2) Modeling Energy and Resource Use

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Energy-economic models and the environment
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DOI: 10.1016/j.pecs.2004.03.001
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Progress in Energy and Combustion Science 30 (2004) 417–475
www.elsevier.com/locate/pecs
Energy-economic models and the environment

Toshihiko Nakata*
Management of Science and Technology, Graduate School of Engineering, Tohoku University, Aoba-yama 01, Sendai 980-8579, Japan
Received 15 February 2003; revised 8 March 2004; accepted 8 March 2004
Abstract
The current century—an era of environmental awareness—requires energy resources to satisfy the world’s future energy
demands. We can use current energy use scenarios to help us to understand how energy systems could change. Such scenarios
are not an exercise in prophecy; rather they are designed to challenge our thinking in order to make better decisions today. The
conventional modeling approach tends to extrapolate changes in energy consumption from historical trends; however,
technology innovation sometimes causes drastic reforms in energy systems in the industrial, commercial, residential and
transportation sectors. The economic aspects are another key issue to be considered in order to understand future changes in
energy systems. The quantity of the energy supply is set to meet the price of the energy demand of end users. This occurs on the
condition that the price of the energy supply equates with the price on the demand side under the market mechanism. This paper
reviews the various issues associated with the energy-economic model and its application to national energy policies, renewable
energy systems, and the global environment.
q 2004 Elsevier Ltd. All rights reserved.
Keywords: Energy model; Carbon tax; Energy tax; CO2 emissions; Global environment; Transportation; Nuclear; Renewable energy
Contents
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418
2. Energy-economic models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
2.1. Top-down and bottom-up models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
2.2. Equilibrium, optimization, and simulation models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
2.3. Typical energy-economic models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422
3. Application to national energy systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
3.1. Carbon and BTU taxations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
3.1.1. Policy approaches to reduce CO2 emissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
3.1.2. National energy model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428
3.1.3. Policy scenarios analyzed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429
3.1.4. Changes in the system leading to reduction in CO2 emissions. . . . . . . . . . . . . . . . . . . . . 431
3.1.5. Financial impacts of the taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432
3.1.6. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434
3.2. Role of nuclear power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 435
3.2.2. Changes in the electricity sector in nuclear phase out. . . . . . . . . . . . . . . . . . . . . . . . . . . 437
3.2.3. Impact of taxes with/without nuclear phase out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438
3.2.4. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439
* Corresponding author. Tel./fax: þ 81-22-217-7004.

E-mail address: nakata@cc.mech.tohoku.ac.jp (T. Nakata).
0360-1285/$ - see front matter q 2004 Elsevier Ltd. All rights reserved.
doi:10.1016/j.pecs.2004.03.001
418 T. Nakata / Progress in Energy and Combustion Science 30 (2004) 417–475
3.3. A vision of the future for small sized nuclear power plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440
3.3.1. Role of small nuclear power plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440
3.3.2. Methodology and objective function for the analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 441
3.3.3. Analyzed result of annual electric generation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443
3.3.4. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
3.4. Hybrid vehicles in the transportation sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445
3.4.2. Results of the analyses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446
3.4.3. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
3.5. Fuel cell vehicles in the transportation sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
3.5.1. Passenger transportation model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449
3.5.2. Analysis of FCV passenger transport and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449
3.5.3. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 449
3.6. Energy systems in north-east Asia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451
3.6.1. Analysis of policy scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451
3.6.2. Discussion of energy cooperation between Japan and Korea . . . . . . . . . . . . . . . . . . . . . . 452
4. Application to local energy systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454
4.1. Carbonless energy systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454
4.2. Integrated renewable energy systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455
4.2.1. Renewable energy systems in rural areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456
4.2.2. Modeling approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457
4.2.3. Electricity supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458
4.2.4. Heat supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460
4.2.5. Optimal system configuration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460
4.2.6. CO2 emission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461
4.2.7. Economic aspect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461
4.2.8. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461
5. Climate policy assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462
5.1. Energy-economic model for climate policy assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462
5.2. Sensitivity analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
5.2.1. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
5.2.2. Result of the analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466
5.2.3. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466
6. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468
1. Introduction Concerning sustainability criteria as a point of departure

for our definition, we use the Brundland definition [3] of
Recent attention on global warming has increased the sustainable development. Accordingly, ‘development that
interest in renewable energy and clean combustion technol- meets the needs of the present without compromising the
ogies. Particular interest is focused on reducing CO2 ability of future generations to meet their own needs’ is
emissions [1], securing energy securities and lowering considered the key to sustainability.
costs. The concept of sustainability requires balanced The ways in which we provide and use the energy the
conditions among energy, the economy, and the environ- world depends upon will change greatly over the next 50
ment and social aspects as well. Future energy systems need years, in response to three fundamental challenges [4]:
an optimized solution among emissions, supply security and
the market economy [2]. † Access to efficient, commercial energy, from which
Security of energy supplies is vital for our economies nearly a fifth of the world is excluded,
and our way of life. However, given the fluctuation in the † meeting the expanding and shifting energy needs of an
energy prices, the concentration of four-fifths of the world’s urbanized world, as economic development raises the
oil and gas resources in politically unstable regions, and the living standards of billions of people,
commitment to the Kyoto Protocol, there are questions to be † preventing the pollution which damages health, blights
answered for the future. environments and threatens vital natural systems, and
T. Nakata / Progress in Energy and Combustion Science 30 (2004) 417–475 419
† reducing avoidable risk by using risk-minimized and predicting the future, but also a management tool for
high accepted technological solutions and reducing decision making [17]; it also makes information available to
energy imports from unstable regions (protecting against engineers in environmentally sound technologies [18,19] to
geopolitical risks). design specifications for efficiency, emissions and costs.
In order to introduce energy suppliers to practical and
Modeling has been a tool for national energy planning commercial application in world economy, it is important to
since the mid-1970s. At that time, models were used to perceive the economic aspects [20 –23].
understand the implications and means of coping with the In addition to environmentally sound technologies, there
first oil embargo. Some of the most well-known scenarios are are several other concepts of sustainability. ‘Zero emission’
those from Shell outlined after the oil crisis in the 1970th. [24] is a similar concept based on improving technologies
More recently, global warming has become one of the most and processes to the point of maximum resource productivity
significant topics for decision makers. Environmental and virtually no waste. This goal can be approached in a
security [5,6] has become a major issue, as well as securing number of ways, including technological innovation, pol-
an energy supply. Just as physical models can predict the lution prevention, cleaner production, by-product synergy, or
impact of increased CO2 on climate, energy-economic industrial ecology. All of these are the ways to eliminate
models can show the economic and differing from the kind waste or turn waste into profitable resources, while prevent-
of modeling (disaggregated or not) technical impacts of ing harm to environmental and human health. The zero
alternative economic strategies for minimizing emissions. emissions research initiative, developed at the United
Projecting scenarios help to plan for different possible Nations University in Tokyo, has as its goal “zero global
futures; they are not only predictions, but credible, relevant, emissions, zero water waste, zero solid waste, and zero waste
and challenging alternative possibilities that help explore in the air.” This can be achieved by using nature as a model
the what, if, and how. The purpose is not to pinpoint future for process and product design, and by increasing resource
events but to consider the forces which could influence the productivity through industrial clustering.
future along different pathways. Some such exercises, which Industrial ecology [25 – 27] is a similar concept based on
project possibilities for the future, were recently carried out industrial metabolism [28]. Industrial ecology, like biologi-
by the Intergovernmental Panel for Climate Change (IPCC) cal ecology, has as its focus the cycling of resources, rather
[7 –12]; they create a wide range of alternative scenarios. than their extraction and eventual discard following use.
The energy modeling forum (EMF) is working on energy Sustainable development is dependent on achieving such
and environmental modeling [13 – 15]. recycling, and corporations, customers, and governments
There are many energy alternatives being combined with are turning from ‘end-of-pipe’ thinking to forward looking
energy conversion technologies and market forces. For approaches to product and process design.
example, the electricity sector has more choices available in The ‘Factor Four’ [29], and ‘Factor Ten’ theories [30]
energy resources than does the transportation sector, in postulate that resource productivity can grow 4-fold (or 10-
which despite of long-term options concerning the use of fold), and the amount of wealth extracted from one unit of
hydrogen (based on fossil or renewable energies) only a natural resources can quadruple. Factor Four introduces up a
petroleum resource can meet today’s demand. It is useful, new way of thinking about efficiency that will crucial to our
not only for decision makers but also for engineers, to long-term future.
understand the economic and environmental impacts of CO2-sequestration and CO2-disposal could be principal
energy systems’ configurations. The current study on market option for the future. There is a growing recognition that the
equilibrium models of energy systems can show some energy industry can be part of the solution to reducing
impacts of the carbon tax on CO2 emissions. Along with greenhouse gas (GHG) emissions by capturing and
modeling multi-period price-quantity equilibrium in mar- permanently sequestering CO2. Injection of CO2 into
kets, it includes effects such as the market penetration of geologic formations is being practiced today by the petroleum
advanced technologies, capital investments, and resource industry for enhanced oil recovery, but it is not yet possible to
depletion. The impact of regulatory policies can be modeled predict with confidence storage volumes, formation integrity
through devices such as taxes on emissions or constraints on and permanence over long time periods [31].
quantities and prices. Thus we have outlined concepts of sustainability, in
Moreover, restructuring the expansion of the energy which ideal actions are defined. The question to ask next is
industry into global markets, will lead to competition in how to target our goals toward the future. It is important to
energy markets [16]. Distributed power generation, result- design feasible scenarios for climate policy makers,
ing from deregulated electricity markets, could introduce engineers, and researchers. The modeling study, which
renewable energy at reasonable prices, to the electricity will be examined in next chapters, can help to conceptualize
supply industry (ESI). these ideals, and how to apply them to practical solutions.
As we can see, the optimization of the energy system In the paper, dimensions of environment are designed
requires both economic and environmental considerations. with global warming in mind. GHGs such as carbon dioxide
The energy-economic model is not only a numerical tool for emission become a focal point of modeling study. Regional
and local models are valuable in the decision making Top-down and bottom-up models are the two basic
process for regional/local energy policy. As far as approaches to examine the linkages between the economy
technologies concerned, most energy models aim mainly and the energy system. We see the difference by introducing
at energy conversion technologies as in industrial sector, the definition by the IPCC [7]. Top-down models evaluate
commercial sector, residential sector, transportation sector, the system from aggregate economic variables, whereas
and electricity sector. bottom-up models consider technological options or project-
specific climate change mitigation policies. The differences
between their results are rooted in a complex interplay
2. Energy-economic models
among the differences in purpose, model structure, and input
assumptions. The terms ‘top’ and ‘bottom’ are shorthand for
In dealing with an energy-economic model for energy
aggregate and disaggregated models. The top-down label
policies and global warming issues, multi-disciplinary
comes from the way modelers apply macroeconomic theory
fields—energy, economy, and the environment should be
and econometric techniques to historical data on consump-
expressed as model components (Fig. 1). Technological
tion, prices, incomes, and factor costs to model the final
innovations and efficiency improvements are factors that
demand for goods and services, and the supply from main
should also be included for this model.
Examining primary energy sources four groups—coal, sectors (energy sector, transportation, agriculture, and
petroleum, gas and non-carbon sources. Fossil fuels may be industry). Some critics complain, however, that aggregate
understood to be exhaustible. This means that total CO2 models do not capture the needed sectoral details and
emissions from fossil fuels are confined within certain complexity of demand and supply. They argue that energy
boundaries. From this perspective, rational use of fossil fuels sector models were used to explore the potential for a
is an important part of any energy strategy, for it provides possible decoupling of economic growth and energy
security against the possibility of a delay in the arrival of demand, which requires bottom-up or disaggregated anal-
backup sources. ysis of energy technologies.
Since the total carbon load from oil and gas is limited, Macroeconomic models are also often detailed, but in a
total carbon load on the atmosphere is ultimately, primarily different way to bottom-up models. Top-down models
related to coal usage. From this perspective, an important account for various industrial sectors and household types,
uncertainty is the pace at which the cost of the backup and many construct demand functions for household
technologies decreases. If the cot decreases quickly enough, expenditures by summing ‘individual demand functions.’
the intermediate stage of coal dependency will be short, and Another distinction between the top-down and bottom-
the total carbon load low. up approaches is how behavior is endogenized and
extrapolated over the long run. Econometric relationships
2.1. Top-down and bottom-up models among aggregated variables are generally more reliable
than those among disaggregated variables, and the
The main concept of energy-economic models is behavior of the models is more stable with such variables.
outlined in Fig. 2. There are two vectors, energy demand It is therefore common to adopt high levels of aggregation
and supply, respectively. Each of these signals has two for top-down models when they are applied to long time
major factors such as energy quantity and energy price. frames.
Fig. 1. Schematic of national energy model.

Fig. 2. Component of energy-economic model.
Top-down models examine a broad equilibrium frame- description of a technology in which, depending on the
work. This framework addresses the feedback between the choice of production function, the share elasticities
energy sector and other economic sectors, and between represent the degree of substitutability among inputs.
the macroeconomic impacts of climate policies on the
national and global scale. As such, early top-down models 2.2. Equilibrium, optimization, and simulation models
usually had minimal detail on the energy-consuming side of
the economy. Specific technologies were not directly There are several modeling approaches available in
captured. In contrast, bottom-up models mimicked the energy economics, based on either equilibrium or optimi-
specific technological options, especially for energy zation approaches [32 – 37].
demand. Attention to the detailed workings of technologies Computable general equilibrium (CGE) models con-
required early modelers to pass over the feedbacks between struct the behavior of economic agents based on micro-
the energy sector and the rest of the economy. economic principles [7]. The models typically simulate
Top-down and bottom-up models have also different markets for factors of production (e.g. labor, capital,
assumptions and expectations on the efficiency improve- energy), products, and foreign exchange, with equations
ments from current and future technologies. Bottom-up that specify supply and demand behavior. The models are
models often focus on the engineering energy—gains solved for a set of wages, prices, and exchange rates to bring
evident at the microeconomic level and detailed analysis all of the markets into equilibrium. CGE models examine
of the technical and economic dimensions of specific the economy in different states of equilibrium and so are not
policy options. able to provide insight into the adjustment process. The
The basic difference is that each approach represents parameters in CGE models are partly calibrated (i.e. they are
technology in a fundamentally different way. The bottom-up selected to fit one year of data) and only partly statistically
models capture technology in the engineering sense: a given or econometrically determined. Hence, it is difficult to
technique related to energy consumption or supply, with a defend the validity of some of the parameter values.
given technical performance and cost. In contrast, the Dynamic energy optimization models, a class of energy
technology term in top-down models, whatever the sector models, can also be termed partial equilibrium
disaggregation, is represented by the shares of the purchase models. These technology-oriented models minimize the
of a given input in intermediary consumption, in the total costs of the energy system, including all end-use
production function, and in labor, capital, and other inputs. sectors, over a 40 – 50 year horizon and thus compute a
These shares constitute the basic ingredients of the economic partial equilibrium for the energy markets. The costs include
investment and operation costs of all sectors based on a of factors of production: labor, capital, and sector-specific
detailed representation of factor costs and assumptions fixed factors.
about GHG emission taxes. Early versions of these models Huntington and Weyant [38] discuss various economic
assessed how energy demands can be met at least cost. models of energy supply and demand that have been used
Recent versions allow demand to respond to prices. Another for global climate change policy analysis. Although these
development has established a link between aggregate models are diverse in their structure and focus, all systems
macroeconomic demand and energy demand. The rich determine market-clearing equilibrium prices that balance
technology information in the models is helpful to assess production and consumption levels for different fuel types.
capital stock turnover and technology learning, which is This comparison focuses on the energy supply and demand
endogenous in some models. Most of engineering-type adjustments that significantly influence the costs of various
optimization models are solved on the basis of supply strategies for limiting carbon emissions. Weyant [39] edits
constraints rather than on the basis of matching supply and the book on energy and environmental policy modeling,
demand, which clear at the market price. The use of which introduces a variety of recent energy– environmental
optimization approach would require justification. modeling concepts, and to provide an overview of these
Integrated energy-system simulation models are bottom- modeling concepts. Induced technological change is also
up models that include a detailed representation of energy discussed in policy models if energy, environment, and
demand and supply technologies, which include end-use, climate change. Current approaches to energy-economic
conversion, and production technologies. Demand and modeling that neglect technological characteristics such as
technology development are driven by exogenous scenario heterogeneity, uncertainty, and path-dependence are likely
assumptions often linked to technology vintage models and to underestimate both the impact and the lags in the
econometric forecasts. The demand sectors are generally effectiveness of policy options [39].
disaggregated for industrial subsectors and processes, Bosello and Carraro [40] surveyed recent advances in
residential and service categories, transport modes, etc. energy-economic models by emphasizing how quantitative
This allows development trends to be projected through instruments can answer the main, crucial questions
technology development scenarios. addressed by policymakers, and thereby aid the formulation
of effective global climate policies. In recent years,
modeling techniques have changed. First, input – output
2.3. Typical energy-economic models and macro-Keynesian models were replaced by applied
general equilibrium models (GEM) [41], in part reflecting
Typical modeling approaches are summarized in Table 1. improvements in computer technology and algorithm solver
For example, GREEN is a recursive-dynamic global CGE methods [42]. Subsequently, these model approaches were
model with a special focus on energy production and replaced by eclectic models with both bottom-up and top-
consumption. The model is calibrated on a 1985 data set, down characteristics, which could also account for the
and is calibrated dynamically to produce an exogenously possibility of temporary disequilibria in factor markets.
given path of real GDP growth and population growth. Currently, with the so-called integrated assessment models
Global economic activity is divided into 12 regions, each (IAM), energy-economic modeling aims to amalgamate the
one modeled similarly, albeit with a different base data set knowledge from different scientific fields—economics,
and a different set of parameter. The model has three kinds bio-geo-physics, engineering, demography, etc.—in order
Table 1
Comparison of energy-economic modeling approaches
Modeling technologies Tools Developer Feature
Fixed coefficient model LEAPa Tellus Institute All impacts and inputs are set in a fixed ration to the
out put required
Technology based market model MARKALb BNL Rigid structure of linear programming
Technology based market model META·Netc LLNL Solves the economic equilibrium problem directly
General equilibrium model Second generation modeld PNL World scale modeling
General equilibrium model GREENe OECD World scale modelling
a
Ref. [32].
b
Ref. [33].
c
Ref. [34].
d
Ref. [35].
e
Ref. [36].
Table 2
Energy-economic models (based on Ref. [40])
National EU Global Global-regionalised
Input/output models MIS

