Multi-regional Computable General Equilibrium Model Research Articles

Economic effects of sustainable energy technology progress under carbon reduction targets: An analysis based on a dynamic multi-regional CGE model

Advancing sustainable energy technologies (SET) is crucial for achieving carbon neutrality and effectively addressing climate change. Unlike most studies that focus on individual sustainable energy policies, this research constructs a recursive computable general equilibrium (CGE) model with comprehensive sustainable energy modules to analyze the macroeconomic effects of multiple policies related to SET advancement. Covering 8 regions, 13 energy sectors, and 37 intermediate input sectors, the study evaluates the economic and ecological impacts of various SET advancement scenarios from a global economic perspective, aiming for consistent carbon reduction. The findings reveal that : (1) SET implementation reduces electricity costs for residents, optimizes industrial structure, decreases fossil fuel usage, enhances energy use structure, and lowers carbon taxes; (2) the collective impact of renewable energies surpasses that of individual sources, with newer renewables like wind and solar power outperforming traditional ones such as hydropower and nuclear power; and (3) advancements in alternative energy technology have had diverse effects on the global energy environment and economic development. Based on these conclusions, we recommend that: (1) prioritizing the development of solar and wind power in the short term; (2) optimizing SET advancement mechanisms to support progress, including enhancing the market-based price formation for sustainable energy generation and promoting technological innovation and cost reduction; (3) encouraging a synergistic transformation of renewable energy with coal, gas power, and other sources to maximize policy synergies.

Decarbonization pathways to subregional carbon neutrality in China based on the top-down multi-regional CGE model: A study of Guangxi

Deep decarbonization efforts are necessary in subregions to achieve China's dual carbon goals. However, existing studies on subregional decarbonization pathways have neglected the constraints of national decarbonization schemes, resulting in incompatibility between national and subregional decarbonization pathways. In this study, we employed a top-down multi-regional computable general equilibrium (CGE) model using Guangxi as an example to assess the decarbonization pathways of the subregion under two typical national decarbonization pathways. Under a conservative decarbonization scenario, Guangxi's carbon emissions will peak at 325 Mt CO2 by 2032, with residual carbon emissions of 111 Mt CO2 by 2060. Under a proactive decarbonization scenario, Guangxi's carbon emissions will be significantly reduced, peaking at 294 Mt CO2 by 2030 and retaining residual carbon emissions of 63 Mt CO2 by 2060. The service, light industry, metallurgy, building materials, and electricity sectors were the major carbon emitters. Decarbonization plans can potentially transform Guangxi's energy structure into a low-carbon system and narrow the supply-demand gap for fossil fuels. However, the supply demand gap for electric power will increase unless energy efficiency is largely improved. Realizing dual carbon goals can cause some damage to Guangxi's macroeconomy and energy-intensive industries.

Impact of skilled labour migration on energy, environment and economic growth in home and host countries: A computable general equilibrium analysis

AbstractMigration of both skilled labour force can alter economic conditions and environmental sustainability of both host and home countries. Therefore, this study aims to explore the effect of skilled labour force migration on economic growth, energy demand and environmental sustainability of home and host countries. This objective is realised by constructing a multiregional computable general equilibrium model for developed and developing countries. Furthermore, developing countries are subcategorized into four groups such as high income, upper middle‐income, lower middle‐income and low‐income countries. The results of policy simulations indicate that skilled labour migration can reduce the gross domestic product, welfare, energy consumption and carbon emissions in home countries, and the reverse is true for the host countries. Whereas the inflow of remittances to home counties can enhance their economic growth, energy consumption, and CO2 emissions, while reverse trend of remittances outflow is observed in host countries. Similarly, reverse migration can increase economic increase in developing countries along with increasing energy demand and carbon emissions. The study urges for developed countries for utilise skilled immigrants in environment friendly manufacturing industries.

