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GTAP-E Incorporating Energy Substitution into the GTAP Model.

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GTAP-E Incorporating Energy Substitution into the GTAP Model
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Page 1: GTAP-E Incorporating Energy Substitution into the GTAP Model.

GTAP-E

Incorporating Energy Substitution into the GTAP Model

Page 2: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Introduction to GTAP-E

Why do we care about representing CO2 in a CGE? CO2 emissions are “well-mixed” gases creating a

global problem. Reducing CO2 will have region and sector specific

economic impacts because of the increasing cost of energy.

Economic effects of reductions will be felt to various extent world wide no matter who reduces emissions.

CGE modeling useful in breaking out complex interactions between countries and sectors emitting CO2 emissions.

Page 3: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Introduction to GTAP-E

Two major types of instruments: Tax and Cap-and-Trade Trade off between unilateral vs. international

trading system.

Page 4: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Production Structure: GTAP-E = GTAP + energy substitution (inter-KE and inter-fuel)

Output

Value Added Intermediate goods(energy, non-energy)

CapitalCapitalUnskilled Lab.

Skilled Lab.

Nat. Resources

Land

GTAP

GTAP-E

Output

Value Added Intermediate goods(non-energy)

Unskilled Lab.

Skilled Lab.

Nat. Resources

LandCapital-Energy

GasOil Petroleum prods

EnergyCapital

Electricity

Non-Coal

Non-Electricity

Coal

Page 5: GTAP-E Incorporating Energy Substitution into the GTAP Model.

KEE 2KE KE

E K

(1) S S + SKE VA

K E COKE VA

p p t

Macro relationships in GTAP-E (USA)

(3) S C G C G Sq q p q

+9.5-0.64 VA >

(2) R K Ii p p -0.64 +0.02-1.0

+0.12 -0.04 +0.19 +0.01

Page 6: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Macro relationships in GTAP-E (USA)

C I G X M(6) S S S S S R R R R R Ry c i g x m

L K N NR(5) S S S S Ry l k n nr a -0.040

(4) R R G Cc g p p -0.08 +0.11 +0.02 +0.21

-0.04 0 0 0

-0.04 -1.0-0.08 +0.11

+0.22 -1.1

Page 7: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Macro relationships in GTAP-E (USA)

GDP GDP GDP GDPX C G S(7) [S /(S +S +S )] C G S Ryev q y tot

-0.04 +0.08-0.03 0.12

-$2225 -$2955 +$742

-0.03

Page 8: GTAP-E Incorporating Energy Substitution into the GTAP Model.

US$30 tax per tonneImpacts:

Total carbon emissions, in M tons of C, fall by 13.5%;

why?

Use of the different energy sources:

Demand for composite non-electric goods (coal + non-coal)

Qnel(j,r) 1 USA

Agriculture -7,26

Coal -28,91

Oil -2,37

Gas -10,48

Oil_Pcts -7,6

Electricity -18,16

En_Int_ind -9,11

Oth_ind_ser -7,24

Page 9: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Especially so for the energy sources that are more carbon emitting (re: Demand for intermediate inputs by sector)

qf(i,j,r) Coal Oil_Pcts Electricity En_Int_ind

Agriculture -18,84 -7,68 -2,56 -1

Coal -28,91 -7,6 -22,3 -21,06

Oil -28,91 -7,6 -11,69 -11,21

Gas -28,91 -7,6 -11,68 -11,35

Oil_Pcts -28,91 -7,6 -8,13 -7,64

Electricity -28,91 -7,6 4,08 -3,25

En_Int_ind -18,84 -7,68 -2,56 -1

Page 10: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Why the fall in demand? PricesAverage percentage changes in industry prices for composite commoditiespf(i,j,r)

%age chngs

Agriculture 0,25

Coal 51,69

Oil 16,36

Gas 16,47

Oil_Pcts 12,03

Electricity 7,52

En_Int_ind 0,75

Page 11: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Exports and Imports

Agriculture -0,31 0,16

Coal 10,02 -27,34

Oil 9,96 -12,91

Gas 5,61 -11,92

Oil_Pcts 0,9 -8,1

Electricity -33,15 19,56

En_Int_ind -2,75 1,05

Page 12: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Why?

PricesBorder Prices  

pfob(i,r,s) 1 USA

Agriculture 0,25

Coal -2,51

Oil -1,65

Gas -1,19

Oil_Pcts -1,07

Electricity 7,59

En_Int_ind 0,85

Oth_ind_ser 0,01

Page 13: GTAP-E Incorporating Energy Substitution into the GTAP Model.

