An overview of salient factors, relationships and values to support integrated energy-economic systems dynamic modeling

Abstract

Integrated energy-economic modelling is needed to support the development of energy and climate policies. This study asserts that it is important to consider a system dynamics modelling approach that includes dynamics, endogenous treatment of uncertainty and risks, and both aggregate economic and disaggregate technical or engineering levels of analysis. The study examined the economic growth and the factors of production, elasticities, macro- and technical substitutability; energy cost shares, heat engine efficiencies and energy services efficiencies. Emphasis was laid on the support of the future development of integrated energy-economic models covering (a) the key factors or components; (b) the relationships among these components; (c) a quantification of parameters; and (d) the implications for the development of an integrated energy-economic system dynamics model. The study suggested the following: a non-linear relationship in production and consumption; large variations among price and income elasticity values across time frames, across countries and regions, and across energy goods; a far from perfect substitution among factors of production and among energy goods on a macro-level; technical/engineering limits to substitution on a micro-level; and engineering and behavioural limits on what can be achieved with increased efficiencies. The study argues that integrated energy-economic modelling intensifies the accounting for the factors, relationships, quantifications, and implications, and that this practice allows for such models to describe a complex, emergent energy-economic reality that informs better energy policy.