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on Energy Economics |
| By: | Valentina Bosetti (Fondazione Eni Enrico Mattei); Carlo Carraro (Fondazione Eni Enrico Mattei, University of Venice, CEPR, CESifo and CMCC); Emanuele Massetti (Fondazione Eni Enrico Mattei, Catholic University of Milan and CMCC); Massimo Tavoni (Fondazione Eni Enrico Mattei, Catholic University of Milan and CMCC) |
| Abstract: | The stabilisation of GHG atmospheric concentrations at levels expected to prevent dangerous climate change has become an important, global, long-term objective. It is therefore crucial to identify a cost-effective way to achieve this objective. In this paper we use WITCH, a hybrid climate-energy-economy model, to obtain a quantitative assessment of some cost-effective strategies that stabilise CO2 concentrations at 550 or 450 ppm. In particular, this paper analyses the energy investment and R&D policies that optimally achieve these two GHG stabilisation targets (i.e. the future optimal energy mix consistent with the stabilisation of GHG atmospheric concentrations at 550 and 450 ppm). Given that the model accounts for interdependencies and spillovers across 12 regions of the world, optimal strategies are the outcome of a dynamic game through which inefficiency costs induced by global strategic interactions can be assessed. Therefore, our results are somehow different from previous analyses of GHG stabilisation policies, where a central planner or a single global economy are usually assumed. In particular, the effects of free-riding incentives in reducing emissions and in investing in R&D are taken into account. Technical change being endogenous in WITCH, this paper also provides an assessment of the implications of technological evolution in the energy sector of different stabilisation scenarios. Finally, this paper quantifies the net costs of stabilising GHG concentrations at different levels, for different allocations of permits and for different technological scenarios. In each case, the optimal long-term investment strategies for all available energy technologies are determined. The case of an unknown backstop energy technology is also analysed. |
| Keywords: | Climate Policy, Energy R&D, Investments, Stabilisation Costs |
| JEL: | H0 H2 H3 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2007.95&r=ene |
| By: | Grubb, M.; Newbery, N. |
| Abstract: | In this paper, which forms a chapter in the forthcoming Book “Delivering a Low Carbon Electricity System: Technologies, Economics and Policy”2, Grubb and Newbery examine how carbon for electricity generation should be priced. They begin by suggesting that it is not clear what the correct price of carbon is, but that it spans the whole range of economically plausible prices. They then go on to discuss the theoretical merits of taxes versus quotas, concluding that theoretically a stable tax would best reflect the true social cost of emissions, which should not change with market conditions. They then go to evaluate the EU Emissions Trading Scheme where allowances for the emission of CO2 are traded (EUAs). The price signals offered by the scheme in its first trading period have been very unsatisfactory with high variability and the price trending down towards very low levels as it has become clear that governments were much too generous in their initial allocation of quotas. What is needed is a stable investment environment for low carbon generation investments. They discuss a number of policy options to achieve this: long period commitments on quotas; allowing unconstrained banking and borrowing of EUAs over multiple periods; long term price declarations to be used in allocation auctions; government issued contracts for differences on the future carbon price; or simply to issue low-carbon electricity contracts. The authors conclude with a discussion of the scope for international agreements on carbon emissions reduction. They conclude that imperfect though it is the EU ETS is a good place to start to link up emerging trading regimes, and that quota systems have more of a chance of commanding international agreement at least initially. However any international climate change agreement will be difficult to establish. Key words: Carbon price, electricity, taxes vs quotas, emissions trading. |
| JEL: | Q54 Q58 Q55 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0751&r=ene |
| By: | Kilian, Lutz |
