Statistics Norway’s World model for Norway
SNOW-NO is a recursive dynamic multi-sector general equilibrium (CGE) model for the Norwegian economy, developed to study energy and environmental policies and strategies. CGE models describe the whole formal economy. Main input data are the input-output tables in the Norwegian National Accounts. The dataset includes up to 46 industries and up to 25 final consumption goods. The model is developed in GAMS/MPSGE.
SNOW-NO computes annual equilibrium levels for supply and demand as well as domestic prices for a number of goods, services and production factors (labour, capital, energy), as well as emissions of greenhouse gases and welfare costs. All quantities (except emissions) are measured in money-metrics, i.e. the expenditures in fixed base-year prices.
Agents are represented as optimising individuals who interact with each other in national and international markets.
The household sector is modelled as one representative household. Maximisation of welfare by this household, thus, determines consumption of the economy. The budget constraint is given by the income from labour, capital, natural resources, and the government sector surplus. Savings and the government provision of public goods and services are exogenous. The household demand system is modelled by a Constant Elasticity of Substitution (CES) nested preference structure.
Private producers maximize profit. The production technologies of all commodities (incl. final consumption goods) are captured by nested CES functions. For most commodities, the input shares of capital, labour, energy and intermediate products from other sectors are price dependent. For fossil fuel production all inputs except the sector-specific fossil fuel resource are aggregated in fixed proportions. This aggregate trades off with the sector-specific fossil fuel resource at a constant elasticity of substitution. The values for substitution elasticities and share parameters of various inputs differ between commodities. Labour and capital are perfectly mobile between sectors, implying that investments can take place gradually. We also allow for import and export of capital.
Emissions of greenhouse gases (CO2, CH4, N2O, HFK, PFK, SF6), acidifying gases and ozone precursors (NOx, SO2, NH3 and NMVOC) and particular matter (PM10 and PM2.5) are included. We model emissions both from energy use and from industrial processes. Energy-related emissions are linked in fixed proportions to the use of fossil fuels with emission coefficients differentiated by the specific carbon content of the fuels. Abatement of the energy-related emissions can take place by fuel switching, substitution of other goods for energy, or by scaling down production and/or final consumption. The energy goods comprise coal, crude oil, natural gas, refined oil products and electricity. Emissions of from industrial processes are linked to the output of the sector. These emissions stem from industrial processes, for instance in aluminium or cement production, and are unrelated to energy use. Abatement of process emissions can only take place by reducing output.
We model a small, open economy, which considers the world market prices and interest rate as exogenous. All goods used in the domestic market in intermediate and final demand correspond to a CES composite that combines the domestically produced good and the imported good. Export is determined by a Constant Elasticity of Transformation (CET) function between domestic and export market deliveries. Factor prices and prices of deliveries to the domestic markets are all determined by market equilibria. Together with a given balance of payments, the real exchange rate will be determined consistent with domestic consumption.
The SNoW model has been developed by researchers at the Research Department at Statistics Norway.