nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒03‒17
thirty-two papers chosen by
Roger Fouquet
Imperial College, UK

  2. The Impact of Oil Price Shocks on the U.S. Stock Market By Kilian, Lutz; Park, Cheolbeom
  3. Quel développement pour le gaz en Chine ? By Catherine Locatelli; Jean-Pierre Angelier
  4. Awake the Sleeper Within: Releasing the Energy of Stifled Domestic Commerce By Haque, Nadeem ul Haque
  5. The position and importance of Turkey in the scope of energy policies of the enlarging EU By Tonus, özgür
  6. Searching for Equitable Energy Price Reform for Indonesia By Arief Anshory Yusuf; Budy P. Resosudarmo
  7. Optimal valve location in long oil pipelines By Grigorieva N.V.; Grigoriev A.
  8. Hedging Exposure to Electricity Price Risk in a Value at Risk Framework By Huisman, R.; Mahieu, R.J.; Schlichter, F.
  9. Flexible transition strategies towards future well-to-wheel chains: an evolutionary modelling approach By Malte Schwoon; Floortje Alkemade; Koen Frenken; Marko P. Hekkert
  10. Comments on "The London congestion charge: a tentative economic appraisal" (Prud'homme and Bocajero, 2005) By Charles Raux
  11. Learning-by-doing, Learning Spillovers and the Diffusion of Fuel Cell Vehicles By Malte Schwoon
  12. The Impact of Delhi's CNG Program on Air Quality By Narain, Urvashi; Krupnick, Alan J.
  14. AD-DICE: an implementation of adaptation in the DICE model By Kelly C. de Bruin; Rob B. Dellink; Richard S.J. Tol
  15. Methodological aspects of recent climate change damage cost studies By Onno J. Kuik; Barbara Bucher; Michela Catenacci; Etem Karakaya; Richard S.J. Tol
  16. How overconfident are current projections of anthropogenic carbon dioxide emissions? By Klaus Keller; Louise I. Miltich; Alexander Robinson; Richard S.J. Tol
  17. Equity weighting and the marginal damage costs of climate change By David Anthoff; Cameron Hepburn; Richard S.J. Tol
  18. A U.S. Perspective on Future Climate Regimes By Pizer, William A.
  19. Policy instruments as innovation in governance: the case of emissions trading By Jan-Peter Voß
  20. The Evolution of a Global Climate Change Agreement By Pizer, William A.
  22. Decentralization in the EU Emissions Trading Scheme and Lessons for Global Policy By Kruger, Joseph; Oates, Wallace E.; Pizer, William A.
  25. Climate Change and the Stability of Water Allocation Agreements By Erik Ansink; Arjan Ruijs
  26. Evaluating Global Warming Potentials as Historical Temperature Proxies: an application of ACC2 Inverse Calculation By Katsumasa Tanaka; Richard S.J. Tol; Dmitry Rokityanskiy; Brian C. O'Neill; Michael Obersteiner
  27. KLUM@LPJ: Integrating dynamic land-use decisions into a dynamic global vegetation and crop growth model to assess the impacts of a changing climate. A feasibility study for Europe By Kerstin Ronneberger; Luca Criscuolo; Wolfgang Knorr; Richard S.J. Tol
  28. The economic impact of a shutdown of the Thermohaline Circulation: an application of FUND By P. Michael Link; Richard S.J. Tol
  30. Les ressources en eau sur Terre : origine, utilisation et perspectives dans le contexte du changement climatique – un tour d'horizon de la littérature By Julien Morel
  31. Local Environmental Quality and Life-Satisfaction in Germany By Katrin Rehdanz; David J. Maddison
  32. THE STERN REVIEW: A DECONSTRUCTION By Gary W. Yohe; Richard S.J. Tol

  1. By: Richard S.J. Tol (Economic and Social Research Institute, Dublin); Stephen W. Pacala; Robert H. Socolow
    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: Q54
    Date: 2006–03
  2. By: Kilian, Lutz; Park, Cheolbeom
    Abstract: While there is a strong presumption in the financial press that oil prices drive the stock market, the empirical evidence on the impact of oil price shocks on stock prices has been mixed. This paper shows that the response of aggregate stock returns may differ greatly depending on whether the increase in the price of crude oil is driven by demand or supply shocks in the crude oil market. The conventional wisdom that higher oil prices necessarily cause lower returns is shown to apply only to oil-market specific demand shocks such as increases in the precautionary demand for crude oil that reflect fears about the availability of future oil supplies. In contrast, positive shocks to the global aggregate demand for industrial commodities are shown to cause both higher real oil prices and higher stock prices. Shocks to the global production of crude oil, while not trivial, are far less important for understanding changes in stock prices than shocks to global aggregate demand and shocks to the precautionary demand for oil. Further insights can be gained from the responses of industry-specific stock returns to demand and supply shocks in the crude oil market. We identify the sectors most sensitive to these shocks and study the opportunities for adjusting one’s portfolio in response to oil market disturbances.
