世界银行 -选定的碳定价政策对阿拉伯埃及共和国的经济和分配影响

PublicDisclosureAuthorizedPublicDisclosureAuthorized

PolicyResearchWorkingPaper10791

EconomicandDistributionalImpacts

ofSelectedCarbonPricingPolicies

fortheArabRepublicofEgypt

GovindaR.TimilsinaSamuelSebsibie

WORLDBANKGROUP

DevelopmentEconomics

DevelopmentResearchGroupJune2024

PolicyResearchWorkingPaper10791

Abstract

TheArabRepublicofEgyptisthe24thlargestcarbondiox-ideemitterfromfossilfuelcombustionintheworldandthethirdlargestemitterintheMiddleEastandNorthAfricaregionaftertheIslamicRepublicofIranandSaudiArabia.Egypthassetatargetofreducingone-thirdofitsnationalgreenhousegasemissionsundertheParisClimateAgree-ment.Pricinginstruments,suchastheremovalofexistingfossilfuelsubsidiesandtheintroductionofacarbontax,helpthecountrytoachieveitsemissionreductiontargets.However,theeconomic,social,andenvironmentalimpactsofsuchpoliciesareunknown.Thisstudydevelopsacom-putablegeneralequilibriummodelforEgypttoinvestigatetheeconomic,distributional,andclimatechangemitiga-tioneffectsoffossilfuelsubsidyremovalandintroductionofacarbontaxunderalternativeschemestorecyclethe

savedsubsidiesandcarbontaxrevenues.Fourrevenuerecy-clingschemesareconsidered:publicdebtreduction,equalorprogressivecashtransferstohouseholds,andcuttingcorporateincometaxes.ThenumericalresultsindicatethatremovingexistingpetroleumsubsidiesandintroducingofacarbontaxofLE600pertonofcarbondioxidewouldreducenationalcarbondioxideemissionsbyupto11per-centwithoutsignificantlyaffectingtheeconomy.Whenthesavedsubsidiesandcarbontaxrevenuesaregivenbacktohouseholdsthroughcashtransfers,theincomeofpoorerhouseholdswouldriserelativetothatofricherhouseholds,ensuringthatthisrevenuerecyclingschemeisprogressive.Thepoliciesaffectcommoditypricesandsectoraloutputnotonlyindifferentmagnitudes,butalsoindifferentdirec-tionsacrosstherevenuerecyclingschemes.

ThispaperisaproductoftheDevelopmentResearchGroup,DevelopmentEconomics.ItispartofalargereffortbytheWorldBanktoprovideopenaccesstoitsresearchandmakeacontributiontodevelopmentpolicydiscussionsaroundtheworld.PolicyResearchWorkingPapersarealsopostedontheWebat

/prwp

.Theauthorsmaybecontactedatgtimilsina@.

ThePolicyResearchWorkingPaperSeriesdisseminatesthefindingsofworkinprogresstoencouragetheexchangeofideasaboutdevelopmentissues.Anobjectiveoftheseriesistogetthefindingsoutquickly,evenifthepresentationsarelessthanfullypolished.Thepaperscarrythenamesoftheauthorsandshouldbecitedaccordingly.Thefindings,interpretations,andconclusionsexpressedinthispaperareentirelythoseoftheauthors.TheydonotnecessarilyrepresenttheviewsoftheInternationalBankforReconstructionandDevelopment/WorldBankanditsaffiliatedorganizations,orthoseoftheExecutiveDirectorsoftheWorldBankorthegovernmentstheyrepresent.

ProducedbytheResearchSupportTeam

EconomicandDistributionalImpactsofSelectedCarbonPricingPoliciesfortheArabRepublicofEgypt

GovindaR.TimilsinaandSamuel

Sebsibie1

KeyWords:Climatechange,Carbonpricing,Fossilfuelsubsidy,Carbontax,Generalequilibriummodel,Distributionalimpacts,Egypt

JELClassification:C68,Q43

1GovindaTimilsina(gtimilsina@)isaSeniorEconomistattheDevelopmentResearchGroup,WorldBank.SamuelKebede(ssebsibie@)wasaShort-termConsultanttotheWorldBankduringtheimplementationthisstudy.

