Multi-sector Computable General Equilibrium Research Articles

A computable general equilibrium analysis of the EU CBAM for the Japanese economy

The EU plans to introduce a carbon border adjustment mechanism (CBAM) to curb carbon leakage and to protect energy-intensive and trade-exposed (EITE) industries. This move by the EU to introduce CBAMs has raised concerns in Japan that it will harm Japanese industry and the Japanese economy. To address these concerns, this study tries to provide an ex ante and quantitative analysis of the economic and environmental effects of the introduction of the EU CBAM. To capture the effects of the EU CBAM, this study employs a global multiregional, multisector computable general equilibrium model with 18 sectors and 17 regions. The main insights obtained from the analysis are as follows. First, we find that the introduction of the EU CBAM significantly reduces carbon leakage from the EU. Second, the effects of the introduction of CBAMs on the GDP and welfare of each country vary from country to country, but the effects are generally very small. While there is a positive impact on GDP and welfare in Japan, the magnitude of the impact is very small. There will also be a negative impact on Japan’s EITE industries, but the magnitude of this impact is very small and not of great concern.

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 Impact of Trade Barriers on Energy Use in Turbulent Times: Current Conditions and Future Outlook for Greece

This paper develops a multi-sector computable general equilibrium (CGE) model with specific features for Greece and the non-EU Rest of the World (RoW). The novelty of this work stems from the lack of energy-focused CGE models for Greece in the current literature. The study’s objective is to determine how the Greek economy would react if a 30% import tariff and a quota of 67% on energy imports and 35% on remaining imports were implemented. Furthermore, if quotas and tariffs are in force, the Greek economy will initiate countermeasures by increasing investment in renewable energies through substitution and a 35% subsidy. To quantify this, the 2015 Input-Output (I-O) table for Greece and the non-EU RoW was used. To offer a better understanding, the 36 production sectors have been divided into Agriculture, Energy, Manufacturing, and Services. The quota scenario resulted in a reduction in all sectors in domestic production in terms of output and domestic uses, with some sectors experiencing around a 30% reduction. Renewable energy investments, on the other hand, have proven to be effective for domestic production, increasing output and domestic uses by (6.561%) and (7.886%), respectively. In terms of import tariffs, prices have increased, resulting in a significant decrease in household consumption that exceeds 30% in several sectors. Finally, policy recommendations for addressing these trade barriers and Greece’s renewable energy opportunities are proposed.

The role of technical change in low-carbon transformation and crises in the electricity market: A CGE analysis with R&D investment

The Russia–Ukraine conflict has exacerbated the global energy and electricity crisis. Considering China's carbon neutrality target, predicting the power market's response to the mandate of energy transformation and the impact of the energy crisis is particularly critical. Technical change is essential for the power sector to solve these crises; however, limited studies have systematically evaluated the role of endogenous technical change in low-carbon transformation of the power sector from an economy-wide perspective. Therefore, applying a multi-sector computable general equilibrium model, this study examines the potential trajectory of research and development (R&D)-based endogenous technical change, investigating the impact of different technical changes on China's power sector, the overall socio-economy, and the energy environment. The relevant results are threefold. First, carbon pricing combined with subsidising renewable electricity is an effective way to reduce emissions to achieve low-carbon transformation in the power sector. This approach can cause relatively moderate losses for the macro-economy and households' welfare. It can also significantly improve the renewable share, electrification rate and synergistic abatement effects on sulphur dioxide and nitrogen oxides. Second, shifting R&D inputs from fossil fuel power generation technology to renewable power technologies should be considered to advance the deep decarbonisation of the power sector. This approach can further improve the renewable share and electrification rate and enhance synergistic abatement effects; however, it can also slightly increase the macro-economic loss. Third, to alleviate the negative impacts to the macro-economy, it is advisable to consider increasing the R&D inputs of various sectors extensively, rather than only increasing that in the power sector. This approach can effectively alleviate the negative impacts on the socio-economy while improving the renewable share with the best synergistic abatement effects.

