From 23-25 October 2013, researchers from five developing countries gathered in Rio de Janeiro, to discuss joint progress on modelling the socio-economic implications of mitigation actions for their respective countries. They were brought together by a CDKN-funded project to further research in this field.

The workshop, entitled EconLab 2, was a platform for researchers to share their experiences in linking so called economy-wide models with sectoral ones. It was also an opportunity for the research partners to present preliminary results from their analyses of carbon taxes and other mitigation actions and get feedback from international peers.

Forty three participants from several research institutions were present, including the Energy Research Centre (South Africa), COPPE (Brazil), the Energy Centre, Institute of Economics and the Ministry of Finance (Chile), Universidad los Andes (UniAndes) and Department National Planning (Colombia) and the Peruvian Amazon Research Institute (IIAP), Apoyo Consultoria and Libelula (Peru).

Background

Policy makers need to know the socio-economic implications of different mitigation actions, like carbon taxes or cap and trade systems, if they are to make informed decisions about low carbon development pathways and win political support for these.

The costs of specific actions over time can be calculated using models that represent a country’s economy, and GHG emitting sectors like energy and land use change. The problem is that so called bottom-up models, also called engineering or sectorial models, and top-down models, also called economy-wide models, give widely varying results to the same question. This is because these two sets of models are designed from different perspectives and originally to address different issues. What an economy-wide model can calculate internally, an engineering model must take as exogenous input and vice versa. The challenge is to link these two sets of models for a specific country so that they can influence each other’s calculations and arrive at a more holistic picture.

http://youtu.be/f8Tk2sRb538

Extracts from Lab discussions

Work was structured around small group poster presentations from country research teams, open plenary sessions and café style discussion groups.

Amaro Pereira and Carolina Grottera from COPPE explained the link between their two models, IMACLIM and MESSAGE. The linked models are being used in the analysis of the Brazilian power sector. The models will be used to analyse the impacts of a set of carbon taxes on GHG emissions, GDP, job creation, income distribution, and on how to recycle the carbon tax revenue. They also shared proposed work on simulating a cap-and-trade scheme within their models.

Carlos Benavides and Luis Gonzales presented the Chilean team’s work on linking their electricity-planning model with the Ministry of Finance’s Dynamic Stochastic General Equilibrium (DSGE) model. Discussions focused on calibrating the models with historical information, the challenges of internalising variables, and assessing the interaction of different policies such as Chile’s Renewable and Non-conventional Energy (ERNC) law.

Ricardo Delgado presented the Colombian team’s work on linking their Markal energy model with the Department of National Planning’s MEG4E model for the Colombian economy. The team is evaluating the impact of carbon taxes and different caps on GHG emissions on the Colombian economy. Discussions touched on how their model could be used to analyse the impact of mitigation actions on income distribution by incorporating different household income groups. The Colombian team is also considering a tax for international electricity imports which could significantly affect their results.

Angel Salazar and Tessy Vásquez presented the IIAP’s work on modelling a policy that incentivises reforestation through agroforestry in Peru, a mitigation action starting with government investment rather than a tax. Key suggestions from the EconLab participants were to include the impact of REDD on employment and household income, as positive impacts on these variables could lead to more favourable reviews by government.

Bruno Merven presented the South African team’s work on linking SATIM, a sectoral model and eSAGE, an economy-wide model. He also presented some of the preliminary results that the team obtained from modelling the implication of a carbon tax on economic growth, jobs and poor households. Discussions focused on the how the choice of starting point (sectoral vs economy wide) could change the end convergence point and hence results of the model.

Plenary discussions cast the net wider to current and past research beyond the CDKN-funded work. Harald Winkler shared the experience of the Energy Research Centre in packaging carbon tax during their Long Term Mitigation Scenarios project (2005-2007). Pedro Rochedo gave an overview of the Global Environment Facility (GEF) funded project on GHG mitigation options in key-sectors in Brazil. Marcelo Moreira from the Institute for International Trade Negotiations (ICONE) gave a presentation on Brazilian Land-use Model (BLUM) and the linking of land use, land use change and forestry (LULUCF) models and economy-wide models. Plenary sessions also addressed general issues such as the conceptualisation and measurement of co-benefits. Harald Winkler emphasised the potential to re-cast the problem in ‘development first’ terms by looking at mitigation as a co-benefit of developmental actions rather than the other way around. He argued that as long as the focus of Integrated Assessment Models (IAMs) is on mitigation, there is a risk that it will remain a niche activity. As a Adrian Stone from the Energy Research Centre confirmed: “Jobs, jobs, jobs. That’s what Treasury told us. If you want to sell mitigation, jobs are the way to do it.”

The workshop ended with parallel café sessions on LULUCF, the mechanics of linking models, and measuring co-benefits. These small group discussions allowed interested participants a more granular discussion on specific issues of interest.

The lab foregrounded the importance of collaboration between research teams from different southern institutions and the value of collegial exchange, support and competition. “The workshop [was] very helpful to improve the methodologies we are undertaking” said a Brazilian participant. “It has been very useful to share our experience and ask for advice on the main concerns for the Peruvian macro-economic team” remarked a Peruvian participant.

For more information on the CDKN-funded project visit the CDKN project page. For workshop resources, including posters and presentations, visit the MAPS workshop page.