EconomicandDistributionalImpactsofSelectedCarbonPricingPoliciesfortheArabRepublicofEgypt

1.Introduction

TheArabRepublicofEgyptisthe24thlargestCO2emitterfromfossilfuelcombustionintheworldandthethirdlargestemitterintheMENAregionaftertheIslamicRepublicofIran(7thlargest)andSaudiArabia(11thlargest)(WorldBank,2022a).Totalgreenhousegas(GHG)emissionsin2019were1.6timesashighasin1990;andpercapitaemissionsincreasedby47%duringover1990–2019(WorldBank,2022b).Thecountryishighlyvulnerabletoclimatechangeduetoincreasedwaterscarcity,lossofbiodiversityandfoodinsecurity(WorldBank,2022).ConsideringthegrowthofGHGemissions,itsvulnerabilitytoclimatechange,

2

andrealizingtheglobalresponsibilitytoaddressclimatechange,Egypthasactivelyparticipatedininternationaleffortstocombatclimatechange.EgyptratifiedtheUnitedNationsFrameworkConventiononClimateChange(UNFCCC)in1994.UndertheParisClimateAgreement,Egypthassetatargetofreducingone-third(33%)ofitsemissionsinthebaselinein2030(GovernmentofEgypt,2022).AsindicatedinitsNationallyDeterminedContribution(NDC),theemissionmitigationtargetwillbeachievedthroughvariousmeasures,suchasremovingfossilfuelsubsidies,promotingrenewableenergy,improvingenergyefficiency,andtransitioningtolow-carbontransportation.Egypt’scommitmenttocontributetoglobaleffortstoaddressclimatechangeisalsoreflectedinitshostingofthe27thConferenceoftheParties(COP)totheUNFCCCinNovember2022.DespiteEgypt’stargetofreducing33%ofitsGHGemissionsasspecifiedinitsNDC,anacuteknowledgegapexistsonhowmeetingtheNDCtargetwillaffecttheoveralleconomyandhowtheseimpactswillbedistributedacrosshouseholds.

Carbonpricinginstruments,suchasacarbontax,arethemainpricinginstrumentsconsideredbymanycountriestoreducetheirGHGemissionsbecausetheyareeconomically

2AccordingtotheFourthAssessmentReportoftheIntergovernmentalPanelonClimateChange(IPCC),theNileDeltaisoneofthethreeextremevulnerablehotspotsmega-deltasdirectlyaffectedby2050(Nichollsetal.2007).ThetimingandvolumeofNileRiverwateravailabilitytoEgyptisincreasinglyuncertainduetoclimatechangeimpacts(WorldBank,2022b).

efficient(seee.g.,Aldyetal.2010;Timilsina,2022;Timilsinaetal.2022).Atpresent,morethan75economies(regional,nationalandsub-national)havealreadyintroducedcarbonpricinginstruments–carbontaxoremissiontradingscheme(ETS)orboth(WorldBank,2023).Morethan100countries,includingdevelopingcountries,haveconsideredcarbonpricingasoneofthepolicyoptionstoachievetheirNDCtargets(WorldBank,2023).

Alargenumberofstudieshavebeencarriedoutontheeconomicanddistributionalimplicationsofcarbonpricinginbothdevelopedanddevelopingeconomies.

