A review of macroeconomic modelling tools for analysing industrial transformation

This research presents a thorough evaluation of macroeconomic modelling tools in the context of analysing industrial transformation. It emphasizes the need to link macroeconomic models with energy system models to accurately depict industrial transformation. The study begins with a broad survey of macroeconomic modelling tools. A detailed database of 61 tools is then compiled, providing a critical analysis of the tools' structures and features. From this broad spectrum, the focus is narrowed to Computable General Equilibrium (CGE) models. The study develops a multi-criteria analysis framework, applied specifically to four CGE modelling tools, which encompasses 19 criteria categorized under four main pillars: Industrial/Sectoral representation, Technological change, Employment, and Environment. This framework critically evaluates these tools' suitability in analysing industrial transformation, highlighting the diversity of their capabilities and limitations. Although the GEM-E3 model demonstrates a high level of alignment with the framework's criteria, none of the four tools achieves a full score in any category, indicating potential areas for improvement. The broader analysis of the database's tools reveals issues such as limited accessibility, inadequate representation of social aspects, and insufficient geographical coverage. Additionally, the study notes a general lack of transparent information concerning the full features of macroeconomic modelling tools in public literature. Concluding with recommendations for further research, the study underscores the complexities in macroeconomic modelling and the need for comprehensive tools that effectively address the multifaceted aspects of industrial transformation. Such advancements will assist in making informed decisions towards a transformation that is both environmentally and economically sustainable

Disaggregating air, land and maritime transport sectors in the GTAP database

In the Global Trade Analysis Project (GTAP) data base (Aguiar et al., 2019), transport sectors (air, land and maritime) are too aggregated for modelling transport policies for specific modes (aviation/rail/road) and operations (passenger/freight). This limitation is already recognised in the literature, with a number of studies focusing on data quality and transport analysis (e.g., Karkatsoulis et al., 2017, Nuno-Ledesma and Villoria, 2019, Robson et al., 2018). This study splits the air and maritime sectors into two sectors each (air passenger, air freight, water passenger, water freight) and the land transport sectors into four new sectors (road passenger, road freight, rail passenger and rail freight). Our contribution to the literature is an open discussion of the data available paying particular attention to GTAP’s structure, and a step by step procedure on how to split the transport sectors and the data we use. Finally, this paper will discuss baseline projections of the disaggregated transport components. Our methodology to split GTAP database is a simple RAS method, which is used twice (separately for each aggregated sector and each region): first to disaggregate the cost structure of a sector and then to disaggregate its use (sales). We run RAS starting with an already aggregated GTAP database (35 sectors and 49 regions), but the method can be applied to any other dimensions

Disaggregating air, land and maritime transport sectors in the GTAP database

In the Global Trade Analysis Project (GTAP) data base (Aguiar et al., 2019), transport sectors (air, land and maritime) are too aggregated for modelling transport policies for specific modes (aviation/rail/road) and operations (passenger/freight). This limitation is already recognised in the literature, with a number of studies focusing on data quality and transport analysis (e.g., Karkatsoulis et al., 2017, Nuno-Ledesma and Villoria, 2019, Robson et al., 2018). This study splits the air and maritime sectors into two sectors each (air passenger, air freight, water passenger, water freight) and the land transport sectors into four new sectors (road passenger, road freight, rail passenger and rail freight). Our contribution to the literature is an open discussion of the data available paying particular attention to GTAP’s structure, and a step by step procedure on how to split the transport sectors and the data we use. Finally, this paper will discuss baseline projections of the disaggregated transport components. Our methodology to split GTAP database is a simple RAS method, which is used twice (separately for each aggregated sector and each region): first to disaggregate the cost structure of a sector and then to disaggregate its use (sales). We run RAS starting with an already aggregated GTAP database (35 sectors and 49 regions), but the method can be applied to any other dimensions

Impacts of Carbon Pricing on Brazilian Industry: Domestic Vulnerability and International Trade Exposure

After COP 21, with the adoption of the Paris Agreement in December 2015, the outlook for carbon pricing policies has been widened. While the agreement does not directly establish a global carbon pricing, the provisions accounted for in Article 6 have the potential to increase international cooperation in favor of greenhouse gas (GHG) mitigation through market mechanisms. The Brazilian Nationally Determined Contribution (NDC) considers the use of such mechanisms, though the configuration of the Brazilian climate policy does not specify the economic instruments for carbon pricing. When examining the recent evolution of GHG emissions in Brazil, the already achieved reduction in deforestation sheds light on the need to address GHG mitigation in other sectors, such as industry. Therefore, this paper analyzes the impacts of carbon pricing on the Brazilian industry in terms of sectorial value added (VA), emissions intensity, international trade exposure, and the risk of carbon leakage. Results indicate that, considering a price of carbon of US$10/tCO2, the cost of reducing emissions from 35% to 45% (same range of the Brazilian NDC) could represent an impact of 0.3% to 3.7% on sectorial VA. However, results for emissions intensity and international trade reveal medium to high carbon leakage risks for all analyzed industrial sectors

Climate finance under a CGE framework: decoupling financial flows in GTAP database

