The economic impact of Green Certificate market through the Macro Multiplier approach

1. WIOD Conference, Wien – 26th 28th May, 2010 The economic impact of Green Certificate market through the Macro Multiplier approach M. Ciaschini, R. Pretaroli, F. Severini, C. Socci University of Macerata

2. WIOD Conference, Wien – 26th 28th May, 2010 Aim of the paper Which is the convenient composition of the policy control for the energy balance target? • Policy on Renewable Energy affects • the ratio between renewable energy output and total energy output, RNR energy ratio • and the output and the value added WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata

3. Which is the convenient composition of the policy control for the energy balance target? Outline • The Italian Green Certificate scheme • Methodology • Input-Output Table and the Energy balance (ISTAT) • Hybrid Input-Output model • Macro Multiplier approach • Simulations and Findings WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata

4. Which is the convenient composition of the policy control for the energy balance target? The Italian Green Certificate scheme • all suppliers or distributors of electricity are compelled to produce a quota of renewable electricity if they lay on the network more than 100 GWh year • the quota = 2% of the excess in total production of electricity • the Italian Authority for the Energy Services (ESM) emits the certificates which represent the green quality of each unit of renewable electricity generation. WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata

5. Which is the convenient composition of the policy control for the energy balance target? Methodology: the Data Base • I-O Table for the Italian economy for the year 2005 (59x59 commodities) (ISTAT, 2007) • direct requirement of Renewable Energy • (Energy balance, ISTAT, 2007) WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata

6. Commodities classification WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata

7. Which is the convenient composition of the policy control for the energy balance target? Methodology: the Hybrid Input-Output model WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata

8. Which is the convenient composition of the policy control for the energy balance target? Methodology: the Hybrid Input-Output model Methodology MM approach for the Leontief reduced form Singular Value Decomposition Policy target structures Macro Multipliers Policy control structures WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata

9. Which is the convenient composition of the policy control for the energy balance target? z21 z22 z23 z24 z25 z26 p21 p22 p23 p24 p25 p26 z31 z32 z33 z34 z35 z36 p31 p32 p33 p34 p35 p36 p11 p12 p13 p14 p15 p16 z11 z12 z13 z14 z15 z16 p61 P62 p63 p6 p65 p66 z61 z62 z63 z64 z65 z66 P3 P2 z3 Z2 z51 z52 z53 z54 z55 z56 p51 p52 p53 p54 p55 p56 Z1 P1 P6 z6 m1 m2 m3 m4 m5 m6 P5 P4 z5 Z4 p41 p42 p43 p44 p45 p46 z41 z42 z43 z44 z45 z46 Macro Multiplier approach Policy target Macro Multipliers Policy control Key structures Key structures p1 p2 p3 p4 p5 p6 z1 z2 z3 z4 z5 z6 = z p =

10. Which is the convenient composition of the policy control for the energy balance target? Simulations and results We impose a shock on final demand of 1,686 million of € 1st scenario: We adopt the structure of the observed final demand in the I-O table WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata

11. Which is the convenient composition of the policy control for the energy balance target? Policy target z1 Policy target z51

12. Which is the convenient composition of the policy control for the energy balance target? Simulations and results We impose a shock on final demand of 1,686 million of € 2st scenario: We adopt the 1stkey control structure since we aim to achieve the maximum effect on output and value added 3st scenario: We adopt the 51stkey control structure since we aim to achieve the environmental target without neglecting output change WIOD Conference, Wien – 26th 28th May, 2010 University of Macerata

13. Which is the convenient composition of the policy control for the energy balance target? Impacts on output according the I-O structure 60 GWh of Renewable Energy

14. Which is the convenient composition of the policy control for the energy balance target? Impacts of the final demand change according to the 1th policy control structure 147 Gwh of Renewable Energy

15. Structure 51 is the convenient composition of the policy control for the energy balance target Impacts of the final demand change according to the 51th policy control structure 518 Gwh of Renewable Energy

16. WIOD Conference, Wien – 26th 28th May, 2010 The economic impact of Green Certificate market through the Macro Multiplier approach M. Ciaschini, R. Pretaroli, F. Severini, C. Socci Thank you University of Macerata

