nep-ene New Economics Papers
on Energy Economics
Issue of 2006‒04‒22
thirty-two papers chosen by
Roger Fouquet
Imperial College, UK

  1. Liberalisation of Trade in Renewable Energy and Associated Technologies: Biodiesel, Solar Thermal and Geothermal Energy By Ronald Steenblik
  2. Libéralisation des échanges de produits liés aux énergies renouvelables et de biens associés : Charbon de bois, systèmes solaires photovoltaïques, aérogénérateurs et pompes éolien By Ronald Steenblik
  3. Analysis of Energy Supply and Usage in the Iowa Economy By Otto, Daniel; Imerman, Mark D.
  4. Russian Natural Gas Exports to Europe. Effects of Russian gas market reforms and the rising market power of Gazprom By Eirik Lund Sagen and Marina Tsygankova
  5. Transparencia, confidencialidad y competencia: un análisis económico de las reformas actuales en el mercado de gas natural argentino. By Santiago Urbiztondo
  6. Indicators of Innovation in Canadian Natural Resource Industries By Andrew Sharpe; Olivier Guibaud
  7. Structural breaks in Iron-Ore prices: The impact of the 1973 oil crisis By Angelov, Nikolay
  8. A Spatial Equilibrium Analysis of Transmission Charge Reform in Japan's Electric Power Industry By Shu-ichi Akiyama; Nobuhiro Hosoe
  9. When can micro properties be used to predict aggregate demand? By Bente Halvorsen
  10. Households' self-selection of a dynamic electricity tariff By Torgeir Ericson
  11. The dynamics of carbon and energy intensity in a model of endogenous technical change By Carlo Carraro; Valentina Bosetti; Marzio Galeotti
  12. The Economics of a Lost Deal : Kyoto - The Hague - Marrakesh By Jean-Charles Hourcade; Frédéric Ghersi
  13. Economic and Environmental Effectiveness of a Technology-based Climate Protocol By Carlo Carraro; Barbara Buchner
  14. Regional and sub-global climate blocs. A game-theoretic perspective on bottom-up climate regimes By Carlo Carraro; Barbara Buchner
  15. Consequences of Co-benefits for the Efficient Design of Carbon Sequestration Programs, The By Hongli Feng; Catherine L. Kling
  16. Who benefits from the US withdrawal of the Kyoto Protocol? An application of the MMEA method to measure power By Vincent Merlin; Rahhal Lahrach; Jérôme Le Tensorer
  17. Co-operation and Unilateral Commitment in<br />the Presence of Global Environmental<br />Problems By Jean-Christophe Pereau; Tarik Tazdait
  18. Climate Change and Extreme Events: an Assessment of Economic Implications By Roberto Roson; Alvaro Calzadilla; Francesco Pauli
  19. The design of post-Kyoto climate schemes: an introductory analytical assessment. A future for Kyoto? By Roger Guesnerie
  20. Strategic Climate Policy in Small, Open Economies By Mads Greaker and Knut Einar Rosendahl
  21. Prices vs Quantities in a Second-best Setting By Philippe Quirion
  22. Marché international du carbone<br />et double-dividende : antinomie ou synergie ? By Frédéric Ghersi; Jean-Charles Hourcade; Philippe Quirion
  23. Unit Roots, Polynomial Transformations and the Environmental Kuznets Curve By Gang Liu, Terje Skjerpen, Anders Rygh Swensen and Kjetil Telle
  24. Discounting and relative prices in assessing future environmental damages By Hoel, Michael; Sterner, Thomas
  25. Dynamics of Carbon Sequestration and Alternative Carbon Accounting, with an Application to the Upper Mississippi River Basin, The By Hongli Feng
  26. US, China and the economics of climate negotiations By Carlo Carraro; Barbara Buchner
  27. Swedish Industry and Kyoto – An Assessment of the Effects of the European CO2 Emission Permit Trading System By Brännlund, Runar; Lundgren, Tommy
  28. A causality analysis on GDP and air emissions in Norway By Gang Liu
  29. Future expansion of agriculture and pasture acts to<br />amplify atmospheric CO2 levels in response to fossil<br />fuel and land-use change emissions By Vincent Gitz; Philippe Ciais
  30. Designation of Co-benefits and Its Implication for Policy: Water Quality versus Carbon Sequestration in Agricultural Soils, The By Silvia Secchi; Manoj Jha; Lyubov A. Kurkalova; Hongli Feng; Philip W. Gassman; Catherine L. Kling
  31. Economic and Environmental Co-benefits of Carbon Sequestration in Agricultural Soils: Retiring Agricultural Land in the Upper Mississippi River Basin By Hongli Feng; Lyubov A. Kurkalova; Catherine L. Kling; Philip W. Gassman
  32. Carbon Sequestration in Agricultural Soils: Discounting for Uncertainty By Lyubov A. Kurkalova

  1. By: Ronald Steenblik
    Abstract: This paper, the second in a series, examines the implications of liberalising trade in three forms of renewable energy: biodiesel, solar-thermal water heaters, and geothermal energy systems. Eliminating tariffs on renewable energy and associated goods — which are 15% or higher on an ad valorem basis in many developing countries — would reduce a burden on consumers of energy, particularly people living in rural areas of developing countries, as it is in such areas that many renewable fuels and renewable-energy technologies are making, and are likely to make, their greatest contribution. Manufacturers located in OECD countries would benefit from increased trade in equipment, but so would a growing number of companies based in developing countries. In the case of biodiesel, developing countries have the potential to become major suppliers to OECD countries. For the maximum benefits of trade liberalisation in biodiesel, and solar-thermal and geothermal technologies, to be realised, however, additional reforms may be required in importing countries’ domestic policies, especially those affecting the pricing of liquid fuels, competition in the electricity sector, and protection of the environment.
