Advanced technologies in energy-economy models for climate change assessment

Highlights: • We use historic analogues to parameterize technology diffusion in a CGE model. • The approach includes adjustment costs, rents and knowledge depreciation. • These factors slow diffusion over the first 10–15 years. • Different technology analogues yield similar results. • Rates of technology expansion depend on economic incentives. -- Abstract: Considerations regarding the roles of advanced technologies are crucial in energy-economic modeling, as these technologies, while usually not yet commercially viable, could substitute for fossil energy when favorable policies are in place. To improve the representation of the penetration of advanced technologies in energy-economic models, we present a formulation that is parameterized based on observations, while capturing elements of rent and real adjustment cost increases if high demand due to a large policy shock suddenly appears. The formulation is applied to a global computable general equilibrium model to explore the role of low-carbon alternatives in the electric power sector. While other modeling approaches often adopt specific constraints on expansion, our approach is based on the assumption and observation that these constraints are not absolute, and how fast advanced technologies will expand is endogenous to economic incentives. The policy simulations, while not intended to represent realistic price paths, are designed to illustrate the response of our technology diffusion approach under sudden increased demand for advanced technologies.