Merge pull request #980 from fschreyer/CESMkup_Update

Update of CES mark-up cost implementation: industry mark-up cost budget-neutral as tax, adapt some default cost, refactoring
remindmodel · Nov 8, 2022 · 09bb41e · 09bb41e
2 parents 8e182a5 + 9fa21e2
commit 09bb41e
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diff --git a/config/21_regions_EU11/scenario_config_21_EU11_ARIADNE.csv b/config/21_regions_EU11/scenario_config_21_EU11_ARIADNE.csv
diff --git a/config/default.cfg b/config/default.cfg
@@ -30,7 +30,7 @@ cfg$extramappings_historic <- ""
 cfg$inputRevision <- "6.316"
 
 #### Current CES parameter and GDX revision (commit hash) ####
-cfg$CESandGDXversion <- "346023c22fb098052539fbbfdda2041b5114d82c"
+cfg$CESandGDXversion <- "b577e6de076abd3c12ca0385002af599db370c2c"
 
 #### Force the model to download new input data ####
 cfg$force_download <- FALSE

diff --git a/core/declarations.gms b/core/declarations.gms
@@ -344,6 +344,7 @@ v_emiTeMkt(tall,all_regi,all_enty,all_emiMkt)       "total energy-emissions of e
 v_emiEnFuelEx(ttot,all_regi,all_enty)                 "energy emissions from fuel extraction [GtC, Mt CH4, Mt N]"
 vm_emiAllMkt(tall,all_regi,all_enty,all_emiMkt)      "total regional emissions for each emission market. [GtC, Mt CH4, Mt N]"
 vm_flexAdj(tall,all_regi,all_te)                     "flexibility adjustment used for flexibility subsidy (tax) to emulate price changes of technologies which see lower-than-average (higher-than-average) elec. prices [trUSD/TWa]"
+vm_costCESMkup(ttot,all_regi,all_in)                  "CES markup cost to represent demand-side technology cost of end-use transformation [trUSD/TWa]"
 vm_taxrevimplicitQttyTargetTax(ttot,all_regi)        "quantity target bound implemented through implict tax"
 vm_taxrevimplicitPriceTax(ttot,all_regi,entySe,all_enty,sector)   "final energy price target implemented through implict tax"
 vm_taxrevimplicitPePriceTax(ttot,all_regi,all_enty)  "primary energy price target implemented through implict tax"
@@ -411,9 +412,6 @@ vm_demFeForEs(ttot,all_regi,all_enty,all_esty,all_teEs)     "Final energy which
 vm_prodEs(ttot,all_regi,all_enty,all_esty,all_teEs)          "Energy services (unit determined by conversion factor pm_fe2es)."
 vm_transpGDPscale(ttot,all_regi)                            "dampening factor to align edge-t non-energy transportation costs with historical GDP data"  
 
-*** CES markup to represent end-use technology cost
-vm_costCESMkup(ttot,all_regi,all_in)                                   "CES markup cost to represent demand-side technology cost of end-use transformation [trUSD/TWa]"
-
 ;
 ***----------------------------------------------------------------------------------------
 ***                                   EQUATIONS

diff --git a/core/equations.gms b/core/equations.gms
@@ -43,7 +43,7 @@ q_costInv(t,regi)..
   sum(sector2te_addTDCost(sector,te),
     vm_costAddTeInv(t,regi,te,sector)
   )
-*** end-use technology cost placed on CES nodes to represent demand-side investment cost:
+*** end-use transformation cost of novel technologies placed on CES nodes that are to be accounted in the budget equation
   +
   sum(in$(ppfen_CESMkup(in)),
     vm_costCESMkup(t,regi,in)

