Partial Equilibrium Model Research Articles

Reducing agricultural nitrogen use: A price endogenous partial equilibrium analysis in the Yangtze River Basin, China

The overuse of nitrogen fertilizers in agricultural production in China, resulting in negative impacts on the environment, has become a serious issue. Thus, reducing agricultural nitrogen use has become one of the top priorities for achieving the sustainable development goals of the Chinese agricultural sector. Searching for effective approaches to reduce nitrogen use is essential to agricultural and environmental sustainability. In this study, we selected the Yangtze River Basin as the research area, owing to its critical role in Chinese agricultural production, and established a price endogenous partial equilibrium model to simulate the effect of nitrogen use reduction from nitrogen use optimization (NUO) and nitrogen use efficiency improvement (NUE+). Based on agricultural datasets in 2019, simulation results revealed that 1) NUO helped reduce nitrogen use and nitrogen loss by 6.99% and 7.50%, respectively; if changes in the acreage are considered, then the reduction effect will be less significant; 2) nitrogen use decreased continuously with NUE+, and the reduction rate was 7.85%, 15.38%, 22.65%, and 28.02% under the NUE+10%, NUE+20%, NUE+30%, and NUE+40% scenarios, respectively, and nitrogen loss was highly sensitive; and 3) the crop heterogeneity indicated that cereals are regarded as nitrogen-overuse crops and more sensitive to nitrogen use reduction under the NUE+ scenarios than oil crops. Accordingly, in this study, we suggested that practical NUO and NUE+ policies and incentives are necessary, and flexible adjustment strategies for crop-planting structures, such as enlarging the acreage for cereals, may be useful in reducing nitrogen use in the Yangtze River Basin.

The Economic Effects of Potential EU Tariff Sanctions on Russia — A Sectoral Approach

As part of its sanctions regime, the United States recently announced the imposition of punitive import tariffs on 570 product groups from Russia. The European Union may follow suit and enact sanctions on Russia that mirror the US sanctions in scale and scope. Using a sector-specific partial-equilibrium model, we quantify the impact of such mirror sanctions. We find they would inflict on Russia welfare losses of at least $996 million per year — at an overall cost of $150 million to EU consumers. Breaking down these totals in a sectoral analysis, we find that mirroring the US action would produce mixed results from the EU’s perspective. On the one hand, tariff sanctions cover a number of sectors whose inclusion would inflict particularly large welfare losses for Russia and/or high welfare gains for the EU. On the other hand, mirror sanctions would bring significant inefficiencies for the EU. For example, in 72 sectors, higher tariffs would inflict greater harm on the EU than on the Russian economy, causing EU losses in excess of $560 million. Thus, consistent with the spirit of international coordination and alignment, the EU may consider adjusting the suite of tariff sanctions rather than simply adopting the US package.

Evaluating fuel switching options in the Swedish iron and steel industry under increased competition for forest biomass

Significant use of forest biomass in the iron and steel industry (ISI) to mitigate fossil CO2 emissions will affect the biomass availability for other users of the same resource. This paper explores the market effects of increased forest biomass competition when promoting the use of forest-based bio-products in the ISI, as well as the interactions between the ISI and the forest industries. We employ a soft-linking approach that combines a geographically explicit techno-economic energy system model and an economic partial equilibrium model of the forest industries and forestry sectors. This allows for iterative endogenous modelling of new equilibrium price developments for different biomass assortments, determining locational choice of bio-products and assessing optimal bio-products technology choices. The results indicate an upward pressure on biomass prices when bio-products are introduced in the ISI (up to 62%), which affects both forest industries and the ISI itself. Prudence is thus warranted not to render bio-production investments uneconomical ex-post by neglecting to include potential price effects in investment decisions. The estimated price effects can be mitigated by increased domestic biomass supply, adjustments of international trade or by revising relevant policies. Even though the results suggest that the price effects will affect the geographical preferences for individual bio-production plants, proximity to the ISI production facility and integration benefits are more important than the proximity to cheaper biomass feedstocks. Product gas production integrated at ISI sites emerges as particularly attractive, while charcoal production exhibits sensitivity to fluctuating markets, both regarding resulting cost for the ISI, and preferred production locations.

