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on Environmental Economics |
| By: | Zon, Adriaan van (UNU-MERIT); Fuss, Sabine (UNU-MERIT) |
| Abstract: | UK climate change policy has long been concerned with the transition to a more sustainable energy mix. The degree of competition in electricity markets rises as these markets become more and more liberalized. In order to survive in such an increasingly competitive setting, electricity producers have to handle as efficiently as possible the uncertainties associated with the volatility of fuel prices, but also uncertainties regarding the technological evolution of electricity production (including the development of renewable technologies). Technological uncertainty in combination with high capital costs are likely to deter investors from adopting renewable technologies on a larger scale than they are doing right now, even though they have to accept a higher degree of fuel price risk by doing so. By carefully composing a portfolio of technologies with different (co-)variances in the respective prices and rates of technical progress, risk-averse producers can effectively hedge the uncertainties mentioned above. In order to model this type of investment behaviour, we use an extended version of the van Zon and Fuss (2005) clay-clay-vintage-portfolio model that starts from the notion that investment in electricity production equipment is irreversible. However, a physical capital portfolio - in contrast to a portfolio of financial assets - can only be adjusted at the margin. This implies that it becomes extremely important to look ahead, and act on not just expectations themselves, but also their reliability. Using the extended model, we implement several features of present UK policy in order to illustrate the principles involved. We find that the reduction of risk goes together with an increase in total costs. We also find that for increasing values of risk-aversion, investors would be willing to adopt nuclear energy at earlier dates than otherwise would have been the case. In addition to this, we find that the embodiment of technical change, in combination with the expectation of a future switch towards another technology, may actually reduce current investment in that technology (while temporarily increasing current investment in competing technologies). The latter enables rational but risk-averse investors to maximise their productivity gain by waiting for ongoing embodied technical change to take place until the moment they plan to make the switch and then investing more heavily in the newest vintages associated with that technology at the time of the switch. |
| Keywords: | Investment, Energy Industry, Electric Utilities, Technology, Mathematical Modelling, Environmental Policy, United Kingdom |
| JEL: | O16 L94 C67 O13 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2006035&r=env |
| By: | Nugent, Rachel; Drescher, Axel |
| Abstract: | "Agricultural production relies on environmental services to transform raw inputs into the nutritious and diverse food that humans rely on for survival. Although the practice of agriculture is essential for human health, careless and inappropriate agricultural practices can degrade and contaminate natural resources and in so doing, harm human health. Modified agricultural practices can help mitigate these problems. This brief provides an overview of the linkages between agriculture, environment, and health, some of which are dealt with in more detail in other briefs in this series." From text |
| Keywords: | Agricultural production, Environmental services, Food crops, Nutrition security, Nutritional status, plant breeding, pesticides, Fertilizers, |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:2020br:13(14)&r=env |
| By: | Linacre, Nicholas A.; Cohen, Joel I. |
| Abstract: | "The regulatory approval of genetically modified crops in the field initially requires small, restricted experimental trials known as confined field trials. These small scale experiments provide researchers with important information on environmental interactions and agronomic performance of the crop in a safe and contained manner. To authorize confined field trials regulatory review is required, with formats for obtaining relevant information differing from country to country. In this paper, a Gap Analysis is used to identify informational gaps and potential for harmonization of confined field trial application processes in three East African countries – Tanzania, Kenya, and Uganda. The basic principle behind gap analysis is a comparison of the status quo to an ideal with the identification of the differences or gaps and the difficulty involved provides a potential basis for harmonization of confined field trial application processes between countries leading to potential efficiency gains." Authors' abstract |
| Keywords: | biotechnology, Biosafety, Bioconfinement, Confined field trials, Gap analysis, Harmonization, Genetically modified crops, |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:eptddp:149&r=env |
| By: | Block, Paul J.; Strzepek, Kenneth; Rosegrant, Mark W.; Diao, Xinshen |
