nep-ene New Economics Papers
on Energy Economics
Issue of 2008‒08‒21
fourteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Compensation for Electricity Consumers Under a U.S. CO2 Emissions Cap By Paul, Anthony; Burtraw, Dallas; Palmer, Karen
  2. Biofuels and the Food Price Crisis: A Survey of the Issues By Kimberly Elliott
  3. A Tax-Based Approach to Slowing Global Climate Change By Aldy, Joseph E.; Ley, Eduardo; Parry, Ian W.H.
  4. Climate Trading - The Clean Development Mechanism and Africa By Sanja Lutzeyer
  5. Calculating CARMA: Global Estimation of CO2 Emissions from the Power Sector By David Wheeler; Kevin Ummel
  6. Green, Brown, and Now White Certificates - Are Three One Too Many? : A Micromodel of Market Interaction By Georg Meran; Nadine Wittmann
  7. Evaluating Voluntary Climate Programs in the United States By Pizer, William A.; Morgenstern, Richard; Shih, Jhih-Shyang
  8. The Greenness of Cities: Carbon Dioxide Emissions and Urban Development By Edward L. Glaeser; Matthew E. Kahn
  9. Why Warner-Lieberman Failed and How to Get America’s Working Families behind the Next Cap-and-Trade Bill By David Wheeler
  10. Measuring Energy Security – A Conceptual Note By Manuel Frondel; Christoph M. Schmidt
  11. Issues in Designing U.S. Climate Change Policy By Aldy, Joseph E.; Pizer, William A.
  12. Controlling the Cost of Controlling the Climate - The Irish Government’s Climate Change Strategy By Colm McCarthy; Sue Scott
  13. The interdependencies between food and biofuel production in European agriculture - an application of EUFASOM By P. Michael Link; C. Ivie Ramos; Uwe A. Schneider; Erwin Schmid; J. Balkovic; R. Skalsky
  14. Regulation with Budget Constraints Can Dominate Regulation by Price and by Quantity By Linda Cohen; Amihai Glazer

  1. By: Paul, Anthony (Resources for the Future); Burtraw, Dallas (Resources for the Future); Palmer, Karen (Resources for the Future)
    Abstract: Policies to cap emissions of carbon dioxide (CO2) in the U.S. economy could pose significant costs on the electricity sector, which contributes roughly 40 percent of total CO2 emissions in the U.S. Using a detailed simulation model of the electricity sector, we evaluate alternative ways that emission allowances can be allocated. Most previous emissions trading programs have allocated the major portion of allowances for free to incumbent firms. In the electricity sector this approach would lead to changes in electricity price that vary by region primarily based primarily on whether prices are market-based or determined by cost-of-service regulation. Allocation to customers, which could be achieved by allocation to local distribution companies (retail utilities) would recover symmetry in the effect of free allocation and lead to signficiantly lower overall electricity prices. However, this form of compensation comes with an efficiency cost that will increase the overall cost of climate policy.
    Keywords: emissions trading, allowance allocations, electricity, air pollution, auction, grandfathering, cost-effectiveness, greenhouse gases, climate change, global warming, carbon dioxide, asset value, compensation
    JEL: Q2 Q25 Q4 L94
    Date: 2008–07–16
  2. By: Kimberly Elliott
    Abstract: While the precise contribution of biofuels to surging food prices is difficult to know, policies promoting production of the current generation of biofuels are not achieving their stated objectives of increased energy independence or reduced greenhouse gas emissions. Reaching the congressionally mandated goal of blending 15 billion gallons of renewable fuels in gasoline by 2015 would consume roughly 40 percent of the corn crop (based on recent production levels) while replacing just 7 percent of current gasoline consumption. Moreover, while it has long been known that the net energy and greenhouse gas emission benefits of corn-based ethanol are relatively small because its production is energy-intensive, recent scientific studies suggest that the current generation of biofuels, including biodiesel made from palm oil, soybeans, and rapeseed, as well as corn-based ethanol, actually add to greenhouse gas emissions relative to petroleum-based fuels when land use changes are taken into account. That is, greenhouse gases are released when forests are cut down or grasslands cleared to plant biofuels, or food is planted on new acreage to replace crops diverted to fuel elsewhere. In sum, the food crisis adds urgency to the need to change these policies but does not change the basic fact that there is little justification for the current set of policies.
