I. Introduction
3. AIM/Material/CGE Modeling
3. AIM/Material/CGE Modeling
The AIM/Material/CGE model, a country based CGE model with recursive dynamics is developed by Masui 8 in NIES (National Institute for Environmental Studies), Japan. It was used for an empirical study on the economic impacts of environmental policy intervention regarding CO2 reduction and solid waste management targets.
Figure I‐1 shows the production structure embedded in the model. The model follows the conventional CGE approach regarding the treatment of products and inputs. Labor and capital as a primary input for value added enter the Cobb‐Douglas type production function. The value added product together with the composed intermediate goods, composed energy goods and
7 AIM/Material, a bottom‐up model integrating economic and environmental dimension of Japanese economy and AIM/Material/CGE model, a top‐down model based on the AIM/Material model was developed by the research group in National Institute for Environmental Studies, Japan, see T. Masui(2000a).
8 Toshihiko Masui, ‘Policy Evaluations under Environmental Constraints using a Computable General Equilibrium Model’ National Institute for Environmental Studies.
masui@nies.go.jp
composed pollution enters a Leontief type production function for final goods and services.
With regard to the integration of the environmental protection activities and the emission of pollution, the model treats the pollution as an input in production process. For example, composed pollution goods produced with divers primary pollutions enter as an input in final goods and services. In this way, environmental policy target such as reduction of CO2 emission or pollution (or waste) emission could be interpreted as a physical restriction on the amount of CO2 input or pollution input.
And then the production of primary pollution, represented by 3 types of pollution management mode: Self management, Contract management and Discharge, uses intermediate goods, energy, environmental capital and labor as input. As the elasticity of substitution among the 3 types of pollution management in the model was assumed infinite, the model did not differentiate in fact each type of pollution management mode.
Figure I-1. AIM/Material/CGE Production structure commodity m
activity
input 1
energy
capital labor pollution 1 value added
Energy share is defined as the diffusion of stock
Reused material share is defined as the diffusion of stock.
CO2 CO2
commodity m
activity
input 1
energy
capital labor pollution 1 value added
Energy share is defined as the diffusion of stock
Reused material share is defined as the diffusion of stock.
CO2 CO2
As to the material feedback recovered after waste recycling, the model assumed that the recycled materials (or goods) entered the production of intermediate goods at the same time with produced goods. The elasticity of substitution between produced goods and recycled goods was assumed to be 0 and the share of recycled material depends on the diffusion of capital stock.
In Spite of the pollution management activities and composed pollution goods including CO2 as well as recycled materials was very sophisticatedly designed in the model conception stage, the 3 different activities managing pollution were integrated into one waste management sector in the actual model for the simplicity. Finally the linkage between recycled materials used as intermediate input for composed intermediate goods in the model was assumed to be products of waste management sector using intermediate goods, energy, capital and labor as input.
Regarding technological innovation resulting in input efficiency such as energy efficiency and waste management efficiency, it was assumed that the elasticity of substitution among all inputs is to be zero except two primary inputs for value added production. Although the energy input share is fixed
in advance, this value can be changed by the introduction of new equipment in the long term. It means that in a short term, the substitution of energy input and recycled waste does not occur as the investment efficiency is not changed. The technological efficiency improvement can be introduced then in an exogenous manner with the estimate coming from bottom‐up approach to the related technology. The basic AIM/Material/CGE model assumed also that the elasticity of substitution for the Armington9 technology is to be zero.
Figure I‐2 shows the latest version of waste flow structure in AIM/Material model developed by NIES. Wastes are handled in three ways, self management (intra firm), contract‐out management through specialized sewage or waste management company, and discharge without treatment into environment, in which an upper limit is set on direct discharges so as not to violate the domestic environmental regulation.
Solid wastes are disaggregated into industrial waste and municipal waste.
Each waste generation enters the process of direct reuse, direct final disposal, and intermediate management. The residuals from intermediate management are reused or disposed. Total reused wastes are supplied to the market as recycled materials. As we can see from figure I‐1, recycled wasted are used as intermediate inputs in the specific production sectors. For example, ash is used in the construction sector, the ceramic, stone, and clay products sector.
Quantification of this kind of flow of recycled waste depends highly on the availability and reliability of the raw data on the recycled material output from waste management sector and the recycled material input to specific production sector.
In its empirical simulation form, the AIM/Material/CGE model adopted a simplified waste flow structure and integration of the waste flow was done in exogenous manner.
9 The elasticity of substitution between supply goods, domestic and imported goods is to be zero. The price of import and export goods is set exogenously as numeraire.
Figure I-2. Waste flow in AIM/Material or waste reduction targets, the model designed several scenarios detailed in table I‐1. The results shows that the economic loss resulting from heavy regulations such as reduction of final solid waste disposal and CO2 reduction under the Kyoto Protocol amounted to 0.2% of GDP estimate in 2010 compared to BAU (Business As Usual) case. The study also found that a series of mixed environmental policy counter measures made Japan recover about 55% of its GDP loss due to enhanced environmental regulation.
It was also shown that, in addition to the 0.2% GDP loss in 2010 from stricter environmental regulations (Scenario2) in place, raw material production sectors suffer more severely from environmental constraint. But the restriction on the solid waste disposal stimulated waste recycling activities.
Increased environment investment gave environmental industry and waste management sector a direct promotion effect and as a result the activity level of related sectors was enhanced.
On the other hand, the model simulation results show that a
countermeasure might have a negative impact to other environmental issues such as air quality, in the case that the countermeasure contributed to the increase of fuel energy consumption. But the author there focused on the point that diverse environmental policy counter measures could mitigate the burden of stricter environmental regulation.
Table I-1. AIM/Material/CGE Simulation Scenarios
Scenarios Descriptions
Scenario 1 Without CO2 reduction(Kyoto Target) and final disposal(reference case)
Scenario 2 CO2 reduction and final disposal reduction are implemented(Constraint)
Scenario 3 Scenario2+various countermeasures for environmental preservation (Policy)
Countermeasure1 Increased environmental investment (+2%) and enhancement of environmental industry (+2%)
Countermeasure2 Improvement of solid waste management technology
Countermeasure3 Tax reform (50% reduction of capital and labor tax on water power generation)
Countermeasure4 Consumption pattern change (10% transfer in final consumption, from ELM1) to REP2)
1) ELM: Manufacture of electrical machinery, equipment, and supplies 2) REP: Car and machinery repair
II. Integrated National CGE modeling for Korea