nep-ene New Economics Papers
on Energy Economics
Issue of 2006‒07‒21
nine papers chosen by
Roger Fouquet
Imperial College, UK

  1. Energy Futures Market Trading Versus Physical Commodity Usage: A playground for manipulation or a miscalculation? By Ronald Ripple
  2. Reconsidering The Impact of Environment on Long-Run Growth When Pollution Influences Health and Agents Have Finite-Lifetime By Xavier Pautrel
  3. The Impact of Population on CO2 Emissions: Evidence From European Countries By Inmaculada Martínez-Zarzoso; Aurelia Bengochea-Morancho; Rafael Morales-Lage
  4. The Impact of Climate Change on Domestic and International Tourism: A Simulation Study By Andrea Bigano; Jacqueline M. Hamilton; Richard S.J. Tol
  5. Directed Technical Change and Climate Policy By Vincent M. Otto; Andreas Löschel; John Reilly
  6. Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change By Corrado Di Maria; Edwin van der Werf
  7. The White House and the Kyoto Protocol: Double Standards on Uncertainties and Their Consequences By Philippe Tulkens; Henry Tulkens
  8. Can R&D-Inducing Green Tariffs Replace International Environmental Regulations? By Alireza Naghavi
  9. Pigou’s Dividend versus Ramsey’s Dividend in the Double Dividend Literature By Miguel Rodríguez; Eduardo L. Giménez

