nep-ene New Economics Papers
on Energy Economics
Issue of 2008‒10‒21
27 papers chosen by
Roger Fouquet
Imperial College, UK

  1. The Future of Electricity (and Gas) Regulation By Pollitt, M.G.
  2. Will oil prices decline over the long run? By Robert Kaufmann; Pavlos Karadeloglou; Filippo di Mauro
  3. Technology diffusion, abatement cost, and transboundary pollution By Geoffrey Heal; Nori Tarui
  4. Oil Dependence: Is Transport Running out of Affordable Fuel? By OECD
  5. Prospects for the Oil-importing Countries of the Caribbean By Ramon Espinasa
  7. Globalisation of natural gas markets – effects on prices and trade patterns By Finn Roar Aune, Knut Einar Rosendahl and Eirik Lund Sagen
  8. Market Design for Generation Adequacy: Healing Causes rather than Symptoms By Roques, F.A.
  9. Importance du prix du pétrole dans le prix du transport de marchandises By Tristan Chevroulet
  10. Energy Power, Digital Infrastructure and Elearning Platforms: Afrrican Experience. By NWAOBI, GODWIN
  11. Betting on Displacement: Oil and Strategic Violence in Nigeria By AZAM, Jean-Paul
  12. The Diversity of Design of TSOs By Rious, V.; Glachant , J.; Perez, Y.; Dessante, P.
  13. Advanced Mechanisms for the Promotion of Renewable Energy : Models for the Future Evolution of the German Renewable Energy Act By Ole Langniß; Jochen Diekmann; Ulrike Lehr
  14. Does a Rising Biofuels Tide Raise All Boats? A Study of Cash Rent Determinants for Iowa Farmland under Hay and Pasture By Xiaodong Du; David A. Hennessy; William M. Edwards
  15. Arenas of Expectations for Hydrogen Technologies By Sjoerd Bakker; Harro van Lente; Marius Meeus
  16. The Social-Environmental Impacts Of Renewable Energy Expansion In Scotland By Bergmann, E. Ariel; Colombo, Sergio; Hanley, Nick
  17. Energy and Greenhouse Impacts of Biofuels: A Framework for Analysis By Daniel M. Kammen; Alexander E. Farrell; Richard J. Plevin; Andrew D. Jones; Mark A. Delucchi; Gregory F. Nemet
  18. Damage Costs of Climate Change through Intensification of Tropical Cyclone Activities: An Application of FUND By Tol, Richard S. J.; Narita, Daiju; Anthoff, David
  19. CO2 Emission Reduction in Freight Transports How to Stimulate Environmental Friendly Behaviour? By Bühler, Georg; Jochem, Patrick
  20. Environmental policy and profitability - Evidence from Swedish industry By Brännlund, Runar; Lundgren, Tommy
  21. Assessing Climate Change Impacts, Sea Level Rise and Storm Surge Risk in Port Cities: A Case Study on Copenhagen By Stéphane Hallegatte; Nicola Patmore; Olivier Mestre; Patrice Dumas; J. Corfee-Morlot; Celine Herweijer; Robert Muir Wood
  22. The Costs and Effectiveness of Police to Reduce Vehicle Emissions By OECD
  23. How should transport emissions be reduced?: Potential for emission trading systems By Charles Raux
  24. Full Account of the Costs and Benefits of Reducing CO2 Emissions in Transport By Stef Proost
  26. International Emission Permit Markets with Refunding By Hans Gersbach; Ralph Winkler
  27. Climate Policy and the Problem of Competitiveness: Border Tax Adjustments or Integrated Emission Trading? By Alexeeva-Talebi, Victoria; Löschel, Andreas; Mennel, Tim

  1. By: Pollitt, M.G.
    Abstract: This paper discusses whether a new paradigm is necessary for independent economic regulation of electricity (and closely associated natural gas) systems. We begin by summarising the nature of the traditional model of electricity reform and the place of economic regulation within it. Next we outline the drivers for changing the current model of electricity regulation, namely, the maturity of the existing model, the reality of changing circumstances, and the coming of age of climate change concern. We go on to discuss the premises on which a new model of regulation should be based. These are: remembering the successes of the current system of regulation; a new focus on processes not just outcomes; a recognition of the economics of climate change; and the appropriate management of uncertainty. We then highlight the key elements of a new model for regulation: new processes of regulation; new models of competition and the issues raised by a focus on climate change.The paper draws heavily on the experience of the UK, but has direct implications for the rest of the European Union countries and for other countries whose regulatory systems mirror them.
