nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒04‒28
fourteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Does uncertainty matter ? A stochastic dynamic analysis of bankable emission permit trading for global climate change policy By Zhang, Fan
  2. Energy and emissions : local and global effects of the rise of China and India By Shalizi, Zmarak
  3. What Does Europe Pay for Clean Energy? – Review of Macroeconomic Simulation Studies By Dannenberg, Astrid; Mennel, Tim; Moslener, Ulf
  4. Dynamic Economic Analysis of Perennial Energy Crops - EffectS of The CAP Reform on Biomass Supply in Greece By Vassilis Lychnaras; Uwe A. Schneider
  5. Endogenizing Technological Change: Matching Empirical Evidence to Modeling Needs By William A. Pizer; David Popp
  6. Equilibrium exchange rates in oil-dependent countries By Korhonen, Iikka; Juurikkala, Tuuli
  7. Testing Optimal Punishment Mechanisms under Price Regulation: the Case of the Retail Market for Gasoline By Robert Gagné; Simon Van Norden; Bruno Versaevel
  8. The Optimal Pricing of Pollution When Enforcement is Costly By John K. Stranlund; Carlos A. Chavez; Mauricio G. Villena
  9. Is there an Environmental Urban Kuznets Curve? The case of polluting emissions due to daily mobility in 37 cities. (In French) By André MEUNIE (GREThA-GRES); Guillaume POUYANNE (GREThA-GRES)
  10. Modeling linkages between climate policy and land use: An Overview By Edwin van der Werf; Sonja Peterson
  11. Costs of Climate Change — The Effects of Rising Temperatures on Health and Productivity By Michael Hübler; Gernot Klepper; Sonja Peterson
  12. Diagnosing Dutch disease: Does Russia have the symptoms? By Oomes , Nienke; Kalcheva, Katerina
  14. Recyclage et externalités environnementales : faut-il subventionner les activités de récupération recyclage ?. By Jean De Beir; Mouez Fodha; Guillaume Girmens

  1. By: Zhang, Fan
    Abstract: Emission permit trading is a centerpiece of the Kyoto Protocol which allows participating nations to trade and bank greenhouse gas permits under the Framework Convention on Climate Change. When market conditions evolve stochastically, emission trading produces a dynamic problem, in which anticipation about the future economic environment affects current banking decisions. In this paper, the author explores the effect of incre ased uncertainty over future output prices and input costs on the temporal distribution of emissions. In a dynamic programming setting, a permit price is a convex function of stochastic prices of electricity and fuel. Increased uncertainty about future market conditions increases the expected permit price and causes a risk-neutral firm to reduce ex ante emissions so as to smooth out marginal abatement costs over time. The convexity results from the asymmetric impact of changes in counterfactual emissions on the change of marginal abatement costs. Empirical analysis corroborates the theoretical prediction. The author finds that a 1 percent increase in electricity price volatility measured by the annualized standard deviation of percentage price change is associated with an average decrease in the annual emission rate by 0.88 percent. Numerical simulation suggests that high uncertainty could induce substantially early abatements, as well as large compliance costs, therefore imposing a tradeoff between environmental benefits and economic efficiency. The author discusses policy implications for designing an effective and efficient global carbon market.
    Keywords: Energy Production and Transportation,Markets and Market Access,Environmental Economics & Policies,Carbon Policy and Trading,Environment and Energy Efficiency
    Date: 2007–04–01
  2. By: Shalizi, Zmarak
    Abstract: Part 1 of the paper reviews recent trends in fossil fuel use and associated externalities. It also argues that the recent run-up in international oil prices reflects growing concerns about supply constraints associated with declining spare capacity in OPEC, refining bottlenecks, and geopoli tical uncertainties rather than growing incremental use of oil by China and India. Part 2 compares two business as usual scenarios with a set of alternate scenarios based on policy interventions on the demand for or supply of energy and different assumptions about rigidities in domestic and international energy markets. The results suggest that energy externalities are likely to worsen significantly if there is no shift in China ' s and India ' s energy strategies. High energy demand from China and India could constrain some developing countries ' growth through higher prices on international energy markets, but for others the " growth retarding " effects of higher energy prices are partially or fully offset by the " growth stimulating " effects of the larger markets in China and India. Given that there are many inefficiencies in the energy system in both China and India, there is an opportunity to reduce energy growth without adversely affecting GDP growth. The cost of a decarbonizing energy strategy will be higher for China and India than a fossil fuel-based strategy, but the net present value of delaying the shift will be higher than acting now. The less fossil fuel dependent alternative strategies provide additional dividends in terms of energy security.
