General equilibrium modelling of trade and the environment / John Beghin ...[et al.]

General equilibrium modelling of trade and the environment / John Beghin ...[et al.]

The environmental impacts of economic activity have become an increasingly urgent concern in both OECD Member countries, as well as in non-Member countries. Research in this area is still in its infancy, and the data required to buttress analytical studies is still sparse. This paper describes the base model specification for a series of six country case studies undertaken at the OECD Development Centre to analyse the links between growth and emissions, and emissions and trade instruments. The model attempts to capture some of the key features relating to environmental emissions. These features include: a) linking emissions to the consumption of polluting inputs (as opposed to output); b) including emissions generated by final demand consumption; c) integrating substitutability between polluting and non-polluting inputs (including capital and labour); d) capturing important dynamic effects such as capital accumulation, population growth, productivity and technological improvements, and vintage capital (through a putty/semi-putty specification); and e) the impact of emission taxes to limit the level of pollution. On top of these important elements for studying environmental linkages, the model includes other structural features which may be of interest to policy makers, such as detailed labour markets and household specification which is conducive for analysing the incidence of economic policies. While the model is rich in structure, it also lacks some elements for a more complete analysis of environmental linkages. In its current form, the model is only useful for calculating the economic costs of limiting emissions, without the concomitant, but certainly important, evaluation of the benefits. The second major lacuna is the lack of abatement technology which is a relevant decision variable for producers. The results of the analysis may therefore tend to overstate the costs of controlling emissions if more cost-effective alternatives exist in the form of abatement equipment or “cleaner” capital. The third deficiency is that the study focuses on “industry-based” type pollution, and ignores other significant environmental issues such as deforestation, soil degradation and erosion, solid waste and its disposal, and other serious potential problems. The first section of the paper provides a brief overview of some of the key features of the model. This is followed by a complete description of each block of the model. The third section provides a list of the differences of the data and model specification across country implementation. This is followed by a few concluding remarks.

  1. How good is this research?

    Assessing the quality of research can be a tricky business. This blog from our editor offers some tools and tips.