Linking Energy system Models with Economic Models: Learning from the IEA ETSAP experience

Brian Ó Gallachóir, James Glynn, Our Common Future under Climate Change UNESCO, Paris | 7th - 10th June 2015

IEA-ETSAP

• … is a multilateral international agreement, promoted and sponsored by the International Energy Agency.

• cooperation started after the first oil crisis, in order to understand alternatives to oil through systems analysis,

• ETSAP has established, and now maintains / enhances the flexibility of consistent multi-country energy / engineering / economy / environment analytical tools and capability (the MARKAL-TIMES family of models), through a common research programme.

• ETSAP members also assist and support government officials and decision-makers by applying these tools for energy technology assessment and analyses of other energy and environment related policy issues. In fact they implement several economic-equilibrium technology-explicit models of global, regional, national, and local systems.

IEA-ETSAP Collaborative Network

Only those countries with at least one MARKAL/TIMES modelling team active during the period are “painted.”

IEA-ETSAP Co-Authors

• Economic Impacts of Future Changes in the Energy System—Global Perspectives

• Economic Impacts of Future Changes in the Energy System—National Perspectives • James Glynn, Patrícia Fortes, Anna Krook-Riekkola,

Maryse Labriet, Marc Vielle, Socrates Kypreos, Antti Lehtilä, Peggy Mischke, Hancheng Dai, Maurizio Gargiulo, Per Ivar Helgesen, Tom Kober, Phil Summerton, Bruno Merven, Sandrine Selosse, Kenneth Karlsson, Neil Strachan and Brian Ó Gallachóir

Policy Experience in Hybrid Models UK – Markal Macro

MACRO

LABOUR GDP

CONSUMPTION

CAPITAL INVESTMENT

USEFUL ENERGY SERVICES

ENERGY PAYMENTS

MARKAL

ENERGY SOURCES TECHNOLOGY CHARACTERISTICS ENVIRONMENTAL CONSTRAINTS

& POLICIES

TECHNOLOGY MIX FUEL MIX

EMISSIONS SOURCES & LEVELS FUEL & EMISSION MARGINAL COSTS RANKING OF MITIGATION OPTIONS

Impacts on GDP of 80% GHG reductions scenario Scenario % of GDP

2020 2030 2040 2050

Central scenario

0.46 1.70 2.43 2.81

With accelerated

technological

change

0.45 1.60 2.35 2.58

With higher fossil

fuel prices 0.45 1.54 2.27 2.64

With accelerated

energy efficiency -0.07 0.63 1.63 2.04

UK Experience in Hybrid Models 5 Critical Directions for Future 1. Multi-sectoral TIMES-Macro models

• To facilitate a more nuanced investigation of energy quantity/price and technology/infrastructure selection on alternate parts of the economy

2. Detailed disaggregation of CGE models based on household income and characteristics • To allow analysis of the impact of energy and environment policies on

households differentiated by income 3. A greater level of sectoral detail for energy intensive

economic sectors 4. An extended treatment of natural capital stocks within CGE

models • Via nested production functions which focus on the substitutability

between these natural and conventional inputs to the economy 5. A renewed emphasis on model transparency and replication

• This is a particular challenge given the complexity and computation sophistication of energy-economic hybrid models

HYBTEP - Portugal Soft Linked Hybrid

Detailed technological information of the BU TIMES_PT;

Explicit representation of economy and its factors (production, consumption, labour) from the Computable General Equilibrium model GEM-E3_PT.