    Keywords: Demand shocks; Oil prices; Stock returns; Supply Shocks
    JEL: G12 Q43
    Date: 2007–03
  3. By: Catherine Locatelli (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II]); Jean-Pierre Angelier (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: Les prévisions de croissance de la demande de gaz naturel en Chine paraissent devoir être revues à la baisse, un rythme de 5% par an d'ici à 2030 semblant plus réaliste que le taux de 10% annoncé officiellement. Le système institutionnel qui régit l'industrie gazière chinoise en freine le développement, tout particulièrement du fait d'un système de prix administrés défavorable au gaz qui est considéré comme un substitut d'appoint au principal combustible national qu'est le charbon. La production domestique devrait s'élever, devant être complétée par des importations : sous forme de gaz naturel liquéfié (trois usines de regazéification devraient être construites d'ici 2010) et par gazoduc, le Kazakhstan étant le fournisseur le plus probable.
    Keywords: industrie gazière ; Chine
    Date: 2007–03–05
  4. By: Haque, Nadeem ul Haque
    Abstract: Policy in Pakistan has been fairly path-dependant, placing a higher weight on export promotion and domestic industrialisation development than on domestic commerce. Yet domestic commerce is growing rapidly, and quite possibly is the largest sector in the economy. This paper argues that a more holistic policy, with no favourites, that allows for all sectors to grow leads to better long-term economic results. A vibrant domestic commerce sector is the core of the economy facilitating intermediation between supply and demand, entrepreneurial development, risk-taking, innovation, and competitive markets. Such an economy moves beyond commodity exports to brand name, process, and capital exports, all of which command a higher rate of return. Pakistan could therefore achieve a higher and a more sustainable growth rate by adopting a more balanced growth strategy.
    Keywords: Commercial policy
    JEL: G0
    Date: 2006
  5. By: Tonus, özgür
    Abstract: Increasing demand for oil and gas in the enlarging EU will mostly be satisfied by outside resources, due to Union’s limited oil and gas production capability. Turkey’s geographical location offers variety of opportunities in terms of oil and gas transportation from the Caspian Sea and the Persian Gulf regions to the EU. As well as connecting the EU to the Middle East, Turkey also plays an important role in the Mediterranean. From the EU’s perspective, abovementioned reasons add further importance to Turkey. Being in the process of starting to accession negotiations with the Union, the key point for Turkey is to utilize her position related to energy policies of the Union in order to support the membership process.
    Keywords: Energy; government energy policy; Turkey
    JEL: Q41 Q4 Q48
    Date: 2005–09
  6. By: Arief Anshory Yusuf (Department of Economics, Padjadjaran University); Budy P. Resosudarmo (Australian National University)
    Abstract: Economic structure, households energy consumption pattern, and household's pattern of factor income in developing countries may typically be different with those of the developed countries, hence the distributional impact of energy price reforms could be. This may be portrayed using a Computable General Equilibrium (CGE) model with disaggregated households that allows for rich and accurate distributional story. Using this method, counter-factual scenarios analysis of recent energy price reform in Indonesia is carried out. The result suggests that vehicle fuels subsidy is regressive but increasing the price of domestic fuel (such as kerosene) tends to increase inequality, unless accompanied by a proper and effective compensation scheme. Distributional impact does depend on compensation scheme, its form and its effectiveness. Cash transfers to the poor with moderate ineffectiveness, for example, could not even prevent the increase in poverty nation-wide. Giving more cash to urban poor than to rural poor might have been better than a simple uniform cash transfers, due to urban poor's dependence on kerosene. The result also suggests that non-cash compensation, by subsidizing the poor's education and health spending may not be effective to mitigate the reform despite its desirability as longer-term poverty alleviation programs.
