Phoenix belongs to the class of dynamic recursive models, and is solved in five-year time steps from 2005 through 2100. Phoenix replaces the Second Generation Model (SGM) that was formerly used for general equilibrium analysis at JGCRI. In Phoenix the world is divided into twenty-four regions (Table 1), each with twenty-six industrial sectors (Table 2) and two representative agents (the government and a representative consumer). The regional identities include both individual countries (e.g. USA, Brazil, and Canada) and aggregates of countries within a particular geographic region (e.g. Middle East, North Africa, and the European Union 15). Each industrial sector produces a single output that is consumed by the representative consumer and the government and used by the production sectors as intermediate inputs. The distribution of goods in each period is based upon optimizing behavior by both the producers and consumers; producers minimize costs given a particular nested constant elasticity of substitution (CES) production technology and consumers maximize nested CES utility given a budget constraint.
There are four factors of production (natural resources, land, labor, and capital) that are owned by the representative regional household and are supplied to the region’s production sectors. With a given technology, the industrial sectors combine the primary factors of production with intermediate material and energy inputs to produce final consumption goods. These goods fulfill private and public consumption, by the representative consumer and government respectively, and the demand for intermediate inputs by the production sectors. When the quantity of goods supplied equals the quantity demanded, the model has achieved market clearance.
The flow of goods is accompanied by a corresponding flow of payments. The representative consumer receives payments in return for renting the factors of production to the industrial sectors. These payments are used to purchase goods and services from the industrial sectors for private consumption. Industrial sectors collect payments in return for their sale of intermediate and final demand goods. This revenue is used to purchase other intermediate goods and the factors of production. The government collects taxes and uses this income to purchase goods and services for public consumption. Income balance is achieved when a consumer’s income from the renting of a production factor equals the value of the goods purchased gross of taxes. Likewise, zero profit conditions are met when the value of goods sold by a producer equals the total cost of material and factor inputs.
Particular attention is paid to energy production in Phoenix. There are nine electricity-generating technologies (coal, natural gas, oil, biomass, nuclear, hydro, wind, solar, and geothermal) and four additional energy commodities: crude oil, refined oil products, coal, and natural gas. Coal gasification and biomass oil are introduced under the policy scenarios as backstop technologies for the gas and refined oil commodities respectively. We decompose electricity generation into production by the following technologies: coal, gas, oil, biomass, nuclear, wind, solar, and hydro. In addition, we include carbon capture and sequestration technology for a portion of the electricity generated by coal and gas as the price of emitting carbon increases capture efficiency of carbon dioxide increases.
International trade is modeled using Armington and Heckscher-Ohlin (HO) trade functions. We assume HO trade for crude oil and gas, and as a result, all countries experience the same import price for these goods. The remaining 24 goods are traded using an Armington model, causing import prices to vary as a function of regional differences and international transportation costs. A combination of the domestic and imported goods are consumed and used as intermediate inputs as defined by the elasticity of substitution between imported and domestic commodities.
The core data are regional social accounting matrices (SAM) generated by the Global Trade Analysis Project (GTAP) version 7 database, which contains detailed economic data for 57 industrial sectors in 112 geographic regions (Badri and Walmsley, 2008). The SAM contains input-output data for each industrial sector, as well as a record of factor endowments, direct taxes levied on household income and collected by the government, export-import values, private consumption and government spending. The GTAP database is supplemented with additional sources, including regional energy data from the International Energy Association (IEA).