Computable General Equilibrium Model Research Articles

Evaluating Taiwan's economic and labour market recovery strategies against COVID‐19

AbstractSince its emergence in 2020, COVID‐19 has profoundly influenced the Taiwan economy and employment landscape, leading to differential impacts across sectors. In response to this unprecedented crisis, the Taiwanese government promptly enacted the “Special Regulations on the Prevention and Rescue of Severe Specific Infectious Pneumonia” on February 25, 2020, which came into force on March 13. This study examines the pandemic's effects through various stages, with a particular focus on the service industry, the sector most affected owing to diminished domestic demand. Using a computable general equilibrium model by integrating monthly changes, the study assess the effectiveness of the Taiwan government's interventions in mitigating job losses and stabilising the economy. Our findings indicate that without the government's relief and revitalisation measures, unemployment rates would have surged significantly. The study underscores the critical role of policy interventions in mitigating the economic impacts of the pandemic.

Grappling with the trade-offs of carbon emission trading and green certificate: Achieving carbon neutrality in China

Although our knowledge of national carbon emission trading system and green certificate trading system are powerful incentive instruments that can deliver on increasingly ambitious climate targets in China, there remains an uncertainty of systems' structural reforms. This study builds on and extends a well-established dynamic computable general equilibrium (CGE) model to incorporate carbon trading system and green certificate trading system into the modeling framework, simulating a diverse of system development pathways further allows an exploration of the many possible policy effect. Then, using total factor productivity as a comprehensive indicator to asses policy effectiveness, the evolutionary trend of comprehensive effects under different paths are separately evaluated to discover the reforms’ optimal range. Our work offers main results: First, these instruments provide a price signal. The introduction of a carbon allowance auction drive up carbon prices, while the implementation of a green certificate punishment and the expansion of the trading scope promote an increase in green certificate prices. Second, all policy scenarios that help reduce carbon emission intensity and optimize the power supply structure. However, in achieving the net-zero goal, the green certificate policy incurs more economic costs than the carbon trading policy. Indeed, the combination of multiple policy tools alleviates the decline of social welfare levels. Third, synergism design among policy tools: the focus should be on carbon trading policy from 2021 to 2030, green certificate trading policy from 2030 to 2050, and strengthened policy from 2050 to 2060. Reform measures within policies may need to be introduced in a timely manner. This study offers specific insights and tailored policy proposals to support policymakers in balancing environmental goals with economic and social needs in light of the aforementioned findings.

Economic impacts of meeting China's NDC through carbon taxes with alternative schemes for recycling tax revenues

This study examines the impact of meeting China's Paris Climate Agreement commitment to reduce its emission intensity by 65 % below 2005 levels by 2030 through various policy instruments. We use a dynamic recursive computable general equilibrium model to simulate the economy-wide impacts of administrative mandates and carbon taxes using different revenue recycling schemes. China's GDP in 2030 would be approximately 1 % lower than the baseline if carbon emissions were constrained by mandates. The commitment's economic costs are lower than the carbon constraint case, regardless of revenue recycling. Economic costs are the lowest when carbon tax revenue is recycled to reduce taxes on capital or corporate income. Subsidizing solar and wind energy further reduces emissions, but at a higher economic cost with a GDP loss of about 0.53 %–0.58 % from the baseline. The results highlight the importance of proper design architecture to make carbon taxes more palatable to policymakers and taxpayers.

Analyzing Exchange Rate Effects on Trade: Empirical Evidence

In this study, we aimed to find a fair exchange rate for Egypt, exploring how exchange rate policies affect the country’s economic growth and food security. We also sought to answer an important question for Egyptian policymakers: “Do current exchange rate policies help reduce Egypt’s trade deficit?”. We used two methods in our research: First, we applied the purchasing power parity (PPP) method to determine the equilibrium real exchange rate (ERER). Then, we combined the computable general equilibrium model (CGE) with the ERER value from the PPP method to observe how different sectors interact with the overall economy and understand how household incomes and poverty levels are related. Our findings showed that the fair exchange rate is EGP 38.5 per US dollar, according to the PPP method. This new exchange rate may significantly impact the Egyptian economy. Some impacts are positive, such as better real GDP, more exports, and fewer imports; however, these are minor and not significant. On the downside, it may lead to higher inflation, increased prices for goods, and reduced consumption. Moreover, this study highlights the importance of having balanced exchange rate policies that consider Egypt’s unique economic situations, and challenges and align with other economic policies. Experience and reality have shown that exchange rates alone are not the only solution.

