on the emissions of local pollutants, the exercise enables us to explore the extent to
which the welfare evaluation of a CO2 tax is affected by incorporating the feedback
effects of air pollution. It is found that taking into account the economy-wide effects of
air pollution allows for a better evaluation of the impact of environmental policy on
private consumption and employment. However, in terms of the global effect on the
economy, the impacts turn out to be relatively small. Section 4 concludes and discusses
some limitations of the paper.
2. MODELLING THE HEALTH RELATED IMPACTS OF AIR
POLLUTION IN THE GEM-E3 MODEL
2.1. The standard GEM-E3 model: general characteristics
The standard version of the GEM-E3 model is an applied general equilibrium
model, simultaneously representing world regions or EU countries, linked through
endogenous bilateral trade. It aims at covering the interactions between the economy,
the energy system and the environment. The model computes simultaneously the
competitive market equilibrium under Walras’ law and the optimum balance for energy
demand/supply and emission/abatement. A major aim of GEM-E3 in supporting policy
analysis is the consistent evaluation of distributional effects, across countries, economic
sectors and agents. The burden sharing aspects of policy, such as for example energy
supply and environmental protection constraints are fully analysed, while ensuring that
the World/European economy remains at a general equilibrium condition.
The model has the following general features :
- Its scope is general in two terms: it includes all simultaneously interrelated markets
and represents the system at the appropriate level with respect to geography, the