    Keywords: trade, developing countries, environmental goods, environmental technologies, renewable energy
    JEL: F14 F18 Q42 Q48 Q56
    Date: 2006–04–04
  2. By: Ronald Steenblik
    Abstract: Depuis plusieurs années, de nombreuses études et manifestations ont souligné qu'il importait d'éliminer les obstacles au commerce des formes renouvelables d'énergie et des technologies intervenant dans leur exploitation, dans le cadre d'une stratégie plus générale de réduction de la dépendance à l'égard de sources d'énergie plus polluantes et moins sûres. Le présent document traite des conséquences de la libéralisation des échanges dans le domaine des énergies renouvelables, en s'attachant plus particulièrement à plusieurs sources d'énergie et technologies représentatives (charbon de bois, systèmes solaires photovoltaïques et leurs compléments, aérogénérateurs et pompes éoliennes). L'élimination des droits de douane sur les énergies renouvelables et les biens associés — qui sont de 15 % ou plus et sont calculés ad valorem dans de nombreux pays en développement — allègerait la charge qui pèse sur les consommateurs d'énergie, en particulier sur les populations des zones rurales des pays en développement, là où précisément nombre des technologies liées aux énergies renouvelables apportent, ou sont susceptibles d'apporter, leur plus importante contribution. L'essor du commerce des technologies des énergies renouvelables et de leurs composants profiterait aux fabricants situés dans les pays de l'OCDE, mais aussi à un nombre croissant d'entreprises des pays en développement. L'élimination des droits de douane contribuerait aussi à instaurer des règles du jeu équitables entre les biens financés par l'aide, qui bénéficient souvent d’exemptions de droits, et les biens importés dans le cadre de transactions commerciales normales, qui en bénéficient rarement. Pour optimiser les avantages tirés de la libéralisation des échanges de technologies liées aux énergies renouvelables, il pourrait cependant se révéler nécessaire d'engager de nouvelles réformes des politiques intérieures des pays importateurs, notamment celles touchant au secteur de l'électricité en général, à l'électrification des zones rurales en particulier, et à l'environnement.
    Keywords: pays en développement, biens environnementaux, échanges, énergie renouvelable, technologies environnementales
    JEL: F14 F18 Q42 Q48 Q56
    Date: 2005–12–09
  3. By: Otto, Daniel; Imerman, Mark D.
    Abstract: This report addresses the needs of state policymakers to understand the implications to the state’s economy from current levels of energy supply imports. Historical energy consumption patterns for the state and the role of energy in the performance of the Iowa economy are reviewed using current data. Economic modeling techniques are then used to analyze the linkages of these energy sectors, forward and backwards, with the rest of the economy. Information on the importance of energy to various economic activities and the share of energy expenditure that goes to in-state vs. out-of-state sources, including the energy distribution functions, is also provided. The objective of this report is to review the information on the quantities of energy consumed and dollars spent in Iowa and evaluate the share of these energy dollars that are leaving the state.
    Date: 2006–04–11
  4. By: Eirik Lund Sagen and Marina Tsygankova (Statistics Norway)
    Abstract: Gazprom, the dominant gas company in Russia, is widely believed to be the key supplier of gas to Europe in the foreseeable future. However, there are numerous uncertainties and challenges within the Russian and European gas industry that may alter the allocation of Gazprom´s gas sales between domestic and export markets. In this paper we use both theoretical and numerical models to study potential effects on Russian gas exports from changes in Russian domestic gas prices and the production capacities in 2015. We also investigate whether the liberalization of the European gas markets may provide incentives for Gazprom to induce monopoly power in its export markets. Our main findings suggest that both increased domestic gas prices and sufficient production capacities are vital to maintain Gazprom´s market share in Europe over the next decade. At low domestic prices, Gazprom may even have difficulties to carry out its long-term export commitments. However, if export possibilities are ample due to both lower domestic demand at higher prices and high overall production capacities, a large share of spot trades in Europe may encourage Gazprom to exercise market power in its export markets.
