In our latest Working Paper, we provide a primer for thinking about the economics of systems dynamics on the road to zero emissions.
The paper provides a systematic approach to modelling the economics of variations in output produced by weather dependent generators and interdependencies between technologies. It shows how variations in output affect the growth rates of different technologies along the low emissions trajectory. This is particularly relevant in the Australia case, which shows the opportunity cost of forcing a single trajectory pathway via wind and solar.
Underlying the piece is that traditional neo-classical economics is unsuited to dealing with variations in output produced by weather dependent generators and interdependencies between technologies. Policies solutions based on these approaches are probably building on the wrong model. So far, the issues that arise in real world applications have mostly been dealt with on a trial-and-error basis. But the uncertainty associated with these policy strategies is significant and must be increasing.
