Can Climate Change Mitigation Policy Benefit the Israeli Economy? A Computable General Equilibrium Analysis

The growing attention to global warming due to greenhouse gas (GHG) emissions in the process of fossil fuel--based energy production is expressed in the Kyoto Protocol, which prescribes, on average, a 7 percent reduction in GHG emissions for developed countries. Although Israel was not included in the list of the obligated countries ("Annex A"), it should consider the economic implications of participating in the emission reduction effort, as such a commitment becomes highly feasible following the Bali roadmap which oblige a successor to the Kyoto Protocol to launch negotiations including all parties to the UNFCCC on a future framework, stressing the role of cooperative action and of common though differentiated responsibility. This study aimed to quantify the economy-wide consequences for Israel of meeting the targets of the Kyoto Protocol, employing a Computable General Equilibrium (CGE) model of the Israeli economy. Initially, to this end, we constructed a social accounting matrix (SAM) to serve as a benchmark by combining physical energy and emission data and economic data from various sources. The efficacy of decentralized economic incentives for CO2 emission reduction, such as carbon taxes on emissions and auctioned emission permits, was assessed in terms of their impact on economic welfare. In addition, we tested for the ensuing so-called double dividend. Two distinct cases were analyzed. In the first one, we tested a revenue-neutral environmental policy which proportionally cut pre-existing taxes. Labour supply was assumed to be exogenously fixed. The results showed that, although significant CO2 emission reduction can be achieved, followed by modest economic cost, no double dividend could be discerned. Next, in order to check for the employment double dividend (lower CO2 emissions and lower unemployment), we introduced labor market imperfections, with the aim of cutting income tax. The results of this case indicate that an employment double dividend is possible under a rather standard set of assumptions. Moreover, for higher substitutability between the energy composite input and the labor-capital one, an even “strong” form of double dividend can be obtained. We performed several sensitivity analyses with respect to the modeled production function, which re-confirmed the finding that higher substitution possibilities lead to lower welfare costs 3 associated with a given emission reduction target. We qualify this general result by also showing that the opposite holds when the emission tax rate is held constant, rather than reduced. It may be concluded on the basis of this analysis that a double dividend may be an achievable goal under a GHG emission reduction policy in the case of economies such as Israel. The CGE approach applied in this research is adopted for the first time to the Israeli economy and should contribute to better informed debate on environmental policy in Israel.Computable General Equilibrium, Climate Change, Environmental Policy, Double Dividend, Israel

Climate Change Assessment and Agriculture in General Equilibrium Models: Alternative Modeling Strategies

Agricultural sectors play a key role in the economics of climate change. Land as an input to agricultural production is one of the most important links between economy and the biosphere, representing a direct projection of human action on the natural environment. Agricultural management practices and cropping patterns have a vast effect on biogeochemical cycles, freshwater availability and soil quality. Agriculture also plays an important role in emitting and storing greenhouse gases. Thus, to consistently investigate climate policy and future pathways for the economic and natural environment, a realistic representation of agricultural land-use is essential. Computable General Equilibrium (CGE) models have increasingly been used to this purpose. CGE models simulate the simultaneous equilibrium in a set of interdependent markets, and are especially suited to analyze agricultural markets from a global perspective. However, modeling agricultural sectors in CGE models is not a trivial task, mainly because of differences in temporal and geographical aggregation scales. The aim of this study is to overview some proposed modeling strategies, by reviewing the available literature and highlighting the different trade-offs involved in the various approaches.Computable General Equilibrium (CGE), Partial Equilibrium (PE), Agriculture, Land Use, Climate Change

Valuation of Linkages between Climate Change, Biodiversity and Productivity of European Agro-Ecosystems

It is clear that climate change involves changes in temperature and precipitation and therefore directly affects land productivity. However, this is not the only channel for climatic change to affect agro-systems. Biodiversity is subject to climatic fluctuations and in turn may alter land productivity too. Firstly, biodiversity is an input into agro-ecosystems. Secondly, biodiversity supports the functioning of these systems (e.g. the balancing of the nutrient cycle). Thirdly, agro-systems also host important wildlife species which, though not always, play a functional role in land productivity, nonetheless constitute important sources of landscape amenities. The present paper illustrates a unique attempt to economically assess this additional effect climate change may imply on agriculture. We first empirically evaluate changes in land productivity due to climatic change effect on temperature, precipitations and biodiversity. Then we estimate the economic cost of biodiversity impact on agro-systems. Our key finding is that climate-change-induced biodiversity impact on European agro-systems measured in terms of GDP change in year 2050 is sufficiently large to deepen the direct climate-change effect in some regions and to reverse it in others. Different economies show different resilience profiles to deal with this effect.Climate Change, Biodiversity, Agro-Ecosystems