    Keywords: Energy Production and Transportation,Environment and Energy Efficiency,Energy and Environment,Energy Demand,Transport Economics Policy & Planning
    Date: 2007–04–01
  3. By: Dannenberg, Astrid; Mennel, Tim; Moslener, Ulf
    Abstract: This paper analyses the macroeconomic costs of environmental regulation in European energy markets on the basis of existing macroeconomic simulation studies. The analysis comprises the European emssion trading scheme, energy taxes, measures in the transport sector, and the promotion of renewable energy sources. We find that these instruments affect the European economy, in particular the energy intensive industries and the industries that produce internationally tradeable goods. From a macroeconomic point of view, however, the costs of environmental regulation appear to be modest. The underlying environmental targets and the efficient design of regulation are key determinants for the cost burden.
    Keywords: Environmental regulation, energy market, macroeconomic costs
    JEL: Q21 Q28 Q41 Q43 Q48
    Date: 2007
  4. By: Vassilis Lychnaras; Uwe A. Schneider (Department of Agricultural Economics, Agricultural University of Athens)
    Abstract: Energy from the biomass of perennial crops can offset emissions of greenhouse gases from fossil fuel combustion and increase energy self sufficiency. This study uses a dynamic, multi-farm, mathematical programming model to analyze the impact of the Common Agricultural Policy reform in 2003 on biomass supply from the Kopais plain in central Greece. The perennial energy crops under review are Arundo donax L. (Giant Reed), Miscanthus x giganteus (Miscanthus), Panicum virgatum L. (Switchgrass) and Cynara cardunculus L. (Cardoon). Farm survey results from 40 farms are processed with the Biomass Economic Evaluation model to obtain micro-economic data for both conventional and energy crops. Policy simulations with the multi-farm model show that the 2003 policy reform with decoupled subsidies except for cotton and energy crops lowers the cost of biomass between 2 and 4 Euro per ton. Switchgrass appears to be the most attractive option, followed by Cardoon and Miscanthus. Arundo is never preferred. Relative to the previous agricultural policy setting of Agenda 2000, the biomass potential increases more for smaller farms and farms with a higher share of cotton, vegetables, or trees.
    Keywords: Energy crops, Common Agricultural Policy, Climate mitigation Economics, Arundo, Miscanthus, Switchgrass, Cardoon, Mathematical programming, Dynamic cost minimization, Bioenergy potential, Biomass supply curve, Kopaida, Greece
    JEL: Q12 Q18 Q28 Q42 Q58
    Date: 2007–04
  5. By: William A. Pizer; David Popp
    Abstract: Given that technologies to significantly reduce fossil fuel emissions are currently unavailable or only available at high cost, technological change will be a key component of any long-term strategy to reduce greenhouse gas emissions. In light of this, the amount of research on the pace, direction, and benefits of environmentally-friendly technological change has grown dramatically in recent years. This research includes empirical work estimating the magnitude of these effects, and modeling exercises designed to simulate the importance of endogenous technological change in response to climate policy. Unfortunately, few attempts have been made to connect these two streams of research. This paper attempts to bridge that gap. We review both the empirical and modeling literature on technological change. Our focus includes the research and development process, learning by doing, the role of public versus private research, and technology diffusion. Our goal is to provide an agenda for how both empirical and modeling research in these areas can move forward in a complementary fashion. In doing so, we discuss both how models used for policy evaluation can better capture empirical phenomena, and how empirical research can better address the needs of models used for policy evaluation.
