Organisation for Economic Co-operation and Development (OECD) 1

Introducing land use in OECD’s ENV-Linkages model

Rob DellinkOECD Environment Directorate

9 February 2011, OECD Expert Meeting on “Climate change, Agriculture and Land use”, Paris

Organisation for Economic Co-operation and Development (OECD) 2

GE modelling at the OECD in historical perspective

Time

20112004

ENV-Linkages

1997 2000

GREEN

Linkages

JOBS

GREEN

199219901987

WALRAS

MIT-EPPA

2

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The ENV-Linkages model

• Computable General Equilibrium (CGE) model•Full description of economies•Simultaneous equilibrium on all markets•Structural trends, no business cycles

• All economic activity is part of a closed, linked system •World divided into 29 regions (15 for modelling analysis)•Each economy divided into 26 sectors (with focus on energy)

• Recursive-dynamic: horizon 2005-2050; vintages of capital

• Link from economy to environment•Greenhouse gas emissions linked to economic activity•Damages from climate change not assessed: model only assesses

the costs of policies, without valuing their environmental benefits•Working on feedback link from climate to economy (impacts)

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Regional aggregation

Region ID Label Region ID Label Region ID Label

CAN Canada CAN CanadaJPK Japan & Korea JPN Japan KOR KoreaOCE Oceania OCE OceaniaRUS Russia + RUS Russia +USA USA USA USAWEU European Union & EFTA E15 European Union 15 EOC Rest of EU OECD

ENO EU countries non OECD EFT EFTARAN Rest of Annex I UKR Ukraine + RCE Rest of Central Europe

TUR TurkeyBRA Brazil BRA BrazilCHN China + CHN China +IDN Indonesia IDN IndonesiaIND India IND IndiaMEA Middle East & Northern Africa MEA Middle East NAF Northern AfricaMEX Mexico MEX MexicoZAF South Africa ZAF South AfricaROW Rest of the World RCA Rest Central America RSA Rest South America

TAN Asia-Stan SAF Rest of Southern AfricaWAF Western Africa EAF Eastern AfricaSEA Southeastern Asia STA Rest of South Asia

Aggregation ENV-L: 29 RegionsAggregation ENV-L: 15 Regions

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Sectoral aggregation

• 5 agriculture related sectors• Rice cultivation, other crops, livestock, forestry, fisheries

• 4 primary energy related sectors• Crude oil, coal, gas, petroleum refineries

• 5 electricity related technologies (‘sectors’)• Fossil fuel, hydro/geothermal, nuclear, solar/wind, biomass/waste

• 6 energy intensive industries• Non-ferrous metals, iron & steel, chemicals, fabricated metal

products, paper and paper products, non-metallic minerals

• 6 other sectors• Food products, other mining, other manufacturing, transport

services, services, construction & dwellings

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Describing economic activity: production

• Smooth production functions describe how producers can choose among different technologies

•Multi-level constant elasticity of substitution (CES) functions•Works well because sectors are aggregated across many different

firms

• Adjustments of the generic production function or specific sectors

•Land input in Agriculture and Forestry sectors•Some other sectors have ‘natural resource’ (capacity constraints)•Fertilizer in crops production•Feed in livestock sector•Primary energy sources in fossil fuel electricity•Alternative technologies for electricity are almost perfect substitutes

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Data sources

• Socio-economic data•GTAP 7.1 database; UN Population projections; World Bank, IMF macro

projections

• Environmental data•CO2 emissions harmonized with IEA

•Agricultural emissions: CO2 from energy use; CH4 from rice cultivation, enteric fermentation and manure; N2O from manure and soils – only CH4 from rice linked to land use, others to production level

•Projections for non-CO2 GHG and LULUCF emissions (CO2) in the process of harmonization with IMAGE

• Land use data•FAO for historic land use cover and deforestation rates•IMAGE for land cover projections and conversion (deforestation,

afforestation) emission/sink rates•OSIRIS REDD marginal abatement cost curves

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Creating a baseline projection

• Projecting future trends in socio-economic developments until 2050

•Not a prediction of what will happen!•Be humble: we know very little about long-term future economic

activity

• Based on a “conditional convergence” methodology•Based on recent growth theory•Countries further from their potential are expected to grow faster•No direct convergence in levels of e.g. GDP, but convergence in

drivers of growth: total factor productivity, labour productivity•Conditionally converging drivers plus exogenous trends in e.g.