Who bears the indirect costs of flood risk? An economy-wide assessment of different insurance systems in Europe under climate change

Anticipated increase in future river flood risk highlights the need for effective flood insurance, as it enables hedging against this risk. However, its design varies significantly across countries. This study contributes to the debate on designing flood insurance mechanisms from an economy-wide perspective, considering both socioeconomic and climate changes. We apply a multi-regional computable general equilibrium (CGE) model for 2050 and find that, under current insurance market systems, flood risk causes regional GDP losses of up to −0.5%, societal welfare losses of up to −1%, and private and public consumption losses of up to −0.5% and −2.4%, respectively. These estimates are all relative to a scenario without flood risk. Our results indicate that flood risk intensifies pressure on public budgets. We find that insurance market reforms, including a higher degree of risk-sharing, mandatory purchase requirements, and public reinsurance, can alleviate adverse welfare effects and the burden on public budgets.

Trade-induced land-use transitions and greenhouse gas emissions: The case of the EU-Mercosur free-trade agreement

Currently, land use change (LUC) accounts for approximately 18.8% of all greenhouse gas (GHG) emissions globally, and up to 66% and 70% in Brazil and Paraguay respectively. However, owing to measurement difficulties, examining the effects of changing trade patterns is often overlooked in studies. This study aims to investigate the induced effects of LUC and their consequences concerning GHG emissions for the EU-Mercosur free trade agreement. A multi-regional computable general equilibrium (CGE) model with an explicit land module is used to simulate the effects of the free trade agreement. GHG emissions are calculated for LUC, fossil energy CO2, and non-CO2 emissions to capture a wide range of sources and reveal their relative contributions. The study finds that as a more extensive liberalization scheme is implemented, the majority of global GHG emissions change are driven by LUC, consisting up to 89.9% of the total increase. These findings align with previous studies. Nonetheless, we argue that for Latin America, where LUC and deforestation are historical problems, careful consideration of LUC and agriculture GHG sources is necessary to address the potential environmental impacts of trade agreements.

Quantitative simulation of ecological compensation approaches in transboundary watersheds of China: A scenario analysis based on a multi-regional CGE model

Watershed ecological compensation is becoming increasingly important as an effective way to achieve transboundary watershed governance. The large regional differences in economic development and watershed governance across China require the implementation of regionally differentiated policies. Previous studies have not systematically examined the potential impacts of ecological compensation approaches at the regional scale in China. As the Beijing-Tianjin-Hebei region is representative of China with severe watershed problems, the establishment of a watershed ecological compensation mechanism in this region has a demonstrated effect on solving regional co-management problems. By establishing a multi-regional dynamic CGE (Computable General Equilibrium) model with water quality and quantity control as constraints, the long-term impacts of different ecological compensation methods on different districts are assessed in terms of economic development, social welfare and water environment management, based on which the preferred compensation methods for the development of the three districts and the whole region are to be identified. The study shows that: Ⅰ) Different compensation approaches have varying impacts on regional ecology and economy, and trade-offs need to be made between the two to choose the appropriate compensation approach to provide a long-term incentive for regional watershed governance and maintenance; Ⅱ) The compensating areas prefer short-term compensation such as financial subsidies, while the compensated areas prefer long-term compensation such as industrial support; Ⅲ) Financial funds can support the development of primary and secondary industries in the short term, and subsidies to enterprises contribute to the overall economic synergy of the region, while industrial support from compensating areas to compensated area requires long-term layout. Accurate measurement of the potential impacts of different ecological compensation approaches can provide a scientific basis for the establishment of a long-term ecological compensation mechanism, and the model can also be applied to other regional policies to provide a reference for solving transboundary governance issues.

The unintended dilemma of China's target-based carbon neutrality policy and provincial economic inequality

Target-based carbon mitigation could be an essential strategy for achieving carbon neutrality. However, how carbon reduction will affect economic balance across different regions remains unclear. Here, with a newly developed dynamic multi-region computable general equilibrium model for China's 31 provincial economies, we examine the regional economic impacts of different carbon quota arrangement schemes. It is found that without fostering new growth engines driven by low-carbon industries, the national stringent carbon restrictions will bring an ‘economic sabotage’ with deteriorated regional equity and polarized the industrial structures, especially in the fossil-fuel reliant north China. Carbon shadow prices and costs play a prominent role and cause rippling effects in this regionally imbalanced recession, depending on energy, industrial structures and endowments. Furthermore, no prevailing carbon quota arrangements, either by historical, intensity, or capacity rules, could resolve the dilemma between equality and effectiveness in our simulation. By contrast, to offset the regionally unbalanced shock of decarbonization, it is important to cultivate low-carbon industries timely to compensate for the potential transition costs in the long run.

