Emissions - COFFEE-TEA
|Institution||COPPE/UFRJ (Cenergia), Brazil, http://www.cenergialab.coppe.ufrj.br/.|
|Solution concept||General equilibrium (closed economy)|
|Solution method||The COFFEE model is solved through Linear Programming (LP). The TEA model is formulated as a mixed complementary problem (MCP) and is solved through Mathematical Programming System for General Equilibrium -- MPSGE within GAMS using the PATH solver.|
In addition to the prices of traditional goods and services in the economic structure of the TEA model, consumers and producers are becoming aware of the cost (or price) of GHG emissions, particularly regarding climate scenarios. Much of the internalization of the negative externality of GHG emission is due to the identity between the carbon price (CO2) and the social cost of carbon (COASE, 1960), that is, the environmental damage to society from the emission additional unit of a carbon dioxide in the atmosphere.
The TEA model allows sectoral and international trading of emissions credits (or allowances) that are accounted for along with other trade flows. In climate scenarios, the carbon price of equilibrium is achieved subject to global emission constraints, also known as carbon budgets. Carbon pricing revenue returns to the representative agent (households and government), which is equivalent to a revenue recycling in the form of a lump sum transfer to society. Emissions of non-CO2 gases, such as CH4 and N2O emissions from agricultural sector, can be part of the pricing structure, not considering emission credits, but a differentiated tax policy focusing on the capital productive factor of each sector.