nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒06‒02
twenty papers chosen by
Roger Fouquet
Imperial College, UK

  1. The bird in hand: stipulated settlements and electricity regulation in Florida By Littlechild, S.
  2. Incentive Regulation of Electricity Distribution Networks: Lessons of Experience from Britain By Jamasb, T.; Pollitt, M.
  3. The Impact of Temperature Change on Energy Demand: A Dynamic Panel Analysis By Enrica De Cian; Elisa Lanzi; Roberto Roson
  4. Learning-by-doing in the Renewable Energy Equipment Industry or in Renewable Electricity Production : Why Does It Matter to Differentiate? By Katja Schumacher; Michael Kohlhaas
  5. Environmental Regulation and the Export Dynamics of Energy Technologies By Francesco Crespi; Valeria Costantini
  6. Energy and the Global Economy By Faye Duchin
  7. Public Debt and Fiscal Vulnerability in the Middle East By Martin Petri; Ludvig Söderling; Wojciech Maliszewski; Hanan Morsy; Manal Fouad; Martin Hommes
  8. Yemen: Exchange Rate Policy in the Face of Dwindling Oil Exports By Faisal Ahmed; Nabil Ben Ltaifa; Todd Schneider; Saade Chami
  9. Depletion of Non-Renewable Resources and Endogenous Technical Change By Juergen Antony
  10. The Chinese Economy from 1997:2015: Developing a Baseline for the MC-HUGE Model By Yin Hua Mai
  11. Développement urbain chinois : quelle contribution au réchauffement climatique ? By Julien Allaire
  12. Regional Development in China: Interregional Transportation Infrastructure and Regional Comparative Advantage By Lining He; Faye Duchin
  13. AD-DICE: An Implementation of Adaptation in the DICE Mode By Kelly C. de Bruin; Rob B. Dellink; Richard S.J. Tol
  14. Production Functions for Climate Policy Modeling: An Empirical Analysis By Edwin van der Werf
  15. When and why does it pay to be green ? By Ambec, S.; Lanoie, P.
  16. Differentiation and dynamics of competitiveness impacts from the EU ETS By Sato, S.; Grubb, M.; Cust, J.; Chan, K.; Korppoo, A.; Ceppi, P.
  17. Governance and Environmental Policy Integration in Europe: What Can We learn from the EU Emission Trading Scheme? By Michela Catenacci; Barbara Buchner; Alessandra Sgobbi
  18. On International Equity Weights and National Decision Making on Climate Change By David Anthoff; Richard S.J. Tol
  19. Predicting the Deforestation–Trend Under Different Carbon–Prices By Georg E. Kindermann; Michael Obersteiner; Ewald Rametsteiner; Ian McCallcum
  20. SEA LEVEL RISE AND EQUITY WEIGHTING By David Anthoff; Robert J. Nicholls; Richard S.J. Tol

  1. By: Littlechild, S.
    Abstract: In the last two decades many major regulatory issues in Florida have been resolved by means of stipulated settlements between the utilities and interested parties, notably the Office of Public Counsel, instead of by the traditional method of hearings and litigation before the Public Services Commission. This paper investigates the extent, nature and effects of these stipulations in the electricity sector there. They have now largely superceded the litigated process. Their purpose is not to save costs, which are orders of magnitude less than the revenues at stake. Stipulations have brought reductions in electricity revenues worth over $3 billion, mainly during the last decade. These reductions are greater than would have otherwise occurred: about three quarters might never have occurred at all. In some cases a change in the method of rate reduction favoured industrial consumers but other customers are nonetheless likely to have benefited despite this. Some benefits were outside the scope of the commission to confer. Other benefits reflected a more flexible accounting policy. Most importantly, there has been a shift from conventional rate of return regulation, and from earnings sharing schemes with profits caps, to prices fixed for specified periods of time with revenue-sharing incentive arrangements. Stipulations have transformed the regulatory landscape in the Florida electricity sector, and their use seems worth considering elsewhere.