3

Forexample,Timilsinaetal.(2022)investigatestheimpactsofacarbontaxtomeettheNDCinChinaconsideringnineschemesforutilizingthecarbontaxrevenues.Itfindsthatapricinginstrument,carbontaxwithtaxrevenuerecycledasanoutputrebatetoexport-intensivenon-energyindustries,wouldcauseninetimeslessGDPlossascomparedtoacommand-and-controlpolicytomeettheNDCtarget.InastudyforCôted’Ivoire,Timilsinaetal.(2021)showthattheimpactsofacarbontaxdependonhowthecarbontaxrevenueisusedintheeconomy.Undercertainrevenuerecyclingschemes(e.g.,cuttingexistinglabortaxinformalfirms),acarbontaxcouldincreaseGDP.Usually,acarbontaxisregressive,asreportedbymanyexistingstudiesincludedinthereviewstudybyTimilsina(2022).Thisisbecausetheshareofenergyexpenditureinthetotalhouseholdexpenditureisnormallyhigherinlow-incomehouseholdsthaninhigh-incomehouseholds(Williamsetal.,2015;Jiangetal.,2015).Acarbontax,therefore,facespoliticalreluctanceandsocialresistance.However,acarbontaxcanbemadeprogressivethroughatargetedtransferofcarbontaxrevenuestolow-incomehouseholds(TimilsinaandSebsibie,2023).Theproposedstudywillalsorefertoexistingstudies,suchasRauschetal.(2011)andSteckeletal.(2021)forthedistributionalanalysis.

TheuseoffossilfuelsistheprimarysourceofGHGemissionsinEgypt.Whiletheconsumptionoffossilfuels,particularlypetroleumproductsandnaturalgas,issubsidizedtolowertheenergyexpendituresofhouseholdsandproductionsectors,itcausesincreaseduseoffossilfuelsandtherebyassociatedGHGemissions.Removalsorreductionsoffossilfuelsubsidiesnotonlylowerthefuelsubsidyburdenofthegovernment,butalsohelpreduceGHGemissions.ThefossilfuelsubsidyisoneofthemajorexpendituresoftheGovernmentinEgypt,whichwas

3PleaseseeTimilsina(2022)forin-depthreviewofcarbontaxstudiesconductedoverthelastthreedecades.

equivalentto5.3%ofGDP,onaverage,overthelastdecade(Figure1).

4

TheGovernmentofEgypt(GOE)startedreformingfossilfuelsubsidiesin2012byincreasingthepricesofliquefiedpetroleumgas(LPG),gasoline,naturalgas,anddiesel.Itdroppedtolessthan2.6%in2016,increasingtomorethan6.7%in2018.

5

Therefore,itisimportanttounderstandtheenvironmentalimpactsoffossilfuelsubsidyremovalsinadditiontotheeconomicimpacts.

Figure1.FuelsubsidiesinEgypt(2021MillionUS$)andtheratiooffuelsubsidiestoGDP(%)

Energysubsidy(2021MillionUS$)

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

Subsidyas%ofGDP

20112012201320142015201620172018201920202021

Year

PetroleumproductsNaturalgasElectricity%ofGDP

Source:IEA(2022)andWorldBank(2023)

Itispossibletointroduceacarbontaxinaneconomywherefossilfuelsubsidiesstillexistbecausethedistributionalimplicationsofacarbontaxandtheremoval/reductionoffossilfuelsubsidiesfalldifferentlyoneconomicagents(households,producers).Acarbontaxfallsmostlyonemission-intensivefuels(e.g.,coal)andheavypetroleumproducts(fueloil)whicharemainlyusedforpowergenerationandindustrialapplications.Removaloffossilfuelsubsidiesimpactsfuelsthataremainlyusedbyhouseholdsforcookingandhomeheating.However,introducingacarbontaxwithoutremovingfossilfuelsubsidiesgetscriticismbecausebothpoliciescausean

4Iftheelectricitysubsidyisalsoincluded,thetotalenergysubsidyaccountsfor,onaverage,7.6%oftheGDPduringthesameperiod.

5Thechangeinsubsidyafter2016ismostlyinfluencedbytheexchangerate.TheUS$valueof100EGPwas10in2016,itdecreasedby44%to5.6in2018,andincreasedto6.4in2021.

increaseinend-usepricesoffossilfuels,therebyreducingtheirdemandandassociatedemissions.Therefore,itwouldbemoreappropriatetoeliminatesubsidiestofossilfuelsbeforeimposingacarbontaxonthem.Moreover,itwouldbeinterestingtocomparetheeconomy-wideimpactsofacarbontaxandtheremovaloffossilfuelsubsidiessothatpolicymakerscanmakebetterdecisionsiftheyhavetochooseoneofthem.

