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E3ME: An energy-environment-economy model of Europe
E3ME is a computer-based model of Europe's economic and energy systems and the environment. It was originally developed through the European Commission's research framework programmes and is now widely used in Europe for general policy assessment, for forecasting and for research purposes, as well as more focused analysis of policies relating to greenhouse gas mitigation, incentives for industrial energy efficiency and sustainable household consumption.
E3ME's structure
The structure of E3ME is based on the system of national accounts, as defined by the European System of Accounts, with further linkages to energy demand and environmental emissions. The labour market is also covered in detail, with estimated sets of equations for labour demand, supply, wages and working hours. In total there are 33 sets of econometrically estimated equations, also including the components of GDP (consumption, investment, international trade), prices, energy demand and materials demand. Each equation set is disaggregated by country and by sector.
E3ME's historical database covers the period 1970-2008 and the model projects forward annually to 2050. The main data sources are Eurostat, DC Ecfin's AMECO database and the IEA, supplemented by the OECD's STAN database and other sources where appropriate. Gaps in the data are estimated using customised software algorithms.
The main dimensions of the model
The other dimensions of the model are:
- 29 countries (the EU27 member states plus Norway and Switzerland)
- 42 economic sectors, including disaggregation of the energy sectors and 16 service sectors
- 43 categories of household expenditure
- 19 different users of 12 different fuel types
- 14 types of air-borne emissions (where data are available) including the six greenhouse gases monitored under the Kyoto protocol
- 13 types of household, including income quintiles and socio-economic groups such as the unemployed, inactive and retired, plus an urban/rural split
For a full list of model classifications see here.
Typical outputs from the model include GDP and sectoral output, household expenditure, investment, international trade, inflation, employment and unemployment, energy demand and CO2 emissions (see below for more options). Each of these is available at national and EU level, and most are also defined by economic sector.
The econometric specification of E3ME gives the model a strong empirical grounding and means it is not reliant on the assumptions common to Computable General Equilibrium (CGE) models, such as perfect competition or rational expectations. E3ME uses a system of error correction, allowing short-term dynamic (or transition) outcomes, moving towards a long-term trend. The dynamic specification is important when considering short and medium-term analysis (e.g. up to 2020) and rebound effects, which are included as standard in the model's results.
E3ME's key strengths
In summary the key strengths of E3ME lie in three different areas:
- the integrated treatment of the economy, the energy system and the environment, with two-way linkages between each component
- the detailed sectoral disaggregation in the model's classifications, allowing for the analysis of similarly detailed scenarios
- the econometric specification of the model, making it suitable for short and medium-term assessment, as well as analysing longer-term trends
Standard outputs from the model
As a general model of the economy, based on the full structure of the national accounts, E3ME is capable of producing a broad range of economic indicators. In addition the model includes a range of energy and environment indicators. The following list provides a summary of the most common outputs:
- GDP and the aggregate components of GDP (household expenditure, investment, government expenditure and international trade)
- sectoral output and GVA, prices, trade and competitiveness effects
- consumer prices and expenditures, and implied household distributional effects
- sectoral employment, unemployment, sectoral wage rates and labour supply
- energy demand, by sector and by fuel, energy prices
- CO2 emissions by sector and by fuel
- other air-bourne emissions
- material demands
This list is by no means exhaustive and the delivered outputs often depend on the requirements of the specific analysis. In addition to the sectoral dimension mentioned in the list, all indicators are produced at the member state level and annually over the period up to 2050.
The measures of endogenous technical change that are included in E3ME are allowed to influence key economic relationships, as well as energy and material demands.
For further details, see the E3ME manual. E3ME is also described in the IA Tools model inventory.
E3ME: An energy-environment-economy model of Europe
E3ME purpose and design
The stochastic functions of the model
Accounting in E3ME
Recent developments
Publications
Licensing E3ME
E3ME manual
For more information contact
Hector Pollitt
Associate Director, International Modelling