The WSPC Reference on Natural Resources and Environmental Policy in the Era of Global Change

The following sections are included:

• Foreword
• Contents
• Contributing Authors
• Introduction

This chapter contains a historical perspective of the roots of the computable general equilibrium (CGE) modeling. We discuss the connection of modeling approach to the general equilibrium (GE) theory and highlight the important links and differences. We also give an overview of the most important milestones in the development of the modeling tradition and then describe a practical algorithm that model-makers usually follow.

In this chapter, we overview the Global Trade Analysis Project (GTAP) model and database providing readers with a cursory introduction to an expansive 20 year modeling project that has contributed knowledge to numerous policy debates. Our discussion narrows to the facility of GTAP resources for study of agricultural and environmental problems as we survey the past decade of developments. In this timeframe, GTAP has seen model and data extensions aimed at improved analysis of agricultural trade liberalization and climate change policy. Our chapter closes with thoughts on future developments that may be required to maintain policy relevance.

Incorporating natural resources in large-scale models has been an increasing area of theoretical and empirical development in the Computable general equilibrium (CGE) literature. The explicit representation of land-use and land-use conversion in global models has been one of the most recent and challenging examples of such development. We contribute to this literature describing in detail one approach to include the natural resource land in a global CGE model and representing its connection to the broader economy through agriculture and forestry production. We apply the model to project future land-use trajectories. The simulations highlight the important linkages between environmental services and economic development and the differences in the patterns of land-use trajectories among developed and developing countries. The introduction of environmental resources in the model results in some changes in its original microeconomic and macroeconomic results, but does not alter the main response of the model. Finally, we show that parameters defining agricultural yields and population growth are important in projecting future services from land-use, but alternative rates of GDP growth have less effect on the main trends in land-use trajectories.

Computable general equilibrium (CGE) models offer a method of studying the role of water resources and water scarcity in the context of international trade. This chapter reviews the literature on water-related CGE modeling by providing a survey that focuses on the implications of different modeling techniques of water resource. We differentiate between models that explicitly model water as a factor of production and those that model water as an implicit factor of production. Within the category of studies that model water explicitly we further differentiate between models that assume a high degree of substitution between water and primary factors and those that assume a low degree of substitution. We also differentiate between regional and global models. Further, we provide information on the type of analysis the model was used for.

I present an assessment of the threats to regional economic stability from a regularly recurring form of infectious disease: pandemic influenza. The threats are assessed by linking epidemiological and economic models. The epidemiological model captures the characteristics of influenza and non-influenza emerging infectious disease pandemics. The economic model is of economywide form with industry detail, i.e., computable general equilibrium (CGE). The analysis builds on previous studies that apply CGE models with quarterly periodicity to assess the economic effects of infectious disease, by applying a CGE model that incorporates variable periodicity: annual and quarterly. The economic effects are assessed with the annual and quarterly models, and the results are compared. The analysis demonstrates the importance of quarterly periodicity as it can capture the short, sharp duration of influenza pandemics. The results demonstrate that annual economic models have no place in economic analysis of infectious disease outbreaks that have a lifespan of less than one year because they can not accurately capture the time profile of the effects of an infectious disease outbreak.

This chapter is devoted to investigate trade liberalization impacts over domestic physical environment in the context of the Indian economy within a computable general equilibrium (CGE) framework. Following Shoven and Whalley (1984) Indian CGE model is constructed and then it is extended to incorporate environmental externalities. Since present day international trade is not much akin towards perfectly competitive market scenario, imperfect completion market structure has been assumed for our environmental CGE model. Simulation results are compared between alternative market scenarios.

This chapter illustrates how the GEM-E3 CGE model is used for impact assessment in support of European policy in areas of climate change mitigation policies, climate change impacts, energy issues, and air quality. The presented analysis on climate change mitigation includes an assessment of the Copenhagen Accord (COP15), and the Intended Nationally Determined Contributions (INDCs) discussed in the context of the COP21 in 2015 in Paris. Further, the model is used to assess the macro-economic costs of a policy aiming to reduce the level of air pollutants, and shows that the positive feedback effects are more important than the costs of the policy. For the climate impacts, the results point to categories and regions with the largest potential to avoid negative effects of the climate change: in the EU, more than half of the potential GDP loss could be avoided by preventing negative outcomes in the human health category. The discussion on energy production and use includes two applications relevant to energy policy: an illustration that the EU can gain from early climate action through triggering technological progress in energy technology, and a quantification of the impact of changes in electricity, gas, and oil prices on the EU economy.

We assessed the impacts of climate change and agricultural autonomous adaptation measures (changes in crop variety and planting dates) on food consumption and risk of hunger considering uncertainties in socioeconomic and climate conditions by using a new scenario framework. We combined a global computable general equilibrium (CGE) model and a crop model (M-GAEZ), and estimated the impacts through 2050 based on future assumptions of socioeconomic and climate conditions. We used three Shared Socioeconomic Pathways as future population and gross domestic products (GDPs), four Representative Concentration Pathways as a greenhouse gas (GHG) emissions constraint, and eight General Circulation Models to estimate climate conditions. We found that (i) the adaptation measures are expected to significantly lower the risk of hunger resulting from climate change under various socioeconomic and climate conditions. (ii) population and economic development had a greater impact than climate conditions for risk of hunger at least throughout 2050, but climate change was projected to have notable impacts, even in the strong emission mitigation scenarios. (iii) The impact on hunger risk varied across regions because levels of calorie intake, climate change impacts and land scarcity varied by region.

