nep-ene New Economics Papers
on Energy Economics
Issue of 2008‒10‒28
thirty-one papers chosen by
Roger Fouquet
Imperial College, UK

  1. A Meaningful U.S. Cap-and-Trade System to Address Climate Change By Robert N. Stavins
  2. Delayed Participation of Developing Countries to Climate Agreements: Should Action in the EU and US be Postponed? By Valentina Bosetti; Carlo Carraro; Massimo Tavoni
  3. Does Daylight Saving Time Save Energy? Evidence from a Natural Experiment in Indiana By Matthew J. Kotchen; Laura E. Grant
  4. Promoting Renewable Electricity Generation in Imperfect Markets: Price vs. Quantity Policies By Madlener, Reinhard; Gao, Weiyu; Neustadt, Ilja; Zweifel, Peter
  5. Equity and Justice in Global Warming Policy By Snorre Kverndokk; Adam Rose
  6. Transport Outlook 2008: Focusing on CO2 Emissions from Road Vehicles By OECD
  7. Consumption, Happiness, and Climate Change By Cohen, Mark A.; Vandenbergh, Michael P.
  8. Efficient Investment Portfolios for the Swiss Electricity Supply Sector By Madlener, Reinhard; Wenk, Christioph
  9. Delayed Action and Uncertain Targets. How Much Will Climate Policy Cost? By Valentina Bosetti; Massimo Tavoni; Carlo Carraro; Alessandra Sgobbi
  10. Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage By Meredith Fowlie
  11. Wind Development in Minnesota: Policy and Economics By Tiffany, Douglas G.
  12. The Impact of Disaggregated ICT Capital on Electricity Intensity of Production: Econometric Analysis of Major European Industries By Bernstein, Ronald; Madlener, Reinhard
  13. Carbon, Trade Policy, and Carbon Free Trade Areas By Yan Dong; John Whalley
  14. Modelling Economic Impacts of Alternative International Climate Policy Architectures. A Quantitative and Comparative Assessment of Architectures for Agreement By Valentina Bosetti; Carlo Carraro; Alessandra Sgobbi; Massimo Tavoni
  15. Linkage of Tradable Permit Systems in International Climate Policy Architecture By Judson Jaffe; Robert N. Stavins
  16. Review of the Literature on the Economics of Central Anaerobic Digesters By Bachewe, Fantu; Lazarus, William; Goodrich, Philip; Drewitz, Matt; Balk, Becky
  17. Ethanol: A Welfare-Increasing Market Distortion? By Xiaodong Du; Dermot J. Hayes; Mindy L. Baker
  18. The Impact of Climate Change Policy on Competition in the Air Transport Industry By Peter Forsyth
  19. Trade Elasticities in the Middle East and Central Asia: What is the Role of Oil? By Andreas Billmeier; Dalia Hakura
  20. Technology Transfer in the Non-traded Sector as a Means to Combat Global Warming By Dirk T.G. Rübbelke; Vivekananda Mukherjee; Tilak Sanyal
  21. International Benchmarking in Electricity Distribution : A Comparison of French and German Utilities By Astrid Cullmann; Hélène Crespo; Marie-Anne Plagnet
  22. Gas Storage Valuation: Price Modelling v. Optimization Methods By Bjerksund, Petter; Stensland, Gunnar; Vagstad, Frank
  23. Using Real Options to Evaluate Investments in Ethanol Facilities By Zou, Tianyu; Pederson, Glenn
  24. Distributional impact of global warming environmental policies: A survey By Dorothée Boccanfuso; Antonio Estache; Luc Savard
  25. Uncertainty, Climate Change and the Global Economy By David von Below; Torsten Persson
  26. The TRIPS Agreement and Transfer of Climate-Change-Related Technologies to Developing Countries By Matthew Littleton
  27. Impure Public Technologies and Environmental Policy By Dirk T.G. Rübbelke; Anil Markandya
  28. Pollution and the Efficiency of Urban Growth By Martin F. Quaas; Sjak Smulders
  29. The Influence of Social Preferences on Multi-Criteria Evaluation of Energy Scenarios By Omann, Ines; Kowalski, Katharina; Bohunovsky, Lisa; Madlener, Reinhard; Stagl, Sigrid
  30. Belastet die Inflation verschiedene Haushaltstypen in Deutschland unterschiedlich stark? By Silke Tober
  31. Environmental Policy Attitudes: Issues, Geographical Scale, and Political Trust By Jeffrey Milyo; David M. Konisky; Lilliard E. Richardson, Jr.

  1. By: Robert N. Stavins (Harvard University)
    Abstract: There is growing impetus for a domestic U.S. climate policy that can provide meaningful reductions in emissions of CO2 and other greenhouse gases. In this article, I propose and analyze a scientifically sound, economically rational, and politically feasible approach for the United States to reduce its contributions to the increase in atmospheric concentrations of greenhouse gases. The proposal features an up-stream, economy-wide CO2 cap-and-trade system which implements a gradual trajectory of emissions reductions over time, and includes mechanisms to reduce cost uncertainty. I compare the proposed system with frequently discussed alternatives. In addition, I describe common objections to a cap-and-trade approach to the problem, and provide responses to these objections.