MEPA
LP/NLP models MARKAL HERMES IEA (10 world regions)
ETSAP MIDAS MARKAL
MESSAGE III MARKAL
EFOM-ENV PRIMES
IA models ESCAPE DICE IMAGE 2.0 (13 world regions)

RICE
PRICE RICE (6 world regions)
SLICE FUND (9 world regions)
CETA PAGE (4 world regions)
MERGE 3 (5 world regions)
ERIS (9 world regions)
IIAM (26 world regions)
ICAM (7 world regions)
MINICAM (9 world reg.)
CGE/AGE models Conrad (D) GEM-E3 ERM (9 world regions)
Bovemberg-Goulder (USA) LEAN EPPA (12 world regions)
Jorgenson-Wilcoxen (USA) SGM (20 world regions)
GREEN (12 world regions)
G-CUBED (8 world regions)
Whalley-Wigle (6 world regions)
WIAGEM (25 world regions)
Econometric models MDM (UK) QUEST WORLDSCAN
WARM POLES
E3 ME
Acid rain RAINS-Europe
RAINS-Asia
to tackle the environmental issue in the most comprehensive SLICE, IIASA [76], Kemfert [77]: WIAGEM, Amann and
possible way. Dhoondia [78]: RAINS).
Table 2 provides a classification of the well-known and They are classified in a different way according to their
used applied energy-economic models (see van der Voort, regional dimension, their ‘bottom-up’ linear or non-linear
Donni [43], van der Voort, Donni [44]: EFOM-ENV, programming (LP or NLP) nature, or their ‘top-down’
Messner and Strubegger [45], Messner, Golodnikov [46]: input/output (I/O), macro-econometric, general equilibrium
MESSAGE III, Manne and Richels [47]: MERGE2, or integrated assessment framework. Albeit incomplete, this
Nordhaus [48]: DICE, Peck and Teisberg [49], Peck and table should aid comparison of the different available
Teisberg [50]: CETA, Barns, Edmonds [51]: ERM, CEC models, while presenting a rapid overview of their main
[52]: QUEST, Nordhaus and Yang [53]: RICE, Barker [54]: features.
MDM, Barker and Zagame [55]: E3ME, Rotmans, Hulme The distinction between top-down and bottom-up can
[56], CRU [57], CRU [58]: ESCAPE, Rotmans [59]: generally be typified as the distinction between aggregated
IMAGE, Alcamo [60]: IMAGE 2.0, Capros and Karade- and disaggregated models, respectively, or as the distinction
loglou [61]: HERMES/MIDAS, Tol [62]: FUND, Manne, between models with a maximum or a minimum degree of
Mendelsohn [63]: MERGE, Bareto and Kypreos [64], endogenized behavior [79]. The different aspects associated
Capros and Chryssochoides [65]: ERIS, Bernstein, Mon- with top-down and bottom-up models are summarized in
tgomery [66]: IIAM, Dowlatabadi [67]: ICAM, Hope, John Table 3. The difference between top down and bottom up
[68]: PAGE, Rowe and Hill [69]: IEA, Gjerde, Grepperud models is that the last one tries to create a more
[70]: G-CUBED, Fisher-Vanden, Edmonds [71], Fisher- disaggregated picture from the processes and the energy
Vanden, Baron [72], Edmonds, Pitcher [35]: SGM, Yang and emissions flows determining the energy systems as well
[73]: EPPA, Edmonds, Wise [74]: MINICAM, Kolstad [75]: as to take relationships between them into consideration.
Table 3
Characteristics of top-down models and bottom-up models [79]
Top-down models Bottom-up models
Use an economic approach Use an engineering approach

Cannot explicitly represent technologies Allow for detailed description of technologies
Reflect available technologies adopted by the market Reflect technical potential
Most efficient technologies are given by the production frontier Efficient technologies can lie beyond the economic production
(set by market behavior) frontier suggested by market behavior
Use aggregated data for predicting purposes Use disaggregated data for exploring purposes
Based on observed market behavior Independent of observed market behavior
Disregard the technically most efficient technologies available, thus Disregard market thresholds (hidden costs and other constraints),
underestimate potential for efficiency improvements thus overestimate the potential for efficiency improvements
Determine energy demand through aggregate economic indices Represent supply technologies in detail using disaggregated data,
(GNP, price elasticities), but vary in addressing energy supply but vary in addressing energy consumption
Endogenize behavioral relationships Assess costs of technological Options directly
Assumes no discontinuities in historical trends Assumes interactions between energy sector and other sectors
is negligible
Methodologies used for concrete development of data module, an optimization module, a results module, and
energy-economic models can be found in Refs. [80 –84]. supporting programs.
An overview is given of commonly used methodologies MARKAL is a widely applied bottom-up, dynamic
found in the above literature. These methodologies include linear programming (LP) model developed by the Energy
(1) econometric, (2) macro-economic, (3) economic equili- Technology Systems Analysis Programme (ETSAP), of the
brium, (4) optimization, (5) simulation, (6) spreadsheet, (7) International Energy Agency (IEA). It was originally
back casting, and (8) multi-criteria methodologies. In designed for the evaluation of the possible impacts of new
practice, the distinction is not always clear. For instance, energy technologies on national or regional systems. It can
the literature makes a distinction between simulation, be applied to scenarios or cases which embody a variety of
optimization, and spreadsheet methods, usually only when assumptions or restrictions. The MARKAL-MACRO is
referring to bottom-up models, while recent economic top- written in GAMS (a generalized algebraic modeling
down models use optimization and simulation techniques as system).
well. On the other hand, econometric, macro-economic, and The standard MARKAL-LP model has provisions to
economic equilibrium methods are generally applied only to model material flows within the energy system and to
top-down models, although there are also exceptions here. include uncertainties by a stochastic programming
Moreover, Springer [85] gathers results from 25 models approach. The MARKAL family of models includes the
of the market tradable GHG emission permits under the MARKAL-MACRO model and the MARKAL-MICRO and
Kyoto Protocol. Due to diverging projections of emissions MARKAL-ED models, which have a partial equilibrium
growth and different modeling approaches, the model results model that does not represent the rest of the economic
differ substantially. system, but allows demands to be reduced in response to
We see some brief explanation of typical energy- higher energy prices. In order to make up for its economic
economic models [86]. MESSAGE is a dynamic linear aspects, submodel named MACRO is linked [88].
programming optimization model specifically suited for Bottom-up models, such as MESSAGE and MAERKAL,
complex, multi-regional models; has been developed at the are almost exclusively technology snapshot models that
International Institute for Applied Systems Analysis examine a suite of technological alternatives over time.
(IIASA) [87]. The model is typically used in long-term They are generally used in a tandem with the MACRO
scientific applications, being a bottom-up technology- (top-down) macro-economic model which provides
oriented model, which requires the provision of energy- economic data for the energy analysis. They optimize a
related demands as inputs. The MESSAGE includes more choice between different technologies using given abate-
than 100 different energy extraction, conversion, transport, ment costs and carbon emission targets. Both models
distribution, and end-use technologies. The MESSAGE account for the substantial uncertainty associated with the
modeling system is generally used for the optimization of time of arrival and performance of new technologies by
energy supply systems; other systems supplying specific employing a stochastic rather than deterministic optimi-
demands for goods, which must be processed before zation technique [89].
delivery to the final consumer, could be optimized. The long-range energy alternatives planning system
MESSAGE consists of a demand data module, a supply (LEAP) is a fixed coefficient model runs on EXCEL
spreadsheet. It is based on comprehensive accounting of is used for scenario analysis and forecasting. Each national
how energy is consumed, converted and produced in a given application of MIDAS is a simultaneous system of more
region under a range of alternative assumptions on than 2500 equations, solved dynamically over a period of
population, economic development, technology, price, etc. 20– 25 years.
The objective of LEAP is to provide a computer-based GEM-E3, the general equilibrium model for energy–
approach for fostering integrated, reliable, and ongoing economics– environment, is a multinational, multi-sector
energy planning. It is suitable for performing energy general equilibrium model. It includes detailed represen-
assessments in developing or industrialized countries, for tation of the energy supply, energy consumption, polluting
multi-country regions, or for local planning purposes. LEAP emissions related to the latter and damages to environment
provides an information bank, an instrument for long-term generated by the emissions. It also provides links with
projections of supply/demand configurations and a vehicle details sector energy models.
for identifying and evaluating policy and technology PRIMES is a price driven partial equilibrium model for
options. LEAP is relatively easy to handle, and is suitable energy– environment analysis within the context of market
for performing energy assessments of developing countries, driven behavior. It focuses on market related mechanisms
as well as local planning areas. Unlike macroeconomic influencing the evolution of energy demand and supply and
models, LEAP does not attempt to estimate the impacts of technology penetration in the market. The model is also
energy policies on GDP or employment. designed to serve as an energy policy analysis tool, including
The EFOM-ENV model is a national dynamic optimiz- the relationships between energy policy and technology
ation model (employing linear programming), which assessment. The current version of the model, formulated as
represents the energy producing and consuming sectors in a non-linear mixed complementarily problem, and solved
each member state. It optimizes the development of these under GAMS [90], is fully operational and calibrated on
sectors under given fuel import prices, and useful energy 1995 data set for all European Union member states.
demand, over a pre-defined time horizon. The development POLES is a simulation model providing long-term
of national energy systems can be subject to energy and energy supply and demand scenarios. It is based on a
environment constraints such as the availability of fuel hierarchical system of interconnected sub-models on the
supplies, penetration rates of certain technologies, emission international, regional, and national level. Simulation is
standards, and emission ceilings. carried out for international energy markets, national energy
MIDAS is a large-scale energy system planning and balances, and technical subsystems for final energy
forecasting model. It performs dynamic simulation of consumption, energy transformation, and production.
energy systems, represented by combining engineering As an example of the energy-economic model, the
process analysis and econometric formulations. The model modules of SGM are shown in Fig. 3 [35,91]. The Second
Fig. 3. SGM modules [91].

