In a study commissioned by the DTI,Cambridge Econometrics [23], the authors use an energy –economy–environment framework that is designed to model the growth of CHP capacity in the UK to 2010, and the resulting impacts on energy demand and environmental emissions. They use a macro-econometric model that is based on a set of input–output (IO) coefficients which are updated with a series of econometric time series relationships. Embedded within the main model is a series of sub-models (energy, electricity supply and environmental emissions model). These sub-models update specific prices and demands, which then feed back into the main model and are used to update the IO data. Further, the electricity supply and energy sub-models are integrated with a CHP sub-model, designed to allow examination of the factors that are important in influencing CHP installation decisions. Operation of the model requires a large number of assumptions concerning the future energy and economic environment. These assumptions relate to macroeconomic conditions over time (including forecasts of the economic growth rate, domestic and trading partners' inflation rates, exchange rates, interest rates, domestic tax rates, and government expenditures); energy prices (including forecast of electricity and gas prices); and the extent and characteristics of policy support mechanisms for the energy industry. For the CHP sub-model, the authors also input statistics on the use of CHP in the UK (using historical data on the uptake of CHP); cost estimates of CHP installations; and the avoided costs of alternative energy sources. The simulation methodology of estimating the uptake of CHP involves inputting the exogenous assumptions and data sources described above to the main and sub-models, with the model then calculating the altered investment decisions. The historical data on the uptake of CHP is used to estimate how the share of the associated CHP will change. This is done by separating the individual demand for CHP into sub-sectors, calculating a NPV for each scheme, and then allowing the model to select a proportion of the plants which are financially feasible according to their NPV. The main output of the MDM-E3 model is the technological capacity, rather than the impact on wider economic variables.