    Keywords: Cap-and-Trade System, Carbon Dioxide, Greenhouse Gas Emissions, Global Climate Change, Carbon Taxes
    JEL: Q54 Q28 Q38 Q48 Q58
    Date: 2008–10
  2. By: Valentina Bosetti (Fondazione Eni Enrico Mattei and CMCC); Carlo Carraro (Fondazione Eni Enrico Mattei, University of Venice, CEPR, CESifo and CMCC); Massimo Tavoni (Fondazione Eni Enrico Mattei, Catholic University of Milan and CMCC)
    Abstract: This paper analyses the cost implications for climate policy in developed countries if developing countries are unwilling to adopt measures to reduce their own GHG emissions. First, we assume that a 450 CO2 (550 CO2e) ppmv stabilisation target is to be achieved and that Non Annex1 (NA1) countries decide to delay their GHG emission reductions by 30 years. What would be the cost difference between this scenario and a case in which both developed and developing countries start reducing their emissions at the same time? Then, we look at a scenario in which the timing of developing countries’ participation is uncertain and again we compute the costs of climate policy in developed and developing countries. We find that delayed participation of NA1 countries has a negative impact on climate policy costs. Economic inefficiencies can be as large as 10-25 TlnUSD. However, this additional cost wanes when developing countries are allowed to trade emission reductions from their baseline emission paths during the 30-year delay period. Thus, irrespective of whether NA1 countries are immediately assigned an emission reduction target or not, they should nonetheless be included in a global carbon market. Technology deployment is also affected by the timing of developing countries’ mitigation measures. Delayed NA1-country participation in a climate agreement would scale down the deployment of coal with CCS throughout the century. On the other hand, innovation in the form of energy R&D investments would be positively affected, since it would become crucial in developed countries. Finally, uncertainty about the timing of NA1-country participation does not modify the optimal abatement strategy for developed countries and does not alter policy costs as long as a global carbon market is in place.
    Keywords: Delayed Action, Climate Policy, Stabilisation Costs, Uncertain Participation
    JEL: C72 H23 Q25 Q28
    Date: 2008–09
  3. By: Matthew J. Kotchen; Laura E. Grant
    Abstract: The history of Daylight Saving Time (DST) has been long and controversial. Throughout its implementation during World Wars I and II, the oil embargo of the 1970s, consistent practice today, and recent extensions, the primary rationale for DST has always been to promote energy conservation. Nevertheless, there is surprisingly little evidence that DST actually saves energy. This paper takes advantage of a natural experiment in the state of Indiana to provide the first empirical estimates of DST effects on electricity consumption in the United States since the mid-1970s. Focusing on residential electricity demand, we conduct the first-ever study that uses micro-data on households to estimate an overall DST effect. The dataset consists of more than 7 million observations on monthly billing data for the vast majority of households in southern Indiana for three years. Our main finding is that—contrary to the policy's intent—DST increases residential electricity demand. Estimates of the overall increase are approximately 1 percent, but we find that the effect is not constant throughout the DST period. DST causes the greatest increase in electricity consumption in the fall, when estimates range between 2 and 4 percent. These findings are consistent with simulation results that point to a tradeoff between reducing demand for lighting and increasing demand for heating and cooling. We estimate a cost of increased electricity bills to Indiana households of $9 million per year. We also estimate social costs of increased pollution emissions that range from $1.7 to $5.5 million per year. Finally, we argue that the effect is likely to be even stronger in other regions of the United States.
    JEL: H43 Q4 Q5 Q51
    Date: 2008–10
  4. By: Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Gao, Weiyu (Shanghai Development Research Center); Neustadt, Ilja (Socioeconomic Institute, University of Zurich); Zweifel, Peter (Socioeconomic Institute, University of Zurich)
    Abstract: The search for economically efficient policy instruments designed to promote the diffusion of renewable energy technologies in liberalized markets has led to the introduction of quota-based tradable `green' certificate (TGC) schemes for renewable electricity. However, there is a debate about the pros and cons of TGC, a quantity control policy, compared to guaranteed feed-in tariffs, a price control policy. In this paper we contrast these two alternatives in terms of cost effectiveness and social welfare, taking into account that electricity markets are not perfectly competitive.
    Keywords: Tradable green certifcates; Renewable portfolio standard; Quota target; Feed-in tarif; Cournot duopoly
    JEL: Q42 Q48
    Date: 2008–07
  5. By: Snorre Kverndokk (Ragnar Frisch Centre for Economic Research); Adam Rose (Energy Institute and School of Policy, Planning, and Development University of Southern California)
    Abstract: Many countries are implementing or at least considering policies to counter increasingly certain negative impacts from climate change. An increasing amount of research has been devoted to the analysis of the costs of climate change and its mitigation, as well as to the design of policies, such as the international Kyoto Protocol, post-Kyoto negotiations, regional initiatives, and unilateral actions. Although most studies on climate change policies in economics have considered efficiency aspects, there is a growing literature on equity and justice. Climate change policy has important dimensions of distributive justice, both within and across generations, but in this paper we survey only studies on the intragenerational aspect, i.e., within a generation. We cover several domains including the international, regional, national, sectoral and inter-personal, and examine aspects such as the distribution of burdens from climate change, climate change policy negotiations in general, implementation of climate agreements using tradable emission permits, and the uncertainty of alternatives to emission reductions.