    Keywords: food crisis, ethanol, biofuels, greenhouse gas emissions
    Date: 2008–08
  3. By: Aldy, Joseph E.; Ley, Eduardo; Parry, Ian W.H. (Resources for the Future)
    Abstract: In this paper, we discuss the design of carbon dioxide (CO2) taxes at the domestic and international level and the choice of taxes versus a cap-and-trade system. A strong case can be made for taxes on uncertainty, fiscal, and distributional grounds, though this critically hinges on policy specifics and how revenues are used. The efficient near-term tax is at least $5–$20 per ton of CO2 and the tax should be imposed upstream with incentives for downstream sequestration and abatement of other greenhouse gases. At the international level, a key challenge is the possibility that emissions taxes might be undermined through offsetting changes in other energy policies.
    Keywords: Global climate change, CO2 tax, cap-and-trade, policy design
    JEL: Q54 Q58 H23
    Date: 2008–07–15
  4. By: Sanja Lutzeyer (Department of Economics, University of Stellenbosch and North Carolina State University)
    Abstract: Global warming is today, without a doubt, one of the biggest international issues. Whilst no country will go completely unscathed by future consequences of climate change, the impacts thereof – in terms of loss of life as well as the relative effects on economies – are expected to be felt most severely in developing countries, specifically Africa. Nevertheless, the development of the Clean Development Mechanism (CDM) under the global environmental treaty – the Kyoto Protocol – has brought with it the potential of socially and environmentally sustainable industrial and energy development in Africa. This paper examines the carbon trading system resulting from the Kyoto protocol, and investigates the implications of the associated Clean Development Mechanism for Africa. Although the carbon market is still in its formative stages, the benefits of this research are plentiful. Not only is such research critical for raising awareness, but also ensures that African countries get a foothold in this nascent market. It is found that while producing carbon credits, CDM projects also have the potential to bring numerous benefits – such as sustainable development, transfer of skills and technology, improved adaptive capabilities, as well as access to new markets – to African host countries. If changes are implemented as suggested, the CDM has the potential to bring billions of dollars to Africa – a feat invaluable to the social and environmental development of the continent.
    Keywords: Clean Development Mechanism, CDM, Africa, Climate Change, Emissions Trading, Policy, Carbon Credits, Carbon Markets
    JEL: Q54 Q56 Q59
    Date: 2008
  5. By: David Wheeler; Kevin Ummel
    Abstract: This paper provides a detailed description and assessment of CARMA (Carbon Monitoring for Action), a database that reports CO2 emissions from the power sector. We built CARMA to assist the millions of concerned global citizens who can act to reduce carbon emissions once they have timely, accurate information about emissions sources. CARMA also lays the groundwork for the global monitoring system that will be necessary to ensure the credibility of any post-Kyoto carbon emissions limitation agreement. CARMA focuses on the power sector because it is the largest carbon dioxide emitter (26% of the global total), and because power plants are much better-documented than many sources of carbon emissions. The CARMA database and website put anyone with web access a few keystrokes away from detailed knowledge about power plants and the companies that own and operate them. CARMA includes many aggregation tools, so it can be used for local, regional, national and international comparisons. The database also offers complete information about power plants and companies that do not emit carbon because they use non-fossil energy sources (nuclear, hydro, solar, wind, biofuels, geothermal, etc.). In this paper, we provide a description of CARMA’s methodology, an assessment of its strengths and weaknesses, and some tests of its accuracy across countries and at different geographical scales. While CARMA performs well in these tests, we recognize that it is far from perfect. We therefore extend the following invitation to any power plant or company that disputes our estimates: Provide us with better data, verified by an appropriate third party, and we will incorporate them in CARMA.
