The economic impact of Green Certificate market through the Macro Multiplier
approachM. Ciaschini, R. Pretaroli, F. Severini, C. Socci
WIOD Conference, Wien – 26th 28th May, 2010
University of Macerata
Which is the convenient composition of the policy control for the energy balance target?
Policy on Renewable Energy affects
the ratio between renewable energy output and total energy output, RNR energy ratio
and the output and the value added
Aim of the paper
WIOD Conference, Wien – 26th 28th May, 2010
WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata
Which is the convenient composition of the policy control for the energy balance target?
Outline
WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata
The Italian Green Certificate scheme
MethodologyInput-Output Table and the Energy balance (ISTAT)Hybrid Input-Output modelMacro Multiplier approach
Simulations and Findings
Which is the convenient composition of the policy control for the energy balance target?
The Italian Green Certificate scheme
WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata
all suppliers or distributors of electricity are compelled to produce a quota of renewable electricity if they lay on the network more than 100 GWh year
the quota = 2% of the excess in total production of electricity
the Italian Authority for the Energy Services (ESM) emits the certificates which represent the green quality of each unit of renewable electricity generation.
Which is the convenient composition of the policy control for the energy balance target?
Methodology: the Data Base
WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata
I-O Table for the Italian economy for the year 2005 (59x59 commodities) (ISTAT, 2007)
direct requirement of Renewable Energy (Energy balance, ISTAT, 2007)
1Products of agriculture, hunting and related 31Secondary raw materials2Products of forestry, logging and related 32Electrical energy3Fish and other fishing products; 33Collected and purified water4Coal and lignite; peat 34Construction work5Crude petroleum and natural gas; 35Trade, maintenance and repair services 6Uranium and thorium ores 36Wholesale trade and commission trade services7Metal ores 37Retail trade services8Other mining and quarrying products 38Hotel and restaurant services9Food products and beverages 39Land transport; transport via pipeline services
10Tobacco products 40Water transport services11Textiles 41Air transport services12Wearing apparel; furs 42Supporting and auxiliary transport services13Leather and leather products 43Post and telecommunication services14Wood and products of wood 44Financial intermediation services15Pulp, paper and paper products 45 Insurance and pension funding services16Printed matter and recorded media 46Services auxiliary to financial intermediation17Coke, refined petroleum products and nuclear fuels 47Real estate services18Chemicals, chemical products 48Renting services of machinery and equipment 19Rubber and plastic products 49Computer and related services20Other non-metallic mineral products 50Research and development services21Basic metals 51Other business services22Fabricated metal products, except machinery 52Public administration and defence services23Machinery and equipment n.e.c. 53Education services24Office machinery and computers 54Health and social work services25Electrical machinery and apparatus n.e.c. 55Sewage and refuse disposal services, sanitation 26Radio, television and communication equipment 56Membership organisation services n.e.c.27Medical, precision and optical instruments 57Recreational, cultural and sporting services28Motor vehicles, trailers and semi-trailers 58Other services29Other transport equipment 59Private households with employed persons30Furniture; other manufactured goods n.e.c. 60Renewable energy
Commodities classification
WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata
Which is the convenient composition of the policy control for the energy balance target?
Methodology: the Hybrid Input-Output model
WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata
GWhGWhGWhGWh
€
€€€
ˆ 1*** xBA
*1** fAIx
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ij
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Which is the convenient composition of the policy control for the energy balance target?
MethodologyMM approach for the Leontief reduced form
WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata
1* *AIR
0111 12 10
21 22 2 2
01 2
. .
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m
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m m mm m
fr r rr r r f
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Policy control structures
Macro MultipliersPolicy target structures
Singular Value Decomposition
Methodology: the Hybrid Input-Output model
m1 m2 m3 m4 m5 m6
Policy controlPolicy target Macro MultipliersKey structuresKey structures
z41
z42
z43
z44
z45
z46
z11
z12
z13
z14
z15
z16
Z1
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z64
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z66
z31
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z21
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z23
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z5
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p41
p42
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p11
p12
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p15
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p51
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p55
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P62
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p6
p65
p66
p31
p32
p33
p34
p35
p36
p21
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p23
p24
p25
p26
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z1
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= z
Which is the convenient composition of the policy control for the energy balance target?
TPMZ
Macro Multiplier approach
Which is the convenient composition of the policy control for the energy balance target?
Simulations and results
WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata
1st scenario:We adopt the structure of the observed final demand in the I-O table
We impose a shock on final demand of 1,686 million of €
1st scenario Final Demand
I-O structure (f) structure 1 (p1) structure 51 (p51)
Δf * = 1,686 ml € Δf1* = 0.10% Δf51
* = 0.10%
Multiplier 1.874 2.005 1.514
RNR energy ratio 16.89% 16.92% 17.05%
Green Certificate variation 1.35% 3.32% 11.72%
Value added variation 0.10% 0.63% -0.03%
Which is the convenient composition of the policy control for the energy balance target?
Policy targetz1
Policy targetz51
Which is the convenient composition of the policy control for the energy balance target?
Simulations and results
WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata
2st scenario:We adopt the 1st key control structure since we aim to achieve the
maximum effect on output and value added
We impose a shock on final demand of 1,686 million of €
3st scenario:We adopt the 51st key control structure since we aim to achieve the
environmental target without neglecting output change
scenario
1st 2st 3st
I-O structure (f)Key structure 1
(p1)Key structure 51
(p51)
Δf * = 1,686 ml € Δf1* = 1,686 ml € Δf51
* = 1,686 ml €
Multiplier 1.874 2.005 1.514
RNR energy ratio 16.89% 16.92% 17.05%
Green Certificate variation 1.35% 3.32% 11.72%
Value added variation 0.10% 0.63% -0.03%
Impacts on output according the I-O structure
60 GWhof
Renewable Energy
Which is the convenient composition of the policy control for the energy balance target?
