Research project CP/51 (Research action CP)
Context
Economic policies aiming at reducing the greenhouse gas emissions will have different impacts on different sectors, generations, and socio-economic groups in the three Belgian regions.
Currently, the only existing tool in Belgium capable of providing regional and sectoral impacts of domestic and international energy and environmental policies is the model GreenMod whose first version has been developed thanks to funding from the Belgian Federal Science Policy Office (program SPSD II). After the successful experience of the first phase, in 2004 and 2005 we aim at going much further in the development of GreenMod in order to increase its reliability, its relevance, its timeliness, and its capabilities for impact and scenario analysis as well as for examining the impacts of policies regarding social justice between generations, regions, and different socio-economic groups.
Objectives
The main objectives of this project are to develop two new versions of GreenMod and to update and improve its database and parameterisation and to carry out some new simulation-based analysis to be determined by the Users Committee and the Federal Science Policy Office. The two new versions of the model will be:
• GreenMod-OLG: intertemporal dynamic version of GreenMod with overlapping generations and forward-looking expectations. This is particularly important given that the demographic structure of the population is different in Wallonia, Flanders, and Brussels. The long-term projections show that this difference will increase tremendously in the coming decades. We will also include dynamic permit markets with forward-looking expectations, transactions costs, banking;
• GreenMod-IC: recursively dynamic version of GreenMod with imperfect competition, increasing returns to scale, and a very detailed disaggregation level (62 sectors, 69 commodities, about 20 socio-economic groups). This version is also very important as the economic structure of the three regions is very different. It is therefore very important to take the industrial organisational differences into account as the literature shows that these differences are often crucially important on the outcome of economic policies.
• Database: The regional database will be fully updated to the new reference year 2001 and fully disaggregated.
Both version of GreenMod will take into account all the interdependences between the three regions (Brussels, Flanders and Wallonia) in order to study the impacts of economic measures related to energy and environment. In addition to the inter-regional links, both versions of GreenMod will be linked with similar models representing the other member countries of the European Union and the other major economies of the world (United States, Japan, Russia and other transition economies, candidate countries to the EU, other countries of the OECD, China, India, Brazil, Southeast Asia, oil exporting countries, rest of the world).
The model will be used to evaluate the economic policy instruments currently considered in the energy or climate field, especially the tradable pollution permits, fiscal and non-fiscal measures. This multidisciplinary project aims at evaluating the sectoral (output, production costs, employment, investment,), macro-economic (at the regional and federal level), socio-economic (employment, unemployment, incomes, distribution,) and environmental (consumption and production of energy, emissions of greenhouse gases,) and impacts of various energy/environmental policies.
GreenMod is intended to act as an analytical and quantitative support for decision-making in the energy and environment field, in particular for the policies to reduce greenhouse gas emissions. Both versions of the model will also be used in the analysis if distributive impacts of policies on different generations and socio-economic groups in the three Belgian regions.
Methodology
General equilibrium modelling helps us to better evaluate the socio-economic and environmental impacts of different fiscal and non-fiscal economic policy instruments. This assessment is achieved within a consistent setting (linked social accounting matrices, budget constraints, macro identities, etc.) and a rigorous theoretical framework. General equilibrium models are based on individual (decentralised) optimising behaviour of economic agents. Because they take into account the distortions due to the tax and transfer system in force, they function under an optimum of second best. This is particularly important to keep in mind for correctly evaluating the impacts of fiscal policies under equal yield equilibrium or double dividend scenarios.
The tradable pollution permit markets will be fully integrated in the theoretical setting of the model and will operate consistently with the other markets distinguished by the model (notably capital and labour markets). The combination of several policy instruments will therefore be possible and their effects will be evaluated in a coherent way. For example, because the marginal cost curves of pollution abatement are not constant in a general equilibrium context, the permit market will be affected directly by the other measures taken in Belgium or elsewhere. Thus, the model will allow us to analyse how different policy instruments complement each other.