    Keywords: Economics of Climate Change, Intragenerational Equity, Distributive Justice
    JEL: D62 D63 H23 H41 Q00
    Date: 2008–09
  6. By: OECD
    Abstract: This short outlook is designed to test the potential for key policy instruments for mitigating emissions from road transport, and particularly from light duty vehicles, the largest source of CO2 emissions from transport (see Figure 1 and Table 1). It also examines uncertainties in the baseline scenario for the development of CO2 emissions from the sector. In contrast to the OECD’s Economic Outlook and the IEA’s World Energy Outlook, the Transport Outlook is produced making use of external modeling tools. The work uses the most transparent and robust model developed to date for the sector, the MoMo modeli constructed and maintained by the International Energy Agency and initially developed for the World Business Council for Sustainable Development. We are grateful to the MoMo-team for their willingness to share this product. The present document is only a first step towards the development of a full-fledged Transport Outlook. It is limited in scope, with its focus on road transport and on emissions of CO2. Despite the limitations, this mini-Outlook provides elements of a useful framework for discussions on the policy challenges presented by the risk of costly consequences from anthropogenic emissions of greenhouse gases. As will become clear, permanent reductions of CO2-emissions from transport are difficult to achieve because of strong underlying global growth in transport demand. At the same time, our scenarios suggest that emissions could be stabilized even with strong growth of demand, given immediate and continued efforts to reduce the sector’s carbon intensity. If stabilization is the goal, then finding cost-effective ways of achieving it becomes the critical issue.
    Date: 2008–05
  7. By: Cohen, Mark A. (Resources for the Future); Vandenbergh, Michael P.
    Abstract: In this article, we explore the implications of this literature for understanding the relationship between climate change policies and consumption. We identify a number of ways in which accounting for the implications of the new happiness literature could lead to laws and policies that influence consumption in ways that increase the prospects for reducing greenhouse gas emissions in developed and developing countries. We do not examine every nuance of the growing happiness literature, but we provide a brief introduction and observations that we hope will stimulate further efforts by academicians and policymakers.
    Keywords: happiness, life satisfaction, subjective well-being
    JEL: Q54 I31 D31
    Date: 2008–10–15
  8. By: Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Wenk, Christioph (Swiss Banking Institute, University of Zurich)
    Abstract: In this paper, we investigate existing and possible future power generation capacities in Switzerland from a risk-return perspective, using the Mean-Variance Portfolio Theory of Markowitz (1952). The study covers power generation technologies currently in operation, such as nuclear power, storage hydro power and run-of-river hydro power plants, and two new renewable energy technologies (photovoltaics and wind). Additionally, natural gas combined cycle (NGCC) technology, a possible extension to the current Swiss portfolio, is assessed. The technology-specific risks considered include electricity spot market price, production capacity and reliability, fuel cost, funding liabilities, and operation and maintenance outlays. These factors are implemented in a Net Present Value (NPV) model and Monte Carlo simulations are applied to assess each investment alternative. The lifetime-adjusted average return, together with the return-specific variance, forms the basis for the portfolio optimization conducted in the second stage of the analysis. The minimum variance (or maximum return) optimization is performed separately for base-load and peak-load technology portfolios. By defining different scenarios for the upper and lower bound for each technology's share, we simulate different situations, enabling us both, to explain the risk-return profile of the current technology mix, and to make predictions for future portfolios. Our NPV calculations are in line with currently observed returns and, by imposing some reasonable restrictions, the model performs sufficiently well in terms of explaining past portfolio compositions. Moreover, our predicted optimal outcome matches quite nicely with the debated options for enlarging power production in Switzerland.
