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Comparison of labor productivity increase rates (%) in the forward-looking (dynamic) and recursive models.
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This paper documents a forward looking multi-regional general equilibrium model developed from the latest version of the recursive-dynamic MIT Emissions Prediction and Policy Analysis (EPPA) model. The model represents full inter-temporal optimization (perfect foresight), which makes it possible to better address economic and policy issues such as...
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Citations
... These features allocate the available resource over time while creating resource rents. The model has estimates of the current rents that are conventionally attributed to three sources: Hotelling, Ricardian, and monopoly (Babiker et al., 2008). The model does not explicitly identify the underlying reason for the rents. ...
Limiting global warming in line with the goals in the Paris Agreement will require substantial technological and behavioural transformations. This challenge drives many of the current modelling trends. This article undertakes a review of 17 state-of-the-art recursive-dynamic computable general equilibrium (CGE) models and assesses the key methodologies and applied modules they use for representing sectoral energy and emission characteristics and dynamics. The purpose is to provide technical insight into recent advances in the modelling of current and future energy and abatement technologies and how they can be used to make baseline projections and scenarios 20-80 years ahead. Numerical illustrations are provided. In order to represent likely energy system transitions in the decades to come, modern CGE tools have learned from bottom-up studies. Three different approaches to baseline quantification can be distinguished: (a) exploiting bottom-up model characteristics to endogenize responses of technological investment and utilization, (b) relying on external information sources to feed the exogenous parameters and variables of the model, and (c) linking the model with more technology-rich, partial models to obtain bottom-up- and pathway-consistent parameters.
... Then, the government uses this revenue to finance government consumption. We assume that 7 The EPPA model has a forward-looking version; see Babiker et al. (2008). government consumption grows exogenously in line with economic growth. ...
The Japanese government plans to reduce greenhouse gas emissions by 80% by 2050. However, it is not yet clear which policy measures the government will adopt to achieve this goal. In this regard, environmental tax reform, which is the combination of carbon regulation and the reduction of existing distortionary taxes, has attracted much attention. This paper examines the effects of environmental tax reform in Japan. Using a dynamic computable general equilibrium (CGE) model, we analyze the quantitative impacts of environmental tax reform and clarify which types of environmental tax reform are the most desirable. In the simulation, we introduce a carbon tax and consider the following five scenarios for the use of carbon tax revenue: 1) a lump-sum rebate to the household, 2) a cut in social security contributions, 3) a cut in income taxes, 4) a cut in corporate taxes and 5) a cut in consumption taxes. The first scenario is a pure carbon tax, and the other four scenarios are types of environmental tax reform. Our CGE simulation shows that environmental tax reform tends to generate more desirable impacts than the pure carbon tax by improving welfare or increasing GDP while reducing emissions (double dividend). In particular, we show that a cut in corporate taxes leads to the most desirable policy in terms of GDP and national income.
... These features allocate the available resource over time while creating resource rents. The model has estimates of the current rents that are conventionally attributed to three sources: Hotelling, Ricardian, and monopoly (Babiker et al., 2008). The model does not explicitly identify the underlying reason for the rents. ...
Limiting global warming in line with the goals in the Paris Agreement will require substantial technological and behavioural transformations. This challenge drives many of the current modelling trends. This paper undertakes a review of 17 state-of-the-art recursive-dynamic computable general equilibrium (CGE) models and assesses the key methodologies and applied modules they use for representing sectoral energy and emission characteristics and dynamics. The purpose is to provide technical insight into recent advances in the modelling of current and future energy and abatement technologies and how they can be used to make baseline projections and scenarios 20-80 years ahead. In order to represent likely energy system transitions in the decades to come, modern CGE tools have learned from bottom-up studies. We distinguish between three different approaches to baseline quantification: (a) exploiting bottom-up model characteristics to endogenize responses of technology investment and utilization, (b) relying on external information sources to feed the exogenous parameters and variables of the model, and (c) linking the model with more technology-rich, partial models to obtain bottom-up-and pathway-consistent parameters. JEL-Codes: C680, O130, O140, O180, Q430, Q540.
... Although both are indispensable for examining the countermeasures of global warning, the former is more important in making comprehensive decisions. The two get lumped together as IAMs, but there are different types of IAMs [4,37]: general equilibrium models [1], simulation models [7,9], and optimization models [5,26]. The DICE model is one of the most famous models, and many researchers have discussed IAMs using the DICE model. ...