Impact of Energy Productivity and Industrial Structural Change on Energy Intensity in China: Analysis Based on Provincial Panel Data

Since 2000, China’s energy intensity has shown a fluctuating downward trend. Most existing studies have attributed the decline to technological progress, and only a few studies have recognized the role of industrial structure change. In this paper, a multi-region and multi-sector CGE (computable general equilibrium) model and a numerical simulation method are used to study how technological progress and structural transformation affected the energy intensity of 30 provincial-level regions in China from 2000 to 2019. The results show the following points. (1) The contribution of technological progress to the decline in energy intensity was the highest in the central region, followed by the western region, and was the lowest in the eastern region. (2) The progress of energy technology in the agriculture and industry sectors promoted the transition of energy consumption to the service sector, thereby reducing the overall energy intensity. This effect was the strongest in the eastern region, followed by the central region, and was the weakest in the western region. (3) The progress of energy technology in the service industry promoted the transition of energy consumption to industry and agriculture, thereby enhancing the energy intensity, and this effect was the strongest in the eastern region, followed by the western region, and the weakest in the central region. The conclusion of this paper provides a theoretical basis for realizing regional carbon peaking in sequence in China.

Assessing the economic implications of national climate change mitigation policies on cities: A CGE analysis of Auckland, New Zealand

Computable General Equilibrium (CGE) models have proven to be instrumental in the climate policy literature. Although their use at the sub-national level has increased, their application to assess the implications of national climate policies on cities is scarce due to the low availability of city-level economic and environmental data. Cities could play an instrumental role in the fight against climate change as they are home to more than half of the world population, generate more than 80% of global Gross Domestic Product (GDP) and are responsible for 75% of global greenhouse gas (GHG) emissions. National CGE assessments of climate policies overlooking cities could result in missing major opportunities to achieve ambitious reduction targets considering that cities are centres of innovation and wealth. Hence, the objective of this study is to fill that gap in the literature by developing and using a recursive dynamic, multi-regional CGE model to link a city's economy to the rest of the nation to assess the direct and indirect economic impacts from national GHG emissions reduction pathways. The city of Auckland, New Zealand (NZ) has been used as a case study due to the city's proactive climate mitigation plans. The model and scenarios used resemble the ones developed by the New Zealand Climate Change Commission (CCC) to inform national policy advise provided to the government. Additional scenarios were developed to incorporate Auckland's growth and climate strategies. The results showed that in contrast to the rest of New Zealand, the impacts on the Auckland economy are more pronounced as reflected by the more drastic percent changes (with respect to baseline) of the regional GDP (−6% for Auckland and −1% for NZ) and consumer welfare (−5% for Auckland and 1% for NZ). The more pronounced impacts on Auckland are due to the difference in profile emissions (e.g., urban versus rural sectors), fewer low-emission technological alternatives (e.g., rural technologies do not cater to urban sectors' needs), and indirect impacts from importing agricultural products with a higher price tag due to rising GHG prices. This study's contribution in the climate policy literature is to serve as evidence and precedent to carefully evaluate the nuances encountered in complex urban systems when developing national climate policies considering that the number of countries establishing legally binding reduction targets is continually increasing.

Carbon pricing, carbon equity, and the RCEP framework

Trade liberalization in the Regional Comprehensive Economic Partnership (RCEP) not only contributes to regional economic growth but also leads to an increase in energy consumption and carbon emissions, which may exacerbate climate change risks. This study aims to explore the carbon pricing issue in the context of the RCEP framework. Additionally, for the sake of carbon equity, we introduce a differentiated carbon pricing scheme based on the cost fairness principle (CPCF), and the unified carbon pricing was used for a cost effectiveness analysis. The empirical analysis was conducted with a global multi-regional computable general equilibrium model. The results show that with the help of trade liberalization, the RCEP's GDP, energy consumption, and carbon emissions may increase by 0.639%, 1.962%, and 1.897%, respectively. The CPCF scheme, wherein developed countries assume the primary abatement burden, can be used to offset the increase in carbon emissions from trade liberalization while RCEP members maintain positive economic growth. The total abatement cost of the CPCF for carbon offsets in the RCEP can be reduced via unified carbon pricing, and the cost-saving effect approaches 24.24%. Unified carbon pricing may result in a carbon price of US $5.83 within the RCEP. As such, this study explores carbon pricing in the context of trade liberalization, and its findings will be valuable for the RCEP to achieve a win-win situation in terms of economic growth and climate change.

