Short Description
The deliverable ”Modelling cross-sectoral interactions with water at river basin level” (D4.2) relates to the task “Cross-sector hybrid dashboard and simulation combining economic and physical indicators” (Task 4.2) within the work package ”Digital tools for water governance” (WP4). The objective of Task 4.2 is the development of a prototype of a Computable General Equilibrium (CGE) model that simulates the interactions between water uses, energy production and economic activities and considers addressing the issues related to the environmental impacts of these economic activities. The deliverable “Modelling cross-sectoral interactions with water at river basin level” (D4.2) presents the development of the CGE model and its database the Social Accounting Matrix (SAM). It also presents the simulation of academic scenarios and the analysis of their results. CGE models are macroeconomic analysis tools which allow for the simulation of scenarios. They are based on statistical macroeconomic data and microeconomic theory. CGE models are used to analyse economic and policy scenarios when the interaction between economic activities, markets and agents needs to be considered. This deliverable presents the development of the Reunion Island WEFE nexus CGE model (REWEFE-CGE model), which considers the four WEFE nexus pillars: W(ater), E(nergy), F(ood) and E(cosystems).
The Introduction section briefly presents the motivating research question explaining the context of WEFE nexus, water governance, economic activities, and the situation in Reunion Island as a study region. Section 01 introduces the principles of CGE models. It introduces the methodological framework of CGE modelling in the context of WEFE nexus research. A simplified description of the methodological framework provides a basic overview of the CGE model as a method, allowing for better comprehension of the context of later sections. A literature review shows that CGE models are frequently applied in WEFE nexus research. However, CGE studies that consider three or more WEFE nexus pillars are rare. The newly developed REWEFE-CGE model is one of the first CGE models representing four WEFE nexus pillars. The literature review also shows that various studies apply the PEP single-country standard models to WEFE nexus-related research questions. Thus, the static single-country PEP standard model (PEP-1-1) or its dynamic version (PEP-1-t) is suitable for developing the REWEFE-CGE model. The literature review analyses the production function specification representing water as a production factor.
Section 2 presents the data research and processing to extend the SAM as a database for the WEFE Nexus CGE model, economic data, data on water usage and withdrawals, energy consumption and pollutant emissions. The section describes how to compute data on the water and sanitary sector, water pollutants, and CO2 emissions for environmental satellite accounts oriented to the System of Environmental-Economic Accounting for Water (SEEA-W). Section 3 presents the rules for developing the Social Accounting Matrix (SAM). It introduces the basic principles of a SAM and different options for extending a SAM through new items. The section presents a step-by-step procedure for how the WEFE nexus pillars are included in the SAM and how the physical emission and water accounts are linked. Furthermore, it suggests a guideline on how to derive relevant data to construct a river basin SAM.
Section 4 presents the Reunion Island WEFE nexus SAM (REWEFE-SAM) and the Reunion Island WEFE nexus CGE model (REWEFE-CGE). It analyses the SAM by structure tables. Structure tables inform about the shares of values of activities, commodities, agents, and factors related to the economy and different sectors of the SAM (e.g., the contribution of factors to production).
Furthermore, Section 4 presents the specification of the REWEFE-CGE model and the linkage to the SEEA-W accounts. It also explains the principles of the calibration of the CGE model.
Section 5 presents five academic scenarios, their underlying scenario assumptions and the technical implementation in the model. The academic scenarios are based on narratives of potential interest for Reunion Island and defined by ad-hoc assumptions of shocks. The academic scenarios are a starting point for the development of empirically funded scenarios to be developed and tested in collaboration with experts, policymakers and stakeholders (co-modelling approach). Section 6 analyses the scenario results. The results inform about the model performance and prove plausible model reactions. Thus, the analysis of the academic scenarios contributes, on the one hand, to the validation of the REWEFE-CGE model and, on the other, to the identification of the need to further refine the model prototype. Interpreting the model results illustrates different model reactions and contributes to understanding the CGE model mechanism. The results of the academic scenarios can also feed into the discussion between researchers, policymakers, and other stakeholders, e.g., to identify future demand for research.
