Ramiro Parrado - Academia.edu (original) (raw)

Papers by Ramiro Parrado

Research paper thumbnail of Macro economic assessment of climate change impacts: a regional and sectoral perspective

Research paper thumbnail of Climate Change Impacts and Limited Market-driven Adaptation

Research paper thumbnail of Economy-wide Impacts of Climate Change on Water Resources in Africa: A CGE Approach

Water resources are facing several stresses in terms of quantity and quality. These pressures are... more Water resources are facing several stresses in terms of quantity and quality. These pressures are closely related to the human interventions in fields like: agriculture, land-use/land use change, and pollutant emissions, among others. Within this context, the expected changes in climate pattern will exacerbate the challenges faced by water resources. Considering the critical role that water plays for agricultural production, any shock in water availability will have great implications for agricultural production, and through agricultural markets these impacts will reach the whole economy with economy-wide consequences. In this paper a new modeling approach is developed aiming to include water explicitly within the ICES CGE model. In order to reach this objective a new database was built considering explicitly the water endowment, precipitation changes, and unitary irrigation costs. The results suggest different economic consequences of climate change on economy. The impacts are rela...

Research paper thumbnail of A Quantitative Assessment of the Implications of Including Non-CO2 Emissions in the European ETS

SSRN Electronic Journal, 2000

Although CO 2 emissions stand for most of greenhouse gas (GHG) emissions, the contribution of mit... more Although CO 2 emissions stand for most of greenhouse gas (GHG) emissions, the contribution of mitigation efforts based on non-CO 2 emissions is still a field that needs to be explored more thoroughly. Extending abatement opportunities to non-CO 2 could reduce overall mitigation costs but it could also exert a negative pressure on agricultural output. This paper offers insights about the first effect while provides a preliminary discussion for the second.

Research paper thumbnail of Capital-Embodied Technologies in CGE Models

SSRN Electronic Journal, 2000

ABSTRACT

Research paper thumbnail of Energy from waste: generation potential and mitigation opportunity

Environmental Economics and Policy Studies, 2012

ABSTRACT The present research proposes a macroeconomic assessment of the role of waste incinerati... more ABSTRACT The present research proposes a macroeconomic assessment of the role of waste incineration with energy recovery (WtE) and controlled landfill biogas to electricity generation and their potential contribution to a CO2 emission reduction policy, within a recursive-dynamic computable general equilibrium model. From the modeling viewpoint, introducing these energy sectors in such a framework required both the extension of the GTAP7 database and the improvement of the ICES production nested function. We focus our analysis on Italy as a signatory of the GHG reduction commitment of 20 % by 2020 with respect to 1990 levels proposed by the European Community; the rest of the world is represented by 21 geo-political countries/regions. It is shown that albeit in the near future WtE and landfill biogas will continue to represent a limited share of energy inputs in electricity sector (in Italy, around 2 % for WtE and 0.6 % for biogas in 2020), and they could play a role in a mitigation policy context. The GDP cost of the EU emission reduction target for the Italian economy can indeed be reduced by 1 % when the two energy generating options are available. In absolute terms, this translates into an annuitized value of 87–122 million €.

Research paper thumbnail of The economic and environmental effects of an EU ban on illegal logging imports. Insights from a CGE assessment

Environment and Development Economics, 2013

Illegal logging is widely recognized as a major economic problem and one of the causes of environ... more Illegal logging is widely recognized as a major economic problem and one of the causes of environmental degradation. Increasing awareness of its negative effects has fostered a wide range of proposals to combat it by major international conservation groups and political organizations. Following the 2008 US legislation which prohibits the import of illegally harvested wood and wood products, the European Union (EU) is now discussing a legislation proposal which would ban illegal timber from the EU market. In this study we use the ICES computable general equilibrium model to estimate the reallocation of global demand and timber imports following the pending EU legislation. With this exercise our final objective is to assess the economic impacts and measure the potential emission reduction resulting from the introduction of this type of policy. Results show that while the EU ban does not seem particularly effective in reducing illegal logging activities, its main effect will be the removal of illegal logs from the international markets. In addition, the unilateral EU ban on illegal logs increases secondary wood production in illegal logging countries as their exports become relatively more competitive. Through this mechanism, part of the banned, illegal timber will re-enter the international trade flows, but it will be "hidden" as processed wood. This effect is, however, limited. Finally, given the limited effect on overall economic activity, effects on GHG emissions are also limited. Direct carbon emissions from logging activities can decrease from 2.5 to 0.6 million tons per year.