| Abstract: | Large fluctuations in energy prices have been a distinguishing characteristic of the U.S. economy since the 1970s. Turmoil in the Middle East, rising energy prices in the U.S. and evidence of global warming recently have reignited interest in the link between energy prices and economic performance. This paper addresses a number of the key issues in this debate: What are energy price shocks and where do they come from? How responsive is energy demand to changes in energy prices? How do consumers’ expenditure patterns evolve in response to energy price shocks? How do energy price shocks affect real output, inflation, stock markets and the balance-of-payments? Why do energy price increases seem to cause recessions, but energy price decreases do not seem to cause expansions? Why has there been a surge in gasoline prices in recent years? Why has this new energy price shock not caused a recession so far? Have the effects of energy price shocks waned since the 1980s and, if so, why? As the paper demonstrates, it is critical to account for the endogeneity of energy prices and to differentiate between the effects of demand and supply shocks in energy markets, when answering these questions. |
| Keywords: | Asymmetry; Causality; Channels of transmission; Crude oil; Elasticity; Gasoline; Price shocks; Propagation |
| JEL: | E21 Q43 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6559&r=ene |
| By: | Fabbri, Giorgio |
| Abstract: | We present a growth model in which a non-renewable resource enters in the production function. The non-renewable resource is supposed to be sold by an external monopolistic that maximizes his intertemporal discounted cash flow. This approach allows to endogenize the price of the resource. We use the historical data of the oil price and of the oil production to calibrate the model. The forecasts of the model about the evolution of the GDP growth rate, the price and amount of the production of the oil are described. The formulation of the model is quite easy but it hallows to obtain a good fit with the recent data and especially with the behavior of the three main quantities considered (oil price, oil supply and GDP growth rate) in the last years. Indeed the recent data suggest a new scenario and probably a progressive reduction of the world oil supply (and an indefinite growth of the prices). The model suggests that such a behavior is not due to the imminent physical end of the oil but has a clear economic explanation. |
| Keywords: | Non-renewable resources, Oil, Endogenous Growth |
| JEL: | Q32 Q31 C61 O40 Q43 |
| Date: | 2007–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5651&r=ene |
| By: | John Boyce; Linda Nøstbakken |
| Date: | 2007–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2007-15&r=ene |
| By: | Hope, C.; Newbery, D. |
| Abstract: | The paper1 discusses the determination of the social cost of carbon (SCC) using the PAGE2002 model used in the Stern Review. The SCC depends sensitively on assumptions about future economic development, the range and likelihood of economic and social damage arising from climate change at future dates and the discount rate to apply to that damage. The paper critically examines the choice of pure time preference and the weight to place on damage experienced by other countries in the distant future. Key conclusions are that the SCC rises at about 2.4% p.a. and the range of plausible estimates for the SCC is wide. The SCC is sensitive to a number of factors, significantly the equilibrium temperature rise for a doubling of CO2 concentration, the pure rate of time preference, the non-economic impact, the inequality weighting parameter and the half-life of global warming. Within the model the SCC appears surprisingly insensitive to the emissions scenario for reasons that are explained. The paper points out that methane and SF6 are also powerful GHGs whose impact can be estimated within the model. Key words: Climate change, social impacts, carbon price, rate of pure time preference. |
| JEL: | Q54 Q58 Q52 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0749&r=ene |
| By: | Annette Bongardt (Universidade Moderna and IEEI); Isabel Cabrita (Universidade Moderna and INETI) |
| Abstract: | This paper considers the prerequisites for implementing a competitive low-carbon economy in the European Union from the point of view of firms’ incentives, the role of policy and the contribution of public research. It suggests that the reduction of the environmental impact of energy can be a new competitiveness factor. Rather than being treated as a constraint and cost-aggravating factor, addressing climate change can offer economic opportunity and contribute to growth. The paper looks at both static (energy efficiency) and dynamic (innovation – new products, processes, technologies or sectors and consumption patterns) dimensions of competitiveness. |
| Keywords: | Economic competitiveness; low-carbon economy; energy; technology; and public research. |
| JEL: | M21 H23 H44 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:ave:wpaper:492007&r=ene |
| By: | Robert Stavins; Judson Jaffe; Todd Schatzki |
