Introduction to GEM-E3 (with special emphasis on impacts assessments)

(JRC PESETA II project)

1. Juan-Carlos Ciscar *2. Potsdam, September 18, 2013

* The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission

Outline

1. GEM-E3 Model

2. JRC PESETA II, EU assessment

3. Conclusions

The GEM-E3 Model:General Equilibrium Model for Energy-Economics-Environment

interactions

www.GEM-E3.net

The GEM-E3 Model: The Development

The model is a result of a collaborative effort by a consortium involving:

Core modelling team• National Technical University of Athens (Coordinator)• Catholic University of Leuven (Centre for Economic Studies)• University of Mannheim and Centre of European Economic Research

(ZEW)

Contributors• University of Toulouse (IDEI)• University of Strathclyde• Stockholm School of Economics• Ecole Centrale de Paris (ERASME)• Catholic University of Leuven (CORE)• Middlesex University

Partially funded by the European Commission, Programme JOULE, DG-XII/F1

The GEM-E3 Model: Overview (1/3)

• Computable General Equilibrium model• representing multiple production sectors and countries• integrating energy and environment in the economy

• to simulate• the simultaneous competitive equilibrium of all markets: goods,

labour, energy, pollution permits etc.; • the endogeneous response of producers/consumers to

environmental/energy policies (abatement, policy limits, taxes);

• to evaluate• costs and benefits (including the environmental dimension)• distributional effects of policy instruments (different taxes and

subsidies, auctioning, permits, command-and-control)

• The model simulates an economy with:• multiple sectors, each producing a homogeneous commodity• a single representative firm operates in each sector

• minimizing cost under CRTS technology• deriving optimal demand for production factors (including all

other commodities, labour and capital)• a single representative household

• maximizing utility• allocating revenues to consumption of commodities and

savings• determining labour supply

• and a Government ensuring transfer distribution and applying policy through

• taxes, consumption, investments etc.

The GEM-E3 Model: Overview (2/3)

• The economy is open to foreign competition• Imported goods combine with domestic production to form

supply• Consumers (final, intermediate, government etc.) may

substitute domestic and foreign commodities to form demand

• The stock of capital is fixed within the period (either sectorally or for the country or World wide)• Constraining production possibilities in static terms

• while dynamically accumulating (through investments)

• Labour market includes unemployment

The GEM-E3 Model: Overview (3/3)

The GEM-E3 model: Framework

• Data:• Input/Output tables (GTAP-8)• Bilateral Trade matrices (GTAP-8)• Employment• Environment

• • Mixed Complementarily formulation using GAMS/PATH solver

• Templates for scenario building and result reporting

• Baseline scenario

The GEM-E3 model sectors

19 Sectors

• Agriculture• Coal• Refined Oil and coke• Crude oil• Gas • Electricity transmission and

distribution• Ferrous & non-ferrous, ore,

metals• Chemical Products• Other Energy-Intensive

Industries• Electrical Goods• Transport Equipment• Other Equipment Goods

Industries• Consumer Goods Industries• Building And Construction• Land Transport• Air Transport• Water Transport• Other Market Services• Non-Market Services

Power technologies

• 10 Power Technologies

• Coal Conventional thermal• Oil Conventional thermal• Gas Conventional thermal• Nuclear• Biomass• Hydro• Wind• PV & Solar• Coal CCS• Gas CCS

The GEM-E3 regional detail

•All EU27 member states individually represented

•USA •Canada •Japan •Oceania •China •India•Russian Federation•Brazil •Rest of Annex I•RoW

The GEM-E3 variables and parameters

•Population•Government consumption

and investment•Government tax, subsidy

and social benefit policies•Technical Progress

• Total Factor Productivity• Technical Progress

Embodied in Production Inputs

•Elasticity Parameters•Technical coefficients in

investment and consumption matrices

•All the elements of the Social Accounting Matrix

•Consumption by purpose•Investment and Capital•Bilateral Trade•Labour market

participation employment and unemployment

•Basic Interest Rate•Emissions and damages•Welfare and GDP Index

Exogenous Endogenous (volumes values and deflators)

