The impact of a stimulus to energy efficiency on the economy and the environment: A regional computable general equilibrium analysis

Sustainable development is a key objective of UK national and regional policies. Improvements in resource productivity have been suggested as both a measure of progress towards sustainable development and as a means of achieving sustainability. Making ‘more with less’ intuitively seems to be good for the environment, and this is the presumption of current UK policy. However, in a system-wide context, improvements in energy efficiency lower the cost of energy in efficiency units and may even stimulate the consumption and production of energy measured in physical units, and increase pollution. Simulations of a computable general equilibrium model of Scotland suggest that an across the board stimulus to energy efficiency there would actually stimulate energy production and consumption and lead to a deterioration in environmental indicators. The implication is that policies directed at stimulating energy efficiency are not, in themselves, sufficient to secure environmental improvements: this may require the use of complementary energy policies designed to moderate incentives to increased energy consumption.     

A dynamic general equilibrium analysis on fostering a hydrogen economy in Korea

Hydrogen is anticipated to become one of the major alternative energy technologies for a sustainable energy system. This study analyzes the dynamic economic impacts of building a hydrogen economy in Korea employing a dynamic Computable General Equilibrium (CGE) model. As a frontier technology, hydrogen is featured as having a slow diffusion rate due to option value, positive externality, resistance of old technology, and complementary vintages. Without government intervention, hydrogen-derived energy will supply up to 6.5% of final energy demand by 2040. Simulation outcomes show that as price subsidy rates increase by 10%, 20%, and 30%, hydrogen demand will increase by 9.2%, 15.2%, and 37.7%, respectively, of final energy demand by 2040. The output of the transportation sector will increase significantly, while demands for oil and electricity will decline. Demands for coal and LNG will experience little change. Household consumption will decline because of the increase of income taxes. Overall GDP will increase because of the increase in exports and investments. CO₂ emission will decline for medium and high subsidy rate cases, but increase for low subsidy cases. Ultimately, subsidy policy on hydrogen will not be an effective measure for mitigating CO₂ emission in Korea when considering dynamic general equilibrium effects.     

Electricity demand price elasticity in China based on computable general equilibrium model analysis

Based on the CGE model, this paper simulates the impact of electricity price adjustment on demand for electricity, and the simulation results show the range of electricity elasticities of different consumers. The elasticities of the high power-consuming sectors are relatively larger. However, the absolute values of the price elasticities are less than one. Furthermore, this paper quantitatively analyses the price elasticity of different categories of users, which are classified according to the objectives of China’s electricity price reform. The elasticity absolute value of Industry & Commerce is around 0.018, that of Residents is around 0.300 and that of Agriculture is around 0.066. Finally, the price elasticities of different consumers in 2005 and 2007 are calculated through the CGE model, and it is discovered that the price elasticity absolute values in 2007 are less than that in 2005. The analytical results of this paper can provide corresponding support for the formulation of electricity pricing mechanisms for the developing countries.     

Designing an emissions trading scheme for China with a dynamic computable general equilibrium model

To fulfill its Copenhagen pledges to control carbon emissions and mitigate climate change, China plans to establish a nationwide emissions trading scheme (ETS) in 2016. This paper develops a multi-sector dynamic computable general equilibrium model with an ETS module to study the appropriate ETS policy design, including a carbon cap, permit allocation and supplementary policies (e.g., penalty policies and subsidy policies). The main results are as follows. (1) To achieve China's Copenhagen pledge, the equilibrium nationwide carbon price is observed to be between 36 and 40 RMB yuan per metric ton. (2) The ETS policy has a cost-effective mitigation effect by improving China's production and energy structures with relatively little economic harm. (3) Various ETS sub-policies should be carefully designed to balance economic growth and carbon mitigation. In particular, the carbon cap should be set according to China's Copenhagen pledge. A relatively large distribution ratio of free permits, the output-based grandfathering rule for free permits, a penalty price (on illegitimate emissions) slightly above the carbon price, and a sufficient subsidy (from ETS revenue) are strongly recommended in the early stages to avoid significant economic loss. These designs can be adjusted in later stages to enhance the mitigation effect.     

