the fiscal implications of climate change and policy responses
TRANSCRIPT
SPECIAL ISSUE
The fiscal implications of climate changeand policy responses
Paul Ekins & Stefan Speck
Received: 9 May 2013 /Accepted: 26 November 2013# Springer Science+Business Media Dordrecht 2013
Abstract This paper is concerned with the implications of climate change, and governmentpolicies to address it, for countries’ fiscal systems at the national level. Given the uncertaintiesassociated with climate change and countries’ responses to it, the article can do no more thanreview and suggest some of the major issues of likely importance for fiscal sustainability andhow they might be addressed. First the paper defines fiscal sustainability and addresses somegeneral issues related to countries’ attempts to adapt to or mitigate climate change. It thenworks through a number of more specific issues, discussing policies such as the implementa-tion of environmental taxes or other instruments for the mitigation of climate change. Theassessment of the impacts of such policies on fiscal sustainability requires the application ofsophisticated economic models, and the paper briefly explores the relative advantages ofdifferent modeling approaches in relation to the assessment of fiscal sustainability underpolicies to mitigate climate change. The major research need identified by the paper is forthe development of macroeconomic models that will enable countries identify the wider effectsof environmental taxes and help them undertake multi-year budgeting processes.
Keywords Fiscal sustainability . Climate changemitigation .Modeling climate change policies
1 Fiscal sustainability and climate change
This paper investigates the interactions between the concept of fiscal sustainability and climatechange, and the implications for fiscal sustainability of climate change and policies to addressit. The concept of fiscal sustainability relates to the balance between revenues and publicexpenditure over the business (or economic) cycle, which in turn is the name given to theperiodic economy-wide fluctuations in economic activity, around a long-term growth trendthat seem a feature of market economies. However, the term fiscal sustainability is not clearly
Mitig Adapt Strateg Glob ChangeDOI 10.1007/s11027-013-9533-4
P. Ekins (*)UCL Institute for Sustainable Resources, University College London, Central House, 14 Upper WoburnPlace, London WC1H 0NN, UKe-mail: [email protected]
S. SpeckEuropean Environment Agency, Kongens Nytorv 6, 1050 Copenhagen, Denmarke-mail: [email protected]
defined in the literature. One of the reasons for the lack of clarity is reflected in the way “inwhich the literature on fiscal sustainability has evolved, with practical indicators of sustain-ability being derived independently of, rather than emerging from, the theoretical frameworkthat is generally used to analyze sustainability” (Chalk and Hemming 2000, p.3). Burnside(2004, p.1) says: “The term fiscal sustainability has many definitions.” For example, in theWorld Bank’s standard definition, there is fiscal sustainability when “a country’s fiscal balanceand underlying trends are such that, in a steady state, the ratio of total public debt and debtservicing to macroeconomic aggregates like gross domestic product (GDP) is not increasingover time”. This may be compared with the definition used by the International Public SectorAccounting Standards Board (IPSASB), when it refers to “the ability of a government to meetits service delivery and financial commitments both now and in the future”1, while theEuropean Commission relates the term fiscal sustainability “to the ability of a governmentto assume the financial burden of its debt in the future” (EC 2012a, p.1). It is worth noting thatfiscal sustainability, like the business cycle that affects it, has an essential aspect of uncertain-ty2, discussed further below, which is likely to be exacerbated by climate change.
In a recent working paper published by the Czech National Bank, the author also discussesthe meaning of fiscal sustainability and comes to the conclusion: “Sustainability is defined in arather standard way—fiscal policy is said to be sustainable if the present value of futureprimary surpluses equals the current level of debt. This definition enables various sustainabilityindicators to be constructed. A good indicator of fiscal sustainability should signal, with asufficient lead, excessive debt accumulation” (Krejdl 2006, p.1). Factors determining the fiscalsustainability of a country include the anticipated income growth rate, the revenue as well asexpenditure growth rate, and the interest rate at which the country can borrow money fromdomestic or international capital markets to finance a fiscal deficit, the latter in turn beinginfluenced by a set of interlinked socioeconomic and political factors. The fiscal sustainabilityof a country can also be threatened by issues like an ageing population (as the health andpension expenditure will increase while the revenues decline at the same time); and environ-mental degradation and climate change, as economic assets and human capital are adverselyaffected undermining a nation’s tax base. In the latter case governments will require financialresources for financing climate mitigation and adaptation policies. In the past the main focuson fiscal sustainability has been related to the ageing population, at least in Europe (Langenus2006; Krejdl 2006; European Commission 2009, 2012a; Balassone et al. 2009).
Indicators for assessing fiscal sustainability have not yet been agreed, and a whole range ofdifferent indicators are suggested and used by different institutions and countries. Gagne(2010), by referring to a proposal of IPSASB, lists the following indicators: assets-to-liabilities; financial assets-to-liabilities; net debt-to-total annual revenue; net debt-to-GDP ortaxable assessment; accumulated deficit-to-GDP or taxable assessment, and total expenses andexpense by function-to-GDP or taxable assessment3. At the European level two indicators areroutinely calculated by the European Commission with the aim of determining anticipated
1 Cited at http://www.fmi.ca/uploads/1/Lynda_Gagne_Fiscal_Sustainability.pdf. See also Burnside 2005; WorldBank 2010a.2 See for example the work of the Economic Policy and Debt Department (PRMED) of the World Bank whichdeveloped a toolkit for assessing fiscal sustainability in the context of uncertainty http://web.worldbank.org/WBSITE /EXTERNAL/TOPICS /EXTDEBTDEPT/0 , , con t en tMDK:21718166~menuPK:64166739~pagePK:64166689~piPK:64166646~theSitePK:469043,00.html.3 Ben Bernanke, the current Chairman of the United States Federal Reserve highlighted in a recent speech thechallenge of achieving fiscal sustainability and stated that “One widely accepted criterion for sustainability is thatthe ratio of federal debt held by the public to national income remain at least stable (or perhaps even decline) inthe longer term. This goal can be achieved by bringing spending, excluding interest payments, roughly into linewith revenues” (see: http://www.federalreserve.gov/newsevents/speech/bernanke20100427a.htm).