population create an internally consistent set of future projections•Methodology has been discussed and accepted at EPOC’s ad-hoc

expert meeting on the Outlook in November

Organisation for Economic Co-operation and Development (OECD) 9

-1

0

1

2

3

4

5

6

7

8

9

CAN

JPK

OCE

RUS

USA

WEU

RAN

BRA

CHN

IDN

IND

MEA

MEX ZA

F

ROW

Average 2010 - 2015 Other factor supply

Other factor productivity

Other factor allocation

Capital supply

Capital productivity

Capital allocation

Labour supply

Labour productivity

Labour allocation

Drivers of GDP growth

-2

-1

0

1

2

3

4

5

6

7

CAN

JPK

OCE

RUS

USA

WEU

RAN

BRA

CHN

IDN

IND

MEA

MEX ZA

F

ROW

Average 2015 - 2030 Other factor supply

Other factor productivity

Other factor allocation

Capital supply

Capital productivity

Capital allocation

Labour supply

Labour productivity

Labour allocation

-2

-1

0

1

2

3

4

5

6

CAN

JPK

OCE RU

S

USA

WEU

RAN

BRA

CHN

IDN

IND

MEA

MEX ZA

F

ROW

Average 2030 - 2050 Other factor supply

Other factor productivity

Other factor allocation

Capital supply

Capital productivity

Capital allocation

Labour supply

Labour productivity

Labour allocation

Source: ENV-Linkages model projection

Organisation for Economic Co-operation and Development (OECD) 10

20

25

30

35

40

45

50

55

6020

1020

1220

1420

1620

1820

2020

2220

2420

2620

2820

3020

3220

3420

3620

3820

4020

4220

4420

4620

4820

50

GtC

O2e

ENV-Linkages (current baseline)

IEA-ETP 2010

IEA-WEO 2010

OECD Environmental Outlook 2008

IPCC 4AR Range

Projections for emissions of CO2 from fossil fuel combustion

20

25

30

35

40

45

50

55

6020

1020

1220

1420

1620

1820

2020

2220

2420

2620

2820

3020

3220

3420

3620

3820

4020

4220

4420

4620

4820

50

GtC

O2e

ENV-Linkages (current baseline)

IEA-ETP 2010

IEA-WEO 2010

OECD Environmental Outlook 2008

IPCC 4AR Range20

25

30

35

40

45

50

55

6020

1020

1220

1420

1620

1820

2020

2220

2420

2620

2820

3020

3220

3420

3620

3820

4020

4220

4420

4620

4820

50

GtC

O2e

ENV-Linkages (current baseline)

IEA-ETP 2010

IEA-WEO 2010

OECD Environmental Outlook 2008

IPCC 4AR Range

Source: draft ENV-Linkages model projection ; still to be harmonized with IMAGE

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Approach to introducing land use (ongoing)

• Step by step•First focus on CO2 emissions from deforestation and afforestation

•Later expand agricultural sector and include bioenergy

• Modelling land use change•Multi-level CET structure for governing land use conversion•Supply elasticity for managed land endogenously depends on land

availability (so-called land supply curve)•Distinguish intensive vs. extensive margin response to climate

policy

• Introducing carbon pricing policies•No emissions associated with land that stays in same category

(apart from agricultural GHG emissions)•Carbon subsidy for afforestation•Carbon tax for deforestation

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Managed land

Forestry Agriculture

Crops Livestock

Rice

Unmanaged land

Grains Sugar Oilseeds Other crops

Nesting structure land use

Managed land

Forestry Agriculture

Crops Livestock

Rice

Unmanaged land

Other crops

Organisation for Economic Co-operation and Development (OECD) 13

Land use in agriculture

0200400600800

10001200140016001800

Braz

il

Oce

ania

Chin

a +

Japa

n &

Kor

ea

Indo

nesi

a

Indi

a

Cana

da

USA

Mex

ico

Russ

ia +

Mid

dle

East

Sout

h A

fric

a

Euro

pean

Uni

on &

…

Rest

of A

nnex

I

Rest

of A

sia

Rest

of A

fric

a

Resr

t of A

mer

ica

mln

ha

2004

2050

Source: draft ENV-Linkages model projection ; still to be harmonized with IMAGE

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Applications with the extended model

• OECD Environmental Outlook•Wide range of policy simulations focus on Climate change,

Biodiversity, Water, and Health & Environment•Collaboration with IMAGE suite of models

• Economic analysis of the Copenhagen Accord / Cancun Decisions emission pledges

•Explicit treatment of REDD+ for non-Annex I parties•Explicit treatment of land accounting rules rules for Annex I parties

• Foreseen future policy analyses (to be determined)•Energy subsidy reform: fossil fuels, bioenergy, renewables•Integrated climate change and biodiversity policies•Possibilities for REDD+ in fragmented carbon markets

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Contact

Rob Dellink

OECD Environment Directorate

rob.dellink@oecd.org

+33 (0) 1 45 24 19 53