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

Author

Listed:
  • 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.

Suggested Citation

  • Jean-Francois Mercure & Hector Pollitt & Unnada Chewpreecha & Pablo Salas & Aideen M. Foley & Philip B. Holden & Neil R. Edwards, 2013. "The dynamics of technology diffusion and the impacts of climate policy instruments in the decarbonisation of the global electricity sector," 4CMR Working Paper Series 006, University of Cambridge, Department of Land Economy, Cambridge Centre for Climate Change Mitigation Research.
  • Handle: RePEc:ccc:wpaper:006
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    References listed on IDEAS

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    Cited by:

    1. Giovanni Aiello & Salvatore Alfonzetti & Santi Agatino Rizzo & Nunzio Salerno, 2017. "Multi-Objective Optimization of Thin-Film Silicon Solar Cells with Metallic and Dielectric Nanoparticles," Energies, MDPI, Open Access Journal, vol. 10(1), pages 1-10, January.
    2. Li, Francis G.N. & Trutnevyte, Evelina & Strachan, Neil, 2015. "A review of socio-technical energy transition (STET) models," Technological Forecasting and Social Change, Elsevier, vol. 100(C), pages 290-305.
    3. Florian Knobloch & Hector Pollitt & Unnada Chewpreecha & Jean-Francois Mercure, 2017. "Simulating the deep decarbonisation of residential heating for limiting global warming to 1.5C," Papers 1710.11019, arXiv.org.
    4. J-F Mercure & H. Pollitt & N. R. Edwards & P. B. Holden & U. Chewpreecha & P. Salas & A. Lam & F. Knobloch & J. Vinuales, 2017. "Environmental impact assessment for climate change policy with the simulation-based integrated assessment model E3ME-FTT-GENIE," Papers 1707.04870, arXiv.org, revised Jan 2018.
    5. Hall, Lisa M.H. & Buckley, Alastair R., 2016. "A review of energy systems models in the UK: Prevalent usage and categorisation," Applied Energy, Elsevier, pages 607-628.
    6. J. -F. Mercure & H. Pollitt & A. M. Bassi & J. E Vi~nuales & N. R. Edwards, 2015. "Modelling complex systems of heterogeneous agents to better design sustainability transitions policy," Papers 1506.07432, arXiv.org, revised Feb 2016.
    7. Jean-Francois Mercure, 2016. "Fashion, fads and the popularity of choices: micro-foundations for diffusion consumer theory," Papers 1607.04155, arXiv.org, revised Aug 2017.
    8. repec:eee:appene:v:205:y:2017:i:c:p:57-68 is not listed on IDEAS
    9. Marc Baudry & Clément Bonnet, 2016. "Demand pull isntruments and the development of wind power in Europe: A counter-factual analysis," Working Papers 1607, Chaire Economie du climat.
    10. H. Pollitt & J. -F. Mercure, 2015. "The role of money and the financial sector in energy-economy models used for assessing climate policy," Papers 1512.02912, arXiv.org.
    11. Jean-François Mercure, 2015. "An age structured demographic theory of technological change," Journal of Evolutionary Economics, Springer, vol. 25(4), pages 787-820, September.
    12. Newbery, David M., 2016. "Towards a green energy economy? The EU Energy Union’s transition to a low-carbon zero subsidy electricity system – Lessons from the UK’s Electricity Market Reform," Applied Energy, Elsevier, pages 1321-1330.
    13. Marc Baudry & Clément Bonnet, 2015. "Market pull instruments and the development of wind power in Europe: a counterfactual analysis," EconomiX Working Papers 2015-18, University of Paris Nanterre, EconomiX.
    14. repec:eee:appene:v:206:y:2017:i:c:p:815-828 is not listed on IDEAS
    15. Carlos Benavides & Luis Gonzales & Manuel Diaz & Rodrigo Fuentes & Gonzalo García & Rodrigo Palma-Behnke & Catalina Ravizza, 2015. "The Impact of a Carbon Tax on the Chilean Electricity Generation Sector," Energies, MDPI, Open Access Journal, vol. 8(4), pages 1-27, April.
    16. Sijm, Jos & Lehmann, Paul & Chewpreecha, Unnada & Gawel, Erik & Mercure, Jean-Francois & Pollitt, Hector & Strunz, Sebastian, 2014. "EU climate and energy policy beyond 2020: Are additional targets and instruments for renewables economically reasonable?," UFZ Discussion Papers 3/2014, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    17. F. Knobloch & J. -F. Mercure, 2016. "The behavioural aspect of green technology investments: a general positive model in the context of heterogeneous agents," Papers 1603.06888, arXiv.org.

    More about this item

    Keywords

    Transport; Technological change; Emissions; Fuel use;

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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