The course provides an introduction to structural economic equilibrium modelling to analyze problems in environmental and energy economics, with a focus on public policies to mitigate climate change, i.e., to reduce greenhouse gas emissions. The focus is on applied economic modeling based on partial and general economic equilibrium models. The course reinforces concepts, rationales, and instruments for policy intervention in energy markets and economic policies to address environmental externalities. Drawing on published economic research, the course will demonstrate how structural economic equilibrium analysis can be used to examine issues of renewable energy support, carbon markets and carbon pricing policies, climate policies for "hard to decarbonize" industrial sectors, and macroeconomic models to examine the economy-wide role of fossil and renewable energy supply and demand.

Outline

[1]         Introduction & overview            

[2]         Foundations I: Optimization, equilibrium, and complementarity           

[3a]       Foundations II: Optimization, equilibrium, and complementarity         

[3b]       Hands-on session: “toy” model applications  

[4a]       Application 1: The Economics of Renewable Energy Support

[4b]       Hands-on session: Counterfactual energy policy analysis    

[5]         Foundations III: General equilibrium                           

[6a]       Application 2: Fragmented and Overlapping Carbon Markets in the EU

[6b]       Hands-on session: Policy instrument choice & design for decarbonization

[7]         Application 3: "Hard-to-abate" industry sectors: a structural model of the global steel market with plant-level heterogeneity

[8]         More applications:

a: Spatial equilibrium network modelling: climate policies in the EU and global aviation sector                                         

b: Dynamic macroeconomic growth models and energy

Literature: Slide material and research materials will be provided in advance of the course.

After participation, students will be able to formulate simple structural economic equilibrium models designed to analyze energy and/or climate economic problems, calibrate these models using empirical data, solve these models numerically, and perform counterfactual ex-ante policy simulations to obtain insights into the economic effects of climate and energy policies and the future design of such policy interventions.

Students are expected to attend all sessions.

All classroom sessions will take place during the week of November 20-24, 2023. Classes include (1) conceptual foundations, (2) hands-on exercises to foster the understanding of how to develop and apply structural economic models for the ex-ante analysis of climate and energy policy, and (3) advanced applications based on research published in leading economics journals, using the tools taught in this course.

Before the classroom meetings, it is recommended that students familiarize themselves with the GAMS software pre-requisites. Self-study materials, initial instructions, and a GAMS software license valid for this course will be handed out a few weeks before the course. It is also recommended that participants read in advance the research papers that form the basis for some of the advanced applications presented in the course.

At the end of the week, students give a presentation (30min + 15 Q&As) based on their own research. They should reflect on whether and how a structural economic modeling approach could be integrated into their research design and whether this could be beneficial.

Following the week-long classroom sessions, students are asked to complete a small research project that applies the structural models and/or tools learned in the lectures. The advanced applications and practical exercises during the week provide "starting points" for these projects. Students are encouraged to develop their own ideas that match their research interest; alternatively, suggested topics for the projects will be provided during class discussions. Students may choose to team up (max 2 students per project) for these assignments. The deadline for submitting these projects is January 31, 2024. 

• Part I: 50% in total for the presentation of own research (on Thursday/Friday in week of class meetings) and participation in classroom discussions.
• Part II: 50% for the research project (to be submitted in written form by January 31, 2024) which applies some of the structural economic models/tools learned in class.

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Knowledge of microeconomics. Prior experience with the GAMS software is not required.

Slide material and research materials will be provided in advance of the course.