Resource-use intensity and the labour market: More for less?

Although the circular economy primarily focuses on closing supply chains, residual waste management, and product lifetime extensions, reducing resource use remains critical. This paper examines the system-wide impacts of reducing resource use using a multisectoral computable general equilibrium model. Although not strictly circular, the focus is on a costless ‘technology shock’ that reduces the consumption of intermediate goods in the construction sector and its system-wide effects. The results suggest that there is potential for reductions in CO2 emissions, but this is accompanied with a fall in GDP and employment, with unskilled workers experiencing larger negative employment effects. However, the scale of these GDP and employment effects is small, despite relatively large reductions in resource use. This indicates that technology-induced reductions in resource use have the potential to support the transition towards an economy that uses fewer resources without causing significant disruptions at the macroeconomic level.

The Impacts of China’s Resident Tourism Subsidy Policy on the Economy and Air Pollution Emissions

Currently, tourism is an important contributor to the Chinese economy. The Chinese government issued Several Opinions of the State Council on Promoting the Reform and Development of Tourism and Several Opinions of the General Office of the State Council on Further Promoting Tourism Investment and Consumption, which are aimed at promoting tourism development. In this study, we use a multiregional and multisectoral computable general equilibrium model (CGE model) to simulate the effects of different levels of resident tourism subsidy policies on the economy and environment in China. Our analysis shows that tourism subsidies are beneficial to economic growth and support the transition to a low-carbon society. In addition, resident tourism subsidy policy has a positive effect on the national emission reduction of CO2, CO, NOX, PM2.5, and SO2. At the regional level, more significant emission reduction potential is present in provinces with more energy consumption and a more developed heavy industry, such as Shandong, Guizhou, and Inner Mongolia. Therefore, this study indicates that resident tourism subsidies can be an effective policy suggestion to promote the transition to a green society and air pollutant emission reduction.

Exploring the risk and economic vulnerability of global energy supply chain interruption in the context of Russo-Ukrainian war

The Russo-Ukrainian war intensified the risk of global energy supply chain disruption, causing not only sharp fluctuations in energy prices in a short period of time but also disruptions to the global energy supply and economic and trade orders, with profound effects on global political and economic patterns in the long term. To explore the macroeconomic impact of the energy interruption caused by the Russo-Ukrainian war, a global multi-regional, multi-sector computable general equilibrium model was used for the empirical analysis. The results show that trade interruption alone would significantly impact the Ukrainian economy, causing its real GDP to fall by 4.18%. However, if the United States (US) and the Europe Union (EU) stop importing energy from Russia, the latter's economy will suffer a devastating blow, with a maximum decline in its real GDP reaching 5.49%. Developed countries are likely to incur heavy economic costs owing to their energy sanctions imposed against Russia. However, these costs are mainly borne by European nations, whereas the US suffers limited economic losses. Moreover, the Russo-Ukrainian war has limited impacts on global carbon abatement. In the strictest scenario, global energy consumption and carbon emissions will decrease by 0.600% and 0.915%, respectively. Exploring the boundary effects of the Russo-Ukrainian war on economic growth, energy consumption, and carbon emissions is useful for understanding the complex relationship between geopolitical conflicts, natural resource utilization, and carbon emissions.

Dual carbon goals and the impact on future agricultural development in China: a general equilibrium analysis

