Methodological proposals for hybrid modelling :implications for climate policy analysis in an open
economy (France)Gaëlle LE TREUT

AIM workshop, NIES
November, the 27th, 2017

1

Challenge: integrating a multi-dimensional problem at thecountry-scale (France)
POLICY

Generalequilibrium
effects

A SYSTEM WITH
INEVITABLE
INTERACTION

Sectoraldisaggregation

COMPETITIVENESS
AIM workshop, NIES, 2017

Weight and adaptability

CO2 emissions
inventories

ENVIRONMENT
2Challenge: integrating a multi-dimensional problem at thecountry-scale (France)
POLICYTo re-establish a dialogueto lift barriers

Generalequilibrium
effects

To control the global
efficiency of the reform

A SYSTEM WITH
INEVITABLE
INTERACTION

Sectoraldisaggregation

COMPETITIVENESS
AIM workshop, NIES, 2017

Weight and adaptability

CO2 emissions
inventories

ENVIRONMENT
3A dual description: the IMACLIM hybridisation
procedure
From statisticalinformation available

Main rules
FC

IC

Qij

Step 2FC
Pij

Bills of purchases

M

CFVij

Statistical gaps allocatedto a aggregate sector
called composite

M• Cement sector (aggregated with nonmetallic minerals sector)

HYBRID

OTHER• Steel and iron sector (aggregatedwith metal sector)FC

Vij = Pij . QijOTHERHYBRID

Step 3

VA

Application on 2010 French data

E1…EjIC• 15 energy sectors

E1…EjIC

Matrix of unit prices(value/Mtoe or value/tons)

M• Sectoral data on quantities
and prices are added

Input Output table in volume(Mtoe or tons of cement)
M E1…Ej• Value-added of the economy(GDP) from national
accounts is preserved

Step 1

AIM workshop, NIES, 20174

A double dividend that depends of twocontroversial parameters
Articulation between curve wage and international trade forcarbon tax implication recycled into labour cost reduction
Price sensitivity
to external tradeI1

I and II : Gains
III : Losses

IIIII0source: Combet, 2013
AIM workshop, NIES, 2017

Unemployment sensitivity
to net wages

5

A double dividend that depends of twocontroversial parameters
Articulation between curve wage and international trade forcarbon tax implication recycled into labour cost reduction
Price sensitivity
to external tradeI1

I and II : Gains
III : Losses

IIIII0source: Combet, 2013
AIM workshop, NIES, 2017

Unemployment sensitivityto net wages

6

IMACLIM: a hybrid CGE model in open economy
Simultaneous equilibria inmonetary and physical units (Mtoe,tons of steel, tons of cement)

Limited adaptation
capacity

10 income classes
Prices,Incomes

Limited adaptation
capacity

Finaldemand(technical constraints& basic needs for energy)
Taxes(technical constraints)
Exports

Productionsystem
Production System

Equilibrium
unemployment(constraint on theadjustment of wage)

Transfers

Imports

Rest of the world

Flows of products & funds

Payroll & other taxes

Public administrations

Public finance modalities(A tax and benefit system with multiple objectives)

International tradecompetitiveness functionof the production costs

Methodological ambitions:• Empirical thread: link wages /trade• More realistic representation througha gain in granularity

AIM workshop, NIES, 20177

1st obs .: link between wage indexation andexposure of the economy in a compact model
500 € / tCO2 unilateral carbon tax recycled into reduction of labour costs
Setting: wage curve& int.trade elasticity
International price + Ref elasticity
Domestic price+ Ref elasticity
Domestic price+ Low elasticity

30%
25%
20%
15%10%
5%

4.61%

3.54%
-0.11%

0%-5%

GDPProduction priceHouseholds consumption

Emissions

-10%
-15%

-12.56%-20%
AIM workshop, NIES, 20178

1st obs .: link between wage indexation andexposure of the economy in a compact model
500 € / tCO2 unilateral carbon tax recycled into reduction of labour costs
Setting: wage curve& int.trade elasticity
International price + Ref elasticity
Domestic price+ Ref elasticity
Domestic price+ Low elasticity

30%
25%
20%
15%
10%
5%

5.16%

4.61%
-0.21%

0%
-5%

GDP

-0.11%
Production price

3.54%
0.37%
Households consumption

Emissions

-10%
-15%

-12.56%-14.82%-20%
AIM workshop, NIES, 201791st obs .: link between wage indexation andexposure of the economy in a compact model
500 € / tCO2 unilateral carbon tax recycled into reduction of labour costs
Setting: wage curve& int.trade elasticity
International price + Ref elasticity
Domestic price+ Ref elasticity
Domestic price+ Low elasticity

30%

25.29%

25%
20%
15%

12.60%

10%
5%

6.19%

4.61%

-0.21%

0%-5%

GDP-10%-15%

5.16%-0.11%
Production price3.54%
0.37%
Households consumption

Emissions-7.73%-12.56%-14.82%-20%
AIM workshop, NIES, 2017102th Obs .: impacts of a gain in sectoral granularity
at calibration
100 € / tCO2 unilateral carbon tax recycled into reduction of labour costs
IMACLIM calibrated:

13 sectors

4%

1.61%
1.27%

2%0%

3 sectors (Final En, Prim. En., Compo)

