Illustrationsbillede indhold

Project description

GreenREFORM is a project with the purpose of developing an environmental and climate-economic model for the Danish economy. The goal, strategy, organization and financing of the project are explained below.

Goal

The goal of the project is to develop an analytical tool that allows for an integrated and consistent assessment of the environmental and climate effects of economic policies, as well as the socioeconomic effects of environmental, energy and climate policies. An important premise for this, and a goal in itself, is that the baseline simulation of the model should provide a comprehensive assessment of how future economic development is expected to affect the environment and climate. Further, the baseline simulation should assess whether this development is compatible with the political goals within these areas.

The project started as a research project and was since supplemented with funds from the Ministry of Finance. A description of the project and its purpose, which is still relevant, can be found in the application for the research project. The text on this page should be read as a supplement to this description.

Read the application for the research project about the development of GreenREFORM

Read the article ”How can environmental and climate consideration be intergrated in economic policy?” in the publication Politik (in Danish)

Financing

The development of GreenREFORM is formally divided in two: A research project supported by the Carlsberg Foundation, the KR Foundation and the Economic Policy Research Network in 2017 and a model project supported by a grant from the Ministry of Finance in 2019.

The research project finances a research group comprised of researchers from the University of Copenhagen and Aarhus University. The research group is led by Professor Peter Birch Sørensen and includes six PhD students as well as an associate professor, who work on the sectors and issues that were highlighted as particularly important in the research project.

With the grant from the Ministry of Finance, the project has been given more resources with the specific objective of a finalized model by fall 2021, fulfilling the specified goals and has a setup that allows users in ministries and other institutions to work with the model in practice.

The grant from the Ministry of Finance funds a model group under the DREAM group, which from October 2019 is comprised of four full time economists and four research assistants. The model group participates in the development of the researchers’ sub-models and is responsible for the general equilibrium model, which describes socioeconomic development and the economic interactions between the respective sectors, households and the public sector. The model group also has primary responsibility for completing the project objectives and delivering a model system, applicable in ministries and other institutions. 

Organization

The project group is organized in working groups across the model group and the research group with responsibility for developing the respective sub-models and integrating them with general equilibrium model. This website includes sections for each working group, where the development of the respective sub-models can be monitored.

Working groups:

  • General equilibrium model
  • Agriculture
  • Energy supply
  • Transportation
  • Waste management and circular economy
  • Abatement of emissions

Availability

Openness and availability is a key goal among all stakeholders in the project. The project group strives for openness and involvement throughout the development process and has the ambition that the model, once completed, will be readily available to the greatest extent possible.

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.

Strategy

GreenREFORM will be a dynamic general equilibrium model with the same fundamental model architecture as MAKRO, which is an economic model that the DREAM group is developing to be used by the Ministry of Finance for their medium-term forecasts. Many of the modelling methods developed for MAKRO can be directly applied in GreenREFORM.

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.