GTAP-E

1
GTAP-E

• Incorporating Energy Substitution into the GTAP
  Model

2
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.

3
Introduction to GTAP-E

• Two major types of instruments Tax and
  Cap-and-Trade
• Trade off between unilateral vs. international
  trading system.

4
Production Structure GTAP-E

• GTAP energy substitution (inter-KE and
  inter-fuel)

5
Macro relationships in GTAP-E (USA)
sVA gt sKE
-0.64
9.5
-0.64
-1.0
0.02
0.12
-0.04
0.19
0.01
6
Macro relationships in GTAP-E (USA)
-0.04
0
0
0
-0.04
0
-1.0
-0.04
-0.08
0.11
0.22
-1.1
7
Macro relationships in GTAP-E (USA)
-0.04
0.08
-0.03
0.12
-0.03
-2225
-2955
742
8
US30 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) 1 USA
Agriculture -7,26
Coal -28,91
Oil -2,37
Gas -10,48
Oil_Pcts -7,6
Electricity -18,16
En_Int_ind -9,11
Oth_ind_ser -7,24
9
? 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 Electricity En_Int_ind
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
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Why the fall in demand?? PricesAverage
percentage changes in industry prices for
composite commodities
pf(i,j,r) age chngs
Agriculture 0,25
Coal 51,69
Oil 16,36
Gas 16,47
Oil_Pcts 12,03
Electricity 7,52
En_Int_ind 0,75
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Exports and Imports
Agriculture -0,31 0,16
Coal 10,02 -27,34
Oil 9,96 -12,91
Gas 5,61 -11,92
Oil_Pcts 0,9 -8,1
Electricity -33,15 19,56
En_Int_ind -2,75 1,05
12
Why??Prices
Border Prices  
pfob(i,r,s) 1 USA
Agriculture 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
13
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 -3692,89
8 Oth_ind_ser 7868,28
Total 14086,16
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Allocation effect decomposition (I)

• Largest allocation effect for firms
• Main private household loss from oil products
• Oil only used for oil products production

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Allocation effect decomposition (II)

• 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

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Terms of trade decomposition

• 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

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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)

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New Parameter File
Sim 1A. Change Elasticity
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
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Main Results
Sim 1A. Change Elasticity

EV decomposition welfare USA EU JPN
2 alloc_A1 -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

Emission Reductions -15,714 0,813 0,788
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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.

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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
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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

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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.

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Sim 2. Tax by Regions
Total change in CO2 emissions, M. tons and in
the taxed region
- The effect on world CO2 emissions is the
greatest with a US tax. Output is already more
energy efficient in the EU and Japan.
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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 (gt0 in EU,
USA lt0 in Japan).
Change in GDP quantity index,
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Sim 2. Tax by Regions
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Sim 2. Tax by Regions
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Case Unilateral Carbon Tax in Japan
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Case Unilateral Carbon Tax in Japan
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Case Unilateral Carbon Tax in Japan
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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-5,23change rctax(-0.09)
• Scale of carbon tax and change in value of GDP
  has almost a linear relationship

33
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 US30, while it improves in other
  regions. However, terms of trade tends to
  deteriorate more for Japan than EEx at higher
  taxes above US30 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
  US30 per ton of C emissions.

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Compare Emission Trading Carbon Taxes
Tax in EU, US and JPN (30USD ) World Emission Trading (4.5)
RCTAX 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
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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.

36
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.