AfewstudieshavebeendoneontheeconomicimpactsoffossilfuelsubsidyremovalinEgypt.

6

Forexample,Breisingeretal.(2019)assessthemacroeconomicimpactsofphasingoutenergysubsidiesinEgyptunderalternativescenariosusingaCGEmodel.Theyfindthattheremovalofenergysubsidieswouldhavenegativeimpactsontheeconomy(GDPloss)andhouseholdwelfareintheshortterm.InanearlierstudyusingtheCGEapproach,Abouleineinetal.(2009)showthatagradualremovaloffuelsubsidiesoverafive-yearperiodwouldresultinslowereconomicgrowththanthatinthereferencecase(i.e.,withoutsubsidyremoval).However,usingsavedsubsidiesforcashtransferstolow-incomehouseholdsinbothruralandurbanareaswouldhavesuperiorgrowthanddistributionalimpactsthanthealternativewherethegovernmentusesthesavedsubsidiesasinthereferencecase.UsingaCGEmodel,Elshennawy(2014)reportsthatphasingoutenergysubsidieswouldcausewelfarelossirrespectiveofthespeedofsubsidyreduction(i.e.,instantaneouslyorgradually).EldeepandZaki(2023),ontheotherhand,findthatimmediatecutofpetroleumsubsidiesandallocatingthesavingstofinancecapitalexpenditure(i.e.,publicinvestmentininfrastructureandhumancapital)wouldleadtolong-runpositiveimpactsonrealGDP,althoughitwillhavenegativeeconomicimpactsintheshort-run.GlommandJung(2014)alsofindthatremovaloffuelsubsidiescouldincreaseGDPifthesavedsubsidyisusedforinfrastructureinvestment.Ontheotherhand,ifthesavedsubsidyisrecycledtohouseholdsthroughalump-sumrebate,therewouldbealossinGDP.UsinganInput-Output(I-O)model,Cockburnetal.(2014)findthattheadverseimpactsofincreasedfuelpricesresultingfromtheremovaloffuelsubsidiesfallonchildren’slivingconditions,negativelyaffectingtheirphysicalandintellectualdevelopment.Insummary,existingliteratureconvergesthatremovingfuelsubsidiesmaynotbenefittheEgyptianeconomywithsomeexceptionalcasesofutilizationofthesavedsubsidy(i.e.,usingthesavedsubsidiesforinfrastructureinvestment).Theresultsare

6TimilsinaandPargal(2020)presentabriefreviewofstudiesanalyzingmacroeconomicimpactsofenergysubsidyreformsindifferentcountriesincludingEgypt.

highlysensitivetotheeconomicstructureofaneconomy.SinceEgyptisanenergy-exportingcountry,theseresultsmightholdacrossstudies.However,suchresultsdonotholdinothercountries,particularlyenergy-importingcountries.Forexample,inthecaseofBangladesh,TimilsinaandPargal(2020)findeconomicgainsthroughtheremovaloffuelsubsidies.

OntheeconomicimpactsofacarbontaxinEgypt,ElshennawyandWillenbockel(2021)find,usingaCGEmodel,thattheimpactsdependontheschemestorecyclethetaxrevenue.Ifthetaxrevenueisusedtoreduceothertaxrates,thecarbontaxwouldhaveapositiveimpactoneconomicactivity.Ontheotherhand,ifthetaxrevenueisusedbythegovernmentorcashistransferredtohouseholds,itwouldcauseaGDPloss.ThisfindingisconsistentwithmanyothercarbontaxstudiesreviewedbyTimilsina(2022).