    Keywords: independent regulation, electricity, gas.
    JEL: L43 L94
    Date: 2008–04
  2. By: Robert Kaufmann (Center for Energy and Environmental Studies, 675 Commonwealth Avenue, Rm 457 Boston, MA 02215, USA.); Pavlos Karadeloglou (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Filippo di Mauro (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: At present, oil markets appear to be behaving in a fashion similar to that in the late 1970s and early 1980s when oil prices rose sharply over an extended period. Furthermore, like at that time, analysts are split on whether such increases will persist or reverse, and if so by how much. The present paper argues that the similarities between the two episodes are not as strong as they might appear at first sight, and that the likelihood of sharp reversals in prices is not particularly great. There are a number of reasons in support of the view that it is unlikely that the first two decades of this century will mimic the last two decades of the previous century. First, oil demand is likely to grow significantly in line with strong economic growth in non-OECD countries. Second, on the supply side, OPEC is likely to enhance its control over markets over the next two decades, as supply increases in newly opened areas will only partially offset declining rates of production in other geologically mature non-OPEC oil regions. Moreover, while concerns about climate change will spur global efforts to reduce carbon emissions, these efforts are not expected to reduce oil demand. Finally, although there is much talk about alternative fuels, few of these are economically viable at the prices currently envisioned, and given the structural impediments, there is a reduced likelihood that the market will be able to generate sufficient quantities of these alternative fuels over the forecast horizon. The above factors imply that oil prices are likely to continue to exceed the USD 70 to USD 90 range over the long term. JEL Classification: Q41, Q42, Q43
    Keywords: Oil prices, Oil supply, Oil demand, Alternative fuels, Climate Change Policy
    Date: 2008–10
  3. By: Geoffrey Heal (Graduate School of Business, Columbia University); Nori Tarui (Department of Economics, University of Hawaii at Manoa)
    Abstract: This paper studies countries’ incentives to develop advanced pollution abatement technology when technology may spillover across countries and pollution abatement is a global public good. We are motivated in part by the problem of global warming: a solution to this involves providing a global public good, and will surely require the development and implementation of new technologies. We show that at the Nash equilibrium of a simultaneous-move game with R&D investment and emission abatement, whether the free rider effect prevails and under-investment and excess emissions occur depends on the degree of technology spillovers and the effect of R&D on the marginal abatement costs. There are cases in which, contrary to conventional wisdom, Nash equilibrium investments in emissions reductions exceed the first-best case.
    Keywords: International environmental agreement; pollution abatement costs; endogenous technological change.
    JEL: Q50 H87 D70
    Date: 2008–10–01
  4. By: OECD
    Abstract: The transport sector’s demand for oil is less price sensitive than any other part of the economy. This is partly because demand for transport services is relatively insensitive to price and partly because substitutes for oil in road transport are currently far from cost-effective. Evidence from the USA suggests that as incomes rise, transport sector oil demand becomes even less price sensitive. This implies that oil consumption is set to become increasingly concentrated in the transport sector. It also implies that relatively limited fluctuations in demand can have increasingly significant effects on oil prices.
