Modelling & training > Our suite of models > E3ME: An energy-environment-economy model of Europe > The purpose and design of E3ME
The purpose and design of E3ME
Introduction
E3ME was originally intended to meet an expressed need of researchers and policy makers for a framework that analyses the long-term implications of E3 (energy-environment-economy) policies, especially those concerning R&D and environmental taxation and regulation. It is the latest in a succession of models developed for energy-economy and, later, E3 interactions in Europe, starting with EXPLOR, built in the 1970s, then HERMES in the 1980s. Each model has required substantial resources from international teams and has learned from earlier problems and developed new techniques. E3ME is now firmly established as a tool for policy analysis in Europe.
The first version of the E3ME model was built by a European team under a succession of contracts in the JOULE/THERMIE and EC research programmes. Since then the model has been developed, improved and expanded extensively. In the current forecasting exercise being carried out for CEDEFOP, Version 5.0 of the model has been extended to include a total of 33 European countries, and includes seven physical material types and twelve fuels in addition to economic variables. Recently the model has been used to contribute to European Impact Assessments, including reviews of the EU ETS, Energy Taxation Directive and Energy Services Directive. It is also frequently being applied at national level.
Although E3ME can be used for forecasting, the model is more commonly used for evaluating the impacts of an input shock through a scenario-based analysis. The shock may be either a change in policy, a change in economic assumptions or another change to a model variable. The analysis can be either forward looking (ex-ante) or evaluating previous developments in an ex-post manner. Scenarios can be used either to assess policy, or to assess sensitivities to key inputs, such as international energy prices.
E3ME's structure
The structure of E3ME is based on the system of national accounts, as defined by the ESA 95, with further linkages to energy demand and environmental emissions (see above diagram). 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 demands. Each equation set is disaggregated by country and by sector.
E3ME's historical database covers the period 1970-2009 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 other dimensions of the model are:
- 33 countries (the EU27 member states, Norway and Switzerland and four candidate countries; Iceland, Croatia, Turkey and Macedonia)
- 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
- 6 different users of biomass and mineral material types, plus water
- 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.
Standard outputs from the model
E3ME is capable of producing a broad range of economic, 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 airbourne emissions
- material demands
Each of these is available at national and EU levels, and most are also defined by economic sector. 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
Econometric specification
Sectors
Recent developments
Publications
Licensing E3ME
E3ME manual
For more information contact
Hector Pollitt
Associate Director, International Modelling