WhilethereareafewstudiesforEgypt,asdiscussedabove,eitherontheremovaloffuelsubsidiesorcarbontaxes,nostudyexiststhatanalyzestheeconomicanddistributionalimpactsofsimultaneousimplementationofbothpolicies(i.e.,carbontaxandremovaloffossilfuelsubsidies).Itwouldalsobeimportanttounderstandhowdifferentlythesepoliciesaffectdifferentgroupsofhouseholdsbyincomeandproductionsectors.WouldtheremovaloffossilfuelsubsidiesandcarbontaxthathaveasimilarrangeofeconomicimpactsalsohavesimilarimpactsonCO2emissions?Howwouldtheimpactsofthesepoliciesvaryacrossalternativescenariosfortheuseofsavedsubsidiesandcarbontaxrevenues?Thisstudyaimstoanswerthesequestionsusingacomputablegeneralequilibrium(CGE)modelfortheEgyptianeconomy.Thefindingsofthestudy

areexpectedtooffersomeguidancetopolicymakersontheselectionofpricingpolicyinstruments(e.g.,carbontaxorfossilfuelsubsidyremovalorboth)toreduceCO2emissionsfromtheEgyptianeconomy.

Thepaperisorganizedasfollows.Section2brieflydescribestheCGEmodeldeveloped,followedbyadiscussiononthedataused.Section3presentsthescenariosforpolicysimulation.Section4providesthemacroeconomicandsectoraleffectsofthesimulatedpoliciesanddiscussestheirdistributionalimpacts.Finally,section5drawskeyconclusionsandpolicyimplications.

2.Methodology

2.1Model

Thestudywilldevelopastructuralmodelinacomputablegeneralequilibrium(CGE)setting.EgypthasalonghistoryofusingCGEmodelstohelppolicymakersonkeyeconomicandsectoralpolicies.Lofgren(1994)criticallyreviewsCGEmodelsdevelopedforEgyptsincetheearly1970s.Morerecently,thismodelingapproachhasbeenusedbyvariousstudies,suchasEldeepandZaki(2023)foranalyzingtheimpactsofeconomicreforms

7

Egyptisimplementingtostabilizeitseconomy;EldeepandZaki(2022)foranalyzingtheimpactsofCOVIDvulnerabilityandpolicyresponse;Haddadetal.(2016)foranalyzingtheimpactoftransportationinfrastructurepolicies;Helmyetal.(2019)forassessingtheimpactsofcashtransferstohouseholds;Elshennawy(2014)foranalyzingtheremovaloffossilfuelsubsidies;andElshennawyetal.(2016)foranalyzingtheimpactsofclimatechangeadaptationmeasures.Breisingeretal.(2019)developaCGEmodeltoanalyzetheeconomiceffectsofenergysubsidyremovalinEgypt.However,studiesusingCGEmodelsforanalyzingclimatechangemitigationpolicies,particularlycarbonpricingforEgypt,arerare.ThisstudydevelopsaCGEmodelbyexplicitlyrepresentingallfossilfuelandfossil-fuel-intensivesectors(e.g.,powergeneration,transportation,carbon-intensivemanufacturing).ThebasicstructureofthemodelissimilartoTimilsinaandSesibie(2023).Abriefdescriptionofthemodelisprovidedbelow,whilethedetailsofthemodelarepresentedinAppendixA.

TheCGEmodeldevelopedhereisamulti-sector,multi-householdmodel.Itisstatic(singleperiod)innature.Astaticmodelconsidersaneconomicequilibriumforthesingleperiod(e.g.,oneyearorlongerthanayearwithoutsignificantchangeinthestructureofeconomies).Theselectionofastaticapproachisbasedontheobjectiveofastudy,whichistocomparealternativedesignsforbothpolicies(i.e.,fossilfuelsubsidyremovalandintroductionofacarbontax)--acomparisonofsituationswithandwithoutfuelsubsidyinagivenyearoracomparisonofrevenuerecyclingschemesforagivencarbontax.Itmodelsthebehavioroffoureconomicagents:household,government,enterprise,andtherestoftheworld(ROW).Productionsectorsareclassifiedinto19

7Theprogramssimulatedinthestudyare(i)impositionofVAT,(ii)eliminationofpetroleumsubsidies,(iii)devaluationoftheEgyptianpound,and(iv)structuralreforms,includinggradualtariffliberalizationonallcommodities,reallocatingpublicexpendituretoinvestmentineducationandhealth.

sectors,asshowninTable1.Theelectricitysectorisoneofthem.

