An Environmental SAM and SAM-based CGE Modelling for Environmental Policy Problems Noritoshi Ariyoshi Faculty of Environmental Studies Nagasaki University Itsuo Sakuma School of Economics Senshu University Akihiko Taniguchi Graduate School of Economics Senshu University International Workshop for Interactive Analysis on Economy and Environment Cabinet Office, the Government of Japan 4 th March 2006
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An Environmental SAM and SAM-based CGE Modelling for Environmental Policy Problems Noritoshi Ariyoshi Faculty of Environmental Studies Nagasaki University.
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An Environmental SAM andSAM-based CGE Modelling for Environmental Policy Problems
Noritoshi Ariyoshi Faculty of Environmental StudiesNagasaki University
Itsuo SakumaSchool of EconomicsSenshu University
Akihiko TaniguchiGraduate School of EconomicsSenshu University
International Workshop for Interactive Analysis on Economy and EnvironmentCabinet Office, the Government of Japan4th March 2006
CONTENTS
1. Introduction 2. A general explanation of Japanese NAMEA
(Hybrid Accounts) 3. From NAMEA to a SEEA-type SAM with monetary
valuation of environmental pressures 4. A CGE analysis 5. Concluding remarks
1. Introduction
The purpose of this paper is twofold. Concerning (1) Data aspects, we attempt to Construct a DATA ENVIRONMENTAL SAM from Jap
anese NAMEA(*) compiled by ESRI. DATA ENVIRONMENTAL SAM is a SEEA-ver. IV.2 ty
pe SAM(**), which includes monetary valuation of environmental pressures, in particular, the estimation of imputed environmental cost.
(*)”NAMEA” is an acronym for National Accounting Matrix Including Environmental Accounts.
(**)”SEEA” is an acronym for System for Integrated Environmental and Economic Accounting.
1. Introduction(continued)
Concerning (2) Modelling aspects, we attempt to Conduct SAM-based CGE analyses. To do this, MODEL ENVIRONMENTAL SAM will be
created to accommodate a specific general equilibrium modelling structure.
Using this SAM as a base equilibrium data, various simulation (comparative static analyses) will be conducted so as to evaluate policy changes etc. involved.
Introduction (continued)
NAMEA
DATA ENVIRONMENTAL SAM
MODEL ENVIRONMENTAL SAM
ENVIRONMENTAL CGE ANALYSIS
1. Introduction (continued):An illustration of a SAM-based CGE
Base Model SAM SAM after anExperiment
Modelling
Calibration,
Replication
Experiment
(Policy Change etc.)
DataEvaluation of the Policy Change etc.
2. A General Explanation of Japanese NAMEA (Hybrid Accounts)
1) It is based on the original NAMEA* by the Netherlands, and estimates for 90, 95, and 00
2) Twofold parallel structure: national accounting matrix (NAM) at monetary term and environmental accounts (EA) at physical term.
3) Twofold structure of EA : substance accounts and environmental problem accounts.
Note) This is a summary table of the attachment#1-3 of New System of Integrated Environmental and Economic Accounting, Department of National Accounts, Economic and Social Research Institute (ESRI), Cabinet Office ofJ apan, 2004 (http://www.esri.cao.go.jp
The potential contributions to Global warming, acidification andEutrophication are expressed in GWP, AEQ and EEQ, respectively. Global Warming Potencials (GWP) CO2 1, N2O 310, CH4 21: : : Acid Equivalents (AEQ) Nox 0.7, So2 , NH3: :1 Eutrophication Equivalents (EEQ) P 3.06, N 0.42: :
Processing of pollutants andexploitationof natural resources
Pressures on natural resources andrestoration of natural resources
Changes in Forests
Chamges inwater esources
Changes innatural
resources
Changes inland use
Contribution to global environmental issues
Contribution to regionalenvironmental issues
B
A
Nationaleconomy
ROW
C
Exploitation of ROW'snatural resourcescaused by imports
Hidden material flowsin domestic area
Hidden material flows inROW caused by imports
汚染物質の排出 Changes in land useEmission of pollutants
Restoration of Natural resources
A-B
Making indicatorsPressures onenvironment
Others
Others
Depletion of energy resources
Others
Hidden material flowsEnvironmental indicators D
Closing stocks
Opening stocks
Environmental indicators
Monetary flows Material flows : Cells for environmental flow dataareas
: Cells for environmental indicator
3. From NAMEA to a SEEA-type SAM with Monetary Valuation of Environmental pressures
The estimation of imputed environmental cost (maintenance cost in 93SEEA ver. IV.2) should be considered to be highly important because it can clarify what the government should do for the environment.
