Modelling heterogeneity, behaviour and consumer choices

Challenge

At present, IAMs usually rely on average “per-capita characteristics” of consumers when projecting energy service demands and other consumption preferences into the future. While this approach captures major trends in the development of demands and corresponding emissions, it cannot deal with issues that inherently depend on distributional factors in either spatial or socio-economic dimensions. In addition to these heterogeneities which determine observed consumer choices, decisions are significantly influenced by existing taxes and subsidies that strongly differ between regions and sectors, thereby also influencing expected responses to new policies, such as carbon taxes.

Key questions raised

• How do different consumer preferences and behaviours impact the adoption of advanced, low-carbon technologies?
• Which distortionary, non-climate policies (e.g., taxes, subsidies) need to be changed/removed in order to enhance the effectiveness of climate policies?
• How can climate mitigation be achieved simultaneously while improving energy access for all (namely for the poor)?
• What is the price-responsiveness of energy demand under alternative technology settings and consumer preferences?

Results achieved

ADVANCE drew upon empirical evidence to improve existing integrated assessment modelling frameworks so that they better capture spatial, social, and policy heterogeneities, particularly behavioural changes and consumer preferences. A representation of different types of heterogeneity and behaviour in models is crucial to better assess possible barriers of technology diffusion and deployment, their cost implications and to improve our understanding about the policy implications of different policy instruments.