... In Japan, it was adopted in Tokyo in 2010, and emissions from facilities under the program have been significantly reduced [39]. 1 However, as mentioned in "Background" section, the total emission reductions submitted by all countries is still insufficient to meet the 2° or 1.5° target. Although this reduction is important, it is necessary to link it with the final objective. ...
Background:
Global warming is the most serious problem we face today. Each country is expected to ensure international cooperation toward minimizing risk. To evaluate the countermeasures, many researchers have developed integrated assessment models (IAMs). Then, how can each country achieve its emission quota? This study proposes models that analyze the economic impact of global warming in a region based on the results obtained by the global model. By using these suggested models, we perform a comparative analysis on three policy cases: a different regulations case, a unified regulation case, and an output redistribution case.
Results:
We analyzed Japan as one of the case studies and found that more developed areas should implement stricter regulations in all scenarios. In addition, the case of applying different regulations by area (in a region) is not always preferable to using unified regulations in the region. Alternatively, the output gap between the output redistribution case and the different regulations case is much higher than the gap between the unified regulation case and the different regulations case. In all scenarios, the present values of the output of the output redistribution case are also higher than the other cases.
Conclusions:
The different regulations case and the unified regulation case are based on the model without capital transfer between areas, whereas the output redistribution case is based on the model with free capital transfer between areas. Although both models are extreme situations, the regions close to the without capital transfer situation possibly have an incentive to use the different regulations policy, depending on the emission target. The regions close to the situation with free capital transfer would probably prefer unified regulation.
... 3. The tax is a better option than the emissions permit system since the later provides a result that depends on the initial allocation of permits (which has implications for their distribution) and on price changes ( permits set a price per unit or per ton of carbon), (Paltsev, al, 2005). This is relevant because the carbon price fluctuation makes it difficult to estimate the total cost that the issuing permits would involve. ...
Resumen
Today we have several preventive economic policies that are designed to reduce emissions of greenhouse gases (GHG). The existing literature usually defines these policies as cost-efficient for they can achieve a significant reduction in emissions without having to incur in a very high cost. Likewise, these policies are also cost effective provided that they not only achieve significant cuts in emissions of the most released gas in the atmosphere, but also other greenhouse gases. For example, increasing energy efficiency not only reduces carbon dioxide emissions but also other gases that highly contribute to global warming. In addition, greater efficiency can make industries and countries become more competitive in international markets. In the current context of economic crisis the level of efficiency becomes even more important. We need to be efficient to save on costs and to produce with more sustainably but this goal cannot be achieved without changing the current production model. The carbon tax is an incentive that has a double advantage. First, it is an efficient option to palliate climate change as it is able to achieve emission reductions without incurring in excessive costs. Second, is in itself, an incentive to achieve a gradual change towards a more sustainable production system, which is no doubt a claim for the current crisis. The purpose of this paper is, therefore, to analyze the case of the carbon tax, for being the incentive that implements greater efficiency in the market and for constituting an effective option for palliation the current global crisis negative effects.
... The Emissions Prediction and Policy Analysis (EPPA) model forms a part of the MIT Integrated Global Systems Model (IGSM). It is a recursive-dynamic multi-regional general equilibrium model of the world economy (Paltsev, Reilly et al. 2005). In each of the 16 regions it maximizes the utility of Households and Firms subject to the technologies of production and consumption, consumer endowments of primary factors and imposed policies. ...
During the 1970s, oil market models offered a framework for understanding the growing market power being exercised by major oil producing countries. Few such models have been developed in recent years. Moreover, most large institutions do not use models directly for explaining recent oil price trends or projecting their future levels. Models of oil prices have become more computational, more data driven, less structural and increasingly short run since 2004. Quantitative analysis has shifted strongly towards identifying the role of financial instruments in shaping oil price movements. Although it is important to understand these short-run issues, a large vacuum exists between explanations that track short-run volatility within the context of long-run equilibrium conditions. The theories and models of oil demand and supply that are reviewed in this paper, although imperfect in many respects, offer a clear and well-defined perspective on the forces that are shaping the markets for crude oil and refined products.The complexity of the world oil market has increased dramatically in recent years and new approaches are needed to understand, model, and forecast oil prices today. There are several kinds of models have been proposed, including structural, computational and reduced form models. Recently, artificial intelligence was also introduced.This paper provides: (1) model taxonomy and the uses of models providing the motivation for its preparation, (2) a brief chronology explaining how oil market models have evolved over time, (3) three different model types: structural, computational, and reduced form models, and (4) artificial intelligence and data mining for oil market models.
