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on Agricultural Economics |
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Issue of 2011‒12‒13
twenty-six papers chosen by |
| By: | Simplice A, Asongu; Brian A, Jingwa |
| Abstract: | Recent distressing trends in climate change, population explosion and deforestation inspired this paper, which completes existing literature by providing empirical justification to hypothetical initiatives on the impact of population growth on forest sustainability in Africa. Using three moment conditions of forest exploitation, the study shows how rural, agricultural and national population growths affect forest-area and agricultural-land. Findings indicate moment conditions of forest exploitation do not explain changes in forest-area and agricultural-land beyond population growth mechanisms. As a policy implication in activities of forest exploitation, a balanced approach is needed to take account of the interests of both rural communities and timber companies. |
| Keywords: | Demography; Forestry; Agriculture; Environment; Africa |
| JEL: | Q23 L73 J10 N50 O13 |
| Date: | 2011–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35179&r=agr |
| By: | Richard Hornbeck; Pinar Keskin |
| Abstract: | Agriculture on the American Great Plains has been constrained by historical water scarcity. After World War II, technological improvements made groundwater from the Ogallala aquifer available for irrigation. Comparing counties over the Ogallala with nearby similar counties, groundwater access increased irrigation intensity and initially reduced the impact of droughts. Over time, land-use adjusted toward water-intensive crops and drought-sensitivity increased; conversely, farmers in water-scarce counties maintained drought-resistant practices that fully mitigated higher drought-sensitivity. Land values capitalized the Ogallala's value at $26 billion in 1974; as extraction remained high and water levels declined, the Ogallala's value fell to $9 billion in 2002. |
| JEL: | N52 Q54 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17625&r=agr |
| By: | Simplice A, Asongu |
| Abstract: | This paper examines the effects of deforestation on the welfare of rural communities in the Congo Basin. Using moment conditions of agricultural and forest exploitations, findings indicate deforestation significantly improves welfare both at overall-rural and agricultural household per capita income levels. As a policy implication, in the process of forest exploitation a balanced approach is needed to take account of the interests of both rural communities, timber companies and international forest-sustainability standards. This should require among other things, the development and implementation of sustainable forest management plans by timber companies, exclusion from harvesting species that are important to local communities, compensation of timber companies for compliance with management plans as well as involvement of rural communities in monitoring the activities of timber companies. |
| Keywords: | Demography; Forestry; Agriculture; Welfare; Africa |
| JEL: | Q23 L73 J10 N50 O13 |
| Date: | 2011–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35161&r=agr |
| By: | Silvia CODERONI (INEA (National Institute for Agricultural Economics), Rome - Italy); Roberto ESPOSTI (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali) |
| Abstract: | The paper adopts a long single-country panel dataset (Italian regions) to analyse the relationship between agricultural GreenHouse Gases (GHG) emissions and agricultural productivity growth and, thus, to assess emissions sustainability. The modelling approach and the empirical specification include the Environmental Kuznets Curve (EKC) as one of the possible outcomes. The hypothesis of emission sustainability is assessed by estimating alternative panel model specifications with conventional and GMM estimators. The adopted panel concerns the 1951-2008 and 1980-2008 emissions of methane and nitrous oxide properly reconstructed for the Italian regional agriculture. Results suggest that, though a significant relationship between agricultural GHG emissions and productivity growth may exist, it tends to be monotonic. Therefore, even if sustainability is accepted for some GHG, no robust evidence of the EKC emerges across the different specifications, estimators and periods. |
| Keywords: | Agricultural GreenHouse Gases Emissions, Dynamic Panel Models, Environmental Kuznets Curve, Italian Regions |
| JEL: | O13 Q15 Q54 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:369&r=agr |
| By: | Malte Reimers (Georg-August-Universität Göttingen / Germany); Stephan Klasen (Georg-August-Universität Göttingen / Germany) |
