nep-ene New Economics Papers
on Energy Economics
Issue of 2006‒10‒07
seventeen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Understanding Long-Term Energy Use and Carbon Dioxide Emissions in the Usa By Richard S.J. Tol; Stephen W. Pacala; Robert Socolow
  2. 06-05 Can Climate Change Save Lives? A comment on “Economy-wide estimates of the implications of climate change: Human health” By Frank Ackerman and Elizabeth Stanton
  3. Carbon Dioxide Emission Scenarios for the Usa By Richard S.J. Tol
  4. The Allocation of European Union Allowances: Lessons, Unifying Themes and General Principles By Barbara K. Buchner; Carlo Carraro; A. Denny Ellerman
  5. Clean development mechanism (CDM) vs. international permit trading – the impact on technological change By Hagem, Cathrine
  6. Risk Management in the Clean Development Mechanism (CDM) – The Potential of Sustainability Labels By Muller, Adrian
  7. Global Climate Change, Technology Transfer and Trade with Complete Specialization By Dirk T.G. Rübbelke; Vivekananda Mukherjee
  8. Air Pollution Costs in Ukraine By Elena Strukova; Alexander; Anil Markandya
  9. Risky Arbitrage, Asset Prices, and Externalities By Cuong Le Van; Frank H. Page; Myrna H. Wooders
  10. Dependent Controllers and Regulation Policies: Theory and Evidence By Carmine Guerriero
  12. Pigou's Dividend versus Ramsey's Dividend in the Double Dividend Literature By Eduardo L. Giménez Fernández; Miguel Rodríguez Méndez
  13. Energy Demand and Temperature: A Dynamic Panel Analysis By Andrea Bigano; Francesco Bosello; Giuseppe Marano
  14. Spending Natural Resource Revenues in an Altruistic Growth Model By Elisabeth Hermann Frederiksen
  15. Plenty of Room? Fiscal Space in a Resource Abundant Economy By María Antonia Moreno; Francisco Rodríguez
  16. El Acuerdo de Libre Comercio de las Américas entre consolidación del sistema petrolero americano y transformación de las industrias petroleras latinoamericanas By Achraf Benhassine
  17. A New Era for Oil Prices By John V. Mitchell

  1. By: Richard S.J. Tol (Princeton University, Vrije Universiteit and Hamburg University); Stephen W. Pacala (Princeton University); Robert Socolow (Princeton University)
    Abstract: We compile a database of energy uses, energy sources, and carbon dioxide emissions for the USA for the period 1850-2002. We use a model to extrapolate the missing observations on energy use by sector. Overall emission intensity rose between 1850 and 1917, and fell between 1917 and 2002. The leading cause for the rise in emission intensity was the switch from wood to coal, but population growth, economic growth, and electrification contributed as well. After 1917, population growth, economic growth and electrification pushed emissions up further, and there was no net shift from fossil to non-fossil energy sources. From 1850 to 2002, emissions were reduced by technological and behavioural change (particularly in transport, manufacturing and households), structural change in the economy, and a shift from coal to oil and gas. These trends are stronger than electrification, explaining the fall in emissions relative to GDP.
    Keywords: Carbon Dioxide Emissions, Decomposition, Environmental Kuznets Curve, USA, History
    JEL: Q5 Q4 Q0
    Date: 2006–08
  2. By: Frank Ackerman and Elizabeth Stanton
    Abstract: In a recent article in this journal, Francesco Bosello, Roberto Roson, and Richard Tol make the surprising prediction that the first stages of global warming will, on balance, save a large number of lives. Bosello et al. fail to substantiate this remarkable estimate, and they make multiple mistaken or misleading assumptions. They rely on research that identifies a simple empirical relationship between temperature and mortality, but ignores the countervailing effect of human adaptation to gradual changes in average temperature. While focusing on small changes in average temperatures, they ignore the important health impacts of extreme weather events such as heat waves, droughts, floods, and hurricanes. They extrapolate this pattern far beyond the level that is apparently supported by their principal sources, and introduce an arbitrary assumption that may bias the result toward finding benefits from warming.
  3. By: Richard S.J. Tol (Hamburg University)
    Abstract: A model of carbon dioxide emissions of the USA is presented. The model consists of population, income per capita, economic structure, final and primary energy intensity per sector, primary fuel mix, and emission coefficients. The model is simple enough to be calibrated to observations since 1850. The model is used to project emissions until 2100. Best guess carbon dioxide emissions are in the middle of the IPCC SRES scenarios, but incomes and energy intensities are on the high side, while carbon intensities are on the low side. The confidence interval suggests that the SRES scenarios do not span the range of not-implausible futures. Although the model can be calibrated to reflect structural changes in the economy, it cannot anticipate such changes. The data poorly constrain crucial scenario elements, particularly energy prices. This suggests that the range of future emissions is wider still.
