Carbon Leakage in Energy Resource and Goods Markets: A Partial Equilibrium Modeling Approach

The current numerical research regarding energy markets and climate change can be divided into two broad streams: large-scale aggregated energy systems models (top-down) and sector- or fuel-specific sector models (bottom-up). The energy systems models ar e often applied to model the impact of global climate change mitigation policies, considering fuel substitution and technological progress; however, they are usually too aggregated to allow a detailed analysis of local or regional policies. These studies also usually abstract from infrastructure constraints, capacity investment requirements or strategic behaviour by fossil fuel suppliers. The sector models, in contrast, can include infrastructure and market power aspects, but, due to their limited focus, usually do not cover issues such as endogenous fuel substitution and issues such as carbon leakage. We aim to develop a joint framework that combines the advantages of both top-down models (global scope, endogenous fuel substitution) and bottom-up models (market-power, infrastructure). In addition, we plan to incorporate more complex climate change mitigation policies into this framework, such as border-tax adjustments. Developing this framework will allow us to analyze global issues such as carbon leaka ge and the impact of local or regional climate policies more thoroughly than the current state-of-the art models.