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Edited by Jeroen C.J.M. van den Bergh
Chapter 69: Computable General Equilibrium Models for Environmental Economics and Policy Analysis
69 C o ~ p u ~ a bgeneral ~ q ~ i l i b r i u m le models for environmental economics and policy analysis Klaus Cmrad 1. Introduction Given the chal~enge realise more restrictive environmental regulation in to the near future, it is becoming increasingly important to quantify the costs of such a policy. Policies aimed at significantly reducing environmental problems such as global warming, acid rain, deforestation, waste disposal or any other degradation of the quality of air, water, soil or land most imply drastic emission reductions. O b ~ i ~ u s l the impl~mentationof env~rony, mental policy instruments to improve the quality of the environment should not hinder other economic goals like GDP growth, international competitiveness or employment. The discussion whether there exists a ‘noregret’ policy that improves environmental quality without negative impacts on the economy has been held for a long time but has not yet led to a conclusion. In principle, large emission reductions tend to have a significant impact on costs in one or several sectors of an economy. The implied change in relative prices will induce general equilibrium effects throughout the whole economy. For this reason it is often useful to evaluate the effect of environmental policy measures within the framework of a computable general equilibrium (CGE) model. Models of this type are a computer representation of a national economy or a region of national economies, each of which consists of consumers, producers and a government. Consumers purchase goods from producers,...
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