0.16%-0.02%
GDP-2%

Production price

0.54%
0.47%
Households
consumption

Emissions-4%-6%-6.11%-8%-10%-8.86%
Quite insensitive but a homogeneous sectoral setting

AIM workshop, NIES, 201711

1st step: integrating differentiated elasticities andcompatible with IMACLIM
500 € / tCO2 unilateral carbon tax recycled into reduction of labour costs
1era attempt :Aggregate elasticities of trade in value fromthe litterature (Fouquin, 2001/Erkel, 2002) asa calibration constraint for sectoralelasticities

AIM workshop, NIES, 201712

1st step: integrating differentiated elasticities andcompatible with IMACLIM
500 € / tCO2 unilateral carbon tax recycled into reduction of labour costs
1era attempt :Aggregate elasticities of trade in value fromthe literature (Fouquin, 2001/Erkel, 2002) asa calibration constraint for sectoralelasticities

50%

43.7%

45%
40%
35%

27.6%

30%
25%

19.6%

20%
15%
10%

6.8% 6.2%

7.5%

5%
0%

GDP

Production price Nominal wages

Wage indexation:
International priceDomestic price

A paradox and an insured gain
AIM workshop, NIES, 201713

1st step: integrating differentiated elasticities andcompatible with IMACLIM
500 € / tCO2 unilateral carbon tax recycled into reduction of labour costs
2th attempt :1era attempt :Aggregate elasticities of trade in value from Elasticities reinterpreted as consistent volume
the literature (Fouquin, 2001/Erkel, 2002) as with IMACLIM to way out of the ‘econometrica calibration constraint for sectoralpuzzle ‘(Fontagné, 2017)
elasticities

50%

43.7%

45%
40%
35%

27.6%

30%
25%

19.6%

20%
15%
10%

6.8% 6.2%

7.5%

5%
0%

GDP

Production price Nominal wages

Wage indexation:
International priceDomestic price

A paradox and an insured gain
AIM workshop, NIES, 201714

1st step: integrating differentiated elasticities andcompatible with IMACLIM
500 € / tCO2 unilateral carbon tax recycled into reduction of labour costs
2th attempt :1era attempt :Aggregate elasticities of trade in value from Elasticities reinterpreted as consistent volume
the literature (Fouquin, 2001/Erkel, 2002) as with IMACLIM to way out of the ‘econometrica calibration constraint for sectoralpuzzle ‘(Fontagné, 2017)
elasticities

50%

43.7%

45%
40%

8.47%
7.41%

8%

35%

6%

27.6%

30%
25%

19.6%

20%

4%

2.97%

2.80%

2%

15%
10%

10%

6.8% 6.2%

7.5%

5%

-2%

0%

GDP

Production price Nominal wages-0.45%

0%-4%

GDP

Production price Nominal wages-2.20%

Wage indexation:
International priceDomestic price

Wage indexation:
International priceDomestic price

A paradox and an insured gain

Mechanisms retrieved

AIM workshop, NIES, 201715

2nd step: differentiated wage curve indexation forsectors
500 € / tCO2 unilateral carbon tax recycled into reduction of labour costs
Wage curve indexation:
International priceThree levels of 'wage
adjustment'

Heterogeneous wages indexation assumed
Domestic price10%

Definition sector by sector
by:• The intensity ofinternational trade• The degree of exposure
jobs

8.47%
8%

7.41%

6%

4%

2.97%

2.80%

2%

-0.45%
0%GDP

Production priceNominal wages-2%-2.20%-4%

AIM workshop, NIES, 201716

2nd step: differentiated wage curve indexation forsectors
500 € / tCO2 unilateral carbon tax recycled into reduction of labour costs
Wage curve indexation:
International priceThree levels of 'wage
adjustment'

Heterogeneous wages indexation assumed
Domestic price10%

Definition sector by sector
by:• The intensity ofinternational trade• The degree of exposure
jobs

8.34% 8.47%
8%7.41%6%

4%

2.97%

2.80%
1.80%

2%

0%

-0.31%-0.45%

GDPProduction priceNominal wages-2%-2.20%-4%

AIM workshop, NIES, 201717

Conclusions and perspectives
Interest of hybridization for economic discussions: Gain in sectoral granularity
 Understanding of economic mechanisms

AIM workshop, NIES, 201718

Conclusions and perspectives
Interest of hybridization for economic discussions: Gain in sectoral granularity
 Understanding of economic mechanisms

Understanding the interaction between wages andinternational trade Sectoral representation
 Introduction of parameters to link dynamics and gather information

AIM workshop, NIES, 201719

Conclusions and perspectives
Interest of hybridization for economic discussions: Gain in sectoral granularity
 Understanding of economic mechanisms

Understanding the interaction between wages andinternational trade Sectoral representation
 Introduction of parameters to link dynamics and gather information



Challenges around energy transition: a tool to feed the debate
 Investments and economic recovery


Developments of industries within international trade A model used for the French climate-plan scenarios
AIM workshop, NIES, 201720Conclusions and perspectives
Extension of the IMACLIM-country platform New modelling capacities Consistent inter-regional comparison

AIM workshop, NIES, 201721

Thank you for your attention

Methodological Proposals for hybrid modeling:
implications for climate policy analysis in an open
economy (France)Gaëlle LE TREUT
letreut[at]centre-cired.fr

22