Regional Computable General Equilibrium Model Research Articles

Achieving a high share of non-hydro renewable integration in Brazil through wind power: Regional growth and employment effects

Brazil is a case of the achievement of a high share of wind energy integration to an interconnected power system in an emerging market. A series of successful energy supply programmes and a strong renewable-oriented finance framework implemented since 2002, have promoted alternative renewables – wind installed capacity increased over 22-fold from 927 MW in 2011 to 21 GW in 2022, reaching 11.77% of total procured power. From this, about 90% are concentrated in Brazil's least developed region, the Northeast, where wind investment should create jobs and propel socioeconomic development. Despite that, there is no studies specific assessing the regional and economy-wide effects of those programmes, gap that this paper aims to fill by applying the regional Computable General Equilibrium (CGE) model TERM-BR10. We assess that by modelling an alternative scenario for the period 2010-19 based on an official electricity matrix built in 2010, that projected 3.4 additional GW of wind power while not considering all the success of renewable policies, against the observed installed capacity expansion, where wind power was 3.7 times higher than what had been planned. Our results show that in the absence of renewable policies, Brazil would have faced economic losses such as GDP (−0.27%) and investment (−4.76%). The Northeast region would have been the most impacted in terms of GDP (−1.3%), real wage (−2.99%) and employment creation (−0.1%). We propose that such socioeconomic co-benefits are incorporated in energy planning, which could promote regional equality through renewable energy expansion.

Cost-effective energy development pathway considering air quality co-benefits under climate target: A case study of Anhui Province in China

Achieving the national climate targets requires the motivation of local actions. Air quality is still an important environmental issue in China that needs careful consideration in the design of energy development pathways, particularly in locations with a high‑carbon energy system. Using Anhui as a typical example, this study examines the economic costs and air quality synergies of various energy development pathways to achieve its climate goals using the Monte Carlo method and coupling a regional computable general equilibrium model and a reduced-complexity air quality model. The results show that the economic impact of the promoting electrification pathway would be 1.4–4.5% of GDP in 2035, while the loss of GDP from developing the renewable energy pathway would be only 1.1–1.4%. Compared to renewable energy development, promoting higher electrification leads to a larger air quality improvement. Therefore, the cost-effective energy development pathway requests higher electrification when considering air quality co-benefits. Results show that the optimal energy development pathway for Anhui Province in 2035 is a rate of electrification of 25%–35%, with a renewable energy ratio of 15%–25%. The study suggests an appropriate approach for optimizing energy development pathways at the regional level.

Estimating the economic impacts of improved wind speed forecasts in the United States electricity sector

Each year the U.S. government makes significant investments in improving weather forecast models. In this paper, we use a multidisciplinary approach to examine how utilities can benefit from improved wind-speed forecasts to more efficiently use wind-generated electricity and subsequently increase economic activity. Specifically, we examine how improvements to the National Oceanic and Atmospheric Administration's high-resolution rapid refresh model (HRRR) wind forecasts can provide (1) cost savings for utilities and (2) increase in real household income. To do so, we compare 12-h-ahead wind forecasts with real-time observations for two HRRR model transitions (i.e., when one model is operational, the other is being tested). We compare estimates of actual and predicted wind power under the publicly available and developmental models, with reduced forecast errors allowing for better utility decision-making and lower production costs. We then translate potential cost savings into electricity price changes, which are entered as exogenous shocks to eight regional computable general equilibrium models constructed for the U.S. Overall, we find that households would have seen a potential $60 million increase in real income for our sample (13% of all contiguous U.S. land-based turbine capacity), which had the updated HRRR models been in place during the two transition periods; applying our estimated savings for the sample of turbines to the entire array of turbines shows a potential real household income increase in approximately $384 million during these time frames.

