Our methods and models
At EEFA, we undertake pioneering work with our research. This stems not only from leveraging existing approaches but also from developing and refining our own models and methods, which we then apply to our projects. This innovative approach enhances both our analysis and the evaluation and processing of data.
The Impact of Climate Policy and Climate Change: The Integrated Assessment Equilibrium Model
Understanding global climate policy effectiveness and the repercussions of climate change are pivotal to shaping our future. At EEFA, we employ a global integrated assessment model based on the framework established by Hillebrand and Hillebrand (2019, Journal ofEconomic Theory). This comprehensive equilibrium model currently spans ten regions and encompasses seven energy sources.
At its core, the model utilizes a long-term optimal growth framework under full competition, aiming to maximize global welfare while considering diverse economic and technological conditions. Its time horizon extends from 2020 to 2100.
Within the model, regions operate on two primary levels:
- Final consumption goods (GDP)
- Fossil resources
The model assumes a perfect international capital market where consumers supply capital and companies demand it. However, it features regionally defined labor and energy markets.
Regions differ significantly across several dimensions:
- including population size
- capital ownership
- economic development level
- available fossil energy resources
- anticipatedclimate impacts.
The production side of each region is structured across three levels:
- The first level involves the production of final consumption goods (GDP), which can be either consumed or invested. This process requires inputs such as labor, capital, and aggregated "energy," encompassing goods and services derived from both fossil and renewable energy sources. These inputs are interrelated at a constant exchange ratio,utilizing production functions with constant elasticities of substitution (CES).
- The second level consists of energy sectors responsible for producing energy goods and services used in the primary production level. These sectors operate using either clean renewable energies or polluting fossil fuels.
- The third level includes regional resource sectors extracting finite resources like coal, oil, or natural gas, which are then traded on international markets. Energy production from fossil fuels emits CO2, with emissions affecting atmospheric CO2 concentrations and subsequently impacting the productivity of the final production sector.
Ultimately, the model quantifies climate damages as percentage losses in GDP across each region, providing crucial insights into the potential economic impacts of climate change mitigation and adaptation policies.
Overview
Research in energy, resource, and climate economics must be both theoretically sound and application-oriented, and this is our commitment.
We advise public and private institutions using the latest economic methods. Our detailed sectoral and macroeconomic models examine relevant issues from national, European, and global perspectives.