Transcript Presentazione di PowerPoint

Modeling the Economic System and
the Environment: An Overview on
Different Approaches and a
Presentation of the RICE96 Model
Francesco Bosello
Trieste 20 May 2003
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A bit of historical perspective
• Beginning of 70s first economic-environmental models,
mainly defining the amount of GHGs produced by the
economic system. Small number of parameters, defined
according to expert quantitative and qualitative
assessments.
• 1988 Toronto Climate Conference stated the need to
reduce GHGs emissions the 20% respect to 1988 levels.
Boom of economic-environmental modeling trying to
assess costs and feasibility of the policy. (I/O, CGE,
Macro-econometric models). Still no representation of
the environmental system.
• Beginning of 90s Integrated Assessment Models (IAMs)
trying to balance environmental and economic part
(simplified representation of the functioning of the
environmental system added).
• Present trend: large models trying to melt Global
Circulation Models, environmental impact models and
economic models.
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Environmental system
Sea level rise
Extreme events
Air, Water, Land
quality and
availability
Changes in emissions
and land cover
Changes in Water,
Land, Air, Capital,
Labour stock
and productivity
Change in
Production and
consumption
patterns
Vulnerability
Envir.
pressures
Econ. impacts
Envir. impacts
Climate change
and variability
Socio-Economic System
Econ.
pressures
Policies
Mitigation
Adaptation
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Issues in environmental-economic modelling
Uncertainty
Irreversibility: Non linearity and discontinuity in environmental
phenomena (e.g. bio-diversity loss) and in economic phenomena
(investments with high sunk cost and long payback periods).
Technical progress: determines the damage that the economic
system causes to the environment and the capacity to sustain and
correct the damage
identify and model determinants TC.
International dimension (geographical scale): Transboundary
phenomena due to environmental (e.g. global warming, acid
rains) and economic (trade mechanisms and factor mobility)
characteristics
leakage + free riding.
Welfare: Measuring utility, discounting, time scale.
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Some criteria for classification
Time
treatment
Static
(one period optimisation
models e.g. “usually”
CGE)
Technology/
Bottom-Up
-Technology oriented
production
-Partial equilibrium
sector
-End uses of energy
-Penetration of new tech.
-“More optimistic” about
emission reduction
Markets
Parameteris
ation
Perfect flexibility
(All markets in
equilibrium)
Calibration
(Relevant parameters to
reproduce the economic
system observed in a
given year)
Dynamic
(intertemporal simulation or
optimisation models e.g. macroeconometric or growth models)
Top-down
-Economically oriented
-General equilibrium (“rebounds”)
-Types of energy
-“Usually” exogenous T.C.
-“Less optimistic” about emission
reduction
Rigidities
(Monopoly power, involuntary
unemployment)
Estimation
(Econometric techniques, time
series, panel)
Integrated Assessment Models
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Integrated Assessment (IA)
• IA is a process aimed at combining, interpreting and
communicating knowledge from diverse scientific fields
in order to tackle an environmental problem
comprehensively by stressing its cause-effect links in
their entirety.
• Any economic model with one (or more) environmental
module is called “Integrated”. It is possible to distinguish:
• Soft-links vs. Hard-link models.
• Optimisation model (best i.e. welfare or utility maximising
or cost minimising strategies) vs. policy evaluation model
(if-then analysis).
Recent trend: different complex modules working in
integration.
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The RICE Model
• Basic version: RICE96 (Nordhaus and Yang, American
Economic Review, (1996)); Previous version DICE (‘91),
updates RICE98, (Nordhaus and Boyer, 1999), RICE99
(Nordhaus and Boyer, 2000).
One of the most popular IAMs in circulation:
• Well documented.
• Free access to the code.
• Widely used (see e.g. Manne, 1996; Gjerde et al., 1998;
Heykmans and Tulkens, 1998; Bosello, Buchner, Carraro
Raggi, 2001).
• Relative simplicity (model core 12 equations).
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Model features (1)
• Fully Integrated Assessment Model - two-way relationship
economic-environmental system modelled via interaction
of an economic block with an environmental block (production produces emissions increasing temperature,
temperature decrease production through environmental
damages)
• World divided in 6 macro regions (USA, Japan, Europe,
China, Former Soviet Union and Rest of the World).
• Intertemporal optimisation model (suitable for optimisation
and policy optimisation exercises): a planner maximises
discounted utility derived from consumption deciding how
much to invest and how much to abate.
• Strategic interactions among players can be modelled (cooperation vs. non co-operative or partially co-operative
solutions can be analysed).
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Model features (2)
• Production function combines capital and labour to
produce output.
• Green technical progress (lowering the emission intensity
per unit of output), technical progress (increasing the
amount of output per unit of inputs) and labour force
evolution are exogenous.
• Environmental part converting emission in temperature
increase is governed by a reduced form of the SchneiderThompson climate model.
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RICE Economic Block

 C (n, t ) 
( t 1)

max  (n) (1   )
L(n, t ) log
C ( n ,t ) n 1 t 1
 L(n, t ) 

N
T
K (n, t  1)  (1   K ) K (n, t )  I (n, t )
Q(n, t ) A(n, t )[K (n, t ) L(n, t )(1 )
(n, t ) 
1  b
1  
1, n
 (n, t ) b
2




T
(
t
)
/
2
,
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1, n
2

Y (n, t )  (n, t )Q(n, t )
Y (n, t ) C (n, t )  I (n, t )
E (n, t )  (n, t )(1   (n, t ))Q(n, t )
Objective function
Constraint: law of motion
of capital
Potential Production
Link: from potential
production to net production
Net Production: considers
costs and benefits of climate control
Allocation of output
Emissions: link with
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the envir. part
Calculating Temperature
RICE96 ENVIRONMENTAL BLOCK
•
Evolution of CO2 stock:
M(T+1) = 590+ATRET*SUM(N,E(N,T))+(1-DELTAM)*(M(T)-590);
•
Radiative forcing:
FORC(T) = 4.1*(LOG(M(T)/590)/LOG(2))+FORCOTH(T);
•
Evolution of Atmospheric Temperature:
TE(T+1) = TE(T)+C1*(FORC(T)-LAM*TE(T)-C3*(TE(T)-TL(T)));
•
Evolution of Oceanic Temperature:
TL(T+1) = TL(T)+C4*(TE(T)-TL(T));
•
Exogenous Component Of Radiative Forcing:
FORCOTH(T) = -0.07+(0.85/10)*(T-1);
•Notes
•ATRET: Atmospheric Retention
•M(T):Co2 concentration
•LAM: climate feedback factor
•DELTAM: removal rate of carbon
•C1,C3, C4: Feedback factors
ocean atmosphere
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Major shortcomings
• No international trade: the only link among
regions is the climate externality.
• No sectoral disaggregation (one sector/one good
model).
• Technical progress is exogenous (FEEM
developed a version with endogenous - R&D
driven - technological progress).
• The equilibrium is “open loop”, not possible for
agents to revise their strategies.
• Naive climate representation (only global mean
temperature considered).
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