Assessing regional employment effects of the national emission trading scheme in China: Does Okun's law work?

Employment creation and climate change mitigation are core tasks for achieving sustainable development goals. Whether or not carbon mitigation policy facilitate employment deserves deep exploration. Through the construction of multi-regional dynamic computable general equilibrium model (CGE) with more scientific energy & environment block, this paper first evaluates regional employment effects of the national emission trading scheme (ETS) in China. Furthermore, we explore the Okun's law of the national ETS based on the mediating effect model. The results show that whether in carbon-intensive industries (CIIs) or non-carbon-intensive industries (NCIIs), employment effects of the national ETS are differentiated across regions. Specifically, the national ETS generally promotes CIIs' employment in Southern, Eastern, Middle Yangtze River and Southwest regions, and has negative effects on CIIs' employment in other regions. Meanwhile, the national ETS brings employment creation to NCIIs of Southern region, while there are opposite results in NCIIs of Northeast region and mixed results in NCIIs of other regions. Moreover, the Okun's law of the national ETS holds in CIIs of each region, but it not fits the data for NCIIs. Therefore, it is important for the Chinese government to consider the differentiated employment effects in different regions carefully rather than adopt one-size-fit-all solution when constructing the national carbon market.

Economic-environmental assessment of emission tax policy in developing countries: evidence from Iran

PurposeThe present study aims at quantifying the likely impacts of an environmental tax on macroeconomic variables and pollution in Iran.Design/methodology/approachThe computable general equilibrium model, which allows the prediction of the economy-wide effects of any change in policy instruments, is applied.FindingsThe main findings reveal that gross domestic product, private consumption and income in both urban and rural areas will follow a declining trend as a result of environmental tax imposition. In a scenario with the highest level of tax, the predicted percentage change to the gross domestic product and private consumption is estimated at −21.32 and −40.96, respectively. In the same scenario, pollution emissions would decrease by 12.4–22.6% for CO2, CH4 and N2O.Originality/valueThis study uses a general equilibrium model to examine the effects of the carbon tax on environmental issues and household welfare, considering the unique conditions and regulations of Iran. While the related literature examines the CO2 tax, the current study covers more pollutants, including CO2, CH4, N2O, CO, SO2 and NOx. In addition, a distinguishing feature of the current study is that it applies a modified version of the social accounting matrix (SAM) database, which includes the heavy subsidies of energy products. Another significant feature of the current study is that it examines tax policy while tax rates are exerted endogenously (compared to previous studies).

Analysis of the impacts of carbon neutral policy portfolios on the economy, environment, and residents' welfare based on computable general equilibrium models

The efficacy of the synergistic interplay of various programs about energy efficiency and emission reduction in China's endeavor to achieve carbon peaking and carbon neutrality remains to be determined. This research constructed a computable general equilibrium (CGE) model to examine the economic, environmental, social, and energy consequences of various policy combinations. Using data from the 2018 input-output table of China, we create 21 industry sectors and examine the combined impacts of different carbon policies. Our findings indicate that the effects of carbon emission reduction are more favorable when multiple carbon-neutral policies are implemented together, compared to the impact of a single policy. Among the various combinations of policies examined, the combination of feed-in tariff subsidy policy (FIT), renewable energy quota policy (RPS), carbon trading, carbon tax, and carbon capture, utilization, and sequestration (CCUS) technology proves to be the most effective. The study predicts that by 2060, this combination of policies could lead to a reduction of 32.5% in carbon dioxide emissions. At the same time, it was discovered that a combination of lower-intensity renewable energy quotas, carbon trading, carbon taxes, and higher-intensity subsidies for carbon capture, utilization, and storage (CCUS) technologies, the synergy indicator θ exceeds 1, indicating a more stable economy; When the carbon tax policy is more robust, and the remaining three policies are more minor, carbon emissions fall the most and are the most ecologically beneficial. Imposing excessively high renewable energy quotas while maintaining the same level of technology and substitutability between fossil fuels and electric energy sources will result in economic instability afterward. Therefore, we suggest that to attain balanced growth of the environment, society, and economy, the government should increase the function of policy combinations and balance several objectives.