| Abstract: | California's Global Warming Solutions Act of 2006 limits California's greenhouse gas (GHG) emissions in 2020 to their 1990 level. Global climate change is a pressing environmental problem, and the best possible public policies will be required to address it. Therefore, analyses of prospective policies must themselves be of high quality, so that policymakers can reasonably rely on them when making the critical decisions they inevitably will face. <br><br>In 2006, three studies were released indicating that California can meet its 2020 target at no net economic cost - raising questions about whether opportunities truly exist to substantially reduce emissions at no cost, or whether studies reaching such conclusions may simply severely underestimate costs. This paper provides an evaluation of these three California studies.<br><br>We find that although opportunities may exist for some no-cost emission reductions, these California studies substantially underestimate the cost of meeting California's 2020 target. The studies underestimate costs by omitting important components of the costs of emission reduction efforts, and by overestimating offsetting savings that some of those efforts yield through improved energy efficiency. In some cases, the studies focus on the costs of particular actions to reduce emissions, but fail to consider the effectiveness and costs of policies that would be necessary to bring about such actions. While quantifying the full extent of the resulting cost underestimation is beyond the scope of our study, the underestimation is clearly economically significant. A few of the identified flaws individually lead to underestimation of annual costs on the order of billions of dollars. Hence, these studies do not offer reliable estimates of the cost of meeting California's 2020 target. Better analyses are needed to inform policymakers.<br><br>While the Global Warming Solutions Act of 2006 sets a 2020 emissions target, critical policy design decisions remain to be made that will fundamentally affect the cost of California's climate policy. For example, policymakers must determine emission targets for the years before and after 2020, the emission sources that will be regulated to meet those targets, and the policy instruments that will be employed. The California studies do not directly address the cost implications of these and other policy design decisions, and their overly optimistic findings may leave policymakers with an inadequate appreciation of the stakes associated with decisions that lie ahead. As such, California would benefit from studies that specifically assess the cost implications of alternative policy designs.<br><br>Nonetheless, a careful evaluation of the California studies highlights some important policy design lessons that apply regardless of the extent to which no-cost emission reduction opportunities actually exist. In particular, policies should be designed to account for uncertainty regarding emission reduction costs, much of which will not be resolved before policies must be enacted. Also, consideration of the different market failures that lead to excessive GHG emissions makes clear that to reduce emissions cost-effectively, policymakers should adopt a market-based policy (such as a cap-and-trade system) as the core policy instrument. The presence of specific market failures that may lead to some no-cost emission reduction opportunities suggests the potential value of additional policies that act as complements, rather than alternatives, to a market-based policy. However, to develop complementary policies that efficiently target such no-cost opportunities, policymakers need better information than currently exists regarding the specific market failures that bring about those opportunities. |
| JEL: | Q28 Q38 Q48 Q54 Q58 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13587&r=ene |
| By: | Apostolos Serletis; Aryeh Rosenberg |
| Date: | 2007–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2007-02&r=ene |
| By: | DAKHLAOUI Ahlem; |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:ler:wpaper:07.21.242&r=ene |
| By: | Pollitt, M |
| Abstract: | This paper explores the issue of the balance between liberalisation and regulation in electricity systems, which is the essence of much of the detailed policies which are implemented in the sector. By liberalisation I take to mean the use of market or quasi-market mechanisms as part of a reform of the sector, by regulation I take to mean regulatory intervention to restrain the operation of market signals which would otherwise have operated in the absence of regulation. The paper takes an international perspective to look at the case for liberalisation, the case for regulation and the evidence on the effects of liberalisation. It concludes with an assessment on the future for electricity liberalisation. This paper forms the foreward to Sioshansi, F.P. (2008) (ed.), Competitive Electricity Markets: Design, Implementation, Performance, Oxford: Elsevier and makes reference to the papers in that volume. Key words: Electricity liberalisation, electricity regulation. |
| JEL: | L94 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0753&r=ene |
| By: | Jean-Marie Grether (University of Neuchâtel); Nicole A. Mathys (University of Lausanne and EPFL); Jaime de Melo (University of Geneva and CEPR) |