Energy from sugarcane bagasse under electricity rationing in Brazil: a computable general equilibrium model

In the midst of the institutional reforms of the Brazilian electric sectors initiated in the 1990s, a serious electricity shortage crisis developed in 2001. As an alternative to blackout, the government instituted an emergency plan aimed at reducing electricity consumption. From June 2001 to February 2002, Brazilians were compelled to curtail electricity use by 20%. Since the late 1990s, but especially after the electricity crisis, energy policy in Brazil has been directed towards increasing thermoelectricity supply and promoting further gains in energy conservation. Two main issues are addressed here. Firstly, we estimate the economic impacts of constraining the supply of electric energy in Brazil. Secondly, we investigate the possible penetration of electricity generated from sugarcane bagasse. A computable general equilibrium (CGE) model is used. The traditional sector of electricity and the remainder of the economy are characterized by a stylized top-down representation as nested CES (constant elasticity of substitution) production functions. The electricity production from sugarcane bagasse is described through a bottom-up activity analysis, with a detailed representation of the required inputs based on engineering studies. The model constructed is used to study the effects of the electricity shortage in the preexisting sector through prices, production and income changes. It is shown that installing capacity to generate electricity surpluses by the sugarcane agroindustrial system could ease the economic impacts of an electric energy shortage crisis on the gross domestic product (GDP).     

A general equilibrium framework for optimal planning in an oil-producing economy

This paper shows how a computable general equilibrium (CGE) model can provide a consistent and detailed framework for investigating the intertemporal planning problems in oil-rich countries. The analysis is carried out with the aid of a price endogenous CGE model which acts as the constraint of a discrete time optimal control problem. The system is used to generate optimal solutions for policy variables which work through market prices, as well as those working through quantity variables. The study shows that a CGE model, together with an appropriate optimization model, can provide an effective planning tool for oil-producing countries.     

Stakeholder perceptions towards the transition to a hydrogen economy in Poland

Poland has significant reserves of energy in the form of coal. However, the exploitation of these reserves could lead to significant carbon emissions. Hydrogen technologies present a potentially sustainable option for the Polish energy system. This paper reviews the existing Polish energy system, resources, policies and measures from the perspective of planning a transition to a hydrogen-based economy. The key challenges and opportunities gathered by systematic consultation of senior stakeholders are presented. Coke oven gas and coal gasification are the major short and medium term sources of hydrogen. Underground conversion of coal deposits with integrated carbon capture and storage (CCS) is most important in the long term. Other opportunities include development of renewables, by-product hydrogen and nuclear power. Current lack of infrastructure, particularly for CCS, hydrogen pipelines and clean coal is seen as a significant barrier. Regional and central government should cooperate with industry to develop a portfolio of demonstration projects to provide experience and stimulate demand for hydrogen.     

The prospects for coal-to-liquid conversion: A general equilibrium analysis

We investigate the economics of coal-to-liquid (CTL) conversion, a polygeneration technology that produces liquid fuels, chemicals, and electricity by coal gasification and Fischer–Tropsch process. CTL is more expensive than extant technologies when producing the same bundle of output. In addition, the significant carbon footprint of CTL may raise environmental concerns. However, as petroleum prices rise, this technology becomes more attractive especially in coal-abundant countries such as the U.S. and China. Furthermore, including a carbon capture and storage (CCS) option could greatly reduce its CO₂ emissions at an added cost. To assess the prospects for CTL, we incorporate the engineering data for CTL from the U.S. Department of Energy (DOE) into the MIT Emissions Prediction and Policy Analysis (EPPA) model, a computable general equilibrium model of the global economy. Based on DOE’s plant design that focuses mainly on liquid fuels production, we find that without climate policy, CTL has the potential to account for up to a third of the global liquid fuels supply by 2050 and at that level would supply about 4.6% of global electricity demand. A tight global climate policy, on the other hand, severely limits the potential role of the CTL even with the CCS option, especially if low-carbon biofuels are available. Under such a policy, world demand for petroleum products is greatly reduced, depletion of conventional petroleum is slowed, and so the price increase in crude oil is less, making CTL much less competitive.     

North and south: Regional footprints on the transition pathway towards a low carbon,global economy

Environmental or ‘ecological’ footprints are indicators of resource consumption and waste absorption transformed on the basis of biologically productive land area required per capita with prevailing technology. They represent a partial measure of the extent to which the planet, its regions, or nations are moving along a sustainable development pathway. Such footprints vary between countries at different stages of economic development and varying geographic characteristics. A correlation equation for national environmental footprints is used, alongside international projections of population growth and gross regional income, to estimate the relative contributions of the peoples of the industrialised North and populous South that would be needed in order to secure climate-stabilising carbon reductions out to about 2100. The four so-called ‘marker scenarios’ produced by the Intergovernmental Panel on Climate Change are used to estimate the degree of energy efficiency improvement and carbon mitigation that is feasible. The present footprint projections suggest that a reduction in the consumption of biophysical assets across both the developing and industrialised world is indeed possible. However, the developing world’s footprint is shown to overshoot that of the industrialised countries by around 2010–2015. It then levels out and starts to fall, on the most optimistic scenario, by about 2050. In order to achieve global sustainability in the 21st Century a serious commitment to environmental protection is required in both the industrialised North and the ‘majority South’. That implies balancing population growth, economic well-being, and environmental impacts in the interests of all the people and wildlife on ‘Spaceship Earth’.     