Climate finance flows include the investments required to limit global warming and to adapt to climate impacts.Recent advances in Computable General Equilibrium (CGE) model hybridization techniques provide the necessary path to explore climate finance flows, in particular, a more detailed representations of the energy sector through soft-linking procedures with bottom-up models. This paper proposes a method to disaggregate capital flows from the current account balances in the GTAP database. The impacts of different greenhouse-gas (GHG) emission scenarios on green capital allocation can be tested. This is a particularly interesting feature, not only because it can help tracking climate finance in an stylized way, but as a way of exploring the soft linking procedures between CGE and bottom-up models

Climate finance under a CGE framework: decoupling financial flows in GTAP database

Climate finance flows include the investments required to limit global warming and to adapt to climate impacts.Recent advances in Computable General Equilibrium (CGE) model hybridization techniques provide the necessary path to explore climate finance flows, in particular, a more detailed representations of the energy sector through soft-linking procedures with bottom-up models. This paper proposes a method to disaggregate capital flows from the current account balances in the GTAP database. The impacts of different greenhouse-gas (GHG) emission scenarios on green capital allocation can be tested. This is a particularly interesting feature, not only because it can help tracking climate finance in an stylized way, but as a way of exploring the soft linking procedures between CGE and bottom-up models

Capturing Key Energy and Emission Trends in CGE models: Assessment of Status and Remaining Challenges

The present article is forthcoming in Journal of Global Economic Analysis vol. 5 (2020) No.1, 196-272. It is a product of fruitful discussions in the OECD/GTAP workshop "Shaping long-term baselines with CGE models” in the OECD, Paris, 24-25 January 2018, in particular, the break-out session on energy and the environment.Limiting global warming in line with the goals in the Paris Agreement will require substantial technological and behavioural transformations. This challenge drives many of the current modelling trends. This article undertakes a review of 17 state-of-the-art recursive-dynamic computable general equilibrium (CGE) models and assesses the key methodologies and applied modules they use for representing sectoral energy and emission characteristics and dynamics. The purpose is to provide technical insight into recent advances in the modelling of current and future energy and abatement technologies and how they can be used to make baseline projections and scenarios 20-80 years ahead. Numerical illustrations are provided. In order to represent likely energy system transitions in the decades to come, modern CGE tools have learned from bottom-up studies. Three different approaches to baseline quantification can be distinguished: (a) exploiting bottom-up model characteristics to endogenize responses of technological investment and utilization, (b) relying on external information sources to feed the exogenous parameters and variables of the model, and (c) linking the model with more technology-rich, partial models to obtain bottom-up- and pathwayconsistent parameters

Assessing the socio-economic impacts of different ways to recycle revenues from carbon pricing

International audienceThe low-carbon transition is expected to generate large socio-economic implications across regions and sectors, but the revenues collected from a carbon tax can be used to alleviate the potentially adverse societal impacts of decarbonization. Here, we use four leading macroeconomic models with high regional and sectoral disaggregation to assess the potential economic and structural changes of decarbonisation and how these are affected by the use of carbon revenues. We show that the absolute GDP and employment impacts differ depending on economic narrative behind each model, and we derive conclusions that are robust across modelling paradigms. Using carbon revenues to reduce labor taxes alleviates 30%-70%of mitigation costs in CGE models, while directing them to households through lump-sum payments has limited GDP impacts but with a positive trade-off for equity and, therefore, constrain the potential to avoid unfair burden sharing within countries

Assessing the socio-economic impacts of different ways to recycle revenues from carbon pricing

International audienceThe low-carbon transition is expected to generate large socio-economic implications across regions and sectors, but the revenues collected from a carbon tax can be used to alleviate the potentially adverse societal impacts of decarbonization. Here, we use four leading macroeconomic models with high regional and sectoral disaggregation to assess the potential economic and structural changes of decarbonisation and how these are affected by the use of carbon revenues. We show that the absolute GDP and employment impacts differ depending on economic narrative behind each model, and we derive conclusions that are robust across modelling paradigms. Using carbon revenues to reduce labor taxes alleviates 30%-70%of mitigation costs in CGE models, while directing them to households through lump-sum payments has limited GDP impacts but with a positive trade-off for equity and, therefore, constrain the potential to avoid unfair burden sharing within countries

Is Green Recovery Enough? Analysing the Impacts of Post-COVID-19 Economic Packages

Emissions pathways after COVID-19 will be shaped by how governments’ economic responses translate into infrastructure expansion, energy use, investment planning and societal changes. As a response to the COVID-19 crisis, most governments worldwide launched recovery packages aiming to boost their economies, support employment and enhance their competitiveness. Climate action is pledged to be embedded in most of these packages, but with sharp differences across countries. This paper provides novel evidence on the energy system and greenhouse gas (GHG) emissions implications of post-COVID-19 recovery packages by assessing the gap between pledged recovery packages and the actual investment needs of the energy transition to reach the Paris Agreement goals. Using two well-established Integrated Assessment Models (IAMs) and analysing various scenarios combining recovery packages and climate policies, we conclude that currently planned recovery from COVID-19 is not enough to enhance societal responses to climate urgency and that it should be significantly upscaled and prolonged to ensure compatibility with the Paris Agreement goals