Model simulations for OECD’s Environmental Outlook: Methods and Results

1. Model simulations for OECD’s Environmental Outlook: Methods and Results Presentation at the Fourth Annual Conference on Global Economic Analysis Purdue University, 27-29 June 2001 by Nils Axel Braathen OECD Environment Directorate

2. OECD’s Environmental Outlook • Published for the first time in April 2001. • Economy-based assessment of environmental pressures and conditions to 2020. • In part based on model simulations. • Used OECD’s general equilibrium model JOBS... • ... to “drive” the PoleStar system of Stockholm Environment Institute in Boston, USA. • Highlights critical issues through wide use of

3. Output in a given sector Demand for Value added + Energy bundle Aggregate non-energy intermediate demand Demand for Capital + Energy bundle Labour demand Total demand for each non-energy intermediate good Non-energy intermediate demand by region of origin Structure of production in JOBS  = 0.05  = 0.12 in old vintages, 1.01 in new, 0 in most energy sectors Generally  = 0.0 Armington specification,  = 1 - 5 σ = 0 for old vintages, 0.8 in new, 0 in most energy sectors Demand for Capital and Other resources Demand for Energy bundle

4. Capital demand Coal demand Refined oil demand Gas distribution demand Electricity Demand Crude oil demand Natural gas demand Demand for Other resources1) Demand for each energy source by region of origin Structure of production in JOBS Demand for Capital and Other resources1) Demand for Energy bundle σ = 0 in old vintages, 0.1 in new vintages. σ = 0.25 in old vintages, 2 in new, but 0 in most energy sectors. 1) Concerns Land in the Rice, Other crops and Livestock sectors, and Natural resources in the Forestry, Fisheries, Minerals, Coal, Crude oil and Natural gas sectors. Armington specification,  = 1 - 10

5. Links between JOBS and PoleStar • Energy use • Fuel demand is generally driven by JOBS. • Inputs of nuclear, hydro and renewables into electricity generation are based on IEA’s World Energy Outlook. • Fuel shares for district heat production are held at base year levels.

6. Links between JOBS and PoleStar(Continued) • CO2 emissions • Based on IPCC guidelines. • Combustion and feedstock use (in Chemicals) are included. • Industrial process emissions are not included. • SO2 emissions • Emission intensities are applied to fuel consumption in all sectors. • Process emissions from the non-ferrous metals sector are also included.

7. Links between JOBS and PoleStar(Continued) • BOD and Nitrogen Loading -- From households • BOD loadings are determined by the size of urban and rural populations, and by regional GDP per capita. • A fraction of sewered urban wastes is assumed to be treated to some degree, while in rural areas it is assumed that the population is not connected to central sewer systems, and no waste is treated.

8. Links between JOBS and PoleStar(Continued) • BOD and Nitrogen Loading -- From livestock • It is assumed that only livestock in feedlots contribute significantly to water pollutant loads. • For the policy shocks, relative trends for waste generation compared to Reference Scenario levels are estimated from relative trends in real input of Other crops to the Livestock sector in JOBS.

9. Links between JOBS and PoleStar(Continued) • BOD and Nitrogen Loading -- From fertilisers • Changes in inputs of Chemicals to Rice and Other crops are used as proxies for changes in fertiliser use. • It is assumed that 30% of the nitrogen applied is lost to leaching and runoff. • It is also assumed that fertilisers do not contribute to oxygen demand.

10. Links between JOBS and PoleStar(Continued) • BOD and Nitrogen Loading -- From industry • Pollution generation is expressed as the product of value added of industry and an intensity. • It is assumed that aggregate BOD intensities are: • 5.5 kg/million $/day for GDP/capita below $500, • 4.0 kg/million $/day for GDP/capita above $5,000, • and decline steadily for GDP/capita between $500 and $5,000.

11. Approximation of “Market Price Support” removal • Introduced producer taxes over a 5 yearsperiod to Rice, Other Crops and Livestock:

12. Approximation of “Market Price Support” removal (Continued) • At the same time, consumer subsidies of a similar amount was given to Meat and Other food:

13. Approximation of “Market Price Support” removal (Continued) • No differentiation between the three “producing sectors”, nor between the two “consumption sectors”. • Very limited macro-economic impacts: • Small decreases in GDP in most regions • However, considerable environmental impacts -- and “leakages” -- were found.

14. Impacts on irrigation water use of removal of all agriculture support in OECD

15. Impacts on Livestock BOD loading of removal of all agriculture support in OECD

16. Impacts on nitrogen water pollution of removal of all agriculture support in OECD

17. Removal of energy subsidies and introduction of carbon-related taxes • All energy-related subsidies in the OECD regions included in GTAP were removed as of 1996. • In addition, ad valorem taxes on Coal, Crude oil and Natural gas were increased 2 / 1.6 / 1.2 percentage points each year between 1996 and 2020. • These taxes are not proper carbon-taxes. • Very small impacts on GDP (-0.1% for OECD as a whole in 2020, compared to the Reference Scenario).

18. Impacts on demand for energy products of energy subsidy removal + “carbon taxes”

19. Impacts on total CO2 and SO2 emissions

20. Decomposition of impacts on CO2 and SO2 emissions in North America

21. Decomposition of impacts on CO2 and SO2 emissions in Western Europe

22. Decomposition of impacts on CO2 and SO2 emissions in Central & Eastern Europe

23. Decomposition of impacts on CO2 and SO2 emissions in Japan & Korea

24. Decomposition of impacts on CO2 and SO2 emissions in Australia & New Zealand

25. Impacts on CO2 emissions in industry sectors Changes in gross production

26. Impacts on CO2 emissions in industry sectors Changes in energy intensity

27. Impacts on CO2 emissions in industry sectors Changes in carbon intensity of energy use