8

Theproductionbehaviorofeachsectorisrepresentedthroughanestedconstantelasticityofsubstitution(CES)functionalform.ThenestedstructureofproductionispresentedinFigure2.ThenestedCESstructurehasfourtiersofnesting.Thetoplevelofnestingaggregatesproductionfactors(valueadded)andintermediateinputsusingaconstantelasticityofsubstitution(CES)functionalform.Themiddlelevelhastwosides:aggregatelaborandcapitaltoformvalueaddedontheleft-handsideandaggregationofenergyandnon-energygoodsontheright-handside.Inthethirdtier,non-energyintermediateconsumptionisaggregatedusingaLeontieffunctionalform

9

ontheleft-handside,andelectricityandfossilfuelsarecombinedusingaCESfunctionontheright-handside.Atthenexttieronthesameside,coalandpetroleum(aCEScombinationpetroleumproductsandnaturalgas)bottomtierareaggregatedusingaCESproductionfunction.Attheverybottomtierintheright-handside,petroleumproductsandnaturalgasarecombinedusingaCESfunction.ThistypeofnestedstructureiscommoninmostCGEmodels(see,forexample,Goulder,1995;Gurgeletal.(2019);Timilsinaetal.,2021).

Table1.Definitionofsectorsandcommodities

Sector/commodityname

Inclusionofactivities

Agriculture&forestry

Crops,vegetables,fruits,livestock,fishery,forestry

Crudeoil

Crudeoilproduction

NaturalGas

Naturalgasproductionandprocessing

Othermining

Allminingexceptenergymining

Food,beverage,tobacco

Processedfood,beverages,tobacco

Textile

Textile,apparel,leather

Petroleumproducts

Refinedpetroleumproducts

Chemicals

Chemicals,fertilizers,

Non-metals

Allnon-metallicmineralproducts

Metals

Allprimarymetalsandtheirintermediateproducts

Machinery

Machinery,alltypesofequipment,vehicles

Othermanufacturing

Woodandproducts,pulp&paper,andeveryothermanufacturingnotcoveredbymanufacturingsectorslistedhere

Electricity

Alltypeofelectricitygeneration,transmissionanddistribution

Construction

Allconstructionrelatedactivities

8InsomeCGEmodels,particularlythosefocusingonclimatepolicyanalysis,theelectricitysectorisdisaggregatedbygenerationtechnologies(e.g.,hydro,coal,gas).Wehavenotdonesobecauseofalackofdata.

9TheLeontieffunctionalformisselectedbecauseelasticitiesofsubstitutionbetweenthenon-energysectorsarenotavailable.

Trade

Wholesaleandretailtrade

Transport

Publictransportationservices

Commercialservices

Alltypesofcommercialservices

Publicservices

Publicservices(education,healthcare,publicadministration,watersupply)

Otherservices

Allotherremainingservices

Figure2:Productionstructureinthemodel

Note:Thevaluesintheparenthesisareelasticitiesofsubstitution.

Householdsarefirstdividedintofivegroupsbyincome(quantile).Arepresentative(oraverage)householdfromeachquantileismodeledusingaCobb-Douglasfunctionalform.Eachhouseholdgroupsupplieslabortotheproductionsector.Households’incomeincludessalaryandwage,incomefromcapitalrents,andtransferpaymentsfromthegovernmentandtherestoftheworld.Householdspaytaxesfromthistotalincome,andtheremainingincome(i.e.,disposable

income)isallocatedforconsumption,transferstoothereconomicagents,andsavings.Theconsumption/savingallocationisbasedonthemarginalpropensityofconsumption,whichisbasedonthedatafromthesocialaccountingmatrix(SAM)usedforthisstudy.

Thetotalgovernmentrevenuesaregeneratedthroughpersonalandcorporateincometaxes,excisetaxes,importduties,andtransfersfromothereconomicagents(i.e.,households,enterprises,andtherestoftheworld).