    JEL: D58 O3 Q28 Q55
    Date: 2007–04
  6. By: Korhonen, Iikka (BOFIT); Juurikkala, Tuuli (BOFIT)
    Abstract: We assess the determinants of equilibrium real exchange rates in a sample of oil-dependent countries. Our basic data cover OPEC countries from 1975 to 2005. We also include three oil-producing Commonwealth of Independent States (CIS) countries in our robustness analysis. Utilising several estimation techniques, including pooled mean group and mean group estimators, we find that the price of oil has a clear, statistically significant effect on real exchange rates in our group of oil-producing countries. Higher oil price lead to appreciation of the real exchange rate. Elasticity of the real exchange rate with respect to the oil price is typically between 0.4 and 0.5, but may be larger depending on the specification. Real per capita GDP, on the other hand, does not appear to have a clear effect on real exchange rate. This latter result contrasts starkly with the consensus view of real exchange rates determinants, emphasising the unique position of oil-dependent countries.
    Keywords: equilibrium exchange rate; pooled mean group estimator; resource dependency
    JEL: F31 F41 P24 Q43
    Date: 2007–04–20
  7. By: Robert Gagné (CIRANO - Centre interuniversitaire de recherche en analyse des organisations - [Université de Montréal]); Simon Van Norden (CIRANO - Centre interuniversitaire de recherche en analyse des organisations - [Université de Montréal]); Bruno Versaevel (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: We analyse the effects of a price floor on price wars (or deep price cuts) in the retail market for gasoline. Bertrand supergame oligopoly models predict that price wars should last longer in the presence of price floors. In 1996, the introduction of a price floor in the Quebec retail market for gasoline serves as a natural experiment with which to test this prediction. We use a Markov Switching Model with two latent states to simultaneously identify the periods of price-collusion/price-war and estimate the parameters characterizing each state. Results support the prediction that price floors reduce the intensity of price wars but increase their expected duration.
    Keywords: gasoline prices ; Markov switching model ; oligopoly supergame ; price regulation
    Date: 2007–04–19
  8. By: John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst); Carlos A. Chavez (Departmento de Economia, Universidad de Concepcion, Chili); Mauricio G. Villena (School of Business, Universidad Adolfo Ibanez, Santiago, Chili)
    Abstract: We consider the pricing of a uniformly mixed pollutant when enforcement is costly with a model of optimal, possibly firm-specific, emissions taxes and their enforcement. We argue that optimality requires an enforcement strategy that induces full compliance by every firm. This holds whether or not regulators have complete information about firms’ abatement costs, the costs of monitoring them for compliance, or the costs of collecting penalties from noncompliant firms. Moreover, ignoring several unrealistic special cases, optimality requires discriminatory emissions taxes except when regulators are unable to observe firms’ abatement costs, the costs of monitoring individual firms, or any firm-specific characteristic that is known to be jointly distributed with either the firms’ abatement costs or their monitoring costs. In many pollution control settings, especially those that have been subject to various forms of environmental regulation in the past, regulators are not likely to be so ill-informed about individual firms. In these settings, policies that set or generate a uniform pollution price like conventional designs involving uniform taxes and competitive emission trading with freely-allocated or auctioned permits will not be efficient.
    Keywords: Compliance, Enforcement, Emissions Taxes, Monitoring, Asymmetric Information, Uncertainty
    JEL: L51 Q58
    Date: 2007–04
    Abstract: The Environmental Kuznets Curve (EKC) has given rise to a flourishing literature since the beginning of the 90’s. The EKC postulates an inverted U-shaped relationship between income and polluting emissions: there would be a level of wealth beyond which polluting emissions would decrease. Surprisingly, this issue has rarely been applied to the cities. Yet we consider such a question as a pertinent one. This article aims at analyzing the Urban EKC (UEKC) hypothesis. It tests it with a sample of 37 cities in the world. Previous studies on the UEKC hypothesis are very scarce. They are the ground for us, to define a specific methodological posture. First, we use polluting emissions per capita instead of pollutants concentrations: thus we control for the influence of urban size. Second, we only take in account pollutants due to a unique source, which is daily mobility. This makes the explanation of the income-polluting emissions relation easier, as our comments are based on a specific, well constituted literature about factors of daily mobility. We expose the theoretical mechanisms by which the UEKC due to daily mobility could be validated. The impact of income on polluting emissions is threefold : behavioural, with a direct effect and an indirect one ; technical (the environmental efficiency of the vehicles increases) ; political (planning authorities wish to evolve towards a « sustainable mobility »). The empirical part of the paper is a test of the UEKC on a sample of 37 cities in the world. We present three important results. First, the estimation of quadratic regressions gives an inverted U-shaped relationship for most of the pollutants, which doesn’t permit to invalidate the UEKC hypothesis. Second, we show that the explanation of such curves is linked to two sets of factors: individual behaviours (e.g. modal choice) and collective choices (e.g. transit supply). Third, we discuss the validity of the UEKC hypothesis, that is we seek to explain the level of polluting emissions. As many factors are entangled, we use a principal components analysis to show that the influence of income may in fact reflect the influence of both urban form and consumers’ habits on polluting emissions due to daily mobility.
