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== Residential sector ==

In the structure of the IMACLIM-R model, the use of energy in the residential sector is determined in each static equilibrium via the ''αm2'' parameters. The parameters acts as a physical constraint on household budgets because they are directly linked to the physical stock of buildings available during the current period, and to the coefficients of unit consumption of energy (kWh/m2) rather than to the maximization of utility. Determining residential sector energy use in the static equilibrium thus means assuming that its energy demand for various end-uses is inelastic to price and income variations over the short term. Hence, households' energy demand depends mainly on the equipment choices they have made over the preceeding years.

In the dynamic modules, the amount of living space per capita changes according to the income per capita which isdetermined endogenously in the preceding static equilibrium. It is assumed that there is an asymptote of floor area per capita specific to each region, and that the asymptote incorporates spatial constraints, choices in the styles of building development and density and cultural habits. In the construction of scenarios, the assumptions made about these asymptotes are kept consistent with those concerning the development of transport infrastructure, bearing in mind that all such dynamics are linked to territorial and urban zoning policies.

The equation below relates the evolution of floor area per capita for the residential sector to the evolution of income per capita, ''Income_pck'', over the two preceding static equilibrium periods and an elasticity,''αk(m2_pc(t)''), which decreases as floor area per capita increases:

[[File:36405261.png]]

The total residential floor area, ''Sk;housing'', is the product of this surface per capita and of the total population. The newly constructed residential surface is equal to the difference between this total surface and the old residential surface depreciated by the surfaces at end of life (lifetime, ''Life_timek;housing''): [[File:36405262.png]] Energy use per m2 depends on the average composition of equipment installed in the housing stock, and of the thermal charachteristics of building construction. Their evolution depends on the choices agents' technological make in responce to different economic signals and the available technologies.

In the reference scenario, energy use per ''m2'',''αm2k;ener (t + 1)'', evolves according to an exogenous trajectory calibrated to outputs from the POLES energy model, that have themselves been calculated to be coherent with macroeconomic trajectories from IMACLIM-R during coupling exercises between the two models. This trajectory encompasses the evolution dynamics of household equipment, the conversion efficiency betweenbetween final energy and energy services and the buildings physical characteristics (insulation, use of renewable energies).

In the emission reduction scenarios the carbon price signal induces efficiency gains in building phyisical charachteristics and equipment. These technological options are represented with a unique type of alternative housing called a Very Low Energy building (VLE) whoose annual energy consumption is 50kWh/m2 (80% electricity and 20% gas). Technologies which can bring about this level of unit energy consumption are already commercialised e.g. on-site energy production of energy and efficient insulation of buildings, and are represented in the model in an aggregated manner. To increse the deployment of VLE?s we assume the introduction of what we call ''technological rupture policies'', expected to launch large scale thermal renovation plans and the tightening of building regulations in the developing countries. Following this scheme, two types of housing can coexist in the same stock: (i) standard homes (BAU) which have the same energy characteristics as those of the reference scenario and incorporate progressive gains in energy efficiency and (ii) newly built Very Low Energy (VLE) homes. The penetration speed of VLE's into the building stock is determined by two reduced functional forms that link the level of a carbon tax to (i) the percentage of new built dwellings that are VLE's and (ii), the annual rate of renovation in the existing building stock that converts a BAU into a VLE (with a maximum annual rate fixed at 2,5%). This maximum level is reached at a carbon price of $100 per ton of CO2 while VLE buildings begin to penetrate the market from $10 per ton of CO2.

Unit consumption of the existing dwelling stock is then obtained by averaging the energy characteristics of the BAU and VLE housing stocks, weighted by their shares in the total dwelling stock.

== Commercial sector ==

The evolution of this composite sectors (aggregating light industries and services) intermediate consumption of energy follows the same structure of representation as that of the industrial sector (see following section).