The consequences of misrepresenting feedbacks in coupled human and environmental models

Feedbacks between the ecosystem and the economy are important to consider when measuring impacts from a disturbance but are often omitted from general equilibrium bioeconomic models. These models usually focus on how humans respond to ecological change, but do not consider that in adapting to changed conditions, humans can further affect the ecosystem. We present a framework that couples a regional computable general equilibrium model with an Ecopath with Ecosim food web model with bidirectional feedbacks between the two systems. Our bioeconomic model uniquely represents a comprehensive mapping of the entire regional economy, including recreational and commercial fishing, harvest quotas, and fish biomass in the economic system. We simulate the bioeconomic impacts of a potential Asian carp invasion of Lake Erie's food web and regional economy with and without bidirectional feedbacks between the economy and the ecosystem. When feedbacks are omitted there are large ecological variations in the projected biomass levels of many target species, with differences in biomass of up to 80 percentage points. Results demonstrate the need to reflect bidirectional feedbacks between the economy and the ecosystem; omission of these feedbacks in this case may appear to be economically trivial yet have large ecological consequences.

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.

The economic effects of improved precipitation forecasts in the United States due to better commuting decisions

AbstractEach year the U.S. government makes significant investments in improving weather forecasts from numerical weather prediction models that are run operationally within the National Weather Service. Although the primary purpose is saving lives and property, more accurate forecasts can create substantial efficiency gains when they elicit improved behavioral responses. One example involves commuters, who make daily decisions about when to leave for work based, in part, on expected road conditions. When workers account for potential weather delays, economic losses due to missed work time are reduced. Economists have often looked at such questions with cost‐loss models, a partial equilibrium approach investigating gains to individual agents. We extend this idea to examine economy‐wide effects, embedding a behavioral model of time allocation with improved information into eight regional computable general equilibrium models of the US economy. Our primary mechanism is that reductions in lost work time lead to gains in firm‐level output. This study evaluates the economic impact of improvements to the High‐Resolution Rapid Refresh weather forecast models over three different versions on commuting. Aggregating results from comparisons between old and new versions of the HRRR for 206 metropolitan statistical areas, we find that forecasting improvements lead to smaller losses in work time, creating notable gains to the U.S. economy.

Welfare impacts of introducing water pollution tax in the Olifants river basin in South Africa: A revisited analysis using a top-down micro-accounting approach

ABSTRACT Addressing the high levels of poverty and inequality in South Africa remains a central policy concern. In this regard, this paper uses a Computable General Equilibrium (CGE) microsimulation approach to revisit the effects of taxing water pollution on poverty and inequality at the level of a river basin. We combined the commodity and factor price changes from a regional environmental CGE model, after introducing the water pollution tax, with household survey data from the 2012 National Income Dynamics Survey (NIDS) to explain the welfare impacts. The result shows that the tax policy will in general have adverse impacts in terms of welfare, poverty, and inequality. However, the tax policy coupled with a supply-side compensatory measure such as subsidising water pollution abatement has the potential to reduce regional poverty and inequality as well as improve the ecological status of the river. Our finding has policy implications for national and regional water resource managers.

Distributional impact of a regional road pricing scheme in Flanders

This paper uses a combination of a regional computable general equilibrium model(EDIP) and a household micro-simulation model (EUROMOD) to assess the welfare effects of a transport tax reform. The transport tax reform replaces current car fuel and ownership taxes by a road charge differentiated by time and place. This is combined with five realistic tax recycling scenarios that can be ordered by their degree of progressivity. The net revenues are used to reduce taxes on labour. The tax reform leads to modest increases in real wage, disposable income and GDP, while reducing external costs of transport. Using the combination of general equilibrium modelling with micro-simulation we can go into more detail on the distributive impact of the road tax reform. Where other authors have found progressive or mildly regressive impacts of road charging, we find that within each income group there is a wide divergence of positively and negatively affected households. As such, the support or opposition for a road charging policy may depend more on the profile of the car user than on the relative ranking of the user in the income distribution.