PurposeThis paper aims to explore the future path of agricultural development in China toward 2060 under the dual carbon goals, so as to inform better policy choices for facilitating agricultural and rural transformation toward the goal of maintaining food security, sustainable income growth and low carbon emission.Design/methodology/approachThis study employs a single-country, multi-sectoral computable general equilibrium model, CHINAGEM model and develops eight illustrative scenarios to simulate the impacts of attaining dual carbon goals on agricultural development in China. Additional two scenarios have also been designed to inform better policy making with the aim to offset the negative impact of the decarbonization schemes through facilitating agricultural technology progress.FindingsDual carbon goals are projected to impose substantial negative impact on agricultural productions and consumptions in China in the coming four decades. Under the assumption of business as usual, agricultural production will reduce by 0.49–8.94% along with the attainment of carbon neutrality goal by 2060, with the production of cereals and high-value being more severely damaged. To mitigate the adverse impact of the decarbonization schemes, it is believed that fastening technology progress in agriculture is one of the most efficient ways for maintaining domestic food security without harming the dual carbon goals. In particular, if agricultural productivity (particularly, for cereals and high-value products) can be increased by another 1% per year, the production losses caused by carbon emission mitigation will be fully offset. This implies that promoting technology progress is still the best way to facilitate agricultural development and rural transformation in future China.Originality/valueThe paper contributes to the literature in better informing the impact of dual carbon goals on China's agriculture and the effectiveness of technology progress in agriculture on buffering the adverse impact of the decarbonization schemes and promoting agricultural development.

The EU’s Gain (Loss) from More Emission Trading Flexibility—A CGE Analysis with Parallel Emission Trading Systems

The EU has established the world’s first cross-border emission-trading systems (ETS) for greenhouse gas (GHG) emissions, currently covering aviation, emission-intensive sectors, and electricity (EITE). The EU Commission has offered to apply emissions trading in new sectors where emissions from maritime transport will be incorporated into the current EU ETS, while a separated emissions trading system will cover emissions from road transport and the building sector. This paper employs a multi-regional multi-sectoral computable general equilibrium (CGE) model with two simultaneous international emission permit markets. After examining the abatement costs for the EU regions, various policy scenarios are implemented to study the welfare effects of forming an ETS covering the sectors other than EITE (NEIT) and its linking with the EITE sectors under two different baselines and four emission reduction targets. The results provide several important insights: (i) Marginal abatement costs in Germany and the Eastern European Union region (EEU) are significantly lower than in the rest of the EU regions. (ii) The carbon price in the emission permit market covering NEIT is significantly higher than the carbon price in the emission permit market covering EITE. (iii) Germany and EEU appear as notable suppliers of emission permits in both markets. (iv) There is a significant aggregate welfare gain under the scenario in which the ETS covering NEIT co-exists parallel with the ETS covering EITE. (v) The aggregate welfare in the EU under the full integration of EITE and NEIT may fall below its value under the scenario with two parallel emission permit markets.

Short-Term and Long-Term Impacts of Air Pollution Control on China's Economy.

To deal with severe air pollution arising from rapid development, a series of air pollution control policies have been implemented in China. Previous literature has explored the short-term economic impacts of air pollution control, but the long-term economic impacts, which can better reflect the effectiveness of air pollution control, have received less attention. This paper has constructed an integrated assessment framework combining a multi-sectoral computable general equilibrium (CGE) model, air quality estimation module, and health impact module, to explore the short-term (2016) and long-term (2030) impacts of air pollution control on China's economy, by setting 2015 as the base year. The possible future air pollution reduction scenarios were set based on the Thirteenth Five-Year Plan (FYP13) proposed by the Chinese government. Our results have shown that air pollution control would harm China's economy and such adverse effects would be increased by stricter pollution reduction targets. Taking the health benefits of air pollution control into account can effectively alleviate the GDP losses, and even reverse them into economic benefits in the long term. Compared with business-as-usual (BAU) scenario (no policy constraints on SO2 and NOx emissions), the impact of air pollution control on GDP in the TAC_VIII scenario (emission reduction targets of 20% for SO2 and NOx are set every five years after 2015) would change from a loss of 1.20% in 2016 to an increase of 0.28% in 2030. Our results can provide policy implications for the optimization of China's air emissions control in the future.

