Design and application of a technologically explicit hybrid energy-economy policy model with micro and macro economic dynamics

Are further energy efficiency gains, or more recently greenhouse gas reductions, expensive or cheap? Analysts provide conflicting advice to policy makers based on divergent modelling perspectives, a 'top-down 1 bottom-up debate' in which economists use equation based models that equilibrate markets by maximizing consumer welfare, and technologists use technology simulation models that minimize the financial cost of providing energy services. This thesis summarizes a long term research project to find a middle ground between these two positions that is more useful to policy makers. Starting with the individual components of a behaviourally realistic and technologically explicit simulation model (ISTUM - Inter Sectoral Technology Use Model), or "hybrid", the individual sectors of the economy are linked using a framework of micro and macro economic feedbacks. These feedbacks are taken from the economic theory that informs the computable general equilibrium (CGE) family of models. Speaking in the languages of both economists and engineers, the resulting "physical" equilibrium model of Canada (CIMS - Canadian Integrated Modeling System), equilibrates energy and end-product markets, including imports and exports, for seven regions and 15 economic sectors, including primary industry, manufacturing, transportation, commerce, residences, governmental infrastructure and the energy supply sectors. Several different policy experiments demonstrate the value-added of the model and how its results compare to top-down and bottom-up practice. In general, the results show that technical adjustments make up about half the response to simulated energy policy, and macroeconomic demand adjustments the other half. Induced technical adjustments predominate with minor policies, while the importance of macroeconomic demand adjustment increases with the strength of the policy. Results are also shown for an experiment to derive estimates of future elasticity of substitution (ESUB) and autonomous energy efficiency indices (AEEI) from the model, parameters that could be used in long-run computable general equilibrium (CGE) analysis. The thesis concludes with a summary of the strengths and weakness of the new model as a policy tool, a work plan for its further improvement, and a discussion of the general potential for technologically explicit general equilibrium modelling.