EDGE
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The EDGE model is a dynamic, multi-sector, multi-region general equilibrium model. It divides the world into eight regions. Among others, the dynamics in the model capture the changes in investment, savings, and consumption. The production sector details incorporate the substitution both between coal, oil and gas, and between energy-intensive goods, such as cement or steel, and other goods and services in the economy. Finally, the model accounts for regional differences in the burden of the Kyoto commitments, including a distinction between Annex B and non-Annex B countries.
Conceptually, the EDGE model consists of eight regional general equilibrium models linked by consistent interregional flows of goods and services. There is one model for each region, and as all markets clear simultaneously, all agents in the model correctly anticipate changes in all relative prices. The model covers the period 2000-2030 in six five-year periods[1]
Result
Typical Model Applications:
Evaluation of the economic consequences of different modes of implementing the Kyoto Protocol
- The Role of non-CO2 gases; a multi gas strategy
- Evaluation of EU proposal on Emission ceilings[1]
Standard Model Specification:
There is one model for each region. All markets clear simultaneously and all agents correctly anticipate changes in all relative prices. The models are linked by consistent interregional flows of goods and services. It is furthermore assumed that each regional model consists of seven production sectors and a representative agent. All the regional models differ with respect to behavioural parameters, government policies, and endowments.
Sectors Energy
(1) Coal
(2) Petroleum
(3) Crude oil
(4) Natural gas
(5) Electricity
Sectors Non-energy
(6) Energy intensive sectors
(7) Other sectors[1]
All goods are produced using intermediate inputs and primary factors capital and labour, and all markets for goods and factors are perfectly competitive. The primary energy supply sectors crude oil, natural gas and coal furthermore use inputs of natural resources calibrated to represent positive supply elasticities. In all sectors, the production processes are represented with nested constant elasticity of substitution (CES) functions, and it is assumed that all firms behave competitively and select output levels such that marginal costs equal the given market price.
Only one good, crude oil, is perfectly homogenous across all regions. It is assumed that all other goods are differentiated according to the region in which they have been produced. Specifically, the Armington assumption is adopted for both imports and exports of the differentiated goods, and nested CES functions are used to characterise the choices between, first, the region-specific imports and, second, between the composite import good and the domestically produced variety. Finally, there are no restrictions on period-by-period trade balances, but it is assumed that each region cannot change its net indebtedness over the model horizon. This implies that there are no restrictions on capital flows and that the present value of net capital inflows over the model horizon equals zero.
The capital stock evolves via a constant depreciation rate and via new investments. It is assumed that it takes two years before new investments begin to provide capital services and new investments are allocated to equalise the rate of return in all sectors and regions. A partial putty-clay model of the capital stock captures time lags in the responses to changes in energy prices, reflecting that energy consumption is closely linked with long-lived capital stock such as power plants. Specifically, it is assumed that a share of the initial capital stock has no value outside the sector of current use (?clay?) and that the remaining capital and all new investments are malleable (?putty?) both at the time of installation and during subsequent time periods. Consequently, as the stock of initial, clay capital depreciates over time, energy demand elasticities increase.[1]
The labour supply is inelastic. The labour force grows at an exogenous rate and the entire labour force is always fully employed. Labour is perfectly mobile across sectors within a given region, but immobile between regions.
A representative agent in each region describes aggregate final demand, and the agent is endowed with an initial capital stock and a fixed amount of labour and natural resources in each period. The agent's lifetime income consists of labour income, rents from natural resources, and revenues from VAT, excise taxes, and border taxes and tariffs, and he allocates lifetime income across consumption in different time periods to maximise welfare. The agent is forward-looking and always correctly anticipates the future effects of announced policies.
Finally, the infinite horizon of the infinitely-lived representative agent is approximated by imposing balanced growth in investment in the terminal period of the model horizon. This provides for post-terminal capital as the agent would otherwise choose to reduce investments towards the end of the model horizon.[1]
Dynamic structure:
The capital stock evolves via a constant depreciation rate and via new investments. It is assumed that it takes two years before new investments begin to provide capital services and new investments are allocated to equalise the rate of return in all sectors and regions. Time lags in the responses to changes in energy prices are captured by via a partial putty-clay model of the capital stock. The infinite horizon of the infinitely-lived representative agent is approximated by imposing balanced growth in investment in the terminal period of the model horizon.
Main model results:
- Emissions / Abatement of CO2, CH4, N2O and HGWP (an aggregate of HFCs, PFCs and SF6) ;
- GDP, welfare costs, energy prices, emissions trading, international trade, oil production levels, government revenues[1]
Required technical infrastructure:
PC Software tool implemented in GAMS/MPSGE
Structure of Input Data:
GTAP database
Emissions data for non-CO2 emissions
Data on abatement options for non-CO2 emissions
Model Extensions:
see Model Versions[1]
Links to other Models, Projects, Networks:
The model has been used in connection with the research network Energy Modelling Forum (EMF)
Regional Scope:
The EDGE model covers the world aggregated to 8 regions:
Annex B regions:
(1) European Union (EU 15), including the EFTA countries (Iceland, Liechtenstein, Norway and Switzerland)
(2) United States (US)
(3) New Zealand, Australia and Canada
(4) Japan
(5) Eastern Europe and Former Soviet Union (FSU); this includes Russia and all the countries in Central and Eastern Europe
Non-Annex B regions:
(6) China
(7) Major oil exporters
(8) Rest of the world[1]
See also
References
Jensen, J.; Nielsen, C. and Rutherford, T., .The economic effects of the European ceilings proposal., Working Paper, Copenhagen Economics, 2000a.
Jensen, J.; Nielsen, C. and Rutherford, T., .Technical documentation of the EDGE model., Working Paper, Copenhagen Economics, 2000b.
Jensen, J. Flexible multi-gas climate policies, Working paper, Copenhagen Economics, 2004.