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Freight Models, Constrained Economic Models, and Natural Resource Data Ming Chen and Olga Ivanova TNO Presentation Notes: Presented by Ming Chen, TNO. The model was designed to understand the implications of scarcity of non-renewable natural resources on the supply chain. Further, a shifting of economic strengths worldwide is having an effect on resource utilization. An increase in price led to production at higher costs, which resulted in more supply. There is a need for restricted economic growth in some resources and the application of a world economic model to nations for freight movements. Abstract This abstract describes the connection of a freight model to a restricted economic growth model that takes into account production capacity and substitution data of natural resources. The database on production capacity of natural resources and the substitution possibilities is unique and therefore also the economic model that takes this into account. The restricted growth has major impacts on freight transport forecasting and analysis. Restricted Growth We are living in interesting times full of major trend breaks and innovation. The world is facing large challenges in the coming decennia and further, such as climate change and scarcity of important natural resources, and at the same time large-scale solutions are being set in place. These solutions are in some cases changing old paradigms, leading to new insights and a changing way of approaching challenges. These changes in turn require different products, which in many cases result in a changed use of natural resources. This is obviously the case for energy, but it can also involve other natural resources, including labor. Scarcity of natural resources is generally expected to be solved by the laws of economics; a too high demand leads to higher prices, which will reduce the demand for the specific commodity. Assuming that there are substitutes for the scarce products, a shift of demand will take place, and assuming that production of the scarce commodity will increase, eventually it will lower its price again. There is no reason to assume that this process will hinder economic growth. However, for some natural resources, increase of production can only be done at a higher price level. The substitutes generally also are only used at higher price levels. Therefore, the overall price level of any commodity using the scarce natural resource should be expected to increase. This has a negative effect on the potential for economic growth. An innovation that can replace the use of the scarce natural resource for another natural resource at lower costs will therefore boost economic growth. 46
Freight transport is derived from physical trade activities. Modeling freight transport requires proper economic models. Traditional economic models have been developed in times of unrestricted growth. The resulting trade patterns are represented by exponential growth, which obviously will not work anymore in times of scarcity, which can be expected in the coming decades, especially given the growing world population and the upcoming BRIC countries, Brazil, Russia, India, and China. Natural Resource Database The database that connects economic and physical dimensions (including the use and stock of natural resources and emissions) has been developed by TNO in a series of projects for the European Commission. The project EXIOPOL (A New Environmental Accounting Framework using Externality Data and Input-Output Tools for Policy Analysis) had as a key goal to produce a Multi-Regional Environmentally Extended Supply and Use Table (MREESUT) for the whole world. The EXIOPOL database (EXIOBASE) has a unique detail and covers 30 emissions, around resource extractions, given specifically for 130 sectors and products by 43 countries making up 95% of global GDP, plus the rest of world. A follow-up project of 3.5 million euro under the EUâs FP7 program, called Compiling and Refining Environmental and Economic Accounts (CREEA), has expanded this database with improved extensions for water, land use, and other resources, but above all it has created an additional layer with physical information in the (economic) SUT in the EXIOPOL database (in short: EXIOBASE). For the first time the researchers have produced a global, integrated Multi Regional Environmentally Extended Economic and Physical Supply and Use Table (MREEE & PSUT). This worldwide database incorporates the latest available transport statistics from an ETISplus project in the form of physical trade flows and the split of trade flows between various modes of transportation. The international transport services are further produced by various countries and are a part of the supply and demand relationships of the database. Restricted Economic Model The restricted economic model EXIOMOD has been developed by TNO with own resources; it was applied and further extended in a number of recent and ongoing European Commission projects. EXIOMOD combines the main structure of traditional computable general equilibrium (CGE) analysis with the innovative elements of semi-endogenous growth and adaptive expectations under the framework of dynamic general equilibrium. All main behavioral parameters of the model have been estimated econometrically based on the available data. The model incorporates the representation of 43 main countries of the world. It includes an individual representation of all EU-27 countries and candidate member states. It also includes the largest emitters, such as the United States, Japan, Russia, Brazil, India, and China. The EXIOMOD model is dynamic and recursive over time, involving dynamics of capital accumulation and technology progress, stock and flow relationships, and adaptive expectations. 47
EXIOMOD combines economic, environmental, and social domains in an efficient and flexible way: 1. Social effects: includes the representation of three education levels, 10 occupation types, and households grouped into five income classes. One can trace the effects of specific policy on income redistribution and unemployment. 2. Economic effects: the model captures both direct and indirect (wide-economic and rebound) effects of policy measures. EXIOMOD allows for calculation of detailed sectoral impacts at the level of 163 economic sectors and 200 commodities. 3. Environmental effects: the model includes representation of 28 types of greenhouse gas (GHG) and non-GHG emissions, different types of waste, land use (15 types), and use of material resources (171 types). Integration of physical and monetary data allows one to take proper account of the physical restrictions on consumption and production activities as well as to provide a full analysis of sustainability issues. The EXIOMOD database includes both monetary and physical units in a consistent way and allows for their integration in a unified modeling framework. The physical dimension provides the representation of all main resource constraints in the global economy. Connecting to Freight Models The restricted economic model has been connected to the TNO freight transport models. The TNO freight models are based on the first TRANS-TOOLS (Tools for Transport Forecasting and Scenario Testing) model, which has been developed under coordination of TNO for the European Commission to serve as a reference model for their policy studies. Up to now, the connection has been done in one direction; i.e., the predictions of future trade flows in physical units serve as input to the freight data model. In future, the aim is to feed the results from the freight models back into the economic model. The second link will allow TNO to assess the impacts of the changes in transport infrastructure and logistics system on the worldwide distribution of economic activities, economic growth, availability and use of natural resources, and various external effects. The TNO freight models cover the entire European Union at regional detail (Nomenclature of Territorial Units for Statistics [NUTS 2]) with country detail and some country groupings for the rest of the world. Since EXIOMOD operates at a country level, the step to take is to disaggregate the country results to a regional level. This is done by partner relation and commodity group (NSTR chapters) so it can be differentiated where possible. The next steps operate with the results of this trade connection module as normally would be done. A modal split model determines shifts in the modal split due to changes in cost structures and commodities to be transported. The assignment is done with Omnitrans with the TRANS- TOOLS network. 48
Advantages Having the connection between the natural resource data with the freight transport models through the restricted economic model has some clear advantages. Some advantages are the following: â¢ Improved prediction of economic development for all commodities; â¢ Improved prediction of bulk flows; and â¢ Improved assessment of external impacts. These will impact the assessments of infrastructure needs for ports and the inland modes and policies at each level (national, regional). 49