Robust Market Potential Assessment: Designing optimal policies for low-carbon technology adoption in an increasingly uncertain world

TL;DR

This paper introduces a robust optimization model for assessing market potential and designing policies for low-carbon technology adoption under uncertainty, demonstrated through case studies in the EU and UK, enabling effective and resilient policy formulation.

Contribution

It presents a novel robust market potential assessment framework that accounts for uncertainty, using an iterative cutting planes algorithm, applicable to various policy and technology adoption problems.

Findings

Robust policies can be effectively identified under uncertain market factors.

The iterative algorithm solves complex nonlinear problems efficiently.

Trade-offs between certainty and effectiveness are quantifiable and manageable.

Abstract

Increasing the adoption of alternative technologies is vital to ensure a successful transition to net-zero emissions in the manufacturing sector. Yet there is no model to analyse technology adoption and the impact of policy interventions in generating sufficient demand to reduce cost. Such a model is vital for assessing policy-instruments for the implementation of future energy scenarios. The design of successful policies for technology uptake becomes increasingly difficult when associated market forces/factors are uncertain, such as energy prices or technology efficiencies. In this paper we formulate a novel robust market potential assessment problem under uncertainty, resulting in policies that are immune to uncertain factors. We demonstrate two case studies: the potential use of carbon capture and storage for iron and steel production across the EU, and the transition to hydrogen from natural gas in steam boilers across the chemicals industry in the UK. Each robust optimisation problem is solved using an iterative cutting planes algorithm which enables existing models to be solved under uncertainty. By taking advantage of parallelisation we are able to solve the nonlinear robust market assessment problem for technology adoption in times within the same order of magnitude as the nominal problem. Policy makers often wish to trade-off certainty with effectiveness of a solution. Therefore, we apply an approximation to chance constraints, varying the amount of uncertainty to locate less certain but more effective solutions. Our results demonstrate the possibility of locating robust policies for the implementation of low-carbon technologies, as well as providing direct insights for policy-makers into the decrease in policy effectiveness resulting from increasing robustness. The approach we present is extensible to a large number of policy design and alternative technology adoption problems.