    Keywords: Portfolio optimization; Peak load demand; Electricity supply; Switzerland
    JEL: G11 Q42
    Date: 2008–08
  9. By: Valentina Bosetti (Fondazione Eni Enrico Mattei); Massimo Tavoni (Fondazione Eni Enrico Mattei); Carlo Carraro (Fondazione Eni Enrico Mattei, University of Venice, CEPR, CESifo and CMCC); Alessandra Sgobbi (Fondazione Eni Enrico Mattei)
    Abstract: Despite the growing concern about actual on-going climate change, there is little consensus about the scale and timing of actions needed to stabilise the concentrations of greenhouse gases. Many countries are unwilling to implement effective mitigation strategies, at least in the short-term, and no agreement on an ambitious global stabilisation target has yet been reached. It is thus likely that some, if not all countries, will delay the adoption of effective climate policies. This delay will affect the cost of future policy measures that will be required to abate an even larger amount of emissions. What additional economic cost of mitigation measures will this delay imply? At the same time, the uncertainty surrounding the global stabilisation target to be achieved crucially affects short-term investment and policy decisions. What will this uncertainty cost? Is there a hedging strategy that decision makers can adopt to cope with delayed action and uncertain targets? This paper addresses these questions by quantifying the economic implications of delayed mitigation action, and by computing the optimal abatement strategy in the presence of uncertainty about a global stabilisation target (which will be agreed upon in future climate negotiations). Results point to short-term inaction as the key determinant for the economic costs of ambitious climate policies. They also indicate that there is an effective hedging strategy that could minimise the cost of climate policy under uncertainty, and that a short-term moderate climate policy would be a good strategy to reduce the costs of delayed action and to cope with uncertainty about the outcome of future climate negotiations. By contrast, an insufficient short-term effort significantly increases the costs of compliance in the long-term.
    Keywords: Uncertainty, Climate Policy, Stabilisation Costs, Delayed Action
    JEL: C72 H23 Q25 Q28
    Date: 2008–09
  10. By: Meredith Fowlie
    Abstract: For political, jurisdictional and technical reasons, environmental regulation of industrial pollution is often incomplete: regulations apply to only a subset of facilities contributing to a pollution problem. Policymakers are increasingly concerned about the emissions leakage that may occur if unregulated production can be easily substituted for production at regulated firms. This paper analyzes emissions leakage in an incompletely regulated and imperfectly competitive industry. When regulated producers are less polluting than their unregulated ounterparts, emissions under incomplete regulation can exceed the level of emissions that would have occurred in the absence of regulation. Converseley, when regulated firms are relatively more polluting, aggregate emissions under complete regulation can exceed aggregate emissions under incomplete regulation. In a straightforward application of the theory of the second best, I show that incomplete regulation can welfare dominate complete regulation of emissions from an asymmetric oligopoly. The model is used to simulate greenhouse gas emissions from California's electricity sector under a source-based cap-and-trade program. Incomplete regulation that exempts out-of-state producers achieves approximately a third of the emissions reductions achieved under complete regulation at more than twice the cost per ton of emissions abated.
    JEL: Q48
    Date: 2008–10
  11. By: Tiffany, Douglas G.
    Abstract: The growth of wind power as an aspect of Minnesota€ٳ portfolio of electricity has been propelled to its current level by policy initiatives at both the federal and state levels. Existing statutes establish requirements for further expansion of wind energy in this state in the years to come. Locally, production economics exert their influence as wind speed and duration are translated to capacity factor, which reveals the amount of power that can be generated at a particular site. After the flow resource is thus quantified, comes the calculus of economic viability. This consists of determining the capital and operating costs and eligibility for loans and grants as well as the negotiations of wind rights, easements, and power purchase agreements. To date, policy initiatives have been directed toward the production, or generation side of this variable flow resource. Entrepreneurs and lawyers have become more skillful at organizing business forms that can effectively bring together partners capable of utilizing the substantial tax benefits available through the federal Production Tax Credit (PTC) as well as attractive state-sponsored incentives and tariffs offered by utilities. The variable nature of electrical power capacity from wind has been problematic for utilities, which try to meet the variable loads required by the summed demand of their customers. In Minnesota, peak power demands occur in summer months when wind power is the lowest. In addition to seasonal demands, daily and weekly patterns must be accommodated by utilities serving the markets for electricity. By developing and using an investment model, it is possible to understand investor motivations driving the growth of wind energy in this state and the country. Net present values (NPV) and internal rates of return (IRR) are calculated over the life of power production projects conforming to various conditions such as wind capacity factor, the federal Production Tax Credit (PTC), state incentive plans for community-based energy providers, federal grant and loan programs, as well as emerging opportunities to sell €ܧreen tags€ݠfor renewable power generation. The numerous incentives provided for windpower development on the generation side highlight the difficulties of providing sufficient transmission capacity for to carry this power from the often remote areas where generated to load centers. Equivalent incentives deployed with similar imagination are needed to enhance investment in a transmission system capable of carrying increasing volumes of wind and other renewable sources of electricity.
    Keywords: Resource /Energy Economics and Policy,
    Date: 2008–02–26
  12. By: Bernstein, Ronald (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In this paper we empirically analyse the impact of disaggregated ICT capital on the electricity intensity in five major European industries (chemical, food, metal, pulp & paper and textile). The analysis of each industrial sector is based on an unbalanced panel including data for eight EU member countries (Denmark, Finland, Germany, Italy, Portugal, Slovenia, Sweden and the UK) for the period 1991-2005. The panel-econometric approach, in which we account for country-specific fixed effects, is based on a factor demand model that is similar to the one derived in Collard et al. (2005) [Energy Economics 27 (2): 541-550] for the French services sector. On the one hand, the analysis provides evidence for an electricity-saving effect on production induced by communication technologies in all of the sectors considered. On the other hand, the effect of computers and software on the electricity intensity of industrial production is not that clear-cut, but rather seems to be strongly dependent on the sector-specific production processes involved. Overall, the net effect of ICT diffusion on electricity intensity of production appears to be in favour of an enhancement of electricity efficiency in production.
