Modelling the health related benefits of environmental policies - a CGE analysis for the eu countries with gem-e3

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The use of a different utility function also implies that a comparison of the
welfare levels between the two model versions is not justified. We find that in both
model versions the domestic CO2 taxes lead to a total welfare gain (including
environmental benefits) at EU level, though specific countries show a welfare loss and
this in both model versions. The welfare gain at EU level equals 0.13% in the model
without feedback and 0.11% in the model with feedback. However, it should be borne
in mind that it would be incorrect to compare these two figures.

4. CONCLUSIONS

The paper examines the impact of modelling the feedback of the health related
benefits from an environmental policy on the policy evaluation. The modelling
framework implemented in GEM-E3, a CGE model for Europe, allows for three
channels through which the feedback can occur: a decrease in medical expenditure, an
increase in the consumers’ available time and an increase of labour productivity in the
production sectors. The results show that the explicit modelling of the health related
effect of air pollution on consumers and producers allows for a better evaluation of the
impact of environmental policies on private consumption and employment. However,
in terms of global effect, the impacts of the feedback are small, compared to the
standard GEM-E3 model where the health related benefits are evaluated ex-post.
Accounting for the feedback effect induces a shift of the impact from the ex-post term
to the other components of utility, rather than a change in the magnitude of the total
impact.

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