diff --git a/modules/21_tax/on/declarations.gms b/modules/21_tax/on/declarations.gms
@@ -19,7 +19,7 @@ p21_tau_fuEx_sub(tall,all_regi,all_enty)       "subsidy path for fuel extraction
 p21_bio_EF(ttot,all_regi)                      "bioenergy emission factor, which is used to calculate the emission-factor-based tax level [GtC/TWa]"
 p21_tau_BioImport(ttot,all_regi)               "bioenergy import tax level"
 pm_tau_pe_tax(ttot,all_regi,all_enty)          "pe tax path"
-pm_tau_ces_tax(ttot,all_regi,all_in)           "ces production tax to mimic production drain and transformation costs"
+pm_tau_ces_tax(ttot,all_regi,all_in)           "ces production tax to implement CES mark-up cost in a budget-neutral way"
 
 pm_taxrevGHG0(ttot,all_regi)                    "reference level value of GHG emission tax"
 pm_taxrevCO2Sector0(ttot,all_regi,emi_sectors)  "reference level value of CO2 sector markup tax"

diff --git a/modules/21_tax/on/equations.gms b/modules/21_tax/on/equations.gms
@@ -142,7 +142,7 @@ q21_taxrevFE(t,regi)$(t.val ge max(2010,cm_startyear))..
   ;
 
 ***---------------------------------------------------------------------------
-*'  Calculation of CES tax: tax rate times CES parameters
+*'  Calculation of CES tax: tax rate times CES inputs
 *'  Documentation of overall tax approach is above at q21_taxrev.
 ***---------------------------------------------------------------------------
 q21_taxrevCES(t,regi,in)$(t.val ge max(2010,cm_startyear))..

diff --git a/modules/36_buildings/services_putty/not_used.txt b/modules/36_buildings/services_putty/not_used.txt
@@ -21,3 +21,4 @@ sm_TWa_2_MWh,input,questionnaire
 vm_costCESMkup,input,questionnaire
 sm_trillion_2_non,input,questionnaire
 sm_TWa_2_kWh,input,questionnaire
+pm_tau_ces_tax,input,questionnaire
diff --git a/modules/36_buildings/services_with_capital/not_used.txt b/modules/36_buildings/services_with_capital/not_used.txt
@@ -26,3 +26,4 @@ sm_TWa_2_MWh,input,questionnaire
 vm_costCESMkup,input,questionnaire
 sm_trillion_2_non,input,questionnaire
 sm_TWa_2_kWh,input,questionnaire
+pm_tau_ces_tax,input,questionnaire
diff --git a/modules/36_buildings/simple/datainput.gms b/modules/36_buildings/simple/datainput.gms
@@ -92,19 +92,40 @@ if ((cm_ElLim_b lt 1),
 );
 
 
-*** FS: CES markup cost buildings
+*` CES mark-up cost buildings
+
+
+*` The Mark-up cost on primary production factors (final energy) of the CES tree have two functions. 
+*` (1) They represent sectoral end-use cost not captured by the energy system. 
+*` (2) As they alter prices to of the CES function inputs, they affect the CES efficiency parameters during calibration 
+*` and therefore influence the efficiency of different FE CES inputs. The resulting economic subsitution rates
+*` are given by the marginal rate of subsitution (MRS) in the parameter o01_CESmrs.
+
+*` There are two types of CES mark-up cost:
+*` (a) Mark-up cost on inputs in ppfen_MkupCost37: Those are counted as expenses in the budget and set by the parameter p37_CESMkup. 
+*` (b) Mark-up cost on other inputs: Those are budget-neutral and implemented as a tax. They are set by the parameter pm_tau_ces_tax. 
+
+*` Mark-up cost in buildings are modeled with budget-effect (a).
+
+*` default values of CES mark-up with budget effect:
 p36_CESMkup(t,regi,in) = 0;
-*** place markup cost on heat pumps electricity of 200 USD/MWh(el) to represent demand-side cost of electrification and reach higher efficiency during calibration which leads to some energy efficiency gains of electrification
+*` mark-up cost on heat pumps and district heating are incurred as actual cost to the budget (see option (a) above)
+*` place markup cost on heat pumps electricity of 200 USD/MWh(el) to represent demand-side cost of electrification
+*` and reach higher efficiency during calibration to model higher energy efficiency of heat pumps
 p36_CESMkup(t,regi,"feelhpb") = 200 * sm_TWa_2_MWh * 1e-12;
-*** place markup cost on district heating of 25 USD/MWh(heat) to represent additional sector-specific cost expanding district heat
+*` place markup cost on district heating of 25 USD/MWh(heat) to represent additional t&d cost of expanding district heating networks for buildings
+*` which makes district heating in buildings more expensive than in industry
 p36_CESMkup(t,regi,"feheb") = 25 * sm_TWa_2_MWh * 1e-12;
 