    Keywords: Energy price reform, Distribution, CGE, Indonesia
    JEL: D30 D50
    Date: 2007–01
  7. By: Grigorieva N.V.; Grigoriev A. (METEOR)
    Abstract: We address the valve location problem, one of the basic problems in design of long oil pipelines. Whenever a pipeline is depressurized, the shutoff valves block the oil flow and seal the damaged part of the pipeline. Thus, the quantity of oil possibly contaminating the area around the pipeline is determined by the volume of the damaged section of the pipeline between two consecutive valves. Then, ecologic damage can be quantified by the amount of leaked oil and the environmental characteristics of the accident area. Given a pipe network together with environmental characteristics of the area, and given a number of valves to be installed, the task is to find a valve location minimizing the maximal possible environmental damage. In this paper we present a complete framework for fast computing of an optimal valve location.
    Keywords: environmental economics ;
    Date: 2007
  8. By: Huisman, R.; Mahieu, R.J.; Schlichter, F. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: This paper deals with the question how an electricity end-consumer or distribution company should structure its portfolio with energy forward contracts. This paper introduces a one period framework to determine optimal positions in peak and off-peak contracts in order to purchase future consumption volume. In this framework, the end-consumer or distribution company is assumed to minimize expected costs of purchasing respecting an ex-ante risk limit defined in terms of Value at Risk. Based on prices from the German EEX market, it is shown that a risk-loving agent is able to obtain lower expected costs than for a risk-averse agent.
    Keywords: Electricity prices;Mean variance;Hedge ratios;Forward risk premium;
    Date: 2007–02–21
  9. By: Malte Schwoon (Statkraft, Duesseldorf); Floortje Alkemade; Koen Frenken; Marko P. Hekkert
    Abstract: Well to wheel (WTW) analyses mainly focus on alternative road fuel/vehicle systems that are very different from the current crude oil based individual transport system. A large share of WTW chains evaluated require changes in the energy source, new fuel production facilities, different fuel distribution systems and also modifications of the vehicles. An immediate transition to such a new system would be an unprecedented technological discontinuity. Historical examples of successful technological changes are characterized by stepwise transitions of subsystems. In this paper, we present a model that identifies likely sequences of stepwise transitions in analogy to the fitness landscape model in evolutionary biology. Applying this methodology allows for a dynamic interpretation of otherwise static WTW information. We show that sequences of transitions are path dependent, so that current decisions predetermine the future WTW system. We, therefore, argue that flexible initial transition steps that allow for different transition paths later on are favorable. Results suggest that improvements of vehicle technologies are most flexible if decision makers focus on decreasing WTW energy requirements. A full transition to diesel, as a first step, is advisable if WTW greenhouse gases should be reduced.
    Keywords: Alternative fuels, Hydrogen, Lock-in, Fitness-landscape
    JEL: B52 L92 O33 Q42
    Date: 2006–08
  10. By: Charles Raux (LET - Laboratoire d'économie des transports - [CNRS : UMR5593] - [Université Lumière - Lyon II] - [Ecole Nationale des Travaux Publics de l'Etat])
    Abstract: Comments on "The London congestion charge: a tentative economic appraisal" (R. Prud'homme, J.P. Bocajero. The London congestion charge: a tentative economic appraisal. Transport Policy [en ligne]. 2005, vol. 12, issue 3, pp. 279-287.)
    Keywords: congestion charge ; economic assessment ; London (UK)
    Date: 2006–12–01
  11. By: Malte Schwoon (Statkraft, Duesseldorf)
    Abstract: Fuel cell vehicles (FCVs) running on hydrogen do not cause local air pollution. Depending on the energy sources used to produce the hydrogen they may also reduce greenhouse gases in the long-term. Besides problems related to the necessary investments into hydrogen infrastructure, there is a general notion that current fuel cells costs are too high to be competitive with conventional engines, creating an insurmountable barrier to introduction. But given historical evidence from many other technologies it is highly likely that learning by doing (LBD) would lead to substantial cost reductions. In this study we implement potential cost reductions from LBD into an existing agent based model that captures the main dynamics of the introduction of the new technology together with hydrogen infrastructure build up. Assumptions about the learning rate turn out to have a critical impact on the projected diffusion of the FCVs. Moreover, LBD could imply a substantial first mover advantage. We also address the impact of learning spillovers between producers and find that a government might face a policy trade off between fostering diffusion by facilitating learning spillovers and protecting the relative advantage of a national technological leader.