Section 7 presents how the REWEFE-CGE model can be implemented and presented on the digital platform. The aggregated (macroeconomic) REWEFE-CGE model is linked to a microeconomic simulation model (MSM) to analyse the impacts of scenarios at the individual household level. The MSM simulates the reaction of the economic scenarios on individual households in their water consumption. The section also proposes how the REWEFE-CGE model results can be described and visualised by graphs and tables.
The conclusion section reviews the potential usage of the REWEFE-CGE model in research, policy-making and other stakeholder-related work. It presents the caveats and solutions to advance the modelling in future. The presentation of the REWEFE-CGE model contributes to the economic, environmental and interdisciplinary research. The REWEFE-CGE model can serve as an instrument to assess WEFE nexus-related research questions for the European study region Reunion Island. It can feed into European water governance policy discussions in context with WEFE nexus aspects. Furthermore, the information provided in the present study can serve researchers as a guide to develop WEFE nexus CGE models for other study regions. Thus, the REWEFE-CGE model as a stand-alone model and the study at hand represent a fruitful outcome for future research and policy decision support.
Within the project InnWater the REWEFE-CGE model fulfils multiple functions. It contributes with model results to the digital platform as a water government support tool in the "InnWater water governance platform" (Task 4.4). By interpreting results, the user can understand the mechanisms between the macroeconomics and the WEFE resource nexus. Linked to the microsimulation model (MSM), the CGE-MSM model composition represents a complementary usage of two model types at different analytical scales. The REWEFE-CGE model considers the whole economy and the intersectoral linkages as a macroeconomic framework. The MSM as a microeconomic analysis framework simulates and analyses the behaviour of households, i.e., the task "Domestic water tariff dashboard" (Task 4.3), and thus, represents socioeconomic aspects. Thus, the complementary linkage between REWEFE-CGE and MSM complements the existing literature using the WEFE nexus analysis with a socioeconomic lens. The combination of macroeconomic analysis and socioeconomic research focus is, to date, still under-represented in WEFE nexus literature. Integrated into the digital platform, the linked REWEFE-CGE and MSM support users' training in analysing water governance scenarios in the task "Pilot sites operation" (Task 5.2: Subtask 5.2.1). The extensive pool of information (theoretical base and D4.2 Modelling cross-sectoral interactions with water at river basin level 11 practical know-how) in this study also supports the task “Replication assessment throughout Europe” (Task 6.3 in WP 6) by illustrating how to construct a WEFE nexus CGE model.
The Introduction section briefly presents the motivating research question explaining the context of WEFE nexus, water governance, economic activities, and the situation in Reunion Island as a study region. Section 01 introduces the principles of CGE models. It introduces the methodological framework of CGE modelling in the context of WEFE nexus research. A simplified description of the methodological framework provides a basic overview of the CGE model as a method, allowing for better comprehension of the context of later sections. A literature review shows that CGE models are frequently applied in WEFE nexus research. However, CGE studies that consider three or more WEFE nexus pillars are rare. The newly developed REWEFE-CGE model is one of the first CGE models representing four WEFE nexus pillars. The literature review also shows that various studies apply the PEP single-country standard models to WEFE nexus-related research questions. Thus, the static single-country PEP standard model (PEP-1-1) or its dynamic version (PEP-1-t) is suitable for developing the REWEFE-CGE model. The literature review analyses the production function specification representing water as a production factor.
Section 2 presents the data research and processing to extend the SAM as a database for the WEFE Nexus CGE model, economic data, data on water usage and withdrawals, energy consumption and pollutant emissions. The section describes how to compute data on the water and sanitary sector, water pollutants, and CO2 emissions for environmental satellite accounts oriented to the System of Environmental-Economic Accounting for Water (SEEA-W). Section 3 presents the rules for developing the Social Accounting Matrix (SAM). It introduces the basic principles of a SAM and different options for extending a SAM through new items. The section presents a step-by-step procedure for how the WEFE nexus pillars are included in the SAM and how the physical emission and water accounts are linked. Furthermore, it suggests a guideline on how to derive relevant data to construct a river basin SAM.