Research paper thumbnail of Technology Spillovers Embodied in International Trade: Intertemporal, regional and sectoral effects in a global CGE

This paper uses a dynamic CGE model to assess the intertemporal and spatial dimension of technolo... more This paper uses a dynamic CGE model to assess the intertemporal and spatial dimension of technology spillovers embodied in international trade within a climate and trade policy framework. Three are the main contributions of the study. First, to include endogenous factor-biased technical change based on trade flows in a CGE model, particularly for energy and capital. Second, to analyse the implications of specific spillovers embodied in trade of capital goods (machinery and equipment), and third, to highlight the implications of accounting for indirect effects induced by spillovers. We find that explicitly modelling trade spillovers reveals significant effects thanks to the transmission mechanisms underlying imports of capital commodities. We then assess the net contribution of modelling trade spillovers within three policy scenarios. The aggregated net effects of spillovers are rather small confirming findings from previous studies. However, there are important international and intersectoral redistribution effects due to technology transfers represented as embodied spillovers.

Research paper thumbnail of The economic assessment of changes in ecosystem services: and application of the CGE methodology

Research paper thumbnail of Assessing the Market Benefits of Reducing Deforestation: A General Equilibrium Investigation

Deforestation is one of the major sources of greenhouse gases (GHG) emissions, accounting for aro... more Deforestation is one of the major sources of greenhouse gases (GHG) emissions, accounting for around 17% of total global GHG discharges. As the role forests play in the global carbon cycle has been widely recognized, several studies analysing the potential contribution of avoided deforestation credits in a carbon market have already been performed, showing that these credits should play a substantial role in an overall portfolio of mitigation strategies. Using a dynamic, multiregional Computable General Equilibrium (CGE) model, the ICES model (Intertemporal Computable Equilibrium System), this paper follows a novel approach, since deforestation emission reductions are not linked to a global carbon market, as commonly used. Instead, we use a global warming approach which provides an additional valuation criteria: the market general equilibrium value of halting/reducing deforestation, based on climate change impacts. This exercise consists on the formulation of a scenario where carbon...

Research paper thumbnail of “World Sustainability in the Climate Policy Sphere: A scenario assessment of different commitments for curbing CO2 emissions in a Sustainability Framework”

This paper aims at analysing the possible outcomes of the Copenhagen Accord pledges, proposed aft... more This paper aims at analysing the possible outcomes of the Copenhagen Accord pledges, proposed after the United Nations Framework Convention on Climate Change (UNFCCC) 15th Conference of the Parties (COP-15). We consider different levels of cooperation that may arise and analyse them with a dynamic Computable General Equilibrium (CGE) model of the world economy. In addition, we introduce a novel element in the discussion by also considering the effect of the different climate targets on sustainability. This is done by using a new comprehensive measure, the FEEM Sustainability Index (FEEM SI), which summarises economic, social, and environmental components of sustainability. Being built within a dynamic CGE, the FEEM SI can be projected and compared across different scenarios. We find that whereas the environmental component is greatly improved at regional and world level thanks to the reductions achieved with emissions trading, the economic and social components are generally negativ...

Research paper thumbnail of Climate Change Impacts and Market Driven Adaptation: The Costs of Inaction Including Market Rigidities

SSRN Electronic Journal, 2000

ABSTRACT This paper presents a first exercise comparing the cost of climate change stemming from ... more ABSTRACT This paper presents a first exercise comparing the cost of climate change stemming from integrated assessment models using reduced-form climate change damage functions with that performed by a CGE model. Furthermore, it investigates the role of market driven adaptation, which CGE models explicitly capture through their endogenous price setting mechanism, in determining these estimates. It is shown that world GDP losses computed by the CGE model are not significantly different from that used by some well-established hard-linked integrated assessment models when they consider the same impact categories. Specifically, the major driver of impacts is the modelling of catastrophic outcomes. Then, rigidities in market adjustments, differently said, in market-driven adaptation, are introduced. This is done restricting the elasticity of input substitution in the production function, the substitutability of domestic and imported inputs, and finally sectoral workforce mobility. We demonstrate that notwithstanding these frictions do increase the cost of climate change impacts they do not change substantively neither the qualitative nor the quantitative picture.

Research paper thumbnail of Consequences of Climate Change Damages for Economic Growth

OECD Economics Department Working Papers, 2014

English -Or. English 31 2 OECD Working Papers should not be reported as representing the official... more English -Or. English 31 2 OECD Working Papers should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the author(s).