    Keywords: Russia; Natural gas; production capacity; export; Western Europe; price; numerical model
    JEL: F17 D42 Q31 Q38
    Date: 2006–02
  5. By: Santiago Urbiztondo (FIEL)
    Date: 2005–08
  6. By: Andrew Sharpe; Olivier Guibaud
    Abstract: This report develops a set of indicators of innovation in a number of the natural resource industries in Canada. It then uses these indicators to assess trends in innovation over time in these industries. The innovative performance of Canadian natural resource industries is also compared with the average for all industries in Canada and with natural resource industries in other countries. The report finds that on most innovation indicators, Canadian natural resource industries perform either at or above the all-industries average and at a an average level internationally.
    Keywords: Indicators, Indexes, Indices, Innovation, Natural resource, Productivity, Productivity growth, Innovation trends, R&D, Research and Development, Mechinery and equipment, foreign direct investment
    JEL: J21 J24 O13 O31 O32 O40 Q00
    Date: 2005–03
  7. By: Angelov, Nikolay (Department of Economics)
    Abstract: This paper investigates the time-series properties of the price of iron ore. The focus is on testing a unit-root null hypothesis against a trend-stationary alternative, with a structural break allowed under both hypotheses. We consider unit-root tests with or without structural breaks, applied on historical prices of five different qualities of Swedish and Brazilian iron ore. New and more accurate critical values for the exogenous-break tests are calculated, and several of the asymptotic tests are accompanied by their bootstrap counterparts due to the limited sample sizes. Using unit-root tests allowing for an exogenous structural break in 1973, the null hypothesis of a unit root is rejected for three of the five series. The sign and nature of the estimated breaks correspond to the state of the iron and steel industry during the first half of the 1970s. The bootstrap tests give results close to those from the asymptotic ones.
    Keywords: iron-ore prices; structural break; unit-root test; bootstrap
    JEL: C15 C22 Q30
    Date: 2006–01–20
  8. By: Shu-ichi Akiyama; Nobuhiro Hosoe
    Abstract: A key intention of the regulatory reform of transmission charge schemes on Japan's electric power market was to promote inter-regional competition between power suppliers by lowering long-distance transmission charges with a postage-stamp charge scheme. This can lead to extensive use of inter-regional links and cause congestion. Congestion segments the market into several regional markets, making the reform less successful. We developed a nine-region spatial equilibrium model to simulate the reform at the peak-load hour. We found the reform would lead to significant increases of inter-regional transmission and congestion at the link between the 50-Hz area and the 60-Hz area.
    Date: 2006–04
  9. By: Bente Halvorsen (Statistics Norway)
    Abstract: Heterogeneity in consumer behaviour creates differences in demand responses, which may create problems with aggregation across consumers. If aggregation problems exist, results from estimation based on aggregate data may prove difficult to interpret. Using estimation results from micro data to predict aggregate demand responses may also create disaggregation bias (the reverse aggregation problem). The aim of this paper is to discuss potential problems of using micro data to predict aggregate demand, and how such problems relate to the linear and non-linear aggregation problem. We also expand the theories of linear and non-linear aggregation to the case in which prices vary across agents. We formulate and test criteria for aggregation by using data on Norwegian household electricity consumption. We find clear evidence of aggregation problems, as heterogeneity in both price and income derivatives are significant. We thus expect to experience problems with aggregation when analysing Norwegian household electricity consumption.
    Keywords: Aggregation problems; Electricity demand; Microeconometrics.
    JEL: C43 D1 C21
    Date: 2006–03
  10. By: Torgeir Ericson (Statistics Norway)
    Abstract: Offering electricity consumers time-differentiated tariffs may increase demand responsiveness, thereby reducing peak consumption. However, one concern is that time-differentiated tariffs may also attract consumers who benefit because of their consumption pattern, even without a corresponding demand response. A discrete choice model applied to data from a residential dynamic pricing experiment indicates that higher demand flexibility increases the propensity of a household to select dynamic tariffs, while favourable consumption patterns do not influence the tariff choice. The offering of dynamic time-differentiated tariffs is then likely to increase the demand response among residential consumers.
    Keywords: demand response; dynamic pricing; electricity tariff; self-selection; rate option.
    JEL: D10 Q41
  11. By: Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Valentina Bosetti (Fondazione Eni Enrico Mattei); Marzio Galeotti (Fondazione Eni Enrico Mattei)
    Abstract: T In recent years, a large number of papers have explored different attempts to endogenise technical change in climate models. This recent literature has emphasized that four factors – two inputs and two outputs – should play a major role when modelling technical change in climate models. The two inputs are R&D investments and Learning by Doing, the two outputs are energy-saving and fuel switching. Indeed, R&D investments and Learning by Doing are the main drivers of a climatefriendly technical change that eventually affect both energy intensity and fuel-mix. In this paper, we present and discuss an extension of the FEEM-RICE model in which these four factors are explicitly accounted for. In our new specification of endogenous technical change, an index of energy technical change depends on both Learning by Researching and Learning by Doing. This index enters the equations defining energy intensity (i.e. the amount of carbon energy required to produce one unit of output) and carbon intensity (i.e. the level of carbonization of primarily used fuels). This new specification is embodied in the RICE 99 integrated assessment climate model and then used to generate a baseline scenario and to analyze the relationship between climate policy and technical change. Sensitivity analysis is performed on different key parameters of the energy module in order to obtain crucial insights into the relative importance of the main channels through which technological changes affects the impact of human activities on climate.
