Organisation for Economic Co-operation and Development (OECD) 1 Introducing land use in OECD’s ENV-Linkages model Rob Dellink OECD Environment Directorate 9 February 2011, OECD Expert Meeting on “Climate change, Agriculture and Land use”, Paris

Organisation for Economic Co-operation and Development (OECD) 2 GE modelling at the OECD in historical perspective Time ENV-Linkages GREEN Linkages JOBS GREEN WALRAS MIT-EPPA 2

Organisation for Economic Co-operation and Development (OECD) 3 The ENV-Linkages model Computable General Equilibrium (CGE) model Full description of economies Simultaneous equilibrium on all markets Structural trends, no business cycles All economic activity is part of a closed, linked system World divided into 29 regions (15 for modelling analysis) Each economy divided into 26 sectors (with focus on energy) Recursive-dynamic: horizon ; vintages of capital Link from economy to environment Greenhouse gas emissions linked to economic activity Damages from climate change not assessed: model only assesses the costs of policies, without valuing their environmental benefits Working on feedback link from climate to economy (impacts)

Organisation for Economic Co-operation and Development (OECD) 4 Regional aggregation

Organisation for Economic Co-operation and Development (OECD) 5 Sectoral aggregation 5 agriculture related sectors Rice cultivation, other crops, livestock, forestry, fisheries 4 primary energy related sectors Crude oil, coal, gas, petroleum refineries 5 electricity related technologies (‘sectors’) Fossil fuel, hydro/geothermal, nuclear, solar/wind, biomass/waste 6 energy intensive industries Non-ferrous metals, iron & steel, chemicals, fabricated metal products, paper and paper products, non-metallic minerals 6 other sectors Food products, other mining, other manufacturing, transport services, services, construction & dwellings

Organisation for Economic Co-operation and Development (OECD) 6 Describing economic activity: production Smooth production functions describe how producers can choose among different technologies Multi-level constant elasticity of substitution (CES) functions Works well because sectors are aggregated across many different firms Adjustments of the generic production function or specific sectors Land input in Agriculture and Forestry sectors Some other sectors have ‘natural resource’ (capacity constraints) Fertilizer in crops production Feed in livestock sector Primary energy sources in fossil fuel electricity Alternative technologies for electricity are almost perfect substitutes

Organisation for Economic Co-operation and Development (OECD) 7 Data sources Socio-economic data GTAP 7.1 database; UN Population projections; World Bank, IMF macro projections Environmental data CO 2 emissions harmonized with IEA Agricultural emissions: CO 2 from energy use; CH 4 from rice cultivation, enteric fermentation and manure; N 2 O from manure and soils – only CH 4 from rice linked to land use, others to production level Projections for non-CO 2 GHG and LULUCF emissions (CO 2 ) in the process of harmonization with IMAGE Land use data FAO for historic land use cover and deforestation rates IMAGE for land cover projections and conversion (deforestation, afforestation) emission/sink rates OSIRIS REDD marginal abatement cost curves

Organisation for Economic Co-operation and Development (OECD) 8 Creating a baseline projection Projecting future trends in socio-economic developments until 2050 Not a prediction of what will happen! Be humble: we know very little about long-term future economic activity Based on a “conditional convergence” methodology Based on recent growth theory Countries further from their potential are expected to grow faster No direct convergence in levels of e.g. GDP, but convergence in drivers of growth: total factor productivity, labour productivity Conditionally converging drivers plus exogenous trends in e.g. population create an internally consistent set of future projections Methodology has been discussed and accepted at EPOC’s ad-hoc expert meeting on the Outlook in November

Organisation for Economic Co-operation and Development (OECD) 9 Drivers of GDP growth Source: ENV-Linkages model projection

Organisation for Economic Co-operation and Development (OECD) 10 Projections for emissions of CO 2 from fossil fuel combustion Source: draft ENV-Linkages model projection ; still to be harmonized with IMAGE

Organisation for Economic Co-operation and Development (OECD) 11 Approach to introducing land use (ongoing) Step by step First focus on CO 2 emissions from deforestation and afforestation Later expand agricultural sector and include bioenergy Modelling land use change Multi-level CET structure for governing land use conversion Supply elasticity for managed land endogenously depends on land availability (so-called land supply curve) Distinguish intensive vs. extensive margin response to climate policy Introducing carbon pricing policies No emissions associated with land that stays in same category (apart from agricultural GHG emissions) Carbon subsidy for afforestation Carbon tax for deforestation

Organisation for Economic Co-operation and Development (OECD) 12 Nesting structure land use

Organisation for Economic Co-operation and Development (OECD) 13 Land use in agriculture Source: draft ENV-Linkages model projection ; still to be harmonized with IMAGE

Organisation for Economic Co-operation and Development (OECD) 14 Applications with the extended model OECD Environmental Outlook Wide range of policy simulations focus on Climate change, Biodiversity, Water, and Health & Environment Collaboration with IMAGE suite of models Economic analysis of the Copenhagen Accord / Cancun Decisions emission pledges Explicit treatment of REDD+ for non-Annex I parties Explicit treatment of land accounting rules rules for Annex I parties Foreseen future policy analyses (to be determined) Energy subsidy reform: fossil fuels, bioenergy, renewables Integrated climate change and biodiversity policies Possibilities for REDD+ in fragmented carbon markets

Organisation for Economic Co-operation and Development (OECD) 15 Contact Rob Dellink OECD Environment Directorate +33 (0)