Transcript Group 3 - Energy

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 Capand-Trade
 Trade off between unilateral vs. international
trading system.
Production Structure: GTAP-E
= GTAP + energy substitution (inter-KE and inter-fuel)
Output
Output
Value Added
Intermediate goods
(energy, non-energy)
Skilled Unskilled Capital
Lab.
Lab.
Land
Nat.
Resources
Value Added
Intermediate goods
(non-energy)
Skilled Unskilled Capital-Energy Land
Nat.
Lab.
Lab.
Resources
Capital
Energy
Electricity
GTAP
Non-Electricity
Coal
GTAP-E
Non-Coal
Oil Gas Petroleum
prods
Macro relationships in GTAP-E (USA)
VA > KE
-0.64
  KE   VA 
(1) pK  S 
KE
KE 
 KESE + VASK 
KE
E
-1.0
-0.64 +0.02
(2) iR    pK  pI 
+0.12
-0.04
+0.19
+0.01
(3) qS  qC G  pC G  qS
p
+9.5
E
 tCO 2 
Macro relationships in GTAP-E (USA)
-0.08
+0.11
+0.02 +0.21
(4) cR  g R  pG  pC
-0.04
0
0
0
0
-0.04
(5) yR  SL l  SK k  SN n  SNR nr  a
-0.04
-0.08
-1.0
+0.11
(6) yR  SC cR  SI iR  SG g R  SX xR  SM mR
+0.22
-1.1
Macro relationships in GTAP-E (USA)
-0.03
-0.03
-0.04
0.12
+0.08
GDP
GDP
GDP
(7) yev  qC GS  yR  [SGDP
/(S
+S
+S
)] tot
X
C
G
S
-$2225
-$2955
+$742
US$30 tax per tonne
Impacts:
 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)
Agriculture
Coal
Oil
Gas
Oil_Pcts
Electricity
1 USA
-7,26
-28,91
-2,37
-10,48
-7,6
-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
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
Electricity
En_Int_ind
Why the fall in demand?
 Prices
Average percentage changes in industry prices for
composite commodities
pf(i,j,r)
Agriculture
%age chngs
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
0,9
-8,1
Electricity
-33,15
19,56
En_Int_ind
-2,75
1,05
Oil_Pcts
Why?
Prices
Border Prices
pfob(i,r,s)
Agriculture
1 USA
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
8 Oth_ind_ser
Total
-3692,89
7868,28
14086,16
Allocation effect decomposition (I)
atax
1 firm
2 private
1 Agriculture
2
0
2 Coal
-1590
-3
3 Oil
0
0
4 Gas
-394
-59
5 Oil_Pcts
-464
-332
6 Electricity
0
0
7 En_Int_ind
2
0
8 Oth_ind_ser
3
0
Total
-2442
-393



Tax rate
1 Agriculture -2,553
2 Coal
55,578
3 Oil
18,244
4 Gas
17,866
5 Oil_Pcts
13,234
6 Electricity
0
7 En_Int_ind
-3,85
8 Oth_ind_ser -2,362
Largest allocation effect for firms
Main private household loss from oil products
Oil only used for oil products production
Allocation effect decomposition (II)
stax
1 Agriculture
6 Electricity7 En_Int_ind
8 Oth_ind_ser
Total
1 Agriculture
2
0
0
0
0
2 Coal
-2
-1516
-59
-13
-1590
3 Oil
0
0
0
0
0
4 Gas
-40
-149
-83
-123
-394
5 Oil_Pcts
-10
-18
-117
-319
-464
6 Electricity
0
0
0
0
0
7 En_Int_ind
2
0
0
0
2
8 Oth_ind_ser
3
0
0
0
3
Total
-45
-1683
-258
-456
-2442



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
Terms of trade decomposition
tot
1 pworld 2 pexport 3 pimport Total
1 Agriculture
23
31
5
60
2 Coal
-17
-79
-1
-97
3 Oil
642
-4
11
650
4 Gas
16
-4
31
43
5 Oil_Pcts
1
-2
4
3
6 Electricity
-1
21
2
22
7 En_Int_ind
19
831
105
954
8 Oth_ind_ser
8
-914
13
-893
Total
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)
Sim 1A. Change Elasticity
New Parameter File
ELKE
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
-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
-15,714
0,813
0,788
2 alloc_A1
Emission Reductions
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
Fixing the Trade Balance
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
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
EU
USA
Japan
Emission
USA
EU
Japan
Other
Total
change, %
137
-7133
67
690
-6239
-7,8
-20201
513
199
1111 -18378
-13,5
78
78
-2742
-216
-2801
-8,1
- The effect on world CO2 emissions is the greatest with a US tax. Output is
already more energy efficient in the EU and Japan.
Sim 2. Tax by Regions
- The per capita effect of the tax on EV is considerably
larger in the EU (-30 $) and Japan (-35 $) than in the
USA (-8 $). Most of the change in EV arises from
allocation (especially in the USA), the rest mainly from
TOT (>0 in EU, USA; <0 in Japan).
Change in GDP quantity index, %
USA
EU
USA
Japan
0,00
-0,04
0,00
EU
Japan
-0,14
0,01
0,05
0,02
0,01
-0,10
Sim 2. Tax by Regions
Change in value added, %
EU
USA
Japan
AgricultureCoal
Oil
-0,1
-17,0
-0,1
-18,8
-0,1
-5,0
Gas
0,0
-1,4
0,0
Oil_Pcts Electricity
En_Int_indOth_ind_ser
CGDS
-5,9
-2,1
-2,3
-0,6
-0,1
-0,7
-10,4
-7,7
-2,6
-1,0
-0,1
-1,0
-8,7
-3,2
-0,5
-0,4
-0,1
-0,6
- Output of energy commodities declines in the region that introduces the tax.
- Generally, labour productivity increases. Exceptions to this are Electricity, En_int_ind
and CGDS. Full employment…?
Sim 2. Tax by Regions
Change in the terms of trade, %
USA EU
EEFSUJapan RoA1 EEx CHIND RoW
EU
0,04 0,00 -0,08 0,11 -0,04 -0,12 0,02 0,02
USA
0,08 0,07 -0,11 0,24 -0,14 -0,53 0,05 0,09
Japan
0,05 0,02 -0,01 -0,08 -0,04 -0,08 0,01 0,03
- The TOT changes are large in the other five regions. There,
change in EV arises more from TOT than from allocation.
- Imposing a USD 30 tax in all three regions at the same time, is almost equal to the
sum of the above individual results.
Case: Unilateral Carbon Tax in Japan
Fig. 1A Relation between Carbon Tax Rate and Total Emissions
Reduction
6
gco2t, %
5
4
3
2
1
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
rctax, %
Case: Unilateral Carbon Tax in Japan
vgdp
Fig.2 Change in Value of GDP
0,25
0,20
0,15
0,10
0,05
0,00
-0,05
-0,10
-0,15
-0,20
-0,25
-0,30
Total
CHIND
EEx
JPN
10
20
30
rctax, USD
40
50
Case: Unilateral Carbon Tax in Japan
Fig.3 Terms of Trade
0
-0,02
tot, %
-0,04
-0,06
JPN
-0,08
EEx
-0,1
-0,12
-0,14
-0,16
10
20
30
rctax, US$
40
50
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.
Compare Emission Trading: Carbon Taxes
RCTAX
Tax in EU, US and JPN
(30USD )
World Emission Trading
(4.5%)
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.