INTRODUCTION
Rationale
1.1.1 International framework towards global GHG emissions reduction
Climate change significantly affects the environment, society, and economies worldwide Since 1997, 187 countries have ratified the Kyoto Protocol, aimed at limiting greenhouse gas (GHG) emissions, particularly from developed nations (Annex I) This initiative has facilitated the development of strategies for developing countries (non-Annex I) to achieve sustainable socioeconomic growth through the Clean Development Mechanism (CDM), which is applied across various sectors, including energy, industry, transportation, agriculture, forestry, and waste management.
The G8 nations have committed to reducing global emissions by at least 50% by 2050, relative to 1990 levels, aiming to keep greenhouse gas concentrations below 500ppm CO2 equivalent This reduction could significantly lower the likelihood of a 5ºC rise in global temperatures from approximately 50% to 3% or less, as reported by the World Bank in 2009 Achieving this target entails decreasing global emissions from 40 GtCO2eq annually to 20 GtCO2eq, translating to just over 2 tons per capita for a projected global population of 9 billion by 2050 The approach emphasizes minimal variation in emissions across major countries, regardless of their development status The Contraction and Convergence (C&C) framework proposes an equitable distribution of the emission reduction burden among all individuals worldwide, making it a straightforward and effective strategy for global emission reduction.
The world's poorest populations are disproportionately vulnerable to the impacts of climate change, facing significant challenges in adapting due to their limited financial resources Despite contributing minimally to greenhouse gas emissions, these communities bear the brunt of climate-related consequences This situation highlights a critical inequity, underscoring the urgent need for wealthier nations to increase financial support for developing countries beyond existing development commitments, in order to address the additional costs imposed by climate change (World Bank, 2009).
Developing countries like Vietnam must adopt both adaptation and mitigation measures to combat climate change, focusing on energy consumption reduction and greenhouse gas emissions By integrating these strategies into policy and decision-making, Vietnam can enhance its efforts Since signing the Kyoto Protocol in 1998, Vietnam has benefited from financial support and technology transfers through Clean Development Mechanism (CDM) projects, ultimately improving economic development and living standards for its citizens.
Focusing on low greenhouse gas (GHG) emissions development can impact a nation's social and economic goals, especially in developing countries with minimal GHG emissions that also prioritize energy security and emission reduction targets.
The development of socio-economic and energy scenarios serves as essential benchmarks for long-term policymaking, enabling policymakers to create flexible strategies and assess risks linked to an unpredictable future Scenarios remain a crucial tool for navigating the complexities and uncertainties of upcoming challenges.
1.1.2 Legal frameworks towards Climate Change mitigation in Vietnam
Vietnam is experiencing rapid economic growth, leading to a significant increase in energy consumption, largely due to a lack of incentives and knowledge regarding energy efficiency measures The energy intensity among Vietnamese enterprises remains high, indicating substantial potential for improvement Additionally, Vietnam is projected to be one of the countries most affected by climate change, particularly due to its major economic development zones situated in the flood-prone Mekong and Red River deltas Furthermore, the country's extensive 3,200 km coastline is already facing the impacts of typhoons.
The Vietnamese Government, as outlined by the Ministry of Planning and Investment (MOPI, 2011), is committed to transforming its economic structure and enhancing technology and management at both macro and micro levels to achieve a targeted annual growth rate of 7% by 2030 Additionally, the government aims to maintain a population growth rate of 1% per year over the next decade through the implementation of a "two-child policy." To support these socio-economic goals, various infrastructure development plans, particularly in transportation (Vietnamese Government, 2009) and housing (Vietnamese Government, 2008a), have been approved Consequently, this growth in infrastructure and population will lead to an increased energy demand, prompting the government to formulate a more detailed energy development plan.
The Vietnamese Government's "Power Master Plan VI" has led to the Prime Minister's approval of the national power development plan for 2011-2020, which includes a vision extending to 2030, known as "Power Master Plan VII," on July 21st.
The Power Master Plan VII, established under Decision No 1208/2011/QD-TTg by the Vietnamese Government, prioritizes energy security, efficiency, and the development of renewable energy while promoting power market liberalization It also seeks to resolve issues faced during the execution of the previous Power Master Plan VI.
To enhance energy security, the Vietnamese Government is actively promoting the development of renewable energy sources, including biofuels and wind energy Additionally, the government continues to support initiatives aimed at advancing these sustainable energy options.
In 2007, the Vietnamese Government established a master plan for the development of nuclear power for peaceful purposes, which was revised in 2010 to extend the timeline to 2030 This initiative is supported by the Vietnamese law on nuclear power and its detailed instructions Following the Fukushima disaster in Japan in March 2011, many countries reconsidered or halted their nuclear power programs due to safety concerns However, the Vietnamese Government remains committed to advancing its nuclear power plant development, with Russia and Japan selected as partners for the Ninh Thuan project.
The Ninh Thuan 1 and 2 Nuclear Power Plant projects aim to enhance the share of renewable energy and nuclear power in the energy mix, targeting contributions of 11% by 2025 and 15-20% by 2050.
Following the approval of key decrees by the Vietnamese Government in the early 2000s, numerous energy efficiency programs were initiated to promote the thrifty and effective use of energy These initiatives included the national target program on energy efficiency and the decision on electricity saving measures Although energy efficiency was legislated in 2010, the regulations established were quite broad, affecting various sectors such as industry, lighting, transportation, agriculture, residential, and commercial areas.
