International Handbook on the Economics of Energy
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International Handbook on the Economics of Energy

Edited by Joanne Evans and Lester C. Hunt

As an essential component for economic growth, energy has a significant impact on the global economy. The need to meet growing energy demand has prompted cutting-edge innovation in clean technology in an attempt to realise environmental and cost objectives, whilst ensuring the security of energy supply. This Handbook offers a comprehensive review of the economics of energy, including contributions from a distinguished array of international specialists. It provides a thorough discussion of the major research issues in this topical field of economics.
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Chapter 13: Combining Top Down and Bottom Up in Energy Economy Models

Mark Jaccard


Mark Jaccard 1 Introduction: Designing Induced Technological Change Models and Estimating Their Parameters Many environmental concerns, including the risk of human-induced climate change, motivate public policy efforts to influence the direction of technological evolution – what is known as ‘induced technological change’ (ITC). Since technological change is a long-run phenomenon that occurs as society’s capital stock grows and is renewed, the likely outcome of alternative policies is inevitably uncertain, and more so the further one projects into the future. But even though future technological evolution and the behavior of consumers and businesses are uncertain, this is no excuse to engage in unsupported speculation about the future adoption of new technologies. A speculative or wishful scenario of the future, with negligible connection to real-world evidence, is ultimately unhelpful to policy makers and may lead to ITC policies that are ineffective or have unintended consequences. The appropriate policy modelling response to this challenge has at least two major tasks. The first is to characterize the necessary attributes of an energy–economy model for assessing ITC policies. Some of these attributes are generic. Future technological potential, future responsiveness of consumers and businesses to policy signals, and future economy-wide feedbacks must be characterized under any modelling of ITC. Other model attributes, however, depend on the specific policy objective and scope. Thus, a model for determining greenhouse gas (GHG) reduction targets for groups of countries within a global framework will differ in degree of resolution and structure from a model for assessing a specific policy program...

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