nep-ene New Economics Papers
on Energy Economics
Issue of 2006‒10‒28
twelve papers chosen by
Roger Fouquet
Imperial College, UK

  1. The Allocation of European Union Allowances: Lessons, Unifying Themes and General Principles By Barbara Buchner; Carlo Carraro; A. Denny Ellerman
  2. The Allocation of European Union Allowances. Lessons, Unifying Themes and General Principles By Buchner, Barbara; Carraro, Carlo; Ellerman, A Denny
  3. 06-07 “The Economics of Inaction on Climate Change: A Sensitivity Analysis” By Frank Ackerman and Ian J. Finlayson
  4. Poverty reduction, climate change mitigation and adaptation : the need for intermediate public policies harnessing technology appropriation By Christophe Rynikiewicz; Anne Chetaille
  5. Unravelling the World-Wide Pollution Haven Effect By de Melo, Jaime; Grether, Jean-Marie; Mathys, Nicole Andréa
  6. Second-best tax policy in a growing economy with externalities. By Steve Cassou; Arantza Gorostiaga; María José Gutiérrez; Stephen Hamilton
  7. The social discount rate in cost benefit analysis: the British experience and lessons to be learned By Erhun KULA
  8. Use of economic evaluation tools in environmental policymaking, with a focus on implications for children By Pascale SCAPECCHI
  9. Does Democratization Benefit the Environment in the Long-Run in the Presence of Inequality? By Drosdowski, Thomas
  10. Overcoming the natural resource constraint through dedicated R&D effort with heterogenous labor supply By Jean-Pierre Amigues; Michel Moreaux; Francesco Ricci
  11. Can Oil Prices Explain the Real Appreciation of the Russian Ruble in 1998-2005? By Kirill Sosunov; Oleg Zamulin
  12. Does Oil Price Uncertainty Transmit to Stock Markets? By Ågren, Martin

  1. By: Barbara Buchner; Carlo Carraro; A. Denny Ellerman
    Abstract: On January 1st, 2005, the EU Emissions Trading Scheme (EU ETS) scheme was officially launched, only two years after the European Council adopted the EU Emissions Trading Directive (European Community 2003). As a consequence of this formal start, the world’s largest ever market in emissions has been established, and European companies now face a carbon-constrained reality in form of legally binding emission targets. Within essentially one year, 2004, the international carbon market has gained momentum through major policy developments and quick market responses, which among others have enabled the establishment of a framework for the EU carbon market.
    Date: 2006–09
  2. By: Buchner, Barbara; Carraro, Carlo; Ellerman, A Denny
    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: allocation; climate change; emission trading; EU policy; fairness
    JEL: C72 H23 Q25 Q28
    Date: 2006–09
  3. By: Frank Ackerman and Ian J. Finlayson
    Abstract: Economic models of climate change often take the problem seriously, but paradoxically conclude that the optimal policy is to do almost nothing about it. We explore this paradox as seen in the widely used DICE model. Three aspects of that model, involving the discount rate, the assumed benefits of moderate warming, and the treatment of the latest climate science, are sufficient to explain the timidity of the model's optimal policy recommendation. With modifications to those three points, DICE shows that the optimal policy is a much higher and rapidly rising marginal carbon price; that higher carbon price has a greater effect on physical measures of climate impacts. Our modifications exhibit nonlinear interactions; at least at low discount rates, there is synergy between individual changes to the model. At low discount rates, the inherent uncertainty about future damages looms larger in the analysis, rendering long-run economic modeling less useful. Our analysis highlights the sensitivity of the model to three debatable assumptions; it does not, and could not, lead to a more reliably “optimal” cost of carbon. Cost-effectiveness analysis, focusing on the generally shorter-term cost side of the problem, reduces the economic paradoxes of the long run, and may make a greater contribution than economic optimization modeling.