Modelling artificial intelligence in economics

We provide a partial equilibrium model wherein AI provides abilities combined with human skills to provide an aggregate intermediate service good. We use the model to find that the extent of automation through AI will be greater if (a) the economy is relatively abundant in sophisticated programs and machine abilities compared to human skills; (b) the economy hosts a relatively large number of AI-providing firms and experts; and (c) the task-specific productivity of AI services is relatively high compared to the task-specific productivity of general labor and labor skills. We also illustrate that the contribution of AI to aggregate productive labor service depends not only on the amount of AI services available but on the endogenous number of automated tasks, the relative productivity of standard and IT-related labor, and the substitutability of tasks. These determinants also affect the income distribution between the two kinds of labor. We derive several empirical implications and identify possible future extensions.

Environmental taxation in the Bertrand differentiated duopoly: New insights

We derive an optimal emission tax under imperfect competition among polluters, while taking into account the significance of the spatial dimension for non-uniformly mixed pollutants. This setup reflects a large number of pollution scenarios across developed and developing countries. We build a partial equilibrium model that is based on Hotelling’s location model, and that is further generalized to include the polluters’ abatement levels. First, the firms’ locations are considered to be exogenous, but later we relax this assumption. Our results shed light on a trade-off between the environmental externality and the distortions resulting from the Bertrand competition. This trade-off is modulated by the locations of the two producers as well as preferences for a clean environment. Our results also indicate that, in the presence of more than one market failure, the principle of maximal differentiation is not always guaranteed. We further stress that designing a spatial emission tax is not too demanding in terms of regulator information. Lastly, we reveal that when environmental awareness is well-promoted, the green preference would be a cheaper anti-pollution instrument than emission taxes.

Are EU environmental regulations consistent with the concept of internalisation of externalities – the case of Polish electricity sector

The article’s goal is to examine whether the existing EU environmental regulations implemented in the Polish electricity sector are consistent with the concept of internalisation of external costs. The tool used in the research is the partial equilibrium model of the mid-term development of the Polish power sector. There are two scenarios. The first ‘base’ scenario assumes gradual decarbonisation of the Polish energy sector. In the ‘int’ scenario, the structure of energy production results from the full internalisation of external costs. The structural changes in the ‘base’ scenario are a significant challenge. All coal-based technologies are being drastically phased out and will be replaced by RES and nuclear technologies. The climate policy leading to a gradual reduction of CO2 emissions in Poland makes sense, assuming much higher external costs of CO2 emissions (€65/Mg CO2 ) than those assumed in this study.

공적분 분석과 시뮬레이션을 이용한 비관세조치 정량화

Purpose This study quantifies the non-tariff measures on the Korean beef market using a cointegration test and simulation model. Design/Methodology/Approach This paper introduces a hybrid approach which combines cointegration analysis and a simulation model. We assume that there are sanitary and phytosanitary measures in the Korean beef market after banning U.S. beef in 2004. Hence, we use cointegration test results using domestic and U.S. beef prices to calibrate simulation model for the Korean beef market. The approach follows the steps of (1) cointegration tests, (2) a partial equilibrium model, and (3) calculating an Ad-valorem equivalent SPS measure. Findings The results show that the Ad-valorem equivalent SPS measure is 77%. This size is larger than the 55% derived by the traditional price gap approach. Research Implications This study provides a hybrid model to quantify an SPS measure. We take the Korean beef market as there could be non-tariff barriers after the Bovine Spongiform Encephalopathy event in 2004. Our study not only quantifies the NTM in the Korean beef market but also introduces a hybrid approach for quantifying the NTM. Hence, our approach can apply to other studies related to NTM.