Following the enactment of the Vietnam Environmental Law in 2003, the Vietnamese Government introduced the "Strategic Orientation for Sustainable Development in Vietnam (Vietnam Agenda 21)" in 2004 This initiative aims to promote sustainable development by ensuring a balanced and harmonious integration of economic growth, social progress, and environmental protection.
Research objectives and activities
The main objectives of this research are to:
- Propose a methodological framework and its application to support the low carbon policies analysis;
- Analyze the socio-economic implications of LCD in Vietnam by the year 2050
Figure 1.1 depicts the connection between the primary research objectives and the specific methods and tools utilized, along with the research activities outlined in each chapter of this dissertation The key tools supporting the first objective include the scenario development system and the Asian Integrated Modeling or Computable General Equilibrium Basic frameworks.
The study employs the AIM/CGE[basic] model and the An Implicitly Directly Additive Demand System (AIDADS) estimation system to achieve its objectives The first objective is supported by literature reviews in Acts 1 and 2, which provide the rationale and methodological background for the research Additionally, the review of the Vietnamese governmental outlook in Act 4 lays the groundwork for the second objective, encompassing assumptions and descriptions of future societies in Vietnam (Act 5) and the analysis of results from the AIM/CGE[basic] model (Act 6).
Objectives Methods/Tools Activities Chapters
Obj 1: Propose a methodological framework and its application to support low carbon policies analysis
Act 3: Develop methodological framework and detail methods Chapter 3
Obj 2: Analyze the socio-economic implications of low carbon development in
Act 5: Description of future societies in Vietnam
Act 6: Analyze the results from AIM/CGE[basic] model
Act 7: Concluding remarks and recommendations Chapter 6
Act 1: Review the international and national rationales
Act 2: Review of methodology: scenario development, CGE models, AIDADS function
Act 4: Review of Vietnamese outlook towards LCD development
Figure 1.1: Overview of research framework
Research originalities
The methodology proposed in this dissertation is outstanding from a viewpoint of future scenario development framework towards Low Carbon Development (LCD):
This article presents a standardized methodology for national-based scenario development in Vietnam, which can also be adapted for other Asian countries Utilizing the AIDADS function, the Logit function is applied to adjust share parameters related to energy input technologies, transport service energy sources, energy commodities production, and household passenger transport fuel consumption This approach allows for modifications based on assumed price elasticity parameters, facilitating long-term simulations that are currently unavailable in other Computable General Equilibrium (CGE) models.
This research provides a comprehensive analysis of historical energy consumption and CO2 emissions, offering valuable insights into the shifts in economic and energy structures in Vietnam By developing national-based scenarios aligned with development targets, the study establishes crucial input assumptions for future projections Ultimately, it examines the socio-economic implications of low carbon development (LCD) and greenhouse gas (GHG) emissions constraints, contributing to the transition towards a Low Carbon Society (LCS) in Vietnam.
The analysis of the socio-economic implications of low-carbon development (LCD) in Vietnam significantly aids local governments in crafting comprehensive action plans These plans foster the adoption and implementation of sustainable energy policies while minimizing impacts on society and the economy.
Integrating future projections with national development targets will create more reliable scenarios for the future of society This research highlights that the scenarios presented are not predictions of what will occur, but rather feasible outcomes if the Vietnamese government is adequately motivated and equipped with the necessary resources to pursue low-carbon development (LCD).
1.3.1 National-based scenario development for Vietnam
To estimate energy consumption and greenhouse gas (GHG) emissions in Vietnam, national-based scenarios are developed focusing on socio-economic factors, transportation, and infrastructure development This process aligns with Vietnam's national targets and development plans, which primarily address goals up to 2030 To extend the projections to 2050, insights from national organizations and research institutes are also integrated into the scenario development.
The national-based scenario development process produces macroeconomic targets that serve as key input assumptions for the AIM/CGE[basic] model in a reference scenario that does not account for climate change mitigation When mitigation actions and emission reduction targets are introduced, a countermeasure scenario is executed and analyzed against the reference scenario to emphasize the socio-economic implications of low-carbon development (LCD) For more details on the national-based scenario development, please refer to Section 3.2.1 of Chapter 3.
1.3.2 New application theme of CGE model for Vietnam
CGE models significantly impact various issues, including structural adjustment policies, international trade, public finance, agriculture, income distribution, and energy and environmental policy (Devarajan & Robinson, 2002) These models effectively capture essential economic features, such as structural rigidities and institutional constraints, while offering a coherent framework to evaluate the interconnections and trade-offs among diverse policy packages.
CGE models in Vietnam primarily analyze the impacts of trade liberalization and tariff policies on income distribution, welfare, and poverty, as highlighted in Table 1.1 These studies emphasize the significant economic policies of the Vietnamese government since the Doi Moi reforms in 1986, rather than focusing on climate change and environmental issues.
Table 1.1: Summary of CGE model applications for Vietnam
Static CGE models Dynamic CGE models on welfare Chan et al (1998) Harris et al (2007) on labor market Chan et al (2005) Doanh and Heo (2009)
(improved from Chan et al (2005)) on income distribution Dung (2002), Chan and Dung (2002),
Huong (2003), Chan and Dung (2006) Thanh and Toan (2007) on poverty Roland-Holst (2004), Dung and Ezaki
Dung (2009) (improved from Dung and Ezaki (2005)) directly on economic growth and structural change Nhi and Giesecke (2008)
Overseas remittances on Vietnamese economy Thanh (2006)
Educational investment policy on wage gape and income distribution Cloutier et al (2008)
Trade liberalization and tariff policy
Despite the extensive use of Computable General Equilibrium (CGE) models to assess the socio-economic impacts of climate policies in countries like Japan, the USA, China, and India, similar analyses have yet to be conducted for Vietnam and most developing nations In Vietnam, the Central Institute for Economic Management (CIEM), with support from the Department for International Development (DFID) and the World Bank, has initiated a study on low-carbon economics, but it is currently only in the scoping phase.
