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Economic Models for Energy and Environmental analysis

CREE/CENSES Model Forum

24. October 2013

Brita Bye

Macroeconomic numerical models at Statistics Norway• Short/medium term macroeconometric models, KVARTS/MODAG

– Short term forecasting – no emissions modelled– MODAG used by the Ministry of Finance for the annual National

budget (white book).Emissions of CO2

• Long term computable general equilibrium (CGE) models: MSG model– Regularly used by the Ministry of Finance for long term forecasting

and policy analyses (Ministry of Finance, 2013)– Emission forecasting (Kyoto gases, So2, NOx, etc) – KLIMAKUR2020 (2010)

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Integrated CGE-models - Background

• Multi sectoral, multi-purpose general equilibrium models– Early approach (Johansen, 1960)– Current model, MSG-6, Heide et al (2004)

• Resource statistics (Energy and Environment, 1980-ies)

• Integrated Economy-Energy-Environment models since 1980-ies

• Consistent framework for economic, energy and emission projections, evaluation of e.g. climate policies

• Mitigation – not adaptation

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The MSG-6 model

• Optimising dynamic consumers and producers (detailed modelling)• Production and consumption structures of the Norwegian economy • Public policies, direct and indirect (incl environmental and energy) taxes

and transfers

• Determines domestic investments, production, consumption, export, import, and wealth accumulation

• Reallocations of resources – between industries – from leisure to labour – between consumption and savings

• > Measure economic welfare (total discounted utility) effects of different policies

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Climate analyses and the MSG6-model: shortcomings

• Small, open economy characteristics ->– Exogenous world market prices -> No terms-of-trade effects– Climate policies are regional/global -> Interactions with other economies (EU) and

Rest of the World

• Technological change are exogenous – Models only substition- and scale effects of climate policies

• New technologies are important for climate analyses:• Diffusion of new climate technologies

– Implementation– Absorption processes– Learning effects

• Modeling the innovation processes of new climate technologies– Research and Development (R&D)

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Three CGE models for climate policy analyses

•Incorporate existing and future technologies (different approaches) – Diffusion and innovation

•Norway in a global perspective

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MSG-TECHhybrid

top-down/bottom-up3

ITCEndogenous technological

change

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SNoWNorway and

Rest of the world