An Environmental SAM andSAM-based CGE Modelling for Environmental Policy Problems
Noritoshi Ariyoshi Faculty of Environmental StudiesNagasaki University
Itsuo SakumaSchool of EconomicsSenshu University
Akihiko TaniguchiGraduate School of EconomicsSenshu University
International Workshop for Interactive Analysis on Economy and EnvironmentCabinet Office, the Government of Japan4th March 2006
CONTENTS
1. Introduction 2. A general explanation of Japanese NAMEA
(Hybrid Accounts) 3. From NAMEA to a SEEA-type SAM with monetary
valuation of environmental pressures 4. A CGE analysis 5. Concluding remarks
1. Introduction
The purpose of this paper is twofold. Concerning (1) Data aspects, we attempt to Construct a DATA ENVIRONMENTAL SAM from Jap
anese NAMEA(*) compiled by ESRI. DATA ENVIRONMENTAL SAM is a SEEA-ver. IV.2 ty
pe SAM(**), which includes monetary valuation of environmental pressures, in particular, the estimation of imputed environmental cost.
(*)”NAMEA” is an acronym for National Accounting Matrix Including Environmental Accounts.
(**)”SEEA” is an acronym for System for Integrated Environmental and Economic Accounting.
1. Introduction(continued)
Concerning (2) Modelling aspects, we attempt to Conduct SAM-based CGE analyses. To do this, MODEL ENVIRONMENTAL SAM will be
created to accommodate a specific general equilibrium modelling structure.
Using this SAM as a base equilibrium data, various simulation (comparative static analyses) will be conducted so as to evaluate policy changes etc. involved.
Introduction (continued)
NAMEA
DATA ENVIRONMENTAL SAM
MODEL ENVIRONMENTAL SAM
ENVIRONMENTAL CGE ANALYSIS
1. Introduction (continued):An illustration of a SAM-based CGE
Base Model SAM SAM after anExperiment
Modelling
Calibration,
Replication
Experiment
(Policy Change etc.)
DataEvaluation of the Policy Change etc.
2. A General Explanation of Japanese NAMEA (Hybrid Accounts)
1) It is based on the original NAMEA* by the Netherlands, and estimates for 90, 95, and 00
2) Twofold parallel structure: national accounting matrix (NAM) at monetary term and environmental accounts (EA) at physical term.
3) Twofold structure of EA : substance accounts and environmental problem accounts.
Ac
cum
ula
tio
n t
o e
nv
iro
nm
en
t
Disposal of pollutants
Input of natural assets
Decrease in land use
Em
issi
on
of
po
lluta
nts
Incr
ease
in n
atu
ral a
sets
Incr
ease
in la
nd
use
s
Opening stocks Opening stocks
National accounting matrix(on the monetary basis)
Substances accounts
Hidden material flows
Closing stocks Closing stocks
A
BA-B
Ch
ang
es
in n
atu
ral a
sse
ts
Ch
ang
es
in la
nd
use
Environmental problem accounts
Hid
den
ma
teria
l flo
ws
Po
lluta
nt’s
con
trib
utio
n to
env
iron
men
tal p
robl
ems
C
Environmental indicators
Environmental accounts (on the quantity basis)
Figure 2.1 Sketch of J apanese NAMEA
D
Global
CO
2
Oth
ers
(5)
SO
2
Oth
ers
(2)
T-P
T-N
&
Was
tew
ater
1 2 3 4 5 6 7 8 9 10a 10b 10c 10d 10e 10f 10g 10h 10i 10j 10k 10l 10m 10n X1 X2 11a 11b 11c 11d 11e 11f 11g 11h 11i 11j 11k 11l
OA 2,885.8 - - - - - 21,371 - - - 4,950 25,370 -
1 434.9 369.8 134.4 55.3
2 941.5 1,017,275 36,609 775 1,889 490 360 424,840
3 369.8 221,424 20 45 143 346 406 35,993
4 468.0 -98.0 0.0
5 370.0 82.6 13.0
