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This project aims at exploring the general equilibrium effects on the world economy of climate change and its related policy.

This project aims at exploring the general equilibrium effects on the world economy of climate change and its related policies. Two modelling tools are currently in use: GTAP, a world CGE model and database, and G-Cubed, an econometric dynamic GE model. These models will be linked to some environmental modules, simulating the effects of climate change on various environmental variables. These estimates will subsequently be used to produce shock simulations in the CGE models. Primary aim of these simulation experiments is tracing out the different structural effects triggered by changes in environmental indicators: variations in the terms of trade, competitiveness of industries and regions, capital movements, and others.

Research is carried out in cooperation with the ICTP, the University of Hamburg and the Abare (Sidney). A six-day long meeting was organised by FEEM in Venice on 9-16 March 2004. Currently the research is being developed along three different strands. The first entails the implementation of a recursive dynamic version of the economic model. The second pertains to extending the production structure of the model inserting water as an additional input; this is particularly important for the study of the feedback between climate change and the agricultural sector. The third is the evaluation of socio-economic consequences deriving from climate-change induced increase in frequency and intensity of extreme events.

At present research is following three lines: the build-up of a recursive-dynamic version of the model, the enrichment of the mathematical structure of the model under the supply and demand side and the extension of the spectrum of socio-economic impacts to be assessed. Here three new research themes have been pursued. The first is a coupling exercise where the economic model is interfaced with a land-use model. The second is the development of an "imperfectly competitive" market module for energy goods. Finally, the vast dimension of sustainable development is being investigated.