The Supply Side

MIRAGE-e 2 supply side #

Production factors #

Production makes use of five factors: capital, skilled labour, unskilled labour, land and natural resources. Factor endowments are assumed to be fully employed.

Factor supply #

Growth rates of factor supply are:

  • Natural resources:
  • Labor: Exogenous growth based on EconMap, differentiated by skill level
  • Land: Endogenous to the model, based on an isoelastic function of the real return to land
  • Capital: Endogenous to the model, determined by domestic savings (exogenous share of revenue) and current account (exogenous share of world GDP), both projected by EconMap.

Factor mobility #

Capital, natural resources #

Installed capital and natural resources are sector-specific, so that their rates of return may vary across sectors and regions.

Labour #

Labour is region-specific, but perfectly mobile between sectors (agricultural vs. non-agricultural segmentation to be updated).

Land #

This global factor is distributed across productions based on the assumption that it is a Constant Elasticity of Transformation (CET) function of land demands; this assumption introduces an imperfect mobility of land across uses.

See land section for details

Substitutions in the production chain #

Contrary to previous versions of the MIRAGE-e model, different sectors now have very different production function, mainly due to their different behavior towards non-CO2 emissions. To classify the different sectors and model their production function, MIRAGE-e mainly follows [(:harvard:Hyman2003)]. This results in five potential different production function, that only differ by their top-level nesting (see below):

  • Legacy MIRAGE top-tier (used only when aggregation do not follow the requirements for non-CO2 GHGs)
  • Fossil production
  • Energy-intensive manufacturing
  • Agriculture and forest
  • Non-energy, non-agriculture production

Top-level of production function #

As pointed ou above, the top-level of production function is different from one sector to the other. The different alternatives are the following:

In this figure, each box corresponds to a MIRAGE-e variable and arrows denote the aggregation relation, most often a CES aggregate. Elasticities of substitution are shown with the different values for $\sigma$ ($\sigma=0$ means the functional form is Leontief).

Bundles #

  • $Y$ is the total production of a given sector
  • $VA$ corresponds to the value-added and energy bundle (see below)
  • $IC$ corresponds to the intermediate consumption bundle (see below)
  • Other bundles, depicted in light gray, are simple CES bundles of the different components

Non-CO2 greenhouse gases #

Each non-CO$_2$ greenhouse gas (CH$_4$, N$_2$O and fluorinated gases $FGAS$) enter the production function as a component of production : their value is calibrated at the level of CO$_2$-equivalent emissions their generate and an arbitrary small price.

  • The elasticity of substitution is chosen following [(:harvard:Hyman2003)], and represents the different abatement costs corresponding to the greenhouse gas.

Fossil-specific resource #

In fossil energy production, the fuel-specific resource is of two different types:

  • This is the natural resource $NatRes$ in case of primary fossil energy production (coal, oil, gas)
  • This is crude oil in the case of pretroleum and coal products

Value for elasticities #

Elasticity Sectors Value Comments
$\sigma_{TOP}$ Standard 0.30 EPPA value (for PFC and SF6 ; 0.15 only for HFC)
Energy-intensive 0.11 EPPA value
Agriculture 0.02 Lowest EPPA value (because EPPA elast. include sector substitutions)
Primary fossil fuel 0.7 Previous MIRAGE-e value. EPPA Value: 0.6
Petroleum 0 Previous MIRAGE-e value (idem EPPA)
$\sigma_{NFGAS}$ Standard 0.11 EPPA value
$\sigma_{NCH4}$ Agriculture 0 Usual CNTER substitution in MIRAGE-e
Energy-intensive 1 EPPA value
$\sigma_{NIC}$ Agriculture 0.02 Lowest EPPA value (idem $\sigma_{TOP}$)
$\sigma_{NN2O}$ Energy-intensive 0.6 EPPA value
$\sigma_{NNR}$ Fossil 0 EPPA Value

Value-added and energy #

Value-added and energy bundle is identical accross sectors in MIRAGE-e, given that energy in value added is toggles (and aggregation meets the requirements of separating the five energy goods) :

Emissions from CO2-emitting fuels #

For CO$_2$-emitting fuels (coal, oil, gas and refined petroleum), the CO$_2$ emissions are proportional to the volume of fuel demanded:

Intermediate consumption #

Intermediate consumption is identical accross sectors :

The demand for good by origin is presented in the Trade page.