    Keywords: stipulations, settlements, consumer advocate, regulation.
    JEL: L51 L97 L94 L
    Date: 2007–02
  2. By: Jamasb, T.; Pollitt, M.
    Abstract: This paper reviews the recent experience of the UK electricity distribution sector under incentive regulation. The UK has a significant and transparent history in implementing incentive regulation in the period since 1990. We demonstrate the successes of this period in reducing costs, prices and energy losses while maintaining quality of service. We also draw out the lessons for other countries in implementing distribution sector reform. We conclude by discussing the place of incentive regulation of networks within the wider reform context, the required legislative framework, the need for appropriate unbundling, the importance of quality of service incentives, the regulatory information requirements and the role of sector rationalisation.
    Keywords: Electricity, liberalisation, regulation, benchmarking
    JEL: L52 L94 Q48
    Date: 2007–02
  3. By: Enrica De Cian (School of Advanced Studies in Venice and Fondazione Eni Enrico Mattei); Elisa Lanzi (School of Advanced Studies in Venice and Fondazione Eni Enrico Mattei); Roberto Roson (University Ca’ Foscari of Venice and Fondazione Eni Enrico Mattei)
    Abstract: This paper presents an empirical study of energy demand, in which demand for a series of energy goods (Gas, Oil Products, Coal, Electricity) is expressed as a function of various factors, including temperature. Parameter values are estimated econometrically, using a dynamic panel data approach. Unlike previous studies in this field, the data sample has a global coverage, and special emphasis is given to the dynamic nature of demand, as well as to interactions between income levels and sensitivity to temperature variations. These features make the model results especially valuable in the analysis of climate change impacts. Results are interpreted in terms of derived demand for heating and cooling. Non-linearities and discontinuities emerge, making it necessary to distinguish between different countries, seasons, and energy sources. Short- and long-run temperature elasticities of demand are estimated.
    Keywords: Energy Demand, Cooling Heating Effect , Temperature, Dynamic Panel
    JEL: C3 Q41 Q54
    Date: 2007–04
  4. By: Katja Schumacher; Michael Kohlhaas
    Abstract: In economic models of energy and climate policy, endogenous technological change is generally introduced as the result of either investment in research-and-development or of learning-by-doing. In this paper, we analyze alternative ways of modeling learning-by-doing in the renewable energy sector in a top-down CGE model. Conventionally, learning-by-doing effects in the renewable energy sector are allocated to the production of renewable based electricity. We build on the observation that learning-by-doing also takes place in sectors that deliver capital goods to the renewable electricity sector, in particular in the production of machinery and equipment for renewable energy technologies. We therefore implement learning-by-doing alternatively in the renewable energy equipment industry and in renewable electricity production and show why it matters to differentiate between these two approaches. The main differences originate from effects on international trade, since the output of the machinery and equipment sector is intensively traded on international markets unlike renewable electricity.
    Keywords: Learning-by-doing, wind energy, general equilibrium modeling, international trade
    JEL: Q43 C68 O30 F10
    Date: 2007
  5. By: Francesco Crespi (University of Roma Tre); Valeria Costantini (University of Roma Tre)
    Abstract: The pollution haven hypothesis affirms that an open market regime will encourage the flow of low technology polluting industries toward developing countries, due to potential comparative advantages related to low environmental standards. In contrast, the hypothesis suggested by Porter and van der Linde claims for a competitive dynamic behaviour by innovating firms, allowing a global diffusion of environmental-friendly technologies. Environmental regulation may represent a relevant mechanism through which technological change is induced. In this way countries subject to more stringent environmental regulations may become net exporters of environmental technologies. This paper provides new evidence on the evolution of export flows of environmental technologies across different countries for the energy sector. Advanced economies, particularly the European Union, have given increasing attention to the role of energy policies as tools for sustaining the development path. The Kyoto Protocol commitments, together with growing import dependence of energy products, have stimulated the attention on the analysis of innovation processes in this specific sector. The analysis uses a gravity model in order to test the determinants and the transmission channels through which environmental technologies for renewable energies and energy efficiency are exported to advanced and developing countries. Our results are consistent with the existence of the Porter and van der Linde hypothesis, where environmental regulation represents a significant component of comparative advantages. What strongly emerges is that the stringency of environmental regulation supplemented by the strength of National Innovation System is a crucial driver of export performance in the field of energy technologies.
