nep-ene New Economics Papers
on Energy Economics
Issue of 2006‒07‒09
twelve papers chosen by
Roger Fouquet
Imperial College, UK

  1. The challenge of energy policy in New England By Carrie Conaway
  2. Brazil’s Nuclear Policy. From Technological Dependence to Civil Nuclear Power By Daniel Flemes
  3. Indexed Regulation By Newell, Richard G.; Pizer, William A.
  4. The Economics of Climate Change By Goulder, Lawrence H.; Pizer, William A.
  5. Economics versus Climate Change By Pizer, William A.
  6. Automobile Externalities and Policies By Parry, Ian W.H.; Walls, Margaret; Harrington, Winston
  7. A General Equilibrium Analysis of Emission Allowances By Alexandrine Jamin; Antoine Mandel
  8. Comment intégrer l'économie, l'énergie et le climat ? By Minh Ha-Duong; Pierre Matarasso
  9. The Worst-Case Scenario and Discounting the Very Long Term By El Hadji Fall
  10. Simple Rules for Targeting CO2 Allowance Allocations to Compensate Firms By Palmer, Karen; Butraw, Dallas; Kahn, Danny
  12. The Catastrophic Effects of Natural Disasters on Insurance Markets By W. Kip Viscusi; Patricia Born

  1. By: Carrie Conaway
    Abstract: New England's energy problems were not quickly created, and they will not be quickly resolved. But they cannot be ignored, for they are too important to the region's future. Without the assurance of an energy system that can meet immediate demands along with long-term growth, the region puts its economic prosperity at risk.
    Keywords: Energy policy - New England
    Date: 2006
  2. By: Daniel Flemes (GIGA German Institute of Global and Area Studies)
    Abstract: Since March 2006 Brazil has been the ninth country to control the full nuclear fuel cycle. While the U.S. government bashes the uranium enrichment activities in Iran, it has come to an arrangement with the uranium enrichment in its backyard after transitional diplomatic tensions. As signer of the Non-Proliferation Treaty Brazil has the right to enrich uranium for peaceful use. This article focuses on the political motives and objectives connected with the domination of this key technology. Brasilia has been striving for regional leadership and participation in international decision making processes. In historical perspective the Brazilian enrichment procedure marks the liberation from the technological U.S. dependence. Brazil seems to be on the way to establish itself as a civil nuclear power in international relations.
    Keywords: Brazil, nuclear policy, uranium enrichment, Non-Proliferation Treaty, U.S. foreign policy
    Date: 2006–06
  3. By: Newell, Richard G. (Resources for the Future); Pizer, William A. (Resources for the Future)
    Abstract: Seminal work by Weitzman (1974) revealed that prices are preferred to quantities when marginal benefits are relatively flat compared to marginal costs. We extend this comparison to indexed policies, where quantities are proportional to an index, such as output. We find that policy preferences hinge on additional parameters describing the first and second moments of the index and the ex post optimal quantity level. When the ratio of these variables’ coefficients of variation divided by their correlation is less than two, indexed quantities are preferred to fixed quantities. A slightly more complex condition determines when indexed quantities are preferred to prices. Applied to the case of climate change, we find that quantities indexed to GDP are preferred to fixed quantities for about half of the 19 largest emitters, including the United States and China, while (consistent with previous work) prices dominate for all countries.
    Keywords: price, quantity, regulation, uncertainty, policy, environment, climate change
    JEL: Q28 D81 C68
    Date: 2006–06–20
  4. By: Goulder, Lawrence H.; Pizer, William A. (Resources for the Future)
    Abstract: Global climate change poses a threat to the well-being of humans and other living things through impacts on ecosystem functioning, biodiversity, capital productivity, and human health. Climate change economics attends to this issue by offering theoretical insights and empirical findings relevant to the design of policies to reduce, avoid, or adapt to climate change. This economic analysis has yielded new estimates of mitigation benefits, improved understanding of costs in the presence of various market distortions or imperfections, better tools for making policy choices under uncertainty, and alternate mechanisms for allowing flexibility in policy responses. These contributions have influenced the formulation and implementation of a range of climate change policies at the domestic and international levels.
    Keywords: climate change, global warming, energy
    JEL: Q40 Q50 Q54
    Date: 2006–06–21
  5. By: Pizer, William A. (Resources for the Future)
    Abstract: This paper argues against the common-sense conclusion that climate change demands a global market-based solution, such as international emissions trading. First, current experience suggests global cooperation is not necessary for initial mandatory actions. Second, when domestic targets vary across nations, there are a variety of reasons why international emissions trading, even though it creates aggregate economic gains for all nations, may not be desirable. These reasons include concerns over legitimizing target variations for future negotiations, real and perceived consequences of capital flows across nations, and distributional impacts within nations. Finally, the underlying need for global technology solutions suggests domestic mitigation policies that balance clear emissions price signals, incentives for technology development and deployment, and mechanisms to finance deployment to developing countries. International efforts, in turn, might focus on encouraging these domestic actions, facilitating the developing country investment mechanisms, and providing credible reviews of national action.
    Keywords: climate, change, international, treaty, Kyoto, emissions trading
    JEL: H87 Q54 D62 D63
    Date: 2006–06–20
  6. By: Parry, Ian W.H. (Resources for the Future); Walls, Margaret (Resources for the Future); Harrington, Winston (Resources for the Future)