    Keywords: Climate Policy, Environmental Modelling, Integrated Assessment, Technical Change
    JEL: H0 H2 H3
    Date: 2006
  12. By: Jean-Charles Hourcade (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - [CNRS : UMR8568] - [] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale du Génie Rural des Eaux et des Forêts][Ecole Nationale des Ponts et Chaussées]); Frédéric Ghersi (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - [CNRS : UMR8568] - [] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale du Génie Rural des Eaux et des Forêts][Ecole Nationale des Ponts et Chaussées])
    Abstract: This paper examines prospects for compromise between competing perspectives on four key climate change issues: costs, level of domestic action, nvironmental integrity, and developing world involvement. It focuses on the policy issues stemming from the uncertainty about abatement costs. Based on extensive simulations of a model integration tool, SAP12 (Stochastic Assessment of Climate Policies, 12 models), the analysis considers options for fine-tuning the Kyoto Protocol, such as concrete ceilings or levies on carbon imports; "environmental restoration payments" to be made on excess emissions; and credits for equestration activities in Annex B countries. It demonstrates that the restoration payment (implemented through a safety valve) emerges as a superior means of addressing the cost uncertainty issue. The paper concludes that had this approach been taken at the COP6 climate negotiations, there would have been substantial room for compromise on payments of $35 to $100 per ton of carbon. Examining the Marrakech climate accord, it derives some lessons for attempts at completing Kyoto's unfinished business or at moving on to a new framework.
    Keywords: climate negotiations; 2010 carbon markets; uncertainty about abatement costs
    Date: 2006–03–30
  13. By: Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Barbara Buchner (Fondazione Eni Enrico Mattei)
    Abstract: The present stalemate in climate negotiations between the US and the other Annex I countries has led policy analysts and economists to explore the possible emergence of alternative climate regimes that may be applied after 2012. This paper explores the idea of replacing international cooperation on greenhouse gas emission control with international cooperation on climate-related technological innovation and diffusion. This idea – recently proposed among others by Barrett (2001) and Benedick (2001) – is based on the insight that incentives to free ride are much smaller in the case of technological cooperation than in the case of cooperation on emission control. This paper provides a first applied game theory analysis of a technology-based climate protocol by assessing: (i) the selfenforcingness (namely, the absence of incentives to free ride) of the coalition that would form when countries negotiate on climate-related technological cooperation; (ii) the environmental effectiveness of a technology-based climate protocol. The analysis is carried out by using a model in which endogenous and induced technical change are explicitly modelled. The results of our analysis partly support Barrett’s and Benedick’s conjecture. On the one hand, a self-enforcing agreement is more likely to emerge when countries cooperate on environmental technological innovation and diffusion than when they cooperate on emission abatement. However, technological cooperation – without any commitment to emission control – may not lead to a sufficient abatement of greenhouse gas concentrations.
    Keywords: Agreements, Climate, Incentives, Negotiations, Policy
    JEL: C72 H23 Q25 Q28
    Date: 2006
  14. By: Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Barbara Buchner
    Abstract: controlling GHG emissions without the involvement of countries such as China, India, the United States, Aust rali a, and possibly other developing countries. This highlights an unambiguous weakness of the Kyoto Protocol, where the aforementioned countries either have no binding emission targets or have decided not to comply with their targets . Therefore, when discussing possible post-Kyoto scenarios, it is crucial to priori tise part icipation incentives for all countries, especially those without explicit or with insufficient abatement targets. This paper offers a bottom-up game-theoretic perspective on participation incentives. Rather than focusing on issue linkage, t ransfers or burden sharing as tools to enhance the incentives to par t icipate in a climate agreement, thi s paper aims at exploring whether a di fferent policy approach could lead more count ries to adopt ef fective climate cont rol policies. This policy approach is explicitly bottom-up, namely i t gives each country the freedom to sign agreements and deals, bilateral ly or multila terally, with other countries, without being constrained by any globa l protocol or convention. This study provides a game-theoretic assessment of this policy approach and then evaluates empirically the possible endogenous emergence of single or multi ple climate coalitions. Welfare and technological consequences of different mul tiple bloc climate regimes will be assessed and their overall environmental effectiveness will be discussed.
    Keywords: Agreements, Climate, Incentives, Negotiations, Policy
    JEL: C72 H23 Q25 Q28
    Date: 2006
  15. By: Hongli Feng (Center for Agricultural and Rural Development (CARD)); Catherine L. Kling (Center for Agricultural and Rural Development (CARD))
    Abstract: In this paper, we study the social efficiency of private carbon markets that include trading in agricultural soil carbon sequestration when there are significant co-benefits (positive environmental externalities) associated with the practices that sequester carbon. Likewise, we investigate the efficiency of government-run conservation programs that are designed to promote a broad array of environmental attributes (both carbon sequestration and its co-benefits) for the supply of carbon. Finally, policy design and efficiency issues associated with the potential interplay between a private carbon market and a government conservation program are studied. Empirical analyses for an area that represents a significant potential source of carbon sequestration and its associated co-benefits illustrate the magnitude and complexity of these issues in real-world policy design.