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ageing-related costs. The first indicator, the so-called S1, is derived from a tax-gap indicatorand measures “the difference between the average tax ratio required to generate a debt ratioequal to 60 p.c. (rather than the initial level) at the end of a given period and the actual one”(Langenus 2006, p.5). The second indicator, S2, measures the change in the tax ratio requiredto equalize the present discounted value of all future primary balances to the current grosspublic debt (Langenus 2006, p.5). Sustainability indicators, as described by Balassone et al.(2009, p.5), “typically measure the size of an ‘early’ adjustment effort to restore fiscalsustainability”. However, the economic and financial crisis affecting several European coun-tries revealed the need for an improvement of the fiscal sustainability framework by furtherintegrating aspects like the analysis of fiscal and macroeconomic risks, as well as transparentaccounting of such risks and contingent liabilities4.
Two principles of fiscal sustainability, which have been adopted by the United Kingdom(UK) Government, are the so-called ‘golden rule’ of fiscal policy, which states that, over theduration of a single business (or economic) cycle5, the government will, on average, borrowonly to invest, and not to finance current spending; and ‘the sustainable investment rule’,“which holds that public sector net debt as a proportion of GDP should be held over theeconomic cycle at a stable and prudent level.”6 This implies that, leaving public sectorinvestment aside7, if governments wish to have the flexibility to run budget deficits at timesof economic slow-downs, they should more than compensate for this by running budgetsurpluses during periods of sustained economic growth. Identifying when economic cyclesbegin and end, and the appropriate fiscal position at any moment in the cycle in order tocomply with the golden rule, and the ‘stable and prudent level’ of public sector net debt, is amatter of judgment and experience that is neither straightforward nor definitive. The assess-ment of fiscal sustainability is therefore a matter of art as well as science, involving exami-nation of a range of issues that varies according to the country context.8
Explicitly investigating the impacts of climate change and its policy responses on fiscalsustainability constitutes a key element for planning robust climate change strategies thatwould support national development priorities and objectives. The literature on climate policyanalysis continues to display significant gaps in this respect, and there is a real need for
4 See for a recent paper discussing the modernizing of the fiscal sustainability framework: IMF 20115 An early use of the term ‘business cycle’ was in Burns and Mitchell (1946), where it is used to refer periodicfluctuations in GDP, which may involve expansion and then contraction. The same phenomenon had beenreferred to as an ‘economic cycle’ for at least a century.6 See the website of HM Treasury of the UK Government, http://webarchive.nationalarchives.gov.uk/±/http://www.hm-treasury.gov.uk/fiscal_policy.htm.
The ‘Golden Rule’ is a guideline for the operation of fiscal policy. The Golden Rule states that over theeconomic cycle, the Government will borrow only to invest and not to fund current spending. In layman’s termsthis means that on average over the ups and downs of an economic cycle the government should only borrow topay for investment that benefits future generations. Day-to-day spending that benefits today’s taxpayers should bepaid for with today’s taxes, not with leveraged investment. Therefore, over the cycle the current budget (ie, net ofinvestment) must balance or be brought into surplus. The core of the ‘golden rule’ framework is that, as a generalrule, policy should be designed to maintain a stable allocation of public sector resources over the course of thebusiness cycle (see http://en.wikipedia.org/wiki/Golden_Rule_(fiscal_policy)).7 The identification of investment is also not straightforward. Its essence is that it comprises spending that yieldsa return in a future period. However, ex ante it is often far from clear whether for any given spending (forexample, in education or some physical infrastructure) this will in fact be the case.8 Burnside 2005 is a fairly standard reference for techniques of fiscal sustainability analysis. TheWorld Bank gives arange of potential sources at http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTDEBTDEPT/0,,contentMDK:21718166~menuPK:4876076~pagePK:64166689~piPK:64166646~theSitePK:469043,00.html.World Bank 2010b discusses fiscal sustainability related to Afghanistan, while for an EU assessment of relevanttechniques see European Commission 2011, while European Commission 2012b contains reports on the publicfinances of EU countries.
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methodological approaches accounting for the various system-wide and feedback effectsbetween climate policies, avoided climate damages, fiscal sustainability, economic develop-ment, and social and ecological properties. This paper complements such novel methodolog-ical efforts to delivering development-compatible climate policies, such as the MCA4climateconceptual framework9, for which fiscal sustainability is part of an integrated system of marketand non-market criteria against which to evaluate climate policy impacts. It aims to pushdiscussions and research forward in the direction of incorporating fiscal sustainability concernsin climate change mitigation and adaptation plans for a more comprehensive assessment of thepotential for socially-inclusive green growth.
2 Policy and practice of adaptation to and mitigation of climate change
2.1 Adaptation
Given that some global warming is already taking place, and more is expected, governmentsneed to consider what measures need to be put in place to adapt to it—despite continuinguncertainties, already it is clear that some adaptation to probable climate events, to limit theirimpacts when they occur, is justified. To respond to this situation, first governments need togenerate an assessment of what anthropogenic and natural climate variability at expected levelswill mean for different parts, and ecosystems, of their country, bearing in mind the likelyimpacts of increased temperatures, greater rainfall in some seasons and areas, and less inothers, sea-level rise, and increased storm and other extreme-weather severity. Clearly theseeffects will differ widely between countries, and within large countries. Assessing themrequires the use of finely granulated climate models, the results of which are still subject toconsiderable uncertainty, though significant advances have been made in this respect in recentyears (IPCC 2012; Goyal and Ojha 2013). On the basis of the projections of such models,policy makers will need to decide what measures to put in place to both pro-actively avoidclimate change-induced damages and effectively deal with the aftermath of climate-relatedevents.
Measures for adaptation to climate change may include early-warning systems (e.g. forstorms), flood defenses, or changes to construction or infrastructure to ensure that they willwithstand stronger impacts from changes in the weather. They may also include measures toprevent an increase of damages from climate impacts (for example, planning systems thatprevent the building of houses in flood plans or on vulnerable slopes subject to mudslides).Another important class of measures will be to facilitate the migration of species and, perhaps,whole ecosystems, as temperatures become warmer and exceed those within the species’ orecosystems’ current range for survival. Fiscal sustainability is relevant to this situation mostobviously because some or most of these adaptation measures may have fiscal (i.e. publicexpenditure) implications (for example, flood defenses against sea-level rise). Their associated(fiscal) cost to government will have to be calculated, as well as the overall impacts on theeconomy, using macroeconomic models. On the other side, if such expenditures are welljudged and effective in preventing climate-induced damages then adaptation policies may havea very important positive impact in terms of avoided expenditure increases (to deal with ex-post disaster management) and avoided losses in government revenues (e.g. via economic orbusiness losses due to weather-related events), not to mention the avoidance of human life loss,suffering and misery, and the destruction of local ecosystems. In this context, adaptation may
9 See for further information http://www.mca4climate.info/
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have a long-term positive implication for fiscal sustainability simply by avoiding damages andrendering economies and societies more resilient. It is therefore both useful and important toinclude here a comprehensive discussion of the full impacts of adaptation policy on fiscalsustainability; i.e. to include not only public expenditures incurred when adapting to climatechange but also the public expenditures saved and/or government revenue loss avoided due toclimate damages (the former are more tangible, straightforward, whereas the latter are moreuncertain and hypothetical, though the threat is real)10.