This research enhances the application of Computable General Equilibrium (CGE) models in Vietnam, focusing on the socio-economic effects of climate change mitigation policies Utilizing the AIM/CGE[basic] model, the study analyzes the implications of low carbon development (LCD) strategies on the country's economy and society.
1.3.3 Estimation of AIDADS function and its integration in AIM/CGE[basic] model
Previous studies on the estimation of AIDADS function mainly base on the cross-national data household expenditure namely International Comparison Program (ICP) in the year
The research focuses on food commodities from 1985, utilizing the Global Market Information Database (GMID) to analyze household expenditure data across various countries from 1990 to 2010, with projections extending to 2020 Additionally, the study incorporates the Household Living Standard Surveys (HLSSs) to accurately assess the consumption patterns of Vietnamese households while estimating the parameters of the Vietnamese AIDADS.
This research extends beyond food commodities to include various industrial and commercial services, with a particular emphasis on the energy sector for climate change analysis Consequently, the estimated AIDADS parameters, derived from well-disaggregated commodities, create a new consumption function for the AIM/CGE[basic] model Detailed estimation of the AIDADS consumption function is outlined in Section 3.2.3 of Chapter 3.
Structure of this dissertation
This dissertation is structured as follow:
Chapter 1 outlines the international and national justifications for this research, beginning with Section 1.1, which discusses the global framework for reducing GHG emissions, highlighting the Kyoto Protocol (subsection 1.1.1), and examining Vietnam's legal frameworks related to socio-economic development, energy, environmental protection, and climate change mitigation (subsection 1.1.2) Subsection 1.1.3 details the Vietnamese Government's specific actions towards the Low Carbon Development Plan (LCD Plan) Section 1.2 presents the research objectives and associated activities, while Section 1.3 highlights the original contributions of the research in terms of methodology and analytical findings, which are elaborated in Chapter 3 Finally, Section 1.4 outlines the structure of the dissertation.
Chapter 2 provides a comprehensive review of the methodological literature underpinning this research Section 2.1 explores previous studies on national-based scenario development for Low Carbon Development (LCD) globally Section 2.2 highlights the application of Computable General Equilibrium (CGE) models in LCD analysis, with a specific focus on their use in Vietnam Furthermore, Section 2.3 discusses recent advancements in economic analysis models tailored for LCD, including structural changes in models, disaggregation of energy commodities, and enhancements in consumption functions.
Chapter 3 outlines the methodological framework of the research, detailing the methods employed Section 3.1 presents an overview of the framework, highlighting the Scenario Development System as the primary process governing the AIM/CGE[basic] model for analysis In Section 3.2, the detailed methodologies are discussed, including the AIM/CGE[basic] country model in subsection 3.2.2, the national-based scenarios development process in subsection 3.2.1, and the estimation of the AIDADS consumption function in subsection 3.2.2.
Chapter 4 examines Vietnam's governmental perspective in relation to its national development goals and plans, providing essential context for the scenario development discussed in Chapter 5 of this dissertation.
The term "review" encompasses not only an analysis of the current socio-economic outlook of the Vietnamese government but also involves back-casting the historical development of Vietnam from the perspective of the Least Developed Countries (LCD) Additionally, the energy development outlook, including the energy pricing system and the latest details of Vietnam's Power Development Plan (PDP7), is thoroughly examined.
Chapter 5 presents the research findings, beginning with Section 5.1, which outlines Vietnam's vision for a future society through two scenarios: the Scenario-for-Low-Carbon-Society (SLCS) and the Scenario-of-rather-STAGnant-Society (SSTAG) Section 5.2 delves into the economic implications and climate change mitigation strategies that Vietnam aims to implement by 2050 In Section 5.3, a detailed analysis of the social implications is provided, while Section 5.4 addresses the energy and environmental challenges associated with low-carbon development in Vietnam.
Chapter 6 presents key findings from the research, highlighting the characteristics of Vietnam's future society in Section 6.1, along with the social and economic implications of low carbon development and associated energy and environmental challenges In Section 6.2, the reliability of the analyzed results is assessed, addressing the limitations of the methodology used and offering suggestions for future research directions.
