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Capturing natural resource heterogeneity in top-down energy-economic equilibrium models

Sebastian Rausch and Da Zhang

Energy Economics, 2018, vol. 74, issue C, 917-926

Abstract: Top-down energy-economic modeling approaches often use simplified techniques to represent heterogeneous resource inputs to production. We show that for some policies, such as feed-in tariffs for renewable electricity, detailed representation of renewable resource grades is required to describe the technology more precisely and identify cost-effective policy designs. We demonstrate the hybrid approach for modeling heterogeneity in the quality of natural resource inputs required for renewable energy production in a stylized computable general equilibrium framework. Importantly, compared to the traditional approach, the hybrid approach resolves near-flat or near-vertical sections of the supply curve and improves the precision of policy simulation. We then represent the shape of a resource supply curve based on more detailed data. We show that for the case of onshore wind development in China, a differentiated feed-in tariff design that can only be modeled with the hybrid approach requires less than half of the subsidy budget needed for a uniform feed-in tariff design to achieve the same installation targets.

Keywords: Heterogeneous resource; Cost curve; Hybrid modeling; Step curve fitting; Computable general equilibrium model; China (search for similar items in EconPapers)
JEL-codes: D5 Q2 Q4 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.eneco.2018.07.019

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