    Keywords: Information and telecommunication technology; ICT; Electricity intensity; Panel data
    JEL: Q41 Q43
    Date: 2008–09
  13. By: Yan Dong; John Whalley
    Abstract: This paper discusses both the potential contribution that trade policy initiatives can make towards the achievement of significant global carbon emissions reduction and the potential impacts of proposals now circulating for carbon reduction motivated geographical trade arrangements, including carbon free trade areas. We first suggest that trade policy is likely to be a relatively minor consideration in climate change containment. The dominant influence on carbon emissions globally for next several decades will be growth more so than trade and its composition, and in turn, the size of trade seemingly matters more than its composition given differences in emission intensity between tradables and nontradables. We also note that differences in emissions intensity across countries are larger than across products or sectors and so issues of country discrimination in trade policy (and violations of MFN) arises. <br><br>We next discuss both unilateral and regional carbon motivated trade policy arrangements, including three potential variants of carbon emission reduction based free trade area arrangements. One is regional trade agreements with varying types of trade preferences towards low carbon intensive products, low carbon new technologies and inputs to low carbon processes. A second is the use of joint border measures against third parties to counteract anti-competitive effects from groups of countries taking on deeper emission reduction commitments. A third is third country trade barriers along with free trade or other regional trade agreements as penalty mechanisms to pressure other countries to join emission reducing environmental agreements. We differentiate among the objectives, forms and possible impacts of each variant. We also speculate as to how the world trading system may evolve in the next few decades as trade policy potentially becomes increasingly dominated by environmental concerns. We suggest that the future evolution of the trading system will likely be with environmentally motivated arrangements acting as an overlay on prevailing trade and financial arrangements in the WTO and IMF, and eventually movement to linked global trade and environmental policy bargaining.
    JEL: F18
    Date: 2008–10
  14. By: Valentina Bosetti (Fondazione Eni Enrico Mattei and CMCC); Carlo Carraro (Fondazione Eni Enrico Mattei, University of Venice, CEPR, CESifo and CMCC); Alessandra Sgobbi (Fondazione Eni Enrico Mattei and CMCC); Massimo Tavoni (Fondazione Eni Enrico Mattei, Catholic University of Milan and CMCC)
    Abstract: This paper provides a quantitative comparison of the main architectures for an agreement on climate policy. Possible successors to the Kyoto protocol are assessed according to four criteria: economic efficiency; environmental effectiveness; distributional implications; and their political acceptability which is measured in terms of feasibility and enforceability. The ultimate aim is to derive useful information for designing a future agreement on climate change control.
    Keywords: Climate Policy, Integrated Modelling, International Agreements
    JEL: C72 H23 Q25 Q28
    Date: 2008–10
  15. By: Judson Jaffe; Robert N. Stavins
    Abstract: Cap-and-trade systems have emerged as the preferred national and regional instrument for reducing emissions of greenhouse gases throughout the industrialized world, and the Clean Development Mechanism — an international emission-reduction-credit system — has developed a substantial constituency, despite some concerns about its performance. Because linkage between tradable permit systems can reduce compliance costs and improve market liquidity, there is great interest in linking cap-and-trade systems to each other, as well as to the CDM and other credit systems. We examine the benefits and concerns associated with various types of linkages, and analyze the near-term and long-term role that linkage may play in a future international climate policy architecture. In particular, we evaluate linkage in three potential roles: as an independent bottom-up architecture, as a step in the evolution of a top-down architecture, and as an ongoing element of a larger climate policy agreement. We also assess how the policy elements of climate negotiations can facilitate or impede linkages. Our analysis throughout is both positive and normative.
    JEL: F50 Q20 Q40 Q50
    Date: 2008–10
  16. By: Bachewe, Fantu; Lazarus, William; Goodrich, Philip; Drewitz, Matt; Balk, Becky
    Abstract: Minnesota can improve the utilization of manure and organic wastes via the production of biogas that can be used to produce heat and electricity. Denmark serves as a role model for Minnesota in the number of central anaerobic digesters that it supports. During anaerobic digestion methane is produced when naturally occurring anaerobic bacteria decompose organic matter in the absence of oxygen. This process produces what is called biogas, which usually is a mixture of 55 €Ӡ65 percent methane plus carbon dioxide with trace gases such as hydrogen sulfide. Co-generation using manure and other feedstocks can produce more energy than manure alone. Central digesters are more likely to process wastes from food processing plants and other sources resulting in the need for more specialized unloading facilities and larger storage spaces. Digesters can be owned by farmers or consumers cooperatives, third party/non-farming investor(s), state or municipal government, or established as a cooperative or limited liability corporation. Problems associated with centralized digester operation include capital constraints, low profitability, lower-than-expected waste availability, electricity connection and pricing, and waste disposal constraints.