Distributional impacts of taxing water pollution in the Olifants river basin of South Africa

ABSTRACT We study the distributional impacts of a water pollution tax in the Olifants river basin using a regional environmental computable general equilibrium (CGE) model. The distributional impacts were evaluated considering both the household income and spending-side effects. We find that the water pollution tax is progressive on the income side as the poorest and vulnerable derive lower shares of their income from capital, which bears the biggest burden of the tax. However, the tax is regressive on the expenditure side due to the higher share of pollution-intensive goods in poor households’ expenditure. The net effect of the tax is, however, not pro-poor. Revenue recycling through a subsidy to pollution abatement sectors mitigates the adverse distributional impacts of the tax whereas uniform direct lump-sum transfers to households’ income reverse the adverse distributional impacts.

Regional Computable General Equilibrium models: A review

Computable General Equilibrium (CGE) models are very popular for analyzing a wide range of policy issues. CGE applications vary from estimating the welfare impact of tax reform and alternative energy policies to the effect of foreign trade reforms, labour markets and employment. CGE models are commonly developed at the country level; however, modified versions of CGE, so called Regional CGE (RCGE) models, can be used at subnational disaggregation to examine impacts studied at the national counterparts on a specific region. RCGE models have grown in popularity as an alternative to the Input-Output (I-O) models, which are regularly used for regional analysis. RCGE models can provide comprehensive information, which make them more desirable analytical models for many researchers. Yet, RCGE models have not yet become a “go-to” for governmental policy practitioners when they are developing regional public policies. This paper reviews the current state of regional CGE models, describes their features, contributions and limitations and surveys some applications of the main three classes of RCGE models: region-specific, bottom-up, and top-down models. This paper concludes that the applications of RCGE are quite variable and flexible, with a new and more complex type of application to be developed with the advancement of computation economics. The paper offers recommendations on the micro, meso and macro conditions that are necessary to increase policy practitioners’ utilization of RCGE models.

How fiscal policies affect energy systems: the importance of an ‘environmental social wage’

ABSTRACT We employ a regional computable general equilibrium model to measure the impact on CO2 emissions of a balanced-budget increase in public environmental expenditure. We identify conditions under which an economic stimulus accompanied by a reduction in emissions could occur. Our results suggest that this is conceivable if the population values the environmental amenity funded by the increase in public expenditure, and if this is reflected in wage-bargaining behaviour. Given increasing concerns over climate change, public spending on environmental improvement could attract support together with the establishment of an ‘environmental social wage’, where workers accept lower pay in return for that improvement.

Economic evaluation of transportation projects based on different financing methods: at the framework of financial computable general equilibrium model

Purpose- The purpose of this study is to develop a first fully functional Turkish Financial Computable General Equilibrium (FCGE) model that analyzes the economic impacts of infrastructure investment projects under different financing options. We examine three alterantive financing methods, i.e., public financing with tax revenues and government bonds, public financing with region specific tax policy and private financing. Methodology- The study employs Financial Computable General Equilibrium (FCGE) model. The FCGE model integrates the real economy with the financial one, and traces the flows of financial and real resources among economic agents at the same time. Computable General Equilibrium (CGE) models typically are comparative static equilibrium models of interregional trade and location based in microeconomics, using utility and production functions with substitution between inputs. The transport system enters the spatial economy through the costs of transport services. Transport sub models are applied to feed CGE models with cost changes in the transport sector as a result of policy measures. Our model is composed of a multi-regional financial CGE model and a transport network model. Turkish Multi Regional Computable General Equilibrium model constitutes of 11 regions. The model includes ten producers, one regional household, one national (or central) government and the rest of the world. Findings- The model is designed to analyze the economic effects of fiscal policies such as the transportation investment expenditures and alternative financing approaches on economic growth and welfare. It is possible to estimate growth and distributional effects of each project based on the financing method once the information on the investment expenditures, the construction location and the changes in the accessibility generated by the project are injected into the FCGE model. As a first attempt, we builded a Financial Social Accounting Matrix (SAM) for Turkey that FCGE models need, containing the details of financial institutions and transaction of agents’ assets and liabilities. The model specifies the behaviours of ten different sectors, one household, a central government, and the rest of the world. The model is designed to analyze the impacts of highway development with different financing strategies. We examine three alterantive financing methods: it can (a) public financing with tax revenues and government bonds, (b) public financing with region specific tax policy or (c) private financing. Conclusion- The main contribution of this research is to develop a first fully functional FCGE model to analyze the economic impacts of the infrastructure investment projects and their financing options on growth and welfare in Turkish economy. We develop a first fully functional Turkish Financial Computable General Equilibrium (FCGE) model that analyzes the economic impacts of infrastructure investment projects under different financing options. There are a number of ways to finance highway infrastructure investment: fuel taxes, user fees, trust funds etc. This Financial CGE model is expected to assess the consistency of highway investment programs under different financing options, so the government can make a decision on an approval for the project based according to their benefits and costs on national level.