This is reflected in the BOT numbers below

Balance of Trade  

 

DTBALi(i,r)

1 Agriculture -76,78

2 Coal 343,25

3 Oil 8373,1

4 Gas 1001,57

5 Oil_Pcts 743,44

6 Electricity -473,8

7 En_Int_ind -3692,89

8 Oth_ind_ser 7868,28

Total 14086,16

Page 14: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Allocation effect decomposition (I) atax 1 firm 2 private

1 Agriculture 2 02 Coal -1590 -33 Oil 0 04 Gas -394 -595 Oil_Pcts -464 -3326 Electricity 0 07 En_Int_ind 2 08 Oth_ind_ser 3 0Total -2442 -393

Largest allocation effect for firms Main private household loss from oil products Oil only used for oil products production

Tax rate1 Agriculture -2,5532 Coal 55,5783 Oil 18,2444 Gas 17,8665 Oil_Pcts 13,2346 Electricity 07 En_Int_ind -3,858 Oth_ind_ser -2,362

Page 15: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Allocation effect decomposition (II)

Loss of coal tax revenues mainly due to less coal use in electricity production

Loss of gas tax revenues more spread Oil products mainly used by oth_ind_ser

stax 1 Agriculture6 Electricity7 En_Int_ind8 Oth_ind_serTotal1 Agriculture 2 0 0 0 02 Coal -2 -1516 -59 -13 -15903 Oil 0 0 0 0 04 Gas -40 -149 -83 -123 -3945 Oil_Pcts -10 -18 -117 -319 -4646 Electricity 0 0 0 0 07 En_Int_ind 2 0 0 0 28 Oth_ind_ser 3 0 0 0 3Total -45 -1683 -258 -456 -2442

Page 16: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Terms of trade decomposition

tot 1 pworld 2 pexport 3 pimport Total1 Agriculture 23 31 5 602 Coal -17 -79 -1 -973 Oil 642 -4 11 6504 Gas 16 -4 31 435 Oil_Pcts 1 -2 4 36 Electricity -1 21 2 227 En_Int_ind 19 831 105 9548 Oth_ind_ser 8 -914 13 -893Total 692 -120 170 742

Oil prices drop compared to composite world trade price index and US is net importer

Export price of En_int_ind rises compared to world price Export price of Oth_ind_ser drops compared to world price

Page 17: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Sim 30USD/t on US

Impacts: Total carbon emissions, in M tons of C, fall by

13.5%; Use of the different energy sources: Demand for composite non-electric goods (coal +

non-coal)

Page 18: GTAP-E Incorporating Energy Substitution into the GTAP Model.

New Parameter FileELKE USA EU JPN   ESUBVAMOD USA EU JPN

1 Agriculture 0,50 0,50 0,50 1 Agriculture 0,03 0,15 0,22

2 Coal 1,00 0,00 0,00 2 Coal 0,50 3,99 4,00

3 Oil 1,00 0,00 0,00 3 Oil 0,50 0,39 0,40

4 Gas 1,00 0,00 0,00 4 Gas 0,50 0,35 1,31

5 Oil_Pcts 1,00 0,00 0,00 5 Oil_Pcts 0,50 1,26 1,26

6 Electricity 1,00 0,50 0,50 6 Electricity 0,50 1,26 1,26

7 En_Int_ind 1,00 0,50 0,50 7 En_Int_ind 0,50 1,19 1,19

8 Oth_ind_ser 1,00 0,50 0,50 8 Oth_ind_ser 0,50 1,36 1,36

9 CGDS 0,00 0,00 0,00   9 CGDS 1,00 1,00 1,00

Sim 1A. Change Elasticity

Page 19: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Main Results

EV decomposition welfare USA EU JPN

2 alloc_A1 -3314,407 3678,584 675,135

6 tot_E1 3736,045 1092,480 639,310

7 IS_F1 372,773 -146,096 -148,943

Total 794,411 4624,968 1165,503

Emission Reductions -15,714 0,813 0,788

Sim 1A. Change Elasticity

Page 20: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Sim 1B. 30USD/t on US

Fixing the Trade Balance The trade balance for the regions, except for one

are fixed (made exogenous). The savings slack for the previously omitted

region is made exogenous.

Page 21: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Sim 1B. 30USD/t on US

Allocative TOT IS_Bal Total

USA -2777.41 2784.82 202.91 210.33

EU 2993.73 811.05 -86.64 3718.13

JPN 572.37 560.90 -96.10 1037.17

Fixing the Trade Balance

Page 22: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Sim 1B. 30USD/t on US

Fixing the Trade Balance PExport is the major change in the TOT effect

with the largest results coming from Energy-intensive industries Other industries

Page 23: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Sim 2. Tax by Regions

Impose a USD 30 tax on CO2 emissions in each region (EU, USA, Japan) individually.

Each row is a different scenario, with the tax imposed in the country shown in the first column.

Page 24: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Sim 2. Tax by Regions

Total change in CO2 emissions, M. tons and % in the taxed region

- The effect on world CO2 emissions is the greatest with a US tax. Output is already more energy efficient in the EU and Japan.

USA EU Japan Other TotalEmission change, %

EU 137 -7133 67 690 -6239 -7,8USA -20201 513 199 1111 -18378 -13,5Japan 78 78 -2742 -216 -2801 -8,1

Page 25: GTAP-E Incorporating Energy Substitution into the GTAP Model.