Only imputed environmental costs the origin of which is industries (=market producers) are considered. Because it may be necessary to take the extension of production boundary into consideration in order to deal with the consumption-related costs.
The Estimation of Imputed Environmental Cost
Except for CO 2 , the assumption of “zero-emission” is posited in order to calculate imputed environmental cost about each environmental pressure category.
Concerning CO 2 , the emission level 6% below that in 1990 is assumed according to the Kyoto Protocol.
Two summary tables are on two slides below, giving imputed environmental cost by sources and by environmental pressure types.
(-) sum of imputed environmental costs valuatedbymaintenance cost approach
Deterioration of non-producedassets by production activities
(-) sum of deterioration ofnon-produced assets byproduction activities
Industries
Eco-margins(Billion yen)
Distribution of Eco-margin(%)
Distribution of Value Added (%)
Agriculture, forestry and fishing 355.9 1.8 2.0
Mining 161.7 0.8 0.2
Food products and beverages 335.2 1.7 2.8
Textiles 38.0 0.2 0.3
Pulp, paper and paper products 118.1 0.6 0.7
Chemicals 556.9 2.9 2.1
Petroleum and coal products 117.3 0.6 1.2
Non-metallic mineral products 513.6 2.7 1.0
Iron and steel 401.8 2.1 1.3
Non-ferrous metals 60.4 0.3 0.4
Fabricated metal products and Machinery 1141.2 5.9 10.7
Other Manufacturing 409.2 2.1 4.1
Construction 917.3 4.8 8.7
Electricity, gas and water supply 669.0 3.5 2.9
Wholesale and retail trade 1634.5 8.5 16.3
Finance and insurance 640.5 3.3 6.3
Real estate 1257.9 6.5 12.8
Transport and communications 7948.3 41.3 7.6
Service activities 1966.2 10.2 18.8
Total Industries 19243.0 100.0 100.2
Imputed Environmental Cost
by origin of Industries
Types of Environmental pressures
Eco-margins
Discharges
Green House Effect
CO2 2498.2
N2O 11.7
CH4 4.5
HFCs 88.2
PFCs 50.7
SF6 73.7
AcidificationNOX 4984.7
SO2 2261.6
SPM 59.4
Water Use
T-P 3390.2
T-N 2552.2
Waste Water 1027.4
WastesFinal Disposition 2240.4
Total 19243.0
Imputed Environmental Cost
By type of
environmental
pressures
4. A CGE Analysis: AGE and CGE
CGE (Computable General Equilibrium) - has been developed in the history of World Bank’s
development modelling, - was an extension of SAM multiplier analyses, and
naturally - has been SAM-based. AGE (Applied General Equilibrium) - has been developed mainly by Scarf and his
successors.
4. A CGE Analysis: Main Model
Main feature: the environment is a production factor. In our model, the environment will be considered as
a sink of a sort. To use it, industries (not household) have to pay a
sum (emission permit). The payment flow may be treated as if it is part of
the payment to capital factor in the base SAM. The production part of the model is about the same
as that of typical world bank models except for the treatment of environment. (See the next slide.)
MIXEDPROD.FACTOR
ECO-MARGI
N
COBB DOUGLAS
CES
LEONTIEF
CES
Production Part of the Model
CAP LAB
CET
DOM.PROD.
INT.INPUT
COM-POSITEGOODS
IM-PORTS
DOM.GOOD
S2
EX-PORTS
DOM.GOOD
S.1
A thought behind the treatment
The domestic equilibrium price of the permit will be determined at the level of imputed environmental cost, estimated according to the concept of “maintenance cost.”
Because firms do not pay for the permit if they can reduce the emission by spending actual environmental protection cost which equals to maintenance cost and is less than the permit value.