17. Endogenous total output Final demand p z R* Policy control Policy target p1 p2 p3 p4 p5 p6 z1 z2 z3 z4 z5 z6 _____ _____ ? ? Variable’s balance Sum of the macrovariable’s elements Sum of the absolute values of the variable’s elements [Mannhattan Norm] Variable’s change Square root of the sum of the squares of the variable’s elements [Euclidean Norm] Variable’s modulus

18. Differences between the I-O and the 1th composition Gwh

19. Aggregate results

20. Commento slide 1 There is a large number of economic assessments to determine the costs or the benefits of taking actions to address climate change. There is economic opportunity of complying with the environmental target on Renewable Energy Sources because there is positive interaction between policy on Renewable Energy Sources and output change. The economic impact of the Green Certificate market through the Macro Multiplier approach

21. The analysis we propose on Green Certificate Market is, then, based on the determination and use of what we called the Macro Multipliers. • The Macro Multiplier analysis: • Examines the role played by the order of magnitude of a macroeconomic variable, the SCALE, and the role of its inner composition, the STRUCTURE. • Is performed on both • on the traditional Leontief model • on the model emerging from “extended” multisectoral circular flow of income as provided by the National Accounting Matrix or by the Social Accounting Matrix

22. We will make reference to the essentials of National Accounting to see how the interaction between the multisectoral features of the main macro economic variables are dealt with in what we need to consider our “observation system” • We will then show how both the traditional Leontief model, which is more tied to the production loop of the economy, and an extended multisectoral model, that integrates the production aspects with the primary and secondary distribution of incomes can emerge. • Then we discuss the reduced forms of these models as the tool of policy modelling. • Finally with some mathematical manipulations we will complete the analysis establishing “convenient” ways for quantifying macro economic variables in terms of their scale and their structure.

24. MI SERVE The analysis aims to give consistent recommendations that could be used in order to design integrated policies both with environmental and economic aims - Interaction between policy on Renewable Energy Sources and output change - There is economic opportunity of complying with the European target on RES The Italian Green Certificates scheme (GC).

25. R z0 p0 ROTATION MULTIPLICATION COUNTER ROTATION

26. TRANSFORMATION OF THE POLICY VECTOR INTO THE TARGET VECTOR STEP THREE: POLICY-TARGET RECOMPOSITION THROUGH THE POLICY TARGET KEY STRUCTURES STEP TWO: AGGREGATE MULTIPLICATION OF THE ACTUAL POLICY CONTROL ALONG EACH POLICY-CONTROL KEY STRUCTURE STEP ONE: POLICY CONTROL EVALUATION IN TERMS OF THE POLICY–CONTROL KEY- STRUCTURES Second policy-target key structure p1 First policy component z1 First target component Second policy-control key structure First policy-control key structure m1 First Macro Multiplier First Policy-target key structure p m2 Second M M z2 p2 Second policy component Second target component

27. The Policy Isoquants Absolute change–Isoquants Modulus-Isoquant

28. Policy Control Policy Target Change- Isoquants and isocosts Modulus- Isoquants and isocosts

29. Leontief Multipliers

31. Endogenous policy 1 a1= v1Df(1) b1 =s1a1 u1 u1b1 Df(1) s1 v1 u1b1 Dx = u1b1 0= v2Df(1) u2 Dx = u1s1a1v1Df(1) Df(1) Df(1) Df(1) = a1v1’ s2 v2 Df1 Dx1 Dx=b1u1 Df(1)=a1v1’ 0 = v3Df(1) V1’ u3 Df(1) u1 v3 s3 Df2 Dx2

32. Commento alla metodologia!!!!!!!!!!!!!!! Data Base I-O Table for the italian economy for the year 2005 (59x59 commodities) (ISTAT, 2007) Direct requirement of Renewable Energy (Energy balance, ISTAT, 2007) Hybrid Input-Output model Energy commodity is characterized by non unitary pricings Policies can be designed in monetary and physical terms Macro Multiplier approach Allows to identify the key structure of the exogenous variable