Distributional impacts of carbon pricing: A general equilibrium approach with micro-data for households

Many policies to limit greenhouse gas emissions have at their core efforts to put a price on carbon emissions. Carbon pricing impacts households both by raising the cost of carbon intensive products and by changing factor prices. A complete analysis requires taking both effects into account. The impact of carbon pricing is determined by heterogeneity in household spending patterns across income groups as well as heterogeneity in factor income patterns across income groups. It is also affected by precise formulation of the policy (how is the revenue from carbon pricing distributed) as well as the treatment of other government policies (e.g. the treatment of transfer payments). What is often neglected in analyses of policy is the heterogeneity of impacts across households even within income or regional groups. In this paper, we incorporate 15,588 households from the U.S. Consumer and Expenditure Survey data as individual agents in a comparative-static general equilibrium framework. These households are represented within the MIT USREP model, a detailed general equilibrium model of the U.S. economy. In particular, we categorize households by full household income (factor income as well as transfer income) and apply various measures of lifetime income to distinguish households that are temporarily low-income (e.g., retired households drawing down their financial assets) from permanently low-income households. We also provide detailed within-group distributional measures of burden impacts from various policy scenarios.     

The demand for energy in the UK: A general equilibrium analysis

Previous research into the demand for energy has treated economic activity as an explanatory variable. However, economic theory suggests that economic activity is not independent of energy prices and energy demand. We explore the two-way causality between energy demand and economic activity in the context of a macroeconometric model of the UK economy. Inter alia this study suggests that the demand for energy is more price elastic in general equilibrium than it is under the more conventional assumptions of partial equilibrium.     

Feasibility study for the transition towards a hydrogen economy: A case study in Brazil

Fossil fuels use has caused serious environmental impacts worldwide, mainly related with the greenhouse effect intensification. One strategy to mitigate such impacts is the use of hydrogen in combustion processes. Additionally, hydrogen can be utilized as an energy vector for storage purposes and is also classified as a fuel of the future, due to the low emission of pollutants into the atmosphere. The present paper shows results of a computational simulation carried out for the state of Ceará, Brazil, considering scenarios for the use of electrolytic hydrogen obtained with the use of photovoltaic (PV) modules and wind energy converters, as a substitute of fluid fossil fuels.     

Restricted carbon emissions and directed R&D support; an applied general equilibrium analysis

We analyse welfare effects of supporting general versus emission-saving technological development when carbon emissions are regulated by a carbon tax. We use a computable general equilibrium model with induced technological change (ITC). ITC is driven by two separate, economically motivated research and development (R&D) activities, one general and one emission-saving specified as carbon capture and storage (CCS). We study public revenue neutral policy alternatives targeted towards general R&D and CCS R&D. Support to general R&D is the welfare superior. However, the welfare gap between the two R&D policy alternatives is reduced with higher carbon tax levels. For sufficiently high levels of the carbon tax equal subsidy rates are preferred.     

Policies for the transition towards a hydrogen economy: the EU case

This paper reviews the current EU policy framework in view of its impact on hydrogen and fuel cell development. It screens EU energy policies, EU regulatory policies and EU spending policies. Key questions addressed are as follows: to what extent is the current policy framework conducive to hydrogen and fuel cell development? What barriers and inconsistencies can be identified? How can policies potentially promote hydrogen and fuel cells in Europe, taking into account the complex evolution of such a potentially disruptive technology? How should the EU policy framework be reformed in view of a strengthened and more coherent approach towards full deployment, taking into account recent technology-support activities?     

Energy taxation and the double dividend effect in Taiwan's energy conservation policy—an empirical study using a computable general equilibrium model

Faced with pressure from greenhouse gas reductions and energy price hikes, the Taiwan government is in the process of developing an energy tax regime to reflect environmental external costs and effectively curb energy consumption, as well as mitigate CO₂ emissions through an adequate pricing system. This study utilizes a CGE model to simulate and analyze the economic impacts of the draft Energy Tax Bill and its complementary fiscal measures. Under the assumption of tax revenue neutrality, the use of energy tax revenue generated for the purpose of reducing income tax is the best choice with double dividend effects since it will effectively stimulate domestic consumption and investment, and, consequently, mitigate the negative impacts of the distortionary tax regime. The double dividend effect is less significant, however, when the supplementary measures being used are for government expenditure. Nevertheless, all supplementary measures have effectively reduced energy consumption, which means they have delivered at least the first dividend—in the sense of CO₂ emissions control. It has been verified in this study that having adequate public-finance policy measures is the key to realizing the double dividend effect.     