Increase in Inbound Tourists and Long-Term Decline of Rural Economy in Japan: A Multi-Regional Computable General Equilibrium Analysis

Growth in inbound tourism is expected to stimulate the Japanese economy because expenditure incurred by tourists could compensate for the decrease in consumption owing to the country’s declining population. This study conducted a simulation analysis using a multi-regional computable general equilibrium model to examine the economic impact of inbound tourists on 47 Japanese prefectural level regions. As inbound tourists visit all the regions, their economy grows in the short term. However, the impact is greater in the urban areas, which receive a higher number of tourists than the rural areas. Moreover, over the long term, people migrate from rural to urban areas where there is higher growth, leading to further growth and commercialization of urban areas. Therefore, rural regions could still suffer even if tourism leads to overall economic growth. For the development of rural regions, it is necessary to attract inbound tourists specifically to these areas.

Modeling the energy mix and economic costs of deep decarbonization scenarios in a CGE framework

This paper investigates the energy mix and welfare implication of deep decarbonization pathways with net negative emission technologies for North America and globally to 2050 in a computable general equilibrium (CGE) framework. The analysis uses an integrated assessment model (IAM), the Global Change Assessment Model (GCAM), to develop three bounding emission scenarios: i) A business as usual pathway (BAU), ii) A pathway bounded by the Nationally Determined Contributions and attaining a 2°C end of century target (NDC-2°C), and iii) An increasing ambition pathway that attains a 1.5°C end of century target (NDC-1.5°C). The energy mix and economic impacts of these emissions pathways are then evaluated using Environment Canada's Multi-Sector, Multi-Regional (EC-MSMR) CGE model. When bioenergy with carbon capture and storage (BECCS) and direct air capture (DAC) are available, they play an important role in achieving emission reductions. Allowing the use of DAC preserves an additional 5% to 20% of the share of fossil fuels in North America. Including DAC in deep decarbonization pathways lowers the welfare loss by up to ∼1% globally compared to those without DAC in 2050. This finding is robust to both the estimated price of and constraints on DAC deployment. Increasing the potential for fuel switching in the CGE model further reduces the welfare effects for deep decarbonization.

A low-carbon and hunger-free future for Bangladesh: An ex- ante assessment of synergies and trade-offs in different transition pathways

Feeding and nourishing a growing global population in Bangladesh is a major challenge in a changing climate. A multi-level participatory scenario approach with corresponding modeling and decision support tools is developed and applied to support decision-makers in developing scenario-guided enabling policy for food security in the future under climate change. The results presented in this paper show how, under different scenarios, the agri-food system may transform in the next decade as a result of the interaction of intertwined institutional, technological, and market drivers in Bangladesh. For scenario building, the food and agriculture community was brought together with the climate and energy community. We also experimented with different ways to bring voices that are often less included in policymaking, such as poor rural communities and youth. The scenario quantification is performed by MAGNET, a GTAP-based multi-sector and multi-region computable general equilibrium model. The simulation results depict a comprehensive picture of corresponding and varied pressures on agricultural resources and opportunities for economic development and trade in Bangladesh. Finally, we did an ex-ante assessment of the trade-offs and synergies between zero-hunger- and zero-emission-related targets within the Bangladesh Sustainable Development Goals (SDGs) under the developed scenarios.