    Keywords: Environmental Regulation, Trade and Environment, Energy Technologies
    JEL: F18 F21 Q43 Q55 Q56
    Date: 2007–05
  6. By: Faye Duchin (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)
    Abstract: This article describes the contribution economists can make in uncovering energy choices capable of reducing carbon emissions on a global scale. All production and consumption activities involve the use of energy, and economists possess theoretical and analytic frameworks relating production and consumption in individual economies with international trade among them. Current challenges include deepening collaboration with physical scientists and engineers by according primacy to the formulation of scenarios and to the representation of physical stocks and flows of resources as factor inputs. Energy scenarios are discussed in terms of technological options, distinguishing those options that are already known but not yet widely applied from ones that still require research breakthroughs. Scenarios about household lifestyles and consumption in the areas of diet, housing and mobility are also discussed, distinguishing those that could already be initiated by households from those that would require changes in the built environment. Models and databases of the global economy have existed since the 1970s, and one was first used to analyze energy scenarios in the early 1990s based on the recommendations of the Brundtland Report of 1987. Relevant areas of progress since that time are described both in modeling the global economy and in compiling a global economic and environmental database. The paper concludes with a few examples of recent applications of a particular global economic model to analyzing energy scenarios to demonstrate both the progress that has been made and the nature of some of the challenges still to be faced.
    JEL: C6 F01 F18 Q01 Q42 Q43 Q56
    Date: 2007–05
  7. By: Martin Petri; Ludvig Söderling; Wojciech Maliszewski; Hanan Morsy; Manal Fouad; Martin Hommes
    Abstract: Public debt in the Middle East increased during the mid-1990s mainly because of fiscal expansions. It decreased in recent years, thanks to high oil revenue, economic growth, some primary non-oil fiscal adjustment, and debt relief. While countries in the Middle East appear to have adequately reacted to high indebtedness in the past, public debt levels remain uncomfortably high in many, particularly non-oil producing countries and middle income oil producers. Non-oil countries adjust mainly by increasing revenues, whereas oil countries adjust expenditure. For non-oil producing countries, substantial fiscal adjustment would be needed to bring debt down to below 50 percent of GDP. Oil producers as a group appear to follow sustainable, though procyclical, fiscal policies. Middle-income (but not high-income) oil producing countries would need to adjust somewhat to bring their policies in line with the permanent oil income benchmark.
    Keywords: Public debt , Middle East , Fiscal policy , Oil ,
    Date: 2007–01–25
  8. By: Faisal Ahmed; Nabil Ben Ltaifa; Todd Schneider; Saade Chami
    Abstract: This paper investigates the likely implications of declining oil production on Yemen's equilibrium exchange rate, and discusses policy options to ensure a smooth transition to a nonoil economy. The empirical results suggest that, as oil production and foreign exchange earnings fall, the Yemeni rial will have to adjust downward in real effective terms to keep pace with the equilibrium exchange rate. In light of strong pass-through from exchange rate depreciation to domestic inflation, this could entail a substantial depreciation in nominal terms. Given the nature of the adjustment, a floating exchange rate regime appears to be the best option, if supported by appropriate macroeconomic policies. However, given public fixation on a exchange rate stability, a softly managed float would be a better option for Yemen whereby the central bank may have to lead the market toward the equilibrium exchange rate.
    Keywords: Exchange rate policy , Yemen, Republic of , Oil exports ,
    Date: 2007–01–17
  9. By: Juergen Antony (University of Augsburg, Department of Economics)
    Abstract: Non-renewable resources are an obstacle for positive long run growth if they are essential for production, households solve an intertemporal Ramsey problem and population is growing. Modern growth models predict that growth is positively related to growth in production factors. Hence, there are opposing forces at work if labor as one factor is growing and the use of the non-renewable resource as another factor is shrinking. The paper develops a semi-endogenous growth model with one labor and one resource using sector and derives conditions for stable positive long run growth in per capita production and consumption.