Governments should therefore invest in and establish adaptation planning processes, inorder to assess the consequences of climate change and identify positive benefits of adaptationexpenditures. The integration of climate change adaptation planning into the overall policyframework of a country will make it more likely that financial resources are invested wisely11,but such integration will require the adaptation of government institutions, as well as infra-structure, to dealing with climate change (RCEP 2010). As already noted, many differentimpacts and dimensions need to be considered in relation to adaptation, with assessments ofboth the scope and time path of adaptation expenditures. As important as public investments ininfrastructure are investments in research with the aim of reducing the uncertainty over theoutcomes of climate change. Yet considerable uncertainty about these outcomes, and thereforethe wisdom of the infrastructure investments, is likely to remain. This makes challenging thejustification of perhaps substantial expenditures today in order to gain uncertain benefits,perhaps in the distant future. Moreover, some of the benefits of adaptation policies may be inthe form of co-benefits. For example, investment in urban green space to reduce urbantemperatures and heat stress may also reduce local air pollution and therefore health expen-ditures. It is important that policy makers, when making decisions which have long-termimplications, understand as far as possible the full range of links between their current actionsand future outcomes. These links can be revealed through the construction of models thatcapture both the environmental and fiscal implications of policies to adapt to climate change.Needless to say, this is a far from trivial task, because climate change impacts are bothuncertain and non-linear, so that the models should have non-linear dynamics and be specifiedin terms of probability distributions, as well as integrating possible feedback-loops and longer-term interactions inside some decision-analytic model. Estimates of the potential costs ofadaptation as well as mitigation show the order of magnitude of financial resources which haveto be raised by the public as well as by the private sector. These are of great relevance whendiscussing fiscal sustainability. These costs estimates are uncertain but suggest that, forexample, the incremental costs of adaptation in developing countries are estimated to be inthe range between USD 30 and 100 billion dollars per annum between 2010 and 2050 (WorldBank 2010a). The estimates of the 2010 Economics of Adaptation to Climate Change (EACC)study are rather similar but the range is smaller amounting of between USD 70 and 110 billionper annum between 2010 and 2050 (World Bank EACC 2010). The amounts estimated by theWorld Bank required for incremental investments of mitigation in developing countries add upto between USD 265 and 565 billion per annum (World Bank 2010a). It is self-evident thatthese funds cannot be provided solely by the public sector, meaning that incentives will need to
10 The scale of potential adaptation expenditures obviously depends on the extent of climate change, theconsequent impacts that are expected, on which space precludes any discussion here. The interested reader isreferred to the shortly forthcoming report on the impacts of climate change from Working Group 2 of theInternational Panel on Climate Change (IPCC).11 For example, see the US Federal Agency Climate Change Adaptation Planning Implementing Instructions asof March 4, 2011: http://www.whitehouse.gov/sites/default/files/microsites/ceq/ADAPTATION%20FINAL%20IMPLEMENTING%20INSTRUCTIONS%203_3.pdf.
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be put in place to encourage the private sector to contribute to the closing of the financinggap12.
2.2 Mitigation
Governments have now developed many different kinds of policies in order to mitigate climatechange. These policies may be grouped into four categories (Jordan et al. 2003):
& Market/incentive-based (also called economic) instruments, which directly change therelative prices and costs of inputs or processes in favor of those with less environmentalimpact.
& Classic regulation (or command-and-control) instruments, which seek to define legalstandards in relation to technologies, and environmental performance, pressures oroutcomes.
& Voluntary (also called negotiated) agreements between governments and producing orga-nizations, which amount to agreed self-regulation.
& Information/education-based instruments, which promote awareness of the relevant issueor of more eco-efficient products.
Of all policies for the mitigation of climate change, the use of economic instruments has themost obvious relevance for a country’s fiscal position and sustainability, because economicinstruments directly affect the government budget by raising revenues as well as (like otherinstruments) changing economic structure and the direction of economic innovation. Ofcourse, regulatory measures also have the potential to change economic structures, withcorresponding fiscal implications, and are therefore also relevant for assessment of fiscalsustainability, but they are not the primary focus here. Major economic instruments used forthe mitigation of climate change include:
& Taxes and charges, especially carbon/energy taxation (impact on transport, industry,households)
& Trading schemes, especially carbon emissions trading (mainly industrial emissions)& Feed-in tariffs, obligations (which are charged on consumer bills and the latter of which
may be implemented through green certificates)& Subsidies, both environmentally friendly and environmentally harmful subsidies (both
types have a negative effect on the public finances but different ‘climate’ implications),including tax exemptions
& Payments under the Clean Development Mechanism (CDM) or Joint Implementation (JI)possibility introduced under the United Nations Framework Convention on ClimateChange Kyoto Protocol
& Payments (currently being negotiated) for ecosystem services, such as those being negoti-ated for the Reduction of Emissions from Forest Destruction and Degradation (REDD), andREDD Plus, which also includes enhancing existing forests and increasing forest cover.
& Green fiscal reform, which entails a systematic shift in the tax base away from taxes onincomes and profits (sometimes characterized as ‘goods’) towards taxes on resource useand pollution (sometimes characterized as ‘bads’)
Carbon and energy taxes, and auctioned tradable permits, raise revenue, which allowsincreased public expenditure or the reduction of other taxes, the latter of which may give rise to
12 See for an extended discussion of the estimates of the costs of climate change and the potential sources:Chapter 6 of the World Development Report 2010 (World Bank 2010a).
