The Road Ahead for Energy-economy Policy Models: Integrating Market Dynamics, Expectations and Welfare Costs

Energy-economy models have emerged to provide policy makers with , information on the effect of their policies. These models are used to forecast the responses of businesses and consumers, and the costs of these responses may be estimated using a cost accounting method. In this paper, I suggest three improvements that can be made to energy-economy models and cost accounting techniques. First, I outline a method of simulating the obsolescence of technologies when they become uncompetitive. Second, I develop a method to simulate the behaviour of businesses and consumers when they have expectations of their future emissions costs. Finally, I develop a method of cost accounting that can estimate the social costs caused by policies, and that can estimate the costs caused by regulations.