Sensitivity of modeling results to technological and regional details: The case of Italy's carbon mitigation policy

- We quantify the sensitivity of CGE models to technological and geographical scales.
- We use Italy as an example to test the effects on estimates of carbon prices & GDP.
- Sub-national details have bigger impacts than technological details of electricity.
- Our results highlight the importance of these two key assumptions in CGE models.
- Our conclusions can be generalized to other countries and policy scenarios.

Model differences in technological and geographical scales are common, but their contributions to uncertainties have not been systematically quantified in the climate policy literature. This paper carries out a systematic assessment on the sensitivity of Computable General Equilibrium models to technological and geographical scales in evaluating the economic impacts of carbon mitigation policies. In particular, we examine the impacts of sub-national details and technological details of power generation on the estimate of carbon price and economic cost. Taking Italy as an example, we find that the estimation for carbon price and the economic cost of a de-carbonization pathway by means of a model with technological and regional details can be lower than a model without such details by up to 40%. Additionally, the effect of representing regional details appears to be far more important than the effect of representing the details of electricity technology in both the estimated carbon prices and the estimated economic impacts. Our results for Italy highlight the importance of modeling uncertainties of these two key assumptions, which should be appropriately acknowledged when applying CGE models for policy impact assessment. Our conclusions can be generalized to different countries and policy scenarios not in terms of absolute numbers but in terms of economic explanations. In particular, intra-national trade and the sub-national sectoral/technological specialization are important variables for understanding the economic dynamics behind these outcomes.