Green Macroeconomic Modeling
Webinar
Date: 27 November 2024

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How can traditional economic models be adapted and expanded to include environmental considerations?
Integrated Green Economy Modeling (IGEM) Framework

IGEM is a framework for integrating three approaches: input-output models, computable general equilibrium models and system dynamics

IGEM expands the traditional focus on economic variables to include environmental and social variables

IGEM integrates the social and environmental dimensions such as poverty reduction, land cover and land use changes, through system dynamics

First Image Source: PAGE (2017)

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Integrated Green Economy Modelling
Approach: Growth, limits to GDP growth and climate vulnerability loops

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Aspect	Traditional Models	IGEM
Scope	Focuses on economic flows and sectoral impacts	Combines economic, social, and environmental aspects (multi-dimensional view of green policies)
Model Structure	Linear, assumes perfect market conditions (CGE)	Incorporates dynamic feedback loops and system-wide interactions
Assumptions	Assumes rational decision-making, market-clearing (CGE)	Addresses real-world complexities like non-linear responses, imperfect information, and market imperfections
Policy Focus	Economic outputs and growth (CGE)	Allows for broader analysis of sustainability, enabling the evaluation of specific goals and policy trade-offs
Time Frame	Short to medium term focus	Takes a long-term focus (environmental, social impacts over time)
Sector connection	Tracks production and income flows between sectors (IO-SAM)	Provides deep sector-specific insights with long-term resilience analysis

Integrated Green Economic Modelling
Comparative advantage of system dynamics in IGEM to Traditional Approaches

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Integrated Green Economic Modelling
Key policy questions addressed

Environmental Targets: How can specific environmental targets, like emissions reductions, be achieved by a given year?
Impact Assessment: How will investments and policies affect sectors in terms of economic opportunities, inclusiveness, and sustainability?
Short vs. Long-Term: Are the impacts of green investments and policies likely to be short-term or long-term?
Green Subsidy Reforms: How will reforms impact productivity in green sectors?
Tax & Fossil Fuel Subsidies: What are the fiscal, environmental, and social effects of tax reforms and removing fossil fuel subsidies?
Trade Policies: Which trade policies and regulations enhance green investments?
Multiplier Effects: Where can policy measures create multiplier effects across economic goals?
Labor Market Interventions: How can policies create more and better green jobs while addressing inequality?

Source: PAGE (2017)

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Integrated Green Economic Modelling
How IGEM Addresses the Key policy questions addressed

Source: PAGE (2017)

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Society

Population and Fertility

Health and Mortality

Education

Poverty

Roads Infrastructure

Economy

Production

Environment

Land

Energy demand

Water demand

Energy supply

Water supply

Emissions

Environment

Society

Economy

Integrated Green Economic Modelling
Data Inputs for System Dynamics within the IGEM Framework

Source: Adapted from PAGE (2017)

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IGEM Framework Application
Modelling Carbon Tax in Mexico - Scenarios

Scenario	Tax rate	CGE	System dynamics
Scenario1: Feebate scenario With low tax rate	USD 3.5/ton CO₂eq	1) Estimate the economic effects if feebate scenarios compared to rebate and a BAU scenario 3) Use results from system dynamics to estimate effects of increased longevity on productivity.	2) Estimate the social and environmental impacts resulting from the CGE simulation (health and emissions)
Scenario 2: Feebate scenario with high tax rate	USD 25/ton CO₂eq
Rebate scenario: (lump sum) with high (RH) and low (RL) tax rates	USD 3.5/ton CO₂eq and USD 3.5/ton CO₂eq
Business as usual scenario (BAU)	No carbon tax

Source: Zhou (2018)

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IGEM Framework Application
Modelling Carbon Tax in Mexico – Results from IGEM

Carbon tax might cause small drops in GDP and consumer welfare in the short term. �
However, long-term benefits emerge if the revenues are invested in renewable energy

Source: Zhou (2018)

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	Dynamic input-output model compatible with the system of national accounts Model structure: 40 productive sectors 10 income classes 5 commercial partners 4 auxiliary modules for emissions (i) Energy; (ii) Vehicles; (iii) Farming, and (iv) Land cover and eco-services and deforestation) Interaction between land cover and emission to utilise System Dynamics.

System Dynamics Application in IGEM Framework
Modelling Brazil’s Ecological Transformation Plan

Source: IE-UFRJ Presentation (2024)

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Conclusion
IGEM in supporting green macroeconomic modeling

IGEM offers a valuable framework for integrating environmental considerations in macroeconomic modeling

Supports evaluating various investment scenarios, facilitating evidence-based decision making��

Focus on continuous model development and incorporating feedback from user experiences

Source: PAGE (2017)

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Thank you

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