-*** overwrite or extent CES markup cost if specified by switch
-$ifThen.CESMkup not "%cm_CESMkup_build%" == "standard" 
-  p36_CESMkup(t,regi,in)$(p36_CESMkup_input(in)) = p36_CESMkup_input(in);
+
+*` overwrite or extent CES markup cost if specified by switch
+$ifThen.CESMkup not "%cm_CESMkup_build%" == "standard"
+  p36_CESMkup(t,regi,in)$(p36_CESMkup_input(in) AND ppfen_MkupCost36(in)) = p36_CESMkup_input(in);
+  pm_tau_ces_tax(t,regi,in)$(p36_CESMkup_input(in) AND (NOT ppfen_MkupCost36(in))) = p36_CESMkup_input(in);
 $endIf.CESMkup
 
 display p36_CESMkup;
+display pm_tau_ces_tax;
 
 *** EOF ./modules/36_buildings/simple/datainput.gms
 
diff --git a/modules/36_buildings/simple/declarations.gms b/modules/36_buildings/simple/declarations.gms
@@ -13,7 +13,7 @@ scalars
 ;
 
 Parameters
-  p36_CESMkup(ttot,all_regi,all_in)               "CES markup cost parameter [trUSD/CES input]"
+  p36_CESMkup(ttot,all_regi,all_in)               "parameter for those CES markup cost accounted as investment cost in the budget [trUSD/CES input]"
   p36_floorspace(tall,all_regi)                   "buildings floorspace, billion m2, in simple realization only used for reporting"
   p36_uedemand_build(tall,all_regi,all_in)        "useful energy demand in buildings in TWh/a, in simple realization only used for reporting"
   ;
@@ -41,7 +41,7 @@ Equations
   q36_costAddH2LowPen(ttot,all_regi) "additional buildings hydrogen annual investment costs under low technology diffusion"
   q36_auxCostAddTeInv(ttot,all_regi) "auxiliar logistic function exponent calculation for additional hydrogen low penetration cost"  
   q36_costAddH2PhaseIn(ttot,all_regi) "calculation of additional industry hydrogen t&d cost at low penetration levels of hydrogen in buildings" 
-  q36_costCESmarkup(ttot,all_regi,all_in) "calculation of additional CES markup cost to represent demand-side technology cost of end-use transformation, for example, cost of heat pumps etc."
+  q36_costCESmarkup(ttot,all_regi,all_in) "calculation of additional CES markup cost that are accounted in the budget (GDP) to represent demand-side technology cost of end-use transformation, for example, cost of heat pumps"
   q36_costAddTeInv(ttot,all_regi,all_te)  "summation of sector-specific demand-side cost"
 ;
 

diff --git a/modules/36_buildings/simple/equations.gms b/modules/36_buildings/simple/equations.gms
@@ -71,7 +71,7 @@ q36_H2Share(t,regi)..
 
 
 ***---------------------------------------------------------------------------
-*'  CES markup cost to represent sector-specific demand-side transformation cost in buildings
+*'  CES markup cost that are accounted in the budget (GDP) to represent sector-specific demand-side transformation cost in buildings
 ***---------------------------------------------------------------------------
 q36_costCESmarkup(t,regi,in)$(ppfen_buildings_dyn36(in))..
   vm_costCESMkup(t,regi,in)

diff --git a/modules/36_buildings/simple/sets.gms b/modules/36_buildings/simple/sets.gms
@@ -69,6 +69,12 @@ Sets
  ue_dyn36(all_in)  "useful energy items"
  //
 
