CGE Model with GHG Emissions and Extended Energy Sector
26th Annual Conference on Global Economic Analysis: Proceedings 2023
Konstantīns Beņkovskis, Dzintars Jaunzems, Oļegs Matvejevs

Latvia's CGE model, an integral part of the joint CGE-EUROMOD modelling system used for modelling Latvia's economy and policy simulation at the Bank of Latvia, has been improved by 1) incorporating accounting of GHG emissions in CO2 equivalent generated by all public and private sector entities, 2) introducing explicit modelling of expenses related to these emissions (carbon taxes), both due to state-level levies and participation in the European Emissions Trading Scheme (EU ETS), and 3) incorporating endogenous substitution of energy resources by enterprises, thus allowing for the green transition in the short-to-medium term (under a fix set of available technology options). For the latter, we undertake a novel approach based on the demand for certain energy processes, whereby the use of energy resources by enterprises is explicitly classified by purpose. Thus, energy commodities can be replaced by each other only within certain energy processes, which helps us simulate energy transition more realistically, as modelling substitution in this way closely reflects the decisions firms make in reality. In the last part of the paper, we present simulation results of a scenario that would put Latvia on a linear path of GHG emissions reduction consistent with its European Green Deal objectives by 2030, under an assumption that this is achieved only with carbon pricing, without technological progress nor energy efficiency improvements. By 2025, the resulting welfare losses would exceed 2%, but the additional carbon tax revenue would raise budget surplus by 2.6 percentage points.

Atslēgas vārdi
CGE model, Latvia, GHG emissions, Emissions Trading Scheme, carbon tax, energy substitution, green transformation, energy transition, European Green Deal, EUROMOD

Beņkovskis, K., Jaunzems, D., Matvejevs, O. CGE Model with GHG Emissions and Extended Energy Sector. No: 26th Annual Conference on Global Economic Analysis: Proceedings, Francija, Bordeaux, 14.-16. jūnijs, 2023. [S.l.]: GTAP, 2023, 1.-21.lpp. e-ISSN 2160-2115.

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