Mitigation Strategies and Costs of Climate Protection: The Effects of ETC in the Hybrid Model MIND

Abstract

MIND is a hybrid model incorporating several energy related sectors in an endogenous growth model of the world economy. This model structure allows a better understanding of the linkages between the energy sectors and the macro-economic environment. We perform a sensitivity analysis and parameter studies to improve the understanding of the economic mechanisms underlying opportunity costs and the optimal mix of mitigation options. Parameters representing technological change that permeates the entire economy have a strong impact on both the opportunity costs of climate protection and on the optimal mitigation strategies e.g. parameters in the macro-economic environment and in the extraction sector. Sector-specific energy technology parameters change the portfolio of mitigation options but have only modest effects on opportunity costs e.g. learning rate of the renewable energy technologies. We conclude that feedback loops between the macro-economy and the energy sectors are crucial for the determination of opportunity costs and mitigation strategies.