    Keywords: global warming, climate change, emissions, energy
    Date: 2008–05
  6. By: Georg Meran; Nadine Wittmann
    Abstract: Our paper deals with modeling the effects of introducing a market-based tool for improving end-users' efficiency in an energy market which is already regulated through a cap-and-trade system for green house gas emissions and a quota system meant to improve competitiveness of energy produced using renewable resources. Our results show that the regulation of energy demand achieves its underlying objects of energy savings and energy efficiency solely at the expense of other goals such as the environmental efficiency of energy production. In our model, the implementation of a market for White Certificates (WCTS) causes energy producers' investment in abatement to decrease along with the price for Brown Certificates and the amount of renewable energy demanded. Once we turn to the currently more empirically relevant case of integrating end-users only partially into WCTS, the unregulated group compensates in parts for the decrease in demand of the regulated group, due to an indirect price effect. As both supply and demand side of the market are regulated, this special set of regulations applied can, therefore, be compared to the grip of pincers embracing the entire market, leaving some of it virtually scarred. Consequently, we intended to search for alternative policy measures, which are able to achieve an increase in end-users' energy efficiency without the negative side-effects witnessed in case of a WCTS. In our model a subsidized reduction in the price for households' investment in energy efficiency renders just slightly more favorable results than an implementation of WCTS. However, the most effective way to accomplish all goals of environmental policy alike is to reduce the cap on emissions.
    Keywords: Energy markets, certificate trading scheme, white certificates, efficiency, regulation, market-based tool, pincers policy
    Date: 2008
  7. By: Pizer, William A.; Morgenstern, Richard (Resources for the Future); Shih, Jhih-Shyang (Resources for the Future)
    Abstract: Despite the growing importance of voluntary programs as tools for environmental management, they have been subject to quite limited evaluation. Program evaluation in the absence of randomized experiments is difficult because the decision to participate may not be random and, in particular, may be correlated with the outcomes. The present study is designed to overcome these problems by gauging he environmental effectiveness of two voluntary climate change programs—the U.S. Environmental Protection Agency’s Climate Wise program and the U.S. Department of Energy’s Voluntary Reporting of Greenhouse Gases Program, or 1605(b)—with particular attention to the participation decision and how various assumptions affect estimates of program outcomes. For both programs, the analysis focuses on manufacturing firms and uses confidential census data to create a comparison group and to measure outcomes (expenditures on fuel and electricity). Overall, we find that that the effects from Climate Wise and 1605(b) on fuel and electricity expenditures are no more than 10 percent and probably less than 5 percent. Virtually no evidence suggests a statistically significant effect of either Climate Wise or 1605(b) on fuel costs. Some evidence suggests that participation in Climate Wise led to a slight (3–5 percent) increase in electricity costs that vanished after two years. Stronger evidence suggests that participation in 1605(b) led to a slight (4–8 percent) decrease in electricity costs that persisted for at least three years. Classification-JEL: Q2, Q4
    Keywords: voluntary, regulation, energy, climate change
    Date: 2008–07–01
  8. By: Edward L. Glaeser; Matthew E. Kahn
    Abstract: Carbon dioxide emissions may create significant social harm because of global warming, yet American urban development tends to be in low density areas with very hot summers. In this paper, we attempt to quantify the carbon dioxide emissions associated with new construction in different locations across the country. We look at emissions from driving, public transit, home heating, and household electricity usage. We find that the lowest emissions areas are generally in California and that the highest emissions areas are in Texas and Oklahoma. There is a strong negative association between emissions and land use regulations. By restricting new development, the cleanest areas of the country would seem to be pushing new development towards places with higher emissions. Cities generally have significantly lower emissions than suburban areas, and the city-suburb gap is particularly large in older areas, like New York.
    JEL: Q5
    Date: 2008–08
  9. By: David Wheeler
    Abstract: Among partisans of greenhouse gas emissions regulation, the Senate’s failure to pass the Warner-Lieberman cap-and-trade bill is often attributed to rampant denial, fueled by diehard political conservatism, energy-company propaganda, and government suppression of evidence on global warming. If so, the solution to the problem is electoral change, exposure of the propaganda, and public education. However, public concern is already so widespread that even leaders of the Southern Baptist Convention have acknowledged the need for action. In this paper, I consider two additional forces that have stymied carbon emissions regulation in developing countries. The first is the perception that costly carbon regulation promoted by the rich will inflict an unjust burden on the poor. The second is hostility to taxation of critical fossil-fuel resources that were developed long before climate risk was identified. My econometric analysis suggests that these same forces have significantly affected senators’ votes on Warner-Lieberman. By implication, Congress is not likely to approve cap-and-trade legislation unless Americans with below-median incomes are compensated for expected losses. My analysis supports recent proposals for direct distribution of emissions permit auction revenues to American families on an equal per-capita basis.