| Abstract: | While the majority of micro studies finds that rural education increases agricultural productivity, various recent cross‐country regressions analyzing the determinants of agricultural productivity were only able to detect an insignificant or even surprisingly negative effect of schooling. In this paper, we show that this failure to find a positive impact of education in the international context appears to be a data problem related to the inappropriate use of enrolment and literacy indicators. Using a panel of 95 developing and middle‐income countries from 1961 to 2002 that includes data on educational attainment, we show that education indeed has a highly significant, positive effect on agricultural productivity which is robust to the use of different control variables, databases and econometric methods. Distinguishing between different levels of education further reveals that only primary and secondary schooling attainment has a significant positive impact while the effect of tertiary education is insignificant. When distinguishing between income groups, our results indicate that even though the coefficient of the education variable is highly significant and positive for all quintiles, the returns to education are higher for the countries belonging to the richest three quintiles. This finding can be interpreted as support for the claim that education will have larger impacts on agricultural productivity in the presence of rapid technical change since it helps farmers to adjust more readily to the new opportunities provided by technological innovations. |
| Keywords: | Agricultural productivity, agricultural production function, cross‐country regression, education, human capital |
| JEL: | I20 I25 O13 O15 O47 Q10 |
| Date: | 2011–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:got:iaidps:214&r=agr |
| By: | Marilyne Huchet-Bourdon |
| Abstract: | Recent years have witnessed a sharp increase in many commodity prices. This report examines the question of whether commodity price volatility has materially changed with the rapid run up in world prices in 2006-09, followed by an equally sharp decline in many commodity prices. The report analyses international price volatility for selected agricultural commodities over the past half-century and their relationship with crude oil, fertiliser and the euro-dollar exchange rates. The analysis utilises different data sources, frequency of price observations, periods of observation, price volatility measures and a number of statistical tests to examine the various dimensions of the issue. |
| Keywords: | price volatility, agricultural markets, correlation and causality |
| Date: | 2011–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:oec:agraaa:52-en&r=agr |
| By: | Peter Howley (Rural Economy and Development Programme,Teagasc) |
| Abstract: | The central aim of this study was to gain greater insights into the factors that affect individuals’ preferences for a variety of landscape settings. To achieve this aim, this paper derived dependent variables (based on a factor analysis of respondents mean ratings of 47 landscape images) representing 5 different landscape categories. These variables were then utilized in separate OLS regression models to examine the effect of personal characteristics, residential location and environmental value orientations on landscape preferences. First in terms of visual amenity the results suggest that the general public have the strongest preference for landscapes with water related features as its dominant attribute which was followed by cultural landscapes. Second the results also demonstrate how there is significant heterogeneity in landscape preferences as both personal characteristics and environmental value orientations were found to strongly influence preferences for all the landscape types examined. Moreover the effect of these variables often differed significantly across the various landscape groupings. In terms of land use policy, given the diversity of preferences a one size fits all approach will not meet the general publics’ needs and desires. |
| Keywords: | Landscape preferences, environmental attitudes |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:tea:wpaper:1105&r=agr |
| By: | Amnon Levy (University of Wollongong) |
| Abstract: | This paper analyzes the qualitative and quantitative deviations of rational consumers from their physiologically optimal diets with a distinction between a nutritionally and digestively superior food and a taste and price superior food. The inclusion of a cause-and-effect relationships of these quantitative and qualitative deviations with ageing, craving, digestive discomfort, health-dependent budget, non-food consumption and utility, uncertainty about food’s classification and imperfect dynamic consideration and sophistication adds realistic features to the analysis of rational eating and junk-food tax.pages |
| Keywords: | Diet; Ageing; Craving; Rationality; Junk-Food Tax |
| JEL: | D91 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp11-13&r=agr |
| By: | Alessandro Antimiani; Anna Carbone; Valeria Costantini; Roberto Henke |
| Abstract: | This paper explores agri-food export dynamics in New Member States (NMS) and Old Member States (OMS) of the European Union during the enlargement process. A quality-oriented survey is conducted by developing an original analytical framework which combines information from trade similarity analysis with elements from the sophistication literature. Country and sector specific features seem to emerge, revealing a more complex picture than that produced by aggregated trade analysis. While for some NMS agri-food exports, patterns converge towards OMS with regard to size, competitiveness and quality improvement process, for other NMS, a low-quality trap seems to prevail |
