Making Progress Towards Emissions Mitigation: Modeling Low-Carbon Power Generation Policy

The need for regulation of greenhouse gases (GHGs) sets policy challenges to the energy industries in the twenty-first century, given the major climate threat that has manifested in recent decades. The focus will thus be on environment-related issues, including emissions, renewable-based technology, and change in consumer-use patterns. In this context, policy aims at preserving and maintaining security of supply as well as a competitive environment within both power generation and energy-intensive industries. There are enormous uncertainties regarding the effect of GHGs on climate change in Latin America and on the structure of the electricity sector in the future. In spite of the obvious threats, these conditions also provide opportunities not yet explored. A low-carbon policy aims at changes regarding: regulation, demand, supply, market structure, management, and in general, the competitiveness of the power generation industry. In this direction, it is neither clear what structural changes should be adopted within the electricity sector, nor what are the opportunities that this policy may offer. This article assesses the effect of GHG policy on the Colombian electricity sector, based on system dynamics simulation; it also indicates how emission costs and incentives in the electricity sector induce technology changes leading towards a low carbon economy.