REEPS
September 20~21,2014 Nagoya

Introduction: Modeling for a
Sustainable: LowCarbon for a
Introduction
E3 Modeling
EconomyEast Asia
Sustainable
LowinCarbon
Economyin East Asia

Soocheol Lee ＆ Hector Pollitt

Soocheol Lee & Hector Pollittand Seung-Joon Park1. In recent decades East Asia has become established as a
key part of the global economy. The region now includes
both the second and third largest global economies and it
seems only a matter of time before China passes the US tobecome the world’s largest economy.

2. The rapid growth in living standards in China and thenumber of people removed from poverty is almost
unprecedented in history and has undoubtedly improved
the lives of hundreds of millions of people. Such rapid
growth has brought new social and environmental
challenges that are increasingly becoming the focus of newpolicy in China.

3. At the same time the other major economy in the region,
Japan, has gone through a period of economic stagnationthat is in part due to a declining and ageing population.
Although there are now some signs of recovery, Japan faces
its own unique challenges which, after the nuclear disaster in
2011, include determining its future energy supply.

4.In this book we focus on four countries or regions in East Asia,including also Korea and Taiwan (the world’s 15th and 25thlargest economies in 2013, respectively, according to IMF
statistics). Current estimates show that in total the four countries
or regions are home to 21-22% of the world’s population and economicproduction.

5. This book describes the current situation and assesses policies thatare aimed at the development of sustainable, low-carbon economies
in East Asia. We consider how existing policies in the countries ofthis increasingly environmentally and economically interdependent
region compare with those of the rest of the world, and how they
could be improved upon.
6.In our assessments, we employ a range of analytical approaches,
including the application of advanced energy-environment-economy (E3)models. Two distinct types of modelling are introduced in Chapter 2 andused throughout this book:• A macro-econometric approach, using the global E3ME model• Computable General Equilibrium (CGE) modelling7. However, the analysis is not limited to macroeconomic
modelling. Throughout the book other quantitative
approaches are applied, including data analysis, input-output
techniques and a separate simulation of the energy system.
And not all impacts may be quantified; at various points weconsider also in detail the qualitative effects of policies thatare designed to promote low-carbon development and‘green’ growth.
8. The book identifies three policy issues that will be critical inensuring that the future East Asian economy isenvironmentally sustainable; each is allocated its own
section9. First we discuss the energy system, as overall decarbonisation
will not be possible without a substantial reduction inemissions from the energy supply sector. As we shall explore,
at present there are a range of policy measures in place topromote the use of renewables in East Asia that could beexpanded (Chapters 3-5) but the possible role for nuclear
power (Chapter 7) remains controversial.
10.In this section we also discuss the often-neglected issue ofenergy efficiency (Chapter 8) and also cover the related issueof energy security (Chapter 9).

11.The second part of the book assesses the potential for
Environmental Tax Reform (ETR) and carbon pricing in EastAsia. The use of market-based instruments in climate policy
is becoming more common worldwide but is still in its
development phase in East Asia.
12.Several different scenarios of possible future policy areexplored in Chapters 10-12 and this section of the bookalso considers related issues such as fiscal deficits (Chapter13) ,social distributional impacts (Chapter 14) , humandevelopment by increasing human capital(Chapter 15)
and international competition between nabourhoodcountries(Chapter 16).

13.The final section in the book considers the relationship between
energy/climate policy and international trade.
Recent growth in prosperity in East Asia has in part been due to increases
in trade between member countries and several new deals are now on thetable(Chapter 17,18,19).

14.As we shall see in this section, the interactions through trade are bothcomplex and growing in importance, with the need for coordination ofpolicy between countries becoming more pressing(Chapter 22, 23).
Issues that will be covered include competitiveness effects(Chapter 20),
carbon leakage and border tax adjustments(Chapter 21).
We shall show that increased trade presents both opportunities andthreats to developing sustainable and prosperous economies in East Asia.

15. While each of the three issues is allocated its own sectionin the book, the analysis shows that the interactions
between them are strong and that they cannot be
addressed in isolation. The concluding chapter therefore
considers possible future policy options for East Asia acrossall three areas.
16. The ultimate aim of the book is to improve thefundamental understanding of possible future energy andenvironmental initiatives and thus to facilitate improved
policy coordination between the countries in East Asia.