Is the rebound effect useless? A case study on the technological progress of the power industry

The paper innovatively divides technological progress's actual emission mitigation effect into technical emission mitigation effect, rebound effect, and substitution effect. Then, taking the power sector as an example, the paper applies a dynamic recursive multi-sector computable general equilibrium model to simulate technological progress and explore its effects. The results indicate that the level of the rebound effect somehow is the trade-off between emission reduction and economic growth and social welfare. Price regulation in the power sector can significantly reduce the rebound effect, economic growth, and social welfare. We find that technological progress could affect economic indicators through commodity and factor markets in mechanism analysis. If the commodity market is distorted/regulated, the factor market will be the only market that directly reacts to the progress. We cannot hold that technological progress has been offset because of the rebound effect. To some extent, the benefits of technological progress may not just be emissions mitigation. Based on our conclusion, several specific implications are proposed.

The Unequal Effect of the COVID-19 Pandemic on the Labour Market and Income Inequality in China: A Multisectoral CGE Model Analysis Coupled with a Micro-Simulation Approach.

The COVID-19 pandemic had an unequal impact on the employment and earnings of different labourers, consequently affecting households’ per capita income and income inequality. Combining a multisector computable general equilibrium model of China with a micro-simulation approach, this study aims to analyse the unequal effect of the COVID-19 pandemic on China’s labour market and income inequality. The results confirm the unequal impact of the pandemic on the employment and earnings of different labourer types. Labourers who are female, live in urban areas, and have relatively low education levels would suffer greater losses in employment and earnings. The pandemic would reduce household per capita income by 8.75% for rural residents and 6.13% for urban residents. While the pandemic would have a larger negative impact on the employment and earnings of urban labourers, it would have a greater negative impact on the household per capita income of rural residents. Moreover, the per capita income of low-income households is more vulnerable to the pandemic, and the number of residents living below the poverty line would increase significantly. Thus, the pandemic would aggravate income inequality in China and threaten the livelihoods of poor families. This study could inform researchers exploring the distributional effect of the COVID-19 pandemic in developing countries.

THE CONCEPT OF COMPUTABLE GENERAL EQUILIBRIUM MODELS

This paper contributes to the existing literature on the general concept on use of the Computable general equilibrium (CGE) models of importance in developing processes. Computable general equilibrium (CGE) models are used widely in policy analysis, especially in developed-country academic settings and also for the purpose of sharing these lessons with potential users in developing countries. The range of issues on which CGE models have had an influence is quite wide, and includes structural adjustment policies, international trade, public finance, agriculture, income distribution, and energy and environmental policy. This paper describes how to build multi sector computable general equilibrium models for policy analysis. The article presents the social accounting matrix (SAM) that provides the conceptual framework linking together different components of the model and furnishes much of the data as well.

Could China's long-term low-carbon energy transformation achieve the double dividend effect for the economy and environment?

Exploring the low-carbon energy transformation pathway is vital to coordinate economic growth and environmental improvement for achieving China's carbon peak target. Three energy-target scenarios are developed in this paper, considering the targets of energy structure, electrification rate, and carbon mitigation towards 2030 announced by the Chinese government. A dynamic multi-sectoral computable general equilibrium model, CHINAGEM, is employed to examine the economic and environmental effects under different pathways of long-term low-carbon transformation. It detects that China's energy structure would substantially transfer to the low-carbon and clean one, whereas CO2, SO2, and NOX emissions in 2020-2030 would vastly abate along with all three energy-target scenarios. Different pathways would produce varying positive impacts on China's macro-economy and achieve the different extent of double dividend effects. It is highly conceivable for China to peak its carbon emission at 12.4 GtCO2 by 2028 if it serves the comparatively more stringent low-carbon transformation pathways.