  4. By: Christophe Rynikiewicz (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II]); Anne Chetaille (GRET Pôle Politiques Publiques et Régulations Internationales - [GRET])
    Abstract: A growing attention is given to identify workable approaches, bringing together both goals of climate change mitigation and adaptation and poverty alleviation. Challenges are numerous. Developing countries vulnerability to climate change is high. While access to energy is considered as a key priority for developing countries needs, the climate change constraint would appeal for development paths to be less intensive in greenhouse gases.<br />In this paper, we question the science and technology contribution to resilience in current international policy debate on poverty reduction and sustainable development. Secondly, key principles are defined to ensure an effective contribution of technology to addressing the challenges of leapfrogging. In particular, the ability to associate the stakeholders, define basic needs is fundamental in any technological transitions. Thirdly, we present the IMPACT Network's methodology and case studies that provide an original framework to design intermediate public policies, integrating multiple priorities in local and national strategies. This approach may help creating the enabling environments for technology development.
    Keywords: Climate vulnerability ; inequalities alleviation ; appropriate technologies ; intermediate public policies ; poverty ; adaptation
    Date: 2006–10–10
  5. By: de Melo, Jaime; Grether, Jean-Marie; Mathys, Nicole Andréa
    Abstract: This paper contributes to the debate on the existence of pollution haven effects by systematically measuring the pollution content of trade (measured by the polluction content of imports (PCI)) and decomposing it into three components: a `deep' (i.e. unrelated to the environmental debate) component and two components (factor endowments and environmental policies) that occupy centerstage in the debate on trade and the environment. The decomposition is carried out for 1986-88 for an extensive data set covering 10 pollutants, 48 countries and 79 ISIC 4-digit sectors. Illustrative decompositions presented for 3 of the 10 pollutants in the data set indicate a significant pollution haven effect and highlight the role of factor endowments in each region's PCI. However, because the bulk of trade is intra-regional with a high North-North share, these effects are small relative to the `deep' determinants of the worldwide pollution content of trade.
    Keywords: pollution haven; trade and the environment
    JEL: F18
    Date: 2006–09
  6. By: Steve Cassou (Kansas State University); Arantza Gorostiaga (Universidad del País Vasco / The University of the Basque Country); María José Gutiérrez (Universidad del País Vasco / The University of the Basque Country); Stephen Hamilton (CAL POLY STATE UNIVERSITY, SAN LUIS OBISPO)
    Abstract: This paper investigates the exploitation of environmental resources in a growing economy within a second-best …scal policy framework. Agents derive utility from two types of consumption goods –one which relies on an environmental input and one which does not –as well as from leisure and from environmental amenity values. Property rights for the environmental resource are potentially incomplete. We connect second best policy to essential components of utility by considering the elasticity of substitution among each of the four utility arguments. The results illustrate potentially important relationships between environmental amentity values and leisure. When amenity values are complementary with leisure, for instance when environmental amenities are used for recreation, taxes on extractive goods generally increase over time. On the other hand, optimal taxes on extractive goods generally decrease over time when leisure and environmental amenity values are substitutes. Unders some parameterizations, complex dynamics leading to nonmonotonic time paths for the state variables can emerge.
