MARKAL-MACRO: A linked model for energy-economy analysis

MARKAL-MACRO is an experiment in model linkage for energy and economy analysis. This new tool is intended as an improvement over existing methods for energy strategy assessment. It is designed specifically for estimating the costs and analyzing the technologies proposed for reducing environmental risks such as global climate change or regional air pollution. The greenhouse gas debate illustrates the usefulness of linked energy-economy models. A central issue is the coupling between economic growth, the level of energy demands, and the development of an energy system to supply these demands. The debate is often connected with alternative modeling approaches. The competing philosophies may be labeled ``top-down macroeconomic`` and ``bottom-up engineering`` perspectives. MARKAL is a systems engineering (physical process) analysis built on the concept of a Reference Energy System (RES). MARKAL is solved by means of dynamic linear programming. In most applications, the end use demands are fixed, and an economically efficient solution is obtained by minimizing the present value of energy system`s costs throughout the planning horizon. MACRO is a macroeconomic model with an aggregated view of long-term economic growth. The basis input factors of production are capital, labor and individual forms of energy. MACRO is solved by nonlinear optimization.