Cambridge Econometrics – E3ME


The Energy-Environment-Economy Macro-Econometric model (E3ME – is a computer-based model of the world’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 and beyond for policy assessment, forecasting and research purposes.


What does the model do?

E3ME assesses the interactions between the economy and the environment. As a global model, based on the full structure of the economic national accounts, E3ME is capable of producing a broad range of economic indicators. In addition, there is range of energy and environment indicators. The main dimensions of the model are:

  • 59 regions – most major world economies, the EU Member States and candidate countries, plus other countries’ economies grouped
  • Up to 69 sectors, with considerable detail of service sectors
  • Up to 43 categories of consumer expenditure
  • 22 different users of 12 different fuel types
  • 14 types of air-borne emission (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

E3ME is built to create annual projections up until 2050 over these main model dimensions.


What kind of questions can the model address?

E3ME can be used for both forecasting and evaluating the impacts of an input shock through a scenario-based analysis. The shock could be, for example, a change in policy or a change in economic assumptions. The analysis can be either forward looking (ex-ante) or evaluating previous developments in an ex-post manner.

As such E3ME is well suited to examining questions regarding changes in policies. The primary strength of E3ME lies in its use as a platform for the analysis of scenarios. As E3ME is a global Energy-Economy-Environment model it is capable of addressing such questions as follows:

  • Changes in the economy and labour market associated with changes in policy
  • Impacts of changes in energy demand and changes in the composition of energy technologies
  • The effect of policy on environmental indicators including emissions (consumption and production-based) and material use


What kind of answers can the model provide?

As noted E3ME is designed to form annual projections up to 2050. As such E3ME is commonly used to compare scenario projections. The following list shows the most common model outputs (but is not exclusive):

  • GDP and the aggregate components of GDP (household expenditure, investment, government expenditure and international trade)
  • Sectoral output and GVA, prices, trade and competitiveness effects
  • International trade by sector, origin and destination
  • Consumer prices and expenditures
  • Sectoral employment, unemployment, sectoral wage rates and labour supply
  • Energy demand, by sector and by fuel, energy prices
  • Rebound and spillover effects
  • CO2 emissions by sector and by fuel
  • Other air-borne emissions
  • Material demands

Given the wide range of both economic and environmental output indicators, and the high degree of disaggregation, E3ME is capable of providing detailed projections of the impacts of policies on both the regional level as well as the sectoral level.

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