A global computable general equilibrium (CGE) model integrating detailed energy end-use technologies is developed. This article (1) presents how energy end-use technologies are treated and (2) analyzes the characteristics of the model’s behavior. Energy service demand and end-use technologies are explicitly considered, and the share of technologies is determined by a discrete probabilistic function. The proposed model is compared with the traditional model under the same assumptions in scenarios with and without mitigation consistent with the two degree climate mitigation target. Although the results of aggregated energy supply and greenhouse gas emissions are similar, there are three main differences between the two models. First, GDP losses in mitigation scenarios are lower in the detailed technology model (2.8% in 2050) as compared with the aggregated model (3.2%). Second, price elasticity and autonomous energy efficiency improvement are heterogeneous across regions and sectors in the detailed technology model, whereas the traditional aggregated model generally utilizes a single value for each of these variables. Third, the magnitude of emissions reduction and factors (energy intensity and carbon factor reduction) related to climate mitigation also varies among sectors in the detailed technology model.

Computable general equilibrium (CGE) models have proven useful in analysis of alternative greenhouse gas mitigation policies, and more recently for analysis of economic adaptation of agriculture to climate change. We present scenarios of agricultural and energy systems that respond to stylized policies to reduce carbon dioxide emissions in the US. Bioenergy represents an interface between agriculture and energy, as both require land. Because of the way carbon dioxide accumulates in the atmosphere and ocean, and the large quantities of carbon dioxide emitted today, model simulations of future greenhouse gas mitigation options often include a negative emissions technology for carbon dioxide. The most common options are bioenergy with carbon dioxide capture and storage (CCS), and afforestation. We use forest residues and switchgrass as feedstocks for bio-electricity. Land for switchgrass mostly displaces grassland, but also displaces some cropland relative to a reference scenario. The cost of meeting strict emissions targets depends on the cost and availability of CCS. Without CCS, or with expensive CCS, the cost increases steeply with the strictness of emissions targets.

Extensive literature concerned with optimal depletion of an exhaustible resource, with only a few exceptions, ignores the economy-wide and sectoral distribution effects of resource depletion. This chapter presents a dynamic computable general equilibrium model to link the underlying natural resource base to the economic performance. The model consists of an intra-temporal price endogenous multisectoral model of a market economy, embedded in an inter-temporal optimal growth and development model. This general equilibrium approach captures the economy-wide and sectoral distribution effects of resource depletion. Results suggest that the Hotelling restriction of reaching a zero stock of the resource at the terminal stage is not necessary. Another result that substantiates previous work is that it is possible to have a monotonically increasing extraction path over time. Sensitivity analysis indicates that several factors that may affect the optimal depletion path include government types of interventions, the value of the exhaustible resource, and the savings option.

The aim of this chapter is to construct the framework of a small computable general equilibrium model with applications to climate change, to evaluate the impact of carbon taxes on GDP and emissions, and to study the sensitivity of those results under alternative closure rules and hypothesis (about mobility of factors, availability of alternative technologies and labor market disequilibrium). The model is simulated for Argentina, Brazil, Chile, El Salvador, Jamaica, and Peru.We find that there are differences in the estimates of costs of lower emissions between short run models with unemployment and models that assume full employment. Those costs depend too on the rules of adjustment of wages and on the mobility of resources. Equal-yield corrections of taxes help to reduce costs and can even produce a net benefit. The presence of alternative technologies is relevant to reduce emissions at low cost. However their effective use depends on the stress they put on scarce resources.

Global biofuel production has experienced a strong growth over the last years. The assessment of the impact of the promotion of biofuels on agricultural markets in many studies has yielded mixed results. Differences in modeling approaches and in the choice of crucial parameter values can be made responsible for the diversity of results. In DART-BIO, we have carefully included these aspects and present an appropriate specification of the economic activities directly or indirectly influenced by the biofuel policies. The detailed description of DARTBIO makes all the assumptions and data sources transparent. The simulation of the world-wide biofuel quotas leads us to the conclusion that biofuels’ impact on prices has so far been rather overestimated. The proposed reform of the European Union (EU) biofuel quota towards a 7% biofuel share — while international quotas remain intact — indeed reduces the pressure on agricultural prices. These reductions mainly concern biodiesel and its raw materials, since global biodiesel consumption is concentrated in the EU while bioethanol consumption is mostly outside the EU. Overall, the proposed reduction in biofuel quotas in the EU will indeed reduce the pressure on agricultural markets.

Computable General Equilibrium (CGE) models have become an integral part of numerical simulation models for the assessment of climate change impacts and policies. This chapter discusses the structure and the simulation methodology of CGE models aimed at assessing the economic impacts of climate change, but it does not consider applications of CGE modeling related to the implementation and effects of climate policies, such as green taxation. The modifications needed in the standard CGE framework to gauge the economic implications of climate change are discussed first. Subsequently, a taxonomy of different models found in the literature, in terms of their salient characteristics such as dynamics, expectations, integration with other models, etc., is proposed. By way of illustration, a specific simulation exercise, aimed at assessing the economic impacts of climate change on a set of Caribbean states, is presented.

The following section is included:

• Index