Estimating the Economic Impact of Proposed GHG Mitigation Policies Using the DRI·WEFA Energy/Economic Modeling System

DRI-WEFA
October, 2002

(PDF)

In December 1997, the Kyoto Protocol was agreed to by the Conference of the Parties to the Framework Convention on Climate Change. Under this Protocol, the 38 Annex B countries agreed to reduce their greenhouse gas emissions in aggregate to about 5% below 1990 levels for the period 2008–2012. Specific targets were set for individual countries. While the target reductions were defined in the Protocol, the specific measures to achieve these targets were not. As countries assess the reasonableness of the targets, timetable and potential mitigation measures, they are interested in the impact these potential measures may have on their country’s economic performance.

DRI·WEFA uses its Energy Modeling System to analyze the impacts of major energy issues on industrialized countries’ energy sectors and the feedback effects from energy markets on its economies. The system is composed of the

· DRI·WEFA Macroeconomic Models
· DRI·WEFA Energy Models

The Energy Modeling System ensures that forecasts of energy demand and economic activity are mutually consistent.

The Macroeconomic Model defines the economic environment in which the energy markets are operating. Projections of real GDP growth, inflation, industrial production, employment, income, housing, vehicle sales, etc., are provided to the Energy Model from the Macro Model. Also feeding into the Energy Model is a complete array of present and expected future energy and environmental regulations which impact the pricing and/or availability of domestic energy supplies, assumptions regarding the technical or efficiency characteristics of the energy-using capital stocks, and world oil prices. Renewable energy sources that are in-place, underconstruction or planned are included. With these inputs, the Energy Model determines the prices, demands, and supplies of the major energy sources in each country.

Forecasts of a country’s fuel consumption are also mutually consistent. Coal, oil, gas, renewables and electricity compete for demand on the basis of efficiency adjusted prices. As demand for a fuel increases, however, the supply price of that fuel also increases, which dampens further demand growth.

Descriptions of the DRI·WEFA Energy and Economic Models are described in the document below:

Read the Full Document (PDF)