Economic and environmental analysis of Malaysia's 2025 renewable and sustainable energy targets in the generation mix

In pursuing the goals of sustainable development and transiting from fossil fuel-dependent electricity generation to renewable and sustainable alternatives as endorsed by COP28, Malaysia set a 31 % target for renewable-energy in the power generation mix by 2025. This underlines Malaysia's commitment to combat climate change, mainly by reducing its economy-wide GDP carbon intensity by 45 % from the 2005 levels by 2030. To better understand the effects of renewable energy expansion on the economy, environment, electricity output and input-mix, a computable general equilibrium model is applied using an updated benchmark. The simulation results show that increasing the share of coal and gas in the power generation mix compromises emission reduction targets. Further, there is a trade-off between subsidized natural gas supplies and power generation and exports. The results also show that a larger proportion of renewable energy leads to improved welfare. As the share of gas and coal in renewable energy generation is not very high, its impact on carbon emissions is limited. However, if renewable energy expansion is complemented by subsidy rationalizations, the positive impacts are more pronounced. In terms of policy implications, the findings suggest that Malaysia must step up its emission reduction efforts by augmenting the generation of renewable rather than non-renewable resources. Complementary initiatives such as emission abatement policies and consumption subsidies for refined oil products and fossil-fuel power generation should be rationalized to expand renewable resources, improve energy security, and attain emission reductions.

The impacts of technological change policies on water uses and virtual water trade in water-constrained settings

Virtual water trade, which underlines the importance of inter-regional commodity transactions for enhancing water management, has often been recommended as an alternative to technological advancements in addressing water scarcity and increasing water savings in dry regions. Sectoral adjustment policies that focus on enhancing the productivity of specific sectors therefore should prioritize sectors with high growth impact potential but low virtual water demand. However, the diverse understanding of the concept and differing assessment techniques employed by various research communities complicate the debates surrounding the policy relevance of the virtual water trade. This study proposes a novel and integrated approach to evaluating virtual water content and flows endogenously, leveraging the advantages of Input-Output and Computable General Equilibrium (CGE) modeling methods. The quantification of the method is exemplified in the case of Uzbekistan (Central Asia), where water is a limited yet essential resource for sustainable economy and environmental systems. Specifically, this study examines the impacts of changes in economy-wide and sector-specific Total Factor Productivity (TFP) and water productivity on water uses, virtual water flows, and economic outcomes. The findings reveal that TFP improvements in livestock and fodder crop production and water productivity enhancements in gardening are recommendable options to constrain the net virtual water trade and enhance economic growth in Uzbekistan. The study also shows a high sensitivity of virtual water flows to technological changes, highlighting the importance of considering options for improving productivity when analyzing the potential of virtual water trade.

The impact of Carbon Border Adjustment Mechanism on trade in the Russia‐Ukraine war context

AbstractThe Carbon Border Adjustment Mechanism (CBAM) is an impending mechanism that imposes a price on emissions embodied in products imported to the European Union (EU). It is expected to impact international trade substantially. Meanwhile, the Russia‐Ukraine war has been ongoing since March 2022, and resources are being redistributed accordingly. This study simulates the potential impact of CBAM on trade in the Russia‐Ukraine war context by employing the Computable General Equilibrium models. The simulation results show that the CBAM will significantly affect selected countries, and the impact will vary across countries and industries. In the context of the Russia‐Ukraine war, the influence on trade will be considerable.