| Abstract: | Combining unique data bases on emissions with sectoral output and employment data, we study the sources of the fall in world-wide SO2 emissions and estimate the impact of trade on emissions. Contrarily to concerns raised by environmentalists, an emission-decomposition exercise shows that scale effects are dominated by technique effects working towards a reduction in emissions. A second exercise comparing the actual trade situation with an autarky benchmark estimates that trade, by allowing clean countries to become net importers of emissions, leads to a 10% increase in world emissions with respect to autarky in 1990, a figure that shrinks to 3.5% in 2000. Additionally, back-of-the-envelope calculations suggest that emissions related to transport are of the same magnitude. In a third exercise, we use linear programming to simulate extreme situations where world emissions are either maximal or minimal. It turns out that effective emissions correspond to a 90% reduction with respect to the worst case, but that another 80% reduction could be reached if emissions were minimal. |
| Keywords: | Trade, Growth, Environment, Decomposition, Embodied Emissions in Trade, Transport |
| JEL: | F11 Q56 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2007.93&r=ene |
| By: | David Adamson (Risk and Sustainable Management Group, University of Queensland); Thilak Mallawaarachchi (Risk and Sustainable Management Group, University of Queensland); John Quiggin (Risk & Sustainable Management Group, School of Economics, University of Queensland) |
| Abstract: | It is likely that climate change will be associated with reductions in inflows of water to the Murray–Darling Basin In this paper, we analyse the effects of climate change in the Murray–Darling Basin, using a simulation model that incorporates a state-contingent representation of uncertainty. The severity of the impact depends, in large measure, on the extent to which climate change is manifested as an increase in the frequency of drought conditions. Adaptation will partially offset the adverse impact of climate change. |
| Keywords: | climate change, Murray-Darling Basin, uncertainty, water |
| JEL: | D81 Q25 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:rsm:murray:m07_2&r=ene |
| By: | McDougall, Robert; Aguiar, Angel |
| Abstract: | The memorandum documents the initial preparation of energy volume data for release 7 of the GTAP Data Base. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:gta:resmem:2521&r=ene |
| By: | Pollitt, M.; Bialek, J. |
| Abstract: | The requirement for significantly higher electricity network investment in the UK seems certain as the capacity of distributed generation and large scale renewables increases on the system. In this paper, which forms a chapter in the forthcoming Book “Delivering a Low Carbon Electricity System: Technologies, Economics and Policy”2, the authors make a number of significant suggestions for improvement to the current system of network regulation. First, they suggest that the RPI-X system needs to be overhauled in favour of a simpler yardstick based system and which allows for more merchant transmission investments. Second, future regulation should involve more negotiated regulation involving agreements between network owners and purchasers of network services. This would be particularly advantageous for decisions on new network investments. Third, more extensive use needs to be made of locational pricing within the transmission and distribution system in order to facilitate the least cost expansion of low carbon generation, including micropower. Fourth, consideration needs to be given to ownership unbundling of distribution networks from retail supply. This would better facilitate the entry of distributed generation and the development of appropriate competition between grid and off-grid generation supply and demand side management. Finally, there needs to be a significant increase in R&D expenditure in electricity networks supported by customer levies. Key words: Electricity networks, incentive regulation. |
| JEL: | L94 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0750&r=ene |
| By: | Apostolos Serletis; Mattia Bianchi |
| Date: | 2007–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2007-05&r=ene |
| By: | Knut Einar Rosendahl and Eirik Lund Sagen (Statistics Norway) |
| Abstract: | Reduced transportation costs are usually associated with lower import prices, increased trade and price convergence. In this paper we show that the lower costs can actually lead to higher import prices in some regions, and price divergence between import regions. Using both a general theoretical approach and a numerical model of the global natural gas market, we demonstrate that the price effect from transport cost reductions depend on the relative distances between regional markets, the choice of transport technology, and supply and demand responsiveness in the different markets. Our numerical results suggest that European consumers would generally be better off if pipeline costs are reduced, while North American consumers would be better off if LNG costs are reduced. |