Generation Model is s collection of CCE models developed developed at the Lawrence Livermore National Laboratory
for analysis of policies to reduce GHG emissions. It is as an application of energy-economic models. It is a partial
composed of a set of 14 multi-sector regional CCE models. equilibrium modeling system that allows for explicit price
Regional models are dynamic-recursive, with a time frame competition between technologies and can constrain, or tax,
of 1990 through 2050 in five-year time steps. Each emissions.
production process is represented by a constant elasticity The META-Net allows a user to build and solve complex
of substitution or Leontief production function [92]. The economic models as a network of processes. It allows a user
SGM is a dynamic recursive model. Recursive models are a to construct an energy model as a network of processes, such
sequence of static models with rules for determining the as end uses (price sensitive demands), markets (to allocate
amount of savings and therefore the total amount of new market shares based on relative prices), conversion
capital constructed in each time period. SGM uses processes (to compute inputs needed to meet output
expectations of future prices to determine savings and requirements, based on efficiency, and to compute prices
investment. Within the energy sector in SGM, energy-using based on capital and operating costs), and resources (which
equipment is vintaged to account for capital turnover and can be exhaustible or can follow a set price track), as shown
therefore can examine the response of the economy over in Fig. 4. It solves the non-linear economic equilibrium
time to policy changes. The SGM is designed specifically to problem directly. Previous versions of META-Net were
address global climate change issues, with special emphasis developed to evaluate the long-term development of a
on the following types of analysis system over long time frames of several decades. It has
recently been extended to optimize the design and operation
1. projecting baseline GHG emissions over time for a single of energy systems which include intermittent resources such
country, a group of countries, or the world; as renewable energy resources. The model finds the least
2. finding the least-cost way to meet any particular GHG cost design and operation of the system. The system takes
emissions reduction target; the model descriptions and computes the multi-period price
3. providing a measure of the carbon price, in dollars per quantity equilibrium (Fig. 5). Various policy actions can be
metric ton; and represented in the model, such as subsidies and taxes; this
4. providing a measure of the overall cost of meeting an accounts for resource exhaustion over time and for the
emissions target. addition and eventual retirement of increments of capacity
in the conversion nodes. We can model resources which can
US Environmental Protection Agency (EPA) [93] used be exhaustible or can follow a set price track.
the SGM to obtain estimates of marginal abatement costs for
both the US and international energy sectors. The abatement
cost curves are built up from a series of model runs, each of 3. Application to national energy systems
which sets the carbon price at a fixed level and holds it there
for the duration of the run. Abatement costs are constructed Nowadays in the energy system, we have many
using carbon prices every 10 dollars up to 50 dollars. challenges to meet. Energy economic models are helpful
Outside of the US electricity sector, CO2 offset opportu- tools to point out which ways we can go and which
nities exist in the domestic industrial and transportation perspectives we have. That makes future decisions clearer.
sectors, which represent about 60% of US energy-related In this chapter, applications of energy-economic models into
CO2 emissions. Industrial energy efficiency projects, fuel national energy systems are described. As scenario studies,
switching in industrial boilers, and emissions improvements following topics are considered and analyzed in the model;
in vehicle fleets are the examples of possible offset carbon and BTU taxes, nuclear power, distributed small
candidates. nuclear power plants, hybrid vehicles in the transportation
Similarly, under the offset scenarios, the US electricity sector, fuel cell vehicles (FCVs), and energy systems in
sector may also pursue reductions internationally. Given the Northeast Asia.
level of economic growth and associated increase in CO2
emissions that is predicted in the developing world, the 3.1. Carbon and BTU taxations
energy sectors in these countries are anticipated to be a
source of inexpensive and abundant offsets. For example, 3.1.1. Policy approaches to reduce CO2 emissions
China’s energy and home heating systems are largely The Kyoto Conference [94], calls for substantial
dependent on coal. Projects that help shift China away from reductions in the emissions of carbon from the world’s
coal and towards natural gas, biomass, wind, and other energy systems. However, it is not clear how these
renewables could generate large quantities of offsets at reductions should be achieved. Each country has its own
relatively low cost. Similar opportunities exist in India, unique energy resources, economic demand patterns, and
Brazil, South Korea, and the rest of the developing world. energy security concerns. Thus, the best strategy for each
In the following two chapters, we will examine as a country will be different. In this chapter, we show possible
suitable example most the META-Net modeling tool [34], policy approaches for national scale energy systems. There
Fig. 4. Solution using an iterative, two pass algorithm [34].
are two questions that must be addressed for each country. include electric power reconfiguration. In this chapter, we
First, how can the energy system be configured in order to show a multi-period market equilibrium model to explore
meet future CO2 constraints; Second: what sorts of policies the cost and energy security implications of carbon taxes as
could be used to encourage the system into new configur- policies for reconfiguring a national energy system for all
ations? The possible policies must be evaluated in light of sectors, including electric power.
their potential cost, emissions other than GHG, and Reducing CO2 emissions will require some action on the
implications for national energy security. part of the government. In recent years many studies on the
Since almost all the energy resources are imported in cost of CO2 emission abatement have been published
countries such as Japan, energy security has been an [96– 98]. There are a number of policy actions available to
important issue as well as environmental constraints. The the government ranging from regulatory incentives to taxes.
challenge is to find an optimal/optimized way where both Here, we outline a few of these possibilities.
aspects were taken into consideration. Integrated analysis, Governments can encourage the construction of certain
which includes energy and economic models, will serve an types of technologies through permission processes and
important role in discovering the most suitable scenario for financial encouragement. For example, the Japanese gov-
national energy systems. ernment has requested that electric power utilities construct
Each country must assess different approaches to 13 nuclear power stations between now and 2010, which
controlling CO2 emissions. The impacts of controls on means approximately a 30% increase in nuclear power
CO2 emission from electricity in Canada and the USA have generation capacity. It would be unrealistic for electric
been studied [95], however there are few papers which power utilities to build more nuclear power stations at this
Fig. 5. Convergence process using market demand and supply curves [34].
time without government encouragement because of its 3.1.2. National energy model
higher capital cost and the difficulty of obtaining public Following a 1997 study [100], the US Department of
acceptance at local sites. Energy commissioned an Inter-laboratory Working Group
Another alternative is implementation of a carbon tax. A to examine the potential for public policies and programs to
carbon tax will raise the price of high carbon fuels, such as foster efficient and clean energy technology solutions to
coal, and lead to a greater reliance on low carbon fuels. these energy-related challenges [101]. Their analysis is
Since this tax directly discourages carbon use, it is expected mostly based on the National Energy Modeling System
this will lead to the most efficient reconfiguration of the [102]. For the assessment of potential carbon reductions by
energy system to meet emissions limits. However, coal 2010, the study defines a business-as-usual (BAU) forecast
appears to be one of the most abundant fossil fuels. From the as well alternative scenarios. The BAU scenario, based on
viewpoint of energy security, it is expected that coal, the Energy Information Administration’s Annual Energy
especially when used with clean coal technologies [99], Outlook, 1997, projects an increase of 390 million metric
should have an important role in any national energy mix. In tons of carbon (mmTC) per year (from 1340 to 1730 mm
this sense, a carbon tax may not be the best way to meet the TC) between 1990 and 2010. The three key conclusions of
objectives. An energy tax applied to all fossil fuels could be their study are summarized below:
another approach for meeting both the CO2 emission
constraint and for providing a good mix of energy resources. † Smart public policies can significantly reduce not only
However, it should be outlined that there is no main CO2 emissions but also air pollution, petroleum
instrument and anyway it is necessary to come to a policy dependence, and inefficiencies in energy production
mix. and use. A vigorous national commitment to develop and
Because there are many alternative technologies and deploy energy-efficient and low-carbon technologies has
fuels available to meet emission targets, particularly in the the potential to restrain the growth in US energy
electric sector, it is important for policy makers and consumption and carbon emissions such that levels in
engineers to understand the implications of the different 2010 are close to those in 1997 (for energy) and 1990
policies intended to meet the targets. The model that we (for carbon). They analyze a case in which energy
discuss here includes effects such as the market penetration efficiency can reduce carbon emissions by 120 mm
of advanced technologies, capital investments, capacity TC/ yr21 by 2010. They analyze a second case, with
retirements, and resource depletion. The impact of regulat- policies that promote adoption of energy-efficient and
ory policies can be modeled through devices such as taxes low carbon technologies and a $50/tonC permit price,
on emissions, or constraints on quantities and prices. with emission reductions of 390 mmTC/yr in 2010.
The analysis also suggests that substantial additional environmental emissions. META-Net can incorporate
savings are available if permit prices were to begin to many of these mechanisms and evaluate their potential
rise above the $50/ton level. impact on the development of the economic system.
† The overall economic benefits of these policies appear to Moreover, energy-economic models are not able to
be comparable to their overall costs, if feasible ways are describe the real market behavior in total. They cannot take
found to implement the carbon reductions as described all kind of not perfect characteristics into consideration.
above. Market decision are not only driven by prices, but by
† A next generation of energy-efficient and low-carbon barriers due to information lacks, etc. as well.
technologies promises to enable the continuation of an The national energy model is shown in Fig. 6. It has 64
aggressive pace of carbon reductions over the next processes, including eight demand nodes in the industrial,
quarter century. Uncertainties in the assessment are commercial, residential and transportation sectors, eight
unlikely to alter the overall conclusions. resource nodes, modeling purchases of coal, natural gas,
petroleum, and nuclear fuel on the world markets, along
For over two decades, energy system analysis at the with domestic hydropower and other renewables. Additional
European Commission has considerably contributed to the EU processes model the conversion of fuels to heat, electrical
energy policy process by proposing quantified energy services, and transportation services. Necessary operating
scenarios, indicators, and economic evaluations [103]. The parameters, such as capital and operating costs, are used
EU energy trends are based on the model PRIMES. The based on the current references [112,113]. Table 4 shows
international energy trends rely on results by the POLES model. capital and operating cost used for this analysis in the
A five-year study was conducted jointly by the IIASA electricity sector.
and the WEC [104]. They separated the world into 11 There are several key assumptions that drive any analysis
regions and integrated near-term strategies to 2050 and of this type; these include growth rates, government policies
beyond [105– 107]. to encourage particular technologies, and demand response
There are previous analyses of the Japanese energy to changes in price. We have assumed a moderate rate of
system. An outlook for Japan’s energy supply and demand is growth over the model horizon. Table 5 presents assumptions
published [108]. By using the CRIEPI model, cost about the growth rates and demand elasticities in each sector.
effectiveness of CO2 controls were studied [109]. In this
study, a macro input – output model was used to predict the 3.1.3. Policy scenarios analyzed
impact of subsidies on CO2 emissions in Japan. However, This analysis [114] focuses on a target rate of emissions
the model included little in the way of market functions in of around 400 mmTC coming from the overall energy
each sector and energy prices were derived explicitly. system, by the year 2040; this is higher than the target of
Impacts of carbon taxation on Japan’s economy as a 280 mmTC in year 2010 specified by the Kyoto protocol.
whole were examined by using a general equilibrium model Within this analysis, reaching the level of 280 mmTC
[110]. Macro economic costs of CO2 emission control were appears to be difficult and might not be realistic for Japan.
also studied [111]. In their model, the industrial sector was The discussion below outlines some of the issues raised by
divided into 12 sub-sectors. However, the electricity sector large carbon reductions. For most of the analyses, we have
was treated as roughly one single sub-sector, making it used a less stringent target.
difficult to estimate the effects of such policies on the The study evaluates the effects of carbon and energy
structure of the electric sector. There are few analyses of the taxes. In these cases, we assume that government regulatory
national energy system in Asia that disaggregate the electric encouragement will keep the level of nuclear capacity at
generating sector so that the impacts of such policies on around 35% of the electric demand. Our investigation first
technologies and fuel use can be examined. developed a reference case analysis that showed the
The META-Net economic modeling system is applied to investments in energy technologies, resource use and
find the impacts of carbon taxes on national energy systems. emissions in the absence of policy actions. We then
Commodities flow through this network from resources, determined the level of tax needed to reach the required
through conversion processes and the market, to the end- level of CO2 emissions in the year 2040. We evaluated the
users. META-Net finds the multi-period equilibrium prices cost of that approach and the configuration of the energy
and quantities. The solution includes the prices and systems that results from it.
quantities demanded for each commodity, along with the Reference case scenario. The reference case scenario
capacity additions (and retirements), for each conversion means a ‘business-as-usual’ condition. Under this scenario,
process, and the trajectories of resource extraction. it is assumed that there is no intervention in the energy
Although the changes in the economy are largely driven system. In other words, reference case scenario is a base
by consumer behavior and the costs of technologies and condition, which result is already analyzed, evaluated, and
resources, they are also affected by various governmental confirmed.
policies. These can include constraints on prices Carbon tax scenario. A carbon tax is expected to be the
and quantities, and various taxes and constraints on most efficient approach to reducing carbon emissions. It has
Fig. 6. Network for national model.

Table 4 emissions through carbon and energy taxes, and the costs
Capital and operating cost in electricity sector of implementing these changes. Some figures in this section
summarize the results from the year 2040, the last year of
Electric power generation Capital cost, Operating cost,
$/(mmBTU/Yr) $/mmBTU the analysis.
As the results shown in Fig. 7, the carbon tax suppresses
Oil boiler 49 9 the increase of CO2 emissions. Without any taxation, CO2
Gas boiler 51 10 emission will increase until reaching 490 mmTC in 2040.
Gas turbine 30 10 When the carbon tax is introduced, the increase of CO2
Gas combined cycle 47 11 emissions is strongly suppressed. At $160/tonC, CO2
Pulverized coal 68 14 emission will reach 390 million tons of carbon in 2040,
Coal IGCC 110 13 which corresponds to a reduction of 100 mmTC.
Nuclear boiler 80 16
Using a similar analysis, we found that an energy tax of
Hydro 154 1
Renewable 50 4 $4.5/mmBTU reduced carbon emissions to 400 million tons
of carbon in 2040.
Sources: FEPC-Japan [112]; US-DOE [113]. The taxes cause a reduction in carbon emissions through
adjustments to the system. The costs of these adjustments
been already implemented in Sweden, Finland, Norway,
are important for policy making. However, the nature of the
Denmark, and Holland in the range of $200/tonC. In the
study, we evaluated several different tax rates to determine structural changes may be equally important for the country.
the rate that achieved the target reduction in the year 2040. In this section, we discuss the structural changes and the
Energy tax scenario. An energy tax is another way to costs resulting from the two taxes.
reduce emissions. In the study, only fossil fuels such as Fig. 8 shows the development of the electric power
petroleum, gas and coal are charged. Again, the tax rate was sector to the year 2040 under the reference case. The
gradually increased over time. quantities of coal boiler and gas power show steady
Furthermore, advances in energy efficiency as well as increases corresponding to annual demand growth. Clean
taxations offer substantial public benefits (such as carbon coal technology, such as Integrated Coal Gasification
reductions and improved national security through greater Combined Cycles (IGCC), is introduced to some extent.
oil independence) that cannot be fully captured in the The quantities of nuclear power and hydroelectric power are
private marketplace. Specifically, energy-efficiency and set at a constant level based on the assumptions which we
low-carbon resources improve energy security by reducing have made for this analysis.
the nation’s reliance on foreign sources of oil; they lead to Fig. 9 shows the changes in electric power generation
reductions in waste streams; and they reduce GHG under a carbon tax of $160/tonC. Under this tax, the coal
emissions, which contribute to global warming. boiler output decreases by about two-thirds (in 2040), while
the output of the gas boiler and gas-combined cycle
increases by about a quarter. IGCC does not penetrate the
3.1.4. Changes in the system leading to reduction in CO2 market in this tax case. Renewable energy does penetrate the
emissions market after about 2020.
The discussion in this section highlights the changes in Fig. 10 shows the changes in electric power generation
the energy system that result from reducing carbon under an energy tax of $4.5/mmBTU. Under this tax, the
Table 5
Growth rate and elasticity assumptions for end-use sector
Process Abbreviated Annual demand Annual rate of Demand

name in starting perioda demand growth elasticityb
(at a constant price)a
Industrial heat demand (mmBTU/yr) Ht.Dmd.Ind 5.10 £ 109 0.002 20.34

Industrial electricity demand (mmBTU/yr) Elect.Dmd.Ind 1.24 £ 109 0.008 20.34
Commercial heat demand (mmBTU/yr) Ht.Dmd.Comm 9.00 £ 108 0.013 20.24
Commercial electricity demand (mmBTU/yr) Elect.Dmd.Comm 6.64 £ 108 0.020 20.24
Residential heat demand (mmBTU/yr) Ht.Dmd.Res 1.10 £ 109 0.006 20.30
Residential electricity demand (mmBTU/yr) Elect.Dmd.Res 7.37 £ 108 0.020 20.30
Truck transportation demand (Ton-km/yr) Trk.Dmd.Trp 2.14 £ 108 0.003 20.17
Personal transportation demand (passenger-km/yr) Per.Dmd.Trp 6.43 £ 108 0.010 20.23
a
EDMC-Japan [189].
b
Nagata [265].
the implementation of the tax relating to the current price,

customer behavior will often result in unchanged. Primary
energy consumption for the three scenarios is shown in
Fig. 12. Under both scenarios, coal consumption decreases,
and natural gas increases under the carbon tax and decreases
under the energy tax. The carbon tax greatly reduces coal
consumption—coal is nearly replaced by natural gas under
the carbon tax. Thus under the carbon tax, one major energy
resource is nearly eliminated from national energy mix by
very high tax rates. Petroleum decreases somewhat, but still
maintains the largest share, which is similar in both the tax
cases.
Under the tax scenarios, neither tax was applied to
renewable energy; consequently, both taxes encourage
use of renewables in electric power generation. The
Fig. 7. Impacts of carbon taxes on CO2 emissions. resulting contribution of renewable energies is low, in
coal boiler output, as well as the gas boiler and gas- both cases. This is because their capital cost is still
expensive capered with conventional power stations, and
combined cycle, decreases by about one-third (in 2040).
the contribution is limited by potentials of natural
Carbon emissions are also reduced through changes in
resources.
the total energy services required. Fig. 11 shows the changes
Table 6 shows the CO2 emissions from fossil fuels for
in end-use energy under the two tax scenarios compared to
both reference and taxation scenarios in the year 2040. The
the base case scenario. It shows that the industrial heat and
emission characteristics are similar to fossil fuel consump-
residential heat end-use sectors have the largest percentage
tion shown in Fig. 12. As the tax rate becomes higher, CO2
reductions (6– 12% reduction). Industrial heat is the largest
from coal combustion decreases drastically and CO2 from
single category of end use, so the change in that sector
gas increases. The CO2 changes in gas are fewer than the
accounts for a substantial amount of the carbon reduction.
amount of CO2 changes in coal. The changes for petroleum
Such a reduction in energy use in these sectors could be
are relatively small compared with those of the two other
achieved through improved efficiency, or shifting to less
fossil fuels.
energy intensive products. On the other hand, personal
transportation and truck transportation end-use sectors have
the smallest percentage reductions (1 – 2%). The reason is 3.1.5. Financial impacts of the taxes
that there are no alternative technologies available in the A summary of consumer costs and tax revenues is shown
transportation sector. Even if the price increases following in Table 7; total energy consumption for each case is also
Fig. 8. Changes in electric power generation for the reference case.

Fig. 9. Changes in electric power generation for the carbon tax case.
shown. There is a reduction in total energy use in both tax the energy tax, part of the reduction in carbon is achieved
cases; this is caused by the increase in prices due to the through the reduction of energy services, presumably
taxes, which results in less demand in each end-use sector. through greater efficiency in end uses, or by foregoing
The calculations in Table 7 show that both taxes cost the services. The carbon tax also promotes the reduction in
consumer about the same for capital, operations, and fuel in carbon through the energy shift from coal to petroleum and
the energy sector. We do not include the tax itself as a cost, gas, and through the reduction of energy services. The costs
since it would offset other taxes. In these figures, the total of those measures are not accounted for here. The costs on
cost with the energy tax is slightly less than the cost with the the demand side must not be higher than those on the supply
carbon tax. This might appear to be anomalous, since the side; normally there are lots of cheap and high economic
carbon tax is assumed to be more efficient. However, under options reducing energy consumption directly by
Fig. 10. Changes in electric power generation for the energy tax case.
Fig. 11. Energy used on each end-use sector under two scenarios in year 2040.
the consumers (improvement of insulation, etc.). In addition, response to policy initiatives, such as taxes. We find that
we note that the total tax revenues under the carbon tax are carbon and energy taxes will decrease CO2 emission to a
about one-third less than under the energy tax scenario. proposed target. The total cost of supplying energy will be
Thus, a dollar’s worth of carbon tax is far more effective in similar for either approach; however, the model also
reducing CO2 emissions than a dollar’s worth of energy tax. indicates that carbon taxes cause a shift in resources used
from coal to gas. IGCC does not penetrate the market in case
3.1.6. Summary of the carbon tax. Since energy security is a primary
A partial equilibrium model of the national energy sector concern, maintaining a diverse resources base is very
has been developed to forecast changes in the energy system important. Policies that would eliminate coal, and efficient
to the year 2040. The model accounts for the changes in coal based technologies, may not be desirable. The
energy technology capacities, fuels, and consumption in development of clean coal technologies [115], and advanced
Fig. 12. Primary energy used for two scenarios in year 2040.
Table 6 In the long run, renewable resources may contribute more