An ecological input-output CGE model for unveiling CO2 emission metabolism under China's dual carbon goals

Carbon mitigation is essential for combating climate change and its impacts, safeguarding ecosystems, and protecting human health and livelihoods. This study develops an ecological input-output CGE (EIOC) model that integrates computable general equilibrium (CGE) model, input-output analysis (IOA), and ecological network analysis (ENA) to explore the evolution of the CO2 emission metabolism under long-term carbon tax policies. The EIOC model excels not only in intimately depicting economic relationships and evaluating the economic impacts of policy interventions but also in unveiling the complex internal interactions within the context of emission dynamics through multidimensional network perspectives. The EIOC model is employed to analyze CO2 emission flows under carbon tax policies aimed at fulfilling China's dual carbon goals, thereby validating its applicability. It is found that (i) the implementation of carbon tax policies (P25 and P30 scenarios) would lead to economic decline; however, there would emerge potential for recovery in investment and international trade; (ii) adopting an earlier carbon peak target (P25 scenario) would yield more pronounced emission reductions in the early to mid-term (in 2035, reductions in steel, construction, and manufacturing sectors would exceed those under the P30 scenario by 15.74%, 11.89%, and 11.59% respectively); (iii) long-term policies would significantly impact the dynamics of CO2 emission metabolism; chemical sector would display an increased reliance on the system, indicating a heightened need for inputs from the system; transactions exhibiting increased centrality (between chemical and other mining, and between chemical and manufacturing) reveal their elevated significance as transfer pathways of CO2 flows. Identifying significant changes in CO2 emission metabolism can inform incentivizing or constraining measures aimed at further adjusting emissions.

Potential climate-induced impacts on trade: the case of agricultural commodities and maritime chokepoints

This study assesses the potential macro-economic effects of climate change affecting operations in three maritime chokepoints, i.e., the Panama Canal, the Suez Canal, and the Turkish Straits. The analysis focuses on agricultural commodities. It couples a “logistics” model of maritime trade flows with a Computable General Equilibrium model considering three modelling alternatives: (1) increase of “iceberg trade costs”, (2) shadow import tariffs, and (3) shadow export tariffs. Methodologically, we found a comforting qualitative agreement across methodologies in predicting the direction of changes in the main economic variables under scrutiny. However, negative GDP performances are more frequent and larger using the first method that also tends to predict lower import contractions than the other two methods. The impact assessment, examining storylines of climate-change-induced events delaying chokepoints operations, highlights that climate change impacts on chokepoints’ operations can convey detectable effects on production and prices of agricultural commodities associated with negative GDP impacts worldwide. In addition, although trade re-composition generates winners and losers, total losses tend to prevail. The combined GDP losses of the three chokepoints can reach $34 billion (2014 prices) in 2030. It shows that weather events in remote locations, such as the Panama Canal, can have cascading effects on the EU, with potential losses of USD 2 billion $ in GDP. North Africa, Middle East and Sub-Saharan Africa are particularly vulnerable. They suffer from a drop in imports of agricultural commodities and GDP losses in all the three cases. This impact assessment emphasizes another mechanism at play that could increase the asymmetry and the adverse distributional impacts of climate change on agriculture.

The substantial impacts of carbon capture and storage technology policies on climate change mitigation pathways in China