    Keywords: Fuel cell vehicles, Hydrogen, Learning by doing, Agent based modeling
    JEL: O33 D11 D21
    Date: 2006–06
  12. By: Narain, Urvashi (Resources for the Future); Krupnick, Alan J. (Resources for the Future)
    Abstract: This paper estimates the impact on Delhi’s air quality of a number of policy measures recently implemented in the city to curb air pollution using monthly time-series data from 1990 to 2005. The best known of these measures is the court-mandated conversion of all commercial passenger vehicles—buses, three-wheelers, and taxis—to compressed natural gas (CNG). Broadly, the results point to the success of a number of policies implemented in Delhi but also to a number of areas of growing concern. For example, the results suggest that the conversion of buses from diesel to CNG has helped to reduce PM10, CO, and SO2 concentrations in the city and has not, contrary to conventional wisdom, led to the recent increase in NO2. At the same time, however, the conversion of three-wheelers from petrol to CNG has not had the same benefit, possibly because of poor technology. Another policy measure that appears to have had a positive impact on air quality is the reduction in the sulfur content of diesel and petrol. This has led to a decrease in SO2 levels and, because of conversion of SO2 to sulfates (a fine particle), a decrease in PM10 concentrations. Some of these gains from fuel switching and fuel-quality improvements are, however, being negated by the increase in the proportion of diesel-fueled cars, which is leading to an increase in PM10 and NO2 levels, and by the sheer increase in the number of vehicles.
    Keywords: air pollution, compressed natural gas, low-sulfur diesel, diesel-fueled cars, Delhi
    JEL: Q53 R41 R48
    Date: 2007–02–28
  13. By: Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    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: 2006–05
  14. By: Kelly C. de Bruin; Rob B. Dellink; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: Integrated Assessment Models (IAMS) have helped us over the past decade to understand the interactions between the environment and the economy in the context of climate change. Although it has also long been recognized that adaptation is a powerful and necessary tool to combat the adverse effects of climate change, most IAMs have not explicitly included the option of adaptation in combating climate change. This paper adds to the IAM and climate change literature by explicitly including adaptation in an IAM, thereby making the trade-offs between adaptation and mitigation visible. Specifically, a theoretical framework is created and used to implement adaptation as a decision variable into the DICE model. We use our new AD-DICE model to derive the adaptation cost functions implicit in the DICE model. In our set-up, adaptation and mitigation decisions are separable and AD-DICE can mimic DICE when adaptation is optimal. We find that our specification of the adaptation costs is robust with respect to the mitigation policy scenarios. Our numerical results show that adaptation is a powerful option to combat climate change, as it reduces most of the potential costs of climate change in earlier periods, while mitigation does so in later periods.
    Keywords: integrated assessment modelling, adaptation, climate change
    JEL: Q54
    Date: 2007–02
  15. By: Onno J. Kuik; Barbara Bucher; Michela Catenacci; Etem Karakaya; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: This paper discusses methodological aspects of recent climate change damage studies. Assessing the total and/or marginal damage costs of environmental change is often difficult and it is certainly difficult in the case of climate change. A major obstacle is the uncertainty on the physical impacts of climate change, especially related to extreme events and so-called ‘low-probability high-impact’ scenarios. The subsequent transposition of physical impacts into monetary terms is also a delicate step, given that climate change impacts involve both market and non-market goods and services, covering health, environmental and social values, and that impacts may be distant in time and space. The complexity of climate change cost assessment thus involves several crucial dimensions, including non-market evaluation, risk and uncertainty, baseline definition, equity and discounting, further elaborated in this paper in the course of the overview of the literature and of the overview and evaluation of the key methodological issues.