| Keywords: | Agri-food sector, export dynamics, EU enlargement, quality upgrading |
| JEL: | F14 F15 Q17 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0134&r=agr |
| By: | Rico Ihle (Georg-August-University Göttingen); Linde Götz (IAMO, Halle); Ofir D. Rubin (Ben-Gurion University of the Negev) |
| Abstract: | The Israeli-Palestinian conflict constitutes a prominent example of a long-lasting political conflict which has major consequences for the livelihoods of the people on both sides. The agricultural sectors of the Palestinian and Israeli economies are tightly connected. However, various security measures occasionally implemented in consequence of the political conflict between Israelis and Palestinians strongly inhibit the movement of people and commodities. In order to obtain evidence on the impacts of such abrupt trade impediments on price dynamics, we estimate a vector error correction model in state space form employing the Kalman filter. The time-varying cointegration parameters suggest that the security measures indeed impacted price interdependencies on a short-term scale. |
| Keywords: | cointegration; error correction; Israel; Palestinian territories; price transmission; state space model; time-varying parameters |
| JEL: | C32 D74 Q11 Q13 F15 |
| Date: | 2011–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:got:gotcrc:100&r=agr |
| By: | Baffes, John |
| Abstract: | During the past decade, cotton prices remained considerably below other agricultural prices (although they recovered toward the end of 2010). Yet, between 2000-04 and 2005-09 world cotton production increased 13 percent. This paper conjectures that biotechnology-induced productivity improvements increased supplies by China and India, which, in addition to keeping cotton prices low, aided these countries to cap-ture market share from (and cause losses to) non-users of biotechnology. By contrast, with a single exception, Africa has not adopted biotechnology and, not coincidentally, its cotton output declined by more than 20 percent between the first and second half of the past decade. The paper concludes that the development implications of biotechnology go beyond cotton and Africa. High energy prices have been an important driver of the recent commodity price boom. Therefore, investment and policy strategy responses to a cost-driven boom should be consistent with cost-saving alternatives. Biotechnology clearly meets this challenge. |
| Keywords: | Crops&Crop Management Systems,Markets and Market Access,E-Business,Emerging Markets,Economic Theory&Research |
| Date: | 2011–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5896&r=agr |
| By: | Annelies J. Balkema; Henny A. Romijn |
| Abstract: | This paper focuses on the smallholder outgrower model for jatropha biofuel cultivation in Tanzania. This model is based on seed production by small farmers who sell to a processing company that presses the bio-oil from the seeds locally, either for the local market or for export. This model has been implemented by a foreign investor in Tanzania, the social business model combines profit making with social and environmental objectives. This paper describes the trends and developments of this innovative business model in a global cultivation, production and usage chain, exploring the trade-offs between the people, planet, profit objectives (triple P) and how the business model adapts to survive through the different stages of the innovation process. The three stages that are distinguished in the innovation process are: (1) learning to be effective, (2) learning to be efficient and (3) up-scaling and diffusion. The observed trend is that in the different stages different roles are played by the company as it aims at shifting from subsidy funds to profit making. In the process of becoming efficient and starting to upscale, it seems harder to ensure the implementation of the social and environmental objectives. Therefore, other actors will have to play a more active role in capacity building and market regulation and additional funding has to be made available to the company for the social benefits it is generating for society. |
| Keywords: | business models, sustainability, biofuel, innovation |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:tuecis:wpaper:1106&r=agr |
| By: | Johan Fourie (Department of Economics, University of Stellenbosch) |
| Abstract: | The Cape Colony of the eighteenth century was one of the most prosperous regions in the world. This paper shows that Cape farmers prospered, on average, because of the economies of scale and scope achieved through slavery. Slaves allowed farmers to specialise in agricultural products that were in high demand from the passing ships – notably, wheat, wine and meat – and the by-products from these products, such as tallow, skins, soap and candles. In exchange, farmers could import cheap manufactured products from Europe and the East. Secondly, the paper investigates why the relative affluence of the early settlers did not evolve into a high growth trajectory. The use of slaves as a substitute for wage labour or other capital investments allowed farmers to prosper, but it also resulted in severe inequality. It was this high inequality that drove the growth-debilitating institutions posited by Engerman and Sokoloff (2000). The immigration of Europeans was discouraged after 1717, and again during the middle of the century, while education was limited to the wealthy. Factor endowments interacted with institutions to create a highly unequal early South African society, with long-term development consequences. |
