Technological progress and long-term energy demand - a survey of recent approaches and a Danish case

This paper discusses different approaches to incorporating technological pr ogress in energy-economy models and the effect on long-term energy demand p rojections. Approaches to modelling based on an exogenous annual change of energy efficiency to an endogenous explanation of innovation for energy tec hnologies are covered. Technological progress is an important issue for mod elling long-term energy demand and is often characterised as the main contr ibutor to the different energy demand forecasts from different models. New economic theoretical developments in the fields of endogenous growth and in dustrial organisation have important implications for the attempts to endog enise technological innovation and diffusion of new energy technologies. A range of analytical and empirical models with different descriptions of tec hnological progress is surveyed in the paper. To analyse the importance of the technology description, two models of residential energy demand in Denm ark are compared. A Danish macroeconometric model is compared to a technolo gical vintage model that is covering electric appliances and residential he ating demand. The energy demand projection of the two models diverges, and the underlying assumptions regarding technological progress must be made co mparable in order to demonstrate whether or not these assumptions are the r eason. Assumptions about energy efficiency improvement in the vintage model s are found to be important for the projection. The vintage modelling appro ach is found to be less important for long-term projections. A limitation o f the vintage modelling approach applied in the long term explains some of the differences in projections among the two types of models. The applied v intage model of electric appliances does not adequately describe the catego ry of new energy-consuming appliances that are expected to become available in the long term. If it is to be used for long-term projections this categ ory must be more carefully modelled. (C) 2000 Elsevier Science Ltd. All rig hts reserved.