- The per capita effect of the tax on EV is considerably larger in the EU (-30 $) and Japan (-35 $) than in the USA (-8 $). Most of the change in EV arises from allocation (especially in the USA), the rest mainly from TOT (>0 in EU, USA; <0 in Japan).

Change in GDP quantity index, %USA EU Japan

EU 0,00 -0,14 0,01USA -0,04 0,05 0,02Japan 0,00 0,01 -0,10

Sim 2. Tax by Regions

Page 26: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Change in value added, %

AgricultureCoal Oil Gas Oil_Pcts Electricity En_Int_indOth_ind_serCGDSEU -0,1 -17,0 0,0 -5,9 -2,1 -2,3 -0,6 -0,1 -0,7USA -0,1 -18,8 -1,4 -10,4 -7,7 -2,6 -1,0 -0,1 -1,0Japan -0,1 -5,0 0,0 -8,7 -3,2 -0,5 -0,4 -0,1 -0,6

- Output of energy commodities declines in the region that introduces the tax.- Generally, labour productivity increases. Exceptions to this are Electricity, En_int_ind and CGDS. Full employment…?

Sim 2. Tax by Regions

Page 27: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Change in the terms of trade, %

USA EU EEFSUJapan RoA1 EEx CHIND RoWEU 0,04 0,00 -0,08 0,11 -0,04 -0,12 0,02 0,02USA 0,08 0,07 -0,11 0,24 -0,14 -0,53 0,05 0,09Japan 0,05 0,02 -0,01 -0,08 -0,04 -0,08 0,01 0,03

- The TOT changes are large in the other five regions. There, change in EV arises more from TOT than from allocation.

- Imposing a USD 30 tax in all three regions at the same time, is almost equal to the sum of the above individual results.

Sim 2. Tax by Regions

Page 28: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Fig.1 Change in Total CO2 Emissions (Mt of C)

-14.0-12.0-10.0-8.0-6.0-4.0-2.00.02.0

10 20 30 40 50 rctax, US$

JPNEExCHIND

gco2t=-3,59-0,14rctax

Case: Unilateral Carbon Tax in Japan

Page 29: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Fig. 1A Relation between Carbon Tax Rate and Total Emissions Reduction

0

1

2

3

4

5

6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

rctax, %

gco

2t,

%

Page 30: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Fig.2 Change in Value of GDP

JPN

EEx

CHIND

Total

-0,30-0,25-0,20-0,15-0,10-0,050,000,050,100,150,200,25

10 20 30 40 50

rctax, USD

vgd

pCase: Unilateral Carbon Tax in Japan

Page 31: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Fig.3 Terms of Trade

-0,16

-0,14

-0,12

-0,1

-0,08

-0,06

-0,04

-0,02

0

10 20 30 40 50

rctax, US$

tot,

% JPN

EEx

Case: Unilateral Carbon Tax in Japan

Page 32: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Conclusions Relationship between the scale of carbon tax

and reduction of CO2 emissions in Japan is determined by the following relation:

gco2t=-5,23*%change rctax**(-0.09); Scale of carbon tax and change in value of

GDP has almost a linear relationship;

Case: Unilateral Carbon Tax in Japan

Page 33: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Conclusions- Terms of trade of Japan and net energy exporters

(EEx) tend to deteriorate simultaneously at tax rates up to US$30, while it improves in other regions. However, terms of trade tends to deteriorate more for Japan than EEx at higher taxes above US$30 per ton of carbon emission.

- As Japan has to reduce its total CO2 emissions by more than 14% by 2012 compared to its 1990 level, it is necessary to introduce at least US$30 per ton of C emissions.

Case: Unilateral Carbon Tax in Japan

Page 34: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Compare Emission Trading: Carbon Taxes

Tax in EU, US and JPN (30USD )

World Emission Trading (4.5%)

RCTAX 30.00USD 7.23USD

qgdp EU and JPN suffers the most; China/India gains slightly

China/India suffers the most

EV Decrease in all regions except China/India ROW

Positive in US, EU and JPN

qo Coal reductions are large in EU, US and JPN

Large coal reductions in China/India

Page 35: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Conclusion

Our policy instruments are a uniform tax and an emissions trading system. Which is more efficiency? A worldwide emission trading system would

contribute to a reduction in the economic costs for the countries.

We can achieve a larger cut in emissions with a smaller decline in GDP and per capita welfare (EV) by imposing a CO2 tax in the United States than with an equivalent lump-sum tax in either the EU or Japan.

Page 36: GTAP-E Incorporating Energy Substitution into the GTAP Model.

Future research section

Allowing energy substitution in GTAP is important to reflect agents’ reaction in a context where carbon taxes are used to reduce CO2 emissions.

Developing countries may not agree in this approach because it imposes a large constraint on their economy. Future goals for greenhouse gas reductions should therefore vary between the regions, in order to reflect the share of world emissions.


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