    Keywords: non-renewable resources, semi-endogenous growth
    JEL: Q32 O31 O33
    Date: 2007–05
  10. By: Yin Hua Mai
    Abstract: MC-HUGE is a dynamic Computable General Equilibrium model of the Chinese economy. The core CGE part of the MC-HUGE model is based on that of the ORANI model. The dynamic mechanism of MC-HUGE is based on that of the MONASH model. This paper documents how the MC-HUGE model is calibrated to China's economic growth data from 1997 to 2005. It also reports how the model is used to forecast a growth path for the Chinese economy from 2005 to 2015. The historical and the forecast simulation produce a baseline or a business-as-usual scenario with which to compare the effects of any changes in economic policies or environment.
    Keywords: China, CGE modelling, economic growth, oil
    JEL: C68 F14 O10
    Date: 2006–09
  11. By: Julien Allaire (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: La consommation d'énergie dans les secteurs non industriels prend de plus en plus de place dans le bilan énergétique chinois. La dynamique de développement urbain rapide en est la principale cause. La construction des villes engendre une demande énergétique croissante dont une large part est due à la demande de confort thermique et de mobilité. Dans cet article nous reviendrons sur les évolutions des consommations urbaines en nous concentrant sur ces deux domaines qui revêtent un enjeu majeur du point de vue des émissions chinoises de gaz à effet de serre.
    Date: 2007–05–23
  12. By: Lining He (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA); Faye Duchin (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA)
    Abstract: Significant economic disparities among China's Eastern, Central, and Western regions pose unequivocal challenges to social equality and political stability in the country. A major impediment to economic development, especially in the poor, remote Western region, is the shortage of transportation infrastructure. The Chinese government has committed to substantial investment for improving the accessibility of this vast, land-locked region as a mechanism for promoting its development. The paper examines the impacts of the intended transportation infrastructure buildup on the Western region's comparative advantage and its interregional trade. The World Trade Model is extended to represent this investment and applied to determine interregional trade in China based on region-specific technologies, factor endowments and prices, and consumption patterns as well as the capacities and costs of carrying goods among regions using the interregional transportation infrastructure in place in the base year of 1997 and that planned for 2010 and 2020. The model is implemented for 3 regions, 27 sectors, and 7 factors. The results indicate that the planned infrastructure buildup will be cost-effective, will increase benefits especially for the Western region, and that it can conserve energy overall at given levels of demand but substitute oil for coal. Based on these and other model results, some recommendations are offered about strategies for regional development in China.
    JEL: L98 O53 C61 C67 O18
    Date: 2007–05
  13. By: Kelly C. de Bruin (Wageningen University); Rob B. Dellink (Wageningen University); Richard S.J. Tol (Institute for Environmental Studies)
    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: Q25 Q28
    Date: 2007–05
  14. By: Edwin van der Werf (Kiel Institute for the World Economy)
    Abstract: Quantitative models for climate policy modeling differ in the production structure used and in the sizes of the elasticities of substitution. The empirical foundation for both is generally lacking. This paper estimates the parameters of two-level CES production functions with capital, labour and energy as inputs, and is the first to systematically compare all nesting structures. Using industry-level data from 12 OECD countries, we find that the nesting structure where capital and labour are combined first, fits the data best, but for most countries and industries we cannot reject that all three inputs can be put into one single nest. These two nesting structures are used by most climate models. However, while several climate policy models use a Cobb-Douglas function for (part of the) production function, we reject elasticities equal to one, in favour of considerably smaller values. Finally we find evidence for factor-specific technological change. With lower elasticities and with factor-specific technological change, some climate policy models may find a bigger effect of endogenous technological change on mitigating the costs of climate policy.