6 -0.2 38.7 44.2
7 5.1 44.2 -1.0 -40 40
8 36.4 0 64 0 0 - - - 0 72,841 0 0
9 47.9 0.0 7.4 11.9 - - - - -
CO2 10a 1,238,699 1,238,699 CO2
Others(5) 10b 36,693 94,246
SO2 10c - 820 820 SO2
Others(2) 10d - 2,032 1,422
T-P&T-N 10e 0 835 466 T-P & T-N
Wastewater 10f 0 766 17
10g 405,319 55,514 55,514
10h 199 16,813 -199 16,813 -199
10i 18,019 81,241 54,822 -81,241 54,822
10j 87,000 0 -87,000 0 -87,000
10k 5,736 5,883 -5,736 -5,883 -5,736
Agricultural land 10l -40 -40
Others (5) 10m 40 40
Hidden material flows 10n 1,095 2,826 -1,095 -2,826 -1,095
R -92.9 1,332,945 2,242 466 17 55,514 -199 54,822 -87,000 -5,736 -40 40 -1,095
CA 2,829.3 - - - - - 21,172 - - - 4,910 25,380 -
1,00
0to
nnes
-CO
2
1,00
0 t
-N2O
1,00
0 t
-NO
X1,
000t
-SO
2
1,00
0 t
1,00
0 t
1,00
0 t
PJ
1,00
0 m3
1 m
illion
m3
1,00
0 t
1,00
0 ha
1,00
0 ha
1 m
illion
tonn
es Unit Unit
1,00
0to
nnes
-CO
2
1,00
0t-S
O2
1,00
0 t
-PO
43-.
1,00
0 t
-PO
43-.
1,00
0
tonn
es
PJ 1,00
0
m3
1 m
illion
m3
1,00
0
tonn
es
1,00
0ha 1,00
0ha
1 m
illion
tonn
es
Note) This is a summary table of the attachment#1-3 of New System of Integrated Environmental and Economic Accounting, Department of National Accounts, Economic and Social Research Institute (ESRI), Cabinet Office ofJ apan, 2004 (http://www.esri.cao.go.jp
Val
ue a
dded
(ca
tego
ries)
Dis
trib
utio
n & u
se (se
ctor
s)
Tax
es (ta
x ca
tego
ries)
Cap
ital (
sect
ors)
Accumu. To env.
Land
for
hou
sing
Oth
er la
nds
Changes in natural resources
Ener
gy r
esou
rces
Table 2.1 J apanese NAMEA (2000) - Summary Table -
Res
t of
the
wor
ld
Fore
sts
(vol
ume)
Environmental problems
Hid
den
mat
eria
l flow
s
Changes inland uses
Was
tew
ater
Was
te
Fore
sts
Wat
er
Fish
Gre
enho
use
effec
ts
Regional
Aci
dific
atio
n
Eutr
ophi
catio
n
Air
Greenhouse effects Acidification
Oth
rs (5)
Agr
icul
tura
l lam
d
Wat
er (w
ater
use
)
Fish
ery
reso
urce
s(m
arin
e pr
oduc
ts)
Ener
gy (3)
Acc
umul
atio
n of
sub
stan
ces
to t
he e
nviro
nmen
t
Cha
nges
of na
tura
l res
ourc
esin
RO
W c
ause
d by
impo
rt
Substances
Qualityof water
Hid
den
mat
eria
l flow
s
Pollutants Natural resources
Was
te (2)
Land use
Waste(2)
Pollu
tions
Distribution & use (sectors)
Billion Yen
Reconciliation/indicators
Closing Stocks
Subs
tanc
es
Air
Qualityof water
Acidifi-cation
Energy(3)
Unit
Fishery resources(marine products)
Landuse
Forest (volume)
Natu
ral r
esou
rces
Water resources(wateruse)
Value added (categories)
Green-house
Rest of the world
Taxes (tax categories)
Capital (sectors)Non-financial assets (kinds)
Final consumption (purposes)
Production (activities)
Goods & services (products)
Opening stocks
Fina
l con
sum
ptio
n (p
urpo
se)
Account(classification)
Goo
ds &
ser
vice
s (p
rodu
cts)
Non
-fina
ncia
l ass
ets
(kin
ds)
Pro
duct
ion
(act
iviti
es)
Final disposition of wasteWastewate
Agricultural land
Changes infishery resources
Processing and recycleof pollutants
Exploitation ofdomestic natural
resources
The potential contributions to Global warming, acidification andEutrophication are expressed in GWP, AEQ and EEQ, respectively. Global Warming Potencials (GWP) CO2 1, N2O 310, CH4 21: : : Acid Equivalents (AEQ) Nox 0.7, So2 , NH3: :1 Eutrophication Equivalents (EEQ) P 3.06, N 0.42: :
Processing of pollutants andexploitationof natural resources
