This document outlines a proposed structure and initial results from modelling the global macroeconomic impacts of decarbonizing the energy system using an integrated energy-economy model called ETSAP-TIAM-MSA. The model links the bottom-up energy system model ETSAP-TIAM with a macroeconomic model called MSA. Initial results show that meeting climate targets leads to lower carbon emissions but can reduce GDP by up to 5% in some regions by 2050 compared to baseline scenarios without climate policy. The model captures non-linear demand responses to energy costs that cannot be represented by simple demand elasticities. Further work is needed to refine regional calibrations and test sensitivities.

1. Modelling the global macroeconomic
impacts of a carbon constrained energy
system using ETSAP-TIAM-MSA
James Glynn, Maurizio Gargiulo, Socrates Kypreos,
Brian Ó Gallachóir
UN City, Copenhagen | 66th ETSAP Meeting | TIMES-CGE WS
19th November 2014

2. Acknowledgements
• ETSAP TIAM Project Group
• MSA Developers Socrates Kypreos (PSI) & Antti
Lehtila (VTT)

3. Proposed Structure
• 1.Introduction
• 1.1 Rationale
• 1.2 Motivation
• 1.3 Scenario description
• 2. Methods
• 2.1 Data Harmonisation
• 2.2 Model Structure & Linkages
• 2.3 Substitution approach & structure (CES, Leontief?)
• 2.4 Revenue Recycling (if applicable)
• 3 Results
• 3.1 Energy Service Demand impacts
• 3.2 Economic Impacts
• 3.2.1 Jobs/Employment
• 3.2.2 Gross Domestic Product
• 3.2.3 Welfare (consumption)
• 3.3 Additional Insights & benefits of model linkages
• 4 Conclusions
• 4.1 Critical Messages

4. Outline
• Rationale
• New User learning experiences with ETSAP TIAM
& Macro Stand Alone
• MACRO is not “a Pig” anymore
• Macroeconomic impact of decarbonising of the
Energy System
• ETSAP-TIAM MSA Global Energy System Modelling
• Developing on setup experience with Irish-TIMES-MSA
• Initial scenario analysis results
• Work in Progress
• Focus on results to 2050
• Next Steps

5. Why Model Energy System
Macro-economy Feedback?
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
1980 1990 2000 2010
PercentageChange
Global % Changes
World - TPER
World - GDP
• Energy Consumption ~ Economic Growth Relation
• Growth drives our models, but what are the scale of feedbacks?
• Decarbonising Energy System
• Increased capital investment in new energy system
• What is the feedback effect on GDP and consumption?
• Welfare? Jobs?
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
1980 1990 2000 2010
PercentageChange
Ireland Ireland - TPER
Ireland - GDP

6. ETSAP-TIAM model description
Built with the TIMES model generator
• The Integrated MARKAL-EFOM System of IEA-ETSAP
• Linear programming bottom-up energy system model
• Integrated model of the entire energy system
• Prospective analysis on medium to long term horizon
(2100 – results to 2050)
• Demand driven (exogenous) in physical units
• Partial and dynamic equilibrium (perfect market)
• Optimal technology selection
• Minimize the total system cost
• Environmental constraints
• 15 Region Model
• Price-elastic demands in the TIMES-ED version
• Not included in MSA runs

7. ETSAP-TIAM
Reference Energy System
Source: Loulou, R., Labriet, M., 2008. ETSAP-TIAM: the TIMES integrated assessment model Part
I: Model structure. Comput. Manag. Sci. 5, 7–40. doi:10.1007/s10287-007-0046-z

8. ETSAP-TIAM MSA (TMSA)
Macro Stand Alone
• Single-sector, multi-regional, inter-temporal general
equilibrium model which maximises regional utility.
• The utility is a logarithmic function of the
consumption of a single generic consumer.
• Production inputs are labour, capital and energy.
• Energy demand from ETSAP-TIAM model.
• MSA Re-estimates Energy Service Demands based on
energy cost
Macro-Economy
MACRO Model
Energy Sector
-TIMES
Energy Costs
Energy Demand
Labour
Consumption
Investment
Capital

9. Data Harmonisation
• Base year GDP
• Projected GDP growth Rates
• Harmonise between demand drivers
• Regional Elasticity of Substitution?
• Regional Capital Shares
• Negishi Weights
Parameter Description
TM_ESUB(r) Elasticity of substitution
TM_GDP0(r) GDP in the first period
TM_GR(r,y) Projected annual GDP growth in per cent
TM_KGDP(r) Initial capital to GDP ratio
TM_KPVS(r) Initial capital value share in all production factors

10. Scenario Outline
IPCC AR5 CO2 Mitigation paths
Source: IPCC, 2014. Climate Change 2014: Mitigation of Climate Change, Fifth Assessment Report of the
Intergovernmental Panel on Climate Change. Cambridge University Press, Washington, USA.
• Two thirds of emissions are from the energy system
• Radically Decarbonised
Energy System

