Top-down vs. Bottom-up Modeling to Support Climate Policy – Comparative Analysis for the Portuguese Economy

Top-down and bottom-up models have been use to sustain climate policy decisions and evaluate the costs of achieving a certain level of abatement. However, due to their different concepts the costs estimated by the two approaches usually differ, with top-down calculating higher costs. These divergences can also contribute to the definition of different strategies of reduction based on the model results. This paper explores this issue by illustrating whether two harmonized bottom-up and top-down models, applied to the same region, i.e. Portugal, and with the same climate policy scenario, can lead or not to different approaches for carbon abatement and climate policies. The Portuguese economic and energy system was used as a case-study, and the bottom-up model TIMES_PT and the computed general equilibrium model (top-down) GEM-E3_PT were used to generate a Post-Kyoto scenario regarding progressive CO2 caps from 2020 to 2050. To ensure that the models represent the same reality an inter-calibration process in a Baseline Scenario (in the absence of climate policies) was performed, calibrating sectoral energy consumption and emissions. Results show that for lower reduction efforts, which can be met without significant changes in the energy system structure, the models indicate the same strategy regarding the CO2 emissions included in European Emissions Trading System (EU-ETS) (energy supply and industry) and in non EU-ETS (agriculture, transport, residential and commercial). However, for more restrictive caps and at sectoral level, significant differences can be observed. In 2050 TIMES_PT induces a higher relative effort in the non EU-ETS sector supported by transport sector while GEM-E3_PT maintains the EU-ETS sector as the main reduction sectoral group, due to electricity reduction effort. These differences have implications especially if a burden-sharing agreement is being considered, inducing policy makers to select dissimilar sectoral policies for mitigation.