SIXTH FRAMEWORK PROGRAMME
Project contract no. 502527
ESPREME
Estimation of willingness-to-pay to reduce risks of exposure to heavy metals and
cost-benefit analysis for reducing heavy metals occurrence in Europe
Specific Targeted Research Project
Research priority 1.6. Assessment of environmental technologies for support of policy decisions, in
particular concerning effective but low-cost technologies in the context of fulfilling environmental legislation
Workpackage 08 – D07
Joint overview report and comparison of available methods and models
for macroeconomic assessment
February 2007
Due date of delivery after extension: February 2007 (final version)
Actual submission date: 6st February 2007
Start date of project: 1st of January 2004
Duration: 36 months
(extended to March 2007)
Lead authors for this deliverable: Damian Panasiuk, Jozef Pacyna, NILU Polska
Project co-funded by the European Commission within the Sixth Framework Programme (2002-2006)
PU
PP
RE
CO
Dissemination Level
Public
Restricted to other programme participants (including the Commission Services)
Restricted to a group specified by the consortium (including the Commission Services)
Confidential, only for members of the consortium (including the Commission Services)
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Table of Contents
EXECUTIVE SUMMARY..................................................................................................................... 2
ACKNOWLEDGEMENTS.................................................................................................................... 2
1.
INTRODUCTION ........................................................................................................................... 3
2.
REVIEW OF MACRO-ECONOMIC MODELS ........................................................................ 3
2.1.
2.2.
2.3.
2.4.
GEM-E3 MODEL ........................................................................................................................ 3
GTAP MODEL ............................................................................................................................ 7
NEMESIS MODEL ..................................................................................................................... 7
E3ME MODEL ............................................................................................................................ 9
3.
POSSIBILITIES OF USE OF MODELS FOR OMEGA OUTPUTS ..................................... 10
4.
CONCLUSIONS ........................................................................................................................... 11
5.
REFERENCES .............................................................................................................................. 12
List of Tables
Table 3.1 Comparison of macro-economic models ................................................................................ 10
List of Figures
Figure 2.1 Environmental module of GEM-E3 model ............................................................................. 4
Figure 2.2 Structure of NEMESIS Energy/Environmental Model ........................................................... 8
Figure 2.3 E3ME model as an Energy-Environment-Economy model .................................................... 9
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Executive Summary
In report four macro-economic models and their environmental moduls are presented.
GEM-E3 (General Equilibrium Model for studying Energy-Economy-Environment interactions) is
model developed in 5FP and representing 22 EU countries and 10 pollutants. Model has the
environmental module.
GTAP (Global Trade Analysis Project) is general equlibrium model developed in the USA with an
Energy-Environmental version (GTAP-E model) which covers individually 32 European countries and
6 greenhouse gases.
NEMESIS (New Econometric Model for Environmental and Sustainable development and
Implementation Strategies) is model developed by European consortium and covers EU-15 countries
plus Norway and 8 pollutants. Model has Energy/Environmental module (NEEM).
E3ME (Energy-Environment-Economy Model for Europe) is model developed by European
consortium and covering EU25 countries plus Norway and Switzerland and 14 air-pollutants. Model
has emissions submodel.
The best solution in ESPREME for use of OMEGA outputs is extension of environmental modules of
macro-economic models. Used model should cover enlarged European Union and NEMESIS model
does not fulfill this requirement. Next covered pollutants should not limit to greenhouse gases as in
GTAP model. Therefore GEM-E3 and E3ME models are the most useful models to extension of its
environmental moduls but E3ME model covers the biggest number of pollutants.
From among macro-economic models E3ME is the most useful model. Its environmental submodel
should be extended to incorporate heavy metals (mercury, cadmium, arsenic, nickel and chromium).
Acknowledgements
This work has been carried out with the financial support from the EU project ESPREME (Contr. No.
SSPI-CT2003-502527). Authors are grateful to the European Comission for this support.
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1. Introduction
Assessment of available models and databases with regard to their potentials to analyse macroeconomic effects of heavy metal abatement strategies was the aim of Workpackage 08. In report
comparison of available models and databases (GEM-E3, GTAP, NEMESIS, E3ME), their advantages
and disadvantages are presented.
2. Review of macro-economic models
2.1.
GEM-E3 model
GEM-E3 (General Equilibrium Model for studying Energy-Economy-Environment interactions) is
model simultaneously representing:
- either individually 22 EU countries (except Luxembourg, Cyprus, Malta, Bulgaria and Romania) GEM-E3 Europe version,
- or 21 World regions e.g. EU15 countries, 10 New EU member States, Former Soviet Union and
Other European countries - GEM-WORLD version.
