Green Economy Assessment
and Fiscal Policy Reform:
modelling simulations
Joy Kim
UNEP
Peru
Mozambique
Indonesia
Mongolia
Burkina Faso
Kenya
Rwanda
Banglades
h
Ghana
Colombia
Mauritius
China Mexico
South Africa
Namibia
Uruguay
Egypt Senegal
Nepa
l
Morocco
Green Economy Assessment • Model:
• a simplification of reality
• a collection of parts that interact with one another to function as a whole
• The Green Economy Model
– The modeling exercise should be tailored around a set of specific issues and a geographical context.
– Use of System Dynamics Modeling (T21) in order to evaluate social, economic and environmental impacts of green investments.
Cross-sectoral linkages within T21 model
society
environment
economyeducation
health
population
infrastructure
labor
poverty
production
government
investment
row
households
technology
energy
minerals emissions
land
sustainability
water
Analysis-Three Layers
PoliciesInvestment
(e.g.,capitalinvestmentinREandEEfor
extracapacityandretrofits)
Mandatesandtargets(e.g.,REandEEstandards,deforestation
andreforestationtargets)
Subsidies(e.g.,feedintariffsforenergy,taxrebates,paymentsforecosystem
services)
Scenarios Climatechange,energyprices,conflicts,peakoil,worldeconomicgrowth,etc.
Structure
Socialsectors Economicsectors Environmentalsectors
Population
Education
Infrastructure(e.g.transport)
Employment
Incomedistribution
Production(GDP)
TechnologyHouseholdsaccounts
Governmentaccounts
Investment(publicandprivate)
Balanceandfinancing
GovernmentdebtBalanceofpayment
Internationaltrade
LandallocationanduseWaterdemandandsupply
Energydemandandsupply
(bysectorandenergysource)
GHGandotheremissions
(sourcesandsinks)Footprint
Society
Economy Environment
Kenya: GE scenarios on real GDP Growth
Kenya: GE scenarios on incidence of poverty
Case study: phasing out energy subsidies in
Mexico • Current level of energy subsidies is approx. 1.5% of GDP
• Business-as-usual environment.
- Oil extraction at current trends, starting at 2.6 millions of barrels per day (mbd) and stabilizing at 3
mbd.
- Growth of the US economy of 2% per year
- Structural unemployment at 3.3%
- No modification of current fiscal policies
All scenarios are analyzed and compared at four moments: the start year 2012, two interim years,
2018 and 2024, and the final year 2030.
• Impacts of three scenarios on:
• Main macro-economic variables (GDP, investment and government resources)
• Consumption and welfare changes (with a breakup of different household income)
• Sectoral output changes
Case study: Phasing out FF subsidies in Mexico
Family 1 Without fiscal
neutrality
Fiscal neutrality
(via lump sum
transfers)
Total elimination of energy subsidies in 10
years (10% of initial subsidy each year).
A B
Partial elimination of energy subsidy in 10
years (5% of initial subsidy each year)
C D
Phasing out FF subsidies in Mexico
Family 3 Total elimination of energy
subsidies in 10 years (10%
of initial subsidy each
year).
Partial elimination of
energy subsidy in 10
years (5% of initial
subsidy each year)
100% funding to
renewable energy
I K
50% funding to
renewable energy, 50%
lump sum transfers
J
Scenarios in family 1 Years 2012 2018 2024 2030
Scenario A
GDP -0.48% -0.88% -0.01% 0.34%
Investment -1.99% -1.63% -0.81% 3.16%
Government Resources 2.74% 2.80% 2.51% 2.42%
Scenario B
GDP -0.56% -1.00% -1.19% 0.37%
Investment -1.99% -1.76% -1.21% 1.37%
Government Resources -0.51% -0.45% -0.73% 0.83%
Scenario C
GDP -0.25% -0.53% -0.56% 0.31%
Investment -1.11% -1.08% -0.40% 2.31%
Government Resources 1.75% 1.78% 1.58% 1.62%
Scenario D
GDP -0.33% -0.60% -0.68% 0.34%
Investment -1.19% -1.15% -0.69% 1.08%
Government Resources -0.56% -0.52% -0.72% 0.69%
w/o fiscal
neutrality
w/o fiscal
neutrality
Note: Percent variations relative to the baseline trend, Source: Ibarrarán et al (2012b)
Note: Percent variations relative to the baseline trend, Source: Ibarrarán et al (2012b)
Years 2012 2018 2024 2030
Scenario I (total removal/100% investment in RW
