Modelling Innovation and Threshold Effects In Climate Change Mitigation

This paper follows up on our paper entitled "Innovation and Threshold Effects in Technology Responses to Climate Change." Tyndall Centre Working Paper 43, December 2003. In that paper substitution effects were considered in a dynamic model in which there was a choice between fossil fuels and renewable energy in one aggregate energy market. It explored the possibility of threshold effects in energy system change using a relatively simple non-linear model with complex dynamics. The non-linearities arose from changes in costs as technologies change with innovation and investment, and from changes in substitution elasticities as relative prices change.

The purpose of this paper is to generalise the approach by disaggregating both energy demands and energy supply. It considers 6 sources of energy demand-coal, oil and gas fuels, electricity, biomass and the possible emergence of hydrogen as a new energy demand vector-and 26 energy supply technologies, including 'intermittent' supply technologies with storage and both centralised and decentralised forms of energy supply. The underlying ideas are feeding into the development new energy technology component of the E3MG model of Cambridge Econometrics, which is being undertaken by our colleagues Terry Barker, Jonathan Koehler and Haoran Pan of Cambridge University.