The second modelling approach builds on UCL’s computable general equilibrium (CGE-UCL) model. As compared to the microeconomic model of Project 11, the CGE-UCL model explores a fundamentally different question; in particular, what are the broader economic implications of different energy pathways given their differing demands for limited stocks of natural capital that have alternative uses in other sectors of the economy? The novel insights provided by the CGE modelling concern how use of natural capital under a particular energy pathway impacts on activities in other sectors of the economy. The model can be used to assess how those impacts will play out in terms of aggregate (or sectorally disaggregated) measures of growth, jobs and trade.
CGE-UCL is a recursive dynamic Computable General Equilibrium model which builds on prior extensions of the GTAP database to incorporate energy and environmental considerations. The model focuses on the UK economy while taking into account trade with the rest of the world. It disaggregates the economy into a large number of sectors but the level of division can be adjusted to suit the nature of the enquiry, such that CGE-UCL is a versatile tool with which to assess a wide range of energy-environment-economy modelling problems. By using a ‘slack factor’, CGE-UCL does not impose neoclassical market clearing assumptions but retains the more general advantages of a CGE modelling, such as completeness and consistency in accounting for finite resources, inter-industry linkages and knock-on effects across the whole economy.
The CGE-UCL model will take as inputs data from Project 4 describing the aggregate demands for water and land-use from an energy system. Water requirements from the energy system will be complemented by data from the WATERGAP model (see Project 14) that estimates water demanded by other sectors of the economy including by agriculture, households and industry. Similarly, land use requirements from the energy system will be complemented by demand in the agricultural sector which will be produced by TIM.
Using those estimates of water and land demand consistent with an energy pathway and the economic system underlying it, the CGE-UCL model will be used to assess the potential impact of energy-water-land-use change on key economic metrics such employment, economic growth at the sectoral level, and prices under different assumptions for policy intervention, technological progress, resource productivity of the energy system infrastructure.