The model is a multi-sector model like REFORM. However, unlike REFORM, which is a static model, GreenREFORM is a dynamic model like MAKRO. That means that it provides an account for economic development for multiple years into the future. This presents a technical challenge, since the large number of sectors and the highly detailed description of for example energy consumption, increases the dimensionality of the model compared to MAKRO, which is already a relatively complex model. Another challenge comes from the fact that the model requires a higher level of detail than in the data that is currently available.
Methodologically and theoretically there are fewer challenges, since GreenREFORM is based on the model architecture that has been developed by the DREAM group for MAKRO and REFORM. The exceptions to this are the sectors and issues covered by GreenREFORM’s sub-models. These include energy, transportation, agriculture, waste management and the abatement of pollution through investment in new technologies across all sectors. The development of each sub-model is described on separate webpages.
Development of the model is based on the model structure and the technical framework, which has been developed by DREAM for MAKRO. However, the purpose of GreenREFORM is different than that of MAKRO, which will be reflected in the prioritization of the level of detail with which the two models describe different issues.
GreenREFORM will in some areas be simpler than MAKRO. This includes descriptions of the labor market and the social security system, since MAKRO, among other things, aims to explain the transition from the current state of the economy towards the structural equilibrium state and to describe the effect of changes to social security taxation over time. These states are exogenous in GreenREFORM, since the model is calibrated to match a baseline from MAKRO.
The model must be able to accurately describe the effect of environmental and climate policies over time. This requires that the model accounts for the gradual nature of investment transitions in specific sectors.
The development process described in the following text is based on the status as of October 1, 2019, with the ambition of having a finished model within two years. An early version of the general equilibrium model had already been developed by the beginning of October, 2019. This is a dynamic multi-sector model, where each sector produces a homogenous good, and where the material input for each sector is split into input of energy and other material input in production. The labor market in the model is calibrated against MAKRO and the description of household behavior as well as the public sector is relatively simple. The model describes economic development in Denmark every year until 2100.
Development of the general equilibrium model is currently focused on preparing it for integration with the first sub-models. Integration with the respective sub-models is described on separate webpages. Notice the paragraph on the energy sub-model webpage, where it is explained that the sub-model has been successfully and completely integrated with the general equilibrium model.