Modeling a carbon tax

Ricardo Delgado, Camilo Matajira

Camilo Álvarez, Silvia Calderón

Ángela Cadena

Objective

•  To assess relevant mitigation actions and its expected impacts in the whole Colombian economy –  Bottom models BU –  Top down models TD

How we evaluated carbon tax

•  In MARKAL

Modelo Markal

Costo total del sistema Escasez de recursos Satisfacción de las demandas

Limites a las emisiones Donde:

x es el vector de niveles de actividad energética, c es el vector de costos unitarios de las actividades, A es la matriz de coeficientes técnicos de las actividades, b es el vector de dotación inicial de recursos, D es la matriz de coeficientes técnicos de producción de energía por actividad, d es el vector de demandas de energía útil a satisfacer, E es la matriz de coeficientes de emisión de contaminantes por actividad, e es el vector de límites de emisión admitidos.

 

 

xctmin

Markal – Formulación matemática simplificada del LP

•  Función objetivo

Markal – Formulación matemática simplificada del LP

•  Función objetivo

How we evaluated carbon tax

•  In MEG4C

•  Pke=αPenerp1+τ1-σ+αkRent1-σ11-σ (1)

About results

•  Could be biased –  E.g: demand requirements may change in presence of a mitigation

action such as carbon tax, that demand is the input for MARKAL –  It could be useful to merge both approaches

Literature review

•  BU extending TD –  To use BU model results to calibrate some parameters of the TD. In

particular, the BU results are frequently used to calibrate the production function of the energy sectors in the TD model.

Literature review

•  TD extending BU –  This is the case when BU models like MARKAL receive their inputs

from a CGE, a growth accounting model or an econometric model. This kind of models can even have a two way connection between a TD and a BU, but there main interest is still the results from the BU model. MARKAL-MACRO (Hamilton, Goldstein, Lee, & Morris, 1992) is an example of the latter, in this model the MACRO model is used both for macroeconomic forecasting but its main objective is to quantify the change in energy demand due to price change in energy. In this sense, the focus in MARKAL-MACRO is not the macroeconomic impacts of a mitigation policy but to extend MARKAL allowing energy demand to change.

Literature review

•  TD and BU in the same optimization model –  The last category is made up from models in which both the TD and

the BU models are merged in the same optimization program. Bohringer & Rutherfod (2005) propose one of these models but they have not conducted empirical exercises yet.

Literature review

•  Two way links between TD and BU –  These kinds of models join TD and BU models by sharing

information and running sequentially one after the other. For instance, TD exports macroeconomic forecasts and energy demands, the BU used this information and exports energy prices, elasticities and participation of the different energy in the economy sectors, then the TD takes this inputs and updates its forecasts and so on until convergence.

Methodology

•  BAU •  Opt. Energy mix scenario

Concerns

•  Sectors •  Language

•  No iterations •  Mitigation policy scenario

–  Double entry system –  Avoid double counting

•  Carbon tax for international trade –  How to know the tax to be imposed to importations?

MEG4C   MARKAL  

• Monetary  transac,ons  • Rela,ve  prices  • Myopic  agent  

• Physical  quan,,es  • Shadow  prices  • Perfect  foresigth