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Macro-economic analysis

by H. Asbjørn Aaheim, Therese Dokken

The macroeconomic analysis is based on the integrated computable general equilibirium (CGE) model GRACE-adapt, which differs from other integrated CGE models in two respects

  • Climate change impacts are attached to specific economic "activities". For example, if the production in the agricultural sector is reduced because of climate change, the loss is interpreted as a loss in the productivity of natural resources (land) in agriculture. The farmers' response to new constraints on available resources is modelled by the market behaviour of economic agents. When a change of behaviour is caused by climate change, it is interpreted as autonomous adaptation to climate change.
  • Each of the eight EU regions is divided into 10 - 12 provinces. Climate change may vary across provinces within a region. Moreover, restrictions on the mobility of capital and natural resources are imposed across provinces to account for the fact that natural resources and capital cannot be moved around "frictionless". If a change in the composition of sectors implies that natural resources and capital will have to be moved from one province to another, additional socioeconomic costs thereby occur.

The estimates of climate change impacts are based on an interpretation of results from European assessments, which are further described in a separate sheet. In most sectors, the impacts are explained as simple function of changes in temperature and precipitation1.

The model was run with all provinces simultaneously. Hence trade effects are taken into account. The rest of the world is represented by two regions only (developed and developing countries), but no impacts of climate change were assumed in these regions. Thus, the results can be regarded as the partial climate impacts for the EU, although trade effects between EU and the rest of the world spurred by climate change within EU is included.

1for details see: A. Aaheim, H. Amundsen T. Dokken, T. Ericson and T. Wei "A macroeconomic assessment of impacts and adaptation to climate change in Europe", ADAM, final ADAM delivery to EC. 2009

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  • © 2009 ADAM, Adaptation and Mitigation Strategies: Supporting European climate policy