DEFINE-SIMPLE is a simplified DEFINE model that shows how consumption and investment decisions can affect the path of key economic variables and carbon emissions. The model consists of three sectors: firms, households and banks. Firms undertake investment by using retained profits and loans. A part of firms’ profits is distributed to households. Households accumulate savings in the form of deposits. Banks provide firm loans by creating deposits. Banks’ profits are distributed to households. The model assumes that a proportion of total private investment is green and that a part of bank loans is used to finance this type of investment. The higher green investment relative to conventional capital the lower the carbon intensity.

A brief description of the DEFINE-SIMPLE model is available here. The R code of the model can be downloaded here.