    Keywords: average ranking of benefits, carbon markets, carbon sequestration, co-benefits, conservation programs, the Upper Mississippi River Basin.
    Date: 2005–03
  16. By: Vincent Merlin (CREM - Centre de Recherche en Economie et Management - - [CNRS : UMR6211] - [Université Rennes I][Université de Caen] - []); Rahhal Lahrach; Jérôme Le Tensorer
    Abstract: Since 1992, the international community is trying to arrive at a multilateral agreement on the reduction of emissions for greenhouse gases. A collective decision mechanism was adopted in 1997: An agreement is ratified if and only if it is approved by a coalition gathering more than 55 countries. Moreover, the ratifying industrialized countries - included in the Annex I of the Kyoto Protocol - must represent a total weight corresponding to at least 55% of the total CO2 emissions of the countries of the Annex I, taking the year 1990 as a reference point.<br /><br />One way to study the theoretical power distribution induced by this voting procedure is to compute the Banzhaf index for each country. Firstly, the results of the computation show that the power distribution is largely heterogeneous and benefits to the United-States. Secondly, we analyze the modifications generated by the European coalition scenario in order to prove that the European strategy to act as a single block counterbalanced the US leadership. Finally, we conclude that Japan and Russia benefited from the United States withdrawal in term of a priori decisional power.
    Keywords: Power indices, environment, Kyoto Protocol, empirical game theory
    Date: 2006–04–12
  17. By: Jean-Christophe Pereau (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - [CNRS : UMR8568] - [] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale du Génie Rural des Eaux et des Forêts][Ecole Nationale des Ponts et Chaussées]); Tarik Tazdait (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - [CNRS : UMR8568] - [] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale du Génie Rural des Eaux et des Forêts][Ecole Nationale des Ponts et Chaussées])
    Abstract: This paper focuses on the link between group co-operation and unilateral commitment of some countries in the presence of global environmental problems. We show that in case of a failure of negotiation, some countries can decide to commit unilaterally and reduce their emissions. we call this behaviour precautionary commitment.<br />Absence of international agreement does not mean global defection from the environmental issue. we also show that the emergence of a non-co-ordinated global co-operation can result from a strategic action<br />from the members of the coalition. The insiders of the coalition create an incentive for the non-members to reduce without co-ordinating their emissions.
    Keywords: global environmental problems; coalition; unilateral<br />commitment; precautionary commitment.
    Date: 2006–03–31
  18. By: Roberto Roson (Department of Economics, University Of Venice Cà Foscari); Alvaro Calzadilla (University of Hamburg); Francesco Pauli (University of Padua)
    Abstract: We use a general equilibrium model of the world economy, and a regional economic growth model, to assess the economic implications of vulnerability from extreme meteorological events, induced by the climate change. In particular, we first consider the impact of climate change on ENSO and NAO oceanic oscillations and, subsequently, the implied variation on regional expected damages. We found that expected damages from extreme events are increasing in the United States, Europe and Russia, and decreasing in energy exporting countries. Two economic implications are taken into account: (1) short-term impacts, due to changes in the demand structure, generated by higher/lower precautionary saving, and (2) variations in regional economic growth paths. We found that indirect stort-term effects(variations in savings due to higher or lower likelihood of natural disasters) can have an impact on regional economies, whose order of magnitude is comparable to the one of direct damages. On the other hand, we highlight that higher vulnerability from extreme events translates into higher volatility in the economic growth path, and vice versa.
    Keywords: Climate Change, Extreme Events, Computable General Equilibrium Models, Precautionary Savings, Economic Growth
    JEL: D58 D91 Q54
    Date: 2006
  19. By: Roger Guesnerie
    Abstract: The paper starts from a proposition of institutional design for climate policies made previously by David Bradford and labelled GPGP (Global Public good Purchase). The scheme is compared with other possible post- Kyoto schemes that are, or not, "Kyoto compatible". The comparison puts the emphasis on the participation issue, (free riding, ratchet effect), and on the desirable flexibility of the schemes. It argues that the incidence of climate policies on the final price of fossil fuels is a key and difficult issue which has not received, untill now, the amount of required attention.
    Date: 2006
  20. By: Mads Greaker and Knut Einar Rosendahl (Statistics Norway)
    Abstract: According to environmental interests groups governments should use their climate policy strategically in order to provide for a faster introduction of new, cleaner technologies. Strategic use of climate policy could also induce the development of a successful upstream abatement technology industry like the Danish windmill industry. Interestingly, this latter question has not been analyzed theoretically before. Our point of departure is a three-stage game between a government in a small country with a climate restriction, and a limited number of firms supplying carbon abatement technology. The government moves first, and may use its climate policy strategically to influence the behavior of the upstream technology firms. An especially stringent climate policy towards the polluting downstream sector may then in fact be well founded. It will increase the competition between the technology suppliers, and lead to lower domestic abatement costs. However, to our surprise, a strict environmental policy is not a particularly good industrial policy with respect to developing new successful export sectors.