The model distinguishes 18 productive branches.
The model has been developed as a multinational collaboration project funded by EC in 5FP and later
geographically extended. GEM-E3 aims at covering the interactions between the economy, the energy
system and the environment. The model computes simultaneously the competitive market equilibrium
and determines the optimum balance for energy demand/supply and emission/abatement. Its European
version is based on the EUROSTAT database and national databases for the new EU countries.
Model has the environmental module, see figure 2.1. Its objective is to represent the effect of different
environmental policies on the EU economy and on the state of the environment. The environmental
module concentrates on global warming through CO2 emissions, problems related to the deposition of
acidifying emissions and ambient air quality linked to acidifying emissions and troposheric ozone
concentrations. Firstly energy-related emissions of CO2, SO2, NOx, VOC, particulates and ozone were
taken into account. In a later stage non-CO2 greenhouse gases (CH4, N2O, PFC, HFC, SF6) were
introduced in the model.
The environmental module contains two submoduls:
- a “behavioural” module, which represents the effects of different policy instruments on the
behaviour of the economic agents
- a ‘state of the environment” module, which uses all emission information and translates it into
deposition, air-concentration and damage data.
The ‘Behavioural’ module
Main link concerns the energetic use of the fuels and durable goods. Non-energetic use like refinery
and processing is treated separately. Three mechanisms of emission reduction are explicitly specified in
the model:
- emission reduction due to a decline in production and/or consumption,
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- substitution between fuels and/or between energetic and non-energetic inputs
- end-of-pipe abatement (where appropriate technologies are available).
The costs of environmental policy requirements are added to the input (and consumption) prices.
Hence, the additional policy constraint is easily reflected in prices and volumes.
Figure 2.1 Environmental module of GEM-E3 model
ENVIRONMENTAL MODULE
STATE OF THE ENVIRONMENT SUBMODULE
BEHAVIOUR SUBMODULE
related emission
background immission
non-energy
abatement costs
Energy pathway
ECU
Emission
model
behaviour
policy instrument
transformation
physical
immission
valuation
antropogenic
dose-response
transportation
function
emission
function
model
damage
pollution abatement
Cost-Effectiveness Analysis
Abatement
cost
OTHER
MODULES
temperature
Cost-Benefit Analysis
Prices & Quantities
Energy vulnerability
Policy Evaluation Module
Source: Capros P. et al. (1997)
The ‘State of the Environment’ module
The ‘state of the environment’ module has as main objective the computation of the emissions, their
transportation over the different EU countries and the monetary evaluation of the damages caused by
the emissions and depositions.
Submodule proceeds in three consecutive steps :
1. the computation of emissions of air pollutants from the different economic activities, through the
use of emission factors specific to these activities;
2. the determination of pollutants’ transformation and transportation between countries, i.e. the
transboundary effect of emissions;
3. the assessment of the value of the environmental damages caused by the incremental pollution
compared to a reference situation in monetary terms.
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According to description of the model (Capros P. et al., 1997):
Emissions
Emission factors and other data related to the pollutants are differentiated by country, scector, fuel and
type of durable good (e.g. cars, heating systems).
All emission calculations start from the potential emission EMppot
, s a sector s produces before end-ofpipe measures have been undertaken. These emissions are linked to the endogenous output, the pricedependent (endogenous) input coefficient, the exogenous emission factor and the share of the energetic
use of the input demand.
i I ,
EM ppot
, s   ef p ,i , s   i , s   i , s  X s
i
where
ef p,i,s
: emission factor for pollutant p using input i in the production of sector s ,
ef p,i,s  0 for i  emission causing energy input,
: share of energetic use of demand of input i in sector s ,
 i ,s
 i , s  X s : intermediate demand of input i for output X s in sector s ,
I
: set of inputs.
For the households analogously:
h
h
fix
EMH ppot
, j   ef p ,i , j   i , j   i , j  z j
i Ij ,
i
where
ef ph,i , j : emission factor for pollutant p using linked non-durable good i to operate durable
good j , ef ph,i , j  0 for i  emission causing energy input,
 ih, j
: share of energetic use of demand of linked non-durable good i to operate durable
good j ,
 i , j  z jfix : fixed part of the demand for linked non-durable good i induced by use of durable
i Ij
good j .
: set of non-durable goods linked to the use of durable good j .
