3 years ago

Constant elasticity of substitution functions for energy modeling in general equilibrium integrated assessment models: a critical review and recommendations

Denes Csala, Abdulla Kaya, Sgouris Sgouridis


Applying constant elasticity of substitution (CES) functions in general equilibrium integrated assessment models (GE-IAMs) for the substitution of technical factor inputs (e.g., replacing fossil fuels) fails to match historically observed patterns in energy transition dynamics. This method of substitution is also very sensitive to the structure of CES implementation (nesting) and parameter choice. The resulting methodology-related artifacts are (i) the extension of the status quo technology shares for future energy supply relying on fossil fuels with carbon capture, biomass, and nuclear; (ii) monotonically increasing marginal abatement costs of carbon; and (iii) substitution of energy with non-physical inputs (e.g., knowledge and capital) without conclusive evidence that this is possible to the extent modeled. We demonstrate these issues using simple examples and analyze how they are relevant in the case of four major CES-based GE-IAMs. To address this, we propose alternative formulations either by opting for carefully applied perfect substitution for alternative energy options or by introducing dynamically variable elasticity of substitution as a potential intermediate solution. Nevertheless, complementing the economic analysis with physical modeling accounting for storage and resource availability at a high resolution spatially and temporally would be preferable.

Publisher URL: https://link.springer.com/article/10.1007/s10584-017-2077-y

DOI: 10.1007/s10584-017-2077-y

You might also like
Never Miss Important Research

Researcher is an app designed by academics, for academics. Create a personalised feed in two minutes.
Choose from over 15,000 academics journals covering ten research areas then let Researcher deliver you papers tailored to your interests each day.

  • Download from Google Play
  • Download from App Store
  • Download from AppInChina

Researcher displays publicly available abstracts and doesn’t host any full article content. If the content is open access, we will direct clicks from the abstracts to the publisher website and display the PDF copy on our platform. Clicks to view the full text will be directed to the publisher website, where only users with subscriptions or access through their institution are able to view the full article.