The Cambridge Multisectoral Dynamic Model (MDM) (Barker and Peterson 1987), a large-scale model of the UK economy, has been extended to include energy-environment-economy interactions to become an E3 model. The model already contained an energy sub-model (Peterson 1987); this has been replaced by a new version based closely on the DEn specification (DEn, 1989a). The energy sub-model allows a detailed analysis of the demand for energy and the substitution between fuels. The projection of fuel use, distinguished by user and type of fuel, is then available to calculate emissions of CO2, allowing for different qualities of fuels and fuel-burning technologies (e.g. carbon and heat content of fuels; conversion efficiencies of technologies). Previous versions of the Cambridge model have been used to analyse earlier proposals for the imposition of a carbon/energy tax (Barker and Lewney 1991), but the reactions of the energy sector had to be imposed on the model using elasticities derived from work by the UK Department of Energy reported in the Sizewell B Public Enquiry which is now rather dated (see DEn 1987). The new sub-model follows the general approach of the DEn modelling but uses more recent data and adapts the approach to the requirements of a disaggregated industrial model.

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