Implications of Updating the Input-output Database of a Computable General Equilibrium Model on Emissions Mitigation Policy Analyses

Joint Program Report
Implications of Updating the Input-output Database of a Computable General Equilibrium Model on Emissions Mitigation Policy Analyses
Hong, W-H., H-C. Chai, Y-H. H. Chen, J.M. Reilly and S. Paltsev (2019)
Joint Program Report Series, February, 11 p.

Report 334 [Download]

Abstract/Summary:

Large-scale economy-wide equilibrium models are widely used for assessing energy or climate policies. As different models often produce diversified outcomes for similar policies, researchers have been trying to understand reasons behind this observation, including cost assumptions for mitigation options, model structure, policy design, and timing. In this study, we focus on analyzing how updating the input-output database of a CGE model could inadvertently change the model output, which has not been carefully examined but could also be an important source that accounts for variations in simulation results of distinct models.

To answer the research question, we provide an analytical framework that elucidates how using a database with a higher energy price raises the CO2 mitigation cost when the substitution between inputs is relatively limited in the short-run, or when the price hike is considered as temporary. We also provide a numerical example for the analysis, and propose an adjustment that could, under the same percentage reduction in emissions, address the concerns of using the input-output data with prices for fossil fuels and their consumption levels deviating from a more sustainable state.

Citation:

Hong, W-H., H-C. Chai, Y-H. H. Chen, J.M. Reilly and S. Paltsev (2019): Implications of Updating the Input-output Database of a Computable General Equilibrium Model on Emissions Mitigation Policy Analyses. Joint Program Report Series Report 334, February, 11 p. (http://globalchange.mit.edu/publication/17198)
  • Joint Program Report
Implications of Updating the Input-output Database of a Computable General Equilibrium Model on Emissions Mitigation Policy Analyses

Hong, W-H., H-C. Chai, Y-H. H. Chen, J.M. Reilly and S. Paltsev

Report 

334
February, 11 p.
2019

Abstract/Summary: 

Large-scale economy-wide equilibrium models are widely used for assessing energy or climate policies. As different models often produce diversified outcomes for similar policies, researchers have been trying to understand reasons behind this observation, including cost assumptions for mitigation options, model structure, policy design, and timing. In this study, we focus on analyzing how updating the input-output database of a CGE model could inadvertently change the model output, which has not been carefully examined but could also be an important source that accounts for variations in simulation results of distinct models.

To answer the research question, we provide an analytical framework that elucidates how using a database with a higher energy price raises the CO2 mitigation cost when the substitution between inputs is relatively limited in the short-run, or when the price hike is considered as temporary. We also provide a numerical example for the analysis, and propose an adjustment that could, under the same percentage reduction in emissions, address the concerns of using the input-output data with prices for fossil fuels and their consumption levels deviating from a more sustainable state.

Posted to public: 

Wednesday, February 20, 2019 - 15:17