DYN-GEM-E3: The Dynamics of Innovation and Investment and its Impact on Policy Design in Energy and Environment for a Sustainable Growth in Europe

The general objective of this project is to improve the modelling of the dynamics of innovation and investment in an applied general equilibrium model and to evaluate its impact for the design of energy and environmental policies. The project lies in the line of previous projects related to the development of the GEM-E3 general equilibrium model.
The contribution of PSI to the overall objectives of the project will be the implementation and integration of learning curves and Bottom-up Top-down energy modeling. The objective consists of deepening and expanding work done in a preceding call, the deliverable of which was the implementation of a bottom up top down representation of the electricity sector in the GEM-E3 model. More specifically, learning curve relationships will be introduced in the model for the technologies considered in order to capture the dynamics of technical progress and enhance the simulation properties of the model with regard to emission constraint exercises. These learning curve relationships, which represent the technical progress, relate the investment cost of a technology to it installed capacity. Since the technological foundation of energy substitution possibilities (activity analysis) in the electricity sector has already been established in a previous project (TCH-GEM-E3) and the technologies are clearly identified, a crucial task then is to endogenise the technology cost which in turn is used for the creation of the technology substitution curve. In the current version of GEM-E3 this cost is exogenous and any technical progress incorporated is treated as an assumption.

• S. Kypreos