological-economic modeling platform for energy and climate policy analysis," Energy, Elsevier, vol. 73(C), pages 716-730.
    9. Sugandha D. Tuladhar, Sebastian Mankowski, and Paul Bernstein, 2014. "Interaction Effects of Market-Based and Command-and-Control Policies," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    10. Channing Arndt & Finn Tarp, 2015. "Climate change impacts and adaptations: lessons learned from the greater Zambeze River Valley and beyond," Climatic Change, Springer, vol. 130(1), pages 1-8, May.
    11. Bruno Lanz and Sebastian Rausch, 2016. "Emissions Trading in the Presence of Price-Regulated Polluting Firms: How Costly Are Free Allowances?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    12. Liu, Liwei & Sun, Xiaoru & Chen, Chuxiang & Zhao, Erdong, 2016. "How will auctioning impact on the carbon emission abatement cost of electric power generation sector in China?," Applied Energy, Elsevier, vol. 168(C), pages 594-609.
    13. Willenbockel, Dirk, 2017. "Macroeconomic Effects of a Low-Carbon Electricity Transition in Kenya and Ghana: An Exploratory Dynamic General Equilibrium Analysis," MPRA Paper 78070, University Library of Munich, Germany.
    14. Antoine Dechezlepr�tre & Caterina Gennaioli & Ralf Martin & Mirabelle Mu�ls, 2014. "Searching for carbon leaks in multinational companies," GRI Working Papers 165, Grantham Research Institute on Climate Change and the Environment.
    15. Zhang, Da & Rausch, Sebastian & Karplus, Valerie J. & Zhang, Xiliang, 2013. "Quantifying regional economic impacts of CO2 intensity targets in China," Energy Economics, Elsevier, vol. 40(C), pages 687-701.
    16. Tapia-Ahumada, Karen & Octaviano, Claudia & Rausch, Sebastian & Pérez-Arriaga, Ignacio, 2015. "Modeling intermittent renewable electricity technologies in general equilibrium models," Economic Modelling, Elsevier, vol. 51(C), pages 242-262.
    17. Rausch, Sebastian & Mowers, Matthew, 2014. "Distributional and efficiency impacts of clean and renewable energy standards for electricity," Resource and Energy Economics, Elsevier, vol. 36(2), pages 556-585.
    18. Maryse Labriet & Laurent Drouet & Marc Vielle & Richard Loulou & Amit Kanudia & Alain Haurie, 2015. "Assessment of the Effectiveness of Global Climate Policies Using Coupled Bottom-up and Top-down Models," Working Papers 2015.23, Fondazione Eni Enrico Mattei.
    19. Arndt, Channing & Davies, Rob & Gabriel, Sherwin & Makrelov, Konstantin & Merven, Bruno, 2014. "An integrated approach to modelling energy policy in South Africa: Evaluating carbon taxes and electricity import restrictions," WIDER Working Paper Series 135, World Institute for Development Economic Research (UNU-WIDER).
    20. Chaturvedi, Vaibhav & Clarke, Leon & Edmonds, James & Calvin, Katherine & Kyle, Page, 2014. "Capital investment requirements for greenhouse gas emissions mitigation in power generation on near term to century time scales and global to regional spatial scales," Energy Economics, Elsevier, vol. 46(C), pages 267-278.
    21. Hwang, Won-Sik & Lee, Jeong-Dong, 2015. "A CGE analysis for quantitative evaluation of electricity market changes," Energy Policy, Elsevier, vol. 83(C), pages 69-81.
    22. Qi, Tianyu & Zhang, Xiliang & Karplus, Valerie J., 2014. "The energy and CO2 emissions impact of renewable energy development in China," Energy Policy, Elsevier, vol. 68(C), pages 60-69.
    23. repec:aen:journl:ej38-5-peters is not listed on IDEAS
    24. Milad Maralani & Milad Maralani & Basil Sharp & Golbon Zakeri, 2016. "The Potential Impact of Industrial Energy Savings on The New Zealand Economy," EcoMod2016 9308, EcoMod.
    25. Habermacher, Florian, 2011. "Optimal Fuel-Specific Carbon Pricing and Time Dimension of Leakage," Economics Working Paper Series 1144, University of St. Gallen, School of Economics and Political Science, revised Jan 2012.

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