Research paper thumbnail of The FEEM Sustainability Index: An Integrated Tool for Sustainability Assessment

EcoProduction, 2013

ABSTRACT The FEEM Sustainability Index (FEEM SI) proposes an integrated methodological approach t... more ABSTRACT The FEEM Sustainability Index (FEEM SI) proposes an integrated methodological approach to quantitatively assess sustainability performance across countries and over time. Three are the main features of this approach: (1) the index considers sustainability based on economic, environmental and social indicators simultaneously; (2) the framework used to compute the indicators, i.e. a Computable General Equilibrium (CGE) model, allows to generate projections on the future evolution of sustainability; and (3) the methodology used for the normalisation and aggregation of the indicators delivers a unique and comprehensive measure of sustainability. These features along with the multi-regional nature of the CGE model consent to perform policy evaluations and sustainability assessments for different countries or regions in the world. This chapter offers a methodological overview of the FEEM SI approach. To illustrate the potential of the methodology for the measurement of sustainability, the chapter also illustrates results from a climate policy scenario. In the mitigation scenario considered Annex I and Non-Annex I countries taking action towards climate change achieve the lower end of the pledges proposed at the 15th UNFCCC Conference of the Parties in Copenhagen. For countries putting into practice the policy, the environmental sphere more than offsets the related costs (economic pillar), leading to an overall improvement in sustainability. At world level, the outcome is positive even though carbon leakage in countries that are not acting reduces the effectiveness of the policy and the sustainability performance.

Research paper thumbnail of Can Climate Policy Enhance Sustainability?

SSRN Electronic Journal, 2000

ABSTRACT Implementing an effective climate policy is one of the main challenges for our future. E... more ABSTRACT Implementing an effective climate policy is one of the main challenges for our future. Even though ambitious mitigation targets are necessarily costly, curbing GHG emissions can prevent future irreversible impacts of climate change on human kind and the environment. Climate policy is therefore crucial for present and future generations. Nonetheless, one may wonder whether the economic and social dimensions of future global development could be harmed by climate policy. This paper addresses this question by examining some recent developments in international climate policy and considering different levels of cooperation that may arise in light of the outcomes of the Conference of the Parties recently held in Doha. Then it explores whether the implementation of various climate policy scenarios would help enhancing sustainability or rather whether there is a trade-off between climate policy and economic development and/or social cohesion. This is done by using a new comprehensive indicator, the FEEM Sustainability Index (FEEM SI), which aggregates several economic, social, and environmental indicators. The FEEM SI index is built into a recursive-dynamic Computable General Equilibrium (CGE) model of the world economy, thus offering the possibility of projecting all indicators into the future, and therefore delivering a perspective assessment of sustainability under different future climate policy scenarios. We find that the environmental component of sustainability improves at the regional and world level thanks to the GHG emission reductions achieved through climate policy. However, the economic and social components are affected negatively yet marginally. Hence, overall sustainability increases in all scenarios. If the USA, Canada, Japan and Russia would not contribute to mitigating future GHG emissions, as envisioned in one of our scenarios, sustainability in these countries would decrease and the overall effectiveness of climate policy in enhancing global sustainability would be offset.

Research paper thumbnail of Quantifying Sustainability: A New Approach and World Ranking

SSRN Electronic Journal, 2000

ABSTRACT This paper proposes a new tool to assess sustainability and make the concept of sustaina... more ABSTRACT This paper proposes a new tool to assess sustainability and make the concept of sustainable development operational. It considers its multi-dimensional structure combining the information deriving from a selection of relevant sustainability indicators belonging to economic, social and environmental pillars. It reproduces the dynamics of these indicators over time and countries. Then, it aggregates these indicators using a new approach based on Choquet’s integrals. The main novelties of this approach are indeed: (i) the modelling framework, a recursive-dynamic computable general equilibrium used to calculate the evolution of all indicators over time throughout the world, and (ii) the aggregation methodology to reconcile them in one aggregate index to measure overall sustainability. The former allows capturing the sector and regional interactions and higher-order effects driven by background assumptions on relevant variables to depict future scenarios. The latter makes it possible to compare sustainability performances, under alternative scenarios, across countries and over time. Main results show that the current sustainability at world level differs from what the traditional measure of well-being, the GDP, depicts, highlighting the trade-offs among different components of sustainability. Moreover, in the next decade a slight decrease in world sustainability may occur, in spite of an expected increase in world domestic product. Finally, dedicated policies increase overall sustainability, showing that social and environmental benefits may be greater than the correlated economic costs.

