An overview of salient factors, relationships and values to support integrated energy-economic systems dynamic modelling

Abstract

Integrated energy-economic modeling is needed to support the development of energy and carbon policies. We propose that a systems dynamic modeling approach is needed; one that includes (a) dynamics (b) endogenous treatment of uncertainty and risks, and (c) both aggregate economic and disaggregate technical or engineering levels of analysis. To support the future development of integrated energy-economic models we review and organise the literature on energy-economy interactions into subsections covering (a) the key factors or components, (b) the relationships among these components, (c) a quantification of parameters and (d) implications for the development of an integrated energy-economic systems dynamic model. The literature is organized in discussions on economic growth and the factors of production, elasticities, macro- and technical substitutability, energy cost shares, heat engine efficiencies and energy services efficiencies. We observe non-linear relationships in production and consumption, large variations among price and income elasticity values across time frames, across countries and regions, and across energy goods, far from perfect substitution among factors of production and among energy goods on a macro level, technical/engineering limits to substitution on a micro level, as well as engineering and behavioural limits on what can be achieved with increased efficiencies. We therefore support the call to develop integrated energy-economic systems dynamic models that are able to provide new insight into the nature of energy-economic transitions