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Sensitivity of modeling results to technological and regional details: The case of Italy's carbon mitigation policy

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  • Standardi, Gabriele
  • Cai, Yiyong
  • Yeh, Sonia

Abstract

Model differences in technological and geographical scales are common, but their contributions to uncertainties have not been systematically quantified in the climate policy literature. This paper carries out a systematic assessment on the sensitivity of Computable General Equilibrium models to technological and geographical scales in evaluating the economic impacts of carbon mitigation policies. In particular, we examine the impacts of sub-national details and technological details of power generation on the estimate of carbon price and economic cost. Taking Italy as an example, we find that the estimation for carbon price and the economic cost of a de-carbonization pathway by means of a model with technological and regional details can be lower than a model without such details by up to 40%. Additionally, the effect of representing regional details appears to be far more important than the effect of representing the details of electricity technology in both the estimated carbon prices and the estimated economic impacts. Our results for Italy highlight the importance of modeling uncertainties of these two key assumptions, which should be appropriately acknowledged when applying CGE models for policy impact assessment. Our conclusions can be generalized to different countries and policy scenarios not in terms of absolute numbers but in terms of economic explanations. In particular, intra-national trade and the sub-national sectoral/technological specialization are important variables for understanding the economic dynamics behind these outcomes.

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  • Standardi, Gabriele & Cai, Yiyong & Yeh, Sonia, 2017. "Sensitivity of modeling results to technological and regional details: The case of Italy's carbon mitigation policy," Energy Economics, Elsevier, vol. 63(C), pages 116-128.
    • Handle: RePEc:eee:eneeco:v:63:y:2017:i:c:p:116-128
    DOI: 10.1016/j.eneco.2017.01.021
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    More about this item

    Keywords

    Computable General Equilibrium; Carbon mitigation policy; Sensitivity; Technology; Sub-national regions; Model uncertainty;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E16 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Social Accounting Matrix

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