    Keywords: Livestock Production/Industries, Resource /Energy Economics and Policy,
    Date: 2008–10–14
  17. By: Xiaodong Du; Dermot J. Hayes (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Mindy L. Baker
    Abstract: This study estimates the welfare changes for consumers and producers resulting from ethanol production and related support polices in 2007. The results suggest a positive welfare gain from the support policies; this is possible because ethanol subsidies effectively replaced a market distortion that had a larger deadweight loss. Previous farm subsidies created overproduction, which then depressed market prices and increased the cost of maintaining target-price supports. Ethanol polices resulted in additional ethanol production, but because this additional ethanol was sold in price elastic energy markets, the price depressing impact of the government supports was less than before. This resulted in lower government spending and a net welfare gain of $2.65 billion for given market parameters. The results are based on a transparent analytical model of multiple markets including corn, ethanol, gasoline, and transportation fuel. We validate the model's underlying assumption and test for the results' sensitivity to assumed parameters.
    Keywords: consumer surplus, ethanol, deadweight loss, subsidy, substitution.
    JEL: D6 Q18 Q21
    Date: 2008–10
  18. By: Peter Forsyth
    Abstract: This paper examines how climate change policy can impact on competition, prices and profitability in the air transport industry. It begins with an outline of the climate change policies that have been suggested, and it gives particular attention to the inclusion of air transport in an emissions trading scheme (ETS).This is likely to prove an important policy direction, with the EU, Australia and New Zealand all planning to include air transport in their ETSs. The scope for airlines to reduce their emissions intensity in the short run and long run is examined- it is concluded that the scope in the short run is quite limited. After this, the application of the emissions trading schemes of the EU, Australia and New Zealand to air transport is discussed, and the possible impacts on air fares are assessed. Allowance is made for the cost of permits for both direct and indirect emissions. The impacts of climate change policies, such as carbon taxes or requirements to purchase emissions permits, on airline competition, prices and profitability are analysed next. Impacts differ according to market structure- whether airline city pair markets are competitive, monopolistic or oligopolistic. They also depend on the time scale- airlines are unlikely to be able to pass on the full cost of their permits to their passengers in the short run, though in the long run, it is likely that airlines will exit from some city pairs, and this will enable to remaining airlines to raise their fares and restore their profitability. This may not occur in markets constrained by airport slots or capacity limits imposed in air services agreements on international routes, though the airlines’ problems are not likely to be as severe as has been suggested.
    Date: 2008–09
  19. By: Andreas Billmeier; Dalia Hakura
    Abstract: The analysis in this paper suggests that import and export volume elasticities are markedly lower in oil-exporting Middle East and Central Asian countries than in non-oil countries in the region. A key implication of this finding is that a real appreciation of the exchange rate in oil-exporting countries would achieve little in terms of expenditure switching: an appreciation does not boost imports and non-oil exports constitute only a small share of GDP and total trade in these countries. Therefore, while a real appreciation lowers the current account surplus of oil-exporting countries through valuation effects, the contribution to lowering global imbalances may be more limited.
    Keywords: Middle East and Central Asia , Trade policy , Imports , Exports , Oil exporting countries , Exchange rate appreciation , Current account surpluses , Economic integration , Real effective exchange rates , Economic models , Working Paper ,
    Date: 2008–09–15
  20. By: Dirk T.G. Rübbelke (CICERO); Vivekananda Mukherjee (Jadavpur University); Tilak Sanyal (Jadavpur University)
    Abstract: The paper considers a situation where two countries – the North and the South – use a non-traded polluting input to produce the goods for final consumption. The North is more efficient in both, production and abatement processes. The study compares the effects of the transfer of abatement technology by the North to the South under autarky with the free trade situation, assuming that the North pre-commits to an international protocol to keep the global pollution under a fixed level. The conditions under which either full or partial technology is transferred in autarky are determined. It is shown that under free trade no such transfer is possible. With trade even though the North wants a complete transfer of technology, the South refuses it.
    Keywords: GHG Emissions, Mitigation, Technology Transfer, International Trade
    JEL: F18 F35 Q54 Q56
    Date: 2008–09
  21. By: Astrid Cullmann; Hélène Crespo; Marie-Anne Plagnet
    Abstract: In this paper we present an international cross-country benchmarking analysis for utility regulation of France and Germany, the two largest electricity distribution countries in Europe. We examine the relative performance of 99 French and 77 German distribution companies operating within two different market structures. This paper applies several parametric benchmarking approaches to assess the relative technical efficiency of the utilities, such as deterministic Corrected Ordinary Least Squares (COLS) and Stochastic Frontier Analysis (SFA). Our base model uses the number of employees as a proxy for labor and network length as a proxy for capital as inputs. Units sold and the numbers of customers are considered as outputs. Our model variations and extensions analyze the effect of different characteristics of distribution areas (e.g. population density and the choice of investment in underground cable network). We find that utilities operating in urban areas feature higher efficiency scores and that investment in underground cables increase the technical efficiency of the distribution utilities.