| Keywords: | Slavery, Settler, Proto-industry, Eighteenth century, South Africa |
| JEL: | N57 N27 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers149&r=agr |
| By: | M. du Preez; G. Menzies; M.C. Sale; S.G. Hosking |
| Abstract: | Although a green energy source, the location of electrical generating windmills may cause a disamenity effect (negative externality). The establishment of a wind farm is known as a locally undesirable land use (LULU) and leads to the not-in-my-backyard syndrome (NIMBY). In an application of the contingent valuation method, a willingness-to-accept framework was used to estimate the aggregate annual compensation required to allow the construction of a wind farm near Jeffrey’s Bay, South Africa. This compensation amounted to R490 695. A binary choice logit analysis found that retirement status, concern about climate change, concern about view-shed impacts and the offer amount are important predictors of voting for or against the project. |
| Keywords: | Contingent Valuation Method, indirect cost, wind farm |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:258&r=agr |
| By: | Amnon Levy (University of Wollongong) |
| Abstract: | This paper constructs a model for analyzing the deviations of consumers’ diet and physical activity from their physiologically optimal ones with distinction between a nutritionally and digestively superior food and a taste and price superior food. The consideration of both diet and physical activity and the inclusion of cause-and-effect relationships of the deviations from their physiological optimal ones with ageing, craving, digestive discomfort, health-dependent budget, and non-food consumption and the consideration of intertemporarily bounded rationality adds realistic features to the analysis of rational eating. |
| Keywords: | Health; Diet; Exercising, Ageing; Craving; Budget; Bounded Rati |
| JEL: | D91 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp11-06&r=agr |
| By: | Emek Basker |
| Abstract: | Barcodes and barcode scanners transformed the grocery industry in the 1970s. I use store-level data from the 1972, 1977, and 1982 Census of Retail Trade, matched to data on store scanner installations, to estimate scanners’ effect on labor productivity. I find that early scanners increased a store’s labor productivity, on average, by approximately 4.5 percent in the first few years. The effect was larger in stores carrying more packaged products, consistent with the presence of network externalities. Short-run gains were small relative to fixed costs, suggesting that the impediment to widespread adoption of the new technology was profitability, not coordination problems. |
| Keywords: | Barcode scanners, Retail, Supermarkets, Technology, Productivity |
| JEL: | L81 D22 O33 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:11-16r&r=agr |
| By: | Daniel Gottlieb (National Insurance Institute and Hebrew University); Alexander Fruman (National Insurance Institute and Hebrew University) |
| Abstract: | The multitude of available poverty measures can confuse a policy maker who wants to evaluate a poverty-reduction policy. We proposes a rule for ranking poverty measures by use of the food-gap, calculated as the cost-difference between a household’s normative food basket, derived from a healthy diet, and the actually chosen food basket. The rationale for this indicator is based on the fact, that (1) basic food needs reflect an ultimate necessity, (2) food expenditure is highly divisibility, thus allowing for efficient marginal substitution between competing necessities when the household’s economic hardship increases. For these reasons we believe this to be an objective indicator for the sacrifice in the standard of living of a family under economic stress. A household is identified as ‘truly’ poor or non-poor by a given poverty measure if the diagnoses coincide and vice versa. The ranking is obtained by a gain-function, which adds up congruent and deducts contradicting outcomes for each poverty measure. We calculate four types of gain-functions –of headcounts, food-gaps, FGT-like powered food-gaps and an augmented version of the latter. The poverty measures include expenditure-based, income-based, relative, absolute, mixed measures and a multidimensional measure of social deprivation. The most qualitative measure is found to be Ravallion’s Food Energy Intake and Share measure, though it suffers from a possible bias, since it includes the food-norm in its design. The 60%-median income measure from all sources ranks highest among the unbiased measures. The absolute poverty measure yields the worst performance. |
| Keywords: | poverty measures, food poverty, evaluation of poverty reduction policies |
