Multi-regional Computable General Equilibrium Model Research Articles

Regional burden sharing of GHG mitigation policies in a decentralized federation

The distribution of the burden of cost of GHG mitigation policies is a contentious issue. This is particularly true among regional jurisdictions within a federal country with decentralized power. The regional allocation of emissions permits could hinder the political feasibility of national GHG mitigation policies. We build a multi-region computable general equilibrium (CGE) model to assess the implications of different burden sharing rules in a hypothetical national GHG abatement policy with a market-based instrument. In addition to assessing the impacts of regional permit allocation rules that entail inter-regional transfers of wealth, we consider a particular emissions allocation scheme, called ‘no prior entitlement’ (NPE), that avoids such transfers. The insights derived from the simulations suggest that the NPE policy avoids the politically contentious issues of inter-regional transfers of scarcity rents. Its welfare impact lies between those in the entitlement-based permit allocation schemes.

Deforestation Control and Agricultural Supply in Brazil

AbstractBrazil has dramatically increased its agricultural area under cultivation, in the process becoming a major food exporter at the cost of natural forests. A new challenge is to meet the food demands of an expanding world population in the face of pessimistic climate change scenarios and the increasing scarcity of land. Can Brazil help meet rising world food demand while conserving its tropical rainforests? To address this question we simulate outcomes using a large dynamic multiregional computable general equilibrium model of Brazil to model land use over 20 years in 90 zones and 14 agricultural sectors. The model features a land‐use change module based on a transition matrix obtained from satellite imagery. We analyze two scenarios of deforestation reduction, both linked to actual policy proposals. Model results indicate several mechanisms that allow food output to increase without expanding land supply. In particular, we stress the role of Brazil's vast, low‐yield pasture area as a source of future cropland. Thus, we find that controlling deforestation leads to rather small decreases in food output—which could be neutralized by tiny exogenous productivity improvements. We conclude that the decrease in deforestation will not significantly compromise Brazilian agricultural supply capacity in the foreseeable future.

Socioeconomic impacts of hydropower development on the Yibin–Chongqing section, upper reaches of the Yangtze River

The aim of this paper is to quantify the socioeconomic impacts of hydropower development to reflect its positive functions from multiple perspectives and dimensions. By applying the multi-regional Computable General Equilibrium (CGE) model to a case study of the Yibin–Chongqing section along the upper reaches of the Yangtze River, the analysis shows that hydropower development has outstanding benefits for the regional economy and livelihood improvement, as proved by various indicators including consumption, investment, GDP, employment, and income. Meanwhile, application of the CGE model provides an effective way to quantitatively assess the socioeconomic impact of hydropower and other clean energy development.

Modeling the Impacts of Urbanization and Industrial Transformation on Water Resources in China: An Integrated Hydro-Economic CGE Analysis

Pressure on existing water resources in China is expected to increase with undergoing rapid demographic transformation, economic development, and global climate changes. We investigate the economy-wide impacts of projected urban population growth and economic structural change on water use and allocation in China. Using a multi-regional CGE (Computable General Equilibrium) model, TERM (The Enormous Regional Model), we explore the implications of selected future water scenarios for China’s nine watershed regions. Our results indicate that urbanization and industrial transformation in China will raise the opportunity cost of water use and increase the competition for water between non-agricultural users and irrigation water users. The growth in water demand for domestic and industrial uses reduces the amount of water allocated to agriculture, particularly lower-value and water-intensive field crops. As a response, farmers have the incentive to shift their agricultural operations from traditional field crop production to higher-value livestock or intensive crop production. In addition, our results suggest that growing water demand due to urbanization and industrial transformation will raise the shadow price of water in all nine river basins. Finally, we find that national economic growth is largely attributable to urbanization and non-agricultural productivity growth.

Modeling Firm Heterogeneity in International Trade: Do Structural Effects Matter?

This paper analyzes the qualitative properties of a multisectoral, multiregional computable general equilibrium model where some industries include heterogeneous firms as in Melitz (2003). The model, formulated according to Roson and Oyamada (2014), adds endogenous productivity effects to a standard Walras-Ricardian framework. We argue that the inclusion of such effects changes the magnitude and distribution of welfare benefits obtainable by reductions in trade barriers, due to of comparative advantages. We illustrate the point through a numerical example, in which alternative model formulations are assessed. A standard neoclassic GE model, a basic Melitz model and a hybrid model are then compared. The three model versions are all calibrated with the same data set and an identical simulation experiment (a 50% reduction of transport costs between two regions) is carried out in the three cases. The results show that the hybrid model displays the largest welfare gains, as it combines Ricardian comparative advantages with Melitz average productivity improvements. However, they also show that new effects, not present in the original Ricardo and Melitz frameworks, are at a work.

