Problems to be solved
The economic evaluation of environmental policies, of different regulation strategies, is generally made with Applied General Equilibrium Models, which are well suited for long-term analyses, and for the implementation of economic instruments. The inadequacy of such instruments to fill certain tasks is well known. In general, these models are calibrated and non-econometrically estimated, this prevent them for forecasts; they are less efficient to describe short and medium term consequences of policies. From that point of view, the econometric neo-Keynesian models are more suited for this kind of analyses, with of course some limits that are well known. For these reasons, it is very important to have two different methodological advices on evaluation of environmental policies, and to develop this second family of models. The Commission did finance building of the Econometric E3ME model, which treats 19 EU regions and 30 sectors, but in spite of its characteristics, which give a real capability to evaluate environmental policies, the model is today in a state which prevents an efficient exploitation adequate to the investment realised in the past. The main problem to be solved is to transform and update this model so as to restore its capability to treat some policy cases related to greenhouse gas emissions strategies. At first the research will be centralized on the economic consequences of modification of the duties on energy products as it was proposed by the E.C. A second work will be implemented on the R&D policies for competitiveness, employment and sustainable development. The work will be grounded on a subsidy policy on R&D in European countries. A third work is the development of the model to implement tradable permits and to evaluate permit trading under the Kyoto Protocol.
Scientific objectives and approach
The scientific objectives of the project follows four main paths. The first one is to implement the former E3ME model to new software called IODE and to update the model and its data basis. The second one is to build a new environmental module so as to capture new environmental phenomena. The third will be to implement in the model recent developments of economic theories such as R&D and perfect foresight effects. For the last development, the software has to be updated to incorporate a new algorithm already developed in one of the team, which permits to solve perfect foresight models rather quickly. And at least, the fourth path will be to test the whole model with simulations, to create a baseline forecast and to realise all the policy analyses explained above.
We can say here that there is a clear need for such an instrument, which really works, and different from the GEM-E3 approach, in order to deliver : a baseline scenario for economic activities, energy demand and energy related emission of pollutants, an analysis of the effects of greenhouse gas abatement policies on industrial innovation, on competitiveness and on employment, an analysis of various incentives for energy efficiency and policies, an analysis of modifications of fiscal systems to regulate environment and increase employment (Double dividend debate), for instance, increase in the excise duty which can allows a reduction of taxes burden on Labor, an analysis of the propositions of regulation post Kyoto, the burden sharing, the use of economic instruments such as tradable permits and taxation, and at least the analysis of coordinated policies versus uncoordinated policies in Europe. All these questions give an insight of the capability of such an instrument, a detailed sectoral and environmental econometric model to evaluate socio-economic and environmental impacts of different policies in Europe. The main potential for the exploitation of the results of the project, lies in the use of an improved user friendly sectoral model which incorporates some phenomena described by new theories of production, and which can describe the behaviour of agents in term of maximization with rational expectations (Perfect Foresight), to be in tune with the recent developments of economic analysis. The sectoral aspects can be useful to the industrial decision makers. Its environmental module, at a European level, will be helpful to the international negotiation that our countries will have to face during the next years, and to give evaluation of public policies which are related to environmental purposes
Funding SchemeCSC - Cost-sharing contracts