    Keywords: Climate change damage costs, cost of inaction, methodological aspects, risk and uncertainty, discounting, equity
    JEL: Q54
    Date: 2006–12
  16. By: Klaus Keller; Louise I. Miltich; Alexander Robinson; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: Analyzing the risks of anthropogenic climate change requires sound probabilistic projections of CO2 emissions. Previous projections have broken important new ground, but many rely on out-of-range projections, are limited to the 21st century, or provide only implicit probabilistic information. Here we take a step towards resolving these problems by assimilating globally aggregated observations of population size, economic output, and CO2 emissions over the last three centuries into a simple economic model. We use this model to derive probabilistic projections of business-as-usual CO2 emissions to the year 2150. We demonstrate how the common practice to limit the calibration timescale to decades can result in biased and overconfident projections. The range of several CO2 emission scenarios (e.g., from the Special Report on Emission Scenarios) misses potentially important tails of our projected probability density function. Studies that have interpreted the range of CO2 emission scenarios as an approximation for the full forcing uncertainty may well be biased towards overconfident climate change projections.
    Keywords: economics of climate change, scenarios, data assimilation
    JEL: Q54
    Date: 2007–01
  17. By: David Anthoff; Cameron Hepburn; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: Climate change would impact different countries differently, and different countries have different levels of development. Equity-weighted estimates of the (marginal) impact of greenhouse gas emissions reflect these differences. Equity-weighted estimates of the marginal damage cost of carbon dioxide emissions are substantially higher than estimates without equity-weights; equity-weights may also change the sign of the social cost estimates. Equity weights need to be normalised. Our estimates differ by two orders of magnitude depending on the region of normalisation. A discounting error of equity weighted social cost of carbon estimates in earlier work (Tol, Energy Journal, 1999), led to an error of a factor two. Equity-weighted estimates are sensitive to the resolution of the impact estimates. Depending on the assumed intra-regional income distribution, estimates may be more than twice as high if national rather than regional impacts are aggregated. The assumed scenario is important too, not only because different scenarios have different emissions and hence warming, but also because different scenarios have different income differences, different growth rates, and different vulnerabilities. Because of this, variations in the assumed inequity aversion have little effect on the marginal damage cost in some scenarios, and a large effect in other scenarios.
    Keywords: marginal damage costs, climate change, equity
    JEL: Q54
    Date: 2006–12
  18. By: Pizer, William A. (Resources for the Future)
    Abstract: Momentum may be building for federal climate change policy in the United States. Assuming this leads to mandatory greenhouse gas regulations, the door will be open for the United States to constructively re-engage other countries concerning an international climate regime. Such a regime will need to recognize that binding international limits are unlikely to attract U.S. participation and, therefore, will require a different approach than the Kyoto Protocol. In particular, a future regime will need to accommodate and encourage, rather than force or constrain, domestic actions to focus more narrowly on major economies and emitting nations, to balance mitigation and technology objectives, and to engage developing countries on as many levels as possible. In place of a heavy emphasis on negotiating commitments in advance, there likely will need to be greater emphasis on evaluating actions in retrospect. Such an approach not only matches recent trends in the United States but arguably follows from broader experience over the decade since the negotiation of the Kyoto Protocol.
    Keywords: climate change, international treaty, Kyoto, emissions trading
    JEL: H87 Q54 D62 D63
    Date: 2007–02–12
  19. By: Jan-Peter Voß (Öko-Institut, Berlin, and Institute for Governance Studies, University of Twente)
    Keywords: governance, emissions trading, policy technology
    JEL: O3 Q58
    Date: 2007–03–09
  20. By: Pizer, William A. (Resources for the Future)
    Abstract: This paper argues that while a long-term solution to climate change may require the global market-based solution envisioned in the Kyoto Protocol, a more flexible near-term approach is necessary. First, a broad range of domestic policies need to be embraced and encouraged by an international agreement, not constrained or discouraged by it. Second, developing countries need to be an increased focus of engagement, with expansion and reform of project-based crediting. Finally, a global agreement needs to recognize both technology and mitigation policies and to develop ways to evaluate efforts along each of these dimensions. Over the longer term, such an agreement should evolve toward greater reliance on global market-based solutions, and therefore near-term steps should be viewed both in terms of their immediate practicality and their potential to be refined over time.