Devarajan, S and S Robinson, (2002): The Impact of Computable General Equilibrium Models on Policy, Paper presented at a conference on “Frontiers in Applied General Equilibrium Modeling”, Yale University, Connecticut
Euromonitor, (2010): Global Market Information Database (GMID), available at http://www.euromonitor.com/passport-gmid
Meyer, S., X Yu and D Abler, (2011): Comparison of several demand systems, selected paper prepared for presentation at the Agricultural & Applied Economics Association’s 2011 AAEA & NAREA Joint Annual Meeting, Pittsburgh, Pennsylvania
Vietnamese Government, (2003a): Decree 102/2003/ND-CP: Decree on thrifty and efficient use of energy, Vietnam
Vietnamese Government, (2003b): Vietnam Law on Environmental Protection, Vietnam
Vietnamese Government, (2003c): Decision No 256/2003/QD-TTg: Approval of the National strategies for environmental protection up to 2010 with a vision to 2020, Vietnam
Vietnamese Government, (2004): Decision No 153/2004/QD-TTg: Approval of the Promulgation of the Strategic Orientation for Sustainable Development in Vietnam (Vietnam Agenda 21), Vietnam
Vietnamese Government, (2005): Instruction No 35/2005/CT-TTg: Instruction for suitable mechanism to adjust the operations related to Convention of Climate and Kyoto Protocol for the period from now to 2012, Vietnam
Vietnamese Government, (2006a): Decision No 79/2006/QD-TTg: Approval of the National target program on energy efficiency and effectiveness, Vietnam
Vietnamese Government, (2006b): Decision No 80/2006/QD-TTg: Approval of the 2006-2010 Electricity-saving Program, Vietnam
Vietnamese Government, (2007a): Decision No 110/2007/QD-TTg: Approval of the National Master Plan for Power Development for the 2006-2015 period with the vision to 2025 (PDP6), Vietnam
Vietnamese Government, (2007b): Decision No 177/2007/QD-TTg: Approval of the Scheme on development of biofuel up to 2015, with a vision to 2025, Vietnam
Vietnamese Government, (2007c): Decision No 114/2007/QD-TTg: Approval of the Master plan to implement the Nuclear Power development strategy for peaceful purposes by 2020, Vietnam
Vietnamese Government, (2007d): Decision No 47/2007/QD-TTg: Detail supports for the Instruction No 35/2005/CT-TTg, Vietnam
Vietnamese Government, (2007e): Decision No 60/2007/NQ-CP: National Target Program on Climate Change (NTP), Vietnam
Vietnamese Government, (2008a): Decision No 76/2004/QD-TTg: Approval of the Housing development plan up to 2020, Vietnam
Vietnamese Government, (2008b): Decision No 18/2008/QH12: Vietnam Law on Nuclear Power, Vietnam
Vietnamese Government, (2009): Decision No 35/2009/QD-TTg: Approval of the Strategy for transportation development up to 2020, with a vision to 2030, Vietnam
Vietnamese Government, (2010a): Decision No 906/2010/QD-TTg: Approval of the Master plan of nuclear power development in Vietnam up to 2030, Vietnam
Vietnamese Government, (2010b): Decree No 70/2010/ND-CP: Detail instruction for Law on Atomic Energy regarding Nuclear Power Plants, Vietnam
Vietnamese Government, (2010c): Decision No 50/2010/QH12: Vietnam Law on Energy efficiency and effectiveness, Vietnam
Vietnamese Government, (2011a): Decision No 1208/2011/QD-TTg: Approval of the National Master Plan for Power Development for the 2012-2020 period with the vision to 2030 (PDP7), Vietnam
Vietnamese Government, (2011b): Decision No 37/2011/QD-TTg: Approval of the Supports for wind-power development projects in Vietnam, Vietnam
Vietnamese GSO, (2011): Population projections for Vietnam 2009-2049, General Statistics Office (GSO), Ministry of Planning and Investment, Vietnam
Vietnamese MOIT, (2008): Climate change mitigation support to the Vietnam Energy Efficiency Program, Ministry of Industry and Trade (MOIT), Vietnam
Vietnamese MONRE, (2008): National Target Program to respond to Climate Change, Ministry of Natural Resources and Environment (MONRE), Vietnam
Vietnamese MONRE (2010): Vietnam’s Second National Communication to the United Nations Framework Convention on Climate Change (UNFCCC), Ministry of Natural Resources and Environment (MONRE), Vietnam
Vietnamese MOPI, (2011): Socio-economic development strategies 2011-2020, Ministry of Planning and Investment (MOPI), Vietnam
World Bank, (2009): Low-carbon growth: the only sustainable way to overcome world poverty, available at: http://blogs.worldbank.org/climatechange.
METHODOLOGICAL LITERATURE REVIEWS
National-based LCD studies in the world
2.1.1 World Bank’s LCD studies for six emerging economies
In 2008, the World Bank established the Energy Sector Management Assistance Program (ESMAP) to assist countries in Europe and Central Asia with energy, climate mitigation, and adaptation This initiative focuses on six emerging economies—Brazil, China, India, Indonesia, Mexico, and South Africa—that are actively exploring opportunities and necessary financial, technical, and policy frameworks to transition towards a low carbon growth trajectory.
For the past two years, the World Bank operational teams have been overseeing individual country studies aimed at evaluating national goals and development priorities These governments are conducting country-specific assessments to identify opportunities for greenhouse gas (GHG) mitigation while analyzing the additional costs and benefits associated with pursuing lower carbon growth This process involves a thorough examination of different development pathways.
- policy and investment options that contribute to growth and development objectives while moderating increases in GHG emissions
ESMAP’s donors are keen to enhance knowledge exchange and collaboration with the World Bank to establish an effective knowledge program for the Low Carbon Growth Country Study Program The diverse studies produced under this initiative address national priorities across various sectors, including land use change, forestry, renewable energy, energy efficiency, transportation, policy implementation, financing, macro-economic modeling, and capacity building.
Research highlights significant growth opportunities for lower carbon pathways in six countries, focusing on areas such as energy efficiency, renewable power, sustainable transport, and forestry, which can greatly reduce GHG emissions While steps are being taken to implement effective mitigation strategies, challenges such as practical issues, capacity constraints, and market barriers persist Engaging diverse stakeholders from various sectors, including public and private entities, academia, and civil society, is crucial for fostering sustainability and promoting a national dialogue on lower carbon development.
Table 2.1 highlights the key objectives and outcomes of the Energy Sector Management Assistance Program (ESMAP) by the World Bank, focusing on low-carbon development (LCD) studies in six emerging economies: Brazil, India, Indonesia, Mexico, Poland, and South Africa.