Vehicle technology under CO2 constraint: a general equilibrium analysis

A study is presented of the rates of penetration of different transport technologies under policy constraints on CO₂ emissions. The response of this sector is analyzed within an overall national level of restriction, with a focus on automobiles, light trucks, and heavy freight trucks. Using the US as an example, a linked set of three models is used to carry out the analysis: a multi-sector computable general equilibrium model of the economy, a MARKAL-type model of vehicle and fuel supply technology, and a model simulating the split of personal and freight transport among modes. Results highlight the importance of incremental improvements in conventional internal combustion engine technology, and, in the absence of policies to overcome observed consumer discount rates, the very long time horizons before radical alternatives like the internal combustion engine hybrid drive train vehicle are likely to take substantial market share.     

The optimal subsidy on electric vehicles in German metropolitan areas: A spatial general equilibrium analysis

E-mobility and diffusion of electric vehicles have become a major policy issue in many countries. For example, the German federal government pursues the strategy of achieving one million electric vehicles by 2020. In this paper we examine whether it is optimal to subsidize the use of electric vehicles by granting electric power subsidies and how large the corresponding optimal rate is. We, first, analytically derive the optimal power tax in a spatial model of a city with two zones where commuting, carbon emissions, endogenous labor supply, fuel and power taxes are considered. It is shown that in a spatial urban environment, the optimal tax rate depends in particular on transport related externalities, tax interaction effects and redistribution effects working via the urban land market. Second, we extend the model to a full spatial general equilibrium model and employ simulations to calculate sign and size of the optimal tax/subsidy rate. This model is calibrated to a typical German metropolitan area. The results show that electric vehicles should not be subsidized but taxed. The results are robust with respect to changes in the willingness to adopt electric vehicles, the costs of driving electric vehicles, and even if emissions of electric vehicles are zero.     

Electricity generation development of Eastern Europe: A carbon technology management case study for Poland

Energy and electricity in particular, are of unquestionable value for the welfare of all modern societies. The electricity sectors of Eastern European countries have undergone several phases of development between the post-WWII days within the CEMA and USSR frameworks and today's EU and global energy and environmental regimes. The present paper examines the progress of the Polish electricity sector throughout the last decades, providing useful information regarding not only the technical generation and distribution infrastructure but also the policies that have been and are currently implemented. The results are discussed in the context of indicators such as the electricity intensity and per capita consumption, and show that although the Polish electricity sector has gone a long way, there still are several necessary technology management steps to be taken if Poland is to adequately address the challenges of international competition, electricity supply security and environmental sustainability.     

Losing the roadmap: Renewable energy paralysis in Spain and its implications for the EU low carbon economy

After many years at the forefront of renewable energy (RE) implementation both in Europe and worldwide, Spain experienced a sudden transformation in 2012 to its RE development model in which national government backing and financial incentives for renewables were removed, throwing the RE sector into a paralysis which continues to the present day. This is in marked contrast to the case of the other major European RE leader, Germany, where it has been argued that RE implementation has produced a “regime shift” that has transformed the energy generation model to a new resilient pathway. In this paper, key differences between Spanish regions are identified in the way the RE implementation process has been carried out. The research brings these different characteristics into focus and analyses the strengths and weaknesses of the RE implementation process in each region. If stakeholders at all levels are empowered and motivated towards the implementation process goal, it is less likely that a few, very powerful actors (e.g. multinational energy companies or governments) can dominate the process, and thus systemic instability can be reduced. In this way, lock-down situations like the current one can be avoided in future and a more resilient system can be designed.     

General equilibrium, electricity generation technologies and the cost of carbon abatement: A structural sensitivity analysis

Electricity generation is a major contributor to carbon dioxide emissions, and abatement in this sector is a key determinant of economy-wide regulation costs. The complexity of an integrated representation of economic and electricity systems makes simplifying assumptions appealing, but there is no evidence in the literature on how important the pitfalls may be. The aim of this paper is to provide such evidence, drawing on numerical simulations from a suite of partial and general equilibrium models that share common technological features and are calibrated to the same benchmark data. We report two basic findings. First, general equilibrium inter-sectoral effects of an economy-wide carbon policy are large. It follows that assessing abatement potentials and price changes in the electricity sector with a partial equilibrium Marshallian demand can only provide a crude approximation of the complex demand-side interactions. Second, we provide evidence that widely used top-down representations of electricity technologies produce fuel substitution patterns that are inconsistent with bottom-up cost data. This supports the view that the parametrization of substitution possibilities with highly aggregated production functions is difficult to validate empirically. The overall picture that emerges is one of large quantitative and even qualitative differences, highlighting the role of key structural assumptions in the interpretation of climate policy projections.