Applied Energy and Climate Modelling, Kremers, WS 20/21

This is the third iteration of the course at the Department of Energy and Resource Economics of the University of Münster. The course started in 2018 and, contrary to the usual CGE courses, the course was intended for Master Students. We have noticed from the usual CGE courses for PhD students, policy makers, and interested people from international and national institutes, that the level of these courses exceeded the knowledge of the course participants. One of the reasons is the lacking of any economics background. CGE modelling, in spite of its quantitative character, remains ’theory with numbers’, and a proper application of CGE modelling to often very practical policy implementation assessments turns out to be a real art. 

Economists, like many social scientists are story tellers who communicate their opinion on the impact of a policy or of climate change on the economy, and want to support their view or arguments with the necessary data and calculations. Often they reach for a popular model which suits their purposes. This model is nowadays often but not necessarily a mathematical model. The availability of data allows its user to play or experiment to their hearts' content. Furthermore, the language of quantitative simulations turns out to be an excellent form of communication with policy makers, e.g. at the EU, making computable general equilibrium models very popular in these surroundings.

Since the financial crisis in 2009, the practice of applying these models in policy impact analysis has come under heavy criticism. Policy makers and economists were criticized by not seeing the crash beforehand. As it turned out, many economists were blamed that their macroeconomic models did not even explicitly model the financial markets properly. Many criticism seemed driven by a ‘revenge’ on the successes of so-called ’neo-liberalism’ during the time following the fall of socialism in the eighties. Such obviously uninformed thoughts are never very helpful. The practice of economic modelling in policy impact analysis can and should certainly be criticized from various viewpoints. We hope that this course could be a start for students and interested people to deal with the art of economic modelling, here computable general equilibrium modelling, in an informed and critical way. We would therefore challenge all students, especially the critical ones to join the course.

The current availability of computational power has made the application of large-scale economic models like Computable General Equilibrium (CGE) models to assess the impact of economic policies extremely popular in academics, political institutions as well as consultancies. This lecture series intends to raise an interest for CGE modelling among existing modern economic modelling approaches and provides a first know-how on developing a basic CGE model, analysing policy questions and interpreting modelling results. Within the various application fields of CGE modelling, we focus on its role in energy and resource, in particular energy and climate policy impact assessments.

The intention of this course is to bring interested master students on their way to have a (quantitative) way to tell their story, in this case a story on energy and resource economics, using computable general equilibrium modeling. During the course, we provide the students with the necessary theoretical and computational background. We ask the students to form a couple with another student and together they should try to master the exercises during the course but also in the time beyond. At the end of the course, we ask the student couples to write a little paper on an application of CGE modelling to what interests them in the field of energy and resource economics, for example a policy impact in the area of climate change. We will provide themes but we challenge the students to come up with their own ideas.