Assess the real impact of RES policies in the economy and the most cost-efficient technology portfolio to achieve it

Tech

no

logy

e

xplic

itn

ess

TIMES_PT

GEM-E3_PT

Behavioural realism

HYBTEP HYBTEP → soft-link between TIMES_PT and GEM-E3_PT

Coal

Natural gas

Oil

Electricity

σELFU = 0

Leontief

Production

Capital (K) Labour-Energy-Materials (LEM)

Energy (ELFU) Labour (L) Materials (M)

CES

CES

σKLEM

σLEM

Biomass

Agriculture Land Transport

Iron& Steel

... Other Market Services

σM

9

GEM-E3_PT changes

• Standard

• HYBTEP

Production

Capital (K) Labour-Energy-Materials (LEM)

Energy (ELFU) Labour (L) Materials (M)

Fossil Fuels (FU)

Natural gasOil

Electricity (EL) Agriculture Land Transport

Iron& Steel

... Other Market Services

CES

CES

CESCES

CES

σKLEM

σLEM

σELFU σM

σFU

Coal

i. Energy consumption and fuel mix defined exogenously;

ii. New energy commodity: biomass;

iii. Energy prices evolution defined exogenously;

𝐷𝑗,𝑡 = 𝐷𝑗,𝑡−1∙ 1 + 𝐷𝑅𝐺𝑅𝑗,𝑡× 𝐸𝐿𝐴𝑆𝐼𝑗 ∙ (1

− 𝐴𝐸𝐸𝐼𝑗)

10

HYBTEP FRAMEWORK

GEM-E3_PT

Demand

Generator

Step I

▪ Economic drivers (GDP, sector production, private consumption…)

TIMES_PT

Step II

▪ Energy services (materials, mobility) demand

Energy Link▪ Energy Consumption in physical units▪ Energy prices▪ Policy monetary values (CO2 price, energy subsidies, energy taxes…)

Step III

▪ Energy Consumption in monetary units▪ Energy prices evolution▪ Technical Progress on Energy▪ Policy monetary values (CO2 price, energy subsidies, energy taxes…)

Step IV

Each cycle represents 1 iteration

Convergence criteria: Min energy services demand difference

Common scenario assumptions

- Fossil Fuel Import prices- Discount rate- Energy constraints- Policy assumptions

Res Heat

Ind Heat

Person Km

Freight Km…

Transformation

Refinery,

Power Plants,

Gas Network,

Briquetting...

Primary energy prices,

Resource availability

Primary energy Final energy Service Demands

GDP, Population,

Industrial Activity

TIAM-MSA Hard Linked Hybrid

Domestic

sources

Imports

Consumption

Industry,

Services,

Transport,

Residential...

MACRO Stand Alone (MSA)

General Equilibrium Macroeconomic

Model

Energy Costs

Labour

Consumption Investment Capital

Demand

Response

Cru

de

Oil

Raw

Gas

Gas

olin

e

Nat

ural

Gas

E

lect

rcit

y 𝑀𝑎𝑥 𝑈 = 𝑛𝑤𝑡𝑟

𝑟

𝑇

𝑡=1

. 𝑝𝑤𝑡𝑡 . 𝑑𝑓𝑎𝑐𝑡𝑟,𝑡 . 𝑙𝑛 𝐶𝑟,𝑡

R

r YEARSy

yREFYR

yr yrANNCOSTdNPVMin1

, ),()1(C

oal

Heat

Light

Motion

• Global, technology rich, long-term energy system model

• Economic optimisation: determination of cost optimal configuration of the system

• 20 world regions with trade of energy, emission certificates and captured CO2

• All energy supply and demand sectors (from resource extraction to the final end use of energy)

• Comprehensive energy technology portfolio, e.g. hydrogen and synfuel production, CCS in power, industry and upstream sector, renewables for heat and power

• Emissions: CO2, CH4, N2O

Soft Link TIAM-ECN & E3ME

Separate regions:

Mexico

Colombia

Venezuela

Brazil

Argentina

Chile

Soft Link TIAM-ECN & E3ME

Benchmarking Scenarios for China Soft linking global BU and TD models

TIAM-World – GEMINI E3

Iron and Steel Consumption and Trade Flow 2050 Global 2DS

Conclusions from Experiences 1. Coupling adds value to individual model results

i. Economic feedback for energy systems models ii. Improved technology system dynamics representation in CGE

models 2. Different approaches for disaggregating CGE models 3. Challenging tasks – harmonisation, calibration,

convergence, … 4. Black box versus transparency (…. lost in coupling)

Thank You

www.ucc.ie/energypolicy