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a ‘double dividend’ of increased output as well as reduced environmental impacts (Pearce1991; Fullerton and Metcalf 1997; Ekins and Barker 2001). Numerous articles discussing thedouble dividend hypothesis are published including empirical articles which make attempts toassess the existence and size of it (Schoeb 2006; Bento and Jacobsen 2007; Bovenberg et al.2008; Jaeger 2012). However, these revenues will change over time, most obviously as carbonemissions decrease. Governments need to assess how streams of revenues from such economicinstruments will change to ensure that they continue to receive the tax revenues they need.Similarly, governments may provide subsidies, such as feed-in tariffs or capital grants, forvarious kinds for emissions reduction, particularly in order to stimulate deployment of low-carbon technologies. The take-up of these subsidies needs to be projected and carefullymonitored to ensure that they remain affordable. Finally, it may be that the government isalready providing environmentally perverse subsidies (i.e. subsidies that effectively increasecarbon or other greenhouse gas (GHG) emissions). Removing such subsidies may yield aneconomic as well as an environmental dividend.
2.3 Examples of fiscal measures implemented by countries in tackling climate change
In addition to already existing energy taxes (excise taxes levied on energy products) numerouscountries introduced carbon dioxide (CO2) taxes during the last 20 years as part of their climatechange policies, in particular Northern European countries, such as Denmark, Finland, Swe-den, Norway, but also the Netherlands, UK and Ireland. However, the introduction of carbontaxation schemes is not limited to Europe as other countries and provinces have implementedCO2 taxes as well, including Australia and British Columbia (Canada) (Sumner et al. 2009;IMF 2012; Speck 2013). In recent years the interest in the discussion of subsidies has alsoincreased as shown by the publication of several reports published by international organiza-tions, such as the International Monetary Fund (IMF) (2012) and the Organization of Eco-nomic Co-operation and Development (OECD) (2013), presenting estimates of the magnitudeof subsidies provided.
Experience drawn from different European countries suggests that CO2 taxes have provedeffective, as they, together with the existing energy taxation schemes, have led both to areduction in CO2 emissions and to reduced fossil fuel consumption as shown in Table 1, whichis taken from the final report of the Green Fiscal Commission (GCF 2009).
A very recent evaluation of the carbon dioxide tax of British Columbia (BC) also illustratesthe effectiveness of this type of fiscal instrument, as the consumption of petroleum fuelsdecreased more in BC than in the rest of Canada. Furthermore, GDP growth in BC was higherthan in the rest of Canada therefore providing no support for the frequent assertion that carbontaxes have a negative influence on GDP growth (Sustainable Prosperity 2012). Another studyof BC’s carbon tax also confirms the environmental effectiveness of the tax in reducing energyconsumption (Rivers and Schaufele 2012). Another type of fiscal instrument aiming tomitigate climate change as well as having an impact on public revenues is emission tradingschemes, as for example the European Union Emission Trading System (EU ETS). Under theEU ETS, auctioning of carbon allowances is increasing from 2013 onwards, reaching 70 % by2020, with the free allocation of carbon allowances only provided to economic entities whichare deemed to be significantly exposed to international economic competition (Bowen 2011).
Despite the theoretical advantages of carbon taxes in terms of reducing carbon emissions,energy taxation schemes not only still outnumber carbon taxation schemes but also therevenues generated from carbon taxes and the auction of emission allowances are still muchless than energy tax revenues. However, recent years have seen an increase in the number ofcountries that have already implemented or are in final stages of implementing carbon pricing
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schemes, either via carbon taxes or emission trading schemes. They are not only developedcountries, such as Japan which implemented a carbon dioxide tax in 2012, but also developingcountries and countries in transition, such as parts of China, Ukraine, and South Africa, aremaking increased use of these instruments (Ekins and Speck 2011). The World Bank reportedin 2013 that “Today, jurisdiction with carbon pricing mechanisms implemented and scheduledemit roughly 10 GtCO2e/y, equivalent to 21 % of the 50 GtCO2e emitted globally” (WorldBank 2013, p.12). These market/incentive-based instruments are considered to be more cost-effective in achieving environmental and climate policy goals than regulatory schemes (OECD2001; IMF 2012). However political economy analysis suggests that the best results may be
Table 1 The impact of energy and carbon-based taxes
Country and tax Period evaluated Impact
Finland carbon/energy tax 1990–2005 • CO2 emissions were 7 % lower than they would haveotherwise been
• A shift from carbon tax to an output tax on electricityimplemented in 1997 may have lessened the impact
Norway carbon dioxide andsulphur dioxide taxes
1991–2007 • A 21 % reduction in CO2 emissions from power plantsby 1995
• A 14 % national reduction in CO2 emissions in the1990s, of which 2 % is attributed to the carbon tax
• A 12 % reduction in CO2 emissions per unit of GDP
Denmark—carbon tax andenergy tax
1992–1997 • CO2 emissions in affected sectors were reduced by6 % although during the period 1988 and 1997 theeconomy grew by 20 %. A 5 % reduction in CO2
emissions in 1 year is attributed to the carbon andenergy tax increase
• In the 1990s a 23 % reduction in CO2 emissions fromthe business as usual trend was calculated. In addition,energy efficiency increased by 26 %
• Subsidization of renewable may have accounted for agreater proportion of CO2 emissions reductions thanthe carbon tax
Sweden energy and carbontaxes
1990–2007 • CO2emissions were reduced by 0.5 million tones of CO2
per annum• CO2 emissions would have been 20 % higher than the
1990 level without the introduction of the carbon/energytax scheme
The Netherlands energy tax 1999–2007 • CO2 emissions were 3.5 % lower than they would haveotherwise been
• The low tax rates are likely to have limited the impact
Germany—green fiscal reform,taxes on transport, other fuelsand electricity
1999–2005 • CO2 emissions were reduced by 15 % between 1990 and1999 and by 1 % between 1999 and 2005
• CO2 emissions were 2–3 % lower by 2005 than theywould have been without the tax
• German re-unification was an important factor in CO2
emissions reductions
UK - industrial energy tax 2001–2010 • UK CO2 emissions were reduced by 2 % in 2002 and2.25 % in 2003, cumulatively saving 16.5 milliontones of CO2 up to 2005.
• A reduction in UK energy demand of 2.9 % by 2010 isestimated
Based on GCF 2009, Table 3.1
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achieved by applying a mix of market-based instruments and classic regulation instruments,rather than just one or the other (OECD 2006).