Building a Bioethanol Market in Mexico

Objectives: This article aims to analyze the economic effects of bioethanol policies in Mexico, where there have been several attempts to introduce biofuels into the market but so far, no success. Methodology: Technically, an endogenous-price mathematical programming model is developed emphasizing the agricultural and fuel sectors, which are embedded in a multi-region, multi- product, spatial partial equilibrium model. Bioethanol can be produced both from a dedicated crop and from agroindustrial residues. Three policy alternatives are considered as well as a base case in which, as now, liquid fuels are all derived from fossil sources. The first alternative consists of subsidies to biofuel producers, the second of blending mandates and the third of both combined.Results: Results show some losses for fuel and agricultural consumers, that are not offset by both ethanol producer and environmental gains. Limitations and implications: The base year data should be more recent, but it is very difficult to gather all this amount of information for a more recent year. Like any partial equilibrium model, the analysis ignores the effects outside the markets included in the model. Originality and value: Model developed for this research, and it is the first economic study on bioethanol in Mexico that reaches such a detailed analysis. Conclusions: This research suggests that it is possible to develop a bioethanol market in Mexico, but some compensating redistribution among economic groups may be needed if these policies are to be seen as politically sustainable.

The role of food and land use systems in achieving India’s sustainability targets

The food and land use sector is a major contributor to India’s total greenhouse gas (GHG) emissions. On one hand, India is committed to sustainability targets in the Agriculture, Forestry and Other Land Use (AFOLU) sectors, on the other, there is little clarity whether these objectives can align with national developmental priorities of food security and environmental protection. This study fills the gap by reviewing multiple corridors to sustain the AFOLU systems through an integrated assessment framework using partial equilibrium modeling. We create three pathways that combine the shared socio-economic pathways with alternative assumptions on diets and mitigation strategies. We analyze our results of the pathways on key indicators of land-use change, GHG emissions, food security, water withdrawals in agriculture, agricultural trade and production diversity. Our findings indicate that dietary shift, improved efficiency in livestock production systems, lower fertilizer use, and higher yield through sustainable intensification can reduce GHG emissions from the AFOLU sectors up to 80% by 2050. Dietary shifts could help meet EAT-Lancet recommended minimum calorie requirements alongside meeting mitigation ambitions. Further, water withdrawals in agriculture would reduce by half by 2050 in the presence of environmental flow protection and mitigation strategies. We conclude by pointing towards specific strategic policy design changes that would be essential to embark on such a sustainable pathway.

Incorporating Nutritional Accounts to the GTAP Data Base

With a wide range of implications for welfare, food security, land use, trade and the environment, nutrition-related policies pose complex questions that should be assessed using an approach that properly accounts for all the involved interactions. Widely used partial equilibrium models fail to properly account for the post-farmgate food value chains. At the same time, most of the available integrated assessment and computable general equilibrium models have some major limitations in terms of the consistent representation of nutritional data flows. In this paper, we address some of the limitations identified in the literature and develop an approach for incorporating nutritional accounts into the Global Trade Analysis Project (GTAP) Data Base, tracing quantities of food, calories, fats, proteins and carbohydrates along the value chains. We further showcase how the developed nutritional database can be linked to the standard GTAP model. A sample application is developed in the paper to provide an assessment of the impact of import tariff elimination on nutritional flows.