CO2 emissions from fossil fuels for reference and taxation scenarios to carbon reductions than envisioned here. In our study,
in year 2040. Unit: mmTC renewables are only included in the electric sector, as
renewable technologies in other sectors are not widely
Reference Carbon tax Energy tax
($160/tonC) ($4.5/mmBTU) available. Renewable could deliver heat through solar
thermal collectors, geothermal heat pumps (GHPs), and
Petroleum 230 223 213 methane fermentation of waste materials such as excrements
Gas 74 98 61 and leftover meals. If renewable technologies could be used
Coal 187 70 114 in the transportation sector (e.g. through electric or hydrogen
vehicles fueled by renewable generation), petroleum con-
Total 491 391 388
sumption and CO2 emissions would be drastically reduced.
There are also uncertainties about the future capacity of
transportation technologies suitable for national energy nuclear power. Governments recently announced that
systems, should be the next target in order to overcome the nuclear power stations could be technically operable for
limit of carbon taxes. 60 years under strict maintenance conditions. This suggests
Both the carbon tax and the energy tax can be effective in that governments may change their nuclear policy from
reducing CO2 emissions. The total cost to the consumer will building new stations to extending the life of existing
be approximately the same under either scenario—although stations. Over the long term, this could result in a decrease in
the energy tax will result in larger tax revenues. However, the share of nuclear capacity. Since our study is based on the
the carbon tax tends to eliminate coal as an energy resource assumption that nuclear power will supply 35% of the
for the country. Since Japan must import nearly all of it electricity until the year 2040, a decrease in nuclear power
fossil fuels, narrowing its mix would leave the country more will affect the capacities in electric power generation. The
vulnerable to price variations in the international petroleum role of nuclear power in abating carbon emission should be
and natural gas markets, and would reduce their bargaining re-evaluated as the government’s policy becomes clearer.
power in negotiations. Thus, the energy tax would be a more Based on these analyses, we can draw the following
stable approach for Japan. conclusions:
The transportation sector uses one-fourth of the total
primary energy. Because there are no alternative fuels for † Achieving carbon reductions with the set of technologies
transportation except petroleum, the effects of carbon or considered here will mean reduction in energy use, as
energy taxes are relatively small. Bio fuels are expected to well as shifts to lower carbon fuels. Introducing other
come into the market in near future, and hydrogen has a technologies, such as renewables or hybrid vehicles,
great potential to change the supply of fuels for transpor- might ameliorate the projected reduction in energy use.
tation from fossil fuels to renewable-based fuels. Hybrid † The total cost in terms of supplying energy will be
vehicles, which have excellent fuel efficiency, could be one similar for all three cases; however, the carbon reduction
of the breakthrough technologies to meet the environmental cases imply reduction in energy use. This will probably
constraints. Either carbon or energy taxes would encourage be achieved through more efficient end use process or
the penetration of hybrids. other shifts which may require additional capital
investment (though it is not clear that higher capital
Table 7 investment is inevitable).
Summary of costs and tax revenues for the five scenarios † The carbon taxes have their advantages and disadvan-
Reference Carbon tax Energy tax tages. The carbon tax is efficient in that smaller tax
($160/tonC) ($4.5/ revenues are raised and the energy use reduction is
mmBTU) smaller. However, the energy tax maintains a diversity of
energy resources, an important consideration for national
Capital cost 2120 2100 2140 energy security.
Operating costs 527 512 514
Fuel costs 370 431 357 3.2. Role of nuclear power
Total direct energy costs 3017 3043 3011
Tax revenue 0 63 91
Nuclear energy has been an important energy source
since the first oil embargo occurred in the early 1970s. Some
Total cost to consumers 3017 3106 3102 countries such as the US, France, and Japan, have increased
Total energy consumption 30.8 28.4 27.4 their reliance on nuclear power because it has limited
in 2040 (Quads)
domestic energy resources. At present in Japan, 51
Costs are the discounted present values of the total stream of commercial nuclear power plants are in operation, and the
costs over the time horizon. Discount rate was 5%. Unit: US$ government wanted to build 13 more by the year 2010
billion. [116– 118].
Recently, these countries announced that nuclear power emissions is not to give a free hand to nuclear power [128].
stations could be technically in use for 60 years, under strict In addition, there are several problems concerning accep-
maintenance condition. Nuclear power has an advantage tance aspects.
over fossil power stations in terms of CO2 emissions. The
government maintains that nuclear power helps to prevent 3.2.1. Policy scenarios analyzed
global warming because nuclear power plants do not emit An energy-economic model is introduced in order to find
CO2. In fact, as nuclear power reactors continue to operate the solution to the problem between energy consumption
after their capital costs are paid, they produce electricity and the environment, such as the problem of CO2 emissions.
cheaper than any other energy source, because their The role of nuclear power to reduce CO2 emissions is
operations and maintenance costs are the lowest. The examined: To make it clear, a nuclear power phase out
capacity factors and safety records of power reactors have [129 – 134] is hypothesized in the model to evaluate
improved in recent years, though the final disposal problem the difference in CO2 emissions. In Germany an Enquete
is still unsolved. In addition, the construction time and costs Commission of the German Parliament have discussed for
of power reactors have been improved, e.g. the Tokyo more than two years, future perspectives of the energy
Electric/GE advanced 1300 MWe BWR was built in just system concerning environmental questions as well as
four years, and within budget. By the year 2040, it is nuclear phase out strategies. The carbon tax is tentatively
technically possible that fast breeder reactors and high introduced to stress the increases in fossil fuel consumption.
temperature helium gas cooled reactors will be built for a The economic aspect of two cases, with or without nuclear
number of reasons. This will increase the efficiency of power, is also examined; financial parameters, such as
electric generation and lower the CO2 emissions signifi- capital costs and operating costs, are included to understand
cantly, particularly in the process of heat applications, as the profit or non-profit in each case.
well as in electric generation. In this investigation [135], a reference case analysis
However, current changes in the ESI toward deregula- was first developed to model the expected emissions,
tion and privatization make electric power utilities con- resource use, and investments in energy technologies in
servative about future investment in nuclear power stations the absence of an extension of policy actions. Under this
[16]. The states’ long-term recession sometimes forces scenario, it is assumed that there is no intervention in the
investors to assume the risk of their investments. Indepen- present energy system. The next step was to model the
dent power producers, which are gradually permitted to effect of nuclear power phase out and a carbon tax, with a
enter the electricity market under competition, prefer goal of a reduction of CO2 by around the year 2041. A
combined cycle power stations which use compressed variety of approaches to reduce energy-related emissions
natural gas as a fuel. Combined cycle plants have priority of CO2 and other GHGs are possible. Under the terms of
over nuclear power: initial and capital costs are much lower, The Kyoto Protocol, Japan would agree to reduce their
and gas turbines allows flexibility to meet the demand carbon emissions by 6% below 1990 levels, corresponding
changes. The total heat efficiency of the advanced combined to a 22 – 25% reduction from projections for 2010. This
cycle is more than 58%, which clearly saves fuel cost. analysis focuses on a target rate of reductions of around
Depletion and the environmental effects of burning fossil 20% of CO2 by around the year 2040, since reaching the
fuels such as oil, gas and coal is also a serious consideration target in 2010 appears to be difficult and possibly
[119 – 121]. External costs of atmospheric pollution are not unrealistic. We then determined the level of tax needed
correctly included in the price of fossil fuels. Probably, they to reach the required level of CO2 by around the year
can partly be taken into consideration following an emission 2040. We evaluated the cost of that approach, and the
trading scheme, which will be implemented, for instance, in configuration of energy systems resulting from it. It
Europe from January 2005. The irrationality of burning oil should be noted that an energy future which is based only
and gas, rather than preserving them for the production of on a tax scheme is not an optimal solution. CO2-reduction
petrochemicals, etc. is not adequately discussed. The needs a mixture of policies and measures supporting taxes
government is compelled to find a solution to this problem. to overcome the complex structure of obstacles.
The issue of nuclear safety always holds top priority, and Reference case scenario. A nuclear boiler is assumed to
the economic aspects have an important role in developing have a constant generation quantity from 1996 to 2041; it is
nuclear energy policy. The best way to control the emission further assumed that there is no intervention in the energy
of CO2 remains an unresolved problem [122– 125]. The system, except the subsidy necessary to maintain a 35%
issue to be considered next is an integrated concept of share of the electricity market (the share in 1996). The
national security to meet the environmental constraints. subsidy for nuclear boiler is peg at $7/mmBTU at the
Nuclear power must be examined in detail from the maximum each year. The trend of electric power generation
standpoint of environmental security [5,126,127]. While under the reference case scenario is similar to the case
we recognize the importance of nuclear power, from an shown in Fig. 8. Under this scenario, CO2 emissions rise to
economic and environmental aspects, its role in the future is 490 mmTC by the year 2041. The nuclear subsidy is our
not clear. The point of the Kyoto Conference and GHG original term to maintain the share of nuclear power boilers
Fig. 13. Electric power generation under nuclear phase out.
in the electricity sector at current output level. Without this † Use of gas combined cycles and gas boilers gradually
subsidy, the price of nuclear power rises, losing value in the increases; total gas consumption grows by three times.
electricity market. The value of the subsidy is set at $9/ † Renewables are not seen in the electricity market.
mmBTU at most. † Reduction in total energy use, as a result of increased
Nuclear phase out scenarios. In these cases, we assume efficiency in power generation, shifting from nuclear
that the level of nuclear capacity will begin to phase out in to gas boiler and gas combined cycle power.
2016 and will reach zero in 2036. It is further assumed that
there is no intervention in the energy system. CO2 emissions Fig. 14 shows the changes in the electric power sector
rise to 530 mmTC by the year 2041. under nuclear phase out under carbon tax conditions. The
Carbon tax scenarios. This study evaluated several carbon tax is set at $205/tonC to reach the emission rate of
different tax rates to determine the rate that would achieve 390 mmTC by the year 2041. The system has made three
target reduction by the year 2041. Both cases—with and adjustments to accommodate the reduction of CO2 emis-
without a carbon tax—were extrapolated to explore the sions:
difference in fuel prices. We found that a tax rate of
$160/tonC produced an emission rate of 390 mmTC by the † The use of coal boilers, and IGCC usage, declines in the
year 2041, achieving a reduction of 20% in the emission electricity market.
rate. † The use of gas combined cycles and gas boilers
Nuclear phase out in carbon tax scenarios. In the case of increases, and total gas consumption quadruples.
nuclear phase out, at $205/tonC of carbon tax, CO2 † The use of renewables increases, commencing in the
emissions rise to 390 mmTC by the year 2041. year 2016.
† There is a reduction of total energy use, caused
3.2.2. Changes in the electricity sector in nuclear phase out mainly by the increase in prices, due to taxes.
The discussion in this section highlights the changes in
the energy system that result from reducing CO2 emissions By comparing Figs. 13 and 14, we get a sense of the
through carbon taxes, and the costs of implementing these difference in electricity supply. Nuclear power will be
changes. replaced by combustion fossil fuels, such as coal boilers, gas
Fig. 13 shows the changes in electric power generation boilers, and gas combined cycle power. Because the price of
under nuclear phase out. There are three ways in which the electricity produced by coal is still cheaper than the price of
system has adjusted to replace the nuclear boiler after its gas fueled electricity, coal power has priority over gas fuel
phasing out: in case carbon tax is not charged. In contrast, the price of
coal rises more than the price of gas under taxation, resulting
† The use of coal boilers and rising use of coal IGCC. Total in the growth of gas power in the electricity supply (Fig. 15).
coal consumption quadruples. Renewable energy sources are allowed to enter the market,
Fig. 14. Electric power generation under nuclear phase out with carbon tax.
when the price of renewable power becomes more the impacts of a carbon tax:
competitive under carbon taxes. The penetration of renew-
ables in the electricity market is comparable low, because † Carbon tax reduces coal use most.
there are not many important options available for future † Carbon tax encourages the use of renewables.
energy. † CO2 emissions increase to 530 mmTC by the year 2041
under the nuclear phase out condition, an 8% increase
compared with the reference case.
3.2.3. Impact of taxes with/without nuclear phase out
Fig. 16 shows energy use in each resource sector under From the changes in the share of each resource, we can
the four scenarios in the year 2041. Following are see the alternative scenarios without nuclear power. It seems
Fig. 15. Changes in the price of electricity.

Fig. 16. Total energy use in resource under four scenarios.
possible to replace nuclear power with fossil fuels, as shown power begins phasing out, the output of coal and gas fired
in Fig. 16, however the problem of local emissions and fuel power generation grows proportionally, leading to an
depletion are not adequately considered. Moreover, except increase in CO2 emissions.
for the slight reduction under taxation, petroleum consump- A carbon tax has a positive impact on reducing the
tion remains stable at a constant level. Unlike the electricity consumption of fossil fuels, such as coal and gas. The carbon
sector, transportation and some parts of industry sector have tax will raise the price of high carbon fuels, such as coal, and
no easy alternatives to petroleum fuel. Renewables are lead to greater reliance on low carbon fuels. Even for clean
another alternative which produce electricity without coal technologies, such as coal, IGCC does not penetrate the
emitting environmental pollution. In addition to its low electricity market. The carbon tax tends to eliminate coal as
intensity in energy conversion, some renewable power an energy source.
requires an optimum range of climate conditions to operate. From the viewpoint of financial parameters, a higher
In the management of transmission grids, renewables cannot carbon tax will be necessary under a nuclear phase out
always guarantee stable distribution to end-use customers. scenario in order to achieve the same target of CO2
Biomass power plants are comparable operational as fossil emissions. However, the carbon tax scenario tends to rely
power plants, and concerning wind energy distinct progress increasingly on gas resources. Taking into consideration
could be made according to wind forecasting energy security issues, a BTU tax scenario would be a more
methodologies. stable solution for a country in which all the fossil resources
Fig. 17 shows the impact of carbon taxes on CO2 are imported.
emissions. It is reasonable to suppose that a higher rate of Another consideration is the use of renewable resources
carbon tax will be necessary in order for nuclear phase out to and the technologies for their conversion into energy.
reach the same emission levels by the year 2041. This
characteristic is mainly affected by the demand changes in
each sector, shown in Table 5. This value was carefully
chosen, and its reliance was confirmed many times in our
previous study. However, there should be some changes in
demand when carbon tax takes effect in the future. We
believe that the trend towards reduction of CO2 emissions
by carbon taxation is reliable, except for the uncertainty of
demand changes. Demand changes, coming from an higher
sensitivity concerning environmental aspects within the
implementation of a tax scheme, will support the tax
incentives and will due to a higher amount of CO2 reduction.
3.2.4. Summary
The main impact of nuclear phase out is an increase in
fossil fuel consumption in the electricity sector. As nuclear Fig. 17. Impact of carbon taxes on CO2 emissions.
In the study, renewables are only seen in the electricity Enquete-Commission). The question which now arises is
sector, as renewable technology in other sectors is not in the whether there are differences between large and small
foreseeable future. If future technology were to enable the nuclear power plants, other than the costs for electric
use of renewable resources in the transportation sector, generation. Can small nuclear power plants alternate with
decreased petroleum consumption could lead to drastic large nuclear plants?
reductions in CO2 emissions. A general difference between large and small plants is
Based on these analyses, we can draw the following the geographical location. Large plants tend to be located far
conclusions: from the electricity consumption region; the small plants are
usually closer to the consumers. This difference in location
† Nuclear power phase out will mean shifts from nuclear to will cause the difference in the role of electric generation.
fossil fuels, such as coal and gas, resulting in increased At present, four types of HTGR (high temperature gas-
CO2 emissions in the electricity sector. cooled reactors) are under development. First is the high
† There is a dramatic difference in the carbon tax between temperature engineering test reactor (HTTR), which was
the reference case and a nuclear phase out situation. To designed by the Japan Atomic Energy Research Institute
achieve the same level of CO2 emissions without nuclear [153] with 30 MW thermal power. The second reactor is the
power in the future, it will be necessary to charge a 30% 10 MW high temperature gas-cooled reactor (HTR-10),
higher carbon tax than in a similar scenario using nuclear being developed by the Institute of Nuclear Energy
power. However, the results presented are derived from a Technology of Tsinghua University, in China [154,155].
fixed set of initial conditions, such as price elasticity in The thermal power of the HTR-10 is 10 MW. The third
energy demand. It is therefore necessary to note some reactor is the pebble bed modular reactor (PBMR), under
changes in future real energy supply, from unexpected development by Pebble Bed Modular Reactor (Pty) Ltd in
causes, when elasticity is changing due to an tax scheme the Republic of South Africa [156]. The thermal power of
which emphasis the worth of environmental aspects. the PBMR is 120 MW. The fourth reactor is the Gas Turbine
Modular Helium Reactor (GT-MHR), which is developed
3.3. A vision of the future for small sized nuclear power by a consortium of General Atomics of the United States,
plants MINATOM of Russia, Framatome of France, and Fuji
Electric of Japan.
3.3.1. Role of small nuclear power plants Many recent events show an increasing worldwide
Nuclear power plants are operated at lower costs than interest for high temperature reactors (HTR). In 1998, the
fossil fuel based power plants, and nuclear power does not first prototype HTR was started in Japan. In December 2000,
emit CO2. The uncertainties concerning the final disposal there was a first criticality of the HTR10 prototype in China.
cost are not into consideration. In the past, many studies The MTGHR project to build HTR reactors that burn
have been made on the role of nuclear power in reducing plutonium is now more and more active, with collaborations
CO2 emissions [136 – 148]. It is acknowledged that nuclear between the US, Russia, and other partners. A consortium of
plants help reduce of CO2 emissions. These studies have organizations from South Africa, the UK, and US, led by
focused on large nuclear plants; however, energy systems ESKOM is working very actively to build a new reactor in
using small nuclear plants have not yet been analyzed. The the near future. In Europe, a network called HTR-TN has
status of small nuclear power plants has been examined by been created, so that collaborators can work on HTR
Baranaef and Dolgov [149], Kataoka [150] and US-DOE technology. As there is an intense international collabor-
[151], which focuses on the development and future trends ation in HTR projects, it was deemed necessary by the
of small-sized nuclear power plants. scientific community to establish a regular topical meeting
In countries such as Japan, nuclear plants with outputs dedicated to the subject [155].
of 1000 MW, result in over producing electricity during In this study, we assume an HTTR to be small nuclear
low demand periods at night. In order to store the power plant. The excellent overall safety of the HTGR is
electricity, hydropowered pumping plants are constructed. due to the high heat capacity of the graphite core, the high
Operation of hydropowered pumping plants cause an temperature capability of the core components, the chemical
increase in the cost of electric generation. The small stability and inertness of the fuel, coolant and moderator, the
nuclear power plant could be an alternative for adjusting high retention of fission products by the fuel coatings, and
electric power generation to meet changes in daily the inherent negative temperature coefficient of the core
demand. Common nuclear power plants could not play a [157,158].
comparable role under the prerequisite that it is able to The HTGR nuclear power-and-heating plant safety
improve their possibility to operate in lower load ratios. In improved is ensured by maximal employment of the passive
addition, as Dunn [152] points out, the small nuclear safety means. The HTTR has also the above safety
power plant is considered the most economical means of characteristics [159,160]. Safety demonstration tests using
providing power. There are many studies coming to the HTTR has been conducted for the purpose of
the opposite result (e.g. the Report from German demonstrating inherent safety features of HTGR as well as
Fig. 18. Structure of multi node model.
providing the core and plant transient data for validation of cost, P is a demand pattern (1 – 7), T is time (h, 1 – 24), R is
HTGR safety analysis codes [161]. region (1– 60), and VðP; T; RÞ is the O&M cost. Electric
We have analyzed the impacts of small nuclear power generation of each power plant is calculated to minimize the
plants on the national electricity supply, taking into account objective function
both the capacity of the transmission grids and the X
TC ¼ ðVðP; T; RÞÞ ð1Þ
distribution of regional electricity demand. P;T;R
(a) Capacity constraints of power plants. The capacity

