Working Paper

The Impact of Uncertainty on the European Energy Market: A Scenario Aggregation Approach

Kjell Arne Brekke, Rolf Golombek, Michal Kaut, Sverre A.C. Kittelsen, Stein W. Wallace
CESifo, Munich, 2013

CESifo Working Paper No. 4500

We present a simple approach to transform a deterministic numerical model, where several agents simultaneously make decisions, into a stochastic model. This approach, which builds on scenario aggregation, a numerical method developed to solve decision problems under uncertainty, is used to build a large stochastic numerical equilibrium model of the Western European energy markets. We use the stochastic model to analyze the impact of economic and political uncertainty on the Western European energy markets. We demonstrate that the equilibria under uncertainty differ significantly from the deterministic outcomes.

CESifo Category
Empirical and Theoretical Methods
Energy and Climate Economics
JEL Classification: C630, C680, D580, D810, Q280, Q400, Q540