On the construction and first empirical application of the new European Model for the Assessment of Environmental, Economic and Social effects of Sustainability Policies (EDIP)

The present paper describes the construction and first empirical application of the new European Model for the Assessment of Environmental, Economic and Social effects of Sustainability Policies (EDIP). The model is constructed using the Computable General Equilibrium (CGE) framework, which takes as a basis the notion of the Walrasian equilibrium. The EDIP model is a dynamic, recursive over time, model, involving dynamics of capital accumulation and technology progress, stock and flow relationships and backward looking expectations. It includes the representation of the micro-economic behavior of the following economic agents: several types of households differentiated by 5 income quintiles, 3 degrees of urbanization and 6 family types; production sectors differentiated by 59 NACE classification categories; investment agent; federal government and external trade sector. EDIP includes detailed representation of the production technology of all major energy sectors as well as the complex substitution possibilities between different energy inputs. It also includes distinction between income classes, family types and education levels, which make the model applicable for assessment with social indicators in a quantitative way. The first version of the model has been applied to the estimation of the temporal economic, environmental and social effects of the energy taxation as described in the EU Energy Taxation Directive. The paper describes the results of this exercise in the form of welfare effects and changes in sustainability indicators and discusses the ways the EDIP model can be developed further.