green economy assessment and fiscal policy reform...

Green Economy Assessment

and Fiscal Policy Reform:

modelling simulations

Joy Kim

UNEP

Peru

Mozambique

Indonesia

Mongolia

Burkina Faso

Kenya

Rwanda

Banglades

h

Ghana

Colombia

Mauritius

China Mexico

South Africa

Namibia

Uruguay

Egypt Senegal

Nepa

l

Morocco

Green Economy Assessment • Model:

• a simplification of reality

• a collection of parts that interact with one another to function as a whole

• The Green Economy Model

– The modeling exercise should be tailored around a set of specific issues and a geographical context.

– Use of System Dynamics Modeling (T21) in order to evaluate social, economic and environmental impacts of green investments.

Cross-sectoral linkages within T21 model

society

environment

economyeducation

health

population

infrastructure

labor

poverty

production

government

investment

row

households

technology

energy

minerals emissions

land

sustainability

water

Analysis-Three Layers

PoliciesInvestment

(e.g.,capitalinvestmentinREandEEfor

extracapacityandretrofits)

Mandatesandtargets(e.g.,REandEEstandards,deforestation

andreforestationtargets)

Subsidies(e.g.,feedintariffsforenergy,taxrebates,paymentsforecosystem

services)

Scenarios Climatechange,energyprices,conflicts,peakoil,worldeconomicgrowth,etc.

Structure

Socialsectors Economicsectors Environmentalsectors

Population

Education

Infrastructure(e.g.transport)

Employment

Incomedistribution

Production(GDP)

TechnologyHouseholdsaccounts

Governmentaccounts

Investment(publicandprivate)

Balanceandfinancing

GovernmentdebtBalanceofpayment

Internationaltrade

LandallocationanduseWaterdemandandsupply

Energydemandandsupply

(bysectorandenergysource)

GHGandotheremissions

(sourcesandsinks)Footprint

Society

Economy Environment

Kenya: GE scenarios on real GDP Growth

Kenya: GE scenarios on incidence of poverty

Case study: phasing out energy subsidies in

Mexico • Current level of energy subsidies is approx. 1.5% of GDP

• Business-as-usual environment.

- Oil extraction at current trends, starting at 2.6 millions of barrels per day (mbd) and stabilizing at 3

mbd.

- Growth of the US economy of 2% per year

- Structural unemployment at 3.3%

- No modification of current fiscal policies

All scenarios are analyzed and compared at four moments: the start year 2012, two interim years,

2018 and 2024, and the final year 2030.

• Impacts of three scenarios on:

• Main macro-economic variables (GDP, investment and government resources)

• Consumption and welfare changes (with a breakup of different household income)

• Sectoral output changes

Case study: Phasing out FF subsidies in Mexico

Family 1 Without fiscal

neutrality

Fiscal neutrality

(via lump sum

transfers)

Total elimination of energy subsidies in 10

years (10% of initial subsidy each year).

A B

Partial elimination of energy subsidy in 10

years (5% of initial subsidy each year)

C D

Phasing out FF subsidies in Mexico

Family 3 Total elimination of energy

subsidies in 10 years (10%

of initial subsidy each

year).

Partial elimination of

energy subsidy in 10

years (5% of initial

subsidy each year)

100% funding to

renewable energy

I K

50% funding to

renewable energy, 50%

lump sum transfers

J

Scenarios in family 1 Years 2012 2018 2024 2030

Scenario A

GDP -0.48% -0.88% -0.01% 0.34%

Investment -1.99% -1.63% -0.81% 3.16%

Government Resources 2.74% 2.80% 2.51% 2.42%

Scenario B

GDP -0.56% -1.00% -1.19% 0.37%

Investment -1.99% -1.76% -1.21% 1.37%

Government Resources -0.51% -0.45% -0.73% 0.83%

Scenario C

GDP -0.25% -0.53% -0.56% 0.31%

Investment -1.11% -1.08% -0.40% 2.31%

Government Resources 1.75% 1.78% 1.58% 1.62%

Scenario D

GDP -0.33% -0.60% -0.68% 0.34%

Investment -1.19% -1.15% -0.69% 1.08%

Government Resources -0.56% -0.52% -0.72% 0.69%

w/o fiscal

neutrality

w/o fiscal

neutrality

Note: Percent variations relative to the baseline trend, Source: Ibarrarán et al (2012b)


Years 2012 2018 2024 2030

Scenario I (total removal/100% investment in RW

GDP -0.29% 0.19% 1.28% 3.49%

Investment 1.19% 2.85% 5.59% 12.82%

Government

Resources -1.91% -1.20% -0.43% 0.52%

Scenario J (total removal/50% investment in RW, 50% lump sum transfer)