    Date: 2008–02
  5. By: Ramon Espinasa
    Abstract: As a region the Caribbean countries are net exporters of hydrocarbons. However, all exports of natural gas and crude oil are concentrated in one country, Trinidad and Tobago. The rest of the region taken as a whole is net importer of hydrocarbons. The largest countries in the region are heavily dependent on imported crude oil and products as their main source of primary energy. The trend has intensified over recent years. Net-importing countries in the region have more than doubled their annual per capita consumption of oil over the last two decades. Trinidad and Tobago could supply the region’s hydrocarbon needs. However, very little effort has been made by the importing countries to substitute gas from Trinidad and Tobago for oil from other extra regional sources. There are a number of initiatives under way to reduce the region’s dependence on imported hydrocarbons: Eastern Caribbean Gas Pipeline (ECGP); Eastern Caribbean Geothermal Energy Project (Geo-Caraïbes); Caribbean Renewable Energy Development Programme (CREDP); Petrocaribe Energy Cooperation Agreement and Production of Biofuels. The IDB together with CARICOM and the Caribbean Development Bank are concentrating efforts in to promote the development of biofuels in the region, with specific programs in the Dominican Republic, Haiti, Jamaica, and Trinidad and Tobago. Furthermore, there individual country efforts to implement mid-term plans to increase their energy efficiency and diversify their Energy Matrices away from oil, among these countries it is worth highlighting: Jamaica, Guyana and Barbados. Finally, the IDB is sponsoring a number of technical studies with the objectives of developing renewable energy and increasing energy efficiency. Beyond these initiatives, an avenue that is worth exploring is enhancing regional integration, especially through small-scale trading of natural gas between Trinidad and Tobago and the rest of the Caribbean.
    JEL: F15 N76 O54 Q41
    Date: 2008–08
  6. By: Luca Stanca
    Abstract: The paper focuses on the role played by state-owned enterprise in the energy history and policy in Italy. A fundamental issue of the economic history of the country is if and how scarcity of raw materials, and particularly of primary energy sources, affected its modern economic growth. As different as they are, answers to such a question cannot but recognize the role played in the long run by direct state intervention: either in order to reduce the energy dependence of the country from abroad, or to guarantee the supply of fuel and oil products to the Italian market, particularly after the 1973 oil crisis.
    Keywords: Italy, energy, history, state-intervention
    JEL: N43 Q43 Q48
    Date: 2008–10
  7. By: Finn Roar Aune, Knut Einar Rosendahl and Eirik Lund Sagen (Statistics Norway)
    Abstract: The regional natural gas markets are expected to gradually become more integrated. The major driving forces are lower LNG costs, more spot trade, and increased need for imports into the US and other key markets. In this paper we examine various scenarios for a future global gas market, particularly focusing on natural gas prices and trade patterns. We use a numerical model of the international energy markets, with detailed modelling of regional gas production and international gas transport. Scenarios with different assumptions about future demand and supply conditions are simulated. Our results suggest that trade between continents will grow considerably over the next couple of decades, and that prices in the main import regions will remain around current levels. However, significant constraints on exports from the Middle East may alter this picture.
    Keywords: Natural gas trade; gas prices; numerical model
    JEL: C61 F17 L95 Q31
    Date: 2008–10
  8. By: Roques, F.A.
    Abstract: This paper argues that electricity market reform – particularly the need for complementary mechanisms to remunerate capacity – need to be analysed in the light of the local regulatory and institutional environment. If there is a lack of investment, the priority should be to identify the roots of the problem. The lack of demand side response, short-term reliability management procedures and uncompetitive ancillary services procurement often undermine market reflective scarcity pricing and distort long-term investment incentives. The introduction of a capacity mechanism should come as an optional supplement to wholesale and ancillary markets improvements. Priority reforms should focus on encouraging demand side responsiveness and reducing scarcity price distortions introduced by balancing and congestion management through better dialog between network engineers and market operators.
    Keywords: electricity market, generation adequacy, market design, capacity mechanism.
