Bridging the gap using energy services: Demonstrating a novel framework for soft linking top-down and bottom-up models.

Abstract Giving policy advice related to climate mitigation requires insights that take both sectoral and technology effects (and their interactions) into account. This paper develops a novel soft-linking method for bridging the gap between sectoral top-down and technology rich bottom-up models. A unique feature of the approach is the explicit modelling of energy service demand in the top-down model, which creates a direct correspondence to the energy service production in the bottom-up model. This correspondence allows us, unlike previous work, to capture the macroeconomic impact of energy system investment flows. The paper illustrates the full-scale application of the method in the Danish IntERACT model, considering the unilateral introduction of coal carbon capture and storage in the Danish concrete sector. The policy leads to a reduction in the Danish concrete production, and in turn, a carbon leakage effect of 88%. Results also underscores the importance of accounting for the macroeconomic impact of energy system investment flows, as this is the source of approximately half of the policy-induced reduction in macroeconomic activity. Highlights • Introduces energy service demands in a computable general equilibrium model. • Identifies a highly consistent method for soft linking a top-down and a bottom-up model. • Highlights the full scale implementation of the method in the Danish IntERACT model. • Demonstrates the impact of energy system investments on the macro economy. • Shows that climate mitigation technologies may lead to significant carbon leakage. [ABSTRACT FROM AUTHOR]