Pressures on natural resources andrestoration of natural resources
Changes in Forests
Chamges inwater esources
Changes innatural
resources
Changes inland use
Contribution to global environmental issues
Contribution to regionalenvironmental issues
B
A
Nationaleconomy
ROW
C
Exploitation of ROW'snatural resourcescaused by imports
Hidden material flowsin domestic area
Hidden material flows inROW caused by imports
汚染物質の排出 Changes in land useEmission of pollutants
Restoration of Natural resources
A-B
Making indicatorsPressures onenvironment
Others
Others
Depletion of energy resources
Others
Hidden material flowsEnvironmental indicators D
Closing stocks
Opening stocks
Environmental indicators
Monetary flows Material flows : Cells for environmental flow dataareas
: Cells for environmental indicator
3. From NAMEA to a SEEA-type SAM with Monetary Valuation of Environmental pressures
The estimation of imputed environmental cost (maintenance cost in 93SEEA ver. IV.2) should be considered to be highly important because it can clarify what the government should do for the environment.
Only imputed environmental costs the origin of which is industries (=market producers) are considered. Because it may be necessary to take the extension of production boundary into consideration in order to deal with the consumption-related costs.
The Estimation of Imputed Environmental Cost
Except for CO 2 , the assumption of “zero-emission” is posited in order to calculate imputed environmental cost about each environmental pressure category.
Concerning CO 2 , the emission level 6% below that in 1990 is assumed according to the Kyoto Protocol.
Two summary tables are on two slides below, giving imputed environmental cost by sources and by environmental pressure types.
Environmentalprotectionfacilities(types)
Otherproduced
assets
Air p
ollut
ions
Quali
tyof
wat
er
Was
te
1 2 3 4 5 6 7 8 9 10 11 12 13 14
1 431040.2 349633.1 6105.5 134225.8 45230.1
2 922938.0
3 349633.2
4 458525.0 -204.2 -88912.7 108.7
5 973.1 33372.6 369345.0130830.9
19372.2
6 4051.6 57549.1 -214.4Environmental protectionfacilities (types) 7 5901.3
Other produced assets (types)8
45313.1
9
Discharge of residuals(CO2, SOX, NOX, SPM etc.) 10
10032.8 -10032.8
Quality of water(T-P, T-N, waste water) 11
6969.8 -6969.8
Waste(final disposition) 12
2240.4 -2240.4
13-19243.0 19243.0
14 38272.4 171.8 15880.6 10171.8 -10386.2Rest of the world
Capit
al ac
coun
ts
accumulation(institutional sectors)
Impu
ted
envir
onm
enta
l cos
ts
Envir
onm
enta
lim
pacts
Eco-margin ((-)sum of imputedenvironmental costs)
Non-produced assets (types)
prod
uced
asse
ts
Production (activities)
Final consumption(purpose)
Inco
me
acco
unts
Generation of income
(items of value added)Use and distribution of income
(institutional sectors)
Non-producedassets(types)
Goods & services (products)
Environmental impacts
Eco-
mar
gin
Generation ofincome
(items ofvalue added)
Use anddistribution of
income
(institutionalsectors)
accumulation
(institutionalsectors)
Table 3.1 a SEEA-type SAM with Monetary Valuation of Environmental Pressures (1995)
Rest ofthe world
Account(classification)
Goods &services
(products)
Production
(activities)
Finalconsumption(purposes)