    JEL: D24 D43 D92 L94
    Date: 2008–04
  9. By: Tristan Chevroulet
    Abstract: Le pétrole fournit la quasi-totalité du carburant pour les transports. Or le prix du pétrole brut (FOB-Free on board) ne constitue pour l’instant qu’une petite partie des coûts du transport, moins du cinquième. Les quatre cinquièmes des coûts du transport proviennent des frais d’exploitation, des salaires et de la fiscalité. Néanmoins, si la raréfaction du pétrole venait à faire exploser les coûts du carburant, elle produirait des effets négatifs forts. Une multiplication par 8 du prix du pétrole (par rapport à 2007) doublerait le coût des transports de marchandises. Toutefois la hausse de coûts serait suffisamment uniforme pour que les exploitants puissent les répercuter sur les clients sans que la concurrence ne soit profondément modifiée. Les petits exploitants ne pouvant pas s’organiser pour optimiser les chargements et les itinéraires seraient les plus menacés. La mobilité des personnes serait par contre très touchée sur deux aspects : la voiture particulière et l’aviation. Le cas de l’aviation est bien connu (surtaxes kérosène), par contre le problème du transport individuel –qui consomme environ la même quantité de carburant que l’aviation par passager et par kilomètre- risque d’aboutir à une société où seuls les citoyens les plus aisés restent réellement mobiles. <P>Importance of Oil Price in Freight Transport Costs <BR>Oil is the main component of transport fuel. As for now, however, crude oil price (FOB-Free on board) accounts for less than a fifth of transport costs. Operating costs, wages and taxes cause the remaining four fifths. Nevertheless, oil scarcity may raise fuel costs to such a level that transport companies and citizen may suffer significant adverse impacts. A multiplication by 8 of the price of oil (compared to 2007) would double road transport cost. Yet, the rise would be global, which would enable operators to shift the cost to their clients without suffering changes in competition. Still, small operators that would not be in a position to optimize truck loads and routes would be threatened. Major oil price rise would mainly affect two aspects of mobility: aviation and private motoring. Air companies have added a special oil charge to ticket cost while changes in private motoring, which uses approximately as much fuel as air per passenger – kilometre, may lead to a situation where only the wealthiest citizens may keep driving.
    Date: 2008–01
    Abstract: Information and communication technologies are one of the most pervasive technologies in the world, second only to 'human intelligence' or the human brain. Thus, understanding the factors that determine the diffusion of new technologies across african countries is important to understanding the process of economic development. And whereas, energy is linked with the capacity to perform, the rate at which energy is consumed for the acceleration of the pace of socio-economic activities is regarded as power. Consequently, it will be obvious that the magnitude of the standard of living in any society; the growth and development of such an economy; and its ability to affect the course of events(such as ICT revolution)will be a function of the extent to which its energy(power) resources are developed and utilised. This paper therefore argued for the need to provide assistance in reducing vulnerability and building the capacity of african countries to more widely reap the benefits of the clean development mechanism in areas such as the development of cleaner and renewable energies. Inevitably, this is the critical condition for the sustainability of the emergent e-learning platforms and digital networks in africa.
    Keywords: ICT; learning; elearning; development; energy; power; information; communication; solar; electricity; wind; governance; africa; electronics; telecommunications; internet; digital; satellite; renewable energy; gas turbine; power plants; bandwidth; coal; hydro; biomass; steam; transmission; distribution; utilisation
    JEL: O30 I20 Q40 O33 D80
    Date: 2008–10–15
  11. By: AZAM, Jean-Paul
    Date: 2008–09
  12. By: Rious, V.; Glachant , J.; Perez, Y.; Dessante, P.
    Abstract: It is puzzling today to explain diversity and imperfection of actual transmission monopoly designs in competitive electricity markets. We argue that transmission monopoly in competitive electricity markets has to be analysed within a Wilson (2002) modular framework. Applied to the management of electricity flows, at least three modules make the core of transmission design: 1° the short run management of network externalities; 2° the long run management of network investment; and 3° the coordination of neighboring Transmission System Operators for cross border trade. In order to tackle this diversity of designs of TSOs, we show that for each of these modules, three different basic ways of managing them are possible. Among the identified twenty seven options of organisation, we define an Ideal TSO. Second, we demonstrate that 1°monopoly design differs from this Ideal TSO and cannot handle these three modules irrespective of the “institutional” definition and allocation of property rights on transmission; while 2°definition and allocation of property rights on transmission cannot ignore the existing electrical industry and transmission network structure: they have to complement each other to be efficient. Some conclusions for regulatory issues of transmission systems operators are derived from this analysis of network monopoly organisation.