An analysis of fiscal measures addressing climate change policies is not completeif it does not include the discussion of fossil fuel subsidies. This topic is crucial toour discussion of fiscal sustainability in the context of climate change policies as theprovision of fossil fuel subsidies is in conflict with any policy actions to reduce CO2
emissions as well as having a negative impact on public budgets. The latest figurespublished by the International Energy Agency (IEA) record an increase of subsidieson fossil fuel consumption from USD 300 billion (approx. €215 billion) in 2009 toUSD 409 billion in 2010 (approx. €306 billion) (IEA 2011)13. The IEA also reportedan increase in renewable energy subsidies which are still minor in scope whencompared to fossil fuel subsidies. They increased by 24 % to USD 88 billion (approx.€63 billion) in 2011. The IEA reports the need of a further increase in such subsidiesto about USD 240 billion in 2030 if the trends projected in IEA’s New PoliciesScenario are to be achieved (IEA 2012a). In 2013, the IMF published a reportestimating subsidies for petroleum products, electricity, natural gas and coal. Basedon this analysis the IMF scholars concluded that overall these subsidies account forabout 3.2 % of global GDP or 10 % of total global government revenues in 2011(IMF 2013).
Feed-in tariff (FiT) schemes are enacted in developed as well as developing countries as aneconomic instrument to support investment in renewable energy technologies. This policymechanism has in common with the above mentioned fiscal measures that it is used formitigating climate change and FiTs have been described as “the most efficient and effectivesupport schemes for promoting renewable electricity” (EC 2008, p.3). However, the implica-tions for the public budget of countries and therefore for their fiscal sustainability are not asstraightforward as for example in the case of carbon taxation schemes, as feed-in tariff schemescan be designed by the legislative authority to affect consumer bills rather than the publicbudget directly.
3 Model evaluation of mitigation policies14
3.1 Different modeling approaches
Policies to mitigate climate change seek to reduce emissions of (GHGs) and, less often, toincrease their uptake from the atmosphere by natural systems. Often such policies seek tore-structure over time major elements of the economy, such as the energy system. It istherefore to be expected that these policies may have significant implications for the publicfinances. In order to gain insights into these implications, it is necessary to develop andutilize macroeconomic models of the economy, or economies, in question. Such modelsare normally constructed with specific broad questions in mind, and those for assessing thefiscal implications of climate change and its mitigation may seek to include models of(with illustrative questions):
13 See for an overview of support measures to fossil-fuel production or use granted in OECD countries: http://www.oecd.org/site/tadffss/14 While this section focuses on the mitigation of climate, many of the points made also apply to modelingadaptation to climate change. However, modeling adaptation must also consider systemic and local policiesimplying that for example regional scale models may be used for modeling adaptation.
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& The climate system (forecasts with different emission scenarios and assumptions aboutclimate sensitivity): how will anthropogenic GHG emissions affect the climate? (IPCC2007)15
& The energy system (scenarios of different developments in technology and behavior on thesupply and demand side): what will GHG emissions and energy system costs from theenergy system be?16
& The economic system (impacts on the economy of different developments in the energysystem): how will different developments in the energy system affect the economy?
& The financial system (models of carbon markets, e.g. the Global Carbon Finance modeldeveloped by the UK Government17): how might global carbon trading develop underdifferent scenarios of climate change mitigation, and what are the prices of carbon andNorth–south financial flows under these scenarios?
& Combining some or all of these gives Integrated Assessment Modeling (IAM, IPCC2007). For the future, a major question for modeling is: how will climate change affectthe energy system (e.g. water for nuclear power stations) and the economy (can we assumecontinuing economic growth?)
To be fit for this purpose, the economic dimensions of the models, which may be IAMs orsimpler models as appropriate, should represent all sectors of the economy, including theenergy sector and the government sector, with the ability explicitly to model differentgovernment policies, and its main trade linkages with other national economies. For furtherdetails about the different kinds of models that can be employed for these purposes see theAnnex to this paper, and the many references there to the different kinds of models, and themodeling issues they raise. Suffice it to say here that such modeling is both complex andhighly skilled. The various assumptions that are made about the relationships and interactionswithin the economy, concerning which there is often no generally ‘right’ answer, are often amatter of expert judgment, with some assumptions being more appropriate in some circum-stances than others. The economic structures in the models to which these assumptions giverise are not surprisingly of crucial importance to the results that are obtained. With these pointsin mind a number of issues may be considered in relation to fiscal sustainability and climatechange, bearing in mind the various definitions of fiscal sustainability. What follows sets outthe arguments in relation to these issues and gives guidance as to how policy makers may seekto address these issues.
3.2 Modeling baseline fiscal sustainability in the absence of climate change
The fiscal systems of different countries vary enormously, as do the levels, types andsophistication of analysis and projections which are carried out for them. However, forcountries to have any idea of the impact of climate change or climate change policies on theirfiscal system, they must have a model of their fiscal system and some projections of how the
15 IPCC 2007 (p.749) discussed and assessed many of these models and considered that “SAT [surfaceatmospheric temperature] warming for a doubling of atmospheric carbon dioxide (CO2), or ‘equilibrium climatesensitivity’, is likely to lie in the range 2 °C to 4.5 °C”, but the current emissions trajectory will result inconsiderably higher atmospheric concentrations. IPCC (2007, p. 763, Table 10.5) suggests that the A2 emissionstrajectory, which implies little mitigation effort, will result in a global average mean SAT rise of 3.13 °C from1980 to 1999 levels by 2100. This is about 4 °C above pre-industrial levels. See http://www.ipcc.ch/pdf/assessment-report/ar4/wg1/ar4-wg1-chapter10.pdf.16 See, for example, the MARKAL/TIMES energy system model used by the International Energy Agency in itsEnergy Technology Perspective reports, e.g. IEA 2012b.17 Available under restricted access at http://www.glocaf.org/.
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public finances will develop in the absence of climate change. This model will need to includeprojections of economic growth, population and demographic change, investment, governmenttaxes and spending, sectoral net savings, and trade, at a minimum. Economic modeling is acomplex and uncertain art at best, and the uncertainties increase exponentially as the projec-tions go further into the future. Beyond about 10 years, the projections become more scenariosthan forecasts, and their results for such issues as fiscal sustainability are little more thaninsights into possible implications and prompts to consider issues that might otherwise getoverlooked. Modeling of any kind is a skilled and complex activity if the models are to deliveruseful insights. Their utility depends not only on their valid construction but the maintenanceof an expert team that can run, develop and interpret the model in the light of current events.Econometric models are generally to be preferred for short- and medium-term analysis,including the effects of policies. They may also be projected into the longer term, but suchprojections become much more exploratory and uncertain, given the structural issues discussedabove. General equilibrium models are generally considered more appropriate for projectinglonger-term developments, although there are increasing concerns about the validity of theirtheoretical assumptions. Issues of fiscal sustainability are relevant in the short, medium andlong term, with a fine judgment to be made about the weight to accord to each (for example,see the argument for a green fiscal stimulus in times of Keynesian unemployment in Bowenand Stern 2010). Where the short and medium term seem most important, an econometricmodel would be the model of choice out of these two classes of models for gaining insight intothese issues.
