Transcript PA_Macro_Modleing_overview_7_10_09.ppt
MACROECONOMIC IMPACT MODEL OVERVIEW FOR PENNSYLVANIA
by
Adam Rose
University of Southern California
Objective
• Explain macroeconomic modeling of potential climate change mitigation/sequestration options : - Macroeconometric model (REMI) - Data requirements - Application
Macroeconometric Modeling
• a forecasting model that covers the entire economy, typically in a “top-down” manner, based on macroeconomic aggregate relationships such as consumption and investment. (REMI differs in that it includes these key relationships but is based on a more bottom-up approach. In fact, it makes use of the finely-grained sectoring detail of an I-O model.) • based on inferential statistical estimation of key parameters • based on time series (historical) data; but also I-O data 2/5/2009 www.climatestrategies.us
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REMI Policy Insight Plus Model
• Structural economic forecasting and policy analysis model: - integrates I-O, CGE, econometric & econ geography methods - dynamic, with forecasts & simulations generated on annual basis - behavioral responses to wage, price, and other economic factors • Thousands of simultaneous equations: - relatively straightforward structure. - five major blocks: 1) Output and Demand 2) Labor and Capital Demand 3) Population and Labor Supply 4) Wages, Prices and Costs 5) Market Shares 4
Figure B1. REMI Model Linkages (Excluding Economic Geography Linkages)
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Figure B2. Econ omic Geography Li nkages
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Modeling Steps
• Test REMI Model • Obtain data on mitigation/sequestration options • Link data to REMI policy variables • Simulate one option at a time • Simulate all options together • Analyze results 7
Table 1. GHG Mitigation Options of California in 2020
Sector AFW AFW AFW ES ES ES ES ES ES ES ES ES ES ES Climate Mitigation Actions Landfill Methane Control (Discrete Early Action) Sustainable Forest Target Methane Capture at Large Dairies Energy Efficiency--Electricity Increase Combined Heat and Power Use by 32,000 GWh (Net reduction includes avoided transmission loss benefits) Additional Natural Gas Energy Efficiency Additional Electricity Energy Efficiency Oil and Gas Extraction GHG Emission Reduction GHG Leak Reduction from Oil and Gas Transmission California Solar Program (including New Solar Homes Partnership Renewable Portfolio Standard (33% by 2020) Coal Emission Reduction Standard Expanded Solar Water Heating: 1.75 million units installed by 2020 Expanded Million Solar Roofs: 5,000 MW by 2020 Estimated 2020 Annual GHG Reduction Potential (MMtCO2e) Estimated Cost or Cost Savings per ton GHG Removed GHG Reduction Potential as Percentage of 2020 All-sector Baseline Emissions 1 5 1 15.2 $1.00 $10.00 $156.00 -$205.00 0.17% 0.84% 0.17% 2.55% Cumulative GHG Reduction Potential 0.17% 1.01% 1.17% 2.55% 6.9 1 3.8 3 1.5 2.1 21.2 8 1 1.3 -$190.00 -$146.00 -$145.53 -$56.67 -$10.00 $0.00 $73.40 $106.25 $292.00 $776.15 1.16% 0.17% 0.64% 0.50% 0.25% 0.35% 3.55% 1.34% 0.17% 0.22% 3.71% 3.87% 4.51% 5.01% 5.26% 5.62% 9.17% 10.51% 10.68% 10.90% 8
RCI RCI RCI RCI RCI RCI RCI RCI RCI RCI RCI RCI RCI RCI RCI RCI RCI RCI RCI Industrial Boiler Efficiency Refinery Energy Efficiency Process Improvement Stationary Internal Combustion Engin e Electrification Residential Refrigeration Early Retirement Program Energy Efficiency--Natural Gas Waste Reduction in Concrete Use High GWP Recycling and Deposit Program Carbon Intensity Standard for Cement M anufacturers SF6 Leak Reduction and Recycling in Electrical Applications Carbon Intensity Standard for Concrete Batch Plants Specifications for Commercial and Industrial Refrigeration SF6 Limi ts in Non-Utility and Non Semiconductor Applications (Discrete Early Action) Limit High GWP Use in Consumer Products (Discrete Early Action) High GWP Reduction in Semiconductor M anufacturing (Discrete Early Action) Alternative Suppressants in Fire Protection Systems Glass Manufacturing Efficiency Foam Recovery and Destruction Program Removal of Methane Exem ption from Existing Refinery Regul ations Residential Solar Water Heater Installation (AB1470 goal) 1.5 5 0.2 0.1 4.2 1 6.3 2.5 0.1 3.5 4 0.3 0.3 0.15 0.1 0.2 1 0.05 0.1 -$84.67 -$76.60 -$65.00 -$60.00 -$52.38 -$28.00 -$10.48 -$1.20 -$1.00 $0.00 $0.15 $0.33 $0.33 $20.00 $20.00 $30.00 $100.00 $100.00 $2,920.00 0.25% 0.84% 0.03% 0.02% 0.70% 0.17% 1.06% 0.42% 0.02% 0.59% 0.67% 0.05% 0.05% 0.03% 0.02% 0.03% 0.17% 0.01% 0.02% 0.25% 1.09% 1.12% 1.14% 1.84% 2.01% 3.07% 3.49% 3.50% 4.09% 4.76% 4.81% 4.86% 4.89% 4.90% 4.94% 5.11% 5.11% 5.13% 9
TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU TLU Tire Pressure Program Tire Tread Standard Goods M ovement Efficiency Measures Heavy-Duty Engine Efficiency Regiona l Performance-Based VMT Targets and Local Government Action Feebates for ligh t duty vehicles (in addition to Pavley) Pavley I and II – Light -Duty Vehicle GHG Standards M edium- and Heavy-Duty Vehicle Hybridization Congestion Pricing Pay-as-you-drive Indirect Source Rules for New Development Programs to reduce vehicle trips Low Friction Engin e Oils Solar-Reflective Automotive Paint and Window Glazing Enforcement of Federal Ban on Refrigerant Release during Servicing or Dismantling of M otor Vehicle Air Conditioning Systems High Speed Rail Low Carbon Fuel Standard (Discrete Early Action) Ship Electrification at Ports (Discrete Early Action) M otor Vehicle Air Conditioning Systems: Reduction of Refrigerant Emissions from Non-Professional Servicing (Discrete Early Action) Low GWP Refrigerants for New M otor Vehicle Air Conditioning Systems Heavy-Duty Vehicle GHG Emission Reduction (Aerodynamic Efficiency)— (Discrete Early Action) 0.82 0.3 3.5 0.6 2 4 31.7 0.5 1 1 1 1 2.8 0.89 0.1 1 16.5 0.2 0.5 2.5 1.4 -$767.07 -$410.00 -$354.29 -$311.67 -$310.50 -$253.75 -$174.24 -$170.00 -$155.25 -$155.25 -$155.25 -$155.25 -$155.00 -$5.62 $0.00 $0.00 $0.00 $0.00 $4.80 $6.40 $457.14 0.14% 0.05% 0.59% 0.10% 0.34% 0.67% 5.32% 0.08% 0.17% 0.17% 0.17% 0.17% 0.47% 0.15% 0.02% 0.17% 2.77% 0.03% 0.08% 0.42% 0.23% 0.14% 0.19% 0.77% 0.88% 1.21% 1.88% 7.20% 7.28% 7.45% 7.62% 7.78% 7.95% 8.42% 8.57% 8.59% 8.75% 11.52% 11.55% 11.64% 12.06% 12.29% 10
Table 2. Mapping “Demand-Side Management” Option into REMI Inputs
TWGs Quantification Results
Energy Savings of Customers Businesses (Commercial and Industrial Sectors) Households (Residential Sector) Electricity Demand Decrease from the Utility Sector Electricity Sector) Businesses (Commercial and Industrial Sectors) Energy Customer Outlay on Energy Efficiency (EE) Goods Households (Residential Sector) Paying for the EE Program (Ratepayer Costs) Investment in EE Technologies EE Program Budget Spending Businesses (Commercial and Industrial Sectors) Households (Residential Sector) (Investment Sector) (Electricity Sector)
Policy Variable Linkage in REMI
Wages, Prices, and Costs Block Fuel Costs Electricity Fuel Cost for Individual Industry (amount) Decrease Wages, Prices, and Costs Block Prices (housing and consumer) Consumer Price (equivalent currency amount) Household Operation Decrease Output Block Industry Demand Exogenous Final Demand (amount) for Utilities sector Decrease Wages, Prices, and Costs Block Production Cost (amount) for the all the REMI sectors Increase Output Block Consumer Spending (amount) Computers and Appliances Increase Output Block Consumption Reallocation (amount) All Consumption Sectors Decrease Wages, Prices, and Costs Block Fuel Costs Electricity Fuel Cost (amount) Increase Output Block Consumer Spending (amount) Household Operation Increase Output Block Consumption Reallocation (amount) All Consumption Sectors Decrease Output Block mfg sectors Industry Demand Increase Exogenous Final Demand (amount) for Machinery Mfg, Computer & Electronic Prod Mfg, and Electrical Equip, Appliance Output Block Industry Demand Exogenous Final Demand (amount) for Professional & Technical Services sector (due to the increased demand of the energy auditing services) and to the Utility sector (due to the enhanced utility administration) Increase 11
Table 3. Mapping “Demand-Side Management” Option into CGE Model
TWGs Quantification Results
Energy Savings of Customers Businesses (Commercial and Industrial Sectors) Households (Residential Sector) Electricity Demand Decrease from the Utility Sector Energy Customer Outlay on Energy Efficiency (EE) Goods Paying for the EE Program (Ratepayer Costs) (Electricity Sector) Businesses (Commercial and Industrial Sectors) Households (Residential Sector) Businesses (Commercial and Industrial Sectors) Households (Residential Sector) Investment in EE Technologies (Investment Sector) EE Program Budget Spending (Electricity Sector)
Policy Variable Connection in CGE