Energy resource endowments - IMACLIM

2016-10-21T15:58:31Z

Eoin OBroin:

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== Modelling the long-term dynamics of oil markets ==
The IMACLIM-R framework includes the following four properties of oil markets in dedicated bottom-up modules describing the dynamics of oil supply and demand:

(a) A small group of suppliers benefit from market power; Middle-Eastern countries (ME) at the core of the Organization of the Petroleum Exporting Countries (OPEC)) can dictate (''Granger cause'') world oil prices (Gulen, 1996)[[CiteRef::gulen1996opec]] until such time as they approach their depletion constraint. (b) The geological nature of World oil reserves dictates that oil supply has a limited adaptability to demand. Total production is constrained by the amount of economically exploitable reserves and by technical constraints that lead to inertias in the deployment of production capacities. The former depends on producers' response to price-signals whereas the latter affects the conversion of economically exploitable reserves into actual production. (c) Oil demand depends on agents' microeconomic trade-offs. This concerns both agents' decisions affecting their oil consumption, as well as incentives aimed at increasing the production of alternatives to oil based fuels (biofuels, Coal-To-Liquid). Those price-driven decisions will determine the short term oil demand, as well as the long-run oil-dependency of the economy. (d) Uncertainties on the technical, geopolitical and economical determinants of oil markets alter agents' expectations. The assumption of perfectly optimizing isolated agents, which remains a useful analytical benchmark, fails to provide a good proxy for the oil economy.

=== Oil supply ===

Imaclim-R includes seven categories of conventional and five categories of non-conventional oil resources in each region. Each category (''i'') is characterized by an amount of recoverable resources (Total resource of a given category is the sum of resources extracted before 2001 and recoverable resources); and by a threshold selling price above which producers initiate production. This price is a proxy for production costs and accessibility. Table 1 gives the inhouse numerical assumptions made on the amount of ultimate resources in the main groups of regions. The figures are consistent with conservative estimates (shale oil excluded) made elsewhere (USGS, 2000[[CiteRef::usgs1]]; Greene et al., 2006[[CiteRef::greene2006have]]; Rogner, 1997[[CiteRef::rogner1997assessment]]). Due to the specificities related to the exploitation of shale oil and the associated high production costs, we consider shale oil as an alternative to oil instead of a new category of oil.

Table 1. Assumptions on oil resources in the default case (Trillion bbl) [[File:35815697.png]]

Each oil category is subject to geological constraints (inertias in the exploration process and depletion effects), which limit the pace of expansion of their production capacity. In line with (Rehrl and Friedrich, 2006)[[CiteRef::rehrl2006modelling]], who combine analyzes of discovery processes (Uhler, 1976)[[CiteRef::uhler1976costs]] and of the 'mineral economy' (Reynolds, 1999)[[CiteRef::reynolds1999mineral]], the maximum rate of increase of production capacity for an oil category ''i'' at date ''t'', ''ΔCap''max''(t,i)'', is given by:

[[File:35815698.png]]

The parameter ''b''i (in ''t''-1) controls the intensity of the constraints on production growth: a low''b''i means a flat production profile that represents slow deployment of production capacities whereas a high ''b''i means a sloping production profile which represents the opposite effect. We retain ''b''i=0.061/year for conventional oil as estimated by Rehrl and Friedrich (2006)[[CiteRef::rehrl2006modelling]] and, for the sake of simplicity, the same value for non-conventional oil in the default case. The parameter ''t''0,i represents the date at which production capacities of the concerned oil category are expected to start their decline due to depletion effects. It is endogenous and varies in time since it depends on the amount of oil remaining in the field given past exploitation decisions.

Non-Middle-Eastern producers are seen as 'fatalistic producers' who do not act strategically on oil markets. Given the selling oil price ''p''oil, they invest in new production capacity if an oil category becomes profitable: they develop production capacities at their maximum rate of increase ''ΔCap''max''(t,i)'' for least-cost categories of oil (''p''oil''>p''(0)''(i)'') but do not undertake investments in high-cost categories (''p''oil''<p''(0)''(i)''). If prices continuously increase, production capacities of a given oil category follow a bell-shape trend i.e. the reach a point of capactity saturation, whereas their deployment profile passes through a plateau if prices decrease below the profitability threshold.

