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1. Key messages

  • Computable General Equilibrium (CGE) models have been applied to study a range of economic challenges and are widely used to evaluate impacts of climate policies on economic activity and welfare, including production, consumption, employment, taxes and savings, and trade. CGE models are the preferred tool to measure the long-term impacts of climate policies.
  • There are different types of CGE models. Frequently, the models are classified in terms of how the required data are collected – or the results are computed – at the desired level of granularity (top-down vs bottom-up approaches), and particularly in terms of how the different modules are integrated (hard vs soft links). There is also a distinction between models aiming at forecasting short-term business-cycles as opposed to models concentrating on more structural change. Climate policy is usually modelled focusing on structural transformations.
  • The institutional setup of national governance systems has a big impact on model structure and development. Often, decentralised governance systems are associated with modular modelling structure (soft-links), whereas integrated models (hard-linked) are more frequently found in countries with centralised governance systems.
  • Model design choices have implications for policy use. Soft-link models potentially have a higher degree of precision and granularity but require more detailed data inputs and stronger coordination between government departments. Hard-link models usually have lesser data requirements and enable more control and transparency over modelling assumptions. However, they often have less precision and granularity.
  • CGE models face different challenges when it comes to the integrating climate in macroeconomic modelling. Key obstacles identified in the ICMM project include: limited access to granular data, difficulties to document assumptions in a transparent way, difficulties in modelling technological change and limitations related to modelling specific carbon-intensive industries, including agriculture.
  • Nordic CGE climate models share many similarities but also important differences. Collaborative networking among Nordic experts, exchange of lessons learned, and peer-to-peer discussion can ensure continuously improved models and contribute to address the most relevant and pressing policy questions faced by decision makers in the region.