Computable General Equilibrium Model Research Articles

Being Green and Prudent: Economy-Wide and Environmental Impacts of Renewable Energy Production Subsidy in Nigeria

ABSTRACT: Green fiscal policies are becoming prominent policy instruments for achieving energy transition. However, while the effectiveness of these policies on renewable energy outcomes have been well documented, the economy-wide impacts are rarely studied. This study examines the economy-wide and environmental impacts of renewable energy production subsidy in Nigeria. The study provides a novel modeling framework for analysing fiscal and other incentives for green energy in Nigeria by incorporating self-generated electricity, which is a major component of electricity supply in Nigeria, into a macroeconomic model. The study uses a Computable General Equilibrium (CGE) model to analyse the effectiveness and economic impacts of renewable energy production subsidy in Nigeria. CGE models are commonly used to assess the economy-wide impacts of public policy. Specifically, the PEP-1-1 model, which is a static single-country model, is used for the analysis. The model is calibrated on Nigeria's updated social accounting matrix (SAM). The results of the analysis show that renewable energy production subsidy is effective in enhancing the development of the renewable-electricity sector and encouraging the use of renewable electricity but does not significantly reduce the use of conventional electricity sources. The subsidy, if financed by public deficit, has positive impacts on real economic outcomes such as GDP, household income, welfare, and employment, but has a smaller effect on CO2 emissions. In contrast, the economic effects are mostly negative, but the CO2 emissions-reduction effects are larger if the subsidy is financed by reallocation of public expenditure. In addition, the effects on sectoral outputs are mixed. The results of this study can be used by policy makers to ascertain how to finance green subsidies in fiscally constrained and energy-poor developing countries. Specifically, policy makers should take cognizance of economic and feedback effects when designing and implementing environmental policies. Beyond Nigeria and the specific case of fiscal subsidies, the modeling framework presented in this study can be applied to other green energy policies and can be adapted to other developing countries.

How will global trade patterns evolve in the long run?

AbstractIn this paper, the evolution of global trade patterns until 2050 is projected with a recursive dynamic computable general equilibrium (CGE) model. Feeding the model with exogenous projections on macroeconomic, demographic, sectoral and trade cost variables, the evolution of trade patterns emerges endogenously from the model. The approach is innovative in both modelling approach and exogenous inputs. GDP growth emerges endogenously in the model because of diffusion of ideas as a result of international trade and trade cost changes are based on estimates of technology and trade policy changes. The projections indicate that (i) because of projected reductions in trade costs, trade will grow more than GDP, generating a global trade‐to‐GDP growth rate of 1.1; (ii) because of structural change, the global share of manufacturing trade falls from 64% in 2020 to 52% by 2050, whereas the share of services trade rises substantially from 24% to 38%; and (iii) because of technological catch‐up, the share in global trade of both developing and least‐developed countries (LDCs) will rise (with developing countries overtaking developed economies around 2035), the share of intra‐developed country trade will fall, whereas the share of intra‐developing country trade and those between developing and developed countries will rise.

Multi-disciplinary seismic resilience modeling for developing mitigation policies and recovery planning

The multi-disciplinary data and information available at a community level comprise the foundation of natural hazard resilience modeling. These data enable and inform mitigation and recovery planning decisions prior to and following damaging events such as earthquakes. This paper presents a multi-disciplinary seismic resilience modeling methodology to assess the vulnerability of the built environment and economic systems. This methodology can assist decision-makers with developing effective mitigation policies to improve the seismic resilience of communities. Two complementary modeling strategies are designed to examine the impacts of scenario earthquakes from a combined engineering and economic perspective. The engineering model is developed using a probabilistic fragility-based modeling approach and is analyzed using Monte Carlo (MC) simulations subject to seismic multi-hazard, including simulated ground shaking and resulting liquefaction of the soil, to quantify the physical damage to buildings and electric power substations (EPS). The outcome of the analysis is subsequently used as input to repair and recovery models to quantify repair cost and recovery time metrics for buildings and as input to functionality models to estimate the functionality of individual buildings and substations by accounting for their interdependency. The economic model consists of a spatial computable general equilibrium (SCGE) model that aggregates commercial buildings into sectors for retail, manufacturing, services, etc., and aggregates residential buildings into a wide range of household groups. The SCGE model employs building functionality estimates to quantify the economic losses. The outcomes of this integrated modeling consist of engineering and economic impact metrics, which are used to investigate mitigation actions to help inform a community on approaches to achieve its resilience goals. An illustrative case study of Salt Lake County (SLC), Utah, developed through an extensive collaborative partnership and engagement with SLC officials, is presented. The results demonstrate the effectiveness of the proposed methodology in quantifying the loss and functional recovery of infrastructure systems, the impacts on capital stock, employment, and household income and the effect of various mitigation strategies in reducing the losses and functional recovery time subject to earthquakes with varying intensities.