    Keywords: Strategic climate policy; Abatement technology; Small; open economies
    JEL: O32 Q2 Q25
  21. By: Philippe Quirion (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - [CNRS : UMR8568] - [] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale du Génie Rural des Eaux et des Forêts][Ecole Nationale des Ponts et Chaussées])
    Abstract: The choice between taxes and tradable permits has been independently analysed by two distinct research traditions. The first proceeds from Weitzman's partial equilibrium stochastic model and concludes that a tax should be preferred if the marginal abatement cost curve is steeper than the marginal environmental benefit curve. The second utilises deterministic general equilibrium models with pre-existing distortionary taxes. It concludes that non-revenue-raising instruments (e.g., grandfathered tradable permits) are costlier than revenue-raising ones (e.g., a tax on every unit of pollution or auctioned permits). <br />To build a bridge between these two traditions, we introduce in Weitzman's model a positive cost of public funds due to pre-existing distortionary taxes. The tax admits a greater comparative advantage over the permits, as compared to Weitzman's classical result. Then, we assume that the regulated industry blocks any proposal that poses it too high an expected burden. This may require a transfer to firms, in the form of freely-allocated permits or lump-sum tax rebate. It turns out that if this acceptability constraint is binding, then the comparative advantage of taxes over permits is still reinforced. Quantitatively, even if the marginal benefit function is 50% more steeply sloped than the marginal cost function, the price instrument should be preferred.<br />We also compare the expected net benefit of these two instruments to a contingent instrument which leads to the ex post optimum. The superiority of the contingent instrument over the quantity one is higher than in first-best.
    Keywords: Environmental taxes; policy choice; tradable permits; second best,;uncertainty
    Date: 2006–03–31
  22. By: Frédéric Ghersi (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - [CNRS : UMR8568] - [] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale du Génie Rural des Eaux et des Forêts][Ecole Nationale des Ponts et Chaussées]); Jean-Charles Hourcade (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - [CNRS : UMR8568] - [] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale du Génie Rural des Eaux et des Forêts][Ecole Nationale des Ponts et Chaussées]); Philippe Quirion (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - [CNRS : UMR8568] - [] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale du Génie Rural des Eaux et des Forêts][Ecole Nationale des Ponts et Chaussées])
    Abstract: Le propos de cet article est de vérifier dans quelle mesure l'existence d'un marché international de permis d'émission de gaz à effet de serre (GES) influe-t'elle sur les possibilités nationales de double dividende (environnemental et économique) par transfert de charge fiscale de l'emploi vers les émissions de GES.<br />Les combinaisons proposées de systèmes nationaux de permis et de taxes - étudiées à l'aide d'un modèle d'équilibre général calculable IMACLIM appliqué à l'économie française - sont mises au point en tenant particulièrement compte de l'économie politique de la discussion, soit de leur acceptabilité et de leur crédibilité dans un cadre réel. <br />On montre en définitive qu'un scénario combinant une taxe-carbone appliquée à l'ensemble de l'économie hors industries grandes consommatrices d'énergie, et l'accès à un marché international du carbone pour ces dernières, est à même de conserver l'essentiel du double dividende d'une taxe sur le carbone sans exemptions, tout en étant politiquement plus acceptable
    Keywords: permis d'émission de gaz à effet de serre; marché; double dividence; modèle IMACLIM
    Date: 2006–03–31
  23. By: Gang Liu, Terje Skjerpen, Anders Rygh Swensen and Kjetil Telle (Statistics Norway)
    Abstract: Time-series regressions including non-linear transformations of an integrated variable are not uncommon in various fields of economics. In particular, within the Environmental Kuznets Curve (EKC) literature, where the effect on the environment of income levels is investigated, it is standard procedure to include a third order polynomial in the income variable. When the income variable is an I(1)-variable and this variable is also included nonlinearly in the regression relation, the properties of the estimators and standard inferential procedures are unknown. Surprisingly, such problems have received rather limited attention in applied work, and appear disregarded in the EKC literature. We investigate the properties of the estimators of long-run parameters using Monte-Carlo simulations. We find that the mean of the ordinary least squares estimates are very similar to the true values and that standard testing procedures based on normality behave rather well.
