TARC Masterclass 2016

CGE Analysis of Environmental Regulation and Tax Reform

Date: Monday 18 January 2016

Time: 09:00-17:30

Location: Broadway house, Tothill Street, London

Presenter: Thomas Rutherford, University of Wisconsin


1.  Session 1: CGE Models -- Data Sources, Theory and Implementation

In this first portion of the short course, I will both introduce both broader ideas and specific methods through which data and theory can brought together to produce policy-relevant models. Hence, the talk addresses the question "What is CGE and what is it good for?".  I will attempt to clarify the basic mechanisms, key strengths, and limitations.

I have worked as a consultant during the past year assisting in the development of the HMRC computable general equilibrium model.  As part of this activity I have had a chance to go through UK data sources and learn a bit about the uses of this model for economic and environmental policy analysis.

In this introduction, I'll provide a "123" demonstration on how to use ONS data for doing tax policy analysis for the UK, e.g. based on the issue of how to improve efficiency of the UK tax system towards equalized marginal cost of funds (in a representative household setting) and efficiency-equity trade-offs (in the case of multiple households).

I will not get into the weeds with programming details, but I'll describe several canonical applications, and I'll provide computer programs for self study by interested participants.

2. Session 2: Environmental Tax Reform

The second lecture considers more specifically how to use CGE models to assess the prospects for double dividend through environmental tax reform.  This lecture would make reference to the book by Jorgenson, Goettle, Ho and Wilcoxen, and I will relate their analysis of environmental taxes and fiscal reform in the US to the UK context.  The lectures will focus on the usefulness and limitations of multisectoral general equilibrium models.

This discussion will focus in particular on the analysis of policies which differentiate the treatment of energy intensive versus non-energy-intensive sectors and methods for the analysis of energy efficiency standards in a subset of sectors.

3. Session 3: New Frontiers in CGE Analysis

The final lecture will survey recent methods which have been applied for

energy- and environmental policy analysis in a CGE setting.  I will overview issues involved in the assessment of the prospects for "green jobs", the interaction between restrictions on greenhouse gas emissions formulated as mandates, tradable quotas, efficiency standards and subsidies for renewable energy.  I will examine the role of imperfect competition and industrial organization for assessing the competitiveness impacts of subglobal climate policy. Finally, I will reflect on the issues involved in integrating a top down CGE model with a bottom-up model such as UK-TIMES.

4. Reading list

Double Divident: Environtal Taxes and Fiscal Reform in the United States, Jorgenson et al., MIT Press, 2015.

Green jobs and renewable electricity policies: employment impacts of Ontario's feed-in tariff, with Christoph Boehringer, Nicholas J. Rivers and Randall Wigle in The Berkley Electronic Journal of Economic Analysis & Policy, 12(1), 1--38, 2012.

Market Structure and the Environmental Implications of Trade Liberalization: Russia’s Accession to theWorld Trade Organization, with Christoph Böhringer, David G. Tarr and Natalia Turdyeva (forthcoming in the Review of International Economics).

Subglobal carbon policy and the competitive selection of heterogeneous firms, with Edward J. Balistreri, Energy Economics 34 (Supplement 2), S190--S197, 2012.

Combining top-down and bottom-up, with Christoph Boehringer, Energy Economics 30 (2): 574-596, 2008.

Integrated Assessment of Energy Policies: Decomposing Top-Down and Bottom-Up, with Christoph Boehringer, Journal of Economic Dynamics and Control, 33(9):1648--1661, 2009.

Greening Electricity More Than Necessary: On the Cost Implications of Overlapping Regulation in EU Climate Policy, By Christoph Böhringer and Knut Einar Rosendahl, Schmollers Jahrbuch 131, 2011.

Green promotes the dirtiest: on the interaction between black and green quotas in energy markets, Christoph Böhringer · Knut Einar Rosendahl, J Regul Econ, 2010.

5. Materials