Introduction to GreenREFORM

On top of these sub-models, a main model is being developed in the form of a computable general equilibrium model (CGE-model), which describes the total economic activity in Denmark and combines the results of the sub-models. GreenREFORM is being designed as a fully integrated model system, where all of the sub-models and the main model interact and are solved simultaneously.

Like the multi-sector model REFORM, the main model will include a large number of sectors. However, unlike REFORM, which does not account for the transition of the economy over time (a static model), GreenREFORM, similar to MAKRO, will be developed as a so-called dynamic model, which describes economic development year by year.

Development of the model is based on the model structure and the technical framework, which has been designed by DREAM for MAKRO. However, the level of detail will in certain areas vary significantly between the two models. In GreenREFORM, sectors that are particularly impactful on the environment or the emission of greenhouse gases, such as the energy, transportation, agriculture and waste management sectors, will be modelled at a high level of detail, while other areas, which are of focus in MAKRO, will be modelled in less detail.

Public seminars will be held and working papers will be published on the website during the course of the development process. The project group will also participate in various conferences and strives to involve relevant stakeholders throughout development.

The completed model must be as easily accessible as possible and with a level of detail, that makes it useful for policy evaluation on a relatively detailed level. Both are important requirements in fulfilling the ambition of making the model an integrated tool in relevant ministries, authorities, think tanks, interest groups and more.

The model will inevitably be fairly complex and will require a significant investment in human capital for it to be used in practice. It may also not be possible to provide open access to all of the underlying data, since this can include confidential business information. Nonetheless, it is a clear ambition to ensure the greatest possible level of openness and availability.

The development of GreenREFORM was formally divided into a research project, which financed a research group comprised of researchers from the University of Copenhagen and Aarhus University, and a project funded by a grant from the Ministry of Finance in 2019. The research project was formally finished in the summer of 2022, while the latter still finances a permanent Model Group at DREAM.

Board of Directors

GreenREFORM must be able to make environmental economic forecasts based on calculations from MAKRO, such as assessing how future economic development will impact the environment and climate and whether this development is compatible with the political goals within these areas. Consequently, GreenREFORM will to the extent possible build on the industry structure etc. in MAKRO.

The description of the production of and investment in new technologies will also be more complex than in MAKRO, to ensure that GreenREFORM can endogenously describe how new and cleaner technologies displace existing ones over time, depending on the policies in place. Where possible, GreenREFORM will use expert judgements in the form of various forecasts and bottom-up technology catalogues.

GreenREFORM will be a fully integrated model system. This means that the sub-models and the general equilibrium model interact with each other and are solved simultaneously, as opposed to a model system, where the sub-models are solved separately and then an iterative procedure searches for a combined solution. The purpose of developing a fully integrated model is intended to minimize the time required to perform counterfactual experiments and the desire for a fully consistent description of the interaction between sectors in the economy. This is, however, a challenge due to computational tractability of the model and because technical models in place today are typically incompatible with a general equilibrium model.

Where possible, the sub-models must use bottom-up data and the relevant conditions from technology catalogues. It is a goal to incorporate the technical knowledge and data, which within each area can be found in specialized technical models. In addition to limitations on resources and expert knowledge within the project group, the overall goal of a fully integrated model system is also a limiting factor in this regard. In practice, it must therefore be possible to adapt the baseline and marginal experiments to relevant external projections and expert judgements as required.

GreenREFORM must be able to describe the emission of pollutants in the Air Emissions Account produced by Statistics Denmark from all Danish businesses, households and the public sector. Further, the model should describe how emission coefficients are endogenously affected by changes to environmental taxes and other forms of regulation, affecting the cost of emissions. In addition to a detailed dataset, this requires a relatively comprehensive description of the taxation and subsidy systems.