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GTAP Resource #2073

"Incorporating Climate Change Feedbacks into a General Economic Equilibrium Model"
by Paltsev, Sergey

A methodology for incorporating market and non-market effects of climate change into a computable general equilibrium (CGE) model is presented. We begin with the basic data that supports CGE models, the Social Accounting Matrix (SAM) that includes the input-output tables of an economy, the use and supply of factors, and the disposition of goods in final consumption. We identify where environmental damage appears in these accounts, estimate the physical loss, and value the loss within this accounting structure. Our approach is an exercise in environmental accounting, augmenting the standard national income and product accounts to include environmental damage. We provide examples of applying our approach in two areas: air pollution health effects and economy-atmosphere-land-agriculture interactions.
We estimate market and non-market effects of air pollution on human health for the U.S. for the period from 1970 to 2000. The pollutants include tropospheric ozone, nitrogen dioxide, sulfur dioxide, carbon monoxide, and particulate matter. We integrate the health effects from exposure to air pollution into the MIT Emissions Prediction and Policy Analysis (EPPA) model, a computable general equilibrium model of the economy that has been widely used to study climate change policy. Benefits of air pollution regulations in USA rose steadily from 1975 to 2000 from $50 billion to $400 billion (from 2.1% to 7.6% of market consumption). We also estimate the economic burden of uncontrolled levels of air pollution over that period. In another case study, we examine the health-related economic benefits and costs of policy actions for China. We found that economic burden of uncontrolled levels of air pollution is lower that in the U.S. because of lower wage rates but macroeconomic impact is bigger than in the U.S. (in 2000 the economic burden in the USA is 4.7% of market consumption, in China - it is 10% of market consumption).
Agriculture is another area where environmental change is likely to have important effects. Multiple changes that may occur over the next century will affect vegetation (crop productivity, forest productivity, pasture). Some of these effects are likely to be positive (CO2 fertilization), some negative (tropospheric ozone damage), and some may be either positive or negative (temperature and precipitation). Climate effects may operate in either direction because the direction of change may differ across regions (more precipitation in some areas and less in others) and warming may increase growing season lengths in cold-limited growing areas while acting as a detriment to productivity in areas with already high temperatures. Here we use the MIT Integrated Global Systems Model (IGSM) to analyze the economic impact of environmental change effects on vegetation. For this work we have augmented the EPPA model by further disaggregating the agricultural sector. This allows us to simulate economic effects of changes in yield (i.e., the productivity of cropland) on the regional economies of the world, including impacts on agricultural trade. The EPPA model includes multiple channels of market-based adaptation, including input substitution and trade. We are thus able to examine the extent to which market forces contribute toward adaptation and thus modify the initial yield effects. We examine multiple scenarios where tropospheric ozone precursors are controlled or not, and where greenhouse gas emissions are abated or not. This allows us to consider how these policies interact.

Resource Details (Export Citation) GTAP Keywords
Category: 2006 Conference Paper
Status: Published
By/In: Presented at the 9th Annual Conference on Global Economic Analysis, Addis Ababa, Ethiopia
Date: 2006
Created: Paltsev, S. (5/1/2006)
Updated: Batta, G. (5/1/2006)
Visits: 2,836
No keywords have been specified.

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