10

Itisallocatedforpublicexpenditures,transferstootheragents,andpublicsavings.Publicexpenditureaccountsforgovernmentspendingonwageandsalaryofgovernmentemployees,expenditureanddefense,healthcareandeducation.Sincethesearetheessentialservicesandrequiredtobemaintainedbythegovernment,thetotalgovernmentexpenditureisfixedatthebaselinelevel,followingcommontraditioninCGEmodeling.Moreover,thetotalgovernmentexpenditureisallocatedtovariousservices(e.g.,publicadministration)atthesameproportionasinthebasecase.Theremaininggovernmentincomeissavedafterdeductingthetransfers.InCGEmodeling,savingsofthegovernmentisalsoreferredtotopublicsavings.

Agovernmentdecisionontheratesofanytax(income,excise,duty)reverberatesthroughouttheeconomythroughproduction,consumption,andtradechannels.Forexample,ifthegovernmentincreasesproductiontaxrate,itwillbepassedtointermediateandfinalconsumptionaswellasexports.Itincreasescostsofproductioninallsectorsandultimatelyreduceshouseholdwelfare.Thereversewouldhappenifthegovernmentcutsproductiontaxes.Whenacarbontaxisintroducedanditsrevenueisusedtocutproductiontax,bothtaxesaffectthroughouttheeconomythroughproduction,consumptionandtradechannels,themodelcalculatestheneteffectcapturingallinteractionsbetweenvarioustheproductionsectors,betweenproductionandconsumptionsectors,betweendomesticproductionandimports,betweendomesticconsumptionandexports,andeveryvariablesinthemodel(e.g.,wagerate,costofcapital,pricesofgoodsandservices).

Inthecaseofinternationaltrade,demandforimportsismodeledusingaCESfunctionalformthataggregatesadomesticallyproducedgoodwithitsimportedcomponents.Anoutputfrom

10Examplesofhouseholdtransferstogovernmentaresocialsecurityandothersocialcontributions,finespenaltiesandforfeits.Dividendsorrepayingloanstothegeneralgovernment,rentstopublicproperties,andsocialwelfarecontributionsonbehalfoftheiremployeesareexamplesofenterprisetransferstothegovernment.Examplesoftherestofthewordtransferstogovernmentaregrantsreceivedfromforeigngovernmentsandinternationalorganizations.

asectorisallocatedfordomesticandforeignconsumption(exports)usingaconstantelasticityoftransformation(CET)functionalform.Someemission-intensivesectors,suchasoilandgas,chemicalsandminingofmineralsandmetalsproducemajorexportedcommoditiesinEgypt(Seragetal.2022).

ACGEmodelassumesthataneconomyremainsinequilibriumregardinggoodsandservices,factormarkets,savingsandinvestments.Totalsavingsintheeconomyisthesumofpublicsavings,householdsavings,andforeignborrowings,whichisequalizedwithtotalinvestmentasoneoftheseveralconditionsforgeneralequilibrium.Theforeignborrowingiscalculatedthroughamacroeconomicequilibriumconditionwhichsuggeststhattotaloutflowsfromtheeconomy(paymentstoimports,remittanceflowingoutofcountry,transfersfromgovernments,householdsandenterprisestotherestoftheworld)isequaltothetotalinflowstotheeconomy(exports,remittances,transfersfromrestoftheworldtohouseholds,governmentsandenterprisesandforeignborrowings).Thetotalinvestmentisequaltosumofcapitalgoods(grossfixedcapitalformationandinventory).Theinvestmentincreasesthestockofthecapital(machines,factories).FirmsgetsservicesfromthecapitalstockasillustratedinFigure2.

Thegoodsandservicesequilibriumassumesthatthetotaldemandforeachgoodandservice(domesticdemandplusexports)equalsitstotalsupply(domesticsupplyplusimports).Thefactormarketassumesthatthetotaldemandforlaborandcapitalisequaltotheirsupplies.Laborandcapitalaremobileacrosssectors,butnotinternationally,andtheirtotalsupplyorendowmentforagivenyearisfixed.Laborprices(wagerate)andcapital(usercostsofcapital)aredifferentacrossthesectors,thediff