Research paper thumbnail of REDD in the Carbon Market: A General Equilibrium Analysis

Environmental Modeling & Assessment, 2014

Deforestation is a major source of CO2 emissions, accounting for around 17% of total annual anthr... more Deforestation is a major source of CO2 emissions, accounting for around 17% of total annual anthropogenic carbon release. While the cost estimates of reducing deforestation rates vary considerably depending on model assumptions, it is widely accepted that emissions reductions from avoided deforestation consist of a relatively low cost mitigation option. Halting deforestation is therefore not only a major ecological challenge, but also a great opportunity to cost effectively reduce climate change negative impacts. In this paper we analyze the impact of introducing avoided deforestation credits into the European carbon market using a multiregional Computable General Equilibrium model -the ICES model (Inter-temporal Computable Equilibrium System). Taking into account political concerns over a possible "flooding" of REDD credits, various limits to the number of REDD allowances entering the carbon market are considered. Finally, unlike previous studies, we account for both direct and indirect effects occurring on land and timber markets resulting from lower deforestation rates. We conclude that avoided deforestation notably reduces climate change policy costs -by approximately 80% with unlimited availability of REDD credits -and may drastically reduce carbon prices. Policy makers may, however, effectively control for these imposing limits to avoided deforestation credits use. Moreover, avoided deforestation has the additional positive effect of reducing carbon leakage of a unilateral European climate change policy. This is good news for the EU, but not necessarily for REDD regions. Indeed we show that REDD revenues are not sufficient to compensate REDD regions for a less leakage-affected and more competitive EU in international markets. In fact, REDD regions would prefer to free ride on the EU unilateral mitigation policy.

Research paper thumbnail of Improving Land-use Modelling within CGE to Assess Forest-based Mitigation Potential and Costs

We present a computable general equilibrium model properly modified to analyse the potential role... more We present a computable general equilibrium model properly modified to analyse the potential role of the European forestry sector within climate mitigation. Improvements on database and modelling frameworks allow accounting for land heterogeneity across and within regions and for land transfers between agriculture, grazing, and forestry. The forestry sector has been modified to track carbon mitigation potential from both intensive and extensive forest margins, which have been calibrated according to a forest sectoral model. Two sets of climate policies are simulated. In a first scenario, Europe is assumed to commit unilaterally to reduce CO2 emissions by 20% and 30%, by 2020. In a second scenario, in addition to the emissions quotas, progressively higher forest sequestration subsidies are paid to European firms to foster the implementation of forestry practices. Results show that including forest carbon in the compliance strategy decreases European policy costs and carbon price, whi...

Research paper thumbnail of Climate-change feedback on economic growth: explorations with a dynamic general equilibrium model

Environment and Development Economics, 2010

Human-generated greenhouse gases depend on the level and emissions intensity of economic activity... more Human-generated greenhouse gases depend on the level and emissions intensity of economic activity. Therefore, most climate change studies are based on models and scenarios of economic growth. Economic growth itself, however, is likely to be affected by climate change impacts. These impacts affect the economy in multiple and complex ways: changes in productivity, resource endowments, production and consumption patterns. We use a new dynamic, multi-regional Computable General Equilibrium (CGE) model of the world economy to answer the following questions: Will climate change impacts significantly affect growth and wealth distribution in the world? Should forecasts of human induced greenhouse gases emissions be revised, once climate change impacts are taken into account? We found that, even though economic growth and emission paths do not change significantly at the global level, relevant differences exist at the regional and sectoral level. In particular, developing countries appear to suffer the most from climate change impacts.

Research paper thumbnail of Technology spillovers embodied in international trade: Intertemporal, regional and sectoral effects in a global CGE framework

Energy Economics, 2014

This paper uses a dynamic CGE model to assess the intertemporal and spatial dimension of technolo... more This paper uses a dynamic CGE model to assess the intertemporal and spatial dimension of technology spillovers embodied in international trade within a climate and trade policy framework. Three are the main contributions of the study. First, to include endogenous factor-biased technical change based on trade flows in a CGE model, particularly for energy and capital. Second, to analyse the implications of specific spillovers embodied in trade of capital goods (machinery and equipment), and third, to highlight the implications of accounting for indirect effects induced by spillovers. We find that explicitly modelling trade spillovers reveals significant effects thanks to the transmission mechanisms underlying imports of capital commodities. We then assess the net contribution of modelling trade spillovers within three policy scenarios. The aggregated net effects of spillovers are rather small confirming findings from previous studies. However, there are important international and intersectoral redistribution effects due to technology transfers represented as embodied spillovers.