The GEM-E3 Model: Simulation

GEM-E3 SAM

Economic circuit

•The model computes the price vector that simultaneously clears the product, capital and labor markets

Advantages of CGE modelling

• Consistency• Theory (microeconomics foundations, within a consistent

macroeconomic framework)• Data (National Accounts, SAM)

• Structural model (versus reduced-form models): explain behavior of agents in markets, taking into account institutions

• Takes fully into account the spill-over effects across sectors, consumers, government and other countries

• Transparency• Systematic analysis; not mechanical• Flexibility• Can address a broad range of policy issues: climate and energy,

taxation, trade, agriculture, etc.

Criticisms / disadvantages of CGE modelling

• Weak empirical validation (calibration versus econometric estimation)

• The critical role of functional forms• Simplification of exogenous elements of the model• Data requirements• Heavy computational load

2. 2. JRC PESETA II project

EU Adaptation Strategy

• Following the Green Paper (2007) and White Paper (2009) on adaptation, the EU Strategy on Adaptation to Climate Change was adopted in April 2013 (European Commission Communication)

• The JRC PESETA II project provides background evidence on climate impacts in the Impact Assessment of the Communication.

Questions of interest

• What are the climate impacts (reference and 2ºC)

• What are the distributional implications of climate impacts? Fairness and equity issues

• How much adaptation can reduce climate impacts?

• Are spatial (cross-country) spillovers significant?

Integrated, granular modelling

• Multi-disciplinary impact assessment

• Soft-link of models

• High space-time resolution of climate data (T, P, other), common to all impacts (considers spatial correlation)

• Run detailed physical impact models for each impact category

• Integration of market impact results under a Computable General Equilibrium (CGE) model: overall economic effects, direct + indirect; trade effects

Socioeconomic scenario: GDP, population assumptions

Agriculturemodel

Coastal Systems

model

RiverFlooding

model

Tourismmodel

Stage 1:Modelingfuture climate

Physical impacts

agriculture

Physical impacts coasts

Physical impacts floods

Physical impacts tourism

Stage 2:Modelingphysicalimpacts

Stage 3:Modelingeconomicimpacts

Climate model

General Equilibrium model

Climate data(T, P, SLR)

Economicimpacts

Valuationagriculture

impacts

Valuationcoasts impacts

Valuationfloods impacts

Valuationtourism impacts

Socioeconomic scenario: GDP, population assumptions

Agriculturemodel

Coastal Systems

model

RiverFlooding

model

Tourismmodel

Agriculturemodel

Coastal Systems

model

RiverFlooding

model

Tourismmodel

Stage 1:Modelingfuture climate

Physical impacts

agriculture

Physical impacts coasts

Physical impacts floods

Physical impacts tourism

Physical impacts

agriculture

Physical impacts coasts

Physical impacts floods

Physical impacts tourism

Stage 2:Modelingphysicalimpacts

Stage 3:Modelingeconomicimpacts

Climate model

General Equilibrium model

Climate data(T, P, SLR)

Economicimpacts

Climate model

General Equilibrium model

Climate data(T, P, SLR)

Economicimpacts

Valuationagriculture

impacts

Valuationcoasts impacts

Valuationfloods impacts

Valuationtourism impacts

Valuationagriculture

impacts

Valuationcoasts impacts

Valuationfloods impacts

Valuationtourism impacts

Valuationagriculture

impacts

Valuationcoasts impacts

Valuationfloods impacts

Valuationtourism impacts

3 stages in the integration

PESETA II Project strategy

• Building climate impact modeling capabilities at JRC

• Existing data and resources within JRC • Operational and research models • Learning-by-doing within JRC

• To support the EC services on adaptation policy

EU adaptation strategy DG AGRI, CLIMA, ENER, ENV, MOVE, REGIO, Others

Climate models (A1B)

