Dynamic formulation of a top-down and bottom-up merging energy policy model

The impact of energy policy measures is not restricted to the energy system and should therefore be analysed within an economy-wide framework, while keeping the essential details of the energy sector. The aim of this paper is to present new developments in the field of the consistent evaluation of indicators for the sustainability assessment of energy policy measures. Starting from the static concept of Böhringer (Energy Econ. 20 (1998) 233), this paper shows how the complementarity format can be used in computable general equilibrium (CGE) modelling for a dynamic formulation of bottom-up and top-down approach merging models. While a hybrid approach increases the credibility of CGE models in energy policy analysis by replacing the energy sector generic functional forms with a bottom-up activity analysis based on specific technologies, the endogenous formulation of investment decisions makes an explicit description of evolving specific capital stocks and technology mixes possible. Both features are essential when assessing effects of policy measures that may be affected by structural change—which is typically the case in the long-term assessment of energy policy measures.