Beyond Strict Regulations to Achieve Environmental and Economic Health-An Optimal PM2.5 Mitigation Policy for Korea.

Growing concern about particulate matter (PM2.5) pressures Korea to reduce the health risks associated with its high dependency on fossil fuels. The Korean economy relies heavily on large thermal power plants—a major source of PM2.5 emissions. Although air quality regulations can negatively impact local economies, the Korean government announced two strict air quality mitigation policies in 2019. We develop a regional static computable general equilibrium model to simulate the economic and environmental impacts of these polices under alternative hypothetical scenarios. We separate two regions, Chungcheongnam-do, the most polluted region, and the rest of the country, in our model. As policy options, we introduce a regional development tax and a tradable market for PM emission permits, similar to an air pollution tax and a carbon permits market, respectively. The results show that allowing higher tax rates and a tradable permits market gives the optimal combination, with the PM2.5 emissions reduced by 2.35% without sacrificing economic growth. Since alternative options present, for example, a 0.04% loss of gross domestic product to reduce PM emissions by the same amount, our results here may present a new policy paradigm for managing air pollutants such as PM2.5.

Regional employment and economic growth effects of South Africa’s transition to low-carbon energy supply mix

This paper examines the long-run regional economic effects within South Africa of changing the electricity-generation mix towards less coal. To do so, a regional Computable General Equilibrium (CGE) model of South Africa is employed for the analysis. The overall result stemmed from all scenarios suggest that the effect of a transition to an energy supply mix with smaller share of coal generation is sensitive to other economic and policy conditions, in particular the reaction of the global coal market and hence, South Africa’s coal exports. Under conditions in which surplus coal resulting from lower domestic demand cannot be readily exported, the economies of coal-producing regions in South Africa such as the Mpumalanga province are the most severely affected. The subsequent migration of semi-skilled labour from that province to others within the country require appropriate and timeous planning by energy policymakers and urban planners.

Regional Aspects of a Climate and Energy Tax Reform in Norway—Exploring Double and Multiple Dividends

We investigate the potential for double or even multiple dividends arising from a climate and energy tax reform (CETR), using a regional computable general equilibrium model. Such dividends indicate if government revenues raised from energy-related environmental taxes and recycled back to households or industries through (regional) social security contributions will yield welfare gains larger than gross cost. Building on existing double dividend theory, we broaden the scope by considering both social and regional aspects of a CETR. We explore the use of household transfers and regional payroll taxes as recycling instruments and investigate to what extent wage formation on the labor market has an effect. For Norway, our results indicate that a CETR may conflict with sub-national policy goals under all assessed scenarios. In particular, this holds for income inequality. Although our analysis concerns the social, economic and environmental aims of a Norwegian policy, the approach can be generalized to, e.g., a European context.

