Estimating Ancillary Benefits of Climate Policy Using Economy-Wide Models: Theory and Application in Developing Countries

This paper describes work that the OECD Development Centre has undertaken in the past two years to devise and implement a methodology for ancillary benefits estimation in developing countries, using economy-wide models. Section 1 presents a simple analytical framework for integrating ancillary benefits into climate economics. Section 2 then motivates the use of so-called "top-down" models for the analysis, weighing their advantages and disadvantages vis-à-vis "bottom-up" engineering-based models. It also describes the basic structure of the CGE model. Section 3 describes the other modules needed for the analysis, including the air dispersion model and the dose-response functions. Section 4 addresses questions of valuation of ancillary health effects, including the issues raised by benefits transfer across countries. Section 5 presents the welfare analysis resulting from the climate policy experiment and sensitivity analysis for India. These results are compared with others in the literature. Section 6 summarises and points in a few directions for future research.