Table 2.1: Summary of ESMAP’s activities and outputs towards LCD studies
Evaluate the opportunities to reduce carbon emissions in development, create a model for land use and changes, simulate the growth of the transport sector, and analyze the management of project and liquid waste Additionally, assess energy demand and supply while consistently estimating the mitigation potential and related costs across these four key sectors.
1 Brazil Low-carbon Country Case Study - Full Report
2 Brazil Low-carbon Country Case Study - Executive Summary
3 Brazil Low Carbon Country Case Study - Technical Synthesis Report - Waste
4 Brazil Low Carbon Country Case Study - Technical Synthesis Report - Energy
Develop analytical to i) help identify low-carbon growth opportunities, up to 2032, in major sectors of the economy; and ii) facilitate informed decision making.
1 Energy Intensive Sectors of the Indian Economy: Path to Low Carbon Development - Briefing Note 006/11.
2 India: Options for Low Carbon Development - Synopsis of a Study by the World Bank for the Government of India
3 Energy Intensive Sectors of the Indian Economy - Path to Low Carbon Development Full Report South Asia Region.
Address macro-economic questions of costs and effects of low carbon development on economic growth; offer strategic low carbon options for development.
1 Climate Change & Fiscal Policy Issues: 2009 Initiatives
2 Emissions Reduction Opportunities and Policies - Transport Sector
3 Domestic Fiscal Policy Framework for Climate Finance in Indonesia
4 Low Carbon Development for Indonesia - Status Report and
Mexico Support a comprehensive mitigation program through the identification and analysis of low-carbon options, policies and strategies Low Carbon Development for Mexico
Provide an integrated strategy for GHG mitigation by building on previous work in developing a methodology that integrates detailed
“bottom-up” sectoralwork with “top-down” macro-economic modeling.
1 Transition to a Low-Carbon Economy in Poland - Presentation
2 Transition to a Low-Carbon Economy in Poland - ESMAP Briefing Note 009/11
Review South Africa's Long-Term Mitigation Scenarios and develop implementation strategies in energy efficiency and other key sectors.
1 Implementing Energy Efficiency and Demand Side Management: South Africa's Standard Offer Mode - ESMAP Briefing Note 007/11
2 Best Practices for Market-Based Power Rationing:
Implications for South Africa ESMAP Briefing Note 008/11
Source: http://www.esmap.org
2.1.2 DIIS’s conference on the LCD and poverty reduction in low income countries
Low-income countries face significant challenges in the coming years, grappling with economic growth and poverty reduction while also adapting to climate change These nations must address the threats posed by storms, floods, drought, and water scarcity, alongside health issues Unfortunately, these pressing concerns often overshadow discussions on how developing countries can contribute to a carbon-neutral world and leverage low-carbon technologies for their development.
Developing countries are increasingly interested in "LCD strategies," focusing on funding and technology transfer through global climate change mitigation mechanisms These strategies aim to reduce future reliance on fossil fuels, promote sustainable land and forest management, and ensure cleaner development By adopting these approaches, these nations can achieve more resilient development while contributing to global climate change mitigation by minimizing future greenhouse gas emissions.
Low-income countries face the dual challenge of promoting economic development and alleviating poverty while simultaneously adapting to climate change and pursuing low-carbon development (LCD) Although development assistance has primarily focused on climate adaptation, the integration of LCD into these efforts is a newer and less explored area Furthermore, practical experiences with LCD under existing carbon finance mechanisms are limited, necessitating innovative approaches beyond traditional frameworks It is crucial to enhance understanding of how to effectively combine LCD initiatives with direct poverty alleviation strategies within the context of development assistance.
The conference united diverse stakeholders, including private sector representatives, NGOs, researchers, and policymakers, to discuss critical practical and policy-related issues in addressing Least Developed Countries (LCD) The insights gained will contribute to a Danida-commissioned study by the Danish Institute for International Studies (DIIS), which explores options and constraints for donor support to LCD in these nations.
2.1.3 ECN’s project on LCD strategies
The Energy Research Centre of the Netherlands (ECN) initiated the project “Paving the Way for LCD Strategies” (Tilburg et al., 2011), highlighting the growing interest in Low Carbon Development (LCD) strategies as a viable alternative to traditional greenhouse gas (GHG) emissions reduction targets in developing nations Many developing countries have begun drafting their own LCD strategies, which can be tailored not only at the national level but also at provincial or sector-specific levels, depending on the country's size and circumstances.
This study by ECN emphasizes integrated climate and low-carbon development strategies, highlighting the intersection of development and greenhouse gas (GHG) mitigation While adaptation issues are acknowledged, they are only considered when they are directly linked to mitigation actions.
The primary goal of a Low Carbon Development (LCD) strategy is to drive actionable initiatives that promote development while minimizing emissions This strategy caters to various stakeholders, serving distinct purposes for each For governments, an LCD strategy provides a long-term vision for climate and development, outlining a strategic pathway for implementation It establishes a cohesive policy framework that aligns initiatives across multiple sectors Additionally, governments can leverage an LCD strategy to raise awareness about climate change among stakeholders, illustrating the potential impacts and benefits of low carbon development tailored to their specific interests.
An LCD strategy is essential for the private sector as it outlines the necessary steps to create a favorable investment climate, signaling long-term goals and priority sectors to potential investors It also highlights government interventions like regulatory frameworks and policies aimed at achieving these ambitions Additionally, the strategy serves an international purpose by identifying needs and priorities, facilitating donor coordination, and aligning with international climate instruments such as Nationally Appropriate Mitigation Actions (NAMA) and Measurement, Reporting, and Verification (MRV) requirements Furthermore, it acts as a reporting platform for the international climate change community, providing insights into national emissions and the anticipated impacts of climate change, thereby contributing to global trends in mitigation actions and future policy prospects.
