Are the emissions trading systems’ simulations generated with a computable general equilibrium model sensitive to the nested production structure?
Cristian Mardones and
José Ortega
Applied Energy, 2021, vol. 298, issue C, No S0306261921006450
Abstract:
Computable general equilibrium models are becoming popular for simulating emissions trading systems. However, these models make various assumptions about the production structure and the possibilities of substituting energy for productive factors or inputs. Therefore, this study aims to analyze how different options to incorporate energy into the nested production structure of a computable general equilibrium model affect the obtained impacts when an emissions trading system is implemented. A flexible computable general equilibrium model called ECOMODEL is developed, which is the first model that allows choosing any of the three nested production structures most used in the literature (KEL-M, KL-EM, or KLE-M). The Chilean economy is used as a case study since there is a current database with high disaggregation of the energy sector for calibrating the computable general equilibrium model. The results show that the simulated impacts with KEL-M and KL-EM structures are the best when elasticities of substitution equal to the values most frequently used in previous studies are chosen. However, the KEL-M structure that considers energy as a substitute for capital provides overly optimistic environmental results when high elasticities of substitution are used, obtaining the lowest reduction in Gross Domestic Product and the lowest price of the emissions trading system. Furthermore, the KLE-M structure gives unrealistic results regardless of the elasticities of substitution used. In consequence, a KL-EM nested production structure should be prioritized to simulate an emissions trading system since it provides realistic results and is less sensitive to the values of the elasticities of substitution.
Keywords: ETS; CO2 emissions; Elasticities; CGE (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (7)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0306261921006450
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:appene:v:298:y:2021:i:c:s0306261921006450
Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/bibliographic
http://www.elsevier. ... 405891/bibliographic
DOI: 10.1016/j.apenergy.2021.117222
Access Statistics for this article
Applied Energy is currently edited by J. Yan
More articles in Applied Energy from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).