    Keywords: International benchmarking, electricity distribution, parametric efficiency analysis
    JEL: L94 L11 C40
    Date: 2008
  22. By: Bjerksund, Petter (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Stensland, Gunnar (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Vagstad, Frank (Viz Risk Management)
    Abstract: The existence of a financial gas market motivates the analysis of gas storage as a separate asset, using the market value context for utilization and valuation. In the recent literature, gas storage is typically analysed within a framework with a simple one-factor price dynamics that is solved to optimality. We follow a different approach, where the market is represented by a forward curve with daily granularity, the price uncertainty is represented by six factors, and where we impose a simple and intuitive storage strategy that follows from repeated maximization of the intrinsic value. <p> Based on UK natural gas market price data, we obtain the gas storage value using our approach, and compare with results from one-factor models as well as with perfect foresight. We find that our approach captures much more of the true flexibility value than the one-factor models. Our results indicate that the appropriate framework for analyzing complex assets like gas storage is a rich representation of the price dynamics combined with a simple and intuitive decision rule.
    Keywords: Energy; uncertainty; flexibility; exercise strategy
    JEL: Q40
    Date: 2008–10–17
  23. By: Zou, Tianyu; Pederson, Glenn
    Abstract: This paper uses real option analysis to evaluate investment decisions in ethanol facilities. First, we consider the option to expand the scale of a conventional ethanol plant. Second, we evaluate the option to choose a production technology given three drymilling choices €Ӡa conventional natural gas-fueled plant, a stover-fueled plant, and a stover-plus-syrup-fueled plant. We develop input-output coefficients and annual cash flow projections for a hypothetical small ethanol plant (50 million gallon capacity) using available industry and market price data. Scenario analysis is done to evaluate the effect of profitability and volatility on the option to expand. We find that the best decision during 2001-07 is often to expand, since the net present values of the investment project are positive. However, there are states in the binomial tree where it is best to wait. In relatively few such states the expansion project is simply rejected. During the early part of the period low profitability and high volatility more frequently favor strategies of waiting to invest until prices and profitability improve. During the latter part of the period (2005-07), profitability is sharply higher and most often the best strategy is to invest in the expansion. This result is consistent with the observed rapid increase in industry production capacity during 2005- 07. However, more recent market developments, sharply higher corn and natural gas prices and slightly higher ethanol prices during late 2007-early 2008, have combined to sharply reduce expected plant cash flow and profitability and cash flow volatility. The implication is that plant investment plans in 2008 would be increasingly placed on hold, which the real option model correctly predicts. The real option analysis of technology choice indicates that the stover-fueled technologies are most often chosen when compared to a natural gas-fueled conventional technology based on the prices that existed during 2001-2007.
    Keywords: Financial Economics, Resource /Energy Economics and Policy,
    Date: 2008–07–18
  24. By: Dorothée Boccanfuso (GREDI, Faculte d'administration, Université de Sherbrooke); Antonio Estache (World Bank and, the European Centre for Advanced Research in Economics and Statistics at the Free University of Brussels); Luc Savard (GREDI, Faculte d'administration, Université de Sherbrooke)
    Abstract: In this paper we present a survey of distributional impact analysis of environmental policies envisaged or implemented to reduce greenhouse gasses emissions. Implementation of policies by developed countries has an objective of reducing greenhouse gasses directly or indirectly. However, these policies can produce important changes in factor allocation, relative prices in specific countries as well as on world markets when large countries of when policies are adopted by a large number of countries. These policies can produce important changes in welfare for important portion of vulnerable groups of population in developing countries. This survey reveals that the computable general equilibrium (CGE) microsimulation approach has not been fully exploited in the context of distributional impact analysis of CC policies and that developing economics exhibit features that warrant country specific applications to draw clear conclusions on the regressivity or progressivity of CC policies.
    Keywords: Global warming, environmental policies, income distribution, developing countries
    JEL: D58 D60 H23 O13 Q52
    Date: 2008
  25. By: David von Below; Torsten Persson
    Abstract: The paper illustrates how one may assess our comprehensive uncertainty about the various relations in the entire chain from human activity to climate change. Using a modified version of the RICE model of the global economy and climate, we perform Monte Carlo simulations, where full sets of parameters in the model's most important equations are drawn randomly from pre-specified distributions, and present results in the forms of fan charts and histograms. Our results suggest that under a Business-As-Usual scenario, the median increase of global mean temperature in 2105 relative to 1900 will be around 4.5 °C. The 99 percent confidence interval ranges from 3.0 °C to 6.9 °C. Uncertainty about socio-economic drivers of climate change lie behind a non-trivial part of this uncertainty about global warming.
    JEL: E17 O13 Q54
    Date: 2008–10
  26. By: Matthew Littleton
    Abstract: Despite numerous international commitments to promote transfer of climate-change related technologies to developing countries, such transfers are not occurring at a sufficient rate to aid these nations in mitigating and adapting to the effects of climate change. The impact of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) on transfer of these technologies is discussed through a detailed examination of relevant TRIPS provisions. The paper also addresses options for improving technology transfer through exploitation of existing TRIPS flexibilities, modification of the Agreement, and other public and private legal and policy avenues.