Income accounts Capital accounts Imputed environmental costsNon-produec assets
Imputed environmental costvaluated bymaintenance costapproach
(-) sum of imputed environmental costs valuatedbymaintenance cost approach
Deterioration of non-producedassets by production activities
(-) sum of deterioration ofnon-produced assets byproduction activities
Industries
Eco-margins(Billion yen)
Distribution of Eco-margin(%)
Distribution of Value Added (%)
Agriculture, forestry and fishing 355.9 1.8 2.0
Mining 161.7 0.8 0.2
Food products and beverages 335.2 1.7 2.8
Textiles 38.0 0.2 0.3
Pulp, paper and paper products 118.1 0.6 0.7
Chemicals 556.9 2.9 2.1
Petroleum and coal products 117.3 0.6 1.2
Non-metallic mineral products 513.6 2.7 1.0
Iron and steel 401.8 2.1 1.3
Non-ferrous metals 60.4 0.3 0.4
Fabricated metal products and Machinery 1141.2 5.9 10.7
Other Manufacturing 409.2 2.1 4.1
Construction 917.3 4.8 8.7
Electricity, gas and water supply 669.0 3.5 2.9
Wholesale and retail trade 1634.5 8.5 16.3
Finance and insurance 640.5 3.3 6.3
Real estate 1257.9 6.5 12.8
Transport and communications 7948.3 41.3 7.6
Service activities 1966.2 10.2 18.8
Total Industries 19243.0 100.0 100.2
Imputed Environmental Cost
by origin of Industries
Types of Environmental pressures
Eco-margins
Discharges
Green House Effect
CO2 2498.2
N2O 11.7
CH4 4.5
HFCs 88.2
PFCs 50.7
SF6 73.7
AcidificationNOX 4984.7
SO2 2261.6
SPM 59.4
Water Use
T-P 3390.2
T-N 2552.2
Waste Water 1027.4
WastesFinal Disposition 2240.4
Total 19243.0
Imputed Environmental Cost
By type of
environmental
pressures
4. A CGE Analysis: AGE and CGE
CGE (Computable General Equilibrium) - has been developed in the history of World Bank’s
development modelling, - was an extension of SAM multiplier analyses, and
naturally - has been SAM-based. AGE (Applied General Equilibrium) - has been developed mainly by Scarf and his
successors.
4. A CGE Analysis: Main Model
Main feature: the environment is a production factor. In our model, the environment will be considered as
a sink of a sort. To use it, industries (not household) have to pay a
sum (emission permit). The payment flow may be treated as if it is part of
the payment to capital factor in the base SAM. The production part of the model is about the same
as that of typical world bank models except for the treatment of environment. (See the next slide.)
MIXEDPROD.FACTOR
ECO-MARGI
N
COBB DOUGLAS
CES
LEONTIEF
CES
Production Part of the Model
CAP LAB
CET
DOM.PROD.
INT.INPUT
COM-POSITEGOODS
IM-PORTS
DOM.GOOD
S2
EX-PORTS
DOM.GOOD
S.1
A thought behind the treatment
The domestic equilibrium price of the permit will be determined at the level of imputed environmental cost, estimated according to the concept of “maintenance cost.”
Because firms do not pay for the permit if they can reduce the emission by spending actual environmental protection cost which equals to maintenance cost and is less than the permit value.
• MRS between ordinary factors and the environment is determined by maintenance cost
Ordinary factors
The environment
Results(1)
The increase in the endowments of capital or labour leads to the decrease in imputed environmental cost (eco-margin). In one sense, the environment is ill-used just to save other factors.