Research paper thumbnail of Macro economic assessment of climate change impacts: a regional and sectoral perspective

Research paper thumbnail of Climate Change Impacts and Limited Market-driven Adaptation

Research paper thumbnail of Economy-wide Impacts of Climate Change on Water Resources in Africa: A CGE Approach

Water resources are facing several stresses in terms of quantity and quality. These pressures are... more Water resources are facing several stresses in terms of quantity and quality. These pressures are closely related to the human interventions in fields like: agriculture, land-use/land use change, and pollutant emissions, among others. Within this context, the expected changes in climate pattern will exacerbate the challenges faced by water resources. Considering the critical role that water plays for agricultural production, any shock in water availability will have great implications for agricultural production, and through agricultural markets these impacts will reach the whole economy with economy-wide consequences. In this paper a new modeling approach is developed aiming to include water explicitly within the ICES CGE model. In order to reach this objective a new database was built considering explicitly the water endowment, precipitation changes, and unitary irrigation costs. The results suggest different economic consequences of climate change on economy. The impacts are rela...

Research paper thumbnail of A Quantitative Assessment of the Implications of Including Non-CO2 Emissions in the European ETS

SSRN Electronic Journal, 2000

Although CO 2 emissions stand for most of greenhouse gas (GHG) emissions, the contribution of mit... more Although CO 2 emissions stand for most of greenhouse gas (GHG) emissions, the contribution of mitigation efforts based on non-CO 2 emissions is still a field that needs to be explored more thoroughly. Extending abatement opportunities to non-CO 2 could reduce overall mitigation costs but it could also exert a negative pressure on agricultural output. This paper offers insights about the first effect while provides a preliminary discussion for the second.

Research paper thumbnail of Capital-Embodied Technologies in CGE Models

SSRN Electronic Journal, 2000

ABSTRACT

Research paper thumbnail of Energy from waste: generation potential and mitigation opportunity

Environmental Economics and Policy Studies, 2012

ABSTRACT The present research proposes a macroeconomic assessment of the role of waste incinerati... more ABSTRACT The present research proposes a macroeconomic assessment of the role of waste incineration with energy recovery (WtE) and controlled landfill biogas to electricity generation and their potential contribution to a CO2 emission reduction policy, within a recursive-dynamic computable general equilibrium model. From the modeling viewpoint, introducing these energy sectors in such a framework required both the extension of the GTAP7 database and the improvement of the ICES production nested function. We focus our analysis on Italy as a signatory of the GHG reduction commitment of 20 % by 2020 with respect to 1990 levels proposed by the European Community; the rest of the world is represented by 21 geo-political countries/regions. It is shown that albeit in the near future WtE and landfill biogas will continue to represent a limited share of energy inputs in electricity sector (in Italy, around 2 % for WtE and 0.6 % for biogas in 2020), and they could play a role in a mitigation policy context. The GDP cost of the EU emission reduction target for the Italian economy can indeed be reduced by 1 % when the two energy generating options are available. In absolute terms, this translates into an annuitized value of 87–122 million €.

Research paper thumbnail of The economic and environmental effects of an EU ban on illegal logging imports. Insights from a CGE assessment

Environment and Development Economics, 2013

Illegal logging is widely recognized as a major economic problem and one of the causes of environ... more Illegal logging is widely recognized as a major economic problem and one of the causes of environmental degradation. Increasing awareness of its negative effects has fostered a wide range of proposals to combat it by major international conservation groups and political organizations. Following the 2008 US legislation which prohibits the import of illegally harvested wood and wood products, the European Union (EU) is now discussing a legislation proposal which would ban illegal timber from the EU market. In this study we use the ICES computable general equilibrium model to estimate the reallocation of global demand and timber imports following the pending EU legislation. With this exercise our final objective is to assess the economic impacts and measure the potential emission reduction resulting from the introduction of this type of policy. Results show that while the EU ban does not seem particularly effective in reducing illegal logging activities, its main effect will be the removal of illegal logs from the international markets. In addition, the unilateral EU ban on illegal logs increases secondary wood production in illegal logging countries as their exports become relatively more competitive. Through this mechanism, part of the banned, illegal timber will re-enter the international trade flows, but it will be "hidden" as processed wood. This effect is, however, limited. Finally, given the limited effect on overall economic activity, effects on GHG emissions are also limited. Direct carbon emissions from logging activities can decrease from 2.5 to 0.6 million tons per year.