| Abstract: | "Extreme interannual variability of precipitation within Ethiopia is not uncommon, inducing droughts or floods and often creating serious repercussions on agricultural and non-agricultural commodities. An agro-economic model, including mean climate variables, was developed to assess irrigation and road construction investment strategies in comparison to a baseline scenario over a 12-year time horizon. The motivation for this work is to evaluate whether the inclusion of climate variability in the model has a significant effect on prospective investment strategies and the resulting country-wide economy. The mean climate model is transformed into a variable climate model by dynamically adding yearly climate-yield factors, which influence agricultural production levels and linkages to non-agricultural goods. Nine sets of variable climate data are processed by the new model to produce an ensemble of potential economic prediction indicators. Analysis of gross domestic product and poverty rate reveal a significant overestimation of the country's future welfare by the mean climate model method, in comparison to probability density functions created from the variable climate ensemble. The ensemble is further utilized to demonstrate risk assessment capabilities. The addition of climate variability to the agro-economic model provides a framework, including realistic ranges of economic values, from which Ethiopian planners may make strategic decisions." Authors' abstract |
| Keywords: | Climate variability, Water, Droughts, Flooding, Irrigation Economic aspects, Road construction Economic aspects, Investments, Economic situation, Agro-economic model, |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:eptddp:150&r=env |
| By: | Birol, Ekin; Kontoleon, Andreas; Smale, Melinda |
| Abstract: | " Hungarian home gardens are small-scale farms managed by farm households using traditional management practices and family labor. They generate private benefits for farmers by enhancing diet quality and providing food when costs of transacting in local markets are high. Home gardens also generate public benefits for society by supporting long-term productivity advances in agriculture. In this paper, we estimate the private value to farmers of agrobiodiversity in home gardens. Building on the approach presented in EPTD Discussion Paper 117 (2004), we combine a stated preference approach (a choice experiment model) and a revealed preference approach (a discrete-choice, farm household model). Both models are based on random utility theory. To combine the models, primary data were collected from the same 239 farm households in three regions of Hungary. Combining approaches leads to a more efficient and robust estimation of the private value of agrobiodiversity in home gardens. Findings can be used to identify those farming communities, which would benefit most from agri-environmental schemes that support agrobiodiversity maintenance, at least public cost." Authors' abstract |
| Keywords: | Home gardens, Small-scale farmers, Diet quality, Agricultural productivity, Agrobiodiversity, Household surveys, Private value, Choice experiment model, Farm household model, Revealed and stated preference methods, |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:eptddp:154&r=env |
| By: | John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst); Yakov Ben-Haim (Mechanical Engineering Technion, Israel Institute of Technology) |
| Abstract: | Conventional wisdom among environmental economists is that the relative slopes of the marginal social benefit and marginal social cost functions determine whether a price-based or quantity-based environmental regulation leads to higher expected social welfare. We revisit the choice between price-based vs. quantity-based environmental regulation under Knightian uncertainty; that is, when uncertainty cannot be modeled with known probability distributions. Under these circumstances, the policy objective cannot be to maximize the expected net benefits of emissions control. Instead, we evaluate an emissions tax and an aggregate abatement standard in terms of maximizing the range of uncertainty under which the welfare loss from error in the estimates of the marginal benefits and costs of emissions control can be limited. The main result of our work is that the same criterion involving the relative slopes of the marginal benefit and cost functions determines whether price-based or quantity-based control is more robust to unstructured uncertainty. Hence, not only does the relative slopes criterion lead to the policy that maximizes the expected net benefits of control under structured uncertainty, it also leads to the policy that maximizes robustness to unstructured uncertainty. |
| Keywords: | emissions control, environmental regulation, info-gap, Knightian uncertainty, robustness, satisficing |
| JEL: | D81 L51 Q58 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:dre:wpaper:2006-1&r=env |
| By: | John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst) |
