Disaggregating electricity generation technologies in CGE models: A revised technology bundle approach with an application to the U.S. Clean Power Plan

We illustrate the importance of disaggregating electricity generation when considering responses to environmental policies. We begin by reviewing various approaches to electric sector modelling in Computable General Equilibrium (CGE) models, and then clarify and expand upon the structure and calibration of the “technology bundle” approach. We also simulate the proposed U.S. Clean Power Plan and show how a disaggregate electricity sector can change results. Our simulations indicate that both the ability to switch between generation technologies and the manner of aggregation in electricity production are important for quantifying the economic costs of the plan. A model that does not consider the heterogeneity of generation technologies can possibly underestimate the size of the carbon price but overestimate the economic cost of mitigation.