    Keywords: design of TSOs; management of power flows; governance structure of transmission.
    JEL: L5 L29 L33 D61 D62
    Date: 2008–04
  13. By: Ole Langniß; Jochen Diekmann; Ulrike Lehr
    Abstract: The German Renewable Energy Act (EEG) has been very successful in promoting the deployment of wind power plants and other renewable energy power generating technologies in Germany. The increasing share of EEG-power in the generation portfolio, increasing amounts of fluctuating power generation, and the growing European integration of power markets governed by competition calls for a re-design of the EEG. This article identifies increasingly important problems and describes three different options to amend the EEG without jeopardising the fast deployment of renewable energy technologies. In the "Retailer Model", it becomes the responsibility of the end-use retailers to adapt the EEG power to the actual demand of their respective customers. The "Market Mediator Model" is the primary choice when new market players are regarded as crucial for the better integration of renew-able energy and enhanced competition. The "Optional Bonus Model" relies more on functioning markets.
    Keywords: Regulation, Renewable Energy, Promotion, Policy Design, Feed-In Tariff, Minimum Price Standards
    Date: 2008
  14. By: Xiaodong Du; David A. Hennessy (Center for Agricultural and Rural Development (CARD)); William M. Edwards
    Abstract: Iowa's farmland consists of over 16% hay crops and pastureland, a signifcant portion of which is under cash rental contracts. This study investigates the comparative relationships between cash rental rates for cropped land and non-cropped land, where the latter includes hay and pastureland. We find that higher crop prices resulting from biofuel demand induces land use conversion from non-cropped land to crop production and thus bids up non-cropped land rents. Compared with changes in cropped land cash rents, non-cropped farmland rents could increase by a higher percentage. Non-cropped land cash rental rates are largely determined by crop and feeder cattle prices, population density, soil quality, and proportion of non-cropped land in a specific area. A primary effect of ethanol subsidies is the redistribution of income between corn growers and livestock producers, whereby higher livestock feed costs together with increasing hay and pastureland cash rents harm the dairy and feedlot beef sectors. Our study shows that, because of the positive effect on rents, the policies have an indeterminate effect on landowners operating in the cow-calf sector.
    Keywords: biofuel, pastureland, cash rents, random effects model.
    JEL: C5 G1 Q1
    Date: 2008–10
  15. By: Sjoerd Bakker; Harro van Lente; Marius Meeus
    Abstract: Technological options can be regarded as variations in an evolutionary development process. The variations are put forward by their respective technological communities and are selected by technology selectors. Building on the notion of quasi-evolutionary technology development we show how technological communities secure their position on R&D agendas through feeding and maintaining expectations in arenas of expectations. We examine this process by studying the expectations work of the community that tries to develop metal hydrides for the on-board storage of hydrogen for mobile applications. Metal hydrides are proposed as a promising alternative to gaseous and liquid hydrogen storage but are yet underdeveloped. Its proponents however, succeed in convincing their sponsors of the future potential of metal hydrides. In this paper we show how expectations of this technological option are raised and maintained by its developers and how this has kept them on hydrogen technology agendas for over 40 years.
    Keywords: alternative fuel, energy storage, hydrogen, mobility, on-board
    Date: 2008–10
  16. By: Bergmann, E. Ariel; Colombo, Sergio; Hanley, Nick
    Abstract: Investments in renewable energy, such as new wind farms and hydro schemes, are being promoted as a new means of diversifying rural employment in Scotland*. However, such investments are associated with a range of environmental impacts which might be detrimental to other economic activities, such as those based on nature tourism. When designing policy instruments for more sustainable energy futures, therefore, the main goal is to generate the lowest possible adverse socio-economic and environmental impacts ensuring a certain degree of economic efficiency. We use a Choice Experiment to quantify peoples’ preferences over these multiple impacts of renewable energy in Scotland. We find that landscape, wildlife and air pollution impacts are all significant for both urban and rural respondents. Only rural respondents, however, value job creation. We also show the differences in the welfare gain associated with alternative renewable energy investments between rural and urban households.
