CGE model development (5)Detailed CGE <3>
Modeling of Environmental

Toshihiko MASUINational Institute for Environmental Studies
AIM Training Workshop 2005
NIES, 7-11 November 2005

Environmental investment¾ Investment to protect environment does

not contribute to promote production, but
increase of stock to protect environment.
– Energy input becomes more efficient.
– Pollutants can be treated more.
INV: total investment
PRO_I: production investment
ENV_I: environmental investment
ENV_S: environmental capital stock
POL: pollution emission
OUT: output

INVt = PRO _ I t + ENV _ I tENV _ St +1 = ENV _ St ∗ (1 − δ ) + ENV _ I t

POL/OUTENV_S⇒ POLt +1 / OUTt +1 = f ( ENV _ St +1 )AIM, NIES

2

Environmental investment¾

Energy efficiency improvement

I:PE(E)
Q:(Q_EN(E,J)*GR_E(E,J)) P:RP_EN(E) E.TL:
I:PCO2#(E) Q:(CO2(E,J)*GR_E(E,J)) P:0
E.TL:– By implementing energy-saving investment, GR_E becomes
smaller. (energy-saving investment ➜ decrease of energy
input ➜ GR_E(E,J) ↓ ➜ decrease of CO2 emission)¾Solid waste and waste water

I:PW

Q:(WST(J)*GR_W(J))

P:0

PW: waste disposal right
WST(J): waste generation in benchmark year
GR_W(J): efficiency of waste generation– By implementing environmental investment, waste generation
per output is reduced (GR_W(J) ↓).
¾AIM, NIES

During the iteration process, parameters on technology
change are updated according to capacity of environmental
protection (stock of capital for environmental protection).
3

Resource extraction¾ As fossil fuel resources are extracted, fuelextraction cost becomes higher. Thismeans output to inputs becomes worse.
OUT: fuel extraction
EXT: total extracted fuel
COST: fuel extraction cost

COST

COST = f ( EXT )EXTt +1 = EXTt + OUTt

COSTt +1 = f ( EXTt +1 )EXTAIM, NIES

4

Resource extraction
O:PY(I)¾¾

AIM, NIES

Q:(V(J,I)*GR_O(J))

According to cumulative resource extraction, extraction cost
will increase. GR_O(J): ↓During the iteration process, values of GR_O(J) are
updated.

5

Small country assumption¾pricePWm = PWm 0

Even if quantities ofimport or export arechanged, international
price is not changed.

or
PWx = PWx 0export
importAIM, NIES

6

Large country assumption
price

PWm = PWm ( M )PWx = PWx ( X )quantity of import: ↑demand in international
market: ↑international price: ↑quantity of export: ↑supply in international
market: ↑international price: ↓exportimportAIM, NIES

7

Large country assumption
Small country assumption:$CONSTRAINT:IM_QN(N)$(-IMP(N))-IMP(N)*IM_QN(N) =E= SUP(N)*(-U(N,"A_IMP")) ;Large country assumption$CONSTRAINT:IM_QN(N)$(-IMP(N))(-IMP(N)*IM_QN(N)/IMP0(N))=E= (PM(N)/PM0(N))**(el_m(N)) ;$CONSTRAINT:EX_QN(I)$(EXP(I))(EXP(I)*EX_QN(I)/EXP0(I))=E= (PX(I)/PX0(I))**(-el_x(I)) ;***0: reference values
el_*: elasticity (el_* > 0)
AIM, NIES

8

Linkage with end-use model
sectors
Steel
Transport

energy type

BaU

policy caseadditional cost

MTOE

MTOEM¥

coal

100

80

50

electricity

20

18

8

gasoline

200

150

100

electricity

150180-Energy demand changes
sector by sector & energy byenergy are represented inGR_E or GR_E_N.

AIM, NIES

Additional costs are treatedas energy saving investment.
Related investment goods
should be identified.

9

Example of carbon tax in Japan(2003 version)¾ Kyoto Protocol• In Japan, GHG emissions in the 1st commitment
period (2008-2012) should be reduced by 6% of
those in 1990.
¾ New Climate Change Policy Programme(2002, Gov. of Japan)
Total 2% of
CO2 reduction
is assumed tobe target.

AIM, NIES• CO2 emissions from energy use: ±0%• Reduction by innovative technologies andchange of lifestyle: -2%• Others– CO2 emissions from non-energy use, methane
emissions, and nitrous oxide emissions: -0.5%– Emissions of HFCs, PFCs and SF6: +2.0%– The use of Sinks: -3.9%10

Model analysis on CO2 reduction policy
AIM/Material
Produced commodities

Pollution

Pollution Man.
sectorForeign

RecycleCO2Trade
Prod. sector Energy
marketEnv. Industry
Intermediate
Env. capital
Env.
CO2 Energy
Labor
investment
Intermediate
Capital
CO2Labor
Household
Government
EnergyFinal cons.