    Keywords: climate change, global warming, economic development
    Date: 2008–07
  10. By: Manuel Frondel; Christoph M. Schmidt
    Abstract: Along with the oil price, concerns about the security of energy supply have soared once again in recent years.Yet, more than 30 years after the OPEC oil embargo in 1973, energy security still remains a diffuse concept. This paper conceives a statistical indicator that aims at characterizing the energy supply risk of nations that are heavily dependent on energy imports. Our indicator condenses the bulk of empirical information on the imports of fossil fuels originating from a multitude of export countries as well as data on the indigenous contribution to the domestic energy supply into a single parameter. Applying the proposed concept to empirical energy data on Germany and the U.S. (1980–2004), we find that there is a large gap in the energy supply risks between both countries, with Germany suffering much more from a tensed energy supply situation today than the U.S.
    Keywords: Herfindahl index, energy supply risk indicator
    JEL: C43 Q41
    Date: 2008–07
  11. By: Aldy, Joseph E. (Resources for the Future); Pizer, William A.
    Abstract: Over the coming decades, the cost of U.S. climate change policy likely will be comparable to the total cost of all existing environmental regulation—perhaps 1–2 percent of national income. In order to avoid higher costs, policy efforts should create incentives for firms and individuals to pursue the cheapest climate change mitigation options over time, among all sectors, across national borders, and in the face of significant uncertainty. Well-designed national greenhouse gas mitigation policies can serve as the foundation for global efforts and as an example for emerging and developing countries. We present six key policy design issues that will determine the costs, cost-effectiveness, and distributional impacts of domestic climate policy: program scope, cost containment, offsets, revenues and allowance allocation, competitiveness, and R&D policy. We synthesize the literature on these design features, review the implications for the ongoing policy debate, and identify outstanding research questions that can inform policy development.
    Keywords: cap-and-trade, carbon tax, cost containment, competitiveness
    JEL: Q48 Q54 Q58
    Date: 2008–06–23
  12. By: Colm McCarthy (University College of Dublin); Sue Scott (Economic and Social Research Institute)
    Date: 2008–04–18
  13. By: P. Michael Link; C. Ivie Ramos; Uwe A. Schneider; Erwin Schmid; J. Balkovic; R. Skalsky (Research unit Sustainability and Global Change)
    Abstract: In the continuous quest to reduce anthropogenic emissions of carbon dioxide, the production and use of organically grown fuels in Europe has increased in importance in the recent past. However, the production of so-called biofuels is a direct competitor of agricultural food production for land, labor, water resources etc. with both land use options influencing each other depending on the respective boundary conditions defined by political regulations and economic considerations. In this study we will explore the economic and technical potentials of biofuels in Europe as well as the interdependencies between these two land use options for different economic incentives for biofuels using the European Forest and Agriculture Sector Optimization Model (EUFASOM). Key data on biodiesel and ethanol production have been gathered and are used for calibration of the model. The simulations extend until the year 2030, for which results are presented. Results indicate that moderate production targets of biofuels lead to an expansion of mainly the biodiesel production while more ambitious targets call for a focus on bioethanol. This has to do with the different levels of production efficiency depending on the production output. Growth of bioethanol feedstock is spread over entire Europe while the production of biodiesel feedstock occurs mainly in Central Europe.
    Keywords: biodiesel, bioethanol, Europe, EUFASOM, modeling
    JEL: Q18 Q19 Q54
    Date: 2008–07
  14. By: Linda Cohen (Department of Economics, University of California-Irvine); Amihai Glazer (Department of Economics, University of California-Irvine)
    Abstract: A government can use several mechanisms to induce firms to reduce pollution. Well studied are regulations by price and by quantity. We consider a third form of regulation -- government allocates a budget to an agency which subsidizes abatement. We demonstrate that uncertainty can make such constrained regulation more efficient than either regulation by quantity or regulation by price. We also show that the optimal budget declines with a mean-preserving spread in the distribution of marginal costs.
    Keywords: Regulation; Environmental subsidy; Pollution control
    JEL: H23 Q52
    Date: 2008–08

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