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

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 Aim of the paper WIOD Conference, Wien – 26 th 28 th May, 2010 WIOD Conference, Wien – 26 th 28 th May, 2010 University of Macerata

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

Which is the convenient composition of the policy control for the energy balance target? The Italian Green Certificate scheme WIOD Conference, Wien – 26 th 28 th May, 2010 University of Macerata 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.

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

1Products of agriculture, hunting and related 31 Secondary raw materials 2Products of forestry, logging and related 32 Electrical energy 3Fish and other fishing products; 33 Collected and purified water 4Coal and lignite; peat 34 Construction work 5Crude petroleum and natural gas; 35 Trade, maintenance and repair services 6Uranium and thorium ores 36 Wholesale trade and commission trade services 7Metal ores 37 Retail trade services 8Other mining and quarrying products 38 Hotel and restaurant services 9Food products and beverages 39 Land transport; transport via pipeline services 10Tobacco products 40 Water transport services 11Textiles 41 Air transport services 12Wearing apparel; furs 42 Supporting and auxiliary transport services 13Leather and leather products 43 Post and telecommunication services 14Wood and products of wood 44 Financial intermediation services 15Pulp, paper and paper products 45 Insurance and pension funding services 16Printed matter and recorded media 46 Services auxiliary to financial intermediation 17Coke, refined petroleum products and nuclear fuels 47 Real estate services 18Chemicals, chemical products 48 Renting services of machinery and equipment 19Rubber and plastic products 49 Computer and related services 20Other non-metallic mineral products 50 Research and development services 21Basic metals 51 Other business services 22Fabricated metal products, except machinery 52 Public administration and defence services 23Machinery and equipment n.e.c. 53 Education services 24Office machinery and computers 54 Health and social work services 25Electrical machinery and apparatus n.e.c. 55 Sewage and refuse disposal services, sanitation 26Radio, television and communication equipment 56 Membership organisation services n.e.c. 27Medical, precision and optical instruments 57 Recreational, cultural and sporting services 28Motor vehicles, trailers and semi-trailers 58 Other services 29Other transport equipment 59 Private households with employed persons 30Furniture; other manufactured goods n.e.c. 60 Renewable energy Commodities classification WIOD Conference, Wien – 26 th 28 th May, 2010 University of Macerata

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

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

m 1 m 2 m 3 m 4 m 5 m 6 Policy control Policy targetMacro Multipliers Key structures z 41 z 42 z 43 z 44 z 45 z 46 z 11 z 12 z 13 z 14 z 15 z 16 Z1Z1 z 51 z 52 z 53 z 54 z 55 z 56 z 61 z 62 z 63 z 64 z 65 z 66 z 31 z 32 z 33 z 34 z 35 z 36 z 21 z 22 z 23 z 24 z 25 z 26 Z2Z2 z5z5 z3z3 z6z6 Z4Z4 p 41 p 42 p 43 p 44 p 45 p 46 p 11 p 12 p 13 p 14 p 15 p 16 P1P1 p 51 p 52 p 53 p 54 p 55 p 56 p 61 P 62 p 63 p 6 p 65 p 66 p 31 p 32 p 33 p 34 p 35 p 36 p 21 p 22 p 23 p 24 p 25 p 26 P2P2 P5P5 P3P3 P6P6 P4P4 p1p2p3p4p5p6p1p2p3p4p5p6 p = z1z2z3z4z5z6z1z2z3z4z5z6 = z Which is the convenient composition of the policy control for the energy balance target? Macro Multiplier approach

Which is the convenient composition of the policy control for the energy balance target? Simulations and results WIOD Conference, Wien – 26 th 28 th May, 2010 University of Macerata 1 st scenario: We adopt the structure of the observed final demand in the I-O table We impose a shock on final demand of 1,686 million of 1 st scenarioFinal Demand I-O structure (f)structure 1 (p 1 )structure 51 (p 51 ) Δf * = 1,686 ml Δf 1 * = 0.10%Δf 51 * = 0.10% Multiplier RNR energy ratio16.89%16.92%17.05% Green Certificate variation1.35%3.32%11.72% Value added variation0.10%0.63%-0.03%