International
price and trade
AIM/Top-down
CO2Rent

Fossil fuelElectricity

CO2Non-energy goods
Production sector
Consumption

Investment

CO2Government

Consumption
CO2Production factor

AIM, NIES

HouseholdEnergy efficiency improvement
Additional investment for energy saving-Country top-down model approach-

AIM/Enduse
EnergyEnergy technology

Energy service• Blast furnace• Power generation• Air conditioner• Boiler• Automobileetc.

• Crude steel products• Sectoral GDP• Cooling demand• Lighting• Transportation
etc.

Energy consumption
CO2 emissions

Technologyselection

Energy service
demands

Energy database• Energy type
• Energy price• Energy constraints• CO2 emission factor

Technology database• Technology price• Energy consumption• Supplied serviceamounts• Technology share• Lifetime

Socioeconomic scenario• Population growth• Economic growth• Industrial structure• Employment• Lifestyle• Oil• Coal
• Gas
• Solar• Electricityetc.

11Model analysis on CO2 reduction policy-Country top-down model approach¾ Features of AIM/Material model– Model: Computable general equilibrium model– Country: Japan– Time period: 1995 to 2012 (recursive dynamic)– Activity: 41 sectors and 49 commodities– Solid waste: 18 waste types of industrial waste and 8types of municipal waste.
• In this analysis, the constraint on solid waste is nottaken into account.

– Other features• Both economic balance and material balance are kept.
• Energy efficiency improvement is given from solution of
AIM/End-use model– Scenarios:• Reference Case: Without CO2 constraints.
• Tax case: CO2 reduction by only introducing carbon tax.
• Tax + subsidy case: CO2 reduction by introducing
carbon tax with subsidy for energy saving equipment.
AIM, NIES

12

Model analysis on CO2 reduction policy-Country top-down model approachproduced commodity
recyclepollution
managementpollution

CO2
energyintermediate

production
sectorCO2

capitallabormarketenv. capitallaborenergyintermediateabroadimportexportenvironmental
industry/investment
CO2householdenergyfinal demand government

Structure of AIM/MaterialAIM, NIES

13

Model analysis on CO2 reduction policy-Country top-down model approachSectors and commodities
sectorcommodity
Agriculture, forestry & fisheries
Mining except energy
Coking coal
Coal mining
Coal for general use, lignite, anthracite
Crude oil mining
Natural gas mining
Food
Textile mill products
Lumber, wood products, pulp, paper & paper productsChemical & allied products
Plastic
Ceramic, stone, & clay products
Iron, steel, non-ferrous metals & products
Non-ferrous metals & products
Fabricated metal products
General machinery
Electrical machinery, equipment & supplies
Transportation equipment
Precision instruments & machinery
Miscellaneous manufacturing industries
Construction
Steam & hot water supply
Water supply
Wholesale & retail trade
Finance & insurance
Real estateTransportation & communications

AIM, NIES

sectorcommodity
Education, research, medical service, health & hygiene, &social welfare
Goods renting & leasing
Car & machine repairing
Other service
Government service
Pollution management devices
Sewage service
Municipal solid waste treatment service
Industrial solid waste treatment service
Coke
Manufacture of coal
Other coal products
products
Paving materials
Gasoline
Jet fuel oil
Kerosene
Light oil
Manufacture of petroleum
Heavy oil
NaphthaLPG
Other petroleum products
Manufacture of gas
Town gas
Coal power generation
Oil power generation
Electricity
Gas power generation
Hydro power generation
Nuclear power generation

14

Model analysis on CO2 reduction policy
GDP [tri. yen at 1995 price]-Country top-down model approach650
600
550500450
1995

2000
Actual

2005
Year2010 2012

Reference

Future GDP estimated from AIM/Material model
AIM, NIES15

Model analysis on CO2 reduction policy-Country top-down model approach1995

2000

Year2005

20102012

GDP Change[tri. yen at 1995 price]

0.2
0.0

-0.2
-0.4
-0.6
-0.8
-1.0
-1.2
Tax caseTax + Subsidy case

GDP change compared to the reference caseAIM, NIES

16

Model analysis on CO2 reduction policy
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
AGR
MIN
M_C
M_O
M_G
FOD
TEX
PLP
CHM
PLSNMM
STL
NSM
FMT
MCH
ELM
TRE
PRI
OTH
CNS
HET
WTR
SAL
FIN
EST
TRS
PUB
RNT
REP
PRS
GOV
EMC
COL
OIL
GAS
T_C
T_O
T_G
HYD
NUC

Activity in the reference casein the first commitment period = 1.0-Country top-down model approach-sector
Tax

Tax+Subsidy

Activity Change of each sector in the first commitment period(compared to reference case)AIM, NIES

17

Model analysis on CO2 reduction policy-Country top-down model approach12

Number of employment[million peoples]

10864
2AGR
MIN
M_C
M_O
M_G
FODTEX
PLP
CHM
PLS
NMM
STL
NSM
FMT
MCH
ELM
TRE
PRI
OTH
CNS
HET
WTR
SAL
FIN
EST
TRS
PUB
RNT
REP
PRS
GOV
EMC
SEW
MW
IWM
COL
OIL
GAS
T_C
T_O
T_G
HYD
NUC

0Sector
Reference

Tax

Tax + Subsidy

Number of employment in the first commitment period

AIM, NIES

18