147 Gwhof
Renewable Energy
Impacts of the final demand change according to the 1th policy control structure
Which is the convenient composition of the policy control for the energy balance target?
518 Gwhof
Renewable Energy
Impacts of the final demand change according to the 51th policy control structure
Structure 51 is the convenient composition of the policy control for the energy balance target
The economic impact of Green Certificate market through the Macro Multiplier
approachM. Ciaschini, R. Pretaroli, F. Severini, C. Socci
Thank you
WIOD Conference, Wien – 26th 28th May, 2010
University of Macerata
Final demandEndogenous
total output
Policy target Policy controlR*
p1
p2
p3
p4
p5
p6
z1
z2
z3
z4
z5
z6
pz
_____ _____
??Sum of the macrovariable’s elements
Sum of the absolute valuesof the variable’s elements
[Mannhattan Norm]
Square root of the sum of the squaresof the variable’s elements
[Euclidean Norm]
ι
ιpi
iz
i
iz
i
2iz
i
ip
i
2ip
Variable’s balance
Variable’s change
Variable’s modulus
TPMZR *
Differences between the I-O and the 1th composition
Gwh
Final Demand
I-O structure (f) structure 1 (p1) structure 51 (p51)
Δf * = 0.10% Δf1* = 0.10% Δf51
* = 0.10%
Multiplier 1.874 2.005 1.514
RNR ratio 16.89% 16.92% 17.05%
Green Certificate variation 1.35% 3.32% 11.72%
Value added variation 0.10% 0.63% -0.03%
Aggregate results
Commento slide 1
The economic impact of the Green Certificate market through the Macro Multiplier approach
There is economic opportunity of complying with the environmental target on Renewable Energy Sources because there is positive interaction between policy on Renewable Energy Sources and output change.
There is a large number of economic assessments to determine the costs or the benefits of taking actions to address climate change.
The analysis we propose on Green Certificate Market is, then, based on the determination and use of what we called the Macro Multipliers.
The Macro Multiplier analysis:
1) Examines the role played by the order of magnitude of a macroeconomic variable, the SCALE, and the role of its inner composition, the STRUCTURE.
2) Is performed on bothon the traditional Leontief model
on the model emerging from “extended” multisectoral circular flow of income as provided by the National Accounting Matrix or by the Social Accounting Matrix
1) We will make reference to the essentials of National Accounting to see how the interaction between the multisectoral features of the main macro economic variables are dealt with in what we need to consider our “observation system”
2) We will then show how both the traditional Leontief model, which is more tied to the production loop of the economy, and an extended multisectoral model, that integrates the production aspects with the primary and secondary distribution of incomes can emerge.
3) Then we discuss the reduced forms of these models as the tool of policy modelling.
4) Finally with some mathematical manipulations we will complete the analysis establishing “convenient” ways for quantifying macro economic variables in terms of their scale and their structure.
MI SERVEThe analysis aims to give consistent recommendations that could be used in order to design integrated policies both with environmental and economic aims
- Interaction between policy on Renewable Energy Sourcesand output change
- There is economic opportunity of complying with the European target on RES
The Italian Green Certificates scheme (GC).
TP~ M Z~p0 0p~
0p̂ 0z0pPT~
0pPM T~
0pZˆ~
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TPMZR ~~
ROTATION MULTIPLICATION COUNTER ROTATION
TRANSFORMATION OF THE POLICY VECTOR INTO THE TARGET VECTOR
p2
Second policy component
p1
First policy component
STEP ONE: POLICY CONTROL EVALUATION IN TERMS OF THE POLICY–CONTROL KEY- STRUCTURES
0p~
First policy-control key structure
1p~ Second policy-control key structure
2p~
STEP TWO: AGGREGATE MULTIPLICATION OF THE ACTUAL POLICY CONTROL ALONG EACH POLICY-CONTROL KEY STRUCTURE
m1
First Macro Multiplier m
2Second M
M
STEP THREE: POLICY-TARGET RECOMPOSITION THROUGH THE POLICY TARGET KEY STRUCTURES
First Policy-target key structure
1z~
Second policy-target key structure
2z~z1
z2
p
First target component
Second target component
The Policy Isoquants
Modulus-Isoquant Absolute change–Isoquants
Policy Control Policy Target
Modulus- Isoquants and isocostsChange- Isoquants and isocosts
Leontief Multipliers
0111 12 10
21 22 2 2
01 2
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. .. . . . . .. . . . . .
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0 = v3f(1)
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x = u1b1 u1b1
x = u1s1a1v1f(1)
= a1v1’
V1’
f1
x=b1u1
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x1 f(1)=a1v1
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Endogenous policy 1
Commento alla metodologia!!!!!!!!!!!!!!!
Data BaseI-O Table for the italian economy for the year 2005 (59x59 commodities) (ISTAT, 2007)Direct requirement of Renewable Energy (Energy balance, ISTAT, 2007)
Hybrid Input-Output modelEnergy commodity is characterized by non unitary pricings
Macro Multiplier approachAllows to identify the key structure of the exogenous variable
Policies can be designed in monetary and physical terms