    Keywords: Resource /Energy Economics and Policy,
    Date: 2008–01–14
  17. By: Daniel M. Kammen; Alexander E. Farrell; Richard J. Plevin; Andrew D. Jones; Mark A. Delucchi; Gregory F. Nemet
    Abstract: In this paper, we review some of the basic energy balance and climate change impact issues associated with biofuels. For both the basic energy and greenhouse gas balances of producing and using a range of fuels, and for the increasingly debated and important issues of non-greenhouse gas impacts such as a land, fertilizer and water use, we conclude that an improved framework for the analysis and evaluation of biofuels is needed. These new methodologies and data sets are needed on both physical and socioeconomic aspects of life-cycle of biofuels. We detail some of components that could be used to build this methodology and highlight key areas for future research. We look history and potential impacts of building the resource base for biofuel research, as well as at some of the land-use and socioeconomic impacts of different feedstock-to-fuel pathways.
    Date: 2007–12
  18. By: Tol, Richard S. J. (Economic and Social Research Institute (ESRI)); Narita, Daiju (Kiel Institute for the World Economy, Kiel, Germany); Anthoff, David (Economic and Social Research Institute (ESRI))
    Abstract: Climate change may intensify tropical cyclone activities and amplify their negative economic effects. We simulate the direct economic impact of tropical cyclones enhanced by climate change with the integrated assessment model FUND 3.4. The results show that in the base case, the direct economic damage of tropical cyclones ascribed to the effect of climate change amounts to $19 billion globally (almost the same level as the baseline (current) global damage of tropical cyclones) in the year 2100, while the ratio to world GDP is 0.006%. The US and China account for much of the absolute damage, whereas small island states incur the largest damage if evaluated as the share to GDP. The results also show that they are sensitive to the choice of baseline and of the wind-speed elasticity of storm damage.
    Keywords: climate change; tropical storms; economic impact
    Date: 2008–10
  19. By: Bühler, Georg; Jochem, Patrick
    Abstract: In the European Union (EU) and in Germany the transport sector is the only sector with increasing CO2 emissions (in the EU by about 32 % and in Germany by about 1 % since 1990). Especially in road freight and air transport a further strong increase is forecasted. In the transport sector this might be impeded by avoiding transport (accepting a lower economic growth), shifting modes or in optimizing logistics. Especially the second is mentioned to be an adequate solution to meet the increasing demand for transportation and reducing CO2 emissions simulatneously. It is often stated, that combined transport (mainly truck-train-truck) might be a very CO2 efficient mode. In this article a Logit-Model (based on a survey of 500 German forwarders) is used to determine mode shift potentials of hauliers. The main factors of influence depending on the service provision of the transport modes are frequency of combined transport services, speed, and costs. For an estimation of the corresponding impact on the mode shift and thus potentials of CO2 emission reductions two policy instruments are empirically tested: a further increase of the performance-based heavy vehicle fee (LSVA-Maut) and a hypothetical speeding up of the average speed in freight rail transport to 80 km per hour. Although the modal shift is rather high in the last policy simulation, the impact on CO2 emissions is still small.
    Keywords: Freight Transports, CO2 Emissions, Mode Shift, Combined Transport
    JEL: C53 Q54 R48
    Date: 2008
  20. By: Brännlund, Runar (Department of Economics, Umeå University); Lundgren, Tommy (Department of Forest Economics, Swedish University of Agricultural Sciences)
    Abstract: The purpose of this paper is to investigate the existence of a “Porter effect” using firm level data on output and inputs from Swedish industry between 1990 and 2004. By utilizing a factor demand modeling approach, and specifying a profit function which has a technology component dependent upon firm specific effective tax on CO2, we are able to separate out the effect of regulatory pressure on technological progress. The results indicate that there is evidence of a reversed “Porter effect” in most industrial sectors, specifically energy intensive industries.