Examining the impact of India–USA free trade agreement on agriculture sector: an ex-ante partial equilibrium analysis

PurposeThe purpose of the paper is to explore the economic repercussions of potential India–USA free trade agreement (FTA) on the trade of agricultural commodities at HS 2-digit level.Design/methodology/approachThe analysis is undertaken by assuming tariff reduction in a phased manner using the World Integrated Trade Solutions (WITS)-SMART partial equilibrium model to identify the trade creation and trade diversion effects.FindingsOverall results show that both the trading partners gain from the proposed FTA. Trade creation dominates over trade diversion in India's analysis.Practical implicationsAn FTA between India and the USA could be an essential step toward more liberal trade regimes and provide enormous economic benefits to both countries. Government of both the countries should support deeper integration. This will create more job opportunities and generate prosperity in both economies.Originality/valueThere are numerous studies conducted on evaluating the impact of FTAs ratified between countries. But there are limited studies which evaluate the impact of the proposed India–USA FTA on the economies of both trading partners specifically on the agriculture sector.

The Environmental and Climatic CAP Measures in Poland vs. Farmers’ Expectations—Regional Analysis

The Common Agricultural Policy of the European Union remains at the top tier of the union’s legacies with the aim of bequeathing a sustainable future for all. Series of actions geared towards reforming the environmental and climate goals of the CAP are constantly being taken. The objective of this paper is to verify if the environmental and climatic CAP measures proposed in Poland’s Strategic Development Plan for Agriculture, for the years 2023–2027, reflect farmers’ preferences regarding the structure of the CAP support. To achieve this goal, we model a hypothetical strategic game involving farmers from different regions. The outcomes of the game were derived from the ex-post analysis of EU funds, in the application for environmental and climatic CAP measures, in addition to the results of simulations of the partial equilibrium model for the agricultural sector (CAPRI). It was found out that farmers from regions with disadvantaged agrarian structures would find it more difficult to cope with new eco-schemes due to the fact that good agricultural practices are rather low in such regions. For the long-term development of Polish agriculture, the agrarian structures need to be improved, as this affects the emission of greenhouse gases. The varying preferences of farmers from different Polish regions in implementing eco-schemes can be balanced by increasing redistributive payments.

Nationalization of the private sector labor force, quotas, matching and public jobs, an illustration with Saudi Arabia

We analyze how quotas of foreign workers and subsidies on national labor can increase the private sector employment of nationals in an economy with a large proportion of expatriates and a large government wage bill. We use two alternative partial equilibrium models of the labor market: one has a market-clearing wage, and the other represents matching and job search directed towards either the public or the private sector. The models are calibrated on Saudi Arabia. We show that when the quotas of foreign workers are binding, they reduce the impact of labor subsidies on the employment of nationals. In addition, we find that in the matching model subsidies on the labor of nationals have a larger effect on employment than in the market-clearing wage model, because the highly attractive public sector flattens the wage curve. We also find that labor subsidies financed by expat levies or public job cuts have modest employment effects and require a very large fiscal adjustment. Finally, we show that a domestic energy price reform, where only a fraction of the fiscal proceeds are used for labor subsidies, can substantially reduce unemployment.

When and How to Use Economy-Wide Models for Environmental Policy Analysis

We describe the factors researchers should consider in deciding when and how to use computational general equilibrium (CGE) models for environmental policy analysis instead of partial equilibrium or engineering models. Special attention is given to modeling the social costs and benefits of regulations and the role played by labor markets. CGE models excel at quantifying interactions across different sectors of the economy, factor-market outcomes, and the distributional consequences of policy, all using a comprehensive set of the resource constraints faced by agents. The ceteris paribus nature of these experiments allows a skilled modeler to develop a systematic understanding of the connection between model assumptions and policy outcomes. Using CGE models to address environmental policy questions involves challenges, including the representation of narrow and technology-specific regulatory designs, data and aggregation issues, and the development of methods to improve model transparency and validity.