3.3.2. Methodology and objective function for the analysis constraints of power plants determine the output range for
In order to determine the site of a power plant, we each power plants, as followings: where RP is a power plant
designed the multi node model (MNM), which includes the site in region R; POWðP; T; RPÞ is the output of each power
actual capacity of transmission grids and the distribution of plant, CAPLOðP; T; RPÞ is the lower limit of output,
regional electricity demand. and CAPUPðP; T; RPÞ is the upper limit of output
Fig. 18 shows the basic structure of a MNM. The model
has 60 regions expressing the size of the prefecture, and CAPLOðP; T; RPÞ # POWðP; T; RPÞ # CAPUPðP; T; RPÞ
considering the distribution of regional electricity consump-
ð2Þ
tion. Each prefecture received one node of electricity
demand. The demand node represents the consumption of (b) Supply constraint of electricity. The supply constraint
electricity at each prefecture. For example, Fukushima of electricity determines the balance between demand and
prefecture has three nodes of power generation plants. The supply of electricity, including the changes in the nation-
first node represents coastal area, having nuclear and wide daily load. The supply constraint is expressed as
thermal power generation. The second node represents following: where XðP; T; RÞ is a supply of electricity to
hillside area, having hydropower plants. The third node region R; SðP; T; RÞ; is the supply to the pumped hydropower
represents coastal area, next to the first node, and having plant in the region R; and DðP; T; RÞ is an electricity demand
nuclear power generation plants. Transmission grids are at region R
modeled to connect neighboring regions, based on the actual X X
transmission network [162]. Fixed costs are set at the ðXðP; T; RÞ 2 SðP; T; RÞÞ ¼ DðP; T; RÞ ð3Þ
R R
constant value in the analysis, and net extension is not taken
into consideration. Operation and maintenance (O&M) costs (c) Constraints of load-following capability. The con-
are considered according to the output of each power plant. straints of load-following capability determine the range of
For economical operation of the power plants, the MNM capability for changing its load, per 1 h at each power plant.
set the following objective function: where TC is a total The load-following constraints are expressed as follows:
Table 8 Table 10
Load-following capability Installed capacity in the year 2000 (except small-sized nuclear
power)
Type Upper limit (%/h) Lower limit (%/h)
Type Installed capacity (MW)
Large nuclear 108.0 75.1
Small nuclear 108.0 75.1 Large nuclear 45,083
Coal 126.2 69.1 Coal 31,030
LNG boiler 141.2 53.5 LNG boiler 37,482
LNG combined 129.7 8.2 LNG combined 24,913
Oil 144.8 69.0 Oil 51,960
Pumped hydropower None None Pumped hydropower 21,034
Conventional hydropower None None Conventional hydropower 16,877
Source: Personal communication with CRIEPI, Tokyo, 2001. Total 228,379
where FUPðRPÞ is the upper limit of load-following Source: EDMC-Japan [189].

capability, and FLOðRPÞ is the lower limit of load-following
capability. FUPðRPÞ and FLOðRPÞ are shown in Table 8 Table 11
Fuel price
POWðP; T; RPÞ # FUPðRPÞ £ POWðP; T 2 1; RPÞ ð4Þ
Type Fuel price (cents/kg)
POWðP; T; RPÞ $ FLOðRPÞ £ POWðP; T 2 1; RPÞ
Large nuclear 1.3 cents/kWha
(d) Constraint of transmission capacity. The constraint Small nuclear 1.3 cents/kWha
of transmission capacity determines the capacity of the Coal 6.0
transmission grid. This constraint is expressed as the LNG boiler 30.3
following inequality: where TRANSðP; T; R1 ; R2 Þ is LNG combined 30.3
the transmission power from region R1 to R2 ; and Oil 23.5
Pumped hydropower None
TRUPðR1 ; R2 Þ is the upper limit of transmission capacity
Conventional hydropower None
from region R1 to R2
a
Includes thermal efficiency.
TRANSðP; T; R1 ; R2 Þ # TRUPðR1 ; R2 Þ ð5Þ
In the MNM model, annual characteristics of electricity The site of the small nuclear power plant is decided
demand are categorized into seven patterns. These patterns based on the following criteria:
are shown in Table 9. Power generation plants include
nuclear, small nuclear power, thermal power (coal-fired † The small plant is located near the region of large
boiler, LNG-fired boiler, LNG combined cycle, oil-fired electricity consumption.
boiler), and hydropower (conventional hydropower, † The small plant is sited around a coastal area.
pumped hydropower). The capacity data of these power
stations are shown in Table 10. Fuel prices and thermal
efficiency in each power plant are shown in Tables 11 Then, the site of the small nuclear power plant is
and 12, respectively. Electricity transmission is presumed to tentatively planned as shown in Fig. 19. The total number of
lose 1% of its power per 100 km, based on the actual data. sites is 36. In the analysis, we assume the capacity of the
The capability margin of electricity supply is set at 8%. small sized nuclear plants to be from 0 to 900 MW, taken
from intervals of 30 MW. The capital cost and operating
Table 9
cost of the different types of power plants are shown in
Demand patterns
Table 4.
Pattern Days
Table 12
1 Maximum demand days in Summer 3 Thermal efficiency
2 Weekdays in Summer 98
3 Weekdays in Winter 95 Type Thermal efficiency (%)
4 Weekdays in Spring and Autumn 97
5 Holidays in Summer 21 Coal 39.0
6 Holidays in Winter 26 LNG boiler 38.1
7 Holidays in Spring and Autumn 25 LNG combined 43.3
Oil 37.0
Source: Personal communication with CRIEPI, Tokyo, 2001.
Fig. 19. Location of small-sized nuclear power stations.
3.3.3. Analyzed result of annual electric generation a reduction in the annual capacity utilization rate of other
Fig. 20 shows the analyzed result of nationwide annual plants. In particular, the capacity utilization rates of both
electric generation. The small nuclear power plant generates large nuclear, and coal-fired plants, decrease drastically as
3.6% of the annual electric generation in the case of 3.24 GW opposed to other types of power plants; the reason being that
( ¼ 30 MW/unit £ 3 units/site £ 36 sites). In the case of most large nuclear and coal-fired plants are located far from
6.48 GW ( ¼ 30 MW/unit £ 6 units/site £ 36 sites), the big cities, such as Tokyo. In order to operate power plants
small nuclear power plant generates 7.2% of annual electric cost-effectively, it is necessary to reduce the transmission
generation. The share of small sized nuclear power plants loss. Therefore, the small plants substitute for plants located
grows proportionally due to the increases in its capacity. far from electricity consumption regions.
The annual capacity utilization rate is shown in Fig. 21. Fig. 22 shows the analyzed result of annual operation and
This figure reveals that the utilization rate of small nuclear maintenance (O&M) costs. We can see from the figure that
power plants reaches nearly 100%. In addition, the increase the increase in the installed capacity of small plants leads to a
in the installed capacity of the small plants causes reduction in the annual O&M costs. For example, in the case
Fig. 20. Annual electric generations in Japan.

Fig. 21. Annual capacity utilization rate.
of 6.48 GW, the reduction of annual O&M costs reaches 1.1 The result of annual CO2 emission is represented in Fig. 23.
billion dollars yr, which is equivalent to 4.3% of annual A glance at the figure will reveal that the increase in installed
O&M cost obtained with 0 MW. Table 13 shows analysed capacity of a small nuclear power plant leads to a reduction in
O&M cost of small-sized nuclear plants compared with other annual CO2 emission. In the case of 6.48 GW, the reduction of
power plants. CO2 emission reaches 6.5 mmTC, which is equivalent to
In this analysis, we consider both operation and 8.1% of annual CO2 emissions in the case of 0 MW.
maintenance (O&M) costs to evaluate the total generation
costs. The construction cost of a small nuclear power plant is 3.3.4. Summary
estimated to be $1000 kW based on the projection by US- The purpose of this study is to analyze the impact of
DOE. Compared to the other plants, the construction costs small-sized nuclear power plants on electricity supply
of small nuclear plants are competitive. For example, the characteristics, and to develop the MNM, which con-
construction cost of a large nuclear power plant is siders the actual capacity of transmission grid and the
$1590 kW, a coal-fired boiler costs $1020 kW, and distribution of regional electricity demand. The following
the gas-fired combined cycle is $620 kW [163]. In results were obtained:
Germany the estimation for the costs of new nuclear
power plants are in the range of $1750 kW for a bigger one, 1. The capacity utilization rate of small sized nuclear power
even more for smaller sizes. plants reaches nearly 100%. The increase in installed
Fig. 22. Annual O&M cost in Japan.

Table 13 under 20% as usual, they require several times large

Analyzed O&M cost of small-sized nuclear plants compared with capacities to supply demanded electricity. Intermittency of
other power plants wind turbine is another challenge to be cleared.
Type O&M cost (cents/kWh)
3.4. Hybrid vehicles in the transportation sector
Large nuclear 1.3
Small nuclear 1.4 Characteristically, the transportation uses mostly pet-
Coal 2.1 roleum [164]. Electric trains are powered indirectly from a
LNG boiler 5.5 variety of energy sources; however, in Japan in 1997, their
LNG combined 4.7 share of energy consumption in transportation was no more
Oil 5.9 than 2.3%. Even when the cost of petroleum rises,
Pumped hydropower 8.3
conventional vehicles cannot immediately switch to
Conventional hydropower 2.5
alternative energy sources. Hybrid vehicles, though still
using gasoline as a fuel, could be an alternative technology
capacity of small nuclear plant leads to a reduction in the in the transportation sector; such vehicles have excellent
annual capacity utilization rate of other plants. fuel efficiency and a strong likelihood of drastically
In particular, the capacity utilization rates of nuclear reducing CO2 emissions. A gasoline-electric hybrid system,
and coal-fired plants decrease drastically as opposed to for example, combines an internal combustion engine’s
other types of plants, because their location is far from high-speed power with the clean efficiency and low speed
large demand regions. torque of an electric motor that never needs to be plugged in
2. The increase in small nuclear plants leads to a reduction for recharging.
in annual operation and maintenance (O&M) costs.
3. The increase in small nuclear plants also leads to a 3.4.1. Policy scenarios analyzed
reduction in annual CO2 emissions.
In this story [165], a reference case analysis was first
4. We therefore arrive at the conclusion that it would
developed to model the expected emissions, resource use,
be possible to reduce both O&M costs and CO2
and investments in energy technologies in the absence of
emissions by introducing small sized nuclear power
policy actions. The reference case scenario means a business
plants.
as usual condition. Under this scenario, it is assumed that
there is no intervention in the energy system. In other words,
The results did not depend on the fact that especially the reference case scenario is a base condition, which result is
use of small nuclear was increased but following the already analyzed, evaluated, and confirmed. The initial
substitution of fossil power plants by a kind of electricity conditions are as same as for the case study in Section 3.1.3.
supply which was characterized by lower O&M costs and The next step was to model the effects of imposing a BTU
specific CO2-emissions as well. In the analysis, renewables tax with the goal of a reduction of 100 mmTC by the
such as wind, biomass, and PV could be important options year 2040.
provided that their capital costs reach below $1000/kW. It is assumed that hybrid vehicles will be available for
As for the wind and PV, their operating rates still remain passenger transportation in 2005 in a quantity which is
Fig. 23. Annual CO2 emission in Japan.

Table 14 to explore the difference in fuel prices. The cost of each

Performance of vehicles approach, and the configuration of energy systems that
results from it, are evaluated.
Type of passenger Hybrida Conventionalb Hybrid/
It was found that a tax rate of $4.5/mmBTU produced an
vehicles conventional
emission rate of 388 mmTC in 2040, achieving a reduction
of 100 mmTC in the emission rate. The tax was introduced
Specific capital cost 824 687 1.2
$/(mmBTU/yr) gradually over time, increasing the tax rate in uniform steps
Ancillary operating 27.46 34.33 0.8 in each period until the maximum rate was reached in 2040.
cost $/mmBTU In the scenarios involving hybrid vehicles, both cases—
I/O coefficient (mm 1.431 3.578 0.4 with or without BTU taxes—were again studied. In the
BTU/K passenger mile) reference case without BTU taxes, CO2 emissions rise to
a 472 mmTC by the year 2040. With a BTU tax at the rate of
Based on Toyota [166].
b
Based on EDMC-Japan [189].
$4.5/mmBTU, CO2 emissions rise to 350 mmTC by the
year 2040.
expected to increase 10% every year, commencing in 2005.
3.4.2. Results of the analyses
Based on this reference, the performance factors of both
The discussion in this section highlights the changes in
conventional and hybrid vehicles are shown in Table 14. the energy system that result from reducing carbon
The gasoline consumption of hybrid vehicles is assumed to emissions through the use of hybrid vehicles and a BTU
be 40% of conventional vehicles based on references by tax, and the costs of implementing these changes.
automaker [166]. The selling of hybrid vehicles are set at First, the changes in 2005, from introducing hybrid
20% higher than conventional vehicles, and the operating vehicles into the passenger transportation sector, are shown
cost is set at 20% lower, respectively [167]. in Fig. 24. We can see how the system has adjusted to the
In the reference case scenario, it is assumed that there is introduction of hybrid vehicles in 2005; there is an increase
no intervention in the energy system, except that nuclear in the use of hybrid vehicles from the year 2005 until 2040.
power is subsidized as needed to maintain a 35% share of The share of hybrid vehicles eventually reaches 50% in
the electricity market (the share in 1995). Under this 2040.
scenario, CO2 emissions rise to 491 mmTC by the year Second, the changes in the passenger transportation
2040. sector resulting from introducing BTU taxes, as well as
Next, the impact of hybrid vehicles on the transportation hybrid vehicles, are shown in Fig. 25. A BTU tax of $4.5/
sector is examined. A BTU tax is expected to be one of the mmBTU is charged on fossil fuels such as gas, petroleum,
most efficient approaches to reduce CO2 emissions. This and coal. This results in an increase in the share of hybrid
study evaluated several different tax rates to determine the vehicles, which reaches 75% in 2040.
rate that would achieve the target reduction in the year 2040. Third, the changes in energy consumption in the
Both cases—with and without a BTU tax—were extrapolated transportation sector under the BTU tax scenario are
Fig. 24. Passenger transportation using hybrid vehicles.

Fig. 25. Passenger transportation using hybrid vehicles under the BTU tax scenario.
shown in Fig. 26. As the truck does not have any alternative † An increase in the use of trucks. It is caused by the projected
fuel savings, its contribution in fuel consumption grows at demand growth which is set at 0.3% a year.
steady pace according to the increase in freight demand. † A reduction of total energy use for transportation;
There are four ways in which the system has adjusted caused mainly by the increase of hybrid vehicles.
which lead to a reduction in carbon emissions:
The total energy use in each resource sector in 2040
† A reduction in the use of conventional vehicles. under the four scenarios is shown in Fig. 27. We can see that
† An increase in the use of hybrid vehicles. (However, the use the BTU tax reduces coal use the most. Under BTU taxation,
of these is relatively low because of higher fuel efficiency, the cost of fossil fuels becomes higher, which guides the
which result in a lower I/O coefficient in the study.) energy consumer toward more energy efficient choices.
Fig. 26. Total energy consumption in the transportation sector.