    Keywords: Climate Change, Emissions Scenarios, USA
    JEL: Q54
    Date: 2006–09
  4. By: Barbara K. Buchner (Fondazione Eni Enrico Mattei); Carlo Carraro (Fondazione Eni Enrico Mattei and University of Venice); A. Denny Ellerman (Senior Lecturer at MIT)
    Abstract: This paper is the concluding chapter of Rights, Rents and Fairness: Allocation in the European Emissions Trading Scheme, edited by the co-authors and forthcoming from Cambridge University Press. The main objective of this paper is to distill the lessons and general principles to be learnt from the allocation of allowances in the European Union Emission Trading Scheme (EU ETS), i.e. in the world’s first experience with allocating carbon allowances to sub-national entities. We discuss the lessons that emerge from this experience and make some comments on what seem to be more general principles informing the allocation process and on what are the global implications of the EU ETS. As has become obvious during the first allocation phase, the diversity of experience among the Member States is considerable, so that it must be understood that these lessons and unifying themes are drawn from the experience of most of the Member States, not necessarily from all. Lessons and unifying observations are grouped in three categories: those concerning the conditions encountered, the processes employed, and the actual choices.
    Keywords: Climate Change, Emission Trading, Allocation, Fairness, EU Policy
    JEL: C72 H23 Q25 Q28
    Date: 2006–09
  5. By: Hagem, Cathrine (Dept. of Economics, University of Oslo)
    Abstract: The clean development mechanism (CDM) under the Kyoto Protocol may induce a technological change in developing countries. As an alternative to the CDM-regime, developing countries may accept a (generous) cap on their own emissions, let domestic producers invest in new efficient technologies, and sell the excess emission permits on the international permit market (cap&trade-regime). The purpose of this paper is to show how the gains from investment, and hence the incentive for investment in new technology may deviate between the two alternative regimes. We show that the difference in gains from investment depends on whether the producers face competitive or non-competitive output markets, whether the investment affects fixed or variable production costs and whether the producers can reduce emissions through other means than investment in new technology
    Keywords: Climate Policy; Technology Adoption; Emission Trading; Clean Development Mechanism; Technological Change
    JEL: L13 Q28
    Date: 2006–10–04
  6. By: Muller, Adrian (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: There is a danger that the CDM will fail to live up to its goals, namely reduction of greenhouse gas emissions and enhanced sustainable development. Sustainability labeling is a promising strategy to hedge against such failures. Labels could also serve as a business risk-hedging tool. The existing labels for the CDM are not comprehensive enough, however. A two-tiered stakeholder participatory approach with national flexibility under an international umbrella could be a promising option. Due to the necessary bureaucracy this might not be feasible. Labels in the spirit of the existing approaches – addressing only restricted aspects of sustainability or not applicable to all sectors may be a second best option. Other instruments for the further regulation of the CDM, such as a profit tax, should therefore be discussed as well. <p>
    Keywords: CDM; labels; sustainability indicators; risk; equity
    JEL: L15 M14 O13 Q01 Q54
    Date: 2006–09–20
  7. By: Dirk T.G. Rübbelke (Chemnitz University of Technology); Vivekananda Mukherjee (Jadavpur University)
    Abstract: The paper develops a model in which a country with better technology for abatement of Green House Gas (GHG) emission (the North) commits to an international protocol to keep the global GHG emission within a specified limit while it helps the mitigation effort in the other country (the South) with unconditional transfer of abatement technology. It finds out in the autarkic (‘no trade’) equilibrium the technology transfer offer from the North is always accepted by the South. The North may offer either a partial or a complete technology transfer. If partial technology transfer is offered it finds out the determinants of the extent of technology transfer. Then it compares the autarkic equilibrium with equilibrium where trade with complete specialization occurs and finds out that trade limits the scope of technology transfer as an instrument for mitigation of global GHG emission.
