Energy–environment policy modeling of endogenous technological change with personal vehicles: combining top-down and bottom-up methods

The transportation sector offers substantial potential for greenhouse gas (GHG) emission abatement, but widely divergent cost estimates complicate policy making; energy–economy policy modelers apply top-down and bottom-up cost definitions and different assumptions about future technologies and the preferences of firms and households. Our hybrid energy–economy policy model is technology-rich, like a bottom-up model, but has empirically estimated behavioral parameters for risk and technology preferences, like a top-down model. Unlike typical top-down models, however, it simulates technological change endogenously with functions that relate the financial costs of technologies to cumulative production and adjust technology preferences as market shares change. We apply it to the choice of personal vehicles to indicate, first, the effect on cost estimates of divergent cost definitions and, second, the possible response to policies that require a minimum market share for low emission vehicles. D 2004 Elsevier B.V. All rights reserved.