Assessment of Energy-Related Technological Shocks Within a CGE Model for the Polish Economy

Abstract

Despite the increasing popularity of computable general equilibrium (CGE) models in energy-economy-environment analyses, Polish data still provide a modest disaggregation of energy-related sectors. Hence, CGE modellers need to disaggregate corresponding products and industries on their own -to not only obtain more detailed insights, but also avoid the problem of an "aggregation bias". The aim of this paper is to test for such a bias in Poland's case using a small open economy, CGE model called GEMPOL, with an in-house split of energy sectors. Three alternative versions of the model are calibrated and solved. The first version includes energy sectors in their original breakdown. The second version includes their in-house split, with particular values of Armington elasticities derived directly from "parent" sectors. In the third version, Armington elasticities are increased in order to reflect the higher degree of international competition for smaller sub-products. Through a simulation shock, imposed under comparative-statics mode, an exogenous energy efficiency improvement is modelled. Finally, the results obtained from all the variants of the model are compared. It turns out that the simulation results produced by both aggregations and all three specifications of the model are similar from the macroeconomic perspective, but they vary significantly between different aggregations at the sectoral level.

Macroeconomic, Sectoral and Fiscal Consequences of Decreasing Energy Intensity in the Polish Economy

“…This stems from the fact that excessive aggregation misses important details and insights on sectoral specificity (unobserved heterogeneity) and may lead to the model being misspecified [Alexeeva-Talebi et al ., 2012;Caron, 2012] . Notably, Antoszewski [2019a] assessed the aggregation bias for the GEMPOL model based on energy efficiency improvement simulations . Changes in production volumes in individual branches of the economy are the basic measure of sectoral heterogeneity for the impact of energy efficiency improvements (see Figure 10) .…”

“…6 Antoszewski [2019a] provided a more detailed description of the GEMPOL model as well as a discussion on the appropriateness of using CGE models in analyses related to energy efficiency improvements . A full description of the model can be found in Annex 1 which is available on the article's website: https://doi .org/10 .33119/GN/125464 7 The production and consumption functions discussed in this paper are based on the dual representation of cost functions .…”

“…This in turn allowed for an increase in the number of products and industries from 77 to 83 . Antoszewski [2019a] provided a comprehensive description of the entire splitting procedure .…”