3.3 Ancillary costs and benefits from the mitigation of climate change
In addition to its principal objective of mitigating climate change, the reduction of GHGemissions may have a range of secondary (or ancillary) effects that may be costs or benefits.On the benefits side, a major example is the reduction in local air pollution that mayaccompany any reduction in carbon emissions from burning fossil fuels. This reduction oflocal air pollution stemming from the reduced use of fossil fuels and the consequent improve-ment in air quality will have positive effects on health, with a reduction in health-related publicas well as private expenditures, and consequent positive consequences for the public budget,both from reduced public health expenditures and from increased productivity. Depending onthe location of the air pollution, its reduction may also increase the productivity of agriculture.There exists a growing literature on analyzing the ancillary benefits of climate policies (OECD2004; Jamet and Corfee-Morlot 2009; Bollen et al. 2009) as well as the linkages betweenclimate change and air pollution policies, including estimates of costs and benefits of policies(PBL 2009).
Another example of a positive ancillary effect, of macroeconomic rather than health benefit,is the reduction in fossil fuel imports for energy-importing countries that reduce emissionseither by increasing energy efficiency or by substituting fossil fuels with low-carbon, domesticalternatives (e.g. wind power). The fiscal implications of reduction in energy consumption canbe considerable for countries heavily reliant on importing energy products as it would meanthat the trade balance can improve, through the reduction in imports. This reduced dependenceon fossil fuels for energy-importing countries may also increase energy security, reducing theireconomies’ exposure to volatile world energy prices, with further benefits to GDP and,therefore, to the public finances. Furthermore, reduced fuel imports will also reduce the overalltransport of energy products which itself will reduce the emission of GHGs. The ancillary costsand benefits from the mitigation of climate change could be assessed in a bottom-up, oftenpartial equilibrium, way providing a first-order assessment of the ancillary costs and benefits,
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but these would be modified through interactions between all the related parts of the economy.The assessment of these, and economy-wide fiscal effects, could only be carried out throughthe use of a full top-down economic model as discussed above.
3.4 The stimulation of technology for the mitigation of climate change
One of the great hopes for climate change mitigation is that new technologies (of both energyefficiency and low-carbon supply) will be developed in order to reduce GHG emissions.Countries may support the development of these technologies in a variety of ways, includingthrough general innovation policies and economic instruments. Market prices, if at an appro-priate level, may also stimulate their development. It is easiest to model public policy supportfor new technologies if this support is through economic instruments. As discussed abovethese may include:
& Granting of subsidies and/or tax breaks for innovation activities (financial support ofresearch activities)
& Investment subsidies—financial support for the diffusion of new technology/deploymentof new technologies
& Feed-in tariffs—renewable energy projects can get a head start as experienced in countrieslike Germany and Spain. There are no direct fiscal implications for state budget as feed-intariff schemes can be designed so that electricity consumers pay the price surchargedirectly. However, there may well be indirect fiscal implications. For example, thedevelopment of renewable electricity may affect employment which may have an effecton the income tax intake by the state. It may also change the consumption behavior of thepopulation as a consequence of higher electricity prices which could lead to changes in thetax base.
& An obligation or portfolio standard, sometimes implemented through green certificates—an example is a requirement to increase the share of renewable in the energy/electricitymix. In this case too there are no direct budgetary implications for the state.
If the development of these technologies is successful then countries may derive newcompetitive advantage from the deployment and export of these technologies. Depending onthe countries’ fiscal system, this could generate substantial tax revenues. Countries need toassess the prospects of such developments realistically in order to estimate their fiscal impact.
3.5 Dealing with uncertainty in evaluating climate policy impacts on fiscal sustainability
An assessment of the uncertainties related to climate change is essential to get reliableguidance and advice as to what to do about it. Most countries are now convinced thatanthropogenic climate change is occurring and may have potentially very serious negativeconsequences. However, countries differ as to what should be done about it. It is most unlikelyon the basis of the scientific evidence available that the remaining pervasive uncertaintiesabout climate change should lead countries to wait and see, i.e. do nothing about it at this time.The reason for this is simply that by the time the existence of serious impacts becomes certainand obvious, there may no longer be the ability to avoid very serious, or even catastrophic,effects. Some action against climate change is therefore definitely desirable. Uncertaintyanalysis is an important part of reconciling different views about what to do about climatechange and when to do it, both at a country level, between different countries, and at globalnegotiations. However, no amount of such analysis can definitively characterize the risks anddangers of climate change, particularly those of a high-impact low-probability nature. Such
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risks call for the application of the precautionary principle, such that climate change mitigationmeasures are taken to reduce to very low levels the probability that thresholds that may triggerthese risks and dangers (so-called tipping points) will be exceeded. The international commu-nity implicitly agreed this approach at the Copenhagen and Cancun climate change meetings,when it agreed that average global warming should be kept within a 2 °C limit (althoughpolicies have yet to be put in place to achieve this). This issue demands a step-by-stepprocedure to systematically analyze the uncertainties relating to the different elements ofclimate change, including:
& Its physical impacts. This requires climate models at the appropriate level of resolution,with some expression of the uncertainty associated with their outputs. The models shouldalso be used to try to identify tipping points at which climate change might accelerate ordangers become very great.
& The individual socio-economic effects of the physical impacts. This requires the effect ofeach impact on the socio-economy to be assessed and expressed in an appropriatequantitative way, which may or may not entail its expression in monetary form. Thisshould include an assessment of each impact’s implications for public expenditure, if any.
& The overall economic effects. As repeatedly noted, assessing such effects requires the useof a macroeconomic model, and its projection into the future. One of the outputs of themodel should be the overall impacts on the country’s fiscal position.
Ideally, each element of uncertainty relating to climate change should be separatelyassessed as described above, with probability distributions assigned to the various impactsand outcomes. Through such a technique as Monte Carlo analysis, this would then allow a fullprobabilistic characterization of the uncertainties relating to the various issues, and overall. Tothe extent that this is not possible, because of lack of availability of the required data, as muchas possible of the different elements of the assessment should be undertaken to the degree ofdetail permitted by the data that is available. Data collection and model improvement shouldbe undertaken in order both to reduce the level of uncertainty in the assessment and improvethe accuracy of the parameters through which it is characterized, which influence the results ofsubsequent projections. High-impact low-probability events cannot be dealt with in this way,because it is not possible meaningfully to assess the probability level. Insights into eventsarising from such possibilities may be gained by scenarios, but catastrophe scenarios are oftennot very helpful for planning or policy purposes, and may best serve to reinforce politicaldetermination that such events should be avoided by prior preventive action.