    Keywords: climate change, international treaty, Kyoto, emissions trading
    JEL: H87 Q54 D62 D63
    Date: 2007–02–05
  21. By: Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: Estimates of the marginal damage costs of carbon dioxide emissions suggest that, although climate change is a problem and some emission reduction is justified, very stringent abatement does not pass the cost-benefit test. However, current estimates of the economic impact of climate change are incomplete. Some of the missing impacts are likely to be positive and others negative, but overall the uncertainty seems to concentrate on the downside risks and current estimates of the damage costs may have a negative bias. The research effort on the economic impacts of climate change is minute, and should be strengthened, with a particular focus on the quantification of uncertainties; estimating missing impacts, interactions between impacts and higher-order effects; the valuation of biodiversity loss; the implications of extreme climate scenarios and violent conflict; and climate change in the very long term.
    Keywords: Climate change, impacts, valuation, cost-benefit analysis
    JEL: Q54
    Date: 2006–09
  22. By: Kruger, Joseph; Oates, Wallace E.; Pizer, William A. (Resources for the Future)
    Abstract: In 2005, the European Union introduced the largest and most ambitious emissions trading program in the world to meet its Kyoto commitments for the containment of global climate change. The EU Emissions Trading Scheme (EU ETS) has some distinctive features that differentiate it from the more standard model of emissions trading. In particular, it has a relatively decentralized structure that gives individual member states responsibility for setting targets, allocating permits, determining verification and enforcement, and making some choices about flexibility. It is also a “cap-within-a-cap,” seeking to achieve the Kyoto targets while only covering about half of EU emissions. Finally, it is a program that many hope will link with other greenhouse gas trading programs in the future—something we have not seen among existing trading systems. Examining these features coupled with recent EU ETS experience offers lessons about how cost effectiveness, equity, flexibility, and compliance fare in a multi-jurisdictional trading program, and highlights the challenges facing a global emissions trading regime.
    Keywords: emissions trading, Kyoto Protocol, European Union, linking, climate change
    JEL: Q54 Q58 F53
    Date: 2007–02–05
  23. By: Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: A simulation model of international tourist flows is used to estimate the impact of a carbon tax on aviation fuel. The effect of the tax on travel behaviour is small: A global $1000/tC would change travel behaviour to reduce carbon dioxide emissions from international aviation by 0.8%. This is because the imposed tax is probably small relative to the air fare. A $1000/tC tax would less than double air fares, and have a smaller impact on the total cost of the holiday. In addition, the price elasticity is low. A carbon tax on aviation fuel would particularly affect long-haul flights, because of high emissions, and short-haul flights, because of the emission during take-off and landing. Medium distance flights would be affected least. This implies that tourist destinations that rely heavily on short-haul flights (that is, islands near continents, such as Ireland) or on intercontinental flights (e.g., Africa) will see a decline in international tourism numbers, while other destinations may see international arrivals rise. If the tax is only applied to the European Union, EU tourists would stay closer to home so that EU tourism would grow at the expense of other destinations. Sensitivity analyses reveal that the qualitative insights are robust. A carbon tax on aviation fuel would have little effect on international tourism, and little effect on emissions.
    Keywords: International tourism, tax, carbon dioxide, aviation
    JEL: L83 L93 Q54
    Date: 2006–11
  24. By: David Anthoff (Research unit Sustainability and Global Change, Hamburg University); Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: Estimates of the marginal damage costs of carbon dioxide emissions require the aggregation of monetised impacts of climate change over people with different incomes and in different jurisdictions. Implicitly or explicitly, such estimates assume a social welfare function and hence a particular attitude towards equity and justice. We show that previous approaches to equity weighing are inappropriate from a national decision maker’s point of view, because domestic impacts are not valued at domestic values. We propose four alternatives (sovereignty, altruism, good neighbour, and compensation) with different views on concern for and liability towards foreigners. The four alternatives imply radically estimates of the social cost of carbon and hence the optimal intensity of climate policy.