Economic Impacts of Water Scarcity under Diverse Water Salinities

Exploitation of alternative water sources is expected to grow in the decades to come in water-stressed countries with fast population growth, especially in regions where a further decline of natural freshwater availability is expected due to climate change. Increasing utilization of non-freshwater usually leads to salinity build-up in fields and water sources as well as accumulation of various pollutants - both having a considerable impact on the suitability of non-freshwater for irrigation due to constraints associated with crop salinity tolerance and food safety regulations.We developed a linked CGE - farm-level model of a water economy with representation for multiple water types characterized by different qualities. We employ the model to assess the impact of water shortage on the Israeli economy, where a steadily growing water scarcity is leading to an increasing utilization of alternative water sources. We simulate water shortage scenarios based on the Long Term National Master Plan for The Water Economy developed by the Israeli Water Authority (IWA).The linked CGE - farm-level model provides a mechanism for estimating the Constant Elasticity of Substitution (CES) rates between different irrigation water types used in agriculture. This mechanism accounts for the effects of salinity on yields and takes into consideration food safety regulations for irrigating crops with treated wastewater. We demonstrate that, in contrast to previous studies, CES rates between different water types are not identical and generally lower than previously assumed – differences that can be attributed to the constraints associated with crop salinity tolerance and food safety regulations.Our results reveal that water shortage can lead to a significant decline of Israel’s GDP, where a considerable part of the decline is attributed to the decrease in agricultural outputs. The magnitude of the impact depends on the underlying assumptions regarding future desalination capacity. To further study the effect of desalination, we run simulations under various desalination levels and examine its impact on the GDP. We also examine the extent to which the impact of water shortage is sensitive to CES rates between different irrigation water types

Climate-dependent yields

In this report we summarize the contributions made by four groups to the subject of climate dependent yields. The first is by Waldemar Bojar, Leszek Knopik, Jacek Żarski, Cezary Sławiński, Piotr Baranowski and Wojciech Żarski on the subject of “the impact of extreme climate changes on the forecasted agriculture production”. It presents general characteristics of resources and outputs of agriculture in the Kujawsko-Pomorskie (K&P) and Lubelskie regions, based on statistical databases and the literature review. In this study, some statistically significant dependencies between the climatic parameters and yields of selected important crops in the abovementioned regions were worked out on the basis of empirical survey conducted in the University of Technology and Life Sciences and Institute of Agrophysics in Lublin. Efforts were taken to make integrated assessments of forecasted agricultural outputs influenced by climate extreme phenomena on the basis of the found dependencies’ yields – precipitation and the data coming from wide area model regional outputs such as prices, areas of farmland and yields. The second contribution is by Bojar W., Knopik L. and Żarski J. on the subject of “integrated assessment of business crop productivity and profitability to use in food supply forecasting”. It examines the proposals to build a model describing the amount of precipitation and taking into account periods without rain. This model is based on a mixture of gamma distribution and one point-distribution. The third contribution is by Iddo Kan on the Vegetative Agricultural Land Use Economic (VALUE) model. It discusses the sub-task with respect to crops of statistically estimating with statistical methods predictions of expected crop-yield contingent on climate, soil and production cost for use in existing trade models, or refined versions thereof, and how VALUE can contribute to this sub-task. The fourth contribution was made by Christoph Muller and Richard D. Robertson on the subject of “projecting future crop productivity for global economic modelling”. It supplies a set of climate impact scenarios on agricultural land productivity derived from two climate models and two biophysical crop growth models to account for some of the uncertainty inherent in climate and impact models

Curriculum for training course on policy impact assessment

A one-week MACSUR training course on policy impact assessment was held in March 2014 at Haifa University in Israel. The course was organised by ZALF (Hannes König, Katharina Helming) and Haifa University (Ofira Ayalon, Edan Benami, Ruslana Palatnik), targeting at the participation of Post-Docs and PhD students associated to the MACSUR consortium. The Framework for Participatory Impact Assessment (FoPIA) was used as the main method for the course to support structuring the policy impact assessment. The Israelian MACSUR case study of the Ramat Menashe Biosphere was used the test case of assessing alternative policy options and sustainability trade-offs

Can Climate Change Mitigation Policy be Beneficial for the Israeli Economy? A Computable General Equilibrium Analysis

This study aimed to quantify the economy-wide consequences for Israel of meeting the targets of the Kyoto Protocol, employing a Computable General Equilibrium (CGE) model of the Israeli economy. Initially, to this end, we constructed a social accounting matrix (SAM). The analysis indicate that a double dividend may be an achievable goal under a CO2 emission reduction policy in the case of economies such as Israel. The CGE approach applied in this research is adopted for the first time to the Israeli economy and should contribute to better informed debate on environmental policy in Israel

Can Climate Change Mitigation Policy be Beneficial for the Israeli Economy? A Computable General Equilibrium Analysis

This study aimed to quantify the economy-wide consequences for Israel of meeting the targets of the Kyoto Protocol, employing a Computable General Equilibrium (CGE) model of the Israeli economy. Initially, to this end, we constructed a social accounting matrix (SAM). The analysis indicate that a double dividend may be an achievable goal under a CO2 emission reduction policy in the case of economies such as Israel. The CGE approach applied in this research is adopted for the first time to the Israeli economy and should contribute to better informed debate on environmental policy in Israel

Climate Change Assessment and Agriculture in General Equilibrium Models: Alternative Modeling Strategies

Agricultural sectors play a key role in the economics of climate change. Land as an input to agricultural production is one of the most important links between economy and the biosphere, representing a direct projection of human action on the natural environment. Agricultural management practices and cropping patterns have a vast effect on biogeochemical cycles, freshwater availability and soil quality. Agriculture also plays an important role in emitting and storing greenhouse gases. Thus, to consistently investigate climate policy and future pathways for the economic and natural environment, a realistic representation of agricultural land-use is essential. Computable General Equilibrium (CGE) models have increasingly been used to this purpose. CGE models simulate the simultaneous equilibrium in a set of interdependent markets, and are especially suited to analyze agricultural markets from a global perspective. However, modelling agricultural sectors in CGE models is not a trivial task, mainly because of differences in temporal and geographical aggregation scales. The aim of this study is to overview some proposed modelling strategies, by reviewing the available literature and highlighting the different trade-offs involved in the various approaches