Which is the convenient composition of the policy control for the energy balance target? Policy target z 1 Policy target z 51

Which is the convenient composition of the policy control for the energy balance target? Simulations and results WIOD Conference, Wien – 26 th 28 th May, 2010 University of Macerata 2 st scenario: We adopt the 1 st key control structure since we aim to achieve the maximum effect on output and value added We impose a shock on final demand of 1,686 million of 3 st scenario: We adopt the 51 st key control structure since we aim to achieve the environmental target without neglecting output change scenario 1 st 2 st 3 st I-O structure (f) Key structure 1 (p 1 ) Key structure 51 (p 51 ) Δf * = 1,686 ml Δf 1 * = 1,686 ml Δf 51 * = 1,686 ml Multiplier RNR energy ratio16.89%16.92%17.05% Green Certificate variation1.35%3.32%11.72% Value added variation0.10%0.63%-0.03%

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

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

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

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

Final demand Endogenous total output Policy target Policy control R*R* p1p2p3p4p5p6p1p2p3p4p5p6 z1z2z3z4z5z6z1z2z3z4z5z6 p z _____ ? ? Sum of the macrovariables elements Sum of the absolute values of the variables elements [Mannhattan Norm] Square root of the sum of the squares of the variables elements [ Euclidean Norm ] Variables balance Variables change Variables modulus

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

Final Demand I-O structure (f)structure 1 (p 1 )structure 51 (p 51 ) Δf * = 0.10%Δf 1 * = 0.10%Δf 51 * = 0.10% Multiplier RNR ratio16.89%16.92%17.05% Green Certificate variation1.35%3.32%11.72% Value added variation0.10%0.63%-0.03% Aggregate results

Commento slide 1 The economic impact of the Green Certificate market through the Macro Multiplier approach 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. There is a large number of economic assessments to determine the costs or the benefits of taking actions to address climate change.

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: 1)Examines the role played by the order of magnitude of a macroeconomic variable, the SCALE, and the role of its inner composition, the STRUCTURE. 2)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

1)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 2)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. 3)Then we discuss the reduced forms of these models as the tool of policy modelling. 4)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.

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).

p0p0 R z0z0 ROTATIONMULTIPLICATIONCOUNTER ROTATION

TRANSFORMATION OF THE POLICY VECTOR INTO THE TARGET VECTOR p 2 Second policy component p 1 First policy component STEP ONE: POLICY CONTROL EVALUATION IN TERMS OF THE POLICY–CONTROL KEY- STRUCTURES First policy-control key structure Second policy-control key structure STEP TWO: AGGREGATE MULTIPLICATION OF THE ACTUAL POLICY CONTROL ALONG EACH POLICY-CONTROL KEY STRUCTURE m1m1 First Macro Multiplier m 2 Second M M STEP THREE: POLICY-TARGET RECOMPOSITION THROUGH THE POLICY TARGET KEY STRUCTURES First Policy-target key structure Second policy-target key structure z1z1 z2z2 p First target component Second target component

The Policy Isoquants Modulus-Isoquant Absolute change–Isoquants

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

Leontief Multipliers

v1v1 s1s1 u1u1 v2v2 s2s2 u2u2 v3v3 s3s3 u3u3 f (1) a 1 = v 1 f (1) u1b1u1b1 0 = v 2 f (1 ) 0 = v 3 f (1) b 1 =s 1 a 1 x = u 1 b 1 u1b1u1b1 x = u 1 s 1 a 1 v 1 f (1) = a 1 v 1 V 1 f 1 x=b 1 u 1 x 2 x 1 f (1) =a 1 v 1 f 2 u1u1 Endogenous policy 1

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 Macro Multiplier approach Allows to identify the key structure of the exogenous variable Policies can be designed in monetary and physical terms