    Abstract: This paper reviews theoretical and empirical literature on the measurement of the major automobile externalities, namely local pollution, global pollution, oil dependence, traffic congestion and traffic accidents. It then dicusses the rationale for traditional policies to address these externalities, including fuel taxes, fuel economy standards, emissions standards and related policies. Finally, it discusses emerging, more finely-tuned policies, such as congestion pricing and pay-as-you-drive insurance, that have become feasible with advances in electronic metering technology.
    Keywords: pollution, congestion, accidents, fuel tax, fuel economy standard, congestion pricing
    JEL: Q54 R48 H23
    Date: 2006–06–14
  7. By: Alexandrine Jamin (CES - Centre d'Economie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Antoine Mandel (CES - Centre d'Economie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: Each Party of the Kyoto Protocol on Climate Change must achieve quantified green-house gases emission reduction. one of the major policy instrument to be used to comply with these commitments is the opening of an emission allowances market. This paper analyzes, in the general equilibrium framework, the effects of the opening of such a market on the economic equilibrium.
    Keywords: General Equilibrium Theory ; emission allowances ; general pricing rules ; sensitivity.
    Date: 2006–07–05
  8. By: Minh Ha-Duong (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]); Pierre Matarasso (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: Les modèles « intégrés » économie-énergie-climat sont des modèles numériques interdisciplinaires destinés à étudier ces questions d'impact, d'adaptation et de réduction du changement climatique. Ils visent à traduire les débats discursifs sur la précaution en faisceaux d'arguments logiquement organisés, basés sur des connaissances scientifiques mesurables. Ils sont construits dans l'espoir de permettre aux citoyens, aux instances de décision nationales et internationales de prendre des décisions mieux informées. Les modèles intégrés sont le socle d'une accumulation de connaissances qui nous permettront d'explorer une vaste gamme de situations possibles et de nous préparer ainsi à de nombreuses éventualités, tant du côté des évolutions climatiques que de celui des manières de réduire les émissions anthropiques.
    Keywords: modélisation intégrée, énergie, climat, économie
    Date: 2006–07–03
  9. By: El Hadji Fall (CES - Centre d'Economie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: We propose an ethical viewpoint based on the possibility of the realization of the worst-case scenario in order to reduce future generations risks in terms of discounting. Applied to the question of conservation of a renewable resource, we show that an economy, where the social planner takes into account the possibility that at an uncertain date the discount rate could change to its minimum possible value, could lead to a better conservation of the resource and modify the position of the sacrificed generations. Finally, our model suggests to apply the lowest possible discount rate immediately for long term environmental projects.
    Keywords: Discounting ; environment ; uncertainty ; preservation of natural resources ; intergenerational equity.
    Date: 2006–07–05
  10. By: Palmer, Karen (Resources for the Future); Butraw, Dallas (Resources for the Future); Kahn, Danny (Resources for the Future)
    Abstract: Policies to cap emissions of carbon dioxide (CO2), such as the recently announced agreement among seven northeastern states, are expected to have important effects on the electricity industry and on the market value of firms that own electricity generation assets. The economics literature finds large efficiency advantages for initial distribution of tradable emissions allowances through an auction so as to direct revenues to tax relief or other public investments. However, an auction raises the costs for the regulated firms. This paper identifies rules for an initial distribution that satisfy a compensation goal for firms that is achieved through free distribution of a portion of the allowances, while maximizing the value of allowances that can be directed to public purposes. The paper employs a detailed simulation model to calculate numerical results for the market value of generation assets under the CO2 cap-and-trade program in the northeastern United States.
    Keywords: emissions trading, allowance allocations, electricity, air pollution, auction, grandfathering, output-based allocation, cost-effectiveness, greenhouse gases, climate change, global warming, carbon dioxide, asset value
    JEL: Q2 Q25 Q4 L94
    Date: 2006–06–06
  11. By: Warwick J. McKibbin; Peter J. Wilcoxen
    Abstract: To succeed in reducing carbon dioxide emissions, a climate policy must establish credible long-term incentives for investments in the new energy-sector capital and in research and development. We argue that credibility implies that international agreements should focus on enhancing coordination and collaboration between countries, rather than on coercion. At the national level, credibility requires political and economic incentives that can be provided by long-term tradable emission permits, but it needs more flexibility than can be provided by a conventional permit system. We argue that the best mechanism for providing credible long-term incentives is a hybrid system of long and short term emissions permits. Key aspects of the system would be coordianted across countries but the permits would be issued and traded solely within national borders.
    Date: 2006–04
  12. By: W. Kip Viscusi; Patricia Born
    Abstract: Natural catastrophes often have catastrophic risks on insurance companies as well as on the insured. Using a very large dataset on homeowners’ insurance coverage by state, by firm, and by year for the 1984 to 2004 period, this paper documents the positive effect on losses and loss ratios of both unexpected catastrophes as well as large events that the authors term “blockbuster catastrophes.” Insurers adapt to these catastrophic risks by raising insurance rates, leading to lower loss ratios after the catastrophic event. There is a widespread event of unexpected catastrophes and blockbuster catastrophes that reduces total premiums earned in the state, reduces the total number writing insurance coverage in the state, and leads to the exit of firms from the state. Firms with low levels of homeowners’ premiums are most adversely affected by the catastrophes.
    JEL: D8 G22 K13
    Date: 2006–07

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