CGE Modeling Approaches When Considering the Economic and CO2 Impacts of Clean Electricity Supply Transition Policies – Does the Method Matter?

As governments around the world are implementing clean electricity supply transition policies to help address climate change, there has been an increased interest in the use of computable general equilibrium (CGE) models to estimate associated economic and CO2 impacts. Researchers have used a range of CGE modeling approaches to simulate these policies, with each approach having different underlying assumptions regarding production processes, technologies, and/or capital investments which may affect the estimated impacts. To assess the potential range of estimated impacts that can emerge, we compare four commonly used modeling approaches to implement a coal phase-out in a case study region of Canada. We calibrate a static CGE model to the Canadian economy and assess the extent to which each approach can lead to different impact estimates. For instance, we find that the range of GDP impacts produced from shifting share parameters vs capital supply in electricity sectors differ by four times that of the initial shock. Our research demonstrates that researchers need to carefully select a modelling approach that most closely mirrors the policy being considered in order to generate impact estimates that can be relied on for policy development