| JEL: | I30 I31 I32 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2011-239&r=agr |
| By: | Eskandar Elmarzougui; Bruno Larue |
| Abstract: | The relationship between corn and oil prices is not a stable one. We identified three breaks in the relationship between corn and oil prices. The first break coincides with the second oil crisis. The second break marks the end of the agricultural export subsidy war between the EU and the US in the mid 1980s while the third one occurred at the beginning of the ethanol boom at the very end of the 1990s. The relationship between corn and oil prices tends to be stronger when oil prices are highly volatile and when agricultural policies create less distortion. The ethanol boom strengthened the relation between corn and oil prices which are (were not) cointegrated in the fourth regime (first three) regime(s). Impulse response functions confirm that corn prices systematically respond to oil price shocks, but the converse is not observed. |
| Keywords: | Oil corn, structural changes, cointegration, ethanol, protectionism |
| JEL: | C32 Q11 Q17 Q40 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:creacr:2011-3&r=agr |
| By: | Amnon Levy (University of Wollongong) |
| Abstract: | This paper introduces photosynthesis into the motion-equation of the atmospheric stock of carbon-dioxide as a counterpart endogenous factor to emissions of this principal greenhouse gas from lands occupied by humans. By doing so, the paper links the stock of atmospheric carbon-dioxide, hence climate-change and uncertainty, to the allocation of usable land to humans and forest. The public planners can control this allocation and, consequently, the atmospheric stock of carbon-dioxide, climate-change and future usable land by setting land-rates in accordance with use. The analysis considers two types of land-use for expected utility maximizing humans and derives the effects of the land-rates and photosynthesis’ efficiency on the size of the forest. |
| Keywords: | Carbon Emissions; Photosynthesis; Climate-Change; Expected Utility; Land-Rates; Forest Size |
| JEL: | Q52 Q54 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp11-08&r=agr |
| By: | Llop Llop, Maria |
| Abstract: | Water reallocation between economic agents has been –and continues to be- the subject of a considerable amount of research. This paper proposes a method for evaluating how water is reallocated within the economy in response to changes in final demand and changes in the technical water needs of activities and consumers. The empirical application, which is for the Catalan economy, shows important asymmetries in the effects that exogenous inflows and changes in water technical requirements cause on water reallocation. In the process of water distribution, exogenous inflows mostly benefit agriculture and damage private consumers. On the other hand, increases in technical water requirements have negative effects on agriculture and positive effects on the other production activities. The results of the study suggest that agriculture is an important activity not only in terms of water distribution but also in terms of water reallocation due to changes in final demand and technical water needs. Keywords: Water reallocation, water distribution, exogenous shock, technical water needs. |
| Keywords: | Aigua -- Distribució, 33 - Economia, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:urv:wpaper:2072/151815&r=agr |
| By: | Charles Figuières; Estelle Midler |
| Abstract: | The international community recently agreed on a mechanism called REDD+ to reduce deforestation in tropical countries. However the mechanism, by its very nature, has no reason to induce a Pareto optimal reduction of deforestation. The aim of this article is to propose an alternative class of mechanisms for negative externalities that implements Pareto optimal outcomes as Nash Subgame Perfect Equilibria, and that satisfies some fairness properties, in particular two original axioms of environmental responsibility. Outcomes are individually rational and the scheme does take into account environmental responsibility in the sense of our two axioms. However, envy freeness, even in a weak form adapted to the deforestation problem, turns out to be hard to achieve without dropping the other properties. |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:lam:wpaper:11-17&r=agr |
| By: | Llop Llop, Maria; Ponce Alifonso, Xavier |
| Abstract: | Water scarcity is a long-standing problem in Catalonia, as there are significant differences in the spatial and temporal distribution of water through the territory. There has consequently been a debate for many years about whether the solution to water scarcity must be considered in terms of efficiency or equity, the role that the public sector must play and the role that market-based instruments should play in water management. The aim of this paper is to use a Computable General Equilibrium (CGE) model to analyze the advantages and disadvantages associated with different policy instruments, from both a supply and a demand viewpoint, which can be applied to water management in Catalonia. We also introduce an ecological sector in our CGE model, allowing us to analyze the environmental impact of the alternative policies simulated. The calibration of the exogenous variables of the CGE model is performed by using a Social Accounting Matrix (SAM) for the Catalan economy with 2001 data. The results suggest that taking into account the principle of sustainability of the resource, the policy debate between supply and demand in water policies is obsolete, and a new combination of policies is required to respect the different values associated with water. Keywords: Water Policies; Computable General Equilibrium Model; Economic Effects; Environmental Effects. |