Fig. 27. Total energy use of resources under four scenarios in 2040.
The BTU tax encourages the use of renewables, which enter growth has stimulated interest in the research and develop-
the electricity market at competitive prices. ment of FCVs in the US, Europe and Japan [170,171].
In the most developed countries, the transportation sector
accounts for 20 – 30% of total CO2 emissions, and CO2
3.4.3. Summary
emissions from the transportation sector is still growing. In
The main impact of hybrid vehicles is a decrease in
the Japanese transportation sector, CO2 emissions from
petroleum consumption in the transportation sector. As
automobiles account for 88% of total emissions, therefore it
hybrid vehicles are introduced into the passenger transpor-
is important to develop advanced transportation technol-
tation market, the share of conventional vehicles decreases
ogies, as well as to improve conventional fuel engines.
proportionally, leading to a decrease in CO2 emissions.
Although the introduction of FCVs has many advan-
BTU taxation has a positive impact on reducing the
tages, such as the reduction of both energy consumption and
consumption of fossil fuels such as coal, gas, and petroleum
CO2 emission, there are some problems; the cost of FCVs is
for non-transportation purposes. As there are no alternatives
still expensive and the infrastructure of fuel supplies must be
in the transportation sector, BTU taxation has no effect on
improved.
petroleum consumption for transportation. Bio fuels and
There are several types of FCVs, based on fuel resources
hydrogen are considered important options for transpor-
(e.g. petroleum, natural gas, biomass, etc.) and the method
tation in future, and are not included here. They will come
of supplying fuel (e.g. onsite hydrogen stations, onboard
into the transportation market, provided the cost of fuels and
steam reforming). It is expected that the cost and energy
vehicles become attractive for consumers. When hybrid
consumption of FCVs, and their impact on CO2 emissions in
vehicles become available, higher fuel prices promote a shift
the transportation sector, will differ depending on make and
from conventional to hybrid vehicles, which results in
model. Thus, it is necessary to examine which model is
reducing carbon emissions drastically. Another discussion is
appropriate for technical and economic specifications.
that whether the tax is a final energy oriented tax or a tax
Several studies have been conducted on possible
which have to be paid according to primary energy
introduction of FCVs. Hart studied the introduction of
consumption. In the analysis, the tax is assumed to be paid
FCVs using methanol as liquid fuel in Europe, North
on the basis of the final energy consumption. Hybrid vehicle
America and Japan [172]. In this study, the model, which
will have a tax advantage if the tax will be implemented.
has a different set of regional parameters, is used to examine
the possibility of FCVs to achieve market penetration in the
3.5. Fuel cell vehicles in the transportation sector passenger transportation sector. In the US, the introduction
of FCVs using gasoline, methanol and hydrogen as fuel
In the latter 1990s, interest in FCVs, as a new resources, was studied by matching their introduction with
technology, solving environmental and energy issues in the progress of infrastructure development [173,174].
the transportation sector, has been growing. Recent rapid Ogden et al. studied the economic aspects of FCVs, using
advances in fuel cell performance have been achieved by different fuel resources and supplies by designing a detailed
industries such as Ballard Power Systems [168,169]. Such model of onboard fuel processors in the US [175].
The economic aspects of FCVs, using hydrogen and is reformed from methanol at the onsite hydrogen station,
methanol as fuel resources, were analyzed by using the and then directly supplied to FCVs.
Fuzzy Set-Based Framework [176]. FCV-7. These FCVs use water and electricity as a fuel
However, few long-term studies have been made which resource. Hydrogen can be produced from electricity via
consider both energy conversion efficiency and the econ- electrolysis at the onsite hydrogen station, and then directly
omic aspects, such as capital costs and competitive power in supplied to the vehicle [178].
the FCV market. In this section, we show an energy- Energy flow from the fuel resource to the output of each
economic model which examines both economic aspects model is shown in Fig. 29, showing energy conversion
and energy conversion efficiencies in different fuel efficiency and well-to-wheel efficiency, which is obtained
resources and fuel supplies. In analyzing this model, we by multiplying energy conversion efficiencies in each
examine FCVs with several types of fuel resources and their process. The specific capital cost (SCC) is the capital cost
method of fuel supply. Then, we analyze the impact of of an onsite hydrogen station and the FCVs, etc.; ancillary
a carbon tax on the introduction of FCVs and explore operating cost (AOC) is the operating cost. These
effective options for accelerating the introduction of FCVs. parameters are carefully examined in Refs: [104,174,
179–191].
3.5.1. Passenger transportation model
Eight types of transportation sector models are shown in 3.5.2. Analysis of FCV passenger transport and costs
Fig. 28. A top node of personal transportation demand links Discussion in this section highlights analytical examin-
to a node of personal market transportation, which connect ation of FCV passenger transport and cost. The cost of
to types of vehicles such as conventional, hybrid, and FCVs. passenger transportation is shown in Fig. 30. On condition
These vehicles works as an energy conversion nodes by that all vehicles use same fuel resources, the cost of
converting fuel resources to meet the demand of transpor- passenger transportation fueled by onsite hydrogen (FCV-2,
tation. We have defined the following FCVs models, from FCV-4) becomes lower than the cost when fueled by
BAU to FCV-7, in the passenger transportation sector in onboard steam reforming. When FCVs use the same fuel
which fuel resources and methods of fuel supply differ. supplies, natural gas (FCV-3, FCV-4) is cheaper in the cost
Table 15 summarizes the fuel resources and the fuel supply of passenger transportation. Second, the growth of FCVs for
systems; the specific characteristics of each model are given passenger transportation is shown in Fig. 31. The growth
in detail below. rate of passenger transportation depends on the cost of
BAU. There are no FCVs in the passenger transportation
passenger transportation; the passenger transportation of the
market. Both conventional gasoline vehicles and hybrid
FCV-4 is 11 times higher than the FCV-7.
vehicles exist in the market. This model represents the
Discussion in this section highlights the analytical study
business as usual scenario.
of FCVs used passenger for transportation when a carbon
FCV-1. The FCVs which use petroleum as a fuel
tax is imposed, as shown in Fig. 32. When carbon tax is
resource are introduced in the transportation market.
imposed, passenger transport FCVs, and hybrid vehicles
Petroleum is refined from crude oil, and then supplied to
with high energy conversion efficiency, increased signifi-
FCVs at the pump. Hydrogen is reformed from petroleum in
cantly; the increase of FCVs in particular was remarkable.
a compact reformer on the vehicle, and supplied to the fuel
At a tax rate of $80/tonC, passenger transport FCV-2’s
cell.
increased 1.2 times over the zero taxation scenario.
FCV-2. FCVs use petroleum as a fuel resource, as seen in
However, at a tax rate of $160/tonC, passenger transport
FCV-1. In this model, hydrogen is reformed from petroleum
FCV-2’s were used 1.3 times more than when no taxation
at the onsite hydrogen station in advance, and directly
was imposed.
supplied to FCVs.
FCV-3. These FCVs use natural gas as a fuel resource.
Methanol is produced from natural gas, and then supplied to 3.5.3. Summary
FCVs at the conventional gas station. Hydrogen is reformed In this study, we have developed an energy-economic
from methanol in a compact reformer on the vehicle. model in which both energy conversion efficiency and
FCV-4. The FCV-4 uses natural gas as a fuel resource, as economic aspects are considered; the impact of FCVs on
seen in FCV-3. Hydrogen is reformed from natural gas at the energy systems in the transportation sector was then
onsite hydrogen station, and then directly supplied to the evaluated. The result of this analysis shows that FCVs in
vehicle. which fuel is supplied at onsite hydrogen stations, and fuel
FCV-5. These FCVs use biomass as a fuel resource. resources are natural gas, are the optimal systems. Next, the
Methanol is produced from biomass, and then supplied to the effect of carbon tax on cost difference among FCVs,
vehicles at the conventional gas station [177]. Hydrogen is conventional gasoline vehicles, and hybrid vehicles was
reformed from methanol in a compact reformer on the vehicle. analyzed. Carbon tax can mitigate the cost difference, and
FCV-6. The FCV-6 uses biomass as a fuel resource as promote the introduction of FCVs. As the tax increases, the
seen FCV-5. Methanol is produced from biomass. Hydrogen market penetration of FCVs becomes saturated.
Fig. 28. Models of the transportation sector for each FCVs.

Table 15
Method of fuel supply of each FCV
Type Fuel resource Onsite reformer Charged fuel to the vehicle Onboard reformer
BAU Petroleum None Gasoline None

FCV-1 Petroleum None Gasoline W
FCV-2 Petroleum W H2 None
FCV-3 Gas W Methanol W
FCV-4 Gas W H2 None
FCV-5 Biomass W Methanol W
FCV-6 Biomass W (Methanol ! H2) H2 None
FCV-7 –a W H2 None
a 1
H2 is derived from H2O by electrolysis.
3.6. Energy systems in north-east Asia increased [192,193]. Most fossil energy is imported from
abroad, except for a small amount of domestic coal sources.
3.6.1. Analysis of policy scenarios The emissions of GHGs, including CO2, have increased in
In the Republic of Korea, as the gross domestic product proportion to increasing energy consumption. The con-
has increased rapidly, energy consumption also has sumption of energy is closely related to economic growth
increased at an annual rate of more than 10% since 1985, and environmental problems; therefore, it is necessary to
until the IMF crisis in 1997 (Table 16). Compared to Japan, establish and implement energy policies for the balanced
GDP in Korea is 10th part of Japan’s one in 1998, however, pursuit of economic development and environmental
CO2 emissions in Korea is one-third of Japan. Korea has the conservation. Lim and Lee [194] conducted an analysis
potential for reducing CO2 emissions and improving energy on the role of nuclear systems, for meeting global
efficiency. While the shares of coal and hydropower have environmental constraints through an energy-economic
decreased, petroleum and liquefied natural gas have model.
Fig. 29. Energy flow from well to wheel for each model.
Fig. 30. Passenger transportation cost of FCVs in each model.
Here, both cases—carbon taxation case and the BTU fuels. In this sense, the BTU tax would be a positive measure
taxation case—are analyzed by designing an energy- towards reducing CO2 emissions in Korea as well as for
economic model for Korea. Necessary data are provided by maintaining stable shares among energy sources.
OECD [195] and by Korean experts in the field [196]. The
results are shown in Fig. 33 for carbon taxation, and in Fig. 34 3.6.2. Discussion of energy cooperation between Japan
for BTU taxation, respectively. We can expect reductions in and Korea
CO2 emissions in the future by introducing carbon or BTU The possible integration of energy supply for Japan and
taxation into the Korean economy. The carbon tax tends to Korea is interesting aspects concerning the future energy
suppress consumption of carbon heavy fuels such as coal, system of both countries. Here, we will see current changes
whereas the BTU tax appears to reduce the overall fossil in electricity markets. There are some differences between
Fig. 31. Passenger transportation of FCVs in each model.

Fig. 32. Passenger transportation when carbon tax is imposed.
the current energy industries in Japan and Korea. In order represented approximately 30% of total electricity sales.
for competition to develop in electricity markets, mono- This was the first attempt to catch up with the international
polistic activities, such as the operation of the transmission standard of deregulation in 50 years’ monopolistic history of
network, must be effectively separated from potentially Japanese ESI. As a result, companies from other industries
competitive activities, such as power generation [16]. The have entered the power generation business and the practice
main objective of such a division is to avoid discrimination of bidding for electrical power has expanded. Growth in
in the competitive segments of the ESI. On April 2, 2001, power consumption, which has steadily increased since the
the Government of Korea is divided the former utility utility’s founding, is distinctly slowing amid weak economic
KEPCO (Korean Electric Power Cooperation) into new six expansion and advancements in energy conservation.
power generation subsidiaries, and a power exchange. As However, the remaining 70% customers are still in the
the Korean electric power monopoly is ending, competition classic situation in which neither choice nor competition is
is being introduced in the process of restructuring. available for either customers or utilities. The price of
Customers will create a new order in the competitive electricity per kWh for residential use is 28 JPY (23 US
electric power marketplace. Most of the functions and roles cents), and the highest fare is in OECD countries.
of the government will be replaced by market forces and Along with the market changes toward deregulation and
customer reaction, which will be the most crucial factors in competition, these are other possibilities for energy
power markets. cooperation between Japan and Korea, such a competitive
In contrast, Japan still appears to be studying the
measures to be taken. The retail electrical market was
liberalized in March 2000 for high demand customers, who
Table 16
Energy statistics for two countries
Year Country GDP, Population, Primary energy CO2,

billion million consumption, mmTC
US$ Mtoe
1973 Japan 2561 108 324 245

1973 Korea 89 34 21 18
1998 Japan 5319 126 510 312
1998 Korea 516 46 163 100
Sources: OECD [198], OECD [266], OECD [267]. Fig. 33. Carbon tax scenarios in Korea.
4.1. Carbonless energy systems
Berry and Lamont [199] designed a carbonless energy