    Keywords: CO2 tax; factor demands; induced technological change; Porter argument
    JEL: D20 H23 Q52 Q55
    Date: 2008–10–10
  21. By: Stéphane Hallegatte; Nicola Patmore; Olivier Mestre; Patrice Dumas; J. Corfee-Morlot; Celine Herweijer; Robert Muir Wood
    Abstract: This study illustrates a methodology to assess economic impacts of climate change at city scale, focusing on sea level rise and storm surge. It is based on a statistical analysis of past storm surges in the studied city, matched to a geographical-information analysis of the population and asset exposure in the city, for various sea levels and storm surge characteristics. An assessment of direct losses in case of storm surge (i.e. of the damages to buildings and building content) can then be computed and the corresponding indirect losses – in the form of production and job losses, reconstruction duration, amongst other loses – deduced, allowing a risk analysis of the effectiveness of coastal flood protections, including risk changes due to climate change and sea level rise. This methodology is applied in the city of Copenhagen, capital of Denmark, which is potentially vulnerable to the effects of variability in sea level, as a low lying city....
    Keywords: sustainable development, government policy, CIS, climate change, global warming, natural disasters
    JEL: E20 O18 Q01 Q54 Q58 R10
    Date: 2008–10–08
  22. By: OECD
    Abstract: Transport sector policies already contribute to moderating greenhouse gas emissions from road vehicles and are increasingly designed to contribute to overall societal targets to mitigate climate change. The Round Table investigated the effectiveness and costs of various mitigation options. The question of how to decide on the distribution of abatement efforts across sectors of the economy was also discussed. Within the broad topic of addressing greenhouse gas emissions from transport, the Round Table focused on emissions of CO2 from road transport and in particular from light-duty passenger vehicles. Policies that reduce fuel consumption below non-intervention levels are in place in most countries, many adopted for reasons other than reducing CO2 emissions. In the US, both fuel taxes and fuel economy regulations have been in force for some decades. European governments have adopted high fuel taxes but are now considering introducing fuel economy regulations. A first core question for the Round Table was whether such a combination of instruments is justified. A second question was whether current policies, and the level of taxes and standards, are in line with societal climate change mitigation goals and, more generally, how such goals ought to be defined.
    Keywords: transport, climate change, transport costs
    Date: 2008–04
  23. By: Charles Raux
    Abstract: In developed countries, transport generates approximately 25 to 30 per cent of emissions of CO2, the main greenhouse gas (GHG) and these emissions are increasing sharply. There are two explanations for the increase in emissions from transport: the first is dependency on the internal combustion engine for transport with no wide-scale economically viable alternative available in the medium term; the second is the sharp increase in vehicle-kilometres travelled, which seems to be an inherent feature of economic development. One might well ask, given announcements that oil reserves will run out rapidly, whether we should not simply wait until reserves dry up to obtain a reduction in transport-related emissions. This said, rising oil prices are gradually making it more viable to exploit unconventional reserves, leaving aside innovations in technology which are reportedly opening up prospects for new fossil fuels (including fuels derived from coal, which is in plentiful supply world-wide). Hence, there is every reason to believe that the use of fossil fuels could continue on a large scale in the future. Foresight studies show that if our aim is to achieve ambitious GHG emission control targets for transport within the next few decades, the policies we implement will have to be more determined: among other things, they should aim at reducing total consumption that is to say vehicle kilometres travelled, not just unitary vehicle consumption (cf. ENERDATA and LEPII, 2005 for France, for instance). Among the measures identified, carbon taxes and vehicle taxes are the most cost-effective (OECD, 2007; Parry et al., 2007). However, the “fuel tax protests” of September 2000 in several European countries show that public opinion is very resistant to fuel tax increases (Lyons and Chatterjee, 2002). This resistance can also be explained by concerns about fairness, since many households depend on the car for day-to-day living and for getting to work. As well as this, fuel tax increases would require the international harmonization of fuel taxation in different countries, which seeing what has happened in the European Union appears to be extremely difficult.
