Environmental Policy in a Federal State: A Regional CGE Analysis of the NEC Directive in Belgium

This paper develops and applies a regional computable general equilibrium (CGE) model for environmental and energy policy in a federal state. This regional CGE model differs from the national CGE models by taking into account the interregional mobility of labor, the common product market for the regions and the relations in the multi-level government of the federal state. We illustrate our regional CGE model with an analysis of the NEC Directive in Belgium. The NEC Directive sets upper limits for each EU member state in 2010 for the total emissions of four pollutants, responsible for acidification, eutrophication and ground-level ozone pollution. These pollutants are sulphur dioxide (SO2), nitrogen oxides (NOx), volatile organic compounds (VOC), and ammonia (NH3).