Installing abatement technologies reduces total emissions. With respect to the degree of abatement
specified above one obtains the abated emissions EM pab,s or EMH pab, j .
EM pab,s  a p,s  EM ppot
,s
and
EMH pab, j  a ph, j  EMH ppot
,j
The remaining actual emissions ( EM pef,s or EMHpef, j ) are then given as residual:


ab
pot
EM pef,s  EM ppot
, s  EM p , s  1  a p , s  EM p , s
and
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

ab
pot
EMH pef, j  EMH ppot
, j  EMH p , j  1  a p , j  EMH p , j
The actual emissions of primary pollutants are therefore related to the use of energy sources, the rate of
abatement, the share of energetic use of the demand of input i and the baseline emission coefficient of
a pollutant.
Transformation and transport of emissions
The transport/deposition coefficients for SO2 and NOx emissions are derived from EMEP budgets for
airborne acidifying components which represents the total deposition at a receptor due to a specific
source. Tropospheric ozone is a secondary pollutant formed in the atmosphere through photochemical
reaction of two primary pollutants, NOx and VOC. The transformation matrix was established by
EMEP. For the problem of global warming, the global atmospheric concentration matters and it is only
a function of the total antropogenic emission of greenhouse gases.
Damages and their valuation
Damage estimates are computed for each country, making the distinction between global warming,
health damages and others. The figures for damage per unit of emission, deposition or concentration
and per person and their valuation are based on the ExternE project results.
The damages categories considered in the model are:
- damage to public health (acute morbidity and mortality, chronic morbidity, but no occupational
health effect)
- global warming
- damage to the territorial ecosystem (agriculture and forests)
- damage to materials, being treated in a very aggregated way,
Impact on public health should be the main category in case of use of model for heavy metals. For the
valuation of the different health impacts a distinction is made between morbidity and mortality impacts.
The valuation of morbidity is based on estimates of the willingness-to-pay (WTP) to avoid health
related symptoms. WTP for an illness is composed of three parts:
- the expenditure on averting and/or mitigating the effects of the illness,
- the value of the time lost because of the illness,
- the value of the lost utility because of the pain and suffering
The costs of illness (COI) is measured directly: the actual expenditure associated with the different
illnesses plus the cost of lost time (working and leisure time). Value of pain and suffering, which are
more difficult to evaluate, are measured by CVM methods. When no WTP estimates is available, the
COI approach was followed and a ratio of 2 for WTP/COI for adverse health effects other than cancer
and 1.5 for non fatal cancer was assumed.
For the valuation of the mortality effect, the ‘value of life years lost’ approach (VLYL) is used.
Because of the limited empirical evidence on the value of VLYL, ExternE estimates it, based on the
following relationship between VSL (‘value of a statistical life’) and VLYL:
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T P
i ,a
VSLa  VLYLr * 
i  a 1
(1 r )i  a
where a is the age of the person whose VSL is being estimated, Pi,a is the conditional probability of
survival up to year i, having survived to year a, T is maximum life expectancy and r the discount rate.
Chronic mortality effects only occur after a certain delay and this is taken into account by computing
an average VLYL over the latency period:
T
YOLLi VLYLr
r
VLYLchronic   YOLL *
i 1
i 1
tot
(1 r )
where YOLLi is the number of years of life lost in each future year and YOLLtot the total number of
years of life lost in the population.
2.2.
GTAP model
GTAP (Global Trade Analysis Project) is general equlibrium model for quantitative analysis of
international policy issues. Model was developed by the Center for Global Trade Analysis at Purdue
University, USA. Since its inception in 1993, GTAP was used e.g. in analyses for evaluating the
WTO’s Uruguay Round Agreement and for deliberations over policies to limit greenhouse gas
emissions. Version 6 of model covers 87 World countries/regions therein individually 32 European
countries (27 EU countries, Switzerland, Croatia, Turkey, Russia, Albania), next group of 3 EFTA
countries, group of 11 ex-USRR countries and rest of Europe. 57 sectors are used in model.
The standard GTAP model and data base has been extended to evaluate costs of abatement and to
assess the spill-over effects of greenhouse gases abatement policies via international trade and sectoral
interaction. Based on the GTAP energy volume data, the CO2 emissions were estimated by fuel and by
user for each country/region. In addition to the GTAP energy data sets, the GTAP-E model (an EnergyEnvironmental version) has been developed to better describe the behavior of energy consumers in the
face of higher energy prices.