| Keywords: | Natural gas; trade; transport costs; price convergence; numerical model |
| JEL: | C61 F17 L95 Q31 R40 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:523&r=ene |
| By: | Nhemachena, Charles; Hassan, Rashid |
| Abstract: | "Adaptation to climate change involves changes in agricultural management practices in response to changes in climate conditions. It often involves a combination of various individual responses at the farm-level and assumes that farmers have access to alternative practices and technologies available in the region. This study examines farmer adaptation strategies to climate change in Southern Africa based on a cross-section database of three countries (South Africa, Zambia and Zimbabwe) collected as part of the Global Environment Facility/World Bank (GEF/WB) Climate Change and African Agriculture Project. The study describes farmer perceptions to changes in long-term temperature and precipitation as well as various farm-level adaptation measures and barriers to adaptation at the farm household level. A multivariate discrete choice model is used to identify the determinants of farm-level adaptation strategies. Results confirm that access to credit and extension and awareness of climate change are some of the important determinants of farm-level adaptation. An important policy message from these results is that enhanced access to credit, information (climatic and agronomic) as well as to markets (input and output) can significantly increase farm-level adaptation. Government policies should support research and development on appropriate technologies to help farmers adapt to changes in climatic conditions. Examples of such policy measures include crop development, improving climate information forecasting, and promoting appropriate farm-level adaptation measures such as use of irrigation technologies." from Authors' Abstract |
| Keywords: | Climate change, Adaptation, |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:00714&r=ene |
| By: | Kuntala Lahiri-Dutt; |
| Abstract: | This paper presents an analysis of the current status of the Indian coal sector, which is poised for major changes with liberalisation and privatisation of the Indian economy, and critically analyses some policy issues. The state-owned Coal India Limited has been ailed by economic problems and has been responsible for causing serious social disruptions and environmental hazards in its areas of operation. The monopoly status that the public sector companies have enjoyed for over 3 decades has acted as a disincentive in improving the social and environmental performance of the industry, the major effort being put on improving the operational processes through the introduction of technology. The substantial liberalisation of the sector would need to prioritise not only a more integrated and investor-friendly regulatory environment but also take a close look at some old laws of colonial vintage, at issues relating to social equity and justice, and incorporate some of the international compliance standards being put forth by the international agencies. The paper also suggests that the government must develop and implement an integrated energy policy, of which coal is a part. Moreover, it must develop efficient coal markets and raise India’s profile in the world coal markets, commensurate with India’s status as the third-largest coal producer in the world. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pas:asarcc:2007-16&r=ene |
| By: | Zhang, Xiaobo; Xing, Li; Fan, Shenggen; Luo, Xiaopeng |
| Abstract: | "Over the past several decades, China has made tremendous progress in market integration and infrastructure development. Demand for natural resources has increased from the booming coastal economies, causing the terms of trade to favor the resource sector, which is predominantly based in the interior regions of the country. However, the gap in economic development level between the coastal and inland regions has widened significantly. In this paper, using a panel data set at the provincial level, we show that Chinese provinces with abundant resources perform worse than their resource-poor counterparts in terms of per capita consumption growth. This trend that resource-poor areas are better off than resource-rich areas is particularly prominent in rural areas. Because of the institutional arrangements regarding property rights of natural resources, most gains from the resource boom have been captured either by the government or state owned enterprises. Thus, the windfall of natural resources has more to do with government consumption than household consumption. Moreover, in resource-rich areas, greater revenues accrued from natural resources bid up the price of non-tradable goods and hurt the competitiveness of the local economy." from Authors' Abstract |
| Keywords: | Regional inequality, Resource curse, Dutch disease, Property rights, |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:00713&r=ene |