system and evaluated its performance by using an energy-
economic model. Electricity is the highest quality energy
carrier, increasingly dominant throughout the world’s
energy infrastructure. Ultimately electricity use can expand
to efficiently meet virtually all stationary energy appli-
cations, eliminating stationary end-use carbon emissions.
This approach is unlikely to work in transportation,
however, due to the high cost and low energy density of
electricity storage. Chemical energy carriers, such as
hydrogen, can more effectively serve transportation fuel
and energy storage applications, offering much higher
Fig. 34. BTU tax scenarios in Korea. energy density at lower cost. Electrolytic hydrogen,
extracted from steam with renewable energy, stored as a
pools, or power exchanges, such as NordPool, between the high pressure gas or cryogenic liquid, and reconverted to
two countries. NordPool is a voluntary electricity exchange electricity in fuel cells, or used to power hydrogen vehicles,
will reduce emissions from both transportation and electric
open to traders from Norway, Sweden, Finland, and parts of
generation [200]. Renewable resources and modular elec-
Denmark. As of 1997, over 40% of electricity trading in that
trolytic technology also permit decentralized hydrogen
area was handled by the pool. The geographical location
production, circumventing distribution issues and barriers
between Japan and Korea is similar to that of Scandinavian
to market entry. In contrast, sequestration-based fossil-
countries, and the electric utilities of both countries have
fueled systems must achieve economies of scale by relying
similarities in generation, transmission, and distribution
on centralized production and hierarchical transmission and
systems. The new pool market offers an opportunity to distribution of electricity, hydrogen fuel, and CO2. Arnason
operate ESI efficiently and to power the end user and and Sigfusson [201] reviewed the national energy situation
provide a secure supply, that meets both environmental and as well as production of hydrogen-based fuels for transport
social goals. sectors in Iceland by using hydroelectric hydrogen.
Second, Japanese government officials and Exxon Mobil Renewable and fossil approaches may ultimately be
Corporation executives are discussing a 2100 km pipeline complementary; use of renewable resources would limit the
that would carry natural gas from far east Russian to either sequestration burden to modest quantities, using the most
Tokyo or Niigata—halfway down the Japanese archipelago cost effective methods and reliable disposal sites. Previous
[197]. In the Korean peninsula, a domestic gas pipeline has analyses have concluded that renewable electricity will be
been built between Seoul and Pusan, and its extension from cost effective in combination with dispatchable carbonless
China to Seoul is under discussion by foreign investors. energy sources (i.e. hydroelectric and biomass), to minimize
Provided that a pipeline between Korea and Japan is energy storage [202]. Dispatchable carbonless sources only
designed, this network could secure a natural gas supply for generate a fraction of current electricity however, and are
both countries. The LNG price for industry in Japan was likely to be limited on the scale of burgeoning demand
$96.45 in 2000, which is unnaturally high compared with [203]. A future role for biomass, in particular, may be
$41.95 in the UK and $26.50 in the US [198]. Regional restricted due to competing uses for land, water, and perhaps
integration of gas markets and the electricity network will other agricultural inputs. An alternative to expanding
create an important role for two countries. fission, hydropower, and biomass is to use modest fossil
electric generation and carbon sequestration as a comp-
lement to wind and solar energy. An integrated hydrogen
transportation sector complements renewable systems both
4. Application to local energy systems by providing a large, but flexible use for excess renewable
electricity, and enabling dual use of hydrogen fuel as utility
energy storage [204,205] and transportation.
Distributed energy system is the key to sustainable Fig. 35 shows the schematic of a carbonless energy
supply of energy without environmental destruction. system, coupled with utility electric generation and a
Combined heat and power supply can use energy efficiently transportation system using nuclear, fossil, and renewable
according to regional changes in demand. In this chapter, the primary energy sources, with electricity and hydrogen as
concept of carbonless energy system is introduced, and see energy carriers. Fig. 36 shows the efficient criteria for
its application to local area where wind power and PV are reducing overall carbon emissions in the US by 2020. In the
available. figure, sets of points with the different gas fired power
Fig. 35. Schematic of a carbonless energy systems [199].
station and constant nuclear capacity are shown together. energy are explained by Winter and Nitsch [212]. There are
Each case meets 5 trillion kWh of electricity demand and several younger studies, e.g. from German Enquete-
4.6 trillion kW h of fuel demand and includes 100 GW of Commision, or from the DOE road map [100]. Geothermal
nuclear capacity in addition to the gas fired generation is another interesting renewable energy, mainly used in
capacities indicated. Points on the line indicate the cost and Iceland and Pacific Rim countries. The status of world
emissions with various hydrogen transportation options (e.g. geothermal power is shown by Fridleifsson [213], Huttrer
none, cars only, cars and trucks, or cars, trucks and aircraft). [214], and Lund and Freeston [215].
The first point in the line of 0 GW gas is the case of no
hydrogen transportation. Moving from right to left, natural 4.2. Integrated renewable energy systems
gas generation capacity is reduced and replaced by renew-
able generation. CO2 emissions can be reduced to around Since the 1990s, global environment concerns have been
250 mmTC by displacing natural gas electric generation. increasing. In particular, world attention has been focused
Further carbon reductions are achieved by replacing natural on global warming caused by GHGs such as CO2. In 1997,
gas fueled transportation with hydrogen fueled transpor- the Third session of the Conference of the Parties US-DOE
tation [206]. [190] was held in Kyoto, and the Kyoto Protocol, requiring
Detailed information on each renewable energy source is reduction of GHGs, was adopted. Clean energy is important
given in Refs. [207 – 209]. The financing and benefits of in order to reduce GHGs; because renewable energy sources
wind energy systems are well summarized by Langniss do not discharge emissions, renewable energy is expected to
[210] and Giebel [211]; the technology of PV and hydrogen play a major role in the 21st century.
Fig. 36. Efficient frontier for reducing US 2020 overall CO2 emissions [199].
Additionally, since the energy supply depends heavily on energy in rural towns and villages, where abundant
fossil fuels, with its attendant risks to energy security, it is resources exist. Also, in order to build the system which
necessary to reduce reliance on fossil fuels to achieve a secures a stable energy supply, it is important not to use just
stable energy supply [216]. As an alternative to fossil fuel, one kind of renewable energy, but rather to combine two or
renewable energy is relatively unconstrained; it has high more renewable energy sources.
sustainability and potential to handle a large share of energy
4.2.1. Renewable energy systems in rural areas
supplies in the future. Moreover, renewable energy, such as
Many studies have been conducted on renewable energy
wind power, also attracts attention as a local distributed
resources [215,220– 222]. For example, Santisirisomboon
power source. In order to promote installation of renewable
and Limmeechokchai [223] and Nagel [224] evaluated the
energy systems, a green certificate market system has been
possibility of installation of biomass energy, and Kara and
enforced [217,218], and a renewable portfolio standard is
Yuksel [225] evaluated the availability of GHPs.
being implemented [219]. There are manifold other policies
However, renewable energy sources influenced by
and measures providing market incentives for renewable natural conditions are intermittent. It would be difficult to
energies, e.g. the German Renewable Energy Law. provide a stable energy supply using only one renewable
However, renewable energy is not efficiently used energy source. Studies of an energy system in which two or
because of the difficulties in operation. First, since renew- more source of renewable energy are combined have been
able energy has low energy conversion efficiency and a low conducted recently [199,206,226– 230]. For example, EI
load factor, a large land area is necessary to produce enough Bassam [231] has evaluated the energy system for Northern
power to meet the demand. Second, energy output from Germany; Rozakis and Soldatos [232], Kaldellis and
renewable sources is unreliable because renewable energy, Kavadias [233] and Kiranoudis [234] have evaluated energy
such as PV and wind except for biomass, are dependent on systems in Greece. Iniyan and Suganthi [235] designed a
local climate conditions. Third, since resources are unevenly renewable energy model for India. Lew [236] studied wind
distributed, the area available for power generation is power in China as an alternative to coal and candles. In
limited. Considering power transmission loss, it is suitable Japan, no study has been conducted on a system that
to utilize renewable energy in a place with abundant combines several sources of renewable energy. The system
amounts of resources and vast land. For these reasons, which we have designed is a local energy system which
utilization of renewable energy in urban areas becomes combines two or more source of renewable energy. The
inappropriate, because securing vast land is difficult. There features of such a system are summarized below:
are possibilities to install PV systems on the roof of houses
or factories without any kind of additional land use even in † The configuration of a renewable energy system varies
populated area. It would be useful to utilize renewable with site location.
Fig. 37. Network for renewable energy system in rural area.
† The proposed energy system is connected to the system. Using this approach, the system is modeled as a
distribution grid, and the purchase of electricity as market, with nodes passing information about prices and
backup, whenever the renewable supply is insufficient. quantities demands until equilibrium is reached.
† Excess electricity is sold to electric utilities through the This equilibrium is equivalent to a cost minimization. The
grid. prices in the system represent marginal costs of production
A local village with a population of about 9000 was

targeted in Iwate prefecture in northern Japan. The Table 17
performance of the energy system was analyzed con- Input data
sidering real data, such as weather and energy demand in
Type Life SCC AOC I/O
the area.
(years) ($103/MW) ($/MWh) coefficient
Because of the nature of region, four kinds of renewable
sources—photovoltaic (PV), wind power, biomass co-
Electricity
generation, and geothermal heat pump (GHP or GeoHP)— PV 20 5000a 8.81a 1
were considered. A renewable energy system for rural areas Wind 20 2000a 20.64a 1
is designed which combines these renewable resources with
a conventional energy system, one that supplies grid Heat
electricity and heat by petroleum and gas. This study Biomass 20 9330b 16.29b 1.67
GHP 20 2250c 0.26c 0.25d, 0.75e
optimizes the design of a renewable energy system for a
Petroleum 10 125f 0.014f 1.18
specific location and determines the most economical Gas 10 92f 0.01f 1.25
operation. We modeled a renewable energy system in a
rural area using several system modules. The network of the SCC: specific capital cost, AOC: ancillary operating cost.
a
system is shown in Fig. 37. Based on Ref. [113].
b
Based on Ref. [268].
c
Based on Ref. [269].
4.2.2. Modeling approach d
Electricity.
The analysis uses the META-Net modeling system to e
Geothermal.
f
find the optimal configuration and operation of the energy Based on EDMC-Japan [189].
Fig. 38. Electricity generation (windy).
in a situation in which constraints are not binding and shown in Table 17, which are derived by local government,
‘shadow prices’ when constraints are binding. the electric power utility and reliable references. In some
In the market nodes in Fig. 37, energy demands are European countries, the investments costs for wind
allocated to the market suppliers based on their prices. The and biomass are being reduced to around $1000/kW and
allocation gives the largest share of the demand to the least $2300/kW, respectively.
expensive suppliers. However, when the allocations finally
reach equilibrium, the prices are equalized among all 4.2.3. Electricity supply
suppliers. By this means, the most economical energy The analyzed changes in the quantity of the electricity
system will be configured and optimized. Necessary data are supply are shown in Fig. 38. During windy periods, the wind
Fig. 39. Electricity generation (wind-less).

Fig. 40. Electricity price.
generator runs well, and wind electricity constitutes a large The electricity market price is the marginal cost of production
portion of the total electricity supplied to the village. When in each hour. During windy periods, wind is the marginal
wind electricity cannot provide enough power to meet electric resource and the marginal price of electricity drops
demand, grid electricity makes up for the deficiency. Fig. 39 to the marginal cost of wind generation. When there is
represents the changes in the quantity of electricity supply insufficient wind to meet demand, the grid electricity
during windless periods; the portion of grid electricity is becomes the marginal supplier. For example, when the
greater as production of wind electricity becomes price of wind electricity becomes higher than that of other
insufficient. power sources, the market selects other sources of electricity
The changes in the price of electricity are shown in to meet village demand. In our study, alternative power
Fig. 40. During windy periods, the price of wind electricity means PV and grid electricity. According to Fig. 40, the
hovers around $4000/MWh, and the price is much lower price of PV hovers from 23,500 to 27,500 cents/MWh,
than other power source. In the electricity market, the lowest while the price of grid electricity shows 23,333 cents/MWh.
price is preferred to supply electricity to consumers; Under this condition, the electricity market selects grid
wind electricity is chosen—most provided by wind turbines. electricity among the alternatives, so when there is
Fig. 41. Heat supply.

Fig. 42. Heat price.
a shortage of electricity, grid electricity makes up for the 19.1, 4.3 MW, respectively. Cogeneration plants based on
deficiency. biomass are not considered in the system. Since the gas for a
heat supply has not been installed in the system, the capacity
4.2.4. Heat supply of gas shows at zero. Consequently, an optimal renewable
The changes in heat supply produced by different energy system, which is cost effective, is configured from a large
sources are shown in Fig. 41. The GHP, and petroleum, amount of wind and GHP, and a small amount of PV,
work as the main heat sources. Fig. 42 represents the biomass, and petroleum. Compared with the production of
changes in heat price. Because the GHP runs by electricity, wind electricity, the share of PV is still low. Since PVs
the price of heat by GHP is influenced by the price of generate only during daytime, it contributes to the quantity
electricity. Compared with the fluctuation of electricity of electricity supply during peakload time. As a result, wind
prices, price fluctuation of GHP heat duplicates fluctuation electricity, which can generate through the day—though it
of the electricity price. During low electricity pricing, depends on wind conditions—increases its installed
the price of GHP heat is also low. When electricity is capacity greatly. It becomes clear that the renewable energy
expensive, the price of GHP heat is also high. When GHP is system in the village is largely affected by the wind
cheaper, the price hovers between 1000 and 2000 cents/ condition. At windy locations, capacity for wind-powered
MWh. Compared with prices of other heat sources, GHP is electricity is large, while the PV potential is small. Then, we
best bargain; consequently, heat produced by GHP is see the impact on installed capacity of PV after the reduction
supplied to the village. However, when GHP heat is high, of SCCs. Fig. 44 represents the SCC of PV and the installed
the price ranges between 6 and 7000 cents/MWh. Because capacity of PV. We have reduced the SCC of PV
petroleum heat is 4730 cents/MWh during this time, the from $5000/kW to $1500/kW; however, the installed
price of GHP heat becomes higher than that of petroleum. capacity of PV has changed little. The reason for the
Therefore, the heat market selects not GHP, but petroleum nominal change is that the load factor of PV is approxi-
as a heat source. Because the prices of other heat sources are mately 10%, and the load factor of wind electricity is around
higher than petroleum, petroleum is selected as a substitute
for GHP. For these reasons, when wind electricity meets all
the electricity demands in the village, heat is supplied by
GHP, and when the production of wind electricity falls,
petroleum is selected as a heat source.
4.2.5. Optimal system configuration

Fig. 43 represents the capacity of a renewable energy
source as a result of economical optimization for a
renewable energy system. In terms of electricity supply,
the capacity of PV is 1.0 MW, and the capacity of wind
electricity is 18.0 MW. The share of wind electricity is very
great, accounting for more than 90%. In terms of heat
supply, the capacity of biomass, GHP, and petroleum is 0.6, Fig. 43. Optimal system configuration.
Fig. 46. Annual cost.

Fig. 44. Capital costs of PV and its installed capacity.
25%. In order to produce the same quantity of electricity, Considering this amount of sales, the renewable energy
PV requires twice the installed capacity of the wind turbine. system can reduce annual costs by 23%.
Even if the SCC of PV is lower than that of wind electricity,
Furthermore, provided that a carbon tax was imposed, a
the capital cost of PV is greater than that of wind electricity.
renewable energy system would also prove to be more
This is the reason that the installed capacity of PV does not
economical, because CO2 emissions are less than in
change. In the case of $1000/kW, electricity production of
conventional systems, as mentioned above.
PV increases about 3-fold.
4.2.6. CO2 emission

4.2.8. Summary
CO2 emission from renewable energy systems in the
village, and the conventional energy system, are shown in We have examined the possibility of a local energy
Fig. 45. In the conventional energy system, the annual CO2 system combining four types of renewable energy, such as
emission reaches 6850 tonsC/yr; while the annual CO2 wind electricity, PV, biomass co-generation, and GHP.
emission in renewable energy systems reaches 1460 tonsC/yr. It becomes clear that wind electricity and GHP are both
The renewable energy system, designed here, can reduce necessary in order to optimize renewable energy systems
CO2 emissions by 79% and contributes significantly to the economically in rural areas. On the contrary, PV and
reduction of fossil fuel combustion. biomass co-generation are not installed in the proposed
system; this is because the capital cost of wind electricity is
4.2.7. Economic aspect lower than that of PV, and there is little difference between
Fig. 46 represents a comparison between the annual cost AOCs of wind electricity and that of PV. The price of wind
of a renewable energy system and that of a conventional electricity is quite low, var. between 3 and 5 cents/kWh,
energy system in the village. The costs include fuel, whereas the current price of grid electricity used in general
operating and capital expenses. The annual cost of a households is 23.3 cents/kWh in Japan. Wind electricity
conventional energy system appears as $11.2 £ 106/yr in can supply rural areas at one-fifth the price of current
our results. While the annual cost of a renewable energy electricity sources. This allows GHP to supply heat at low
system in the village shows $9.6 £ 106/yr. The renewable prices, as the power source of GHP is electricity. In terms of
energy system can reduce the annual cost by 15%. Unused CO2 emission, renewable energy systems in rural areas can
electricity is sold to electric utilities for $9.3 £ 105/yr. reduce CO2 emissions by 79%, compared to conventional
energy systems. In terms of annual operating cost, renew-
able energy systems in rural areas can reduce the cost by
15%, compared to conventional energy systems, and
considering surplus sales to grid utilities, annual costs can
be reduced by 23%.
In conclusion, the combination of wind and GHP
configures the optimal renewable energy system. Compared
to a conventional energy system, CO2 emission and annual
costs are reduced by utilization of optimal renewable energy
systems. In order to install PV or biomass co-generation into
the renewable energy system, it is necessary to reduce initial
costs and the differences in energy price through political
Fig. 45. CO2 emission. measures, such as substitution or taxes.
5. Climate policy assessment effects mathematically, and interpreting them quantitat-

ively, present difficulties in modeling.
It is necessary to stabilize the atmospheric concentration
of GHG emissions in order to suppress temperature 5.1. Energy-economic model for climate policy assessment
increases caused by global warming. The question of
which method to control the emission of CO2 remains In the past, many models have been proposed to address
unsettled. Sathaye [237] reviewed climate change mitiga- the issue of climate change (Tables 18 and 19) [48 – 50,53,
63,238– 254]. In the beginning of the modeling studies,
tion in energy for developing countries. For this purpose, it
there was a clear boundary between the top-down and the
is important to develop an integrated energy-economic
bottom-up models. Currently, the boundary between the two
model, considering the effect of both energy demand and
approaches is diminishing slightly, because the models have
consumption on the global environment. Representing these
been integrated and strengthened.
Table 18
Integrated assessment models
Model Modellers
AS/ExM (adaptive strategies/exploratory model) R. Lempert, S. Popper (Rand); M. Schlesinger (U. of Illinois)
AIM (Asian-Pacific integrated model) T. Morita, M. Kainuma (National Inst. for Environmental Studies,
Japan); Y. Matsuoka (Kyoto U.)
CETA (carbon emissions trajectory assessment) S. Peck (Electric Power Research Institute), T. Teisberg (Teisberg
Assoc.)
Connecticut (also known as the Yohe model) G. Yohe (Wesleyan University)
CRAPS (climate research and policy synthesis model) J. Hammitt (Harvard U.); A. Jain, D. Wuebbles (U. of Illinois)
CSERGE (Centre for social and economic research on the D. Maddison (University College of London)
global environment)
DICE (dynamic integrated climate and economy model) W. Nordhaus (Yale U.)
FUND (the climate framework for uncertainty, negotiation, R.S.J. Tol (Vrije Universiteit Amsterdam)
and distribution)
DIAM (dynamics of inertia and adaptability model) M. Grubb (Royal Institute of International Affairs); M.H. Dong,
T. Chapuis (Centre Internationale de recherché sur l’environnement
et développement)
ICAM-2 (integrated climate assessment model) H. Dowlatabadi, G. Morgan (Carnegie-Mellon U.)
IIASA (International institute for applied systems analysis) L. Schrattenholtzer, Arnulf Grubler (IIASA)
IMAGE 2.0 (Integrated model to assess the greenhouse effect) J. Alcamo, M. Krol (Rijksinstitut voor Volksgezondheid
Milieuhygiene, Netherlands)
MARIA (Multiregional approach for resource and industry S. Mori (Sci. U. of Tokyo)
allocation)
MERGE 2.0 (Model for evaluating regional and global effects of Alan Manne (Stanford U.), Robert Mendelsohn (Yale U.), R. Richels
GHG reductions policies) (Electric Power Research Institute)
MiniCAM (mini global change assessment model) J. Edmonds (Pacific Northwest Lab), R. Richels (Electric Power
Research Institute), T. Wigley (University Consortium for
Atmospheric Research (UCAR))
MIT (Massachusetts Institute of Technology) H. Jacoby, R. Prinn, Z. Yang (Massachusetts Institute of
Technology)
PAGE (policy analysis of the greenhouse effect) C. Hope (Cambridge U.); J. Anderson, P. Wenman (environmental
resources management)
PEF (policy evaluation framework) J. Scheraga, S. Herrod (EPA); R. Stafford, N. Chan (Decision Focus,
Inc.)
ProCAM (process oriented global change assessment model) J. Edmonds, H. Pitcher, N. Rosenberg (Pacific Northwest Lab);
T. Wigley (UCAR)
RICE (regional DICE) W. Nordhaus (Yale U.); Z. Yang (MIT)
SLICE (stochastic learning integrated climate economy model) C. Kolstad (U. of California, Santa Barbara)
TARGETS (tool to assess regional and global environmental J. Rotmans, M.B.A. van Asselt, A. Beusen, M.G.J. den Elzen,
and health targets for sustainability) M. Janssen, H.B.M. Hilderink, A.Y. Hoekstra, H. W. Koster,
W.J.M. Martens, L.W. Niessen, B. Strengers, H.J.M. de Vries
(Rijksinstitut voor Volksgenzondheid en Milieuhygiene,
Netherlands)
Source: Ref. [255].