| Abstract: | This paper examines the effects of risk aversion on compliance choices in markets for pollution control. A firm’s decision to be compliant or not is independent of its manager’s risk preference. However, noncompliant firms with risk averse managers will have lower violations than otherwise identical firms with risk neutral managers. The violations of noncompliant firms with risk averse managers are independent of differences in their benefits from emissions and their initial allocations of permits if and only if their managers’ utility functions exhibit constant absolute risk aversion. However, firm-level characteristics do impact violation choices when managers have coefficients of absolute risk aversion that are increasing or decreasing in profit levels. Finally, in the equilibrium of a market for emissions rights with widespread noncompliance, risk aversion is associated with higher permit prices, better environmental quality, and lower aggregate violations. |
| Keywords: | Emissions Trading, Compliance, Enforcement, Risk Aversion |
| JEL: | L51 Q28 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:dre:wpaper:2006-2&r=env |
| By: | Maria Alejandra Velez (Department of Resource Economics, University of Massachusetts Amherst); James J. Murphy (Department of Resource Economics, University of Massachusetts Amherst); John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst) |
| Abstract: | This paper uses experimental data to test for a complementary relationship between formal regulations imposed on a community to conserve a local natural resource and nonbinding verbal agreements to do the same. Our experiments were conducted in the field in three regions of Colombia. Each group of five subjects played 10 rounds of an open access common pool resource game, and 10 additional rounds under one of five institutions— communication alone, two external regulations that differed by the level of enforcement, and communication combined with each of the two regulations. Our results suggest that the hypothesis of a complementary relationship between communication and external regulation is supported for some combinations of regions and regulations, but cannot be supported in general. We therefore conclude that the determination of whether formal regulations and informal communication are complementary must be made on a community-by-community basis. |
| Keywords: | common pool resources, experiments, institutions, communication, regulation |
| JEL: | C93 H41 Q20 Q28 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:dre:wpaper:2006-3&r=env |
| By: | Maria Alejandra Velez (Department of Resource Economics, University of Massachusetts Amherst); James J. Murphy (Department of Resource Economics, University of Massachusetts Amherst); John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst) |
| Abstract: | With data from framed common pool resource experiments conducted with artisanal fishing communities in Colombia, we estimate a hierarchical linear model to investigate within-group and between-group variation in individual harvest strategies across several institutions. Our results suggest that communication serves to effectively coordinate individual strategies within groups, but that these coordinated strategies vary considerably across groups. In contrast, weakly enforced regulatory restrictions on individual harvests (as well as unregulated open access) produce significant variation in the individual strategies within groups, but these strategies are roughly replicated across groups so that there is little between-group variation. |
| Keywords: | common pool resources, field experiments, communication, regulation, hierarchical linear models |
| JEL: | C93 H41 Q20 Q28 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:dre:wpaper:2006-4&r=env |
| By: | David M. McEvoy (Department of Resource Economics, University of Massachusetts Amherst); John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst) |
| Abstract: | Theoretical analyses of international environmental agreements (IEAs) have typically employed the concept of self-enforcing agreements to predict the number of parties to such an agreement. The term self-enforcing, however, is a bit misleading. The concept refers to the stability of cooperative agreements, not to enforcing these agreements once they are in place. Most analyses of IEAs simply ignore the issue of enforcing compliance by parties to the terms of an agreement. In this paper we analyze an IEA game in which parties to an agreement finance an independent enforcement body with the power to monitor the parties’ compliance to the terms of the IEA and impose penalties in cases of noncompliance. This approach is broadly consistent with the enforcement mechanism of the Kyoto Protocol under the Marrakesh Accords. We find that costly enforcement limits the circumstances under which international cooperation to protect the environment is worthwhile, but when IEAs do form they will involve greater participation than IEAs that do not require costly enforcement. Consequently, costly enforcement of IEAs is associated with higher international environmental quality. Moreover, under certain conditions, aggregate welfare is higher when IEAs require costly enforcement. These conclusions are accentuated when monitoring for compliance to IEAs is inaccurate. |
| Keywords: | International environmental agreements, self-enforcing agreements, compliance, enforcement |
| JEL: | Q5 H41 C72 F53 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:dre:wpaper:2006-6&r=env |