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Sensitivity of policy simulation to benchmark scenarios in CGE models: illustration with carbon leakage

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  • DURAND-LASSERVE, Olivier

    ()
    (Université catholique de Louvain, CORE, Belgium)

  • Pierru , Axel

    ()
    (IFP Energies nouvelles, France)

  • SMEERS, Yves

    ()
    (Université catholique de Louvain, CORE, Belgium)

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    Abstract

    In a Computable General Equilibrium (CGE) setting, we show how the cost of a carbon policy for an open economy depends on the assumptions made about future exogenous structural changes. For dynamic CGE models, we propose an analytical framework derived from static CGE models and associate structural changes with the construction of a non-stationary dynamic Social Accounting Matrix (SAM). Such matrices are benchmark scenarios that embed the modelers view on how technologies and preferences should evolve. These benchmark scenarios must be replicable and relevant (by matching what the modeler regards as plausible). To combine these two properties and produce alternative benchmark scenarios, we use partial parameter adjustments and general equilibrium computation. We produce three alternative benchmark scenarios that differ in terms of energy efficiency gains and structural shift in GDP. For each benchmark scenario, we then simulate the GDP deviation induced by a shock on carbon price. We show the dependence of the simulated GDP losses and terms of trade response on the benchmark scenario considered.

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    Bibliographic Info

    Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2012063.

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    Date of creation: 31 Dec 2012
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    Handle: RePEc:cor:louvco:2012063

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    Keywords: computable general equilibrium model; non-stationary benchmark scenario; carbon leakage;

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    1. Raouf, BOUCEKKINE & David, DE LA CROIX & Omar, LICANDRO, 2006. "Vintage Capital," Discussion Papers (ECON - Département des Sciences Economiques) 2006014, Université catholique de Louvain, Département des Sciences Economiques.
    2. Klump, Rainer & Saam, Marianne, 2008. "Calibration of normalised CES production functions in dynamic models," Economics Letters, Elsevier, vol. 99(2), pages 256-259, May.
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    15. Olivier de La Grandville & Rainer Klump, 2000. "Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions," American Economic Review, American Economic Association, vol. 90(1), pages 282-291, March.
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