Research paper thumbnail of Technology Spillovers Embodied in International Trade: Intertemporal, regional and sectoral effects in a global CGE

This paper uses a dynamic CGE model to assess the intertemporal and spatial dimension of technolo... more This paper uses a dynamic CGE model to assess the intertemporal and spatial dimension of technology spillovers embodied in international trade within a climate and trade policy framework. Three are the main contributions of the study. First, to include endogenous factor-biased technical change based on trade flows in a CGE model, particularly for energy and capital. Second, to analyse the implications of specific spillovers embodied in trade of capital goods (machinery and equipment), and third, to highlight the implications of accounting for indirect effects induced by spillovers. We find that explicitly modelling trade spillovers reveals significant effects thanks to the transmission mechanisms underlying imports of capital commodities. We then assess the net contribution of modelling trade spillovers within three policy scenarios. The aggregated net effects of spillovers are rather small confirming findings from previous studies. However, there are important international and intersectoral redistribution effects due to technology transfers represented as embodied spillovers.

Research paper thumbnail of The economic assessment of changes in ecosystem services: and application of the CGE methodology

Research paper thumbnail of Assessing the Market Benefits of Reducing Deforestation: A General Equilibrium Investigation

Deforestation is one of the major sources of greenhouse gases (GHG) emissions, accounting for aro... more Deforestation is one of the major sources of greenhouse gases (GHG) emissions, accounting for around 17% of total global GHG discharges. As the role forests play in the global carbon cycle has been widely recognized, several studies analysing the potential contribution of avoided deforestation credits in a carbon market have already been performed, showing that these credits should play a substantial role in an overall portfolio of mitigation strategies. Using a dynamic, multiregional Computable General Equilibrium (CGE) model, the ICES model (Intertemporal Computable Equilibrium System), this paper follows a novel approach, since deforestation emission reductions are not linked to a global carbon market, as commonly used. Instead, we use a global warming approach which provides an additional valuation criteria: the market general equilibrium value of halting/reducing deforestation, based on climate change impacts. This exercise consists on the formulation of a scenario where carbon...

Research paper thumbnail of “World Sustainability in the Climate Policy Sphere: A scenario assessment of different commitments for curbing CO2 emissions in a Sustainability Framework”

This paper aims at analysing the possible outcomes of the Copenhagen Accord pledges, proposed aft... more This paper aims at analysing the possible outcomes of the Copenhagen Accord pledges, proposed after the United Nations Framework Convention on Climate Change (UNFCCC) 15th Conference of the Parties (COP-15). We consider different levels of cooperation that may arise and analyse them with a dynamic Computable General Equilibrium (CGE) model of the world economy. In addition, we introduce a novel element in the discussion by also considering the effect of the different climate targets on sustainability. This is done by using a new comprehensive measure, the FEEM Sustainability Index (FEEM SI), which summarises economic, social, and environmental components of sustainability. Being built within a dynamic CGE, the FEEM SI can be projected and compared across different scenarios. We find that whereas the environmental component is greatly improved at regional and world level thanks to the reductions achieved with emissions trading, the economic and social components are generally negativ...

Research paper thumbnail of Climate Change Impacts and Market Driven Adaptation: The Costs of Inaction Including Market Rigidities

SSRN Electronic Journal, 2000

ABSTRACT This paper presents a first exercise comparing the cost of climate change stemming from ... more ABSTRACT This paper presents a first exercise comparing the cost of climate change stemming from integrated assessment models using reduced-form climate change damage functions with that performed by a CGE model. Furthermore, it investigates the role of market driven adaptation, which CGE models explicitly capture through their endogenous price setting mechanism, in determining these estimates. It is shown that world GDP losses computed by the CGE model are not significantly different from that used by some well-established hard-linked integrated assessment models when they consider the same impact categories. Specifically, the major driver of impacts is the modelling of catastrophic outcomes. Then, rigidities in market adjustments, differently said, in market-driven adaptation, are introduced. This is done restricting the elasticity of input substitution in the production function, the substitutability of domestic and imported inputs, and finally sectoral workforce mobility. We demonstrate that notwithstanding these frictions do increase the cost of climate change impacts they do not change substantively neither the qualitative nor the quantitative picture.

Research paper thumbnail of Consequences of Climate Change Damages for Economic Growth

OECD Economics Department Working Papers, 2014

English -Or. English 31 2 OECD Working Papers should not be reported as representing the official... more English -Or. English 31 2 OECD Working Papers should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the author(s).