    Keywords: TRIPS Agreement, climate-change-related technologies, and technology transfer
    JEL: O34
    Date: 2008–10
  27. By: Dirk T.G. Rübbelke (CICERO); Anil Markandya (Fondazione Eni Enrico Mattei, Italy and University of Bath)
    Abstract: Analyses of public goods regularly address the case of pure public goods. However, a large number of (international) public goods exhibit characteristics of different degrees of publicness, i.e. they are impure public goods. In our analysis of transfers helping to overcome the inefficient provision of such goods, we therefore apply the Lancastrian characteristics approach. In contrast to the existing literature, we consider the case of a continuum of impure public goods. We employ the example of international conditional transfers targeting to overcome suboptimal low climate protection efforts by influencing the abatement technology choice of countries.
    Keywords: Impure Public Goods, Lancastrian Characteristics Approach, Conditional Transfers, Ancillary Benefits of Climate Policy
    JEL: H87 Q54
    Date: 2008–09
  28. By: Martin F. Quaas (University of Kiel); Sjak Smulders (University of Calgary and Tilburg University)
    Abstract: We analyze the efficiency of urbanization patterns in a dynamic model of endogenous urban growth with two sectors of production. Production exhibits increasing returns to scale on aggregate. Urban environmental pollution, as a force that discourages agglomeration, is caused by domestic production. We show that cities are too large and too few in number in equilibrium, compared to the efficient urbanization path, if economic growth implies increasing aggregate emissions. If, on the other hand, production becomes cleaner over time (`quality growth') the urbanization path approximates the efficient outcome after finite time.
    Keywords: Cities, Urbanisation, Pollution, Growth, Migration, Sustainable Development
    JEL: Q56 R12 O18
    Date: 2008–09
  29. By: Omann, Ines (Sustainable Europe Research Institute (SERI)); Kowalski, Katharina (Bundesministerium fuer Land- und Forstwirtschaft, Umwelt und Wasserwirtschaft); Bohunovsky, Lisa (Sustainable Europe Research Institute (SERI)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Stagl, Sigrid (SPRU-Science and Technology Policy Research)
    Abstract: Participatory multi-criteria evaluation (MCE) is increasingly used for the integrated assessment of future scenarios. Determining weights of the different criteria constitutes one of the biggest challenges of MCE. This paper investigates the influence of weights on the ranking of scenarios and reflects critically on the use of weights as representations of social preferences in participatory MCE. Conceptually, this exercise builds on the literature on integrated assessment and decision making under uncertainty; empirically, insights are drawn from two case studies of renewable energy scenario assessment for Austria at the national and local level. The analysis exhibits a robust ranking for the local level, especially for the highest ranked scenarios. In the national case study, the analysis finds two robust scenario clusters which never switch ranks, whereas the ranking of the scenarios within the clusters flips with minor alters in weights. This paper argues that in participatory MCE different sets of stakeholders' priorities can be taken into account in a transparent and robust manner. The discussion explores inhowfar weights represent social preferences better than direct ranking of alternative scenarios by stakeholders on the basis of scenario presentations.
    Keywords: social preferences; participatory multi-criteria evaluation; renewable energy; scenario analysis; sustainable energy systems
    Date: 2008–08
  30. By: Silke Tober (IMK at the Hans Boeckler Foundation)
    Abstract: When the prices of important goods such as energy and food greatly increase, the ques-tion arises whether the impact on the various income groups differs. An analysis of the structure of consumption expenditure of different household groups does not yield significant differences in the effect of the surge in energy and food prices: the household-specific inflation rates are quite similar. It does not follow, however, that households across income groups are affected by the price increase to the same degree: Low-income households are more affected in the sense that they may actually have to con-sume less given their high consumption ratio and lack of wealth.
    Date: 2008
  31. By: Jeffrey Milyo (Department of Economics, University of Missouri-Columbia); David M. Konisky; Lilliard E. Richardson, Jr.
    Abstract: Objectives. This article examines environmental policy attitudes, focusing on the differences in preferences across issue type (i.e., pollution, resource preservation) and geographical scale (i.e., local, national, global). In addition, we study whether an individuals trust in government influences environmental policy attitudes. Methods. Analyzing data from the 2007 Cooperative Congressional Election Study, we estimate a series of OLS regression models to examine the publics environmental policy attitudes. Results. We find stronger public support for government action to address pollution issues than resources issues, and stronger support for local and national pollution abatement than dealing with global problems. We also find that Republicans and ideological conservatives are less likely to support further government effort to address the environment, and that more trusting individuals are more favorable to government action to address pollution and global issues. Conclusion. Environmental policy attitudes vary by the nature of the issue; however, political ideology and partisan affiliation are consistent predictors of preferences across issues, even when controlling for an individuals level of trust in government.
    Keywords: Environment, NIMBY, Public Opinion, Political Economy
    JEL: Q5 H1
    Date: 2008–10–17

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