11. Scenario Outline
• BASE
• Reference energy system, least cost optimal without policy
constraints
• Assumes rational optimising choices: not equal to business as usual
• IPCC
• BASE with an upper bound set on CO2 emissions to achieve the
2degree target set in the IPCC AR5 WG3 mitigation report
• IPCC MSA
• IPCC with MSA active to re-estimate energy service demands relative
to available capital & investment
• REG
• BASE with an upper bound set on REGIONAL CO2 emissions in line
with recent UN climate summit pledges
• Developed Countries -80% CO2 by 2050, Developing range of
limited constraints peak by 2040, Energy Exporters no constraints.
• Global CO2 Targets are not explicitly met
• REG MSA
• REG with MSA active to re-estimate energy service demands relative
to available capital & investment

12. ETSAP-TIAM 15 Regions
Developed, Developing, Exporting
AFR
CAN
USA
MEX
CSA
WEU
EEU
MEA
IND
FSU
CHI
SKO
JPN
AUS
ODA

13. Sectoral Energy Consumption
0
100
200
300
400
500
600
700
BASE IPCC IPCC
MSA
REG REG
MSA
BASE IPCC IPCC
MSA
REG REG
MSA
2020 . 2050
EnergyConsumption
(EJ-Exajoules)
Transport
Residential
Industry
Commercial
Agriculture

14. Demand Decoupling
0
200
400
600
800
1000
1200
BASE
IPCCMSA
REGMSA
BASE
IPCCMSA
REGMSA
BASE
IPCCMSA
REGMSA
BASE
IPCCMSA
REGMSA
CHI USA CHI USA
2020 2050
MillionTonnes(Mt)
DEM Non-ferrous metals [INF]
DEM Iron and Steel [IIS]
0
500
1000
1500
2000
2500
3000
3500
4000
BASE
IPCCMSA
REGMSA
BASE
IPCCMSA
REGMSA
BASE
IPCCMSA
REGMSA
BASE
IPCCMSA
REGMSA
CHI USA CHI USA
2020 2050
BillionVehiclekm/yr
Road Medium Trucks Demand [TRM]
Road Light Vehicle Demand [TRL]
Road Heavy Trucks Demand [TRH]
Road Commercial Trucks Demand [TRC]
Road Bus Demand [TRB]

15. Fuel Mixes – 2020 - 2050
0
100
200
300
400
500
600
700
BASE IPCC IPCC
MSA
REG REG
MSA
BASE IPCC IPCC
MSA
REG REG
MSA
2020 2050
EnergyConsumption
EJ-Exajoules
Other Renewable
Oil Products
Hydrogen
Heat
Gas
Electricity
Coal
Biomass
Biodiesel
Bio-Alcohol

16. Regional Fuel Mixes
0
50
100
150
200
250 BASE
IPCC
IPCCMSA
REG
REGMSA
BASE
IPCC
IPCCMSA
REG
REGMSA
BASE
IPCC
IPCCMSA
REG
REGMSA
BASE
IPCC
IPCCMSA
REG
REGMSA
CHI USA CHI USA
2020 2050
EnergyConsumption
(EJ-Exajoules)
Other Renewable
Oil Products (includes
synthetic oil)
Heat
Gas
Electricity
Coal
Biomass (excludes biofuels)
Biodiesel
Alcohol (ethanol, methanol,
from biomass or not)

17. Carbon Emissions
Regional Burden Sharing Scenario
0
10
20
30
40
50
60
BASE IPCC IPCC
MSA
REG REG
MSA
BASE IPCC IPCC
MSA
REG REG
MSA
2020 2020
CO2Emissions
(Gt)
WEU
USA
SKO
ODA
MEX
MEA
JPN
IND
FSU
EEU
CSA
CHI
CAN
AUS
AFR
Redistribution of
Country Burden
Shares –
Developing
Country shares
change

18. GDP Change 2020, 2050
(*Initial Results – trends rather than specifics)
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
%GDPChangeperyear
2020 IPCC MSA
2020 REG MSA
2050 IPCC MSA
2050 REG MSA
Energy Exporters
Industrial Developing Developed West

19. Conclusions
• National CO2 emissions are typically lower in MSA Runs as a result of
demand adjustments.
• between -5 and -13% by 2050
• Loss of GDP can be as high and potentially disruptive by 2050.
• National effects are dependent on burden sharing rules
• Short term economic gains are to be made in energy efficiency
measures.
• MSA displays non-linear, sectorally non-uniform demand responses that
cannot be captured with demand price elasticities.
• Critical Messages – Practical tips using MSA setup
• Synch time periods to 11p
• Avoid volatile high marginal costs
• Remove all dummies
• Ensure ALL sensible constraints (I know this should go without saying…)
• Next Steps
• Regional Calibration & Testing Ph2
• Regional Sensitivity to Negishi Weights
• Regional Sensitivity to Elasticity of Substitution

20. Thank You
www.ucc.ie/energypolicy