+ ppfen_MkupCost36(all_in)  "primary production factors in buildings on which CES mark-up cost can be levied that are counted as expenses in the macroeconomic budget equation"
+  /
+  feelhpb
+  feheb
+  /
+
 ;
 
 cal_ppf_buildings_dyn36(ppfen_buildings_dyn36) = YES;

diff --git a/modules/37_industry/fixed_shares/not_used.txt b/modules/37_industry/fixed_shares/not_used.txt
@@ -15,4 +15,5 @@ vm_cap,                  variable,   not needed
 vm_capFac,               variable,   not needed
 vm_Xport,                variable,   not needed
 vm_Mport,                variable,   not needed
-pm_secBioShare,          parameter,  not needed
+pm_tau_ces_tax,          input,      questionnaire
+pm_secBioShare,          parameter,  not needed
diff --git a/modules/37_industry/subsectors/datainput.gms b/modules/37_industry/subsectors/datainput.gms
@@ -347,32 +347,47 @@ pm_ue_eff_target("ue_otherInd")         = 0.008;
 
 
 
-*** FS: CES markup cost industry
-*** default values of CES markup
-p37_CESMkup(t,regi,in) = 0;
+*` CES mark-up cost industry
+
+*` The Mark-up cost on primary production factors (final energy) of the CES tree have two functions. 
+*` (1) They represent sectoral end-use cost not captured by the energy system. 
+*` (2) As they alter prices to of the CES function inputs, they affect the CES efficiency parameters during calibration 
+*` and therefore influence the efficiency of different FE CES inputs. The resulting economic subsitution rates
+*` are given by the marginal rate of subsitution (MRS) in the parameter o01_CESmrs.
+*` Mark-up cost were tuned as to obtain similar or slightly higher marginal rate of substitution (MRS) to gas/liquids than technical subsitution rates and 
+*` obtain similar specific energy consumption per value added in chemicals and other industry across high and low electrification scenarios. 
+
 
+*` There are two ways in which mark-up cost can be set:
+*` (a) Mark-up cost on inputs in ppfen_MkupCost37: Those are counted as expenses in the budget and set by the parameter p37_CESMkup. 
+*` (b) Mark-up cost on other inputs: Those are budget-neutral and implemented as a tax. They are set by the parameter pm_tau_ces_tax. 
+
+*` Mark-up cost in industry are modeled without budget-effect (b).
+
+*` Default industry mark-up cost with budget effect:
+p37_CESMkup(t,regi,in) = 0;
 
-*** place markup cost of 200 USD/MWh(el) on electricity high-temperature heat and electricity steel nodes
-*** to represent demand-side cost of electrification and reach higher subsitution rates
-p37_CESMkup(t,regi,"feelhth_chemicals") = 200* sm_TWa_2_MWh * 1e-12;
-p37_CESMkup(t,regi,"feelhth_otherInd") = 200* sm_TWa_2_MWh * 1e-12;
-p37_CESMkup(t,regi,"feel_steel_secondary") = 200* sm_TWa_2_MWh * 1e-12;
-p37_CESMkup(t,regi,"feel_steel_primary") = 200* sm_TWa_2_MWh * 1e-12;
+*` Default industry mark-up cost without budget effect:
+*` mark-up cost on electrification (hth_electricity inputs), to reach >1 MRS to gas/liquids as technical efficiency gains from electrification
+pm_tau_ces_tax(t,regi,"feelhth_chemicals") = 100* sm_TWa_2_MWh * 1e-12;
+pm_tau_ces_tax(t,regi,"feelhth_otherInd") = 300* sm_TWa_2_MWh * 1e-12;
+pm_tau_ces_tax(t,regi,"feel_steel_secondary") = 100* sm_TWa_2_MWh * 1e-12;
 