    Keywords: Emissions; Environmental Kuznets Curve; Unit Roots; Monte Carlo Simulations
    JEL: C15 C16 C22 C32 O13
    Date: 2006–01
  24. By: Hoel, Michael (Department of Economics, University of Oslo); Sterner, Thomas (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Environmentalists are often upset at the effect of discounting costs of future environmental damage, e.g. due to climate change. An often overlooked message is that we should discount costs but also take into account the increase in the relative price of the ecosystem service endangered. The effect of discounting would thus be counteracted, and if the rate of price rise of the item was fast enough it might even be reversed. The scarcity that leads to rising relative prices for the environmental good will also have direct effects on the discount rate itself. The magnitude of these effects depends on properties of the economy’s technology and on social preferences. We develop a simple model of the economy that illustrates how changes in crucial technology and preference parameters may affect both the discount rate and the rate of change of values of environmental goods. The combined effect of discounting and the change of values of environmental goods is more likely to be low, or even negative, the lower is the growth rate of environmental quality (or the larger its decline rate) and the lower is the elasticity of substitution between environmental quality and produced goods. <p>
    Keywords: Discounting; future costs; scarcity; environment; climate change
    JEL: H43 Q32 Q54
    Date: 2006–03–16
  25. By: Hongli Feng (Center for Agricultural and Rural Development (CARD))
    Abstract: Carbon sequestration is a temporal process in which carbon is continuously being stored/released over time. Different methods of carbon accounting can be used to account for this temporal nature, including annual average carbon, annualized carbon, and ton-year carbon. In this paper, starting by exposing the underlying connections among these methods, we examine how the comparisons of sequestration projects are affected by these methods and the major factors affecting them. We explore the empirical implications for carbon sequestration policies by applying these accounting methods to the Upper Mississippi River Basin, a large and important agriculture area in the United States. We find that the differences are significant in terms of the location of land that might be chosen and the distribution of carbon sequestration over the area, although the total amount of carbon sequestered does not differ considerably across programs that use different accounting methods or different values of the major factors.
    Keywords: annual average carbon, annualized carbon, carbon sequestration, ton-year carbon.
    Date: 2005–03
  26. By: Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Barbara Buchner (Fondazione Eni Enrico Mattei)
    Abstract: Despite the entry into force of the Kyoto Protocol, the US decision not to comply with its Kyoto commitments seems to drastically undermine the effectiveness of the Protocol in controlling GHG emissions. Therefore, it is important to explore whether there are economic incentives that might help the US to modify its current decision and move to a more environmentally effective climate policy. For example, can an increased participation of developing countries induce the US to effectively participate in the effort to reduce GHG emissions? Is a single emission trading market the appropriate policy framework to increase the signatories of the Kyoto Protocol? This paper addresses the above questions by analysing whether the participation of China in the cooperative effort to control GHG emissions can provide adequate incentives for the US to re-join the Kyoto process and eventually ratify the Kyoto Protocol. This paper analyses three different climate regimes in which China could be involved and assesses the economic incentives for the major world countries and regions to participate in these three regimes. The main conclusion is that the participation of the US in a climate regime is not likely, at least in the short run. The US is more likely to adopt unilateral policies than to join the present Kyoto coalition (even when it includes China). However, a two bloc regime would become the most preferred option if both China and the US, for some political or environmental reasons, decide to cooperate on GHG emission control. If the US decides to cooperate, the climate regime that provides the highest economic incentives to the cooperating countries is the one in which China and the US cooperate bilaterally, with the Annex B-US countries remaining within the Kyoto framework.
    Keywords: Agreements, Climate, Incentives, Negotiations, Policy
    JEL: C72 H23 Q25 Q28
    Date: 2006
  27. By: Brännlund, Runar (Department of Economics, Umeå University); Lundgren, Tommy (Department of Forest Economics)
    Abstract: We assess the effects on Swedish industry input and output demands of different climate policy scenarios <p> connected to energy policy induced by the Kyoto protocol. A unique data set containing firm level data <p> on outputs and inputs during the years 1991 – 2001 is used to estimate a factor demand model, which is <p> then simulated for different policy scenarios. Sector specific estimation suggests that the proposed <p> quadratic profit function specification exhibit properties and robustness that are consistent with economic <p> theory; that is, all own-price elasticities are negative and all output elasticities are positive. Furthermore, <p> the elasticities show that the input demands are, in most cases, relatively inelastic. Simulation of the <p> model for 6 different policy scenarios reveal that the effects on Swedish base industry of a EU level <p> permit trade system is dependent on (i) removal or no removal of current CO2 tax, (ii) the established <p> price of permits, and (iii) what will happen to the electricity price. Our analysis show that changes in <p> electricity price may be more important than the price of permits for some sectors.
    Keywords: CO2- emissions; factor demand; fossil fuels; tradable permit market
    JEL: D21 L70 Q52
    Date: 2005–12–05
  28. By: Gang Liu (Statistics Norway)
    Abstract: This paper conducts Granger-causality tests on real per capita GDP and four types of air emissions (CO2, CO, SO2 and NOx) by using Norwegian data covering the period 1973-2003. The test results indicate that only unidirectional causal relationships exist between GDP and air emissions. For CO2 and CO, we find long run causal relationships running from GDP to emissions, whereas for SO2 and NOx, only the short run causal relationships are found from emissions to GDP. Therefore, as far as the four types of air emissions in Norway are concerned, the presumption, employed in the conventional EKC analyses that the causal relationship between emissions and GDP is unidirectional from the latter to the former, may be retained for CO2 and CO only. For SO2 and NOx, however, it is rejected.
