Economy-Energy-Climate Interaction: The Model Wiagem

Abstract

This paper presents an integrated economy-energy-climate model WIAGEM (World Integrated Assessment General Equilibrium Model) which incorporates economic, energetic and climatic modules in an integrated assessment approach. In order to evaluate market and non-market costs and benefits of climate change WIAGEM combines an economic approach with a special focus on the international energy market and integrates climate interrelations by temperature changes and sea level variations. WIAGEM bases on 25 world regions which are aggregated to 11 trading regions and 14 sectors within each region. The representation of the economic relations is based on an intertemporal general equilibrium approach and contains the international markets for oil, coal and gas. The model incorporates all greenhouse gases (GHG) which influence the potential global temperature, the sea level variation and the assessed probable impacts in terms of costs and benefits of climate change. Market and non market damages are evaluated due to the damage costs approaches of Tol (2001). Additionally, this model includes net changes in GHG emissions from sources and removals by sinks resulting from land use change and forest activities. This paper describes the model structure in detail and outlines some general results, especially the impacts of climate change. As a result, climate change impacts do matter within the next 50 years, developing regions face high economic losses in terms of welfare and GDP losses. The inclusion of sinks and other GHG changes results significantly.

Keywords: Integrated Assessment Modelling, Kyoto mechanisms

JEL Classification: D58, C68, Q40