4 Creating mechanisms for long-term fiscal planning in the face of climate change
The discussion above indicates that there are powerful arguments for countries to engage inlong-term fiscal planning in relation to climate change. However, the uncertainties involvedalso mean that such planning is very challenging. For most countries the planning will requirenew institutions and new tools for modeling and foresight to create scenarios of possiblefutures to which this planning needs to respond, incorporating the impacts of different eventsof different severity arising from climate change, and or government responses to these. So far,even for industrial countries with the institutions, models and requisite expertise, such planningis in its infancy. The first point to be made is that an annual budgetary process, which is stilldominant in most countries, is completely inadequate for such considerations. Bodies like theOECD are advocating multi-annual budgeting to promote fiscal stability even without anyreference to climate change (Petkova 2009), and the uncertainties in the prospects of climate
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change considerably reinforce their arguments. Another example is the long-term budget of theEuropean Union (multi-annual financial framework) to account for investments in pan-European public goods.18
In line with the discussion of modeling above, these multi-year budget forecasts need firstof all to establish a framework for fiscal sustainability in the absence of climate change, givinginsights into the evolution of such variables as expenditure, income, and any financial deficitunder existing law and a given economic framework. The multi-year budgeting process shouldinclude a medium-term expenditure forecast, and should be explicitly constructed to overcomethe all-too-common failure to link policy, planning and budgeting adequately. It should alsospan elections and, to reduce political bias, should be carried out by an independent institutionsuch as, in the UK, the recently established Office for Budget Responsibility (OBR)19. Finally,a balance sheet accounting system should be adopted, as well as better current tax andspending accounting and a proper treatment of contingent liabilities.
Against this no-climate-change baseline the impacts on fiscal sustainability of climatechange, and of measures to address it, can then be evaluated. As already noted, this willinvolve the consideration and modeling of multiple and pervasive uncertainties, although thereis clearly a limit to what can be considered if an ‘explosion of uncertainties’ is to be avoided.Like the choice of modeling structure, what to include or exclude in any given situation islikely to be a matter of expert judgment. To generate insights into the implications of differentuncertainties, different scenarios should be constructed that span the range of effects fromclimate change that are considered likely, with sensitivity analysis around the major impacts tosee which the most effect on fiscal sustainability. The scenarios should include policies both tomitigate and to adapt to climate change, especially in terms of the environmentally relatedexpenditures that are likely to be required, and the impacts on fiscal sustainability assessed.The scenarios should be generated with as much involvement of civil society as possible in thepolitical and cultural context concerned. Timely actions to mitigate and prevent climate changewill require both the commitment of large-scale resources and significant changes of habitualbehavior. Many of the changes (for example, in agricultural practices, or in energy use inbuildings) will require either expert knowledge from stakeholders, or buy-in from those whowill need to make the changes, or both. Civil servants or researchers involved in generatingscenarios will need to engage intensively with stakeholders to ensure both that their recom-mendations are well founded and that they can command the necessary public support.
A potentially useful means of organizing information about environmentally relatedexpenditures is the Public Environmental Expenditure Review (PEER), which is a tool foranalyzing in detail the sources and destinations of environmental financial resources. Likemulti-year budget forecasts PEERs have been recommended by the World Bank quiteapart from considerations of climate change. The World Bank suggests that publicenvironmental expenditure can be categorized as in Box 1 (Markandya et al. 2006). It isclear that a number of these categories are very relevant to the kinds of public expendituresthat are likely to be necessary in both mitigation of and adaptation to climate change.These PEERs build on and supplement the environmental protection expenditure accounts(EPEA) that are already included in the System of Environmental-Economic Accounting(SEEA) Framework for the purpose of identifying and measuring society’s response toenvironmental concerns (UN 2012).
18 For a discussion of the purpose and process of setting such frameworks see http://ec.europa.eu/budget/documents/multiannual_framework_en.htm.19 This produces a range of economic analyses and forecasts to provide input into government budgeting; seehttp://budgetresponsibility.independent.gov.uk/.
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Box 1. Defining and classifying environmental expenditure
• Control of outdoor air pollution
• Water supply, sanitation, and hygiene
• Reduction of vulnerability to natural disasters
• Control of indoor air pollution
• Control of soil degradation
• Watershed and water resources management
• Control of deforestation; reforestation
• Protection of biodiversity, landscape, and national protected areas
• Public space and urban environmental management
• Wastewater treatment
• Hazardous waste management
• Municipal solid waste disposal
• Mitigation of emissions of greenhouse gases and ozone-depleting substances
• Other environmental protection expenditures
Finally, measures to increase fiscal sustainability should be proposed and, if possible,modeled in the same framework as that used for the baseline and impacts from climate changeand climate change policies. Such policies may include the imposition of carbon taxes orauctioning of permits to raise revenues; or the imposition of a requirement for people to takeout private insurance against climate change impacts (where it is being offered) to reduce theexposure of government revenues to these events.
5 Conclusions and future research
This paper has examined what is meant by fiscal sustainability and the implications for suchsustainability of government expenditures on both the adaptation and mitigation of climatechange.
Fiscal sustainability essentially refers to the ability of a government to service its debt overthe business cycle and longer term. Expenditures on adaptation to climate change are relevantto fiscal sustainability because some expenditures will need to be financed by the public sector,but they should also reduce the need for post-disaster expenditures in the future. Givenuncertainties relating to the future impacts of climate change, deciding on the appropriatelevel of adaptation expenditure is challenging. Investment in improved, more granular model-ing of climate change at regional and local levels could yield good dividends in terms ofinformation about the level of adaptation expenditure likely to be cost-effective.
Economic instruments for the mitigation of climate change by reducing emissions of green-house gases have an impact on public budgets because they either raise revenue (taxes andemission trading schemes) or involve expenditures (subsidies). Revenue-raising economic in-struments seem particularly effective instruments at a time when fiscal consolidation is required.Subsiding fossil fuel consumption, on the other hand, damages both public budgets and theenvironment. Macroeconomic modeling is essential to understand the effects of climate changemitigation policies on countries’ fiscal position. Despite uncertainties in such models, care shouldbe taken to include in their projections the effects of stimulating new technologies for emissionreduction, and any development impact assessment of the policy instruments should take accountof any ancillary costs and benefits arising from their application.