Research paper thumbnail of The FEEM Sustainability Index: An Integrated Tool for Sustainability Assessment

EcoProduction, 2013

ABSTRACT The FEEM Sustainability Index (FEEM SI) proposes an integrated methodological approach t... more ABSTRACT The FEEM Sustainability Index (FEEM SI) proposes an integrated methodological approach to quantitatively assess sustainability performance across countries and over time. Three are the main features of this approach: (1) the index considers sustainability based on economic, environmental and social indicators simultaneously; (2) the framework used to compute the indicators, i.e. a Computable General Equilibrium (CGE) model, allows to generate projections on the future evolution of sustainability; and (3) the methodology used for the normalisation and aggregation of the indicators delivers a unique and comprehensive measure of sustainability. These features along with the multi-regional nature of the CGE model consent to perform policy evaluations and sustainability assessments for different countries or regions in the world. This chapter offers a methodological overview of the FEEM SI approach. To illustrate the potential of the methodology for the measurement of sustainability, the chapter also illustrates results from a climate policy scenario. In the mitigation scenario considered Annex I and Non-Annex I countries taking action towards climate change achieve the lower end of the pledges proposed at the 15th UNFCCC Conference of the Parties in Copenhagen. For countries putting into practice the policy, the environmental sphere more than offsets the related costs (economic pillar), leading to an overall improvement in sustainability. At world level, the outcome is positive even though carbon leakage in countries that are not acting reduces the effectiveness of the policy and the sustainability performance.

Research paper thumbnail of Can Climate Policy Enhance Sustainability?

SSRN Electronic Journal, 2000

ABSTRACT Implementing an effective climate policy is one of the main challenges for our future. E... more ABSTRACT Implementing an effective climate policy is one of the main challenges for our future. Even though ambitious mitigation targets are necessarily costly, curbing GHG emissions can prevent future irreversible impacts of climate change on human kind and the environment. Climate policy is therefore crucial for present and future generations. Nonetheless, one may wonder whether the economic and social dimensions of future global development could be harmed by climate policy. This paper addresses this question by examining some recent developments in international climate policy and considering different levels of cooperation that may arise in light of the outcomes of the Conference of the Parties recently held in Doha. Then it explores whether the implementation of various climate policy scenarios would help enhancing sustainability or rather whether there is a trade-off between climate policy and economic development and/or social cohesion. This is done by using a new comprehensive indicator, the FEEM Sustainability Index (FEEM SI), which aggregates several economic, social, and environmental indicators. The FEEM SI index is built into a recursive-dynamic Computable General Equilibrium (CGE) model of the world economy, thus offering the possibility of projecting all indicators into the future, and therefore delivering a perspective assessment of sustainability under different future climate policy scenarios. We find that the environmental component of sustainability improves at the regional and world level thanks to the GHG emission reductions achieved through climate policy. However, the economic and social components are affected negatively yet marginally. Hence, overall sustainability increases in all scenarios. If the USA, Canada, Japan and Russia would not contribute to mitigating future GHG emissions, as envisioned in one of our scenarios, sustainability in these countries would decrease and the overall effectiveness of climate policy in enhancing global sustainability would be offset.

Research paper thumbnail of Quantifying Sustainability: A New Approach and World Ranking

SSRN Electronic Journal, 2000

ABSTRACT This paper proposes a new tool to assess sustainability and make the concept of sustaina... more ABSTRACT This paper proposes a new tool to assess sustainability and make the concept of sustainable development operational. It considers its multi-dimensional structure combining the information deriving from a selection of relevant sustainability indicators belonging to economic, social and environmental pillars. It reproduces the dynamics of these indicators over time and countries. Then, it aggregates these indicators using a new approach based on Choquet’s integrals. The main novelties of this approach are indeed: (i) the modelling framework, a recursive-dynamic computable general equilibrium used to calculate the evolution of all indicators over time throughout the world, and (ii) the aggregation methodology to reconcile them in one aggregate index to measure overall sustainability. The former allows capturing the sector and regional interactions and higher-order effects driven by background assumptions on relevant variables to depict future scenarios. The latter makes it possible to compare sustainability performances, under alternative scenarios, across countries and over time. Main results show that the current sustainability at world level differs from what the traditional measure of well-being, the GDP, depicts, highlighting the trade-offs among different components of sustainability. Moreover, in the next decade a slight decrease in world sustainability may occur, in spite of an expected increase in world domestic product. Finally, dedicated policies increase overall sustainability, showing that social and environmental benefits may be greater than the correlated economic costs.

