Dynamic CGE-Model with Heterogeneous Forest Biomass: Applications to Climate Policy

Abstract:     
This study introduces a framework for modeling a renewable forest biomass stock interacting with economic sectors in a competitive economy. The equilibrium is formulated as a mixed complementary problem (which explicitly represents weak inequalities and complementary among decision variables and equilibrium conditions). The complementarity format permits detailed modeling of the growth and harvest of a biomass stock together with a second-best characterization of the overall economy. First the complementarity features of economic equilibrium and its integration with an ecological representation of the biomass are provided. Then a stylized numerical example of a dynamic computable general equilibrium model is presented. Finally, illustrative applications of the model for gauging the likely effects of environmental subsidies and taxes intended to promote increases CO2 storage in forest biomass are given, the results are discussed.

Number of Pages in PDF File: 87

Keywords: dynamic CGE, ecosystem modeling, inter-temporal optimization, infinite-horizon equilibrium

JEL Classification: C68, D58, Q26

working papers series