Does Trade Liberalization Promote Regional Disparities? Evidence from a Multiregional CGE Model of India

Summary Over last few decades, there has been a growing interest among researchers in understanding the link between trade liberalization and regional disparities within the context of an individual country. In this study, we develop the first ever single-country multiregional Computable General Equilibrium (CGE) model for the Indian economy to investigate this linkage. Overall our results suggest that, in the short run, trade liberalization has a beneficial impact on the rich and fast-growing middle-income states and a marginal or negative impact on the poor states.

ASSESSING MULTIREGIONAL ECONOMIC IMPACTS OF ALASKAN FISHERIES: A COMPUTABLE GENERAL EQUILIBRIUM ANALYSIS

Alaskan industries, including the seafood industry, are characterized by strong linkages with the rest of the United States, including a large leakage of factor income to, and large imports of goods and services from the rest of the US, especially the West Coast region. This study develops a multiregional computable general equilibrium (MRCGE) model of three US economic regions: Alaska (AK), the West Coast (WC), and the rest of the US (RUS). The model is applied to issues affecting Alaskan fisheries, and is used to calculate the multiregional economic effects, including spread effects, of changes in: (i) the volume of fish caught off AK; (ii) the demand for Alaskan seafood by both the US and the rest of the world; and (iii) currency exchange rates.

REDD in the Carbon Market: A General Equilibrium Analysis

Deforestation is a major source of CO2 emissions, accounting for around 17 % of annual anthropogenic carbon release. While costs estimates of reducing deforestation vary depending on model assumptions, it is widely accepted that emissions reductions from avoided deforestation consist of a relatively low cost mitigation option. Halting deforestation is therefore not only a major ecological challenge, but a great opportunity to cost effectively reduce climate change impacts. In this paper, we analyze the impact of introducing avoided deforestation credits into the European carbon market using a multiregional Computable General Equilibrium model. Taking into account political concerns over possible “flooding” of credits from reduced emissions from deforestation and forest degradation (REDD), limits to the number of these allowances are considered. Finally, we account for both direct and indirect effects occurring on land and timber markets resulting from lower deforestation rates. We conclude that avoided deforestation notably reduces climate change policy costs—approximately by 80 % with unlimited availability of REDD credits—and may drastically reduce carbon prices. Policy makers may effectively control for this imposing limits to REDD credits use. Moreover, avoided deforestation has the additional positive effect of reducing carbon leakage of a unilateral European climate change policy. This is good news for the EU, but not necessarily for REDD regions. We show that REDD revenues are not sufficient to compensate REDD regions for a less leakage-affected and more competitive EU in international markets. In fact, REDD regions would prefer to free ride on the EU unilateral mitigation policy.

Economic impacts of climate change in the forest sector: a comparison of single-region and multiregional CGE modeling frameworks

Climate change impacts on forests are largely expected to intensify over the next few decades. Computable general equilibrium (CGE) modeling is increasingly becoming a popular tool for assessing these impacts. Previous analyses in this area have been based on either single-region or multiregional CGE model specifications, each with their own advantages and disadvantages. To date, however, there has been no systematic comparison of the potential differences in economic impact estimates between the two CGE model specifications. To examine the extent of these potential differences, we conducted a comparative economic impact analysis of climate change in the forest sector across Canadian provinces, the United States, and the rest of the world using dynamic, single-region and multiregional CGE models over the 2006–2051 period. Results revealed that, within each region, different model specifications produced unique economic impact estimates, differing by as much as 18% under each climate change scenario considered. Overall, a majority of Canadian regions recorded smaller (in absolute value terms) and more positive economic impacts using single-region models compared with the multiregional model. Differences in international trade specifications between models, together with unique climate change impact considerations across regions, played key roles in the findings. While few general conclusions emerge from this analysis, it is clear that CGE model specifications can have a significant effect on regional economic impact estimates of climate change in the forest sector. Thus, caution is advised when using the estimates of any one CGE model for policy purposes.