Acronym RCM GCM

C4I-RCA-HadCM3 RCA HadCM3

CNRM-ALADIN-ARPEGE ALADIN ARPEGE

DMI-HIRHAM5-ARPEGE HIRHAM5 ARPEGE

DMI-HIRHAM5-BCM HIRHAM5 BCM

DMI-HIRHAM5_ECHAM5 HIRHAM5 ECHAM5

ETHZ-CLM-HadCM3Q0 CLM HadCM3Q0

KNMI-RACMO2-ECHAM5 RACMO2 ECHAM5

METO-HadRM3Q0-HadCM3Q0 HadRM3Q0 HadCM3Q0

MPI-REMO-ECHAM5 REMO ECHAM5

SMHI-RCA-BCM RCA BCM

SMHI-RCA-ECHAM5 RCA ECHAM5

SMHI-RCA-HADCM3Q3 RCA HADCM3Q3

ensemble of 12 RCM/GCM combinations spatial resolution of 25 km

Climate models (E1)

Acronym RCM GCM

MPI-REMO-ECHAM5-r1 REMO ECHAM5 (BC r1)

MPI-REMO-ECHAM5-r2 REMO ECHAM5 (BC r2)

MPI-REMO-ECHAM5-r3 REMO ECHAM5 (BC r3)

spatial resolution of 50 km 3 runs with same RCM-GCM combination different boundary conditions GCM captures much less uncertainty in future climate for

E1

Reference

Reference variant 1

Reference variant 2

2°C

Northern Europe 3,8 4,8 3,4 3,2UK & Ireland 2,1 2,9 1,7 1,4Central Europe north 2,8 3,7 2,0 2,1Central Europe south 3,0 3,8 2,0 2,1Southern Europe 3,2 3,7 2,4 2,3EU 3,1 3,9 2,4 2,4

Temperature change (°C) in climate runs for 2071-2100, compared to 1961-1990

PESETA II Impact categories

• Sectoral impact categories teams

• - Agriculture physical modelling (IES)• - Agriculture economic modelling (IPTS)• - Forest fires (IES)• - Tree species habitat suitability (IES)• - River flood (IES)• - Tourism (IPTS)• - Energy (IPTS)• - Transport (IPTS)• - Human health (IPTS)

• - Climate tipping points (IPTS)

• CGE modeling for the integration

Sector Input variables Time resolution Spatal ResolutionAverage Temperature Maximum TemperatureAverage PrecipitationMaximum Temperature (June-September)Average Temperature

Tourism Average Temperature Daily NUTS 2 RegionsMaximum air temperatureMinimum air temperatureTotal PrecipitationGlobal solar radiation Air relative humidity maximum and minimumWind speedReference evapotranspirationVapour pressure deficitMaximum and Average TemperaturePrecipitationHumidityWindspeedSolar + thermal radiationAlbedoDewpoint temperatureAverage TemperatureAverage PrecipitationWind SpeedAverage Air Temperature Relative HumidityWind SpeedAverage PrecipitationAverage Temperature Annual; MonthlyMaximum Temperature MonthlyMinimum Temperature MonthlyAverage Precipitation Annual; Monthly

25x25, 50x50 Km

25x25, 50x50 Km

25x25, 50x50 Km

NUTS 2 Regions

25x25, 50x50 Km

25x25, 50x50 Km

Country

Daily

Daily

Daily

Daily

Daily

Annual

Transport

Agriculture

River Floods

Energy

Forest Fires

Forest Species Habitat Suitability

Human Health

Climate data input per impact category

Preliminary economic results

(Impact Assessment of 2013 Adaptation Strategy)

(based on JRC PESETA II, and FP7 ClimateCost results for Agriculture and Coasts)

Shock implementation into GEM-E3

Impact Model implementation Agriculture Yield change Productivity change for crops