Dynamic tariffs and climate policy interaction: An economic analysis of welfare implications in retail electricity markets

Retail tariffs reform in electricity markets is attracting huge attention as policymakers seek to ensure that the marginal cost of electricity generation matches with the marginal value of demand. Notwithstanding, it is increasingly recognized that in order to appropriately reflect the marginal cost principle in electricity markets, the negative externalities of electricity generation should be fully captured in retail tariffs. Therefore, taking Fujian electricity market of China as a case, this study examines how a retail rate of time-of-use (TOU) tariffs interacts with climate policy. We calibrate a dynamic partial equilibrium model of this market and finds that interacting climate policy with TOU tariffs leads to i) increase in rate structures, ii) increase in demand response or load shifting, iii) increase in producer rent, iv) decrease in consumer rent, and v) decrease in overall welfare. Our results suggest that even though TOU tariffs and climate policy interaction in electricity markets can offer social and environmental benefits, the resulting losses to consumer rent and overall welfare may potentially undermine this approach. Therefore, in order to enhance the feasibility of transitioning towards a competitive and low-carbon electricity market globally, the cost of compliance to climate policy will have to be significantly reduced.

Liberalising the EU sugar market: what are the effects on third countries?*

This paper examines the consequences of a liberalisation of the EU sugar policy on Australia and other third countries. Four scenarios are simulated showing the trade and production effects of a gradual phasing‐out of EU domestic support measures and EU import tariffs using two partial equilibrium models linked to each other. Compared with previous work, tariff rate quotas are represented in great detail, going beyond the classical single‐origin, single‐destination approach. Furthermore, supply functions of EU sugar processors are calibrated based on empirical data on production costs to overcome the problem of non‐observed production costs due to the existence quota rents. Results suggest that, in particular, sugar production in Balkan countries is adversely affected by a liberalisation of the EU sugar regime. Moreover, the simulation shows that preferential LDC‐ACP exporters, among them Fiji and Papua New Guinea, are displaced from the EU market leading to a decline in production. An elimination of EU import tariffs benefits in particular the Ukraine and the world's largest sugar producers, such as Australia, all with currently only limited preferential market access to the EU. During periods of low global sugar prices, these countries even increase sugar production, if the EU sugar market is completely liberalised.

One or two non-fossil technologies in the decarbonized transport sector?

What factors determine whether policymakers should promote one or more technologies in a decarbonized road transport sector, and what policies should governments choose? We investigate these questions theoretically and numerically through a static, partial equilibrium model for the road transport market. We find that one important factor is how close substitutes the two vehicle technologies are. Further, the number of vehicles of one technology depends on the number of vehicles of the other technology, both in the market and in the first-best solution. The first-best policy involves a subsidy of the markup on charging and filling, where the markup is higher the more utility increases with the number of stations. However, as there are several possible market equilibria, additional policies may be needed to avoid an unwanted lock-in.

Impact of Extreme Weather Disasters on China's Barley Industry under the Background of Trade Friction-Based on the Partial Equilibrium Model.

The world has entered a compound risk era with multiple crises, and the adverse impact of trade friction and extreme weather disasters on China’s barley import has become increasingly prominent. In this context, this study uses superimposed epoch analysis and partial equilibrium model to evaluate the impact of extreme weather disasters in China’s major barley-exporting countries on China’s barley industry in the course of China–Australia trade friction. The results show that: (1) extreme weather disaster caused barley production in France and Canada to decrease by 7.95% and 18.36% respectively; (2) when the two external shocks occur at the same time, China’s barley import volume tends to decline compared with the basic scenario, the import price rises sharply, there are certain trade-diverting effects in barley import, and China’s imports from countries not affected by extreme weather disasters will increase to a certain extent; (3) China’s barley production remains at a low rate of growth and is vulnerable to external shocks, facing certain import risks. This study provides important policy implications for preventing import risks and ensuring the sufficient supply of domestic barley.