Macroeconomic and environmental impacts of circular economy innovation policy

In this paper, we quantify the macroeconomic and environmental impacts of an innovation-driven shift towards a circular economy, with specific emphasis on distribution impacts across regions and sectors. In contrast to most of the existing literature, we use a very wide range of circular economy objectives, taken from recently published Circular Economy Strategic Research Agenda, developed for the European Commission. We first quantify the qualitative objectives, and then use a multi-region Computable General Equilibrium model to estimate economic and environmental impacts of the entire agenda and its sub-components. We show that although many elements of a circular future have strong positive economic and environmental effects, only a wide-ranging portfolio of measures can address a wide range of pollutants. We also show that a shift to a circular economy can have large distributional effects, geographically but especially between individual sectors. This demonstrates that circular economy policy is unlikely to be feasible and socially accepted without the support of complementary re-distributional policies.

Improving the regional deployment of carbon mitigation efforts by incorporating air-quality co-benefits: A multi-provincial analysis of China

It is critically important to include the co-benefits of abated air pollution when sharing carbon mitigation efforts among provinces. Therefore, using a Chinese multi-regional computable general equilibrium model, this study incorporated the pollutant co-benefits into the carbon marginal abatement cost curves and evaluated the inter-provincial abatement effort sharing for China's provinces to achieve the Nationally Determined Contribution target. Results show that the more developed eastern economies face higher abatement costs under the same abatement level compared to the less developed central and western provinces. Second, in the composition of total co-benefits among provinces, the co-benefits of SO2 reductions exceed 60% followed by the co-benefits of NOX and PM2.5 reductions. Finally, the provincial abatement costs will be offset by 4.3% to 18.9% after considering the co-benefits. Specifically, provinces with high per capita GDP and energy-intensive industries (e.g. Shandong, Liaoning, and Jilin) and some provinces with energy production bases (e.g. Inner Mongolia, Shanxi, and Xinjiang) have higher co-benefits and offset the more abatement costs; therefore, they can consider raising abatement efforts. Moreover, provinces with high economic levels but fewer co-benefits (e.g. Beijing, Tianjin, and Shanghai) can consider providing climate funding or transferring abatement technologies to support the abatement work of less developed provinces.

Carbon Emission Reduction Cost Assessment Using Multiregional Computable General Equilibrium Model: Guangdong–Hong Kong–Macao Greater Bay Area

Carbon emissions reduction is an urgent global call to action, and for China, the nation with the largest carbon dioxide emissions, the task is especially arduous. For a country like China with many provinces and cities and unbalanced regional economic development, how to balance carbon emission reduction targets with economic development goals has become a social concern. Estimating the emission reduction costs of economic entities at all levels and reasonably allocating emission reduction tasks are the basic prerequisites for sustainable urban development. Based on an input–output (IO) table analysis of the socioeconomic data of Guangdong Province from 2017, this paper uses RAS and other data reconciliation methods to decompose various statistical data based on cities and industries. A multiregional IO table of nine cities in Guangdong Province in the Guangdong–Hong Kong–Macao Greater Bay Area (GBA) is obtained, and a multiregional computable general equilibrium (CGE) model of Guangdong Province is established. Using this model, this paper explores city-level differences in carbon emissions reduction costs while accounting for differences in economic development under industry-wide coverage. A scientific basis for the allocation of urban carbon quotas is provided, which is particularly important for the sustainable development of cities. First, the carbon emissions reduction cost (carbon price) of each city is related to the intensity of emissions reduction and the present carbon intensity, both of which are affected by cities’ industrial and trade structures. Second, under neoclassical closure conditions, carbon emissions reduction is found to have less impact on the overall gross domestic product (GDP). At the industrial level, the high-carbon sectors are the most affected, whereas the low-carbon sectors are less affected. Notably, some industries become beneficiary sectors. Under Keynesian closure conditions, carbon emissions reduction has a greater impact on overall GDP, and all cities and industries are generally affected, especially those that are currently carbon- and trade-intensive. Third, to ensure the achievement of emissions reduction targets and minimize negative economic impacts, it is determined that the direct and opportunity costs of carbon emissions reduction must be fully considered when allocating carbon allowances, and optimal solutions should be derived from the combined perspective of fairness and efficiency.