    Date: 2008–01
  24. By: Stef Proost
    Abstract: Among economists and policy makers more general, the fuel efficiency standard for cars and the fuel tax have been the subject of extensive debate. The major benefits of stricter fuel efficiency standards and higher fuel taxes are the reduction of Greenhouse gas emissions and the reduced oil dependence. The major costs are the increased production cost, the reduced comfort and the negative impact on mileage related externalities (congestion, accidents) due to the rebound effect. In this contribution we use a wider framework than Harrington (2008), Plotkin (2008) and Raux (2008) to discuss the CO2 1 emission reduction in transport. In section 2 we analyze, for the EU, the effects on welfare and CO2 emissions of pricing all transport activities according to their full social costs. In section 3, we go beyond the transport sector and compare the options to reduce emissions in the transport sector with the possibilities and costs to reduce emissions in other sectors of the economy. In section 4 we take a world view and analyze the impact of two types of international climate negotiations on the emission reduction strategy in the transport sector.
    Date: 2008–01
  25. By: Bryan K. Mignone
    Abstract: Of the many regulatory responses to climate change, cap-and-trade is the only one currently endorsed by large segments of the scientific, economic and political establishments. Under this type of system, regulators set the overall path of carbon dioxide (CO2) reductions, allocate or auction the appropriate number of emissions allowances to regulated entities and – through trading – allow the market to converge upon the least expensive set of abatement opportunities. As a result, the trading price of allowances is not set by the regulator as it would be under a tax system, but instead evolves over time to reflect the underlying supply and demand for allowances. In this paper, I develop a simple theory that relates the initial clearing price of CO2 allowances to the marginal cost premium of carbon-free technology, the maximum rate of energy capital replacement and the market interest rate. This theory suggests that the initial clearing price may be lower than the canonical range of CO2 prices found in static technology assessments. Consequently, these results have broad implications for the design of a comprehensive regulatory solution to the climate problem, providing, for example, some intuition about the proper value of a possible CO2 price trigger in a future cap-and-trade system.
    Date: 2008–10
  26. By: Hans Gersbach (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland); Ralph Winkler (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: We propose a blueprint for an international emission permit market such as the EU trading scheme. Each country decides on the amount of permits it wants to offer. A fraction of these permits is grandfathered, the remainder is auctioned. Revenues from the auction are collected in a global fund and reimbursed to member countries in fixed proportions. We show that international permit markets with refunding lead to outcomes in which all countries tighten the issuance of permits and are better off compared to standard international permit markets. If the share of grandfathered permits is sufficiently small, we obtain approximately socially optimal emission reductions.
    Keywords: climate change mitigation, global refunding scheme, international permit markets, international agreements, tradeable permits
    JEL: H23 Q54 H41
    Date: 2008–10
  27. By: Alexeeva-Talebi, Victoria; Löschel, Andreas; Mennel, Tim
    Abstract: In the absence of an international agreement on climate policy, unilateral carbon abatement creates two problems: It tends to have a detrimental effect on domestic competitiveness, and it leads to an increase in carbon emissions abroad (leakage). This paper analyses two policies that have recently been proposed to mitigate these problems: Border tax adjustments (BTA) and integrated emission trading (IET). The former policy levies a quantity-based, the latter an emission based duty on imports from non-abating countries. In a stylised two-country model we demonstrate that the policies address both problems. However, BTA protects domestic competitiveness more effectively, while IET achieves a greater reduction in foreign emissions. A computational general equilibrium analysis of the unilateral abatement policy adopted by the European Union confirms our theoretical insights for the sectors covered by the offsetting measures. However, the implications for the competitiveness of noncovered sectors are negative. These two effects constitute the central trade-off in the implementation of both policies.
    Keywords: Border Tax Adjustments, Climate Policy, Competitiveness, Emission Trading
    JEL: D58 F18 H23 Q48
    Date: 2008

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