Does energy tax subsidy policy promote the development of the biomass energy industry? A case of densified biomass fuel industry in China

Global energy crisis and climate change have caused widespread concern about the development of the biomass energy industry. China has committed to exploring feasible policies to promote the development of the biomass energy industry. To analyze the impact of China’s energy tax subsidy policy (ETS) on the development of densified biomass fuel (DBF) industry, this study constructs a partial equilibrium model of the densified biomass fuel industry sector to quantitatively evaluate and optimize the effect of China’s current ETS policy based on the compilation of input–output table for the biomass energy industry sector in China. The results indicate that 1) under the current policy scenario, the price of DBF in China decreased by 15.05%, the supply increased by 40.75%, and the demand increased by 18.62%, while the price of raw biomass (RB) decreased by 14.75%, the supply increased by 42.44%, and the demand increased by 29.41%, and the revenue of enterprises increased by 20.42%. However, compared to China’s 13th Five-Year Plan national DBF development target, there is still a supply and demand gap of 16,560,549 tons. 2) under the optimized policy scenario premised on accomplishing the Chinese government’s DBF development goals, the price of DBF in China decreased by 6.9%, supply increased by 128.5%, and demand increased by 44.5%, while the price of raw biomass decreased by 7.84%, supply increased by 133.34%, demand increased by 45.71%, and corporate earnings rose by 112.1% but required the government to pay extremely high tax benefits and financial subsidies for this, which is not feasible in actual economic operation. Therefore, to support the sustainable development of the DBF industry, relevant departments should not only set the mandatory total target but also pursue production quality and market construction.

Forecasting the Consequences of the Cost of Mineral Fertilisers on the Development of the Corn Market in Ukraine Using AGMEMOD Models

In the past decade, from 2012 to 2021, Ukraine has doubled its maize production. The increase in gross corn yields is associated with the use of modern cultivation technologies by farmers, which increase the resistance of plants to adverse environmental factors and adjust the mineral nutrition of plants with regard to weather conditions. One of the most important components of such technologies is the use of mineral fertilisers, the optimal amount of application of which depends not only on the level of grain yield, but also on the efficiency of production and grain quality. However, the rapid increase in world natural gas prices during 2021 has created new challenges and threats for the further development of the grain market in Ukraine. After all, world prices for mineral fertilisers have increased by 110% since 2021, according to the World Bank. Under these conditions, a radical increase in the cost of mineral fertilisers threatens to ensure the competitiveness of Ukrainian corn in the domestic and foreign markets, which would eventually lead to higher food prices and deterioration in the level of food security in the country. This may negatively affect the gross yields and export potential of the grain industry. The purpose of the study is to assess the current state of supply and demand in the corn market in Ukraine and predict the consequences of the impact of changes in the cost of mineral fertilisers on the main parameters of its development according to probable scenarios, using the AGMEMOD econometric partial equilibrium model for the period up to 2025, which creates prerequisites for improving the efficiency of making and implementing management decisions and contributes to achieving the goals of national agrarian policy. The following methods were applied: monographic, abstract and logical, comparative analysis and expert assessments, tabular, statistical and economic, factor analysis, economic and mathematical modelling. The result of the study is an assessment of the current state and identification of the main factors influencing supply and demand in the corn market. Using multiple linear regression, the influence of the main factors on the yield of corn for grain in agricultural enterprises of Ukraine for 2001-2020 is determined. The dynamics of the balance of supply and demand in the corn grain market in Ukraine is analysed. The consequences of changes in the cost of mineral fertilisers on the main parameters of the corn market development in Ukraine are predicted according to probable scenarios using the AGMEMOD econometric partial equilibrium model for the period up to 2025. Based on the calculations made, it is proved that the high yield of corn and the favourable current price environment for grain will ensure a sufficient level of profitability of this grain crop. Methods for improving the mechanism of reducing the cost or compensation of expenses for the purchase of mineral fertilisers for commodity producers are proposed. Methodological and practical aspects of forecasting the consequences of changes in the cost of mineral fertilisers on the main parameters of corn market development in Ukraine using the AGMEMOD econometric partial equilibrium model for the period up to 2025 have been further developed. The proposed methodological approaches and findings can be used by state and industry management bodies in the development of priority areas for improving the effectiveness of the grain industry in Ukraine.