    Keywords: Growth and the environment; Elasticity of substitution; Second-best policy
    JEL: H23 O41 Q28
    Date: 2006–10–16
  7. By: Erhun KULA
    Abstract: Application of the social discount rate to public sector projects is one of the most crucial parameters in cost benefit analysis. Because of its importance some countries have a formal discount rate and method of discounting policies. The United Kingdom was one of the earliest to adopt a policy on discounting which started in 1967 and it is still evolving. This paper looks at the evolution of the British discounting policy with a number of constructive critical remarks focussing on the magnitude of the current rate as well as the method of discounting. It concludes that present 3.5% figure is rather low and discounting by using the declining rate is almost totally ineffective to care for future generations as compared with an alternative modified discounting which treats all generations in the same manner
    Keywords: Cost-Benefit Analysis, Discounting, Future Generations
    JEL: D61 D70 D90 H50 O12
    Date: 2006–10
  8. By: Pascale SCAPECCHI
    Abstract: This paper focuses on the practical use of cost-benefit analysis (or, more generally, of monetary valuation and other decision-making tools) in environmental policymaking. Based on a questionnaire sent to Environmental Ministries of OECD member countries, a review of the use of such analysis in environmental policymaking is presented. Then, the discussion considers the specific case of children’s environmental health, as recent epidemiological studies have highlighted the particular vulnerability of children to environmental pollution. Indeed, most of environmental policies currently in place are based upon information related to adult populations and not accounting for risk differences between adults and children. Such a lack of consideration of the specific case of children may lead to inefficient policies, and important loss in social welfare. In light of these findings, a review of actual environmental legislation shows whether impacts of environmental degradation specifically on children’s health are taken into account in policymaking and if so, how this is done. Concluding remarks close the paper
    Keywords: decision making, cost-benefit analysis, environmental policy, valuation, environmental regulation, children’s health
    JEL: D61 D62 D64 H43 I18 Q51
    Date: 2006–10
  9. By: Drosdowski, Thomas
    Abstract: Political economy may provide an important link between inequality and pollution. This paper studies the dynamic relationship between inequality and redistributive policy leading to differing transitional paths of pollution to the steady state, using a pollution-augmented framework developed by Benabou and employing numerical simulations. The results indicate that democratization can be beneficial for the environment in the long run if the share of redistributive transfers devoted to abatement is relatively high. Otherwise, less wealth-biased and more democratic regimes display highest income and pollution levels, differing in transitional paths contingent on initial inequality levels. Sustainable development, defined as non-declining level of utility over time, is achieved for a high degree of democracy when initial inequality is low. The representative agent with average wealth does not provide sustainability, which emphasizes the importance of heterogeneity in power and income for sustainability debates.
    Keywords: pollution, political economy, sustainability
    JEL: D31 D72 Q53
    Date: 2006–10
  10. By: Jean-Pierre Amigues (Université de Toulouse 1 and INRA (IDEI and LERNA)); Michel Moreaux (Université de Toulouse 1 (IUF, IDEI and LERNA)); Francesco Ricci (Université de Cergy-Pontoise (THEMA) and LERNA)
    Abstract: The effective labor possibility frontier (ELPF) is defined as the set of statically efficient allocations of labor imputs in the competing tasks of production and R&D. It summaries the labor scarcity constraint. We show that the dynamically efficient paths of R&D, resource extraction and consumption depend on the shape of the ELPF, while their steady state levels do not. In the case of an initial low endowment of resources, the transition to the stationary state is characterized by lower R&D effort, slower growth of per-capita consumption and a longer transition when labor is relatively specialized than when it is more flexible. We analyse policy options for modifying the shape of the ELPF, such as increasing the size of the labor force, subsiding higher education or lifelong learning.
    Keywords: Exhaustible resources and R&D, Labor allocation, Education policy
    JEL: Q01 Q30 I20 J00
    Date: 2006
  11. By: Kirill Sosunov (Higher School of Economics); Oleg Zamulin (New Economic School)
    Abstract: The paper investigates whether the 80% real appreciation of the Russian ruble in 1998-2005 can be explained by the increase in oil revenues in a calibrated general equilibrium model. It is shown that the oil prices alone cannot account for the appreciation with forward-looking permanent-income consumers, unless the oil price increase is assumed permanent. Accounting for the increase in the volume of oil exports, however, can help, provided that the increase is assumed to be permanent.
    Keywords: Real exchange rate; Commodity prices
    JEL: F31 F41
    Date: 2006–09
  12. By: Ågren, Martin (Department of Economics)
    Abstract: The paper presents an empirical study of volatility spillover from oil prices to stock markets within an asymmetric BEKK model. Using weekly data on the aggregate stock markets of Japan, Norway, Sweden, the U.K., and the U.S., strong evidence of volatility spillover is found for all stock markets but the Swedish one, where only weak evidence is found. News impact surfaces show that, although statistically significant, the volatility spillovers are quantitatively small. The stock market’s own shocks, which are related to other factors of uncertainty than the oil price, are more prominent than oil shocks.
    Keywords: Volatility spillover; multivariate GARCH; BEKK; oil shocks; stock market
    JEL: C32 G10
    Date: 2006–10–17

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