Australian Trade and Environment Model (ATEM)
ATEM is one of CSIRO’s economic modelling tools. It belongs to the computable general equilibrium class of macroeconomic models. This single-country dynamic model has a comprehensive representation of the Australian economy. It captures the economic transactions in the commodity and factor markets across various agents. This includes
- purchases of goods and services and the supply of labour by households,
- demand for intermediate inputs and primary factors by firms for use in production,
- levying of taxes, and the provision of goods, services and income support by the government,
- purchases of Australian goods and services and the provision of investment capital in Australia by foreigners, and
- purchases of foreign goods and services and the provision of investment capital overseas by Australians.
ATEM is specifically designed for the analysis of climate change and energy policy with emphasis on the energy-environment-economy nexus. A key feature of the model is the detailed treatment of the energy sector. Mining activities are divided into 13 industries to explicitly represent the extraction of coal, oil, gas, and ores. Petroleum and coal products are distinguished by 14 types, each of which represents individual industries in the manufacturing sector. Electricity is produced by 20 industries representing different types of generation technologies. The current model has 159 sectors in total. Ongoing development of ATEM includes the inclusion of additional detail on a range of technologies in the agriculture, construction and transport sectors.
To further characterise the energy sector, ATEM represents the production technology of industries through a nested structure. At the top nest, firms choose between a non-energy composite and a primary factor-energy composite. This means that energy goods are treated separately to other intermediate goods and services in production and are complementary to primary factors. At the bottom nest, firms determine the optimal quantities of the energy composite (i.e., an aggregate of electricity technologies and primary fuels) and the primary factor composite (i.e., an aggregate of hired labour, owner-operator labour, capital, land, and natural resources). Moreover, the model accounts for the physical units of energies embedded in energy goods. The pattern of energy usage by firms and households can be altered through changes in the relative price. Improvements on energy efficiency due to technological change are also captured in the model through exogenous-applied changes in energy intensities in production and consumption.
Another key feature of the model is the accounting and pricing of carbon emissions to quantify the economic costs of decarbonisation. Four types of greenhouse gases are modelled: C02, CH4, N20 and F-gases. These gases are emitted either from the combustion of fossil fuels or a consequence or by-product of undertaking specific activities, such as certain agricultural activities, mining and other industry processes. The model determines a carbon price per tonne of emissions when an emission path for greenhouse gases is imposed that represents decarbonisation. The carbon price is converted into an ad valorem tax rate on a range of activities that cause emissions and this raises the price of the commodities used in those activities thereby influencing the consumption and production of goods and services.
The model is calibrated using the latest input-output tables, national accounts data and behavioural parameters. A novel feature of the ATEM database is the use of recently estimated parameters for Australia in the area of import-domestic product substitution, household demand, and intermediate input substitution. These parameters govern the strength of behavioural responses in the model and thus influences the magnitude of economic effects. The use of Australian-based parameters enhances the robustness of modelling results in ATEM.
ATEM can be used as a stand-alone model for simulating the economy-wide effects of policy changes, technology development, and economic events. Furthermore, ATEM is also suitable for integrated assessment modelling (IAM) where it can be linked to biophysical models and other economic models (e.g., GTEM, AusTIMES, LUTO, NIGEM). This multi-model approach has been demonstrated by Whitten et al. (2022)[1] and Brinsmead et al. (2022)[2]. Within the IAM framework, ATEM provides results on GDP, price level, wages, household disposable income, trade and other macroeconomic indicators. The model also generates detailed sectoral results to understand what is happening to sectoral output, industry emissions, fuel use and cost breakdowns.
[1] Whitten S., Verikios G., Kitsios V., Mason-D’Croz D., Cook S. and Holt P. (2022), Exploring climate risk in Australia: The Economic implications of a delayed transition to net zero emissions. CSIRO, Australia.
[2] Brinsmead, T.S., Verikios, G., Mariano, M.J.M. and Havas, L. (2022), Gas Energy in South Australia: A Scenario Exploration. Report No. EP2020-3070, CSIRO: Australia.