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Finally, climate change calls for long-term fiscal planning using models and scenario projectionsto explore the uncertainties associatedwith particular climate change outcomes.Multi-year budgetingprocesses can help both to facilitate long-term planning and provide the flexibility to adapt tounexpected events. Practically no countries currently undertake such planning, and the great majorityare ill-prepared to undertake it. They need to develop the requisite tools and institutions so that asclimate change takes hold they are equipped to respond effectively to its impact on their finances.
Acknowledgments The authors would like to express their thanks to Şerban Scrieciu for helpful input into anearlier version of this paper, particularly during the inception of the MCA4climate UNEP project, as well as thecurrent draft, to Zaid Chalabi, and to various anonymous reviewers. Any remaining errors or omissions are ofcourse the responsibility of the authors. Please note that the views expressed in this article are those of the authorsand may not in any circumstances be regarded as stating an official position of the European EnvironmentAgency or its Management Board, or of any other organization.
Appendix. Modeling for energy-environment—economy impacts
The main modeling techniques used in modeling the various economic impacts of environ-mental change, and such attempts to avoid it as through the mitigation of climate change, arelisted in Table 2 below. A detailed discussion of the underlying modeling frameworks isbeyond the scope of this report and therefore only some highlights are discussed here, drawingheavily, and sometimes verbatim, on material in the following reports: Cambridge Economet-rics and SERI 2010; EEA 2008; IMF 2008a, b.
“Computable General Equilibrium (CGE) models draw heavily on neoclassical eco-nomic theory and provide a consistent long-run macroeconomic framework for economicanalysis that may be extended into other areas. This approach integrates microeconomicmechanisms and institutional features with clear feedback mechanisms between equationsand between sectors. All behavioral equations (demand and supply) are derived from micro-economic principles (for example utility maximizing individuals, profit-maximizing enter-prises)” (CE and SERI 2010, p.47). In a CGE model, most of the parameters are typically
Table 2 Principal analytical techniques
Practical analyticaltechnique
Sub-categories of techniques/modelingapproaches
Equilibrium models General equilibrium models, partialequilibrium models or sectoral models,mass balance equation models,optimization models
Empirical-statisticalmodels
Rule based models, cellular automata, agent-based models, multiple regression models,area-based matrix approaches, stochasticapproaches, econometric approaches
Dynamic systemmodels
Linear/non-linear programming models,population dynamic models, impactassessment models, integrated assessmentmodels
Interactive models Expert judgment frameworks, decisionsupport systems, educational gaming,information tools
source: EEA 2008
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calibrated so that the theory that underpins the model is consistent with the data available forthe base year. This reduces the resource requirements for the model but means the model isheavily dependent on the relationships in this year holding for other time periods20.
“Econometric models are based on empirical relationships and are developed using large-scale (usually time-series) data sets. The parameters of the equations are estimated with formaleconometric methods which are integrated into a framework based on the national accounts andalso often extended into other areas. Depending on the econometric specification, econometricmodels are also suitable for short-term analysis. The main assumption is that the historicalbehavioral relationships remain valid in forward-looking projections” (CE and SERI 2010, p. 47).
Agent-based modeling is a relatively new approach and, so far, there is no fully specifiedagent-based representation of the macro economy. However, the agent-based approach poten-tially offers an assessment of large-scale transitions, which the more established approaches(eg when validated on historical trends) are less well equipped to study. As an area of on-goingdevelopment that has been applied in partial analyses it is therefore important to consider thismethodology. Although the recent general recognition of the economy as a complex systemhas led to a rapid development in agent-based modeling approaches, as yet there is no generalmacroeconomic specification. There are instances, however, where an agent-based approachcould provide a partial assessment (Cioffi-Revilla et al. 2010).
Dynamic system models (sometimes also labeled as system dynamic, system theory orsystems models) are based on sets of equations, and can be based on either linear or non-linearprogramming techniques. The equations are usually based on causality (although the causalitymay be derived from an empirical analysis of data). Generally speaking, these equations areused to express levels of stock variables and rates as a measure of change in the stockvariables. System dynamic (SD) models analyze the relationship between the structure andbehavior of complex, dynamic system. “In SD models, causal relationships are analyzed,verified and formalized into models of differential equations, and their behavior is simulatedand analyzed via simulation software. The method uses a stock and flow representation ofsystems and is well suited to jointly represent the economic, social, and environmental aspectsof the development process” (UNEP 2011b, p. 505)21.
Integrated Assessment Models (IAM) seek to combine major socioeconomic and physicalprocesses and systems that characterize the human influence on, and interactions with, theglobal climate. “Their strength in the present context is a relatively detailed modeling of energyuse and mitigation opportunities” (IMF 2008b, p.44). They are less well-suited than inter-temporal general equilibriummodels to modeling investment, savings, and balance of paymenteffects22.
Energy simulation models, such as the MARKAL model family (MARKAL stands forMARKet ALlocation) and “is a widely applied bottom-up, dynamic, originally and mostly alinear programming (LP) model developed by the Energy Technology Systems AnalysisProgrammed (ETSAP) of the International Energy Agency (IEA). MARKAL depicts both
20 See for example the OECD ENV-Linkage Model (Burniaux and Chateau 2010), and the PRIMES model usedby the European Commission, http://www.e3mlab.ntua.gr/e3mlab/index.php?option=com_content&view=category&id=35%3Aprimes&Itemid=80&layout=default&lang=en and the G-Cubed Model as discussed inIMF 2008a.21 See UNEP, Modeling global green investment scenarios Supporting the transition to a global green economy(advance copy online release); a recent application of a system dynamics model can be found in UNEP’s greeneconomy project (UNEP 2011a, b) – another example of a system dynamic model: RAINS/GAINS model http://www.iiasa.ac.at/rains/gains.html. See for a further discussion: Kupers and Mangalagiu 2010.22 See IMF 2008a, b and in particular the references given to the relevant IAM models ‘IGSM’and ‘MiniCA’respectively Paltsev et al. 2005; Brenkert et al. 2003.
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the energy supply and demand side of the energy system. MARKAL provides policy makersand planners in the public and private sector with extensive detail on energy producing andconsuming technologies, and it can provide an understanding of the interplay between themacro-economy and energy use” (Seebregts et al. no date given, p.1)23.
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Mitig Adapt Strateg Glob Change