Irreversible Decisions and Thresholds Under Specific Uncertainty. Designing the Energy Source Mix for Electricity Generation

Project: Research

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There is a growing concern about what constitutes a suitable energy source mix forelectricity generation. In Hong Kong for example, there is a need to arrive at a newenergy mix as the current scheme for the generation of electricity will expire in 2018.The nuclear accident in Fukushima, the need to take steps to combat climate change,and emissions targets are all factors that lend support for an energy transition, andserve as an inducement to countries to reconsider their energy mix for electricitygeneration. Consequently, there is a need for a general theory on how to design asuitable energy mix.An integrated, interdisciplinary approach is required to properly design such a decisionmakingframework. Ultimately, the methodology is rooted in economics, in the sense thatit requires decision theory. However, a good technical and scientific characterization ofeach energy source is needed. Notably, it is necessary to consider future characteristicsof energy sources since decisions need to be taken in advances, and also becauseinfrastructure decisions are long-term in nature. There is also a lot of uncertaintysurrounding issues such as pollution intensity, efficiency of renewables, the cost ofnatural gas and the reliability of provision. Uncertainty exists with respect to someirreversible environmental thresholds as well, whose crossing would dramatically affectthe economies' dynamics: some levels of climate change might reverse ocean currents,some air pollution levels might result in a loss of skilled labor. Therefore, it is a matterof (i) irreversible decisions under (ii) energy source-specific uncertainty and (iii)irreversible environmental thresholds.The objectives of the project are to:1) characterize the different sources of energy used for electricity generation in terms ofcosts (including pollution intensity and the risk of incidents) and benefits. A specialemphasis will be placed on the correct way to model the uncertainty surrounding eachfeature.2) properly design irreversible decision theory under energy source-specific uncertainty.3) properly account for potentially uncertain environmental thresholds in irreversibledecision theory.4) provide a general framework that can be used for policy recommendations in thecontext of energy transition. The general theory could be applied to the specific case ofHong-Kong.Results of this study will be valuable to society in terms of economic policy, and to thescientific community in terms of (i) a new decision theory design that accounts forirreversibility, thresholds and specific uncertainty, and (ii) better understanding andcomparisons of the different energy sources using an integrated approach.


Project number9042269
Grant typeGRF
Effective start/end date1/09/1518/10/17

    Research areas

  • energy mix choice,uncertainties,irreversibilities,pollution threshold,