• MRS between ordinary factors and the environment is determined by maintenance cost
Ordinary factors
The environment
Results(1)
The increase in the endowments of capital or labour leads to the decrease in imputed environmental cost (eco-margin). In one sense, the environment is ill-used just to save other factors.
But size of pressure of the 10% increase in each factor endowment to the industries is different industry by industry. Concerning labour, a large decrease in eco-margin is found in steel, textiles, construction, etc.
Results(2)
Concerning 10% increase in capital , a large decrease in eco-margin is found in Petroleum and coal products, etc.
The 10% increase in labour endowment has a larger effect on the reduction of eco-margin
than the same proportional increase in capital endowment.(7.6% vs 3.1%)
Results(3)
The 10% increase in indirect tax rate will reduce eco-margins of all industries, by 0.9%-1.4%.
The 10% increase in the price of environment (tradable permit) will reduce eco-margins by 0.5%-4.2%.
industries
% changes in eco-margin due to10% increase in Labour
% changes in eco-margin due to 10% increase in Capital
% changes in eco-margin due to 10% increase in environmental factor price
Agriculture, forestry and fishing -2.0 -8.1 -3.8
Mining -6.5 -1.3 -2.8
Textiles -11.7 2.2 -4.2
Pulp, paper and paper products -6.4 -4.0 -4.1
Chemicals -3.4 -5.3 -3.1
Petroleum and coal products 0.4 -10.3 -4.2
Non-metallic mineral products -7.0 -0.9 -2.9
Iron and steel -11.8 3.7 -3.6
Non-ferrous metals -3.8 -0.4 -0.5
Fabricated metal products and Machinery -7.6 -1.7 -4.1
Construction -11.7 -3.1 -3.7
Electricity, gas and water supply -2.4 -7.0 -3.6
Wholesale and retail trade -10.6 -6.5 -2.7
Finance and insurance -5.3 -4.5 -3.9
Real estate -0.2 -10.1 -4.0
Transport and communications -7.2 0.2 -1.9
Service activities -6.8 -3.3 -3.6
A Model for an Ordinary Economy
In addition to the main model, an alternative model is formulated to analyse an ordinary or actual economy without environmental imputation.
Policy makers may be inclined to think that it is necessary to introduce direct rather than indirect regulation measures in order to reduce the imputed environmental cost known quite immediately to zero.
In other words, the imputed cost in the main model needs to be borne actually by the producers of the alternative model. Thus, they must spend some additional cost for the environmental protection instead of discharging residuals.
Greened Economy GDP
On this assumption, the working of the economy will be simulated.
Additionally, “greened economy GDP(NDP)” will be calculated although “greened economy SAM” may be a more meaningful concept.
The concept of “green GDP” is criticised in that it does not take it into account that incurring additional cost (maintenance cost) could lead to various percussions and repercussions, so the concept does not reflect the real situation.
Greened economy NDP may be equal to or greater than green GDP depending on the assumptions made.
GDP AT FACTOR COST 462,253.0
GDP AT MARKET PRICES 501,938.7
FIXED CAPITAL CONSUMPTION 89,116.9
NDP AT MARKET PRICES 412,821.8
ECO-MARGIN in the model 20,243.5
GREEN GDP 392,578.3
GREENED ECONOMY NDP (CASE 1)
407,862.4 at constant prices
GREENED ECONOMY NDP (CASE 2)
392,774.6 at constant prices
GREENED ECONOMY NDP (CASE 3)
400,739.7 at constant prices
Green GDP and Greened Economy GDP
CASE 1: Imputed environmental cost replaced by INTERMEDIATE INPUT
CASE 2: Imputed environmental cost replaced by FACTOR INPUT
CASE 3: Imputed environmental cost replaced by Mixed INTERMEDIATE and FACTOR INPUT
Billion yen
Concluding Remarks
A controversial problem over “direct” vs. “indirect” regulations will be spotlighted by this sort of modelling.
Whether any switch of techniques as well as shift in industrial structure is triggered by the policy change may be the key to the problem.
More disaggregated treatment about environmental pressure categories may be necessary.