| Abstract: |
Top-down computable general equilibrium (CGE) models are used extensively for
analysis of energy and climate policies. Energy-intensive industries are
usually represented in top-down economic models as abstract economic
production functions, of the constantelasticity-of-substitution (CES)
functional form. This study explores methods for improving the realism of
energy-intensive industries in top-down economic models. We replace the CES
production function with a set of specific technologies and provide a
comparison between the traditional production function approach in CGE models
and an approach with separate technologies for making iron and steel. In
particular, we investigate the response of the iron and steel sector to a set
of CO2 price scenarios. Our technology-based, integrated approach permits a
choice between several technologies for producing iron and steel and allows
for shifts in technology characteristics over time towards best practice,
innovative technologies. In addition, the general equilibrium framework allows
us to analyze interactions between production sectors, for example between
electricity generation and iron and steel production, investigate simultaneous
economy-wide reactions and capture the main driving forces of greenhouse gas
emissions reductions under a climate policy. We conclude that technology
specific effects are crucial for the economic assessment of climate policies,
in particular the effects relating to process shifts and fuel input structure. |