Countries exhibit significant differences in development contexts, possibilities, and priorities, making a generalized template for developing a Low Carbon Development (LCD) strategy ineffective Consequently, the process of creating an LCD strategy should incorporate various "building blocks." While it is essential to recognize that none of these building blocks are entirely optional, the specific context of each country will influence which components are included and the emphasis placed on them.
Previous applications of CGE models
2.2.1 Extension and application of CGE models for LCD analysis
CGE models are advanced computer simulations that assess the future impacts of specific policy changes, particularly in the trade sector They are utilized to evaluate the effects of various liberalization scenarios on trade, income, and poverty levels These models recognize that policies affecting one sector can have indirect repercussions across the entire economy By simultaneously analyzing the supply and demand responses to economic shocks and the interconnections within markets, CGE models effectively illustrate how changes influence factor and product markets, household decisions, and trading partners.
CGE models provide a consistent framework for analyzing trade policy issues, as highlighted by Piermartini and Teh (2005), who note that model results can differ based on the structure and data used The selection of scenarios and model specifications can lead to varying outcomes Over the past few decades, CGE models have been utilized not only for economic analysis across various countries and globally but also for assessing energy consumption and greenhouse gas emissions in the context of low carbon studies.
The Integrated Model to Assess the Global Environment (IMAGE) is a sophisticated modeling framework that integrates various interconnected software components, including the TIMER model, the FAIR model, and the IMAGE land-atmosphere model, while also incorporating insights from agro-economic models (Bouwman et al., 2006).
IMAGE is an ecological-environmental framework that models the global environmental impacts of human activities, focusing on the interactions between society, the biosphere, and the climate system to evaluate sustainability challenges such as climate change, biodiversity, and human well-being Its primary function is to develop and analyze scenarios related to global environmental change IMAGE findings have significantly contributed to various international studies, including the IPCC Special Report on Emissions Scenarios, the UNEP's 3rd Global Environment Outlook, the Millennium Ecosystem Assessment, the Second Global Biodiversity Outlook, and UNESCO's Global Nutrients from Watersheds project Additionally, at the European level, IMAGE has participated in the Eururalis study, exploring future agricultural and rural developments in the EU-25 countries, as well as the GHG Reduction Policy initiative.
The IMAGE version 2.4 aims to investigate the long-term dynamics of global change driven by the interplay of demographic, technological, economic, social, cultural, and political factors Building on the foundational elements of earlier versions, this model identifies population and macro-economy as primary influencers It establishes key physical indicators for the energy/industry and agriculture/land-use systems, facilitating the assessment of changes in land cover, climate, and the carbon and nitrogen cycles.
IMAGE results play a crucial role in evaluating climate policies when combined with the FAIR (Framework to Assess International Regimes) decision-support model FAIR is extensively utilized to analyze the environmental impact and abatement costs of greenhouse gases (GHG) This model effectively connects long-term climate goals and global reduction targets with regional emission allowances and associated abatement costs, while also considering the Kyoto Mechanisms.
Significant advancements in the development of IMAGE 2.4 are reinforcing its status as a premier framework for integrated assessment of global sustainability challenges Collaborative efforts among various institutes are paving the way for future enhancements, positioning the IMAGE model framework to play a vital role in analyzing the critical interactions between human well-being and ecological goods and services.
The Inter-temporal General Equilibrium Model (IGEM) is a dynamic representation of the U.S economy, focusing on growth driven by capital accumulation, technological advancements, and population changes This multi-sector model analyzes shifts in industry output composition and the input mix, including energy usage, while also reflecting changes in consumption patterns influenced by demographics, prices, and income Capital accumulation, primarily from household savings, is central to economic growth, with households modeled as rational actors with "perfect foresight" aiming to maximize utility through a discounted sum of future consumption Additionally, the model incorporates a detailed demand-side framework that accounts for household demographics.
The model's production side intricately details the industrial structure, identifying 35 industries, including 21 in manufacturing and 5 in energy Each industry utilizes capital, labor, energy, and non-energy intermediate inputs with constant returns to scale technology Over time, production technology evolves due to both external factors and internal price effects Energy inputs are distinctly categorized as coal, refined oil, and gas Domestic industry output is complemented by imports from global sources, contributing to the total supply of each commodity.
This model utilizes econometric implementation, where parameters influencing producer and consumer behavior are statistically estimated using a specifically constructed time series dataset, unlike other multi-sector models that are often calibrated to a single year's economy The data is derived from a national accounts system that combines capital accounts with National Income Accounts, incorporating an equation that connects investment goods prices to future rental flow streams, which is crucial for accurately modeling growth dynamics.
The household sector is categorized into demographic groups, including region of residence, to highlight differences among households Each household functions as a consuming unit, maximizing utility across all commodities, including leisure, within the Integrated General Equilibrium Model (IGEM) Currently, demographic variations in IGEM primarily influence commodity consumption allocation, without affecting time distribution between work and leisure or the income allocation between consumption and saving The household model in IGEM operates in three stages, where the first stage involves allocating lifetime income to consumption and saving for each period, encompassing both commodities and leisure, collectively termed "full consumption."
In the second stage, full consumption is allocated to total goods and services and leisure
In the third stage, the allocation of total goods and services occurs across IGEM's energy and non-energy commodities, involving a series of detailed sub-stages that present comprehensive demographic information.