The interaction of spatial planning and transport policy: A regional perspective on sprawl

Urban sprawl is caused by the interlinkage of spatial planning and transport characteristics. However, there are only a few approaches that quantify the cross-impacts of policy options in these two spheres. The purpose of this paper is thus a combined regional analysis of spatial planning instruments and transport policy, with a special emphasis on urban–rural diversities. We link a multi-region computable general equilibrium model that incorporates elements of the new economic geography with a transport forecast model. The general equilibrium model illustrates residential choice between urban and peripheral regions, while the transport model depicts the transport implications thereof. Our results suggest that transport policy is obviously effective in addressing transport externalities, while it would have to be set at a politically infeasible stringency to have an effect on residential patterns. As for spatial planning instruments (i.e., expanding housing supply in central regions or limiting it in peripheral regions), we find a strong potential to influence residential choice and hence urban sprawl. Along this line, spatial planning instruments do have a small but still significant impact on reducing transport volume and number of trips. This impact can be enhanced by a policy promoting public transport

Modeling Firm Heterogeneity in International Trade: Do Structural Effects Matter?

This paper analyzes the qualitative properties of a multisectoral, multiregional computable general equilibrium model where some industries include heterogeneous firms as in Melitz (2003). The model, formulated according to Roson, R. and Oyamada (2014), adds endogenous productivity effects to a standard Walras-Ricardian framework. We argue that the inclusion of such effects changes the magnitude and distribution of welfare benefits obtainable by reductions in trade barriers, due to of comparative advantages. Abstract We illustrate the point through a numerical example, in which alternative model formulations are assessed. A standard neoclassic GE model, a basic Melitz model and a hybrid model are then compared. The three model versions are all calibrated with the same data set and an identical simulation experiment (a 50% reduction of transport costs between two regions) is carried out in the three cases. The results show that the hybrid model displays the largest welfare gains, as it combines Ricardian comparative advantages with Melitz average productivity improvements. However, they also show that new effects, not present in the original Ricardo and Melitz frameworks, are at a work.

Economics of Bioenergy

Amani Elobeid 1 and Miguel Carriquiry 2 and Silvia Secchi 3 and Tun-Hsiang (Edward) Yu 41, Center for Agricultural and Rural Development, Iowa State University, Ames, IA 50011-1070, USA2, Facultad de Agronomia, Univeridad de la Republica, Avenue Eugenio Garzon 780, Montevideo 12900, Uruguay3, Department of Agribusiness Economics, Southern Illinois University, Carbondale, IL 62901-4619, USA4, Department of Agricultural and Resource Economics, The University of Tennessee, Knoxville, TN 37996-4518, USAReceived 7 November 2013; Accepted 7 November 2013This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.There has been worldwide support for the production and use of renewable energy sources, especially through major policy initiatives relating to climate change and bioenergy. These policies include the United States' Environmental Protection Agency's Renewable Fuel Standard (RFS2) and the American Clean Energy and Security Act (ACES) of 2009 (H.R. 2454), Brazil's 2009 National Climate Change Policy, Canada's 2006 Renewable Fuels Regulations, and the European Union's 2009 Energy and Climate Change Package. The rationales behind these policies have been multifold, ranging from less reliance on imported fuels, reducing energy prices, and improving the rural economy to mitigating climate change. Some have argued that bioenergy has not delivered on its promise of energy security and reduction in greenhouse gas emissions, especially in the case of field crops utilized to produce biofuels, bioheat, and biopower. The economic and environmental consequences of this bioenergy expansion have not been fully understood, primarily because bioenergy markets are not well developed and are still in flux. The main objective of this special issue is to better understand the emergence of bioenergy markets and explore the direct or indirect consequences of the expansion of this alternative energy source on the economy, energy, and commodity markets and associated environmental impacts at the country, regional, or global level. The broad range of environmental and economic impacts of biofuel production as well as their dependence on specific feedstocks and landscapes is reflected in the articles of this special issue.Y. W. Zhang and B. A. McCarl analyze the effects of autonomous adaptation-adjusted climate change and the Renewable Fuel Standard (RFS2) on US agriculture. For this analysis, the authors use the agricultural component of the FASOMGHG model, which models land use allocation within the US agricultural sector. The results show that while the impacts of climate change and RFS2 act in opposite directions, there is a net positive effect on agricultural consumer welfare and agricultural producer income. The results also suggest that, for RFS2 biofuel production, climate change promotes the use of crop residues and energy crops (other than switchgrass) for cellulosic ethanol production.F. Taheripour and W. E. Tyner use a multiregional computable general equilibrium model (GTAP-BIO), modified to include second-generation biofuels, to evaluate induced land use change (ILUC) emissions for alternative biofuel pathways in the United States. They calculate the ILUC emissions using four existing major emission factors and examine the uncertainties related to these factors and their consequences for the estimated ILUCs. The results show that the production of biofuels from dedicated energy crops shifts existing marginal cropland-pasture to crop production and also causes moderate deforestation. The largest land use change is generated from growing switchgrass as a biofuel feedstock while the lowest land use change is generated from Miscanthus for bio-gasoline production. This result is mainly due to the assumed yields for the two crops. …

