Projects

There are two on going projects financed by DG research under the European FP5 research program aiming at a continuous development of GEM-E3. The results of the last finished project are also presented.

DYN-GEM-E3

Objectives

The general objective of this project is to improve the modelling of the dynamics of innovation and investment in an applied general equilibrium model and to evaluate its impact for the design of energy and environmental policies. The endogenous process of innovation will be enhanced to cover a greater variety of processes and their pathways. A vintage approach for capital combined with a 'perfect foresight' dynamic framework will be introduced for a more correct evaluation of the transition costs and of the implications of time flexibility in policies in terms of cost/benefits. Alternative policy options for issues high on the agenda of the EU will be explored with the expanded model. The focus will be on the choice of policy instruments and the benefits and costs of centralised EU-policies versus national policies. The objective is to contribute with these analysis to the on-going debate regarding energy and environmental policies.

Description of Work

The model development covers two aspects. The first one is the development of the dynamic framework of investment decisions in the general equilibrium model; it focuses on the vintage of capital and on the intertemporal dimension. A vintage approach for capital, assuming putty-clay factor substitution will be implemented allowing a better representation of the substitution possibilities between production factors, of embodied and disembodied technical change and of the penetration of new technologies. For the intertemporal dimension of the model, a 'perfect foresight' dynamic framework will be implemented. Compared to the dynamic recursive approach of GEM-E3, it permits the measurement of transition costs (inter-sectoral adjustments and inter-regional) which can be significant relative to long-term gains, especially for issues in environmental or energy policy involving policy interference over longer time periods. The second aspect in model development concentrates on a further endogenisation of technical change. The question of biased versus neutral technical progress will be explored and the importance of disembodied technical change. For the electricity sector, for which an engineering representation of the production process is implemented, a more micro-economic approach will be explored. Learning curve relationships will be introduced in the model for the technologies considered in order to better capture the dynamics of technical progress. At a more general level for the development of mutually coherent technologies, the impact of learning at a global level will be explored by modelling the choice of research projects. The uncertainty linked to the outcome of research projects will be taken into account. On the policy side, the project will explore what are the learning of these developments in terms of policy design by comparing the outcomes for a certain number of policies under the different specifications. Moreover, the model with the new specifications will be used to look at specific issues on the EU agenda. For energy policy, the accent will be on energy efficiency and renewables, for environmental policy on climate change. The R&D policy scenarios will focus on the impact of R&D expenditure and R&D policy on the energy and environmental objectives.

DAT-GEM-E3

Objectives

The general objective of this project is to extend the geographical dimension of the database of the general equilibrium model GEM-E3 in order to enhance the simulation properties of the model. Most accession countries will be covered and the Rest of the World will be modeled more extensively by separating it into OECD non-Europe, the energy producing countries and rest of the world. Moreover an update of the EU15 database is foreseen to include the 1995 Input-Output available from Eurostat by April 2003.

Description of Work

For the extension of GEM-E3, different types of data have to be collected. The economic data to collect include national accounts data and Input-Output tables to be integrated into a Social Accounting Matrix for each country or region and the trade flows between countries/regions individually and by sector. These data will be complemented with R&D data on innovation and spillover effects. The environmental data cover emission coefficients, abatement cost functions, emission transport and transformation parameters and damages for all pollutants in the model. The different data will be integrated into the GEM-E3 modelling framework.

TCH-GEM-E3

Objectives

The primary objective of this project was the further development of GEM-E3 and its application for energy/environmental policies analysis. More specifically, the project aimed at the improvement of the realism of the GEM-E3 model, the extension of its geographic coverage to Eastern European countries and to Switzerland, the modelling of endogenous technology evolution and the role of innovation and R&D strategies, the modelling of imperfect competition in the goods market and its impact on environmental policy design. Finally, through case studies with the fully extended model, GEM-E3 was to contribute to policy evaluations for the EU and for national governments around energy and environmental issues.

Description of Work

The improvement of the realism of the model was done through the integration of top-down/bottom-up modelling for the electricity sector and of specific modelling of the supply of fossil fuels. The GEM-E3 was extended to allow for market imperfections both in the goods market and the permit market. The impact of the presence of market imperfections on the effectiveness of energy and environmental policiesa was evaluated through policy cases. The geographic extension covered three Accession countries, Hungary, Poland, Slovenia and Switzerland. A full implementation of endogenous technical progress, including the role of R&D strategies, was done. It involved an extension of the database towards human capital and innovation and a full integration in GEM-E3 of the small scale model of semi-endogenous technical progress developed in a previous call. The developed model was applied for case-studies on energy/environment policies and their effect on sustainable growth, covering the following topics: the phasing out of nuclear, Kyoto policies and the impact of the extension to Eastern Europe.

For the final report of the TCH-GEM-E3 project: download the final report (334 KB)

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Most recent update: August 3, 2005