Modelling innovation and the macroeconomics of low-carbon transitions: theory, perspectives and practical use

This is the author accepted manuscript. The final version is available from Taylor & Francis (Routledge) via the DOI in this record.Energy and climate policies may have significant economy-wide impacts, which are regularly assessed based on quantitative energy-environment-economy models. These tend to vary in their conclusions on the scale and direction of the likely macroeconomic impacts of a low-carbon transition. This paper traces the characteristic discrepancies in models’ outcomes to their origins in different macro-economic theories, most importantly their treatment of technological innovation and finance. We comprehensively analyse the relevant branches of macro-innovation theory and group them into two classes: ‘Equilibrium’ and ‘Non-equilibrium’. While both approaches are rigorous and self-consistent, they frequently yield opposite conclusions for the economic impacts of low-carbon policies. We show that model outcomes are mainly determined by their representations of monetary and finance dimensions, and their interactions with investment, innovation and technological change. Improving these in all modelling approaches is crucial for strengthening the evidence base for policy making and gaining a more consistent picture of the macroeconomic impacts of achieving emissions reductions objectives. The paper contributes towards the ongoing effort of enhancing the transparency and understanding of sophisticated model mechanisms applied to energy and climate policy analysis. It helps tackle the overall “black box” critique, much-cited in policy circles and elsewhere

FTT:Heat — A simulation model for technological change in the European residential heating sector

This is the final version. Available from Elsevier via the DOI in this record. The database of heat demand per technology type for each Member State is available as Supplementary Material online. A standalone Matlab version of FTT:Heat is available from the corresponding author on reasonable request.We introduce a new bottom-up model for simulating Future Technology Transformations in the European residential heating sector, FTT:Heat. The model simulates the uptake and replacement of heating technologies by households in all individual Member States up to 2050, and allows to simulate the potential effect of real-world policy instruments aiming at an increased uptake of low-carbon technologies. It features an explicit representation of households' technology choices, based on observed preferences and non-linear diffusion dynamics. Decision-makers are modelled as individual households, which are subject to limited information and bounded rationality. Their decisions reflect behavioural factors and preferences at the micro level, and may result in sub-optimal outcomes from a macroeconomic perspective. For demonstration, we simulate policy mixes for reaching the EU's 2030 renewable heating targets in each Member State. Under current diffusion trends, some countries are estimated to continue an ongoing transition towards renewable heating, while others would hardly see any decarbonisation. For increasing the share of renewable heating by at least ten percentage points until 2030, 20 Member States need to introduce additional policies, the necessary stringency of which differs between countries. Due to the slow turnover of heating systems, resulting cost increases faced by households could persist over decades.European Commission, Directorate-General for Energ

European regional competitiveness indicators

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Forecasting water demand components Best practice manual

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Policy-induced energy technological innovation and finance for low-carbon economic growth. Study on the macroeconomics of energy and climate policies.

Contains fulltext : 163407pub.pdf (publisher's version ) (Open Access

Financialisation, industrial strategy and the challenges of climate change and environmental degradation

The paper discusses the nature of the present era of financialisation, outlining the changes in the financial sector and its relations with the real sector which are particularly relevant for the climate emergency. The relationship between growth of the financial sector (‘financial development’) and economic growth is reviewed, and the relevant of recent empirical findings for the role of the financial sector in addressing the climate emergency drawn out. It is argued that the policy approach to the climate emergency and environmental degradation should be embedded within an industrial strategy. Further, it is argued that the structures of the financial sector need to be changed to encourage financial institutions which are more favourably disposed towards to the allocation of funds to ‘green investment’. It is also argued that the central bank should act in ways that are supportive of environmental policies but that their role is a rather limited one