... In addition, more capital, labor and electricity are needed to produce biomass, which makes their costs higher. The input assumptions of new technologies partly refer to the EPPA (Emissions Prediction and Policy Analysis) model (Paltsev et al., 2005). ...
... There have been some attempts to incorporate trade and specialization into the analysis of climate change, such as the IMPACT model developed by the International Food Policy Research Institute (IFPRI), as well as the EPPA model described in Babiker et al. (2008), among others. All of these attempts to model trade in combination with climate change use Armington assumptions and therefore are not suitable to analyze the e¤ect of climate change on patterns of specialization and local innovation over time. ...
... Temperature T is determined by (5). ...
... . Of course, in this paper we exclusively focus on the e¤ect of temperature on productivity and leave aside other reasons why temperature could lead to lower levels of well-being.The benchmark equilibrium described above considers a moderate scenario for the e¤ect of pollution on temperature. This e¤ect is governed by our choice of 0.0003 for the parameter 1 in equation(5). Figures 5 to 12 present equilibria using alternative values of 1 , ranging from 0 (no e¤ect of temperature on productivity) to 0.0012 (extreme e¤ect of pollution on temperature). ...
We propose a dynamic spatial theory to analyze the geographic impact of climate change. Agricultural and manufacturing firms locate on a hemisphere. Trade across locations is costly, firms innovate, and technology diffuses over space. Energy used in production leads to emissions that contribute to the global stock of carbon in the atmosphere, which affects temperature. The rise in temperature differs across latitudes and sectors. We calibrate the model to analyze how climate change affects the spatial distribution of economic activity, trade, migration, growth, and welfare. We assess quantitatively the impact of migration and trade restrictions, energy taxes, and innovation subsidies.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
... The Emissions Prediction and Policy Analysis (EPPA) model forms a part of the MIT Integrated Global Systems Model (IGSM). It is a recursive-dynamic multi-regional general equilibrium model of the world economy (Paltsev, Reilly et al. 2005). In each of the 16 regions it maximizes the utility of Households and Firms subject to the technologies of production and consumption, consumer endowments of primary factors and imposed policies. ...
During the 1970s, oil market models offered a framework for understanding the growing market power being exercised by major oil producing countries. Few such models have been developed in recent years. Moreover, most large institutions do not use models directly for explaining recent oil price trends or projecting their future levels. Models of oil prices have become more computational, more data driven, less structural and increasingly short run since 2004. Quantitative analysis has shifted strongly towards identifying the role of financial instruments in shaping oil price movements. Although it is important to understand these short-run issues, a large vacuum exists between explanations that track short-run volatility within the context of long-run equilibrium conditions. The theories and models of oil demand and supply that are reviewed in this paper, although imperfect in many respects, offer a clear and well-defined perspective on the forces that are shaping the markets for crude oil and refined products. The complexity of the world oil market has increased dramatically in recent years and new approaches are needed to understand, model, and forecast oil prices today. There are several kinds of models have been proposed, including structural, computational and reduced form models. Recently, artificial intelligence was also introduced. This paper provides: (1) model taxonomy and the uses of models providing the motivation for its preparation, (2) a brief chronology explaining how oil market models have evolved over time, (3) three different model types: structural, computational, and reduced form models, and (4) artificial intelligence and data mining for oil market models.
... The price of oil emerges endogenously as an outcome of a Nash game among the twelve regions. InTable 1 and inTable 2 we summarise the main characteristics of a sub-set of all IAMs that have endogenous trade of oil: MERGE (Manne and Richels 2004), REMIND-R (Leimbach et al 2008), IMACLIM (Hourcade et al 2006), IMAGE (Bouwman, Kram and Goldewijk 2006), MiniCAM (Brenkert et al 2003), MESSAGE (Nakicenovic and Riahi 2003), EPPA (Paltsev et al 2005; Babiker et al 2008)Table 2 In IMACLIM, coal and gas extraction costs are described using reduced forms of cost functions from the energy model POLES (Criqui 2001). Oil price is equal to the production cost plus a mark-up. ...
We introduce endogenous investments for increasing conventional and non-conventional oil extraction capacity in the integrated assessment model WITCH. The international price of oil emerges as the Nash equilibrium of a non-cooperative game. When carbon emissions are not constrained, oil is used throughout the century, with unconventional oil taking over conventional oil from mid-century onward. When carbon emissions are constrained, oil consumption drops dramatically and the oil price is lower than in the BaU. Unconventional oil is not extracted. Regional imbalances in the distribution of stabilisation costs are magnified and the oil-exporting countries bear, on average, costs three times larger than in previous estimates.