    Keywords: Environmental Kuznets Curve, daily mobility, urban, polluting emissions
    JEL: Q53 Q56 R12 R14 R41
    Date: 2007
  10. By: Edwin van der Werf; Sonja Peterson
    Abstract: Agriculture and forestry play an important role in emitting and storing greenhouse gases. For an efficient and cost-effective climate policy it is therefore important to explicitly include land use, land use change, and forestry (LULUCF) in economy-climate models. This paper gives an overview and assessment of existing approaches to include land use, land-use change, and forestry into climate-economy models or to link economy-climate models to land-use models.
    Keywords: climate change, climate policy, modeling, land use
    JEL: Q23 Q24 Q25 Q42
    Date: 2007–04
  11. By: Michael Hübler; Gernot Klepper; Sonja Peterson
    Abstract: The aim of the study is to quantify climate induced health risks for Germany. Based on high resolution climate scenarios for the period 2071 to 2100 we forecast the number of days with heat load and cold stress. The heat frequency and intensity increases overall but more in the south. Referring to empirical studies on heat induced health effects we estimate an average increase in the number of heat induced casualties by a factor of more than 3. Heat related hospitalization costs increase 6-fold not including the cost of ambulant treatment. Heat also reduces the work performance resulting in an estimated output loss of between 0.12 % and 0.48 % of GDP.
    Keywords: Costs of climate change, health effects, heat waves, mortality, hospitalization costs, labor productivity
    JEL: I10 Q51 Q54
    Date: 2007–04
  12. By: Oomes , Nienke (BOFIT); Kalcheva, Katerina (BOFIT)
    Abstract: In this paper, we assess whether recent economic developments in Russia are symptomatic of Dutch Disease. We first provide a brief review of the literature on Dutch Disease and the natural resource curse. We then discuss the symptoms of Dutch Disease, which include (1) real exchange rate appreciation; (2) slower manufacturing growth; (3) faster service sector growth; and (4) higher overall wages. We test these predictions for Russia while carefully controlling for other factors that could have led to similar symptoms. We con-clude that, while Russia has all of the symptoms, the diagnosis of Dutch Disease remains to be confirmed.
    Keywords: Dutch disease; real exchange rate; resource curse; Russia; oil; transition
    JEL: F30 P28 Q30
    Date: 2007–04–20
  13. By: David Pearce; Warwick McKibbin
    Date: 2007–04
  14. By: Jean De Beir (EPEE, Université d'Evry-Val-d'Essonne); Mouez Fodha (Centre d'Economie de la Sorbonne); Guillaume Girmens (EPEE, Université d'Evry-Val-d'Essonne)
    Abstract: This paper considers recycling in a general equilibrium model. It is shown that recycling should be subsidized if recycling costs are high, as an incentive to recycle all of the available waste. This tax incentive should vanish if recycling is profitable enough. In this case, recycling should even be taxed, in order to make the competitive equilibrium be an optimal allocation. We conclude also that, if recycling is efficient enough, it allows to internalize environmental externalities. In this case, recycling replaces a tax instrument.
    Keywords: Overlapping generation model, recycling sector, environmental externalities, tax policy.
    JEL: D62 H23 Q53
    Date: 2007–03

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