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Overview of the European Commission’s energy and climate policy-related modeling suite

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Name: PRIMES (Price-Induced Market Equilibrium System)
Type: ESM
Institution: European Commission; E3 Modelling
Geographic coverage: PRIMES Manual; also the EU Reference Scenario Report

Description: An energy system modeling suite that can integrate multiple policy targets via shadow prices associated with policy constraints.

Questions to be answered/variables considered: PRIMES provides projections of energy demand, supply, prices, and investment for the entire European Union energy system up to 2050. Beyond energy variables, greenhouse gas emissions, and system costs (CapEx and OpEx), annualized investments, fuel costs, power prices for final consumers, and other indicators can be calculated from the model. PRIMES is coupled with the GEM-E3 model, which provides its input data on economic activity and population dynamics. Links to GAINS, GLOBIOM/G4M, and CAPRI provide non-CO2 emission projections, land use, land-use change, and forestry (LULUCF) emissions and removals, and agricultural activity, respectively.

Strengths:

  • PRIMES covers the entire energy system, including emissions from energy combustion and industrial processes up to 2050.
  • Technology dynamics are incorporated, meaning technological progress and behavioral choices are addressed. This is an advantage over CGE models, which are considered too static and not well-suited for handling technological change.

Limitations: Uncertainty about how technology costs will develop—though that is not really a weakness of the model per se.

Use:

  • PRIMES has contributed to all major energy and climate policy initiatives for the EU. Recently, this included the Fit-for-55 legislative package, the REPowerEU plan, and the 2040 Climate Target.
  • Coupling the energy system and greenhouse gas modeling with macroeconomic models yields model results for changes in activity and employment by sector, energy expenditures for households, and revenues from carbon pricing, all of which are useful for energy and climate policy analysis.

Name: METIS (Markets and Energy Technologies Integrated Software)
Type: ESM software
Institution: European Commission
Documentation: METIS webpage

Description: Software that simulates the short-term operation of energy systems and markets (electricity, gas, heat, and hydrogen sectors) across the EU and neighboring countries, and is used to assess dynamics (e.g., price shocks) and policy measures.

Questions to be answered/variables considered: METIS helps analyze multi-energy system integration, power and hydrogen network investments, energy infrastructure requirements, the climate-energy nexus, market price behavior, and design principles.

Strengths:

  • It can be used to generate hour-by-hour simulations for up to one year, accounting for uncertainties such as weather variations.
  • It has interconnected modules that can be adjusted or added to, depending on application.

Use:

  • It supports legislative proposals and documents by the EC on the reform of electricity market design, power and gas infrastructure, and the Projects of Common Interest (PCI) process.
  • It aids price-setting and flexibility assessments in electricity markets.
  • It can be used for assessing the uptake of an EU hydrogen network.

Name: JRC-GEM-E3
Institution: European Commission Joint Research Centre
Type: CGE Documentation: GEM-E3 Manual; see also Overview of the JRC-GEM-E3 model

Description: A CGE model with granular sectoral representation used to discern macroeconomic effects. It is often coupled with energy model scenarios (e.g., from PRIMES: see above).

Questions to be answered/variables considered: It provides economy-wide context to energy model scenarios.

Strengths:

  • Its highly granular sectoral representation of the economy makes it well-suited to track cross-sectoral impacts of energy and climate policies, including interactions between sectors and regions.
  • It can be linked to energy models (e.g., PRIMES) to incorporate information describing fast changes in key sectors (e.g., transition to renewables in the power sector, rollout of electric vehicles in transportation, electrification of buildings).

Limitations:

  • The model incorporates limited heterogeneity. However, post-processing of the model results can show distributional impacts, including impacts of revenue recycling and impacts on the labor market, by skill/occupation.

Use: It can be used to estimate the impacts of climate and energy policies on the macroeconomy (e.g., GDP and its components) and sectors (e.g., sectoral output, trade, employment).


Name: E-QUEST
Type: DSGE Institution: European Commission Directorate-General for Economic and Financial Affairs
Documentation: Varga et al. (2022)

Description: E-QUEST is a sectorally disaggregated E-DSGE model tailored to assess climate policy scenarios.

Questions to be answered/variables considered: To ensure consistent comparisons across macro-modeling outputs, E-QUEST relies on emission trajectories generated by the PRIMES model under reference scenarios.

Strengths: Explicit micro-foundations and dynamic (forward-looking) optimization allow the analysis of how households and firms respond to policy changes and expectations over time.

Limitations: For computational reasons, the sectoral disaggregation of E-DSGE models is significantly more limited compared with large-scale CGE and IO models.

Use: The model is used for climate policy impact assessment, including the 2030 and 2040 Climate Target Plan assessments.

Development: Incorporating endogenous technological change and R&D investment is a critical area for further development, as these are crucial in determining the effectiveness of climate policies. The forward-looking nature of E-DSGE models makes them suited to accomplish this.