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The detailed energy supply model (MESSAGE) is soft-linked to an aggregated macro-economic model (MACRO) which has been adopted from the so-called Global2100 or ETA-MACRO model (Manne & Richels, 1992), a predecessor of the MERGE model. The reason for linking the two models is to consistently reflect the influence of energy supply costs, as calculated by MESSAGE, in the mix of production factors considered in MACRO, and the effect of changes in energy demand on energy costs. The combined MESSAGE-MACRO model can  generate a consistent  economic response to changes in energy prices and estimate overall economic consequences (e.g., GDP or consumption loss) of energy or climate policies.


MACRO’s production function includes six energy demand categories as discussed above. To optimize, MACRO requires cost information for each demand category. The exact definitions of these costs as a function over all positive quantities of energy cannot be given in closed form - as formulae- because each point of the function would be a result of a full MESSAGE run. However, the optimality conditions implicit in the formulation of MACRO only require the functional values and its derivatives at the optimal point to be consistent between the two submodelssub-models. Since these requirements are therefore only local, most functions with this feature will simulate the combined energy-economic system in the neighborhood of the optimal point. The costs (energy use and imports) and benefits (energy exports) of providing energy in MACRO are approximated by a Taylor expansion to first order of the energy system in MESSAGEcosts as calculated by MESSAGE. In addition to the economic implications of energy trade, MACRO also includes the implications of GHG permit trade.