Substitutability and the cost of climate mitigation policy

Yingying Lu*, David I. Stern

*Corresponding author for this work

    Research output: Contribution to journalConference articlepeer-review

    1 Citation (Scopus)

    Abstract

    We explore how and by how much assumptions about elasticities of substitution affect estimates of the cost of GHG emissions reduction policies in computable general equilibrium (CGE) models using G-Cubed, an intertemporal CGE model, to carry out a sensitivity and factor decomposition analysis. The results suggest that the average abatement cost rises non-linearly as elasticities are reduced. Substitution elasticities between capital, labor, energy and materials in production have a larger impact on mitigation costs than inter-fuel substitution does. There are notable differences in the effect of the elasticities on costs at the regional level due to interactions in international trade and capital flows in such a global model. Although the results in this study are derived from a particular model, the study, in a broader sense, suggests that there is a necessity for sensitivity analysis before making any conclusive policy recommendation using CGE models.

    Original languageEnglish
    Pages (from-to)1622-1625
    Number of pages4
    JournalEnergy Procedia
    Volume61
    DOIs
    Publication statusPublished - 2014
    Event6th International Conference on Applied Energy, ICAE 2014 - Taipei, Taiwan, Province of China
    Duration: 30 May 20142 Jun 2014

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