    Keywords: GHG Emission, Mitigation, Technology Transfer, Trade
    JEL: F18 F35 Q54 Q56
    Date: 2006–09
  8. By: Elena Strukova (World Bank); Alexander (Environmental Defense); Anil Markandya (Fondazione Eni Enrico Mattei)
    Abstract: The paper presents estimation of the health losses from urban air pollution in Ukraine. The methodology developed by US EPA and adjusted in Russia for Eastern European transition countries was applied for health risk assessment. PM2.5 was identified as the major source of human health risk, based on experience from the Russian studies. In the absence of reliable computed concentrations of PM2.5, the study was based on monitoring data of total suspended particle (TSP) emissions in Ukraine. Additional cases of mortality and morbidity were calculated based on reporting data on TSP concentration that was recalculated into PM2.5. Then the concentration–response function was applied to estimate individual risk. Next, individual risk was applied to the population exposed to the concentration reported for each city included in the analysis (we selected most polluted cities). For each city we considered individual data on baseline mortality and morbidity and population structure. In total, air pollution related mortality represents about 6 percent of total mortality in Ukraine. In Russia the corresponding indicator totals about 4 percent. The relative mortality risk attributed to air pollution calculated per 100 000 population in both countries is about 55-59 cases. Since applied method is sensitive to the primary data uncertainties we conducted sensitivity analysis applying Monte-Carlo method. Economic damage related to mortality risk was estimated at about 4 percent of GDP. There was no relevant WTP study in Ukraine therefore we applied the benefit-transfer method in order to estimate VSL, since mortality attributed to air pollution is major component of health losses (about 94 percent). In order to compare and aggregate mortality and morbidity risks we recalculated them in DALY. Then morbidity represents about 30 percent of total air pollution health load. Data on baseline morbidity is less reliable than data on baseline mortality; therefore the morbidity risk estimates are more uncertain than mortality estimates. It is likely that morbidity risk is underestimated. Regardless of uncertainties mentioned above and some problems with reported data we can conclude that the mortality risk attributed to air pollution is significant. Therefore, costs of air pollution in Ukraine are sizable and in the nearest future may offset the economic growth. Recovery of the Ukrainian economy based on restoration of polluting industries may lead to stagnation since mortality and morbidity risks not only puts burden on the economy, but also reduce labor force.
    Keywords: Air Pollution, Ukraine, Environmental Damages
    JEL: Q53 I10 I18
    Date: 2006–09
  9. By: Cuong Le Van (CES - Centre d'Economie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Frank H. Page (University of Alabama - [University of Alabama]); Myrna H. Wooders (Vanderbilt University - [Vanderbilt University])
    Abstract: We introduce a no-risky-arbitrage price condition (NRAP) for asset market models allowing both unbounded short sales and externalities such as trading volume. We then demonstrate that NRAP is sufficient for the existence of competitive equilibrium in the presence ofexternalities. Moreover, we show that if all risky arbitrages are utility increasing, then NRAP characterizes competitive equilibrium in the<br />presence of externalities.
    Keywords: Risky Arbitrage, Competitive Equilibrium, Viable<br />Asset Prices
    Date: 2006–10–02
  10. By: Carmine Guerriero (University of Cambridge)
    Abstract: This paper analyzes the effects of supervisors’ (i.e., regulators and judges) selection rules on regulated prices. A checks and balances’ regulatory review process strengthens the role of the judicial power and election increases the populism of implicitly motivated supervisors. Election arises when the risk related to expropriation of sunk investments and the inter-party distance are lower. Employing U.S. electric power market’s data, the empirical evidence strongly confirms these predictions. Indeed, when treated as endogenous, only the election of administrative law judges and not the one of regulators significantly lowers the level of electricity rates. Moreover a more effective supervision technology shows a marginal negative effect on regulated rates as well.
    Keywords: Election, Agency, Judges, Regulation, Electricity
    JEL: K23 L51 Q43
    Date: 2006–08
  11. By: Sudhir A. Shah (Delhi School of Economics)
    Abstract: We study the problem caused by international transfrontier pollution. Our re-sults are derived from the analysis of an incomplete information, non-cooperative game model of the determination of emissions in a quantity-rationing setting. We model the emission capping negotiations using the best response dynamic pro-cess and provide natural conditions under which the process has a unique and globally asymptotically stable stationary point. We then analyze the link be-tween type profiles and the stationary points of the negotiation process to derive various comparative statics results and the type-contingent ordering of emission allocations. Finally, we study the investment strategies that nations can use prior to the negotiations in order to manipulate the equilibrium emission caps. The results have implications regarding the political economy of emission capping.