| Keywords: | Aigua -- Polítiques de gestió, 33 - Economia, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:urv:wpaper:2072/152139&r=agr |
| By: | Riccardo Crescenzi; Fabrizio De Filippis; Fabio Pierangeli |
| Abstract: | The paper looks at the overall structure of the European Union’s regional, agricultural and rural development policies in order to assess their coordination and synergies at the territorial level and their degree of compatibility with the objective of territorial cohesion. The regression analysis - covering the 20-year period 1994-2013, and approximately 90% of total Community expenditure - reveals that the compatibility of the various areas of Community policy in terms of the objectives of territorial cohesion has not progressed in a linear fashion over time. Shifting resources in the Community budget from one policy area to another does not, by itself, appear capable of guaranteeing virtuous paths in terms of territorial cohesion. The increase in the territorial ‘vocation’ of overall Community spending will, therefore, crucially depend upon the definition of appropriate allocative mechanisms and interventions, based upon the characteristics of each region and its ‘local’ needs |
| Keywords: | Regional Policy, Regional Development, Rural Development, European Union |
| JEL: | O18 R11 R58 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0132&r=agr |
| By: | Stephan Klasen (Georg-August-University Göttingen); Tobias Lechtenfeld (Georg-August-University Göttingen); Kristina Meier (Georg-August-University Göttingen); Johannes Rieckmann (Georg-August-University Göttingen) |
| Date: | 2011–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:got:gotcrc:102&r=agr |
| By: | Janda, Karel; Vylezik, Tomas |
| Abstract: | In this paper we describe the major issues in the weather risk management. We focus on the management of financial risks connected with weather. We first provide a general discussion of the impact of weather on the economy. Then we follow with the overview of the development of the weather risk management. The core of the paper in then devoted to the role of weather derivatives as financial tools for weather risk management. |
| Keywords: | Financial risk; Weather risk; Derivatives; Energy |
| JEL: | G12 G13 Q4 |
| Date: | 2011–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35037&r=agr |
| By: | Spencer, Thomas; Marcey , Celine; Colombier , Michel; Guerin , Emmanuel |
| Abstract: | ASSESSMENT European climate policy is gradually shifting towards a long-term perspec- tive. The electricity sector has a crucial role to play in the long-term decar- bonization of the EU economy. It makes up a significant share of EU emis- sions and can contribute to the reduction of emissions in other sectors, particularly buildings and transport. The EU 2008 Climate and Energy Package (CEP) took a significant step towards a low-carbon future, initi- ating a very ambitious program of renewables expansion and strengthen- ing the ETS. However, the omissions and internal inconsistencies of the CEP are becoming more and more evident. This relates in particular to the absence of long-term, comprehensive signals for decarbonization and the imbalance between the ETS, energy efficiency and renewables objectives. This risks delaying and distorting investment in low-carbon infrastructure and ideas, raising the ultimate cost of climate policy. In view of the inertias within the electricity sector, it is imperative for the EU to set a long-term signal for the decarbonization of the sector by set- ting 2030 objectives for the ETS and complementary policies. The EU’s decarbonization strategy needs to be robust against future uncertainties; strengthening a technology neutral instrument like the ETS can provide a key part of a comprehensive signal to develop the full range of decarbon- ization options. The instrument imbalance also needs to be addressed. Demand side policies should be the point of departure for supply side interventions: ETS caps should be set so as to achieve carbon scarcity after energy efficiency and RES objectives have been taken into account. A short-term adjustment of scarcity in the ETS may create some incen- tives for low-carbon investment. However, it would not address the funda- mental concern, namely the lack of policy information regarding the post 2020 environment in which these investment will amortize. |
| Keywords: | European climate policy; 2050 decarbonization; European emissions trading scheme; renewables policy |
| JEL: | Q50 |
| Date: | 2011–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35009&r=agr |