Carbon capture and storage (CCS) technology, considered as a pivotal tool in mitigating climate change within the fossil energy system, particularly in China, has experienced slower development than expected. The exploration of direct incentive policies to facilitate its growth remains relatively underdeveloped. This study developed a hybrid dynamic computable general equilibrium (CGE) model to simulate the substantial impacts of CCS incentive policies on China within the context of carbon neutrality target. Two potential incentive policies, carbon emission trading system (ETS) and 45Q tax credit, were simulated, with different sectoral coverage. The results indicate that CCS technologies can reduce carbon emissions by 960 ∼ 1,604 MtCO2 annually by 2060 through the strategic implementation of these incentive policies. The 45Q tax credit demonstrates its effectiveness in promoting early-stage research and development (R&D) and demonstration of CCS, while the ETS policy facilitates the commercial development of CCS in the later stage of development. By 2060, the implementation of CCS incentive policies could potentially result in 7.7 ∼ 17.4 % reduction in China’s primary energy consumption, 71.2 ∼ 82.7 % decrease in the carbon price of ETS and 5.64 ∼ 6.59 % increase in the GDP compared with the no-policy scenario. In addition, the sectoral output in various sectors and the welfare of urban and rural households also increase. This paper provides an important reference for the realization of China’s carbon neutrality goal and the model framework can be applied to other countries.

Adapting fiscal strategies to energy and food price shocks in Portugal

Economies that are dependent on imported inputs are vulnerable to external shocks affecting international prices. Although the effects of these shocks have been widely documented in the literature, strategies to effectively mitigate them remain underexplored. Using a recursive-dynamic computable general equilibrium (CGE) model, we examined the impact of global energy and food price shocks on the Portuguese economy. Moreover, we evaluated fiscal policies aimed at mitigating these impacts by boosting consumption through wage increases, cash transfers, consumption subsidies, and revitalizing economic activities with reduction in production tax. The findings suggest that reduction in production tax is the best mitigation option, as it directly improves sectoral competitiveness, promotes employment, and stimulates consumption. In contrast, a consumption-focused fiscal strategy is costlier and exclusively enhances household purchasing power. Notwithstanding, raising wages inadvertently worsens persistent inflation due to increased production costs and demand. Exploring various financing options is necessary to assess policy effectiveness and consistency over time.

The effects of CPI increase on disposable income: an analysis for Spain by CGE

ABSTRACT Spain is the European country where the differences between the highest and lowest incomes have increased the most in the last decade. In addition, the rise in prices would have repercussions on household disposable income, impacting income distribution and, consequently, poverty rates and inequality could even deepen the gender gap. In this context, our paper aims to analyse the impact of the increase in the Consumer Price Index (CPI) in 2022 on the disposable income of Spanish households. To do this, we employ a Computable General Equilibrium model calibrated with a Social Accounting Matrix disaggregated by income deciles and gender of the main income earner.

The macroeconomic impact of policy measures, technological progress and societal attitude in energy transition scenarios

This paper compares the macroeconomic impacts of different decarbonization storylines until 2050 using two Computable General Equilibrium models. The modeling shocks are harmonized across models to simulate four decarbonization scenarios through three main drivers: technical development, societal attitude, and policies. The study explores the contribution of each of these drivers to the European decarbonization. The results show that the decarbonization scenarios have moderate effects on GDP; decarbonization scenarios rather result in sectoral shifts. The impact of temperature on labor productivity minimally alters expected growth levels, since larger differences in temperature between the scenarios are only expected to occur in 2100, not yet in 2050. Electricity demand is increasing in all scenarios, particularly with stronger political guidance leading to additional tax and subsidy measures to encourage the use of electricity and discourage fossil-based fuels. When society is a driving factor, it is found that circular business models result in an increase in the service industry but might have a slightly negative impact on overall growth due to stronger spillover effects linked to the manufacturing industry. Technology appears to be the only driver to facilitate decarbonization while maintaining steady economic growth.

