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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.
Introduction to GTAP-E
Two major types of instruments: Tax and Cap-and-Trade Trade off between unilateral vs. international
trading system.
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
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
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
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
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
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
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
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
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
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
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
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
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
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)
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
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
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.
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
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
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.
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
- The per capita effect of the tax on EV is considerably larger in the EU (-30 $) and Japan (-35 $) than in the USA (-8 $). Most of the change in EV arises from allocation (especially in the USA), the rest mainly from TOT (>0 in EU, USA; <0 in Japan).
Change in GDP quantity index, %USA EU Japan
EU 0,00 -0,14 0,01USA -0,04 0,05 0,02Japan 0,00 0,01 -0,10
Sim 2. Tax by Regions
Change in value added, %
AgricultureCoal Oil Gas Oil_Pcts Electricity En_Int_indOth_ind_serCGDSEU -0,1 -17,0 0,0 -5,9 -2,1 -2,3 -0,6 -0,1 -0,7USA -0,1 -18,8 -1,4 -10,4 -7,7 -2,6 -1,0 -0,1 -1,0Japan -0,1 -5,0 0,0 -8,7 -3,2 -0,5 -0,4 -0,1 -0,6
- Output of energy commodities declines in the region that introduces the tax.- Generally, labour productivity increases. Exceptions to this are Electricity, En_int_ind and CGDS. Full employment…?
Sim 2. Tax by Regions
Change in the terms of trade, %
USA EU EEFSUJapan RoA1 EEx CHIND RoWEU 0,04 0,00 -0,08 0,11 -0,04 -0,12 0,02 0,02USA 0,08 0,07 -0,11 0,24 -0,14 -0,53 0,05 0,09Japan 0,05 0,02 -0,01 -0,08 -0,04 -0,08 0,01 0,03
- The TOT changes are large in the other five regions. There, change in EV arises more from TOT than from allocation.
- Imposing a USD 30 tax in all three regions at the same time, is almost equal to the sum of the above individual results.
Sim 2. Tax by Regions
Fig.1 Change in Total CO2 Emissions (Mt of C)
-14.0-12.0-10.0-8.0-6.0-4.0-2.00.02.0
10 20 30 40 50 rctax, US$
JPNEExCHIND
gco2t=-3,59-0,14rctax
Case: Unilateral Carbon Tax in Japan
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,
%
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
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
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
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
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
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.
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.