    Keywords: Domestic climate policy, social cost of carbon, equity weights
    JEL: Q54
    Date: 2007–02
  25. By: Erik Ansink (Wageningen University); Arjan Ruijs (Wageningen University)
    Abstract: We analyse agreements on river water allocation between riparian countries. Besides being efficient, water allocation agreements need to be stable in order to be effective in increasing the efficiency of water use. In this paper, we assess the stability of water allocation agreements, using a game theoretic model. We consider the effects of climate change and the choice of a sharing rule on stability. Our results show that both a decrease in mean river flow and an increase in the variance of river flow decrease the stability of an agreement. An agreement where the downstream country is allocated a fixed amount of water has the lowest stability compared to other sharing rules.
    Keywords: Water Allocation, Stability, Climate Change, Game Theory
    JEL: C7 Q25
    Date: 2007–02
  26. By: Katsumasa Tanaka; Richard S.J. Tol (Economic and Social Research Institute, Dublin); Dmitry Rokityanskiy; Brian C. O'Neill; Michael Obersteiner
    Abstract: Global Warming Potentials (GWPs) are evaluated as proxies of the historical temperature by applying them to convert historical CH4 and N2O emissions to equivalent CO2 emissions. Our GWP analysis is based on the historical Earth system evolution obtained from the inverse calculation for the Aggregated Carbon Cycle, Atmospheric Cycle, and Climate Model (ACC2). Indices higher than the Kyoto GWPs are required to reproduce the historical temperature. The GWP for N2O, in particular, does not approximate the historical temperature with any time horizon because the GWP definition and calculations assume a background system different from the ACC2 inversion results. In addition, indices have to be progressively updated upon the acquisition of new measurements and/or the change in our understanding on the Earth system processes.
    Keywords: global warming potentials
    JEL: Q54
    Date: 2006–09
  27. By: Kerstin Ronneberger; Luca Criscuolo; Wolfgang Knorr; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: We test the hypothesis that models should be coupled to accurately project the impacts of climate change on the agro-economic and agro-environmental system. We couple the LPJ-C global dynamic vegetation model for crops to the global agricultural land-use model KLUM. Potential crop yields, from LPJ-C, and crop prices drive the land-use decisions; cropland allocation from KLUM scale the carbon entering the soil litter pool in LPJ-C. Through the crop prices, economic effects are projected directly on the carbon cycle. Global change impacts are projected on the agricultural sector and can be economically assessed. The coupled model performs reasonably well for the observed climate and prices for 6 crops in Europe on a 0.5x0.5 longitude-latitude grid. We estimate the impact of climate change on agriculture in Europe for A1 and B2 scenarios of the IPCC. The coupled model reproduces the essential processes and interactions of the modeled system. Simulations with the uncoupled models are used to estimate the accuracy added by the model coupling. Sign and size of the biases from ignoring the feedbacks are substantial for some parameters, and particularly their spatial pattern, while for other parameters (e.g., the European total of soil organic carbon) biases are negligible. The answer to the question “Should models be coupled?” is “It depends on what you’re interested in”.
    Keywords: Climate change, land use, soil carbon, model coupling
    JEL: Q54
    Date: 2006–06
  28. By: P. Michael Link; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: The integrated assessment model FUND 2.8n is applied in an analysis of the overall economic consequences in a scenario of a shutdown of the thermohaline circulation (THC). Monetized market and non-market impacts of changes in environmental conditions following a THC collapse are determined for 207 individual countries. Eight different response patterns can be identified. The dominant pattern is that a THC shutdown has an offsetting effect on the underlying warming trend. Depending on whether the impacts of warming are initially beneficial or detrimental, the economic effects of a THC collapse show distinct regional variability. Key economic sectors affected in a THC shutdown scenario are water resources and energy consumption, as well as cardiovascular and respiratory diseases among health impacts. The maximum, national impact of a collapse of the THC turns out to be of the magnitude of a few per cent of GDP, but the global impact is much smaller. Considering the low probability of occurrence, a THC shutdown does not call for drastic action at present.
    Keywords: Fisheries, climate change
    JEL: Q54
    Date: 2006–05
  29. By: Jacqueline M. Hamilton; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: We downscale the results of a global tourism simulation model at a national resolution to a regional resolution. We use this to investigate the impact of climate change on the regions of Germany, Ireland and the UK. Because of climate change, tourists from all three countries would spend more holidays in the home country. In all three countries, climate change would first reduce the number of international arrivals – as Western European international tourist demand falls – but later increase numbers – as tourism demand from increasingly rich tropical countries grows. In Ireland and the UK, the regional pattern of demand shifts is similar to the international one: Tourism shifts north. In Germany, the opposite pattern is observed as the continental interior warms faster than the coast: Tourism shifts south.
