### EAERE/FEEM/VIU European Summer School

##
Applications of Computable General Equilibrium

Models in Environmental Economics

### Lecture Notes by Thomas Rutherford

#### June 25 to July 1, 2006

### LECTURE 1: Decomposing the Integrated Assessment of Climate
Change

This lecture deals with integrated assessment of climate policy
measures, i.e. models in which both economic and climate mechanisms
are incorporated to provide a framework for cost-benefit assessment of
climate policy. In this lecture, I go through a decomposition
approach for integrated models which is based on a linear
approximation of the climate system. In our formulation the economic
and natural science components are processed independently on
different time scales. Turnpike properties of the Ramsey growth model
can be exploited to provide a precise representation of post-terminal
emissions and to reduce the economic horizon required to accurately
approximate transition paths. Germaine to the economic assessment of
climate policies, our decomposition accommodates formulation of the
economic model in a complementarity format and thereby provides a
means of incorporating second-best effects that are not easily
represented in an optimization model.
Lecture notes are provided here.

Files for the associated introductory computing exercises are provided
in this zip archive.

The paper which provids the basis for this lecture can be downloaded
from

`http://www.mpsge.org/iamdecomp.pdf`

and related computer progams (in GAMS) are available from
`
http://www.mpsge.org/mainpage/dicemodel.zip`

### LECTURE 2: Stochastic Programming in a Complementarity Format:
Programming Tools and their Application to Climate Policy Design

This lecture introduces a new set of programming tools for
representing stochastic equilibrium problems in GAMS. I outline the
logic of stochastic optimization with recourse and show how these
ideas are extended to complementarity programming. I illustrate this
problem class through a model which explores the tradeoff between
technology subsidies and carbon taxes in climate policy.
Lecture notes describing the computational tools are provided here.
Files for the associated introductory computation exercises are
provided in this zip archive. The file
`climate.gms` represents an extension of the introductory
climate model from Lecture 1 to a stochastic framework.

Lecture notes for an application of these techniques to climate policy
are provided here.

The directories include GNUPLOT plotting routines for which source
code and extensive documentation may be downloaded from `gnuplot.sourceforge.net`.