Name: ThreeME (Multi-sector Macroeconomic Model for the Evaluation of Environmental and Energy policy)
Type: CGE
Institution: OFCE (French Economic Observatory)
Documentation: GitHub
Geographic coverage: Single country (global; given data, it can be adapted for any country)
Description: A single country, open-source model designed to evaluate short-, medium-, and long-term impacts of environmental and energy policies at the macroeconomic and sectoral levels. It combines features of neo- Keynesian models with elements of bottom-up energy models and can assess the impacts of decarbonization scenarios and climate policies. The model is built in a block-like structure, with core elements (consumers, producers, prices) and optional elements (transportation choices, housing energy efficiency).
Questions to be answered/variables considered: Outputs include standard macroeconomic indicators such as GDP, employment, inflation, public deficit, and debt-to-GDP ratio, and sectoral variables such as production, employment, and investment by sector. Environmental indicators include greenhouse gas emissions and energy consumption by source and sector. The model also provides consumer, production, and energy prices and trade outcomes, including imports, exports, and the trade balance.
The model can evaluate the effects of carbon taxes and green subsidies and can project government revenues and expenditures under different policy scenarios, making it useful for budget planning. It can also help analyze the impact of green transitions on public debt trajectories, assess fiscal risks associated with climate change mitigation and energy transition, and design and evaluate climate-aligned fiscal policies. The disaggregation helps inform decisions on targeted support and compensation mechanisms. The model can also be used to stress-test fiscal projections against various climate policy scenarios. In some calibrations, the model provides distributional impacts of policy at the sector and household level. The model’s focus on energy means it can be used to answer more precise questions; e.g., in France the model has been used to evaluate comprehensive green transition scenarios with diverse measures including incentives, subsidies, change in the energy mix, and change in agents’ behaviors (e.g., increasing remote work).
Strengths:
- High sectoral and energy disaggregation enables detailed analysis of activity transfers and modeling of a wide range of climate and energy policies across economic agents.
- Short-run dynamics akin to neo-Keynesian models allow analysis of adjustment processes in the short- and medium-term, as well as long-term macroeconomic impacts.
- The model’s hybrid structure integrates bottom-up modeling of household energy consumption (where data is available), offering a comprehensive view of policy impacts. •
- It is an open-source model that runs on open-source software, enabling transparency and adaptability.
Limitations:
- The detailed structure yields many results for each run, which can be difficult to interpret.
- The data requirements are extensive: detailed sectoral and energy data is needed for calibration.
- Results can be sensitive to the calibration of behavioral parameters.
- Financial sector representation is limited.
- There is no explicit spatial dimension, meaning regional impacts are not modeled.
Assumptions:
- Frictions are assumed on the adjustment of prices and quantities.
- A choice of wage curve or Phillips curve relationship is assumed for wage determination.
These assumptions are crucial in driving the model results, especially in terms of employment and inflation dynamics.
Use: The infrastructure of the simulations and user interface are built in R. The model is open source, and a version with French data is available via GitHub. Calibrated versions for the 27 EU Member States plus the United Kingdom are available that rely on the free Exiobase database and Eurostat data. The research team is working with government organizations in, e.g., France, Mexico, and Luxemburg, and it provides initial technical training for economists to access and use the model. In France, the model has become the Treasury’s primary tool for environmental policy analysis. To support this, some modifications were made to replicate the short-term dynamics of the existing macroeconomic model, especially to equations in the foreign trade and investment blocks. As a collaborative effort, the model is regularly used to assess the economic impact of the French lowcarbon strategy (SNBC). Similar exhaustive low-carbon scenarios have been implemented for Tunisia, Mexico, and Indonesia with support from UNEP and the AFD (the French Development Agency).
Development/lessons/challenges: Partnerships with local users, especially with an institutional partner (e.g., economic or energy ministry, energy or environment agency), are crucial for credibly evaluating projected national policies and adapting the model to the country-specific context. In the experience of the ThreeME team, the involvement of an academic partner is crucial for the long-term use and maintenance of the model.
There are three categories of future development: first, improving the user experience by enhancing technical performance and developing interactive tools for analysis of data and results; second, improving the interconnections between top-down and bottom-up modules, which remains challenging; and third, developing new modules, including for financial markets, the electricity network and market, and climate damage. Additionally, creating a multi-regional version of ThreeME with explicit trade-linking is important.