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Assessing Economic Impacts of Greenhouse Gas Mitigation: Summary of a Workshop
foresight.1 Like other CGE models, IGEM’s outcomes are largely influenced by household-level decisions on labor, consumption, and leisure. It is sometimes criticized for assuming perfectly mobile capital and labor, but its substitution effects are econometrically estimated based on market behavior observed over the past 50 years. IGEM’s reliance on observed behavior and empirical data makes it rich in detail and substitution possibilities; there are more than 12,000 substitution parameters, and so measurable variance-covariance matrices (which IGEM has) are increasingly important to help account for imprecision in the parameter estimates. This is a potential advantage of the econometric approach, since it can potentially put bounds on uncertainty; IGEM’s operators are just beginning to work in that direction, though such an effort requires significant time and resources.
MiniCAM is an integrated assessment model (IAM) operated by Pacific Northwest National Laboratory. Like other IAMs, MiniCAM is a complete model in the sense that it models the entire globe and includes not only human and economic systems, but also their interactions with physical systems. It models out to the end of the 21st century; although it captures at a high level all of the interactions possible among agriculture, land use, climate, energy, and other systems, it is not able to provide regionally specific or short-term outcomes. MiniCAM operators also engage in integrated assessment research, in which they work with and incorporate detailed systems models (e.g., for ecosystems or carbon capture and storage) that then feed back into the IAM. These nested models can also help scale down impacts to a more regional level. MiniCAM’s focus is on energy, agriculture, and land use markets in 14 world regions, and it is fairly detailed from a technology standpoint. In this regard, much of its research has focused on drawing insights about the relative importance of different energy technologies.
ADAGE, a dynamic CGE model with foresight, is operated by RTI. Its coverage is both international and regional within the United States, and so it can be used to model regional energy production as well as international policies and their impacts on trade flows. It is flexible in that it can parse out a sector such as agriculture into its various components for further analysis. EPA is currently working with ADAGE operators to examine how climate change might affect sectors ranging from agriculture to human health.
EPPA is a CGE model that is part of a broader integrated system operated by MIT. It represents and balances primary factors of production, the goods and services produced, and the income accrued and spent by households. Recently, operators have made additions to EPPA to account for perceived weaknesses or shortcomings of the model. Specifically, they have added household transportation with a variety of vehicle and fuel types, a recreation system that examines competition in land use demand between recreation and biofuels, and a health services sector that reflects damage caused by air pollution.
The OECD utilizes a CGE model with world coverage (22 sectors and 12 regions) and it covers 50 years with recursive dynamics. OECD’s clients, its member countries, have tended to focus on medium-term (as opposed to longer-term) outcomes, and are interested in the policy responses to issues such as carbon leakage or trade and competitiveness. More recently, operators have begun work on modeling “hybrid” approaches that include some level of countrywide reductions, coupled with sectoral agreements for certain energy-intensive industries, as well as existing energy subsidies that affect
Perfect foresight does not imply that decisionmakers will precisely know the future, but it does assume that they are fully aware of all contingencies and the probabilities associated with these contingencies.