GTAP-E is version of model with inter-fuel energy substitution. Based on the GTAP energy volume
data, the CO2 emissions by fuel and by user for each country/region are estimated. This gives more
accurate estimates of CO2 emission coefficients, which is essential in the derivation of marginal
abatement costs – one of the key factors in the global market of emissions trading. In addition to the
GTAP energy data sets, the GTAP-E model has been developed to better describe the behavior of
energy consumers in the face of higher energy prices.
Under the project funding from EPA, GTAP Data Base was lately extended to include non-CO2
greenhouse gas emissions – CH4, N2O, and F-gases.
2.3.
NEMESIS model
NEMESIS (New Econometric Model for Environmental and Sustainable development and
Implementation Strategies) is a macrosectorial econometric model aimed at developing tools for
decision making in the fields of energy, environment and economic policies. Model is development of
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old E3ME model provided by European consortium with coordinator Centrale Recherche S.A at École
Centrale Paris.
Nowadays, NEMESIS covers individually EU-15 Member States as well as Norway and exogenous the
rest of the world divided to 10 geographical areas e.g. other countries from Western Europe, Eastern
Europe and former URSS. At last, the model covers 30 sectors and 27 consumption posts.
The NEMESIS Energy/Environmental module (NEEM) was specially built. Still not linked to the
macrosectoral model, it should be in a future development. The module applies a detailed description
of energy demand and supply from the EU 15, with a special care given to the electricity sector. The
different pollutants are divided in SO2, NOx and greenhouse gases (CO2, CH4, N2O, CF6, HFC and
PFC). The module receives economic activity indicators from NEMESIS. The sub-model turns these
indicators into energetic index. Furthermore, this module allows the study of all types of EU
environmental policies (taxes, permit emission, quotas).
Figure 2.2 Structure of NEMESIS Energy/Environmental Model
Source: Kouvaritakis N., T.Zachariadis (2004)
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Energy related CO2 emissions are derived directly from fossil use as it emerges from the model. In
addition to these the Environmental module covers a number of non-energy GHGs for the industrial
sectors from EDGAR database.
2.4.
E3ME model
E3ME (Energy-Environment-Economy Model for Europe) is a dynamic estimated time-series crosssection model of Western Europe constructed firstly by an international team under 4FP. New model
covers 27 European regions including the EU25 countries, Norway and Switzerland (latest version 4.2
from 2006). E3ME has a detailed sectoral disaggregation, including 42 industrial sectors, 28 consumer
spending categories, 12 fuels and 19 fuel user groups. These classifications are consistent with
Cambridge Econometrics' global model (E3MG). The main data sources remain Eurostat and the
OECD's structural analysis (STAN) indicators.
The emissions submodel in E3ME calculates levels of 14 air-pollutants by fuel use in different fuels
and by different fuel users. Provision is made for emissions to atmosphere of CO2, SO2, NOx, CO, CH4,
PM10, VOC, other four greenhouse gases (N2O, HFC, PFC, SF6), nuclear pollution, airborne lead and
CFCs.
Figure 2.3 E3ME model as an Energy-Environment-Economy model
E3ME AS AN E3 MODEL
economic policy
environmental taxes
rest of world
activity and
prices
ECONOMY
activity
general
prices
world
oil price
energy
policy
emission trading scheme
m euros (2000) Price indices
(2000 =1.0)
national accounts
I-0 tables
energy
prices
ENVIRONMENT
environment
policy
energy
use
ENERGY
specific units (1000T, GWH)
toe
euros per toe
energy balances
emissions thousands of
tonnes of carbon
Source: GardinerB. (2006)
Emissions are calculated dependent on economic activities and fuel use:
k
ESYi ,kj   ik, j . ik, j . X j  ESY i , j
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where:
ESYki,j are endogenous variables denoting emissions of pollutant k (EMk) from emission source i
(ESi) in region j (Rj) in a specific year t,
Xj denotes economic activity variables related to region j,
ki,j denotes the current emission coefficients, ie the relationship between the emission level
(ESYki,j) and the level of economic activity (Xj) in the base year,
ki,j are parameters included to capture eventual changes in emissions intensities over time, ie
changes in the relationship between the economic activity variable (Xj) and the emission level
(ESYki,j). This could be due to the new technologies or regulations that are expected to come in force
(=1 in the base year).
This model will be used in DROPS project (EU FP6, No 022788) for heavy metals, dioxins/furans and
PCBs.
3. Possibilities of use of models for OMEGA outputs
Optimisation model for heavy metals (OMEGA-HM) is used in ESPREME project for costeffectiveness and cost-benefit analyses. The outputs of OMEGA are emissions and additional costs for
measures (compared to Baseline scenario) on national resolution. It is planned to calculate also the
savings in terms of external costs per country.
