Implications of Updating the Input-output Database of a Computable General Equilibrium Model on Emissions Mitigation Policy Analyses

In this study, we provide a critical evaluation about how updating the input-output data of an energy economic computable generation equilibrium (CGE) model can affect policy results, an assessment that is rarely done in existing literature if any. Specifically, we will explore how datasets with different fossil energy cost shares affect results of policy simulations that aim at reducing CO2 emissions. We prove analytically that a sudden fossil fuel price surge that provides little time for adjustment through input substitution can lead to a higher CO2 mitigation cost, and the finding is demonstrated empirically in a full scale CGE model for a base year with lower fossil fuel prices contrasted with results from a base year when fossil fuel prices had spiked. We then propose an adjustment to resolve the issues of using input-output data that embed sudden fossil fuel price hikes.