Analysis of the Economy-Wide Rebound Effect of Water Efficiency Improvement in China Based on a Multi-Sectoral Computable General Equilibrium Analysis

The effectiveness of water efficiency improvement is restricted by the water rebound effect by which anticipated water resource saving from improved water efficiency may be partly or wholly offset or even surpassed by an increase in water demand. The economy-wide rebound effect of water efficiency improvement in China is poorly understood. This study explored the economy-wide rebound effect of water efficiency improvement in China based on a multi-sectoral computable general equilibrium model. The results suggested that water efficiency improvement could effectively reduce water consumption in producing sectors and benefit economic growth and employment. However, the decrease in water consumption was much lower than the volume of water efficiency improvement, which indicated that the rebound effect partly offset water savings caused by water efficiency improvement. We observed a larger reduction in water consumption in the long run, which indicated a smaller rebound effect and a more significant effect in saving water resources in the long term. Notably, the total rebound effect in the short-run closure was much larger than that in the long-run closure, and the effect from the production side was much smaller. Hence, the economic-wide rebound effect is primarily derived from the incremental water consumption by households, investors, and governments.

The implication of the Paris targets for the Middle East through different cooperation options

The core of the 36th round of the Energy Modeling Forum project shows that it is more likely that major fossil-fuel exporters, such as the Middle East, are highly affected because of the decrease in fossil-fuel extractions required for the worldwide fulfillment of the Paris agreement. We employ a multi-region, multi-sector computable general equilibrium model of global trade and energy to examine the effects of implementing the Paris agreement with a focus on the Middle East which is further disaggregated into Iran, Saudi Arabia, the rest of net fossil fuel exporting countries (XFE), and the rest of countries (XNE). After examining the abatement costs for the regions, we apply four emission reduction targets, ranging from a low ambition level to a high ambition level. We develop comprehensive scenarios covering several cooperation options within the Middle East and between the Middle East and selected regions outside. The results show that Iran has the lowest marginal abatement cost in the Middle East, followed by XNE, XFE, and Saudi Arabia. If the Middle East does not implement any climate policy, the welfare losses can be slightly compensated due to a carbon leakage to the Middle East. The cooperations within the Middle East are not welfare increasing for the region as a whole when Iran mainly benefits from such cooperation whereas Saudi Arabia loses welfare. The Middle East benefits from global cooperation and the cooperation with Europe, but the cooperation with China, India, or Russia can be welfare decreasing.

On the Spillover Effects of CO2 Taxation on the Emissions of other Air Pollutants

In this paper, we compare and contrast the environmental, macroeconomic and distributive effects of CO2 taxation with the effects of taxing a variety of air pollutants at their external costs. We do so using a multi-sector and multi-household dynamic computable general equilibrium model of the Portuguese economy. We find that a carbon tax of 114 euros per ton of CO2 is necessary to achieve the IPCC 2030 targets. It does so, however, at a high macroeconomic and distributional cost. In turn, the macroeconomic and distributional effects of taxing different pollutants at their external costs in line both qualitatively and quantitatively with the effects of the CO2 taxation. In absolute terms, however, better environmental results in terms of GHG and air pollutants emissions are achieved through the level of CO2 taxation necessary to achieve the IPCC targets than through direct taxation of such emissions at their external costs. Ultimately, the benefits of complementing the CO2 taxation with the taxation of other air pollutants at their external costs does not seem significant from either efficiency, fairness, or environmental perspectives to justify the practical complexity of considering it.

Extreme climate events and economic impacts in China: A CGE analysis with a new damage function in IAM