-*** place markup cost of 100 USD/MWh(H2) on H2 nodes
-*** to represent demand-side cost of hydrogen usage and reach higher subsitution rates
-p37_CESMkup(t,regi,"feh2_chemicals") = 100* sm_TWa_2_MWh * 1e-12;
-p37_CESMkup(t,regi,"feh2_otherInd") = 100* sm_TWa_2_MWh * 1e-12;
-p37_CESMkup(t,regi,"feh2_steel") = 100* sm_TWa_2_MWh * 1e-12;
-p37_CESMkup(t,regi,"feh2_cement") = 100* sm_TWa_2_MWh * 1e-12;
+*` mark-up cost on H2 inputs, to reach MRS around 1 to gas/liquids as similar technical efficiency
+pm_tau_ces_tax(t,regi,"feh2_chemicals") = 100* sm_TWa_2_MWh * 1e-12;
+pm_tau_ces_tax(t,regi,"feh2_otherInd") = 50* sm_TWa_2_MWh * 1e-12;
+pm_tau_ces_tax(t,regi,"feh2_steel") = 50* sm_TWa_2_MWh * 1e-12;
+pm_tau_ces_tax(t,regi,"feh2_cement") = 100* sm_TWa_2_MWh * 1e-12;
 
 
-*** overwrite or extent CES markup cost if specified by switch
+*` overwrite or extent CES markup cost if specified by switch
 $ifThen.CESMkup not "%cm_CESMkup_ind%" == "standard"
-  p37_CESMkup(t,regi,in)$(p37_CESMkup_input(in)) = p37_CESMkup_input(in);
+  p37_CESMkup(t,regi,in)$(p37_CESMkup_input(in) AND ppfen_MkupCost37(in)) = p37_CESMkup_input(in);
+  pm_tau_ces_tax(t,regi,in)$(p37_CESMkup_input(in) AND (NOT ppfen_MkupCost37(in))) = p37_CESMkup_input(in);
 $endIf.CESMkup
 
 display p37_CESMkup;
+display pm_tau_ces_tax;
 
 * Load secondary steel share limits
 Parameter

diff --git a/modules/37_industry/subsectors/declarations.gms b/modules/37_industry/subsectors/declarations.gms
@@ -17,7 +17,7 @@ Parameters
   p37_clinker_cement_ratio(ttot,all_regi)                                      "clinker content per unit cement used"                                         
   pm_ue_eff_target(all_in)                                                     "energy efficiency target trajectories [% p.a.]"                               
   pm_IndstCO2Captured(ttot,all_regi,all_enty,all_enty,secInd37,all_emiMkt)     "Captured CO2 in industry by energy carrier, subsector and emissions market"   
-  p37_CESMkup(ttot,all_regi,all_in)                                            "CES markup cost parameter [trUSD/CES input]"                                  
+  p37_CESMkup(ttot,all_regi,all_in)                                            "parameter for those CES markup cost accounted as investment cost in the budget [trUSD/CES input]"                                  
   p37_cesIO_up_steel_secondary(tall,all_regi,all_GDPscen)                      "upper limit to secondary steel production based on scrap availability"        
   p37_steel_secondary_max_share(tall,all_regi)                                 "maximum share of secondary steel production"
   p37_BAU_industry_ETS_solids(tall,all_regi)                                   "industry solids demand in baseline scenario"

diff --git a/modules/37_industry/subsectors/equations.gms b/modules/37_industry/subsectors/equations.gms
@@ -196,7 +196,7 @@ q37_IndCCSCost(ttot,regi,emiInd37)$( ttot.val ge cm_startyear ) ..
 
 
 ***---------------------------------------------------------------------------
-*'  CES markup cost to represent sector-specific demand-side transformation cost in industry
+*'  CES markup cost that are accounted in the budget (GDP) to represent sector-specific demand-side transformation cost in industry
 ***---------------------------------------------------------------------------
 q37_costCESmarkup(t,regi,in)$(ppfen_industry_dyn37(in))..
   vm_costCESMkup(t,regi,in)

diff --git a/modules/37_industry/subsectors/sets.gms b/modules/37_industry/subsectors/sets.gms
@@ -352,6 +352,10 @@ entyFeCC37(all_enty)  "FE carriers in industry which can be used for CO2 capture
     fehos
     fegas
   /
+
+ppfen_MkupCost37(all_in)  "primary production factors in industry on which CES mark-up cost can be levied that are counted as expenses in the macroeconomic budget equation"
+  /
+  /
 ;
 
 *** ---------------------------------------------------------------------------