GDP -0.29% 0.19% 1.28% 3.49%
Investment 1.19% 2.85% 5.59% 12.82%
Government
Resources -1.91% -1.20% -0.43% 0.52%
Scenario J (total removal/50% investment in RW, 50% lump sum transfer)
GDP -0.46% -0.47% -0.35% 1.04%
Investment -0.32% -0.54% 1.09% 8.01%
Government
Resources -1.30% -0.48% -0.33% 0.61%
Scenario K (50% removal/100% investment in RW)
GDP -0.29% 0.20% 1.03% 2.93%
Investment 0.48% 1.83% 4.09% 10.70%
Government
Resources -1.28% -0.66% -0.17% 0.55%
Scenarios in family 3
Welfare changes
Scenario A B (fiscal neutrality) C D (fiscal neutrality)
Agent 1 (poorer) -0.57% 0.59% -0.09% 0.97%
Agent 2 -0.56% 0.39% -0.08% 0.64%
Agent 3 -0.45% 0.23% -0.02% 0.45%
Agent 4 (richer) -0.45% 0.20% -0.02% 0.40%
Government’s Welfare -0.48% 0.27% -0.03% 0.98%
Aggregated Welfare 3.26% 0% 2.32% 0.00%
Consumption changes
Scenario A B C D
Food -1.81% -1.04% -1.03% -0.46%
Household goods -1.95% -1.21% -1.10% -0.57%
Services -1.70% 0.01% -0.96% 0.05%
Cars -1.78% -1.13% -1.00% -0.56%
Electricity and LP Gas -12.87% -12.20% -8.40% -7.90%
Public Transportation -2.26% -1.51% -1.25% -0.71%
Gasoline -4.07% -3.41% -2.24% -1.78%
Water -1.68% -0.93% -0.93% 0.37%
Housing -1.68% 0.99% -0.96% 0.50%
Note: Percent variations relative to the baseline trend, Source: Ibarrarán et al (2012b)
Scenarios in family 1
Note: Percent variations relative to the baseline trend, Source: Ibarrarán et al (2012b)
Welfare Changes
Scenario I J (lump sum transfer) K
Agent 1 (poorer) 1.54% 1.42% 1.37%
Agent 2 1.45% 1.05% 1.31%
Agent 3 1.09% 0.55% 0.53%
Agent 4 (richer) 0.75% 0.19% 0.71%
Government Welfare 1.02% 0.53% 0.81%
Aggregated Welfare 0.00% 0.00% 0.00%
Consumption Changes
Scenario I J K
Food 1.61% -0.30% 1.24%
Household Goods 1.83% -0.48% 1.38%
Services 1.51% -0.42% 1.13%
Cars 1.82% -0.63% 1.32%
Electricity and LP Gas -8.69% -10.99% -5.73%
Public Transportation 0.93% -0.83% 0.86%
Gasoline -1.03% -2.92% -0.23%
Water 1.50% -0.19% 1.22%
Housing 1.37% -0.44% 1.06%
Pro
gre
ssiv
e
Scenarios in family 3
Scenarios in family 1: Output changes by 2030
Scenario A B C D
Agriculture -0.89% -1.03% -0.36% -0.42%
Livestock -0.25% -0.49% 0.05% 0.14%
Forestry 0.78% 0.78% 0.78% 0.52%
Fishing -3.67% -3.27% -2.04% -1.63%
Crude Oil -8.58% -8.80% -5.02% -5.17%
Natural Gas -8.54% -8.83% -5.07% -5.16%
Mining -1.54% -2.22% -0.85% -1.37%
Refinery -13.06% -13.74% -7.90% -8.04%
Transportation 0.08% 0.08% 0.10% 0.73%
Electricity -26.37% -26.46% -19.12% -19.17%
Chemicals and
Plastics -6.51% -7.18% -3.85% -4.30%
Services 0.31% 0.05% 0.10% 0.04%
Manufacture 0.58% 0.53% 0.62% 0.58%
Note: Percent variations relative to the baseline trend, Source: Ibarrarán et al (2012b)
Note: Percent variations relative to the baseline trend, Source: Ibarrarán et al (2012b)
Scenario I J K
Agriculture 5.47% 2.08% 4.69%
Livestock 6.67% 2.64% 5.42%
Forestry 7.27% 3.64% 5.71%
Fishing 0.00% -2.04% 0.82%
Crude Oil -3.47% -6.18% -0.87%
Natural Gas -3.47% -6.20% -0.85%
Mining 8.79% 2.56% 7.08%
Refinery -7.64% -10.82% -3.09%
Transportation 2.08% -0.03% 1.90%
Electricity -12.31% -20.42% -10.23%
Chemicals and
Plastics 5.90% -0.37% 6.03%
Services 2.70% 0.64% 2.18%
Manufacture 10.23% 4.15% 8.10%
Scenarios in family 3: Output changes by 2030
Conclusions • Providing policy options (e.g. fiscal policy reform) through a
quantitative modelling simulation
• Helping countries’ green economy transition through assessing the opportunities and challenges and cross-sectoral implications
• Mainstreaming green economy in the national development planning through green economy assessment
Conclusions • 1.5% of GDP (current level of enerby subsidies) is invested in
renewable energy expands the country’s GDP by 3% by 2030 relative to a BAU
• Alternative use of resources (lumpsum transfers vs. New investment) produces different economic consequences
• Promotion of investment on RW creates a pull in the economy toward more production while the energy price change bring its desired effect