Coastal areas

Migration cost Additional obliged consumption

Sea floods cost Capital loss

River

floods

Residential buildings damages

Additional obliged consumption

Production activities losses Capital loss

Energy Heating and cooling demand changes

Households: Change in subsistence energy demand

Service sector: Change in electricity and fuel (per unit of product)

Transport infrastructure

Changes in cost of road asphalt binder application & bridge scouring

Additional obliged consumption

Net change in costs related to extreme flooding & -winter conditions

Capital loss

Forest Fires Burned area damage Capital loss

Reconstruction costs Obliged consumption

Reference run, 2080s(Welfare change, million €)

Source: JRC PESETA II, ClimateCost (agriculture, coasts)

Coastal areas

Energy Agriculture Forest Fires

River Floods

Transport million € €/person

Northern Europe -2,485 2,284 712 1 212 -801 -78 -3UK & Ireland -7,616 8,050 -1,100 5 -2,965 -434 -4,060 -61Central Europe north -21,483 18,762 -4,379 5 -469 -748 -8,310 -56Central Europe south -6,011 6,427 -2,541 -435 -3,210 -874 -6,644 -54Southern Europe -4,659 -31,258 -10,491 -2,419 -1,037 -194 -50,057 -369EU -42,253 4,266 -17,799 -2,844 -7,469 -3,050 -69,149 -138

Impact categories (million €) Sum of impacts

Reference run, 2080s(Welfare change, % of GDP)

Coastal areas

Energy AgricultureForest Fires

River Floods

TransportSum of impacts

Northern Europe -0.4% 0.3% 0.1% 0.0% 0.0% -0.1% 0.0%UK & Ireland -0.4% 0.4% -0.1% 0.0% -0.2% 0.0% -0.2%Central Europe north -0.7% 0.6% -0.1% 0.0% 0.0% 0.0% -0.3%Central Europe south -0.3% 0.3% -0.1% 0.0% -0.1% 0.0% -0.3%Southern Europe -0.2% -1.2% -0.4% -0.1% 0.0% 0.0% -1.9%EU -0.4% 0.0% -0.2% 0.0% -0.1% 0.0% -0.7%

Regional welfare change (%GDP), Reference and 2ºC

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

Re

fere

nce

2°C

Re

fere

nce

2°C

Re

fere

nce

2°C

Re

fere

nce

2°C

Re

fere

nce

2°C

Re

fere

nce

2°C

Northern Europe UK & Ireland Central Europenorth

Central Europesouth

Southern Europe EU

Transport

Coastal areas

Energy

Agriculture

Forest Fires

River Floods

Coastal impacts, 2080s, adaptation(Welfare change, million €)

No Adaptation

Adaptation

Northern Europe -2,485 -43UK & Ireland -7,616 -181Central Europe north -21,483 -844Central Europe south -6,011 -378Southern Europe -4,659 -132EU -42,253 -1,577

Uncertainty: Range of impacts for River Floods (Welfare change, million €)

Worst case Reference Best case

Northern Europe -493 212 -26UK & Ireland -13,462 -2,965 110Central Europe north -3,702 -469 -383Central Europe south -9,818 -3,210 -57Southern Europe -4,489 -1,037 -2,603EU -31,965 -7,469 -2,958

Coast / Central Europe North

Agriculture / Southern Europe

Northern Europe -491 -173UK & Ireland -1,677 -798Central Europe north -20,518 -1,380Central Europe south -1,966 -1,209Southern Europe -1,530 -14,979EU -26,181 -18,540

Transboundary effects(Welfare change, million €)

- JRC PESETA II as a pilot study: soft-linking of JRC models

- Fruitful cooperation within JRC

-Contribution to IA of Adaptation Strategy

Next

1.Water, land use2.Non-market impacts, extremes3.Dynamic perspective: climate change and growth4.Damage function derivation?

Conclusions

Thanks for your attention!

juan-carlos.ciscar@ec.europa.eu

http://peseta.jrc.ec.europa.eu/