The Applied Dynamic Analysis of the Global Economy (ADAGE) is a versatile dynamic Computable General Equilibrium (CGE) model designed to analyze various economic, energy, environmental, climate change mitigation, and trade policies at international, national, regional, and state levels in the U.S By integrating a robust theoretical framework with comprehensive economic data, the model effectively assesses the interactions between businesses and households to evaluate the impacts of proposed policies.
The ADAGE model serves as a powerful tool for analyzing climate-change mitigation policies related to six types of greenhouse gases (GHGs) across various geographic scales By integrating a robust theoretical framework with empirical economic data, the model effectively captures the complex interactions between businesses and households This includes the purchasing of material inputs by firms from other businesses and the acquisition of labor, capital, and natural resources from households to produce goods Additionally, households earn income through factor sales and purchase products from firms, while trade flows between regions are also accounted for The model employs Nested Constant Elasticity of Substitution (CES) equations to depict the behaviors of firms and households, which aim to optimize profits and welfare, alongside potential technological advancements.
ADAGE uses a classical Arrow-Debreu general equilibrium framework to describe budget constraints across all years in the model horizon, while firms maximize profits subject to technology constraints
To investigate policy effects, the CGE model combines a consistent theoretical structure with economic data covering all interactions among businesses and households
The Arrow-Debreu general equilibrium framework is utilized to analyze the economic behaviors of agents, where households, with perfect foresight, aim to maximize their welfare from goods consumption and leisure while adhering to budget constraints throughout the model's time horizon Meanwhile, firms focus on maximizing profits within the limits of technological capabilities The economic data employed in the ADAGE model is sourced from the Global Trade Analysis Project 2 (GTAP2) and the IMpact analysis for PLANing 3 (IMPLAN3) databases, while energy data and growth forecasts are obtained from the International Energy Agency (IEA) and the U.S Department of Energy's Energy Information Administration (EIA).
Improvement of consumption function in CGE model for LCD analysis
Many Computable General Equilibrium (CGE) models employ the Linear Expenditure System (LES) function for final demand, which maintains constant marginal budget shares While this approach meets regularity conditions, it fails to exhibit Engel flexibility, as it does not adjust expenditure shares in response to income changes Simulation findings from Yu et al (2000 and 2002) indicate that in regions experiencing rapid income growth, the LES tends to overestimate the growth in private demand, imports, and output requirements for food products, while underestimating these factors for non-food products.
To accurately describe real-world demand behavior, a demand system must adhere to regularity conditions, including adding-up, symmetry, homogeneity, and negativity, alongside Engel-flexibility, which indicates that budget shares for food decrease as income increases Understanding Engel properties and the regularity of demand systems is crucial for tracking historical food consumption patterns and predicting future changes The regularity conditions are particularly important, as they ensure that extrapolating these systems in response to significant income shocks does not result in negative budget shares.
Meyer et al (2011) conducted a comparison of several demand systems for estimating elasticities, including the Linear Expenditure System (LES), Basic Translog (BTL), Almost Ideal Demand System (AIDS), Quadratic Expenditure System (QES), Quadratic Almost Ideal Demand System (QUAIDS), and An Implicitly, Directly Additive Demand System (AIDADS) Their findings indicated that the AIDADS model, developed by Rimmer and Powell (1996) and refined for empirical use by Cranfield et al (2000), outperformed the other models, particularly in simulating income elasticity AIDADS enhances the LES by allowing marginal budget shares to vary with utility and expenditure levels.
The AIDADS expenditure function is characterized by its non-negativity, continuity, and homogeneity of degree one in prices, while also being non-decreasing and concave in relation to prices Under specific conditions, the expenditure function exhibits a non-decreasing behavior in utility Engel elasticities typically show a non-linear response to income changes; however, as real income increases indefinitely, all Engel elasticities converge to unity, albeit not in a monotonically approaching manner This distinction is crucial, as it sets AIDADS apart from the commonly utilized LES model.
Yu et al (2000) investigate the estimation and calibration of the newly developed AIDADS demand system, integrating its econometrically estimated income elasticities into the standard GTAP model They conduct a demand-side experiment using various demand specifications (LES, CD, and AIDADS) to highlight the significant differences brought about by the AIDADS functional form The simulation results reveal that in regions experiencing rapid income growth, the LES model tends to overestimate the growth in private demand, imports, and output requirements for food products while underestimating these for non-food products Conversely, in high-income regions with slower income growth, the results from the calibrated LES model align closely with those from the AIDADS model.
Recently, CGE models like ENVISAGE and LINKAGE have adopted the AIDADS function as their default consumption function However, it is important to note that most AIDADS estimations rely on data from the International Comparison Project (ICP) dating back to 1985 for cross-country datasets.
Bouwman, A.F., T Kram and K.K Goldewijk, (2006): Integrated modeling of global environmental change – An overview of IMAGE 2.4, Netherlands Environmental Assessment Agency (MNP)
Cassen, C., C Guivarch, J.C Hourcade and J Rozenberg, (2010): D5.1-The IMACLIM-R model, a modeling framework to simulate sustainable development pathways, International Research Center on Environmental and Development (CIRED), France
Chan, N., D.H Dao, H.M Hai and N.T Dung, (1998): Evaluating Tax Reform in Vietnam Using General Equilibrium Methods, Paper Presented at the Micro Impacts of Macroeconomic and Adjustment Policies (MIMAP), Kathmandu, Nepal
Chan, N and T.K Dung, (2002): Development of CGE Model to Evaluate Tariff Policy in Vietnam, Paper presented at International Conference on Policy Modeling (EcoMod2002), Free University of Brussels
Chan, N., T.K Dung, M Ghosh, and J Whalley, (2005): Adjustment costs in labor markets and distributional effects of trade liberalization: Analytics and calculations for Vietnam, Journal of Policy Modeling, Vol 27, pp 1009-1024
Chan, N and T.K Dung, (2006): The impact of trade liberalization on household welfare in Vietnam, MPIA Working Paper No 2006/02
In 2011, the Central Institute for Economic Management (CIEM) conducted a comprehensive study on the economics of low carbon, climate-resilient development in Vietnam This research, part of the scoping phase, culminated in a final report submitted to the Department for International Development (DFID), highlighting key strategies for sustainable economic growth in the face of climate change.
