Summary: Accounting for the likely contribution of advanced technologies to the future energy mix is critical in energy-economic modeling, as these technologies, while often not yet commercially viable, could substitute for fossil energy when favorable policies are in place. Simulating the transition from fossil energy to low-carbon substitutes turns out to be challenging, as many of these alternative energy sources have not been widely adopted. Evidence for how quickly they can be adopted at large scale must therefore be obtained mostly from small samples or analogous technologies. At the same time, the speed of being able to transform the energy system to reduce GHG emissions is an important determinant of climate mitigation costs.

This study aims to improve the representation of technology diffusion in integrated assessment models and ground that representation in empirical foundations. Toward that end, the researchers develop an approach to model the penetration of a low-carbon substitute within a global energy-economic computable general equilibrium (CGE) model. Their approach enables the simulation of multiple dynamics related to new technology diffusion, including sunk investments in existing technology, monopoly rents associated with the new technology, adjustment costs related to expanding the new technology, short- and long-run pricing of output of the new technology, and the rate of diffusion of the new technology and how it is influenced by economic factors.

This paper evaluates four types of greenhouse gas emission reduction policies—carbon taxes, cap and trade (C&T) programs, tradeable performance standards (TCES) and technology-neutral clean energy standards (CES)—with a focus on the design levers available to policymakers to shape their structure and impacts. These design elements include production metrics, pricing mechanisms, technological neutrality, uniform standards, scope of coverage, balancing emission and cost risks, and managing distributional impacts. The paper concludes that each of these four policy approaches could reasonably satisfy a comprehensive list of policy criteria and as such be environmentally effective, cost effective, equitable, robust and durable; and at the same time also be preferable to either command and control regulations or 100% renewable portfolio standards approaches to deep decarbonization. The paper ends by identifying several implications for policymakers.

Large-scale economy-wide equilibrium models are widely used for assessing energy or climate policies. As different models often produce diversified outcomes for similar policies, researchers have been trying to understand reasons behind this observation, including cost assumptions for mitigation options, model structure, policy design, and timing. In this study, we focus on analyzing how updating the input-output database of a CGE model could inadvertently change the model output, which has not been carefully examined but could also be an important source that accounts for variations in simulation results of distinct models.

To answer the research question, we provide an analytical framework that elucidates how using a database with a higher energy price raises the CO₂ mitigation cost when the substitution between inputs is relatively limited in the short-run, or when the price hike is considered as temporary. We also provide a numerical example for the analysis, and propose an adjustment that could, under the same percentage reduction in emissions, address the concerns of using the input-output data with prices for fossil fuels and their consumption levels deviating from a more sustainable state.