Applied general equilibrium models for energy studies: a survey

Abstract

The importance of energy in any economy, developed or underdeveloped, became clear after the first oil shock in 1973. Since then, different studies were carried out to formulate energy policies and to study their impact on the economies. Since energy policy issues are related to various aspects of the economy such as price formation, output determination, income generation and distribution, consumption behaviour, government operation, etc., a coherent and systematic mechanism is required for such analysis. By offering such a framework of analysis, AGE models gained popularity among energy modellers. In the 1980s, the environmental issues have gained importance, and the focus shifted towards curbing and containing emissions of environmentally unfriendly gases resulting from the use of energy, AGE models, because of their capability to capture the complexities of the economy, have found relevance in analysing the economic impacts of controlling pollution and greenhouse gases. This paper surveys the literature on such general equilibrium models as applied to energy studies, and reports their special features, evolution through time as well as their limitations.