Cloutier, M.H., J Cockburn and B Decaluwé, (2008): Education and Poverty in Vietnam: a Computable General Equilibrium Analysis, Working Paper 08-04, CIRPEE and Hanoi Institute of Economics
Cranfield, J.A.L., P.V Preckel, J.S Eales and T.W Hertel, (2000): On the estimation of “an implicitly additive demand system”, Applied Economics, Vol 32, pp 1907-1915
Doanh, N.K and Y Heo, (2009): Impacts of Trade Liberalization Commitments on the Vietnamese Economy - A CGE Approach, The World Economy, Blackwell Publishing Ltd., USA
Dung, N.T., (2002): Trade Reforms in Vietnam - A Computable General Equilibrium Analysis, Forum of International Development Studies No 21
Dung, N.T and M Ezaki, (2005): Regional Economic Integration and its Impacts on Growth, Poverty and Income Distribution - The Case of Vietnam, Discussion Paper No.132, Vietnam Institute of Sciences and Technology
Dung, N.T., (2009): Vietnam integrating with the regional economy: A dynamic simulation analysis, Forum of International Development Studies No 38, Vietnam National University
Goettle, R J., M.S Ho, D.W Jorgenson, D.T Slesnick and P.J Wilcoxen, (2007): IGEM, an Inter-temporal General Equilibrium Model of the U.S Economy with Emphasis on Growth, Energy and the Environment, U.S Environmental Protection Agency (EPA)
Fujii and Roland-Holst (2007) explore the impact of Vietnam's accession to the World Trade Organization on the distribution of poverty across different regions Their research, published by the United Nations University, analyzes how this significant economic integration alters the spatial incidence of poverty in Vietnam, providing insights into the implications for development and economic policy.
Harris, R.G., P.E Robertson and M Wong, (2007): Analyzing Economy Wide Effects of Trade Liberalization on Vietnam using a Dynamic CGE Model, School of Economics, University of New South Wales
Huong, P.T.L., (2003): The impacts of Vietnam’s accession to the WTO on income distribution using a general equilibrium framework, Asian Pacific School of Economics and Government, The Australia National University
IEA, (2004): Oil crises and Climate challenges - 30 years of energy use in IEA countries, International Energy Agency
Kim, S., (2010): Overview of Global Change Assessment (GCAM) Model, Joint Global Change Research Institute (JGCRI), Pacific Northwest National Laboratory and University of Maryland
Mensbrugghe, D.v.d., (2008): The Environmental Impact and Sustainability Applied General Equilibrium (ENVISAGE) model, Development Prospects Group (DECPG), The World Bank
Mensbrugghe, D.v.d., (2011): LINKAGE technical reference document - Verion 7.1, Development Prospects Group (DECPG), The World Bank
Meyer, S., X Yu and D Abler, (2011): Comparison of several demand systems, Selected Paper prepared for presentation at the Agricultural & Applied Economics Association’s 2011 AAEA & NAREA Joint Annual Meeting, Pittsburgh, Pennsylvania
Nhi, T.H and J.A Giesecke, (2007): Growth and structural change in the Vietnamese economy 1996-2003 - A CGE analysis, General Paper No G-171, Centre of Policy Studies, Monash University, Australia
Piermartini, R and R Teh, (2005): Demystifying Modeling Methods for Trade Policy, WTO Discussion Paper 10
Rimmer, M.T and A.A Powell, (1996): An implicitly additive demand system, Applied Economics, Vol 28, pp 1613-1622
In the paper "CGE Methods for Poverty Incidence Analysis - An Application to Vietnam’s WTO Accession," Roland-Holst (2004) explores the impact of Vietnam's World Trade Organization (WTO) membership on poverty levels using Computable General Equilibrium (CGE) methods Presented at the 7th Annual Conference on Global Economic Analysis, this research highlights the interplay between trade, economic growth, and poverty alleviation in the context of Vietnam's integration into the global economy The findings contribute valuable insights into how trade policies can influence poverty dynamics, making it relevant for policymakers and economists alike.
Thanh, N.D., (2006): Economy – wide effects of remittances - A CGE assessment from Vietnam, National Graduate Institute for Policy Studies (GRIPS), Tokyo, Japan
Thanh, T.B and N.M Toan (2007): The effect of trade liberalization on income distribution in Vietnam – Dynamic CGE approach, Danang University, Vietnam
Tilburg, X.V., L Wurtenberger, H.d Coninck and S Bakker, (2011): Paving the way for low- carbon development strategies, Energy research Center of the Netherlands (ECN)
Yu, W., T.W Hertel, J Eales and P Preckel, (2000): Integrating the AIDADS demand system into the GTAP model
Yu, X., T.W Hertel, P Preckel and J Eales, (2002): Projecting World Food Demand - A Comparison of Alternative Demand Systems.