Middle-Eastern producers are 'swing producers' who are free to strategically determine their investment decisions and, until such time as they reach their depletion constraints, to control oil prices through the utilization rate of their production capacities (Kaufmann et al, 2004)[[CiteRef::kaufmann2004does]]. This possibility is justified by the recent temporary reinforcement of their market power due to the stagnation and decline of conventional oil sources in the rest of the world. They can in particular decide to slow the development of production capacities to below their maximum rate of construction in order to adjust the oil price according to their rent-seeking objectives.

Total production capacity at date ''t'' is given by the sum over all oil categories with different production costs (captured by different threshold). This means that projects of various merit orders coexist at a given point in time, consistent with the observed evidence and theoretical justifications. For example, low-cost fields in Saudi Arabia and high-cost non-conventional production in Canada are simultaneously active on oil markets. In addition Kemp and Van Long, (1980)[[CiteRef::kemp1980two]] have demonstrated that, in a general equilibrium context, the lowest-cost deposits are not necessarily exploited first. Holland, (2003)[[CiteRef::holland2003extraction]] even demonstrates that least-cost-first extraction rule does not hold in a partial equilibrium framework under capacity constraints, like those envisaged for geological reasons here.

=== Formation of oil prices ===

The oil price which forms in static equilibrium reflects the level of tension between supply and demand. The price formation equation is:

[[File:35815699.png]] The regional prices thus correspond to the addition of the average regional production costs and a margin that encapsulates Ricardian and scarcity rents at the same time. The swing producer uses this equation to anticipate the level of capacities that will make it possible for them to reach their goal on the basis of projections of total oil demand and production in other regions.

= Other fossil fuels =

Coal and gas reserves are ''a priori'' subjected to less important availability constraints on the market than crude oil. In the present version of the model, the treatment of production capacity evolution of these two sectors as well as the mechanisms of their price formation are thus more simply treated.

=== Natural gas supply ===

In the model the evolution of worldwide natural gas production capacities meets demand increases until available reserves enter a depletion process. The distribution of regional production capacities in the 'gas supply' dynamic module is made using exogenous weights calibrated on the output of the POLES energy model (LEPII-EPE, 2006)[[CiteRef::criqui2009poles]], which captures both reserve availability and the capacity of regional production facilities. Gas markets follow oil markets with an elasticity of 0.68 of gas to oil price. This behavior is calibrated on the World Energy Model (IEA, 2007)[[CiteRef::iea5]] and is valid as long as oil prices remain below a threshold ''p''oil/gas. At high price levels reflecting tensions due to depletion of reserves, gas prices are driven by production costs and the increased profit margin for the possessors of the remaining reserves.

=== Coal supply ===

Unlike oil and gas markets, cumulitive coal production has a weak influence on coal prices because of large world resources. Coal prices instead depend on current levels of production through specific elasticity coefficients. To represent the asymmetry in coal price response to production variations, we consider two different values of this elasticity, ''η''coal and ''η''-coal. The former corresponds to a price reaction to a production increase while the latter corresponds to the opposite effects. Tight coal markets exhibit a high value of ''η''coal (i.e the coal price increases strongly if production rises) and low value of ''η''-coal (the price decreases only slightly if production drops).

Technological change in energy - IMACLIM

2016-10-18T14:57:29Z

Eoin OBroin:

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Technological change is represented in a variety of ways in Imaclim-R:

* For technologies that are explicitly represented, i.e. power generation technologies there are cost-reducing learning-by-doing factors. See [[Electricity_-_IMACLIM|Section on electricity]] and private vehicles (see [[Transport_-_IMACLIM|Section on transport]].

* For sectors where explicit portfolios of technologies are not represented, the model nonetheless covers (price induced) endogenous energy efficiency improvements and substitutions with other sectors. See [[Production_system_and_representation_of_economic_sectors_-_IMACLIM|Section on productive sectors]].

* For general technical change see [[Technological_change_-_IMACLIM|Section on Technical Change]].