    Keywords: Emission capping, non-cooperative game, negotiations, incomplete information, manipulation
    JEL: D74 H41 Q21 Q25 R11
    Date: 2006–08
  12. By: Eduardo L. Giménez Fernández (Universidad de Vigo); Miguel Rodríguez Méndez (Universidad de Vigo)
    Abstract: 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 appropiate for policy guidance than the usual Ramsey's dividend. Finally, the paper analyzes a green tax reform for the US economy to illustrate the advantages of 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
  13. By: Andrea Bigano (Fondazione Eni Enrico Mattei); Francesco Bosello (Fondazione Eni Enrico Mattei and EEE Programme, International Centre for Theoretical Physics); Giuseppe Marano (Fondazione Eni Enrico Mattei)
    Abstract: This paper is a first attempt to investigate the effect of climate on the demand for different energy vectors from different final users. The ultimate motivation for this is to arrive to a consistent evaluation of the impact of climate change on key consumption goods and primary factors such as energy vectors. This paper addresses these issues by means of a dynamic panel analysis of the demand for coal, gas, electricity, oil and oil products by residential, commercial and industrial users in OECD and (a few) non-OECD countries. It turns out that temperature has a very different influence on the demand of energy vectors as consumption goods and on their demand as primary factors. In general, residential demand responds negatively to temperature increases, while industrial demand is insensitive to temperature increases. As to the service sector, only electricity demand displays a mildly significant negative elasticity to temperature changes.
    Keywords: Energy Demand, Temperature, Dynamic Panels
    JEL: C3 Q41 Q54
    Date: 2006–09
  14. By: Elisabeth Hermann Frederiksen (Department of Economics, University of Copenhagen)
    Abstract: This paper examines how revenues from a natural resource interact with growth and welfare in an overlapping generations model with altruism. The revenues are allocated between public productive services and direct transfers to members of society by spending policies. We analyze how these policies influence the dynamics, and how the dynamics are influenced by the abundance of the revenue. Abundant revenues may harm growth, but growth and welfare can be oppositely affected. We also provide the socially optimal policy. Overall, the analysis suggests that variation in the strength of altruism and in spending policies may be part of the reason why natural resources seem to affect economic performance across nations differently.
    Keywords: natural resources; economic growth; welfare; altruism
    JEL: D64 O41 Q33 Q38
    Date: 2006–09
  15. By: María Antonia Moreno (Universidad Central de Venezuela); Francisco Rodríguez (Economics Department, Wesleyan University)
    Date: 2006–09
  16. By: Achraf Benhassine (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: El Acuerdo de Libre Comercio de las Américas tiene por objeto, a través de la liberalización y la desreglamentación, de definir un modelo institucional y jurídico en el cual las prerrogativas de los estados miembros sean reguladas por normas y reglas comunes. Los Estados Unidos tienen en este acuerdo el medio de asegurar casi el 50% del flujo de aprovisionamiento en petróleo necesario para el buen funcionamiento de su economía y de promover los componentes así como su poder estructural: esto constituye la consolidación de lo que nosotros llamamos el sistema petrolero americano. Las industrias petroleras nacionales de los países latinoamericanos subsisten de las transformaciones y las mutaciones profundas que conducen a una redefinición del rol de la autoridad publica en la gestión y la regulación de las actividades ligadas al petróleo.
    Keywords: ALCA, poder estructural, sistema petrolero
    Date: 2006–09–29
  17. By: John V. Mitchell
    Abstract: Since 2003 the international oil market has been moving away from the previous 20-year equilibrium in which prices fluctuated around $25/bbl (in today’s dollars). The single most important reason is that growing demand has eliminated the structural surplus of crude production capacity which had existed since the oil price shock of 1979-83. So far, the higher oil prices since 2003, and even higher since 2005, have not induced economic recession in oil-importing countries so that oil demand has not fallen as it did in the 1980s after the second oil shock. Unless this occurs, a structural surplus will not be recreated, and prices are likely to remain ‘high’ – above $50/bbl – until longer-term reactions take effect. If the political situation in the Middle East deteriorates further prices could reach new levels, but the reaction would be quicker and stronger. Meanwhile, supply and demand are set to expand roughly in balance over the next five years, though there are many uncertainties which will lead to short-term fluctuations. With so little controllable flexibility in supply or demand, prices will remain volatile in the short term. Five or more years of oil and related energy prices averaging double (or more) their previous long-term average cannot fail to create a new long-term situation both in terms of economic behaviour and government policy. This will bring new competition which will simultaneously reduce the demand for energy, increase the supply of oil, and increase the substitution of other fuels for oil outside the transport sector. As these forces develop, oil prices will be unstable through the long term. For the transport sector, there is a very large range of possibilities which do not depend on the development of new technology. Examples are a shift in US vehicle demand to vehicles with typical Japanese or European fuel efficiency (which would reduce world transport fuel demand by nearly 10%) and the opening of US and European markets to competition from Brazilian and other developing country ethanol supplies. A period of high oil prices will also lead to investment to increase the production of liquid fuels from oil sands or natural gas. Once these investments are made, they are likely to continue producing as long as their operating costs remain lower than the price of oil.
    Date: 2006–06

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