On the impacts of higher tobacco taxes in Argentina: a computable general equilibrium approach

ObjectivesWe analyse the employment effects of increasing tobacco taxation in Argentina by building a computable general equilibrium (CGE) model.MethodsIn line with recent changes in tobacco taxation in the country, the...

GENERAL ECONOMIC EQUILIBRIUM MODELS

The article examines the possibilities and limitations of empirical models of general economic equilibrium and makes their classification. Computable general equilibrium models are divided into two groups: the first group is based on the equilibrium price model (G. Scarf's approach), the second is based on a multi-sectoral model of economic growth (L. Johansen's approach). Dynamic stochastic general equilibrium models are also divided into two groups: the first group is based on the model of the real business cycle (the approach of F. Kydland and E. Prescott), the second is based on the model of various behavior of firms in conditions monopolistic competition (the approach of J. Rotemberg and M. Woodford). Within each group, empirical models were studied according to the following criteria: the scale of the economy, its openness; application for current and future assessments; socio-economic phenomenon under study.

Economic impacts of power-to-liquid fuels in aviation: A general equilibrium analysis of production and utilization in Germany

The aviation industry faces an urgent need to adopt sustainable aviation fuels for significant decarbonization. Power-to-Liquid (PtL) fuel is considered a potential game changer, but questions remain about the wider economic impacts of introducing PtL fuel in the aviation sector. This paper examines the economic impacts of introducing PtL fuel blending quotas along with a price policy consisting of a kerosene tax and PtL fuel subsidies for the case of Germany. Based on a detailed supply chain analysis, we apply a social accounting matrix and a computable general equilibrium model to take into account both, the production and utilization perspectives of PtL jet fuel. Our results show that the influence of low blending quotas is mainly limited to the aviation sector, with a 10 % blending quota increasing consumer prices by 7.9 % and reducing aviation industry output by 3.1 %. When quota levels increase, however, the effects go beyond the air transport system. On inter-sectoral level, we identify three main patterns: First, industries that substantially contribute to the PtL fuel supply chain, such as metal products and electrical equipment, see increasing levels in both, domestic production, and imports. Second, aviation upstream industries like transport infrastructure and aircraft production see reduced domestic production and imports. Third, aviation downstream industries, such as delivery services and travel agencies, see substitution effects, where imports partly replace domestic output. Macroeconomic indicators are affected negatively by the quota scenarios, but the relative impact is low as the maximum decrease in the gross domestic product (GDP) does not exceed 0.35 %. PtL fuel production subsidies can largely mitigate the decrease in aviation demand but come at the cost of a stronger reduction in the GDP and government income. Moreover, the sensitivity analysis emphasizes that various assumptions and parameters, such as the cost projections of PtL fuel, import options, and elasticities of demand, affect the intensity of economic consequences. Our analysis implies the trade-offs of policymaking between sectoral and macroeconomic interests in the context of sustainable fuels. The main contribution of this study is the investigation of the broader economic effects resulting from the adoption of PtL fuels in aviation. In particular, the production as well as the utilization perspective are considered simultaneously in this study.

Assessing the regional impacts of a multi‐hosting mega sport event: The case of EURO 2020 in Rome

AbstractUEFA EURO 2020 is the first multi‐hosting mega‐event developed on the entire continent. Often, mega‐events concentrated in one place have turned out to have a modest, or adverse, economic impact due to high costs. Therefore, the ex‐post assessment of the local impact of the four matches played in Rome as a mega‐event is an interesting case study. To this end, we use a Computable General Equilibrium model based on the Lazio regional Social Accounting Matrix. We estimate a significant Gross Domestic Product multiplier at around 1.45. Furthermore, in terms of employment, the event generates an additional net volume equivalent to 9762 full‐time jobs per year.

Toward the full implementation of the water-energy-food nexus in computable general equilibrium modelling: methods and macroeconomic implications

ABSTRACT This paper contributes to the advancement of Computable General Equilibrium (CGE) modelling in addressing the Water-Energy-Food (WEF) Nexus. As such, it introduces water resources as a production factor for both the energy sector and irrigated agriculture, as well as their competition for the endowment, aiming to explicitly represent additional components of the WEF with respect to a standard CGE in the literature. Thus, it develops different modelling structures by computing impacts on regional GDP, sectorial prices, and production outputs in response to hypothetical water scarcity scenarios. This analysis allows for the determination of the role of data and modelling assumptions, such as production function, water substitutability with other endowments, water mobility across sectors, and sectorial water intensity, in influencing the results. Finally, the paper develops a dynamic scenario analysis, showing that an enhanced representation of the Nexus can significantly affect the macroeconomic dynamics of the simulations and their regional implications.