Proposal for a national inventory adjustment for trade in the presence of border carbon adjustment: Assessing carbon tax policy in Japan

In this paper we pointed out a hidden inequality in accounting for trade-related emissions in the presence of border carbon adjustment. Under a domestic carbon pricing policy, producers pay for the carbon costs in exchange for the right to emit. Under border carbon adjustment, however, the exporting country pays for the carbon costs of their exports to the importing country but not be given any emission credits. As a result, export-related emissions will be remained in the national inventory of the exporting country based on the UNFCCC inventory approach. This hidden inequality is important to climate policy but has not yet been pointed out. To address this issue we propose a method of National Inventory Adjustment for Trade, by which export-related emissions will be deducted from the national inventory of the exporting country and added to the national inventory of the importing country which implements border carbon adjustment. To assess the policy impacts, we simulated a carbon tax policy with border tax adjustment for Japan using a multi-region computable general equilibrium model. The results indicate that with the National Inventory Adjustment for Trade, both Japan′s national inventory and the carbon leakage effects of Japan′s climate policy will be greatly different.

Assessing the economic impact of North China’s water scarcity mitigation strategy: a multi-region, water-extended computable general equilibrium analysis

This paper describes a multi-region computable general equilibrium model for analyzing the effectiveness of measures and policies for mitigating North China’s water scarcity with respect to three different groups of scenarios. The findings suggest that a reduction in groundwater use would negatively affect economic growth and household incomes. A planned water-transfer project would improve economic development and reduce the over-exploitation of local water resources, while water demand management policies would improve water-use efficiency through reallocating water to those sectors having a higher marginal product value. Several important policy implications are drawn from these findings.

The consequences of Less Favoured Area support: a multi-regional CGE analysis for Poland

On accession to the EU, Poland, one of the most agricultural countries in Europe, became eligible for the Common Agricultural Policy (CAP), which it perceived as a chance to develop its rural economy. However, in constructing its Rural Development Programme 2007−2013, Poland directed the largest funding share to Less Favoured Areas (LFA) − a controversial measure, which has been accused of poor targeting and ineffectiveness. We analyse the economic consequences of LFA support for all 16 Polish regions according to Nomenclature of Territorial Units for Statistics (NUTS2), using a multi-regional computable general equilibrium model with LFA detail.

Green Revolution research saved an estimated 18 to 27 million hectares from being brought into agricultural production

New estimates of the impacts of germplasm improvement in the major staple crops between 1965 and 2004 on global land-cover change are presented, based on simulations carried out using a global economic model (Global Trade Analysis Project Agro-Ecological Zone), a multicommodity, multiregional computable general equilibrium model linked to a global spatially explicit database on land use. We estimate the impact of removing the gains in cereal productivity attributed to the widespread adoption of improved varieties in developing countries. Here, several different effects--higher yields, lower prices, higher land rents, and trade effects--have been incorporated in a single model of the impact of Green Revolution research (and subsequent advances in yields from crop germplasm improvement) on land-cover change. Our results generally support the Borlaug hypothesis that increases in cereal yields as a result of widespread adoption of improved crop germplasm have saved natural ecosystems from being converted to agriculture. However, this relationship is complex, and the net effect is of a much smaller magnitude than Borlaug proposed. We estimate that the total crop area in 2004 would have been between 17.9 and 26.7 million hectares larger in a world that had not benefited from crop germplasm improvement since 1965. Of these hectares, 12.0-17.7 million would have been in developing countries, displacing pastures and resulting in an estimated 2 million hectares of additional deforestation. However, the negative impacts of higher food prices on poverty and hunger under this scenario would likely have dwarfed the welfare effects of agricultural expansion.

