1. 1 Economic Models for Energy and Environmental analysis CREE/CENSES Model Forum 24. October 2013 Brita Bye

2. Macroeconomic numerical models at Statistics Norway Short/medium term macroeconometric models, KVARTS/MODAG –Short term forecasting – no emissions modelled –MODAG used by the Ministry of Finance for the annual National budget (white book).  Emissions of CO2 Long term computable general equilibrium (CGE) models: MSG model –Regularly used by the Ministry of Finance for long term forecasting and policy analyses (Ministry of Finance, 2013) –Emission forecasting (Kyoto gases, So2, NOx, etc) –KLIMAKUR2020 (2010) 2

3. Integrated CGE-models - Background Multi sectoral, multi-purpose general equilibrium models –Early approach (Johansen, 1960) –Current model, MSG-6, Heide et al (2004) Resource statistics (Energy and Environment, 1980-ies) Integrated Economy-Energy-Environment models since 1980-ies Consistent framework for economic, energy and emission projections, evaluation of e.g. climate policies Mitigation – not adaptation 3

4. The MSG-6 model Optimising dynamic consumers and producers (detailed modelling) Production and consumption structures of the Norwegian economy Public policies, direct and indirect (incl environmental and energy) taxes and transfers Determines domestic investments, production, consumption, export, import, and wealth accumulation Reallocations of resources –between industries –from leisure to labour –between consumption and savings > Measure economic welfare (total discounted utility) effects of different policies 4

5. Climate analyses and the MSG6-model: shortcomings Small, open economy characteristics -> –Exogenous world market prices -> No terms-of-trade effects –Climate policies are regional/global -> Interactions with other economies (EU) and Rest of the World Technological change are exogenous –Models only substition- and scale effects of climate policies New technologies are important for climate analyses: Diffusion of new climate technologies –Implementation –Absorption processes –Learning effects Modeling the innovation processes of new climate technologies –Research and Development (R&D) 5

6. 6 6 Three CGE models for climate policy analyses Incorporate existing and future technologies (different approaches) – Diffusion and innovation Norway in a global perspective 1 MSG-TECH hybrid top-down/bottom-up 3 ITC Endogenous technological change 2 SNoW Norway and Rest of the world