Scandinavian Working Papers in Economics

CERE Working Papers,
CERE - the Center for Environmental and Resource Economics

No 2011:10: Dynamic CGE-model with heterogeneous forest biomass: Applications to climate policy

Örjan Furtenback ()
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Örjan Furtenback: CERE, Centre for Environmental and Resource Economics, Postal: Dept. of Forest Economics, SLU, S-901 83 Umeå, Sweden

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.

Keywords: Dynamic CGE; Ecosystem modeling; Inter-temporal optimization; Infinite-horizon equilibrium

JEL-codes: C68; D58; Q26

87 pages, May 27, 2011

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