Integration of a computable general equilibrium model with an energy system model: Application of the AIM global model

An integrated assessment model AIM (Asia-Pacific Integrated Model) has been used climate change mitigation studies and the core of AIM is a computable general equilibrium model, AIM/Hub. However, the energy representation in the AIM/Hub is abstract and to overcome that shortcoming, this study integrated AIM/Hub with the energy system model AIM/Technology. First, we assessed how the new integrated model differ from the original standalone AIM/Hub. Second, we conducted the exchange of model outputs iteratively and evaluated how the model results converged. Comparing previous and corresponding iteration, the data points with discrepancies greater than 5% at the third iteration were only 5 variables which were minor variables from the full energy system point of view. The macroeconomic implications of climate change mitigation differ between the standalone AIM/Hub and the new integrated model, and however, there was no systematic discrepancies. Overall, the new model is valid for exploring energy-economic scenarios.

Could the EU carbon border adjustment mechanism promote climate mitigation? An economy-wide analysis

Due to concerns about carbon leakage and sectoral competitiveness, the European Union (EU) proposed implementing the carbon border adjustment mechanism (CBAM). The effectiveness and potential negative consequences of CBAM have aroused extensive discussion. From the perspective of the economy-wide analysis, this study uses a global computable general equilibrium model to explore the rationality of CBAM from the aspects of socioeconomic impact and the effects of promoting climate mitigation. Furthermore, the potential alternative mechanism of CBAM is proposed. The results show that CBAM can reduce the EU's gross domestic product (GDP) loss; however, the GDP loss in all other regions increases. Moreover, CBAM raises household welfare losses in most regions, including the EU. Second, although CBAM can reduce the marginal abatement cost in eight regions, it comes at the cost of greater economic losses. Furthermore, the economic and household welfare cost of raising emissions reduction targets in regions like the USA and Japan is substantially higher than the impact of passively accepting the CBAM; therefore, CBAM's ability to drive ambitious emission reduction initiatives may be limited. Finally, for the potential alternative mechanism, from the perspective of reducing economic cost and household welfare losses, the EU could implement domestic tax cuts in the short-term and promote global unified carbon pricing in the long-term.

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.

Economic impacts of climate change on forests: a PICUS–LANDIS–CGE modeling approach

Climate change is expected to alter both forest stand- and landscape-level dynamics through a change in environmental characteristics. While numerous studies have employed models to assess the ecological and/or economic impacts of such changes on forests throughout the world, there is need to further refine such analyses. In this paper, we contribute to this literature by coupling an ecological (PICUS–LANDIS II) modeling framework with an economic (computable general equilibrium) model to better account for the economic impact associated with climate-induced impacts on forest stand- and landscape-level structure and composition dynamics. Applying this framework to a case-study region of New Brunswick, Canada, we estimate that climate change will reduce softwood supply by 16%–73% and impact hardwood supply in the range of −2% to +4% by 2150. The change in wood supply is estimated to reduce the value of the softwood and hardwood forestry and logging sector output by up to 51% and 17%, respectively, by 2150. These sector-level impacts may lead to a 0.08%–0.88% reduction in annual gross domestic product by 2150. The methodological advances established in this study can be used to better inform future forest management and economic plans that aim to lessen both the ecological and economic impact of climate change.

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.

The economy-wide impact of cooking oil subsidy reforms and compensation to the oil palm industry

This study analyses the economy-wide impact of cooking oil subsidy reforms using two simulations: complete subsidy removal and compensation for the oil palm industry. The study focuses on macroeconomic variables, industrial output, and employment. A Computable General Equilibrium model is used for analysis. The study found that complete subsidy removal leads to negative impacts on the macroeconomy, causing a slight decrease in economic growth. It also results in negative impacts on industrial output and employment. On the other hand, reallocating the revenue to the oil palm industry investment could mitigate these adverse effects, and further leads to an increase in economic growth. The reallocation improves the output of the oil palm industry and reduces its labour demand. The impacts on other industries' output and employment vary. Removing cooking oil subsidy can be a viable option because of its marginal impacts. It's also recommended to compensate the oil palm industry, especially independent smallholders.

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.