Research paper thumbnail of REDD in the Carbon Market: A General Equilibrium Analysis

Environmental Modeling & Assessment, 2014

Deforestation is a major source of CO2 emissions, accounting for around 17% of total annual anthr... more Deforestation is a major source of CO2 emissions, accounting for around 17% of total annual anthropogenic carbon release. While the cost estimates of reducing deforestation rates vary considerably depending on model assumptions, it is widely accepted that emissions reductions from avoided deforestation consist of a relatively low cost mitigation option. Halting deforestation is therefore not only a major ecological challenge, but also a great opportunity to cost effectively reduce climate change negative impacts. In this paper we analyze the impact of introducing avoided deforestation credits into the European carbon market using a multiregional Computable General Equilibrium model -the ICES model (Inter-temporal Computable Equilibrium System). Taking into account political concerns over a possible "flooding" of REDD credits, various limits to the number of REDD allowances entering the carbon market are considered. Finally, unlike previous studies, we account for both direct and indirect effects occurring on land and timber markets resulting from lower deforestation rates. We conclude that avoided deforestation notably reduces climate change policy costs -by approximately 80% with unlimited availability of REDD credits -and may drastically reduce carbon prices. Policy makers may, however, effectively control for these imposing limits to avoided deforestation credits use. Moreover, avoided deforestation has the additional positive effect of reducing carbon leakage of a unilateral European climate change policy. This is good news for the EU, but not necessarily for REDD regions. Indeed we show that REDD revenues are not sufficient to compensate REDD regions for a less leakage-affected and more competitive EU in international markets. In fact, REDD regions would prefer to free ride on the EU unilateral mitigation policy.

Research paper thumbnail of Improving Land-use Modelling within CGE to Assess Forest-based Mitigation Potential and Costs

We present a computable general equilibrium model properly modified to analyse the potential role... more We present a computable general equilibrium model properly modified to analyse the potential role of the European forestry sector within climate mitigation. Improvements on database and modelling frameworks allow accounting for land heterogeneity across and within regions and for land transfers between agriculture, grazing, and forestry. The forestry sector has been modified to track carbon mitigation potential from both intensive and extensive forest margins, which have been calibrated according to a forest sectoral model. Two sets of climate policies are simulated. In a first scenario, Europe is assumed to commit unilaterally to reduce CO2 emissions by 20% and 30%, by 2020. In a second scenario, in addition to the emissions quotas, progressively higher forest sequestration subsidies are paid to European firms to foster the implementation of forestry practices. Results show that including forest carbon in the compliance strategy decreases European policy costs and carbon price, whi...

Research paper thumbnail of Climate-change feedback on economic growth: explorations with a dynamic general equilibrium model

Environment and Development Economics, 2010

Human-generated greenhouse gases depend on the level and emissions intensity of economic activity... more Human-generated greenhouse gases depend on the level and emissions intensity of economic activity. Therefore, most climate change studies are based on models and scenarios of economic growth. Economic growth itself, however, is likely to be affected by climate change impacts. These impacts affect the economy in multiple and complex ways: changes in productivity, resource endowments, production and consumption patterns. We use a new dynamic, multi-regional Computable General Equilibrium (CGE) model of the world economy to answer the following questions: Will climate change impacts significantly affect growth and wealth distribution in the world? Should forecasts of human induced greenhouse gases emissions be revised, once climate change impacts are taken into account? We found that, even though economic growth and emission paths do not change significantly at the global level, relevant differences exist at the regional and sectoral level. In particular, developing countries appear to suffer the most from climate change impacts.

Research paper thumbnail of Technology spillovers embodied in international trade: Intertemporal, regional and sectoral effects in a global CGE framework

Energy Economics, 2014

This paper uses a dynamic CGE model to assess the intertemporal and spatial dimension of technolo... more This paper uses a dynamic CGE model to assess the intertemporal and spatial dimension of technology spillovers embodied in international trade within a climate and trade policy framework. Three are the main contributions of the study. First, to include endogenous factor-biased technical change based on trade flows in a CGE model, particularly for energy and capital. Second, to analyse the implications of specific spillovers embodied in trade of capital goods (machinery and equipment), and third, to highlight the implications of accounting for indirect effects induced by spillovers. We find that explicitly modelling trade spillovers reveals significant effects thanks to the transmission mechanisms underlying imports of capital commodities. We then assess the net contribution of modelling trade spillovers within three policy scenarios. The aggregated net effects of spillovers are rather small confirming findings from previous studies. However, there are important international and intersectoral redistribution effects due to technology transfers represented as embodied spillovers.