Section 4 presents the Reunion Island WEFE nexus SAM (REWEFE-SAM) and the Reunion Island WEFE nexus CGE model (REWEFE-CGE). It analyses the SAM by structure tables. Structure tables inform about the shares of values of activities, commodities, agents, and factors related to the economy and different sectors of the SAM (e.g., the contribution of factors to production).
Furthermore, Section 4 presents the specification of the REWEFE-CGE model and the linkage to the SEEA-W accounts. It also explains the principles of the calibration of the CGE model.
Section 5 presents five academic scenarios, their underlying scenario assumptions and the technical implementation in the model. The academic scenarios are based on narratives of potential interest for Reunion Island and defined by ad-hoc assumptions of shocks. The academic scenarios are a starting point for the development of empirically funded scenarios to be developed and tested in collaboration with experts, policymakers and stakeholders (co-modelling approach). Section 6 analyses the scenario results. The results inform about the model performance and prove plausible model reactions. Thus, the analysis of the academic scenarios contributes, on the one hand, to the validation of the REWEFE-CGE model and, on the other, to the identification of the need to further refine the model prototype. Interpreting the model results illustrates different model reactions and contributes to understanding the CGE model mechanism. The results of the academic scenarios can also feed into the discussion between researchers, policymakers, and other stakeholders, e.g., to identify future demand for research.
Section 7 presents how the REWEFE-CGE model can be implemented and presented on the digital platform. The aggregated (macroeconomic) REWEFE-CGE model is linked to a microeconomic simulation model (MSM) to analyse the impacts of scenarios at the individual household level. The MSM simulates the reaction of the economic scenarios on individual households in their water consumption. The section also proposes how the REWEFE-CGE model results can be described and visualised by graphs and tables.
The conclusion section reviews the potential usage of the REWEFE-CGE model in research, policy-making and other stakeholder-related work. It presents the caveats and solutions to advance the modelling in future. The presentation of the REWEFE-CGE model contributes to the economic, environmental and interdisciplinary research. The REWEFE-CGE model can serve as an instrument to assess WEFE nexus-related research questions for the European study region Reunion Island. It can feed into European water governance policy discussions in context with WEFE nexus aspects. Furthermore, the information provided in the present study can serve researchers as a guide to develop WEFE nexus CGE models for other study regions. Thus, the REWEFE-CGE model as a stand-alone model and the study at hand represent a fruitful outcome for future research and policy decision support.
Within the project InnWater the REWEFE-CGE model fulfils multiple functions. It contributes with model results to the digital platform as a water government support tool in the "InnWater water governance platform" (Task 4.4). By interpreting results, the user can understand the mechanisms between the macroeconomics and the WEFE resource nexus. Linked to the microsimulation model (MSM), the CGE-MSM model composition represents a complementary usage of two model types at different analytical scales. The REWEFE-CGE model considers the whole economy and the intersectoral linkages as a macroeconomic framework. The MSM as a microeconomic analysis framework simulates and analyses the behaviour of households, i.e., the task "Domestic water tariff dashboard" (Task 4.3), and thus, represents socioeconomic aspects. Thus, the complementary linkage between REWEFE-CGE and MSM complements the existing literature using the WEFE nexus analysis with a socioeconomic lens. The combination of macroeconomic analysis and socioeconomic research focus is, to date, still under-represented in WEFE nexus literature. Integrated into the digital platform, the linked REWEFE-CGE and MSM support users' training in analysing water governance scenarios in the task "Pilot sites operation" (Task 5.2: Subtask 5.2.1). The extensive pool of information (theoretical base and D4.2 Modelling cross-sectoral interactions with water at river basin level 11 practical know-how) in this study also supports the task “Replication assessment throughout Europe” (Task 6.3 in WP 6) by illustrating how to construct a WEFE nexus CGE model.
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