    Keywords: International tourism, domestic tourism, climate change, regional impacts
    JEL: Q54
    Date: 2006–08
  30. By: Julien Morel (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: L'eau est un enjeu essentiel pour le siècle à venir. Les secteurs, agricole, industriel, domestique, utilisent de grandes quantités d'eau, mais de façon inégale selon les régions du monde. L'objet de cette synthèse est de cerner et de comprendre l'ensemble des éléments essentiels de la problématique de l'eau aujourd'hui, en terme d'adéquation besoin/ressource. <br />Pour cela, on aborde successivement les concepts clés des ressources en eau à partir du cycle hydrologique, l'usage mondial de l'eau, le changement climatique et ses conséquences sur l'eau, et enfin l'impact de l'augmentation ou de la diminution de la disponibilité en eau par personne sur la population mondiale.<br />Les besoins en eau de la planète ne sont pas du tout satisfaits aujourd'hui et on ne peut que penser que les conditions vont se détériorer à l'avenir, sous les contraintes de la population et du changement climatique. Les projections sur les précipitations et l'écoulement dépendent des modèles et des scénarios d'émission de gaz à effet de serre et ces projections restent incertaines localement. Les estimations de demande future sont par ailleurs peu fiables. On peut toutefois retenir que le cycle hydrologique est accéléré, amplifié, et que sa variabilité augmente à cause du réchauffement global ; la fréquence des évènements extrêmes, tels que sécheresse, inondations, augmente. Pour certaines zones, comme la Méditerranée, les modèles s'accordent pour prévoir une diminution des précipitations d'ici 2050. <br />La ressource en eau renouvelable ne permettant pas de garantir les besoins de la population mondiale, à cause de l'inégale répartition dans le temps et dans l'espace, il faut envisager des solutions pour l'avenir, de deux types : gestion par l'offre, avec production d'eau non conventionnelle, ou gestion par la demande.
    Keywords: eau ; usage de l'eau ; ressource renouvelable
    Date: 2007–03–06
  31. By: Katrin Rehdanz (Research unit Sustainability and Global Change, Hamburg); David J. Maddison
    Abstract: Hitherto the task of valuing differences in environmental quality arising from air pollution and noise nuisance has been carried out mainly by using the hedonic price technique. This paper proposes a different approach to deriving information on individual preferences for local environmental quality. It analyses data drawn from the German socio economic panel in an attempt to explain differences in self-reported levels of well-being in terms of environmental quality. Mindful of existing research a large number of other explanatory variables are included to control for socio-demographic differences, economic circumstances as well as neighbourhood characteristics. Differences in local air quality and noise levels are measured by how much an individual feels affected by air pollution or noise exposure in their residential area. The evidence suggests that even when controlling for a range of other factors higher local air pollution and noise levels significantly diminish subjective well-being. But interestingly differences in perceived air and noise pollution are not capitalised into differences in house prices.
    Keywords: air pollution, environmental quality, Germany, life-satisfaction, noise exposure, well-being
    JEL: R19 Q53 Q58
    Date: 2006–09
  32. By: Gary W. Yohe; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: Using a simple model designed for transparency but nonetheless calibrated to support the much-quoted damage estimates of the Stern Review of the Economics of Climate Change, we demonstrate significant sensitivity of those results to assumptions about the pure rate of time preference, the discounting time horizon, rates of risk and equity aversion used to compute certainty- and equity equivalent annuities, and presumed static regional vulnerability. Manipulation of any of these parameters one at a time across reasonable ranges can diminish damage estimates by as much as 84% or, in the case of extending the time horizon, increase damage estimates by 900%. We also confirm the usual result that limiting atmospheric concentrations to specific benchmarks above 400 ppm cannot eliminate damages. Nonetheless, we applaud the Stern Review author team for reconfirming that the climate problem can productively be approached as an economic problem whose solutions can be explored with the tools of decision analysis.
    Keywords: economics of climate change, certainty equivalent and equity equivalent annuity, relative risk aversion, equity aversion, pure rate of time preference
    JEL: Q54
    Date: 2007–02

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