  1. By: Ronald Ripple (Department of Economics, Macquarie University)
    Abstract: The relationship between energy futures trading volume and physical commodity usage is evaluated with the aim of demonstrating the correct method of calculation. This relationship has been incorrectly calculated and the misleading results have been offered up as evidence of excessive speculator activity leading to higher and more volatile prices, on the one hand, and to support claims of high levels of market liquidity and transparency, on the other. It is shown that rather than constituting large multiples over physical usage the futures trading activity represents a fraction of usage. These fractions of physical usage represented by futures trading volume cannot support suggestions that futures markets are playgrounds for non-commercial market manipulators. Nevertheless, there is still strong evidence that the energy futures markets provide a valuable basis for price discovery and risk mitigation, since a significant share of physical usage is represented by futures market activity.
    Keywords: Futures contracts, trading volume, consumption, crude oil, natural gas
    JEL: Q48 G18
    Date: 2006–05
  2. By: Xavier Pautrel (Université de Nantes)
    Abstract: Using an overlapping generation model à la Blanchard (1985) with human capital accumulation, this article demonstrates that the influence of environment on optimal growth in the long-run may be explained by the detrimental effect of pollution on life expectancy. It also shows that, in such a case, greener preferences are growth- and welfare-improving even if the ability of the agents to learn is independent to pollution and utility is additively separable. Finally, it establishes that it is possible to implement a win-win environmental policy.
    Keywords: Growth, Environment, Overlapping Generations, Human Capital, Health
    JEL: E62 I21 O41 Q28
    Date: 2006–06
  3. By: Inmaculada Martínez-Zarzoso (Universitat Jaume I); Aurelia Bengochea-Morancho (Universitat Jaume I); Rafael Morales-Lage (Universitat Jaume I)
    Abstract: This paper analyses the impact of population growth on CO2 emissions in European Union countries. Traditionally, researchers have assumed a unitary elasticity of emissions with respect to population growth. In this study population is treated as a predictor in the model, instead of being included as part of the dependent variable (per capita emissions), thus relaxing the above-mentioned assumption of unitary elasticity. We also contribute to the existing literature by taking into account the presence of heterogeneity in the sample and considering a dynamic specification. The sample covers the period 1975- 1999 for the current European Union members. Our results show that the impact of population growth on emissions is more than proportional for recent accession countries whereas for old EU members, the elasticity is lower than unity and non significant when the properties of the time series and the dynamics are correctly specified. The different impact of population change on CO2 emissions for the current EU members should therefore be taken into account in future discussions of climate change policies within the EU.
    Keywords: CO2 Emissions, European Union, Panel Data, Population Growth
    JEL: Q25 Q4 Q54
    Date: 2006–06
  4. By: Andrea Bigano (Fondazione Eni Enrico Mattei); Jacqueline M. Hamilton (Hamburg University and Centre for Marine and Atmospheric Science); Richard S.J. Tol (Hamburg University, Vrije Universiteit and Carnegie Mellon University)
    Abstract: We use an updated and extended version of the Hamburg Tourism Model to simulate the effect of development and climate change on tourism. Model extensions are the explicit modelling of domestic tourism and the inclusion of tourist expenditures. We also use the model to examine the impact of sea level rise on tourism demand. Climate change would shift patterns of tourism towards higher altitudes and latitudes. Domestic tourism may double in colder countries and fall by 20% in warmer countries (relative to the baseline without climate change). For some countries international tourism may treble whereas for others it may cut in half. International tourism is more (less) important than is domestic tourism in colder (warmer) places. Therefore, climate change may double tourist expenditures in colder countries, and halve them in warmer countries. In most places, the impact of climate change is small compared to the impact of population and economic growth. The quantitative results are sensitive to parameter choices, but the qualitative pattern is robust.
    Keywords: Climate Change, International Tourism, Domestic Tourism
    JEL: L83 Q54
    Date: 2006–06
  5. By: Vincent M. Otto (Wageningen University and MIT); Andreas Löschel (European Commission); John Reilly (Joint Program on the Science and Policy of Global Change)
    Abstract: This paper studies the cost effectiveness of climate policy if there are technology externalities. For this purpose, we develop a forward-looking CGE model that captures empirical links between CO2 emissions associated with energy use, directed technical change and the economy. We find the cost-effective climate policy to include a combination of R&D subsidies and CO2 emission constraints, although R&D subsidies raise the shadow value of the CO2 constraint (i.e. CO2 price) because of a strong rebound effect from stimulating innovation. Furthermore, we find that CO2 constraints differentiated toward CO2-intensive sectors are more cost effective than constraints that generate uniform CO2 prices among sectors. Differentiated CO2 prices, through technical change and concomitant technology externalities, encourage growth in the non-CO2 intensive sectors and discourage growth in CO2-intensive sectors. Thus, it is cost effective to let the latter bear relatively more of the abatement burden. This result is robust to whether emission constraints, R&D subsidies or combinations of both are used to reduce CO2 emissions.
    Keywords: Directed Technical Change, Climate Policy, Computable General Equilibrium Model, R&D
    JEL: D58 H21 H23 O33 O38
    Date: 2006–06
  6. By: Corrado Di Maria (CentER and Tilburg University); Edwin van der Werf (CentER and Tilburg University)
    Abstract: A common critique to the Kyoto Protocol is that the reduction in emissions of CO2 by countries who comply with it will be (partly) offset by the increase in emissions on the part of other countries (carbon leakage). This paper analyzes the effect of technical change on carbon leakage in a two-country model where only one of the countries enforces an exogenous cap on emissions. Climate policy induces changes in relative prices, which cause carbon leakage through a terms-of-trade effect. However, these changes in relative prices in addition affect the incentives to innovate in different sectors. We allow entrepreneurs to choose the sector for which they innovate (directed technical change). This leads to a counterbalancing induced-technology effect, which always reduces carbon leakage. We therefore conclude that the leakage rates reported in the literature so far may be too high, as these estimates neglect the effect of relative price changes on the incentives to innovate.
    Keywords: Climate Policy, Carbon Leakage, Directed Technical Change, International Trade
    JEL: F18 O33 Q54 Q55
    Date: 2006–06
  7. By: Philippe Tulkens (TERI School of Advanced Studies); Henry Tulkens (CORE, Université Catholique de Louvain)
    Abstract: This paper compares the level of uncertainty widely reported in climate change scientific publications with the level of uncertainty of the costs estimates of implementing the Kyoto Protocol in the United States. It argues that these two categories of uncertainties were used and ignored, respectively, in the policy making process in the US so as to challenge the scientific basis on the one hand and on the other hand to assert that reducing emissions would hurt the economy by an amount stated without any qualification. The paper reviews the range of costs estimates published since 1998 on implementing the Kyoto Protocol in the US. It comments on the significance of these cost estimates and identifies a decreasing trend in the successive estimates. This implies that initially some of the most influential economic model-based assessments seem to have overestimated the costs, an overestimation that may have played a significant role in the US decision to withdraw from the Protocol. The paper concludes with advocating that future economic estimates always include uncertainty ranges, so as to be in line with a basic transparency practice prevailing in climate science.
    Keywords: United States, Kyoto Protocol, Cost Estimates, Uncertainties
    JEL: Q5 Q54 Q58 C82
    Date: 2006–06
  8. By: Alireza Naghavi (University of Modena)
    Abstract: This paper investigates the link between trade and environment by exploring the effects of green tariffs on the location of firms, innovation and the environment. It shows that tariffs levied on polluting goods could result in less global pollution than harmonization of environmental standards by inducing more pollution abatement R&D, generating lower unit emissions from production, and reducing competition. Green tariffs reduce pollution by (1) shifting production to the region where environmental standards are respected, (2) strategically inducing abatement R&D by the Northern firm by granting the latter a higher market share, (3) creating abatement R&D by deterring delocation.
    Keywords: Environmental Standards, Multinationals, Location of Firms, Pollution Abatement R&D, Green Tariffs
    JEL: F13 F18 F23 H23 Q21 R38
    Date: 2006–06
  9. By: Miguel Rodríguez (Universidade de Vigo); Eduardo L. Giménez (Universidade de Vigo)
    Abstract: This paper deals with the welfare analysis of green tax reforms. The aims of this paper are to highlight misinterpretations of policy assessments in the double dividend literature, to specify which of the efficiency costs and benefits should be ascribed to each dividend, and then, to propose a definition for the first dividend and the second dividend. We found the Pigou’s dividend more appropriate for policy guidance, in contrast to the Ramsey’s dividend usually found in mainstream literature. Therefore, we take up some authors’ recent claims about the need of unambiguous and operative definitions of these dividends both for empirical purposes, and political advice. Finally, the paper analyzes a green tax reform for the US economy to illustrate the advantages of our definitions for policy assessment. The new definitions proposed in this paper i) overcome some shortcoming of the mainstream current definitions in the literature regarding overestimation of the efficiency costs; and, ii) provide information by themselves and not as a partial view of the whole picture.
    Keywords: Double Dividend, Green Tax Reforms, Ramsey’s Dividend, Pigou’s Dividend
    JEL: H23 Q58
    Date: 2006–06

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