Regional Impact of the Global Economic Crisis on the Free State Province in South Africa: A Computable General Equilibrium (CGE) Assessment

The decline in the world economy that followed the 2008-2009 global economic crisis had detrimental effects on most economies. Not enough attention has been paid to the process through which crisis-related pressures affected regional economies and sub-national governments. A regional computable general equilibrium model was developed to analyse impacts of the crisis on the regional economy of the Free State province in South Africa. Key results included a general fall in prices in the province, a fall in demand in sectors that are more vulnerable to global conditions, falling wages and declining incomes for agents and provincial government.

Public health and economic risk assessment of waterborne contaminants and pathogens in Finland

This study shows that a variety of mathematical modeling techniques can be applied in a comprehensive assessment of the risks involved in drinking water production. In order to track the effects from water sources to the end consumers, we employed four models from different fields of study. First, two models of the physical environment, which track the movement of harmful substances from the sources to the water distribution. Second, a statistical quantitative microbial risk assessment (QMRA) to assess the public health risks of the consumption of such water. Finally, a regional computable general equilibrium (CGE) model to assess the economic effects of increased illnesses. In order to substantiate our analysis, we used an illustrative case of a recently built artificial recharge system in Southern Finland that provides water for a 300,000 inhabitant area. We examine the effects of various chemicals and microbes separately. Our economic calculations allow for direct effects on labor productivity due to absenteeism, increased health care expenditures and indirect effects for local businesses. We found that even a considerable risk has no notable threat to public health and thus barely measurable economic consequences. Any epidemic is likely to spread widely in the urban setting we examined, but is also going to be short-lived in both public health and economic terms. Our estimate for the ratio of total and direct effects is 1.4, which indicates the importance of general equilibrium effects. Furthermore, the total welfare loss is 2.4 times higher than the initial productivity loss. The major remaining uncertainty in the economic assessment is the indirect effects.

Too Much of a Good Thing? The Economic Impact of Hotel Investment in Hainan

ABSTRACTHotel investment is assumed to provide many positive benefits to the local economy. Given strong tourism growth in China, the impacts of large increases in new hotel investment in China warrants further investigation. A regional computable general equilibrium model was developed to empirically examine the economic impact of large hotel investment in the Hainan province, China. The net economic impact of hotel investment on gross domestic product and employment were evaluated. The model also investigated sectoral production effects. The results showed that investment in the hotel industry moderately boosts all industry sectors and improves economic output and employment. Transmission mechanisms were identified to provide insights for future hotel investment policies.

The research on the impact of energy-environment policy on regional development—based on CGE model

In this study, we will focus on study the impact of energy and environment regulatory on the inter-regional coordinated development from the regional level. Making use of multi-regional energy-economy-environmental computable general equilibrium(CGE) model, we will analysis the effect of regional energy regulation in the future. We will research the impact of the carbon emissions trading and other environmental policy on regional economic development and industrial structure. The results show that the regulation of energy and environment can promote regional industry to upgrade and different policies of energy and environmental are needed to implement to mitigate the negative impact on the economy of different regions. In the paper, we expand the traditional regional energy-environmental CGE model tools for providing new quantitative methods to study regional energy and environmental problems in China.

The Economic Contribution of Alabama’s Automotive Industry to Its Regional Economy

This study focuses on quantifying the economic impact of the automotive industry on Alabama’s economy using a static regional computable general equilibrium model. The findings suggest that the automotive industry has a disproportionate impact across Alabama in terms of a series of indicators including gross state product, employment, and household welfare. Benefits accrue primarily to counties in which the auto plants and their suppliers are located. The spillover effects into nonautomotive-plant counties are modest and about evenly distributed. Middle-income households are the largest gainers, and this is true across all counties, including the Black Belt, a region across the South where rural poverty is concentrated. Despite its rapid growth, the auto industry continues to constitute a small fraction of the state’s economy (less than 3% of gross state product). Thus, overdependence on a cyclical industry is as yet not an issue for policy makers.