The project will involve the following stages:
1. Building and updating the new database: The construction of the new versions of the GreenMod model requires a highly disaggregated (62 sectors, 69 commodities, 20 types of the households, several generations, etc.) and up-to-date database. Our team will collect all the relevant and detailed economic, demographic, and environmental data for the three Belgian regions and several countries/zones of the rest of the world. The raw data will be analyzed, updated for the reference year 2001 and harmonized. They will then be used to build the regional and international social accounting matrices and bilateral trade flows. In the new database quantities and prices will be distinguished, the energy bloc will be disaggregated into nine fuels, and all the greenhouse gases will be included.
2. Building two new versions of the model:
• GreenMod-OLG: intertemporal dynamic version of GreenMod with overlapping generations and forward-looking expectations.
• GreenMod-IC: recursively dynamic version of GreenMod with imperfect competition, increasing returns to scale, and a very detailed disaggregation level (62 sectors, 69 commodities, about 20 socio-economic groups).
3. Parameterisation: The elasticities of substitution between energy and capital and labour, as well as between the fuels themselves play a crucial role in the outcome of model simulations. In order to improve the reliability of GreenMod, a bottom-up technico-economic model (EPM developed by ECONOTEC) will be used to estimate the substitution elasticities at the detailed sectoral level.
4. As soon as the new versions of the model are operational, new simulations and analysis will be carried out in agreement with the Users’ Committee and the Federal Science Policy Office.
5. At the end of the research project, a final report and a Users’ Manual will be provided.
Interaction between the project partners
The Department of Applied Economics of the Free University of Brussels (DULBEA-ULB) will be in charge of the overall project coordination, database and model construction.
The Centre for Operations Research and Econometrics of the Catholic University of Louvain (CORE-UCL) will be in charge of modelling the tradable pollution permits.
The ECONOTEC will re-estimate the elasticities of substitution between fuels using the bottom-up model EPM.
Expected results and/or products
A multi-region and multi-sector database integrated in a multi-national database.
Two new versions of the regional/global multi-sector general equilibrium model specifically built for energy and environmental policy analysis.
Baseline projections.
Analysis related to the regional impacts of implementing the Kyoto Protocol.
Users’ Manual for the two versions of the model.
Final report.
Contact information
Coordinator
Ali Bayar
Université Libre de Bruxelles (ULB)
Département d’Economie Appliquée (DULBEA)
Avenue F.D. Roosevelt 50, CP140
B-1050 Bruxelles
Tel: +32 (0)2 650 41 15
Fax: +32 (0)2 650 41 37
Ali.Bayar@ulb.ac.be
http://www.ecomod.net
Promotors
Marc Germain
Université Catholique de Louvain (UCL)
Center for Operations Research and Econometrics (CORE)
34, voie du Roman Pays
B-1348 Louvain-la-Neuve
Tel: +32 (0)10 47 82 57
Fax: +32 (0)10 47 43 01
germain@core.ucl.ac.be
http://www.core.ucl.ac.be
Francis Altdorfer
Econotec
square Ambiorix 45
B-1000 Bruxelles
Tel: +32 (0)65 31 63 43
Fax: +32 (0)65 84 30 91
email : Francis.Altdorfer@econotec.be
Internet : www.econotec.be
Users Committee
Guy VANDILLE, Bureau fédéral du plan, Services du Premier ministre et Ministère des affaires économiques
Didier PAQUOT, Union wallonne des entreprises
Sara OCHELEN, Ministerie van de Vlaamse Gemeenschap, AMINAL, Afdeling Algemeen Milieu en Natuurbeleid
Tine TANGHE, Ministerie van de Vlaamse Gemeenschap, Afdeling Natuurlijke Rijkdommen en Energie
Jacques CORNET, Ministère de la Région wallonne, Direction générale des Ressources naturelles et de l'Energie.
Dynamic Regional and Global Multi-Sectoral Modelling of the Belgian Economy for Impact, Scenario and Equity Analysis GreenMod II : final report
Bayar, Ali - Dramais, Frédéric - Mohora, Cristina ... et al Brussels : Belgian Science Policy, 2008 (SP1885)
[To download]
[To order]
Equations : appendix 1
Brussels : Belgian Science Policy, 2008 (SP1886)
[To download]
Model Interface : appendix 2
Brussels : Belgian Science Policy, 2008 (SP1887)
[To download]
Similation results : appendix 3
Brussels : Belgian Science Policy, 2008 (SP1888)
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