    Keywords: causality analysis; stationarity; cointegration; air emissions; economic growth
    JEL: C32 Q53 Q56
    Date: 2006–02
  29. By: Vincent Gitz (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - [CNRS : UMR8568] - [] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale du Génie Rural des Eaux et des Forêts][Ecole Nationale des Ponts et Chaussées]); Philippe Ciais (LSCE - Laboratoire des sciences du climat et de l'environnement - - [CNRS : UMR1572][CEA] - [] - [])
    Abstract: Abstract. The expansion of crop and pastures to the detriment of forests results into an increase in atmospheric CO2. A first obvious cause is the loss of forest biomass and soil carbon during and after conversion. A second, generally ignored cause, is the reduction of the residence time of carbon when for example forests or grasslands are converted to cultivated land. This decreases the sink capacity of the global terrestrial biosphere, and thereby may amplify the atmospheric CO2 rise due to fossil and land-use carbon release. For the IPCC-A2 future scenario, characterized by high fossil and high land-use emissions, we show that the land-use amplifier effect adds 61 ppm extra CO2 in the atmosphere by 2100 as compared to former treatment of land-use processes in carbon models. Investigating the individual contribution of each of the 6 land-use transitions (forest - crop, forest - pasture, grassland -crop) to the amplifier effect indicates that the clearing of forest and grasslands to arable lands explains most of the CO2 amplification. The amplification effect is 50% higher than in a previous analysis by the same authors which did not consider neither the deforestation to pastures nor the ploughing of grasslands. Such an amplification<br />effect is further examined in sensitivity tests where the net primary productivity is considered independant of atmospheric CO2. We also show that land-use changes which have already occurred in the recent past have a strong inertia at releasing<br />CO2, and will contribute to about 1/3 of the amplification effect by 2100. These results suggest that there is an additionnal atmospheric benefit of preserving pristine ecosystems with high turnover times.
    Keywords: land use; atmospheric CO2; fossil fuel
    Date: 2006–03–31
  30. By: Silvia Secchi (Center for Agricultural and Rural Development (CARD)); Manoj Jha (Center for Agricultural and Rural Development (CARD)); Lyubov A. Kurkalova; Hongli Feng (Center for Agricultural and Rural Development (CARD)); Philip W. Gassman (Center for Agricultural and Rural Development (CARD)); Catherine L. Kling (Center for Agricultural and Rural Development (CARD))
    Abstract: This study investigates the implications of treating different environmental benefits as the primary target of policy design. We focus on two scenarios, estimating for both of them in-stream sediment, nutrient loadings, and carbon sequestration. In the first, we assess the impact of a program designed to improve water quality in Iowa on carbon sequestration, and in the second, we calculate the water quality impact of a program aimed at maximizing carbon sequestration. In both cases, the policy instrument is the retirement of land from agricultural production. Our results, limited to the state of Iowa, and to the case of set-aside for water quality or carbon sequestration purposes, indicate that the amount of co-benefits depends on what indicators are used to measure water quality. In general, this study shows that improving "water quality" in the sense of reducing nutrient or sediment loadings is too vague. Even if it is taken to refer to in-stream nutrients, because the responses of nitrogen and phosphorus to conservation efforts are not well correlated, this terminology may not provide much guidance.
    Keywords: carbon sequestration, co-benefits, environmental benefits targeting, Iowa, land set-aside, water quality.
    Date: 2005–03
  31. By: Hongli Feng (Center for Agricultural and Rural Development (CARD)); Lyubov A. Kurkalova; Catherine L. Kling (Center for Agricultural and Rural Development (CARD)); Philip W. Gassman (Center for Agricultural and Rural Development (CARD))
    Abstract: This study investigates the carbon sequestration potential and co-benefits from policies aimed at retiring agricultural land in the Upper Mississippi River Basin, a large, heavily agricultural area. We extend the empirical measurement of co-benefits from the previous focus on environmental benefits to include economic transfers. These transfers have often been mentioned as a co-benefit, but little empirical work measuring the potential magnitude of these transfers has previously been undertaken. We compare and contrast five targeting schemes, each based on maximizing different physical environmental measures, including carbon sequestration, soil erosion, nitrogen runoff, nitrogen leaching, as well as the area enrolled in the program. In each case, the other environmental benefits and economic transfers are computed. We find that the geographic distribution of co-benefits (including economic transfers) varies significantly with the benefit targeted, implying that policy design related to targeting can have very important implications for both environmental conditions and income distributions in sub-regions.
    Keywords: carbon sequestration, co-benefits, co-effects, economic transfers, environmental benefits targeting, Upper Mississippi River Basin.
    Date: 2005–02
  32. By: Lyubov A. Kurkalova
    Abstract: The study presents a conceptual model of an aggregator who selectively pays farmers for altering farming practices in exchange for carbon offsets that the change in practices generates. Under the assumption that the offsets are stochastic and that the aggregator maximizes the sum of the offsets from the purchase that he/she can rightfully claim with a specified level of confidence subject to a budget constraint, we investigate the optimal discounting of expected carbon offsets. We use the model to estimate empirically the optimal discounting levels and costs for a hypothetical carbon purchasing project in the Upper Iowa River Basin.
    Keywords: carbon sequestration in agricultural soils, offset discounting, uncertainty.
    Date: 2005–03

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