A systematic review of agent-based modelling in the circular economy: Insights towards a general model

Circular Economy (CE) is a popular topic for governments and businesses around the world; yet, only a few comprehensive and economy-wide frameworks exist, and the consequences of the CE on economic systems stay unclear. With this systematic review, we put under scrutiny the existing contributions to Circular Economy (CE) that apply the Agent-based modelling methodology. There is an open gap in the CE literature regarding the use of ABM. The research question that guides this systematic review concerns the potential benefit of ABM for CE and how to use this methodology in the context of CE. We put in evidence three thematic areas, two agents and one process, namely producers, i.e. firms and industrial systems, consumers, i.e. households and waste disposal, and the diffusion of innovation. We infer that the former three thematic strands of literature can be further synthetized together to form a general model of the Circular Economy. This development is crucial to properly evaluate how the agent's heterogeneity affects the diffusion and the consequences of the adoption of CE practices on the economy. Research has widely applied ABM simulations to consider the impact of heterogeneity amongst individuals and their behavioural interactions on the evolution of complex systems, yet very little did it systematically about CE. Our results complement those of Computable General Equilibrium models. The review provides an interpretative framework, suggests valuable future research directions within the new comprehensive thematic area, and contributes to the theoretical and managerial discussion on agent-based modelling in the circular economy.

Impacts of emission trading scheme in Vietnam: A perspective of revenue redistributions

AbstractWith ambitious emission reduction targets presented in the international commitments, Vietnam has a pathway to implement an emission trading scheme (ETS) to curb its carbon emissions. However, research on the impacts of ETS in Vietnam is still unclear, especially since there is no study on ETS revenue redistribution policies. By developing a computable general equilibrium (CGE) model, this paper simulates the potential impacts of the ETS with different revenue redistribution options. The results indicate that to achieve Vietnam's target of 15.8% carbon emission reduction, the carbon price would significantly affect the economy with a GDP drop of 3.7% and a welfare loss of 2.89% of GDP. The revenue redistribution policies would lighten these negative impacts. While transferring to government activities reduces GDP loss, reducing income tax policy results in welfare improvement. At the sectoral level, the electricity sector is most negatively affected and also plays a key role in reducing carbon emissions in Vietnam. The revenue redistribution for government activities could improve outputs for the construction and some heavy industries while the revenue redistribution policy for households creates improvements for light industries and the electricity industry.

Economic implications of carbon neutrality in China: A dynamic general equilibrium analysis

We utilize a dynamic computable general equilibrium model to analyze the economic implications of carbon neutrality for China. Novel treatments of power generation and carbon capture and storage (CCS) possibilities are a feature of the analysis. We calculate the impact of carbon neutrality by comparing a business-as-usual base-case scenario with results from an alternative carbon neutrality scenario. We discuss the assumptions used in these scenarios and shocks relating to energy efficiency, energy preferences, and the implementation of CCS. Our simulation results show that macroeconomic (especially employment) setbacks are minor, suggesting that China should be able to achieve the joint policy goals of both net carbon neutrality by 2060 and doubling real gross domestic product by 2035. We also test the sensitivity of our core results to changes in key underlying assumptions.

Comparing Carbon Regulation Scenarios for BRICS and EAEU Economies Using a GTAP-E Model

The paper compares the economic effects of a national carbon tax with those of an emission trading system (ETS) between EAEU and BRICS countries over the medium term. Also included are Uzbekistan, which has observer status in the EAEU, and Turkmenistan, which is an EAEU trade and economic partner. The static computable general equilibrium model GTAP-E is employed. Targets for reducing emissions are formulated on the basis of the countries’ intermediate goals as stated in their respective submissions under the Paris Agreement. The resulting simulations show that, in terms of real GDP, an emission trading scheme would be more favorable than national taxation for countries such as Brazil, India, Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan. However, for China, South Africa, Uzbekistan and Turkmenistan, resorting to an ETS would produce a comparatively greater reduction in GDP. Because the second group of countries has lower abatement costs than the equilibrium carbon price under an ETS, that scenario would permit those countries to reduce emissions by a greater amount and sell emission allowances. The analysis also shows which sectors would increase production after carbon regulation. A considerable increase in production and exports would occur for chemicals and for ferrous and nonferrous metals in several BRICS and EAEU countries. Although those industries are energy-intensive, the countries concerned could decrease emissions by reducing production in the energy or other sectors. These industries could benefit from potential joint comparative advantages in the context of declining demand for traditional energy sources. These findings should be valuable in devising integration policy.