• A new integrated assessment model (IAM) named EMRICES-2020 was constructed to realize the close connection of the complicated climate change information in ESMs and the social economic growth model. • The coupling technology of the damage function in the climate feedback module for China was then reconstructed and improved by adding the economic impact mechanism of precipitation and extreme climate events. • The improved mode damage function was embedded into the production function of a multi-sector dynamic CGE economic model. • The new damage function has better simulated the sudden economic impact of extreme climate events and the volatility of climatic losses, compared with the Nordhaus damage function. • The long-term forecasting of climatic economic losses under the RCP carbon emission scenarios were simulated and calculated, especially the climatic economic losses of the extreme climate events on the economic activities of industrial sectors. Integrated assessment models (IAMs) have been widely used to assess the effect of climatic policy. They are used to combine economic activity with simple climatic systems. Coupling earth system models (ESMs) to a socioeconomic framework for scientific research on climate change impacts is a challenging task. The coupling mechanism for complicated climate information in ESMs and economic activities, particularly the effects of extreme climate events on economic activities of industrial sectors, needs to be further explored. Therefore, we constructed a new IAM named EMRICES-2021 and improved the key coupling technology of damage function by adding an economic impact mechanism of precipitation, and extreme climate events. Considering the dynamic persistence features of climatic impacts on industrial sectors, we embedded the new damage function into the Cobb-Douglas production function of a computable general equilibrium (CGE) model and simulated future climatic losses on industrial economic system. Results show that the new damage function could better simulate the sudden economic impacts of extreme climate events and volatilities of climatic losses than Nordhaus mode. The cumulative indirect losses caused by extreme weather far exceeded direct losses in RCP scenarios. Climatic economic losses on real estate, finance, wholesale and retail trade increased fastest. Figure 10. Climatic losses to the economic system in various RCP scenarios

The impacts of COVID-19 pandemic on China’s transport sectors based on the CGE model coupled with a decomposition analysis approach

As one of the most vulnerable sectors exposed to the COVID-19 pandemic, transport sectors have been severely affected. However, the shocks and impact mechanisms of infectious diseases on transport sectors are not fully understood. This paper employs a multi-sectoral computable general equilibrium model of China, CHINAGEM, with highly disaggregated transport sectors to examine the impacts of the COVID-19 pandemic on China's transport sectors and reveal the impact mechanisms of the pandemic shocks with the decomposition analysis approach. This study suggests that, first, multiple shocks of the COVID-19 pandemic to transport sectors are specified, including the supply-side shocks that raised the protective cost and reduced the production efficiency of transport sectors, and the demand-side shocks that reduced the demand of households and production sectors for transportation. Second, the outputs of all transport sectors in China have been severely affected by the COVID-19 pandemic, and passenger transport sectors have larger output decreases than freight transport sectors. While the outputs of freight transport sectors are expected to decline by 1.03–2.85%, the outputs of passenger transport sectors would decline by 3.08–11.44%. Third, with the decomposition analysis, the impacts of various exogenous shocks are quite different, while the changes in the output of different transport sectors are dominated by different exogenous shocks. Lastly, while the supply-side shocks of the pandemic would drive output decline in railway, waterway, and aviation transport sectors, the demand-side shocks would drive so in the road, pipeline, and other transport sectors. Moreover, the COVID-19 pandemic has negative impacts on the output of most non-transport sectors and the macro-economy in China. Three policy implications are recommended to mitigate the damages caused by the COVID-19 pandemic to the transport sectors.

Comparison of the impact of China’s railway investment and road investment on the economy and air pollution emissions

Traffic pollution threatens both human health and climate stability. The Chinese government issued the “Mid- and Long-term Railway Network Plan” and the “National Highway Network Plan (2013–2030)” in 2004 and 2013, respectively, aiming at building a national railway network and a national highway network with reasonable layout, wide coverage and economic efficiency. In the future, both railway and road investment will be further increased, which has the potential for a larger impact on air pollution emissions. However, comparison between the impact of railway investment and that road investment in China is lacking. In this study, we use a multiregion and multisectoral computable general equilibrium (CGE) model to investigate the difference in the impact of railway investment and that of road investment on the economy and air pollution emissions in China. We find that with a fixed amount of investment, road investment may lead to more economic growth than railway investment, mainly through influencing the motor equipment, other transport equipment, construction and road transport sectors. In addition, compared to railway investment, road investment promotes a greater emission reduction in CO2, CO, SO2, NOX, and PM2.5, especially in Hubei, Guizhou, and Guangdong provinces, where both energy consumption and the output of heavy industry will decrease significantly. Therefore, future investment in roads has a stronger promotional effect on both economic growth and air pollution emission reduction than railway investment.