Energy Productivity term adjustment in production functions Increase Energy Demand parameter in linear expenditure system Decrease Automatically forthcoming from decrease in direct demand from businesses and households Decrease Input Demand Increase Goods Demand Electricity Tax Increase Increase Electricity Tax Increase Investment Expenditure (Machinery Manufacturing, Computer & Electronic Manufacturing, and Electrical Equipment & Appliance Manufacturing sectors) Increase Government Expenditure Increase Professional & Technical Services sector (due to the increased demand of the energy auditing services) and to the Utility sector (due to the enhanced utility administration). 12
Evaluative Criteria and Related Considerations
A. Model Performance Criteria
1. Accuracy 2. Scope 3. Detail 4. Transparency 5. Manageability 6. Cost 2/5/2009 7. Other www.climatestrategies.us
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B. Model Specifications
1. Geographic area of coverage 2. Time of analysis 3. Macroeconomic Indicators 4. Sectoral Resolution 2/5/2009 www.climatestrategies.us
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C. Parameter Values
1. Flexibility 2. Productivity 3. Economic Growth 4. Population Growth 5. Trend Factors 6. Discount Rate 2/5/2009 www.climatestrategies.us
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Model Evaluation (Comparison with CGE)
A. Model Performance Criteria 1. Accuracy. REMI is capable of a high level of accuracy. It is widely used, indirectly testifying to their abilities on this score. While there are goodness of fit measures for some macroeconometric models, they are not available for individual equations or the entirety of REMI. Still, the inferential statistical approach used to construct REMI is considered the soundest economic modeling approach.
A high level of sectoral resolution improves the accuracy of the model. Care in factoring in special features of mitigation options, and future technological and structural changes improves accuracy, as does care in modeling mitigation options and linking them to the appropriate variables. Of course, there is a tradeoff between cost and accuracy.
2. Scope. REMI is capable of analyzing the entire state economy and the major macroeconomic indicators of interest to this study.
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3. Detail. The REMI model is disaggregated to as fine a level of detail as desired in terms of economic sectors. For example, the utilities sector clearly distinguishes gas and electricity.
4. Transparency. REMI is not a black box. The workings of REMI can be readily explained by using simple economic principles. Individual functional relationships can be extracted for further examination.
5. Manageability. The REMI model is relatively straightforward to use and comes with a user’s guide.
6. Cost. REMI is a modestly priced model.
7. Forecasting ability. REMI is able to generate forecasts for future baselines. 17
B. Model Specifications 1. Geographic area of coverage. The REMI model covers the entire state of PA.
2. Time of analysis. The model is capable of analyzing the entire time period of 2009-20.
3. Macroeconomic Indicators. REMI is adept at evaluating impacts on both GSP and employment.
4. Sectoral Resolution. The REMI model contains 169 sectors, which is adequate for the task.
2/5/2009 www.climatestrategies.us
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C. Parameter Values 1. Flexibility. The REMI model can be used in a variety of ways and under a variety of critical assumptions.
2. Productivity and Competitiveness. REMI has a formal and comprehensive approach to assessing these.
3. Economic Growth. REMI can do this in its forecasts. 4. Population Growth. REMI can do this in its forecasts.
5. Trend Factors. REMI can do this through the inclusion of exogenous variables.
D. Technology Transfer. REMI is the most widely used state-level macroeconometric model. The company provides excellent training and technical support.
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Overall Assessment
• Based on the analysis of above, the REMI Model is best qualified to be used to analyze the macroeconomic impacts of policies and measures to address climate change in Pennsylvania. • It is not the superior to all alternatives according to all indicators, but it is for most indicators.
• Part of the advantage stems from the fact that the research team has experience using the REMI Model. Other major advantages stem from it’s econometric foundation, including its forecasting ability.
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Timetable for the Project
• Finalize input data on options – July 15 • Link policy options to REMI variables – Aug 1 • Run preliminary simulations – Aug 14 • Receive feedback on preliminary – Aug 21 • Final runs and draft report – August 31 21