But size of pressure of the 10% increase in each factor endowment to the industries is different industry by industry. Concerning labour, a large decrease in eco-margin is found in steel, textiles, construction, etc.
Results(2)
Concerning 10% increase in capital , a large decrease in eco-margin is found in Petroleum and coal products, etc.
The 10% increase in labour endowment has a larger effect on the reduction of eco-margin
than the same proportional increase in capital endowment.(7.6% vs 3.1%)
Results(3)
The 10% increase in indirect tax rate will reduce eco-margins of all industries, by 0.9%-1.4%.
The 10% increase in the price of environment (tradable permit) will reduce eco-margins by 0.5%-4.2%.
industries
% changes in eco-margin due to10% increase in Labour
% changes in eco-margin due to 10% increase in Capital
% changes in eco-margin due to 10% increase in environmental factor price
Agriculture, forestry and fishing -2.0 -8.1 -3.8
Mining -6.5 -1.3 -2.8
Textiles -11.7 2.2 -4.2
Pulp, paper and paper products -6.4 -4.0 -4.1
Chemicals -3.4 -5.3 -3.1
Petroleum and coal products 0.4 -10.3 -4.2
Non-metallic mineral products -7.0 -0.9 -2.9
Iron and steel -11.8 3.7 -3.6
Non-ferrous metals -3.8 -0.4 -0.5
Fabricated metal products and Machinery -7.6 -1.7 -4.1
Construction -11.7 -3.1 -3.7
Electricity, gas and water supply -2.4 -7.0 -3.6
Wholesale and retail trade -10.6 -6.5 -2.7
Finance and insurance -5.3 -4.5 -3.9
Real estate -0.2 -10.1 -4.0
Transport and communications -7.2 0.2 -1.9
Service activities -6.8 -3.3 -3.6
A Model for an Ordinary Economy
In addition to the main model, an alternative model is formulated to analyse an ordinary or actual economy without environmental imputation.
Policy makers may be inclined to think that it is necessary to introduce direct rather than indirect regulation measures in order to reduce the imputed environmental cost known quite immediately to zero.
In other words, the imputed cost in the main model needs to be borne actually by the producers of the alternative model. Thus, they must spend some additional cost for the environmental protection instead of discharging residuals.
Greened Economy GDP
On this assumption, the working of the economy will be simulated.
Additionally, “greened economy GDP(NDP)” will be calculated although “greened economy SAM” may be a more meaningful concept.
The concept of “green GDP” is criticised in that it does not take it into account that incurring additional cost (maintenance cost) could lead to various percussions and repercussions, so the concept does not reflect the real situation.
Greened economy NDP may be equal to or greater than green GDP depending on the assumptions made.
GDP AT FACTOR COST 462,253.0
GDP AT MARKET PRICES 501,938.7
FIXED CAPITAL CONSUMPTION 89,116.9
NDP AT MARKET PRICES 412,821.8
ECO-MARGIN in the model 20,243.5
GREEN GDP 392,578.3
GREENED ECONOMY NDP (CASE 1)
407,862.4 at constant prices
GREENED ECONOMY NDP (CASE 2)
392,774.6 at constant prices
GREENED ECONOMY NDP (CASE 3)
400,739.7 at constant prices
Green GDP and Greened Economy GDP
CASE 1: Imputed environmental cost replaced by INTERMEDIATE INPUT
CASE 2: Imputed environmental cost replaced by FACTOR INPUT
CASE 3: Imputed environmental cost replaced by Mixed INTERMEDIATE and FACTOR INPUT
Billion yen
Concluding Remarks
A controversial problem over “direct” vs. “indirect” regulations will be spotlighted by this sort of modelling.
Whether any switch of techniques as well as shift in industrial structure is triggered by the policy change may be the key to the problem.
More disaggregated treatment about environmental pressure categories may be necessary.