The Short-Run Effects of a Natural Disaster With Imperfect Interregional Labour Mobility

A multi-regional computable general equilibrium (CGE) model is used to simulate the short-run economic impact of a natural disaster that strikes the central business district of Wellington. A key feature of the analysis is the inclusion of an interregional migration response to the loss of regional amenity along with endogenous feedbacks from regional real wage relativities. The model economy describes the behaviour of twenty-five industries across five regions built upon bottom-up micro-foundations. The natural disaster scenario focuses on damage to capital of industries concentrated in the Wellington central business district and the flow-on effects via modelled relationships. The analysis of the simulation results considers the role that regional characteristics and interdependencies play in generating the computed short-run outcomes.

The relevance of process emissions for carbon leakage: A comparison of unilateral climate policy options with and without border carbon adjustment

Climate policy arrangements of partial regional coverage, as they seem to emerge from the UNFCCC process, might lead to carbon leakage and hence a broad literature has developed to quantify leakage. Most of these analyses, however, are confined to consider emissions from fuel combustion only. Yet, some of the most relevant simultaneously energy intensive and internationally trade exposed sectors are also subject to substantial emissions from industrial processes. Carbon dioxide emissions can be released in industrial processes which physically or chemically transform materials. In the steel and cement sectors, for example, these process emissions amount to about half of sector carbon dioxide emissions in many countries. We incorporate industrial process emissions based on UNFCCC data into a multi-sectoral multi-regional computable general equilibrium model and analyze the implications of a unilateral EU 20% carbon dioxide emission reduction policy on leakage and the effectiveness of border carbon adjustment in reducing leakage. By comparing the results to a model without process emissions, we find that leakage of climate policy so far has been underestimated. Leakage turns out to be higher when process emissions are correctly accounted for (38% instead of 29% for combustion emissions only). Conversely, border carbon adjustment measures are found to be roughly twice as effective to reduce leakage rates, when process emissions are correctly accounted for — as carbon adjustment rates are more directly targeted to the relevant sectors. Yet, border carbon adjustment measures should not be seen as a panacea as they might impede necessary technological carbon-free innovation, unless they are phased out over time.

Output-Based Allocation of Emissions Permits for Mitigating the Leakage and Competitiveness Issues for the Japanese Economy

The adoption of domestic emissions trading schemes (ETS) can impose a heavy burden on energy-intensive industries. In particular, energy-intensive industries competing with foreign competitors could lose their international edge. Although the abatement of carbon dioxide (CO2) emissions in industrialized countries entails the reduction of their energy-intensive production, a corresponding increase in the production of energy-intensive goods in countries without CO2 regulations may lead to carbon “leakage.” This paper examines the effects of various allocation methods for granting emissions permits in the Japanese ETS on the economy and CO2 emissions using a multiregional and multisector computable general equilibrium model. Specifically, we apply the Fischer and Fox (2007) model to the Japanese economy to address carbon leakage and competitiveness issues. We compare auction schemes, grandfathering schemes, and output-based allocation (OBA) schemes. We further extend the model by examining a combination of auctions and OBA. Though the auction scheme is found to be the best in terms of macroeconomic impacts (welfare and GDP effects), the leakage rate is high and the harm to energy-intensive sectors can be significant. OBA causes less leakage and damage to energy-intensive sectors, but the macroeconomic impact is undesirable. Considering all three effects — leakage, competitiveness, and macroeconomics — we find that combinations of auctions and OBA (with gratis allocations solely to energy-intensive, trade-exposed sectors) are desirable.

An Open Economy Spatial General Equilibrium Model Considering the Role of Trade Gateway City

Demand for trade transport sector is basically a derived demand for tradable goods. On the other hand, the demand for general industries is influenced by the scale of the transport sector in a trade gateway city. Usually trade transport industries are located near a port or an airport. The locational characteristics have to be considered in order to understand the effect of port/airport policy and trade policy on the regional economy. This paper discusses an open economy multi-region computable general equilibrium model which features the activity of trade related industrial sector, with focus on export and import. The behaviors of the export industry and import industry sectors are explicitly formulated in the model as well as other industrial sector. The numerical analysis presents the implications of the impacts of trade demand shock to trade gateway city and hinterland city.