The best solution is extension of environmental modules of macro-economic models. Earlier described
models are compared in table below.
Table 3.1 Comparison of macro-economic models
Model
GEM-E3
Geographical scope
22 EU countries
Sectoral disaggragation
18 productive branches
+ World regions
GTAP
32 European countries
(e.g. 27 EU countries)
Covered pollutants
SO2, NOx, VOC, PM,
GHGs
57 sectors
GHGs
30 sectors and 27
consumption posts
SO2, NOx,
+ World regions
NEMESIS 15 EU countries + Norway
+ World regions
E3ME
25 EU countries + Norway
+ Switzerland
GHGs
42 industrial sectors, 28
SO2, NOx, VOC, PM10, CO
consumer spending
nuclear, lead
categories, 12 fuels and 19
GHGs, CFCs
fuel user groups
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Used model should cover enlarged European Union and only NEMESIS model does not fulfill this
requirement. Next covered pollutants should not limit to greenhouse gases as in GTAP model.
Therefore GEM-E3 and E3ME models are the most useful models to extension of its environmental
moduls but E3ME model covers the biggest number of pollutants.
In case of E3ME model, according to Gardiner (2006) it is necessary to extend the environmental
submodel to incorporate new pollutants as mercury, cadmium, arsenic, nickel and chromium. New
structure for the modelling additional pollutants should be created, including variables to hold the
absolute levels of each pollutant and estimated coefficients for each pollutant. Emissions of particular
heavy metals from each sector in each country can be used to calculate current emission coefficients
ki,j to fuel use or economic activity and parameters ki,j connected with technology changes in time.
E3ME model is useful in providing analysis of the demand and labour supply that each firm faces
dependent on pollutant levels.
In case of GEM-E3 model, emission factors ef p,i,s and degrees of abatement a p,s for new pollutants in
different sectors and countries should be calculated and used for macro-economic impacts.
4. Conclusions
From among macro-economic models E3ME (Energy-Environment-Economy Model for Europe) is the
most useful model which presently covers 14 pollutants and geographically 25 EU countries, Norway
and Switzerland. Its environmental submodel should be extended to incorporate heavy metals
(mercury, cadmium, arsenic, nickel and chromium).
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5. References
1. Barker T. et al. (2004), An Energy-Environment-Economy Model for Europe. E3ME version 3.1
(E3ME31). Model description,
http://www.transust.org/models/e3me/TranSust_ModelDocumentation_E3ME.pdf,
2. Burniaux J-M., T.P. Truong (2002), GTAP-E: An Energy-Environmental Version of the GTAP
Model, GTAP Technical Paper No. 16,
https://www.gtap.agecon.purdue.edu/resources/download/1203.pdf,
3. Capros P., T. Georgakopoulos, et al. (1995), GEM-E3 Computable General Equilibrium Model
for studying Economy-Energy-Environment Interactions for Europe and the World, Bruxelles,
European Commission, http://www.gem-e3.net/download/GEMmodel.pdf,
4. Capros P. et al. (1997), The GEM-E3 model: Reference manual, National Technical University
of Athens, http://gem-e3.zew.de/geme3ref.pdf,
5. E3ME Webside, http://www.camecon.co.uk/suite_economic_models/e3me.htm, Cambridge
Econometrics,
6. Gardiner B. (2006), Workpackage 6: Macroeconomic and sectoral impacts. An internal scoping
report for the DROPS project, Cambridge Econometrics,
7. GTAP Webside, https://www.gtap.agecon.purdue.edu/about/project.asp, Purdue University,
8. Kouvaritakis N., T.Zachariadis (2004), New Econometric Model for Environment and
Starategies Implementation for Sustainable Development (NEMESIS): The Environmental
Module. Final Report, National Technical University of Athens, http://www.nemesismodel.net/publications/REP/REP005/REP005.pdf,
9. Kouvaritakis N. et al. (2005), Impacts of energy taxation in the enlarged European Union,
evaluation with GEM-E3 Europe. Annex,
http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysi
s/economic_studies/energy_tax_study.pdf,
10. Lee H-L. (2005), Incorporating Land Use and Greenhouse Gases Emissions into the GTAP
Data Base,
https://www.gtap.agecon.purdue.edu/events/Board_Meetings/2005/documents/Land_Use_HLL.
pdf,
11. NEMESIS Webside, http://www.nemesis-model.net/about/longdesc.htm,
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