Estimating the economic impact of large hydropower projects: a dynamic multi-regional computable general equilibrium analysis

AbstractIn response to rapidly growing energy demands, Chinese authorities plan to invest more in hydropower development. However, there are concerns about the possible effects on macroeconomy. This paper uses SinoTERM, a dynamic multi-regional computable general equilibrium model (CGE) of the Chinese economy, to analyze the economic impact of large hydropower development projects. The model features regional labor market dynamics and an electricity subdivision module with substitutability between various types of electricity generation. The results suggest that hydropower development will boost economic growth in the project region. Most sectors in the project region will benefit from the hydropower development such as other services, health, and education, while some sectors will suffer a loss in output because of the substantial increase in real wages. For the national, every 10,000 yuan investment can drive the national GDP growth of 1,000 yuan, and the cost is expected to be recovered in ten years. By the end of 2040, the real national wage will be around 0.16% higher than the baseline scenario. The project could only be justified if net environmental benefits outweigh this loss.

Regional responses to macroeconomic and regional policy in Poland

PurposeThe purpose of this paper is to investigate regional impact of macroeconomic and regional policy impulses, using our newly developed multi-regional computable general equilibrium (CGE) model for three, structurally distinctive Polish macro-regions.Design/methodology/approachIn this study, we build an interregional social accounting matrix for Poland and use it to develop a small scale, three-region CGE model, reflecting the size of regional economies and cross-regional differences in industrial structures, while also explicitly accounting for the dynamics of main economic relationships across regions, such as interregional flows in commodities, labor and capital. The model is subsequently use to simulate regional effects of various policy impulses.FindingsWe demonstrate important cross-regional differences in the transmission mechanism of macro-level policies, which either affect regional output and its individual components (as in the case of imposing shocks to VAT or PIT rates) or are limited to the components, while preserving a rather uniform impact on output (as in the case of imposing shocks to wages). Furthermore, we contribute to the regional policy equity-efficiency trade-off debate, by illustrating quantitatively how, due to structural differences, spatially targeted expenditure measures might promote either regional convergence or aggregate output growth at the country-level.Originality/valuePrior to our study, regional CGE models have not been used to simulate spatial distribution of aggregate shocks in Poland or in any other CEE country. Another originality of our study lies in comprehensive evaluation of various policy impulses, from the perspective of their impact on the respective region, spillovers to the other regions and its overall, country-level effect.

Estimating the economic impact of large hydropower projects: a dynamic multi-regional computable general equilibrium analysis

Abstract In response to rapidly growing energy demands, Chinese authorities plan to invest more in hydropower development. However, there are concerns about the possible effects on macroeconomy. This paper uses SinoTERM, a dynamic multi-regional computable general equilibrium model (CGE) of the Chinese economy, to analyze the economic impact of large hydropower development projects. The model features regional labor market dynamics and an electricity subdivision module with substitutability between various types of electricity generation. The results suggest that hydropower development will boost economic growth in the project region. Most sectors in the project region will benefit from the hydropower development such as other services, health, and education, while some sectors will suffer a loss in output because of the substantial increase in real wages. For the national, every 10,000 yuan investment can drive the national GDP growth of 1,000 yuan, and the cost is expected to be recovered in ten years. By the end of 2040, the real national wage will be around 0.16% higher than the baseline scenario. The project could only be justified if net environmental benefits outweigh this loss.

Would carbon tax be an effective policy tool to reduce carbon emission in China? Policies simulation analysis based on a CGE model

ABSTRACT In China’s 2019 VAT reform, the VAT rate for manufacturing was adjusted from 16% to 13%. This inevitably promotes manufacturing production and triggers a substantial increase in carbon emissions. Would carbon tax be an effective policy tool to offset the negative externalities of the VAT reform on carbon emissions? We construct a multi-regional dynamic-recursive computable general equilibrium (CGE) model to evaluate this possibility and to investigate the potential impacts on the economy, energy, and environment arising from this reform. The scenarios set includes the VAT reform policy, a carbon tax, and three combined policies. The results show that while China’s VAT reform is a positive fiscal policy that can boost long-lasting macroeconomic development, it has a negative impact on environmental protection. A carbon tax can significantly curb traditional energy consumption and emissions, but it would hinder economic development. Combined policies yield ‘double dividends’, that is, a long-run increase in macroeconomy and emissions reductions will be achieved, helping China to attain its Intended Nationally Determined Contributions goal. The combination of VAT reform and a stepped carbon tax maintains a more stable economic growth while sustaining carbon emission abatement.