    Keywords: Climate Policy, Input Substitution, Technological Change
    JEL: O13 Q32 Q43 Q55
    Date: 2007–04
  15. By: Ambec, S.; Lanoie, P.
    Abstract: The conventional wisdom about environmental protection is that it comes at an additional cost on firms imposed by the government, which may erode their global competitiveness. However, during the last decade, this paradigm has been challenged by a number of analysts. In particular, Porter (Porter, 1991; Porter and van der Linde, 1995) argues that pollution is often associated with a waste of resources (material, energy, etc.), and that more stringent environmental policies can stimulate innovations that may compensate for the costs of complying with these policies. This is known as the Porter hypothesis. In fact, there are many ways through which improving the environmental performance of a company can lead to a better economic or financial performance, and not necessarily to an increase in cost. To be systematic, it is important to look at both sides of the balance sheet.First, a better environmental performance can lead to an increase in revenues through the following channels: i) a better access to certain markets; ii) the possibility to differentiate products and iii) the possibility to sell pollution-control technology. Second, a better environmental performance can lead to cost reductions in the following categories: iv) regulatory cost; v) cost of material, energy and services (this refers mainly to the Porter hypothesis); vi) cost of capital, and vii) cost of labour. Although these different possibilities have been identified from a conceptual or theoretical point of view for some time (Reinhardt, 2000; Lankoski, 2000, 2006), to our knowledge, there was no systematic effort to provide empirical evidences supporting the existence of these opportunities and assessing their “magnitude”. This is the objective of this paper. For each of the seven possibilities identified above [i) through vii)], we present the mechanisms involved, a systematic view of the empirical evidence available, and a discussion of the gaps in the empirical literature. The objective of the paper is not to show that a reduction of pollution is always accompanied by a better financial performance, it is rather to argue that the expenses incurred to reduce pollution can sometime be partly or completely compensated by gains made elsewhere. Through a systematic examination of all the possibilities, we also want to identify the circumstances most likely to lead to a “win-win” situation, i.e., better environmental and financial performance.
    JEL: L21 M14 Q52 Q55 Q58
    Date: 2007
  16. By: Sato, S.; Grubb, M.; Cust, J.; Chan, K.; Korppoo, A.; Ceppi, P.
    Abstract: We summarises the main factors that differentiate impacts of the EU ETS on profitability and market share. By examining sampling a range of sectors, we present some simple metrics and indicators to help judge the nature of potential impacts. We also consider briefly the mitigation response to these impacts by sectors, and how they may evolve over time. The broad conclusion confirms the aggregate findings presented in the existing literature - most participating sectors are likely to profit under the current ETS structure out to 2012 at the cost of a modest loss of market share, but this may not hold for individual companies and regions. The period 2008-12 can assist participating sectors to build experience and financial reserves for longer term technology investments and diversification, providing the continuation and basic principles of the EU ETS post-2012 is quickly defined and incentives are in place for sectors to pursue this.
    Keywords: Emissions trading, industrial competitiveness, spillovers, allowance allocation, perverse incentives.
    JEL: Q52 Q58 F18
    Date: 2007–03
  17. By: Michela Catenacci (Fondazione Eni Enrico Mattei); Barbara Buchner (International Energy Agency); Alessandra Sgobbi (Fondazione Eni Enrico Mattei)
    Abstract: The European Union Emission Trading System (EU ETS) is a landmark environmental policy, representing the world’s first large-scale greenhouse gas (GHG) trading program. The coexistence of state actors and top-down processes with stakeholders participation and flexible abatement strategies make the EU ETS a powerful instrument of cross sectoral integration of environmental concerns, which benefits from a high level of interaction among the actors involved and a significant degree of information exchange. However, the same peculiarities of the system make it difficult to identify a correspondence with a single mode of governance. The EU ETS shows characteristics of the decision making processes and institutions engaged, the tools and instruments used as well as the actors involved, which change according to the different levels of governance, and belong both to the old and to the new modes of governance. The emission trading scheme represents a clear example of Multi-Level governance, where the different modes of governance interact among them and affect each other.