GDP -0.46% -0.47% -0.35% 1.04%

Investment -0.32% -0.54% 1.09% 8.01%

Government

Resources -1.30% -0.48% -0.33% 0.61%

Scenario K (50% removal/100% investment in RW)

GDP -0.29% 0.20% 1.03% 2.93%

Investment 0.48% 1.83% 4.09% 10.70%

Government

Resources -1.28% -0.66% -0.17% 0.55%

Scenarios in family 3

Welfare changes

Scenario A B (fiscal neutrality) C D (fiscal neutrality)

Agent 1 (poorer) -0.57% 0.59% -0.09% 0.97%

Agent 2 -0.56% 0.39% -0.08% 0.64%

Agent 3 -0.45% 0.23% -0.02% 0.45%

Agent 4 (richer) -0.45% 0.20% -0.02% 0.40%

Government’s Welfare -0.48% 0.27% -0.03% 0.98%

Aggregated Welfare 3.26% 0% 2.32% 0.00%

Consumption changes

Scenario A B C D

Food -1.81% -1.04% -1.03% -0.46%

Household goods -1.95% -1.21% -1.10% -0.57%

Services -1.70% 0.01% -0.96% 0.05%

Cars -1.78% -1.13% -1.00% -0.56%

Electricity and LP Gas -12.87% -12.20% -8.40% -7.90%

Public Transportation -2.26% -1.51% -1.25% -0.71%

Gasoline -4.07% -3.41% -2.24% -1.78%

Water -1.68% -0.93% -0.93% 0.37%

Housing -1.68% 0.99% -0.96% 0.50%




Welfare Changes

Scenario I J (lump sum transfer) K

Agent 1 (poorer) 1.54% 1.42% 1.37%

Agent 2 1.45% 1.05% 1.31%

Agent 3 1.09% 0.55% 0.53%

Agent 4 (richer) 0.75% 0.19% 0.71%

Government Welfare 1.02% 0.53% 0.81%

Aggregated Welfare 0.00% 0.00% 0.00%

Consumption Changes

Scenario I J K

Food 1.61% -0.30% 1.24%

Household Goods 1.83% -0.48% 1.38%

Services 1.51% -0.42% 1.13%

Cars 1.82% -0.63% 1.32%

Electricity and LP Gas -8.69% -10.99% -5.73%

Public Transportation 0.93% -0.83% 0.86%

Gasoline -1.03% -2.92% -0.23%

Water 1.50% -0.19% 1.22%

Housing 1.37% -0.44% 1.06%

Pro

gre

ssiv

e


Scenarios in family 1: Output changes by 2030

Scenario A B C D

Agriculture -0.89% -1.03% -0.36% -0.42%

Livestock -0.25% -0.49% 0.05% 0.14%

Forestry 0.78% 0.78% 0.78% 0.52%

Fishing -3.67% -3.27% -2.04% -1.63%

Crude Oil -8.58% -8.80% -5.02% -5.17%

Natural Gas -8.54% -8.83% -5.07% -5.16%

Mining -1.54% -2.22% -0.85% -1.37%

Refinery -13.06% -13.74% -7.90% -8.04%

Transportation 0.08% 0.08% 0.10% 0.73%

Electricity -26.37% -26.46% -19.12% -19.17%

Chemicals and

Plastics -6.51% -7.18% -3.85% -4.30%

Services 0.31% 0.05% 0.10% 0.04%

Manufacture 0.58% 0.53% 0.62% 0.58%



Scenario I J K

Agriculture 5.47% 2.08% 4.69%

Livestock 6.67% 2.64% 5.42%

Forestry 7.27% 3.64% 5.71%

Fishing 0.00% -2.04% 0.82%

Crude Oil -3.47% -6.18% -0.87%

Natural Gas -3.47% -6.20% -0.85%

Mining 8.79% 2.56% 7.08%

Refinery -7.64% -10.82% -3.09%

Transportation 2.08% -0.03% 1.90%

Electricity -12.31% -20.42% -10.23%

Chemicals and

Plastics 5.90% -0.37% 6.03%

Services 2.70% 0.64% 2.18%

Manufacture 10.23% 4.15% 8.10%

Scenarios in family 3: Output changes by 2030

Conclusions • Providing policy options (e.g. fiscal policy reform) through a

quantitative modelling simulation

• Helping countries’ green economy transition through assessing the opportunities and challenges and cross-sectoral implications

• Mainstreaming green economy in the national development planning through green economy assessment

Conclusions • 1.5% of GDP (current level of enerby subsidies) is invested in

renewable energy expands the country’s GDP by 3% by 2030 relative to a BAU

• Alternative use of resources (lumpsum transfers vs. New investment) produces different economic consequences

• Promotion of investment on RW creates a pull in the economy toward more production while the energy price change bring its desired effect

green economy assessment and fiscal policy reform...

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