Table 19
Integrated assessment models: an overview
Model Forcings Geographic Socioeconomic Geophysical Impact Treatment Treatment

(0. CO2, specificity dynamics simulationa assessmentb of uncertainty of decision
1. other GHG, (0. global, (0. exogenous, (0. Global DT; (0. DT; (0. none, making
2. aerosols, 1. continental, 1. economics, 1. 1D DT; DP; 1. Dsea level, 1. uncertainty, (0. optimization,
3. landuse, 2. countries, 2. technology choice, 2. 2D DT; DP; 2. agriculture, 2. variability, 1. simulation,
4. other) 3. grids/basins) 3. land use, 3. 2D climate) 3. ecosystems, 3. stochasticity, 2. simulation
4. demographic) 4. health, 4. cultural with adaptive
5. water) Perspectives) decisions)
AS/ExM 0 0 0 0 0 1 2
AIM 0,1,2,3 2,3 1,2,3,4 1,2 0,1,2,3,5 0 1
CETA 0,1 0 1,2 0 0 0 or 1 0
Conneticut 0 0 1 0 0 1 0
CRAPS 0 0 1 0 0 1 2
CSERGE 0 0 1 0 0 1 0
DICE 0 0 1 0 0 0 or 1 0
FUND 0,1 1 1,4 0 0,1,2,3,4 0 or 1 0
DIAM 0 0 1,2 0 0 0 or 1 0
ICAM-2 0,1,2,3 1,2 1,3,4 1,2 0,1,3 1,2,3 1,2
IIASA 0 0 1 1 2 0 0
IMAGE 2.0 0,1,2,3 3 0,2,3 2 1,2,3 1 1
MARIA 0 0,1 1 0 0 0 0
MERGE 2.0 0,1 1 1,2 0 0 0 or 1 0
MiniCAM 0,1,2,3 2,3 1,2,3 2 0 0 1
MIT 0,1,2,3 2,3 1 2,31 0,2,3 1 0,1
PAGE 0,1 1,2 1 0 0,1,2,3,4 2 1
PEF 0,1 1,2 1 0 0 2 1
ProCAM 0,1,2,3 2,3 1,2,3,4 2 0,2,3,5 1 1
RICE 0 1 1 0 0 0 0
SLICE 0 1 1 0 0 1 2
TARGETS 0,1,2,3,4 0 1,2,3,4 2 1,2,3,4 4 1,2
Source: Ref. [255].

a
TARGETS includes ozone depletion, soil erosion, acid rain, and toxic and hazardous pollutant releases.
b
In AIM, FUND, IMAGE, PAGE, and ProCAM, the impacts are calculated separately for each sector.
The dynamic integrated model of climate and the The calculation of the DICE model aims to optimize this
economy (DICE), designed by William D. Nordhaus, is equation, where W is welfare, cðtÞ is per capita consumption,
a typical example of a global warming modeling. LðtÞ is population, and RðtÞ is social time preference factor
The structure of the DICE model is relatively simpler than X
any other models: In the DICE model, both global economic W¼ U½cðtÞ; LðtÞRðtÞ ð6Þ
t
and climate conditions are represented as a set of simple
equations. It is possible to analyze complicated issues of Industrial CO2 emissions ðEðtÞÞ and world total CO2
climate change as a simple optimization problem, because emissions ðETðtÞÞ; are represented as a function of LðtÞ; AðtÞ
the DICE addresses the global world in regional areas, and and the ratio of industrial emissions to output ðsðtÞÞ:
parameters are averaged worldwide. The DICE model has Equations of EðtÞ and ETðtÞ are represented as follows,
been reliable in many studies on climate change, and has where LUðtÞ is landuse carbon emissions
been verified in its reliability by many researchers [97,
255– 258]. EðtÞ ¼ sðtÞAðtÞKðtÞg LðtÞ12g ð7Þ
The DICE model is a partial equilibrium model, based on ETðtÞ ¼ EðtÞ þ LUðtÞ ð8Þ
fundamental economics. The model analyzes the data
and optimizes it by maximizing a social welfare function, Temperature changes can be represented as the follow-
which is a discounted summation of utility per capita ing two-reservoir model. It consists of atmosphere/upper
consumption. The model spans the years from 1995 to 2395, ocean and lower oceans, where TðtÞ is an increase in the
with the time step of 10 years length. globally and seasonally averaged temperature in the
Fig. 47 shows the schematic diagram of the DICE model. atmosphere since the year 1900; TLO ðtÞ is an increase of
An objective function in the model is represented as Eq. (6). temperature in the deep oceans, FðtÞ is an increase in
Fig. 47. Schematic diagram of the DICE model.

conditions. Irregular change in observed values is con-

sidered to be discontinuity.
There are many types of uncertainty in physical values
[259]. The uncertainty in input data impacts upon the output
of the scenario. Morgan and Henrion [260] argue that
“policies that ignore uncertainty about technology, and
about the physical world, often lead in the long run to
unsatisfactory technical, social, and political outcomes.”
Part of the uncertainty is derived from the discontinuity in
observed value.
To minimize uncertainties in discontinuity, some
analytical studies have been made on sensitivity in initial
data [67,73,261– 264]. These analyses neglect fluctuations
of physical data in favor of continuous functions. That is, the
question we must ask is whether a discontinuity impacts the
Fig. 48. Cumulative improvement of energy efficiency. prediction of climate change.
radioactive forcing in the atmosphere, l is a feedback 5.2.1. Methodology
parameter, and the si is a transfer coefficient reflecting the We are concerned about the impact of discontinuity in a
flow rates and thermal capacities of the different sinks cumulative improvement of energy efficiency ðgs ðtÞÞ: In the
TðtÞ ¼ Tðt 2 1Þ þ s1 {FðtÞ 2 lTðt 2 1Þ 2 s2 ½Tðt 2 1Þ DICE model, gs ðtÞ is represented as a following equation,
where gs ð0Þ is the initial value of gs ðtÞ; and the dsi is the
2 TLO ðt 2 1Þ} ð9Þ parameter that determines rate of decline of gs ðtÞ
TLO ðtÞ ¼ TLO ðt 2 1Þ þ s3 ½Tðt 2 1Þ 2 TLO ðt 2 1Þ ð10Þ gs ðtÞ ¼ gs ð0Þexpð2ds1 t 2 ds2 t2 Þ ð11Þ
Fig. 48 shows the historical data of gs ðtÞ: The figure
5.2. Sensitivity analysis shows the changes in energy efficiency from the year 1930
to 1997, which are calculated from the changes in CO2
Many models have been introduced for scenario studies emissions. When energy efficiency increases, CO2 emis-
to show practical policy or energy scenarios. Input sions reduce with the improvement of energy efficiency. We
parameters in the models are usually simplified as a can see from Fig. 50 that the historical data of cumulative
continuous function, because this lowers the computation improvement of energy efficiency has great discontinuity.
load and reduces the time for finding convergence. The For example, the rapid increase of energy efficiency in the
continuous function is generated by using observed value, early 1970s does not reflect the actual increase of energy
which does not change continuously in most physical efficiency, but rather, the reduction of worldwide energy
Fig. 49. Flow chart of input data.

Fig. 50. Temperature in atmosphere.

consumption due to the decline of the world economy, until the year 2100, using the DICE model. Fig. 51 shows
caused by the first oil embargo. The sharp decrease in the result of atmospheric CO2 concentration, and Fig. 52
energy efficiency in the early 1990s occurred because of the shows the result of the world total CO2 emission. When the
rise of worldwide CO2 emissions, due to the fire in oil fields cumulative improvement of energy efficiency has a constant
caused by the Gulf War. error, the error affects the result cumulatively. In contrast,
We assume that the actual data can be represented as in when the cumulative improvement of energy efficiency has
Eq. (11), and the observation noises, which are errors in a discontinuity, the result is converged to the real value.
gathering data, are distributed uniformly in a range from These trends are summarized in Fig. 53. We see from the
2 10 to þ 10%. The flow chart of the data generating figure that there is a correlation between the error in the
process is shown in Fig. 49. There are two case studies: the input data and the error in the predicted output.
cumulative improvement of energy efficiency is set at a
constant error and is represented as a continuous function in
5.2.3. Summary
the first study, the cumulative improvement of energy
The result of our analysis clearly shows the impact of
efficiency is set at an inconstant error and is represented as a
discontinuous function in the second study. The constant discontinuity on the predicted values. The following results
errors are set at 1 and 5%, respectively, and the inconstant are obtained from our analysis:
error is set at 10% by introducing random variables.
† First, when the cumulative improvement of energy
5.2.2. Result of the analysis efficiency has a constant error, the error has a cumulative
The following results were obtained from the analysis. effect on the predicted values, and the result is quite
Fig. 50 shows the result of atmospheric temperature rises different from the result of the real value.
Fig. 51. Atmospheric CO2 concentration.

Fig. 52. World total CO2 emission.
† Second, when the cumulative improvement of energy In conclusion, a large impact in discontinuity exists in
efficiency has a discontinuity, the result becomes close to the predicted values in the real data. Therefore, it is
the real value. In this case, the error in the input value can important to consider discontinuity of energy efficiency
be decreased by one-tenth in the result. In particular, in in order to improve modeling reliability.
the worldwide CO2 emissions, the result becomes close In the top-down model for sensitivity analysis, CO2
to the real value, more effectively than using a 1% emissions are simply defined as the output of economic
constant error. activities. As for the formation mechanism of CO2
† Third, there is a correlation between the error in the input emissions, bottom-up model can distinguish the fuel
data and the error in the predicted value. The correlation composition and combustion characteristics. It is critically
is represented as a quadratic function, and the coefficient important to know how seriously the science dimension of
of quadratic term with discontinuity is less one order of climate change is considered as a fundamental factor for
magnitude than that using constant error. energy-economic models.
Fig. 53. Differences between error in input data and error in predicted value.
6. Conclusions uncertainties, which should be considered for a scenario

proposal.
Nowadays in the energy system, we have many Although most of case studies in the paper focus on
challenges to meet. Energy-economic and energy techno- Japan, analytical approach of energy economic models has
logical models are helpful tools to point out which ways we wide application to other developed countries like the US. In
can go and which perspectives we have. That makes future developing countries, many uncertainties remain regarding
decisions clearer. Concerning energy-economics models, today’s economy and energy industries.
there are different approaches, each of them has special In relation to the environment, one of the important
advantages and problems. The author uses one of the types issues is how liberalization of energy markets can be
and while discussion specific applications makes clear reconciled with environmental goals, as often environmen-
which kind of answer they are able to give. tally friendly technologies are more expensive than least-
An energy-economic model is a tool for decision making cost technologies such as gas fired power stations.
for a variety of purposes, such as energy security planning, In a conclusion, the energy-economic model contains
climate policy analysis, and technology innovation assess- uncertainties and constraints for analysis; however, the
model can afford a vision of the world with a variety of
ment. Political measures, such as taxation, subsidy,
technological alternatives. Returning to the future, we can
and investment in R&D, are derived by applying this
visualize the possible contributions of energy and combus-
model. It is also useful for guiding development policies
tion science in the next millennium.
under the concept of sustainability. As a possible step
toward an uncontroversial definition, energy-economic
models can show quantitative ‘working definitions’ of
sustainability development scenarios. In focusing on Acknowledgements
scenarios, instead of developing in general, criteria can be
proposed that have a chance of being widely accepted and The author is particularly grateful to Dr. Alan Lamont at
that are applicable to a large set of development paths, thus the Engineering Directorate, Lawrence Livermore National
also contributing to the concept of sustainable operations. Laboratory. Significant contributions to this article origi-
The scenario explores possible paths towards an affordable, nated from a one-year stay as a participating guest at the
sustainable energy system which discovers solutions to Laboratory. I deeply appreciate the financial support of the
environmental concerns, including application of clean United States Information Agency and its Fulbright Scholar
technologies and stabilization of atmospheric CO2 concen- Program. Many thanks are due to Mr Shuichi Ashina, Ryo
trations. The energy system will have met its toughest test— Kinugasa, Kazuo Kubo, graduate students at the laboratory,
meeting the huge energy demands of the vast majority of the for their assistance in the production of this manuscript. I
world’s population as they graduate industrialization and acknowledge helpful discussions with Professor Eui-Soon
Shin and Mr Ho-Seok Kim, Yonsei University, Korea. Parts
seek to improve the quality of their lives. The key point is
of the paper have been presented by the author in the 25th
the potential for new technologies to supply energy from
Annual IAEE International Conference in Aberdeen, UK in
unexpected parts of the energy system.
June 2002.
In finding suitable energy-economic models for specific
purposes, it is important to apply an adequate tool to
consider geographical regions in focus, time horizon, energy
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Energy-economic models and the environment

Article in Progress in Energy and Combustion Science · December 2004

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Energy-economic models and the environment

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1. Introduction Concerning sustainability criteria as a point of departure

Fig. 1. Schematic of national energy model.

Fig. 2. Component of energy-economic model.

Modeling technologies Tools Developer Feature

National EU Global Global-regionalised

Input/output models MIS

IA models ESCAPE DICE IMAGE 2.0 (13 world regions)

Top-down models Bottom-up models

Use an economic approach Use an engineering approach

Fig. 3. SGM modules [91].

Fig. 4. Solution using an iterative, two pass algorithm [34].

Fig. 6. Network for national model.

Process Abbreviated Annual demand Annual rate of Demand

Industrial heat demand (mmBTU/yr) Ht.Dmd.Ind 5.10 £ 109 0.002 20.34

the implementation of the tax relating to the current price,

Fig. 8. Changes in electric power generation for the reference case.

Table 6 In the long run, renewable resources may contribute more

Fig. 13. Electric power generation under nuclear phase out.

Fig. 15. Changes in the price of electricity.

Fig. 16. Total energy use in resource under four scenarios.

Fig. 18. Structure of multi node model.

(a) Capacity constraints of power plants. The capacity

Source: Personal communication with CRIEPI, Tokyo, 2001. Total 228,379

where FUPðRPÞ is the upper limit of load-following Source: EDMC-Japan [189].

Fig. 19. Location of small-sized nuclear power stations.

Fig. 20. Annual electric generations in Japan.

Fig. 21. Annual capacity utilization rate.

Fig. 22. Annual O&M cost in Japan.

Table 13 under 20% as usual, they require several times large

Fig. 23. Annual CO2 emission in Japan.

Table 14 to explore the difference in fuel prices. The cost of each

Fig. 24. Passenger transportation using hybrid vehicles.

Fig. 26. Total energy consumption in the transportation sector.

Fig. 28. Models of the transportation sector for each FCVs.

BAU Petroleum None Gasoline None

Fig. 30. Passenger transportation cost of FCVs in each model.

Fig. 31. Passenger transportation of FCVs in each model.

Fig. 32. Passenger transportation when carbon tax is imposed.

Year Country GDP, Population, Primary energy CO2,

1973 Japan 2561 108 324 245

4.1. Carbonless energy systems

Berry and Lamont [199] designed a carbonless energy

Fig. 35. Schematic of a carbonless energy systems [199].

Fig. 37. Network for renewable energy system in rural area.

A local village with a population of about 9000 was

Fig. 38. Electricity generation (windy).

Fig. 39. Electricity generation (wind-less).

Fig. 40. Electricity price.

Fig. 41. Heat supply.

Fig. 42. Heat price.

4.2.5. Optimal system configuration

Fig. 46. Annual cost.

4.2.6. CO2 emission

5. Climate policy assessment effects mathematically, and interpreting them quantitat-

Source: Ref. [255].

Model Forcings Geographic Socioeconomic Geophysical Impact Treatment Treatment