    Keywords: Environmental Policy Integration, Climate Change, Emission Trading, EU Policy
    JEL: H23 F53 Q28
    Date: 2007–05
  18. By: David Anthoff (FNU, ZMK); Richard S.J. Tol (Economic and Social Research Institute)
    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: 2007–05
  19. By: Georg E. Kindermann (International Institute for Applied Systems Analysis (IIASA)); Michael Obersteiner (International Institute for Applied Systems Analysis (IIASA)); Ewald Rametsteiner (International Institute for Applied Systems Analysis (IIASA)); Ian McCallcum (International Institute for Applied Systems Analysis (IIASA))
    Abstract: Background: Global carbon stocks in forest biomass are decreasing by 1.1 Gt of carbon annually, owing to continued deforestation and forest degradation. Deforestation emissions are partly offset by forest expansion and increases in growing stock primarily in the extra-tropical north. Innovative financial mechanisms would be required to help reducing deforestation. Using a spatially explicit integrated biophysical and socio-economic land use model we estimated the impact of carbon price incentive schemes and payment modalities on deforestation. One payment modality is adding costs for carbon emission, the other is to pay incentives for keeping the forest carbon stock intact. Results, Baseline scenario calculations show that close to 200mil ha or around 5% of today’s forest area will be lost between 2006 and 2025, resulting in a release of additional 17.5 GtC. Today’s forest cover will shrink by around 500 million hectares, which is 1/8 of the current forest cover, within the next 100 years. The accumulated carbon release during the next 100 years amounts to 45 GtC, which is 15% of the total carbon stored in forests today. Incentives of 6 US$/tC for the standing biomass paid every 5 years will bring deforestation down by 50%. This will cause costs of 34 billion US$/year. On the other hand a carbon tax of 12$/tC harvested forest biomass will also cut deforestation by half. The tax income will decrease from 6 billion US$ in 2005 to 4.3 billion US$ in 2025 and 0.7 billion US$ in 2100 due to decreasing deforestation speed. Conclusions, Avoiding deforestation requires financial mechanisms that make retention of forests economically competitive with the currently often preferred option to seek profits from other land uses. Incentive payments need to be at a very high level to be effective against deforestation. Taxes on the other hand will generate budgetary revenues by the regions which are already poor. A combination of incentives and taxes could turn out to be a viable solution for this dilemma. Increasing the value of forest land and thereby make it less easily prone to deforestation would act as a strong incentive to increase productivity of agricultural and fuelwood production, which could be supported by revenues generated by the deforestation tax.
    Keywords: Deforestation, Carbon Prices
    JEL: Q57 Q58
    Date: 2007–03
  20. By: David Anthoff; Robert J. Nicholls; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: Using the FUND model, an impact assessment is conducted over the 21st century for rises in sea level of up to 2-m/century and a range of national socio-economic scenarios. This model balances the costs of retreat with the costs of protection, including the effects of coastal squeeze. While the costs of sea-level rise increase due to greater damage and protection costs, the model suggests that an optimum response in a benefit-cost sense remains widespread protection of developed coastal areas, as identified in earlier analyses. The socio-economic scenarios are also important in terms of influencing these costs. In terms of the four components of costs considered in FUND, protection seems to dominate, with substantial costs from wetland loss under some scenarios. The regional distribution of costs shows that a few regions experience most of the costs, especially East Asia, North America, Europe and South Asia. Importantly, this analysis suggests that protection is much more likely and rational than is widely assumed, even with a large rise in sea level. However, there are some important limitations to the analysis, which collectively suggest that protection may not be as widespread as suggested in the FUND analysis. Equity weighting allows the damages to be modified to reflect the wealth of those impacted by sea-level rise. Taking these distributional issues into account increases damage estimates by a factor of three, reflecting that the coasts fall disproportionately on poorer developing countries.
    Keywords: climate change, sea level rise, equity weighting
    JEL: Q54
    Date: 2007–05

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