nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒02‒14
29 papers chosen by
Roger Fouquet
Imperial College, UK

  1. Analyzing Rebound Effects By Ronald Schettkat
  2. Time-Saving Innovations, Time Allocation, and Energy Use: Evidence from Canadian Households By Brencic, Vera; Young, Denise
  3. R&D-driven Biases in Energy-Saving Technical Change: A "Putty-Practically-Clay" Approach By Adriaan van Zon; Thomas S. Lontzek
  4. Energy Saving Technology Diffusion via FDI and Trade: A CGE Model of China By Michael Hübler
  5. Portfolio Diversification in Energy Markets By Galvani, Valentina; Plourde, Andre
  6. Electricity Retailing in Norway By von der Fehr, Nils-Henrik M.; Hansen, Petter Vegard
  7. Grand Corruption in Utilities By Kenny, Charles; Soreide, Tina
  8. Supply Function Equilibria: Step Functions and Continuous Representations By Holmberg, P.; Newbery, D; Ralph, D.
  9. On the non-convergence of energy intensities: evidence from a pair-wise econometric approach By Yannick LE PEN; Benoît SEVI
  10. Natural gas distribution in Italy: the implementation of the reform and its effects By Silvia Giacomelli
  11. Variability in coal prices: evidence from the U.S. By Alagidede, Paul; Lange, Ian
  12. Iran and the Global Financial Crisis By Naghshineh-Pour, Amir
  13. Rent Taxation for Nonrenewable Resources By Lund, Diderik
  14. Some additional thoughts about renewables in Canada By paunic, alida
  15. Emerging Asia's Impact on Food and Oil Prices: A Model-Based Analysis By René Lalonde; Philipp Maier; Dirk Muir
  16. An Insurance Approach to Risk Management in the Ethanol Industry By Paulson, Nicholas; Babcock, Bruce A.; Hart, Chad E.; Hayes, Dermot J.
  17. Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors By Tokgoz, Simla; Elobeid, Amani; Fabiosa, Jacinto F.; Hayes, Dermot J.; Babcock, Bruce A.; Yu, Tun-Hsiang (Edward); Dong, Fengxia; Hart, Chad E.
  18. Distributional Implications of U.S. Ethanol Policy By Babcock, Bruce A.
  19. Dependency on the Ethanol Industry By Yonas G. Hamda; Jing Li
  20. Clean and Productive? Evidence from the German Manufacturing Industry By Böhringer, Christoph; Moslener, Ulf; Oberndorfer, Ulrich; Ziegler, Andreas
  21. Climate Change, Catastrophic Risk and the Relative Unimporartance of Discounting By Nævdal , Eric; Vislie, Jon
  22. Effiziente Treibhausgasreduktion durch Nutzung des Clean Development Mechanism (CDM) By Johann Eekhoff; Janina Jänsch; Steffen J. Roth; Christian Vossler
  24. CO2 Emissions, Research and Technology Transfer in China By Ang, James
  25. Pareto-Efficient Climate Agreements Can Always Be Renegotiation-Proof By Asheim, Geir B.; Holtsmark, Bjart
  26. Carbon Capture and Storage & the Optimal Path of the Carbon Tax By Thomas S. Lontzek; Wilfried Rickels
  27. Do Productivity Improvements Move Us Along the Environmental Kuznets Curve? By Karen Turner; Nick Hanley; Janine De Fence
  28. Bush Meets Hotelling: Effects of Improved Renewable Energy Technology on Greenhouse Gas Emissions By Hotel , Michael
  29. Alleviating Adverse Implications of EU Climate Policy on Competitiveness: The Case for Border Tax Adjustments or the Clean Development Mechanism? By Alexeeva-Talebi, Victoria; Anger, Niels; Löschel, Andreas

  1. By: Ronald Schettkat (Schumpeter School of Business and Economics, University of Wuppertal)
    Abstract: Are efficiency improvements in the use of natural resources the key for sustainable development, are they the solution to environmental problems, or will second round effects –so-called rebound effects- compensate or even overcompensate potential savings, will they fire back? The answer to this question will have fundamental policy implications but the research on rebound effects does not provide clear results. This paper aims to clarify the theoretical basis of various analytical approaches which lead to widely different estimates of rebound effects.
    Keywords: Agriculture; Natural Resources; Energy; Environment; Primary Products; Technological Change; Choices and Consequences; Sustainable Development; Nonrenewable Resources and Conservation; Demand and Supply; Energy; Demand and Supply; Environmental Economics; Technological Innovation
    JEL: Q01 O13 Q3 Q30 Q31 O33 Q4 Q40 Q41 Q5 Q50 Q55
    Date: 2009–01
  2. By: Brencic, Vera (University of Alberta, Department of Economics); Young, Denise (University of Alberta, Department of Economics)
    Abstract: Time and energy are major inputs into the production of household goods and services. The introduction of time-saving innovations allows households to change their activity patterns and to reallocate their time across competing activities. As a result, the market penetration of time-saving technologies for general household use is expected to have a two-fold impact on energy use in the residential sector. Firstly, increased use of time-saving technologies for basic household chores (cooking, cleaning) can lead to a direct impact on energy use, as many time-saving technologies are more energy-intensive than technologies that require larger time commitments. Secondly, increased use of time-saving technologies allows household members to increase the amount of the activity that is undertaken (for example, when cooking requires less time, more meals may be prepared at home) or to spend more time undertaking other household chores or leisure activities (watching TV, reading, exercising) which may or may not be energy-intensive. In this paper, we use Canadian Survey of Household Energy Use data from 2003 to estimate the extent to which ownership of products that embody time-saving innovations impacts time allocation and energy use at the household level.
    Keywords: time rebound effects; residential energy use; household production
    JEL: D13 J22 Q41
    Date: 2009–02–05
  3. By: Adriaan van Zon; Thomas S. Lontzek
    Abstract: In the past years biofuels have received increased attention since they were believed to contribute to rural development, energy security and to fight global warming. It became also clear, though, that bioenergy cannot be evaluated independently of the rest of the economy and that national and international feedback effects are important. Computable general equilibrium (CGE) models have been widely employed in order to study the effects of international climate policies. The main characteristic of these models is their encompassing scope: Global models cover the whole world economy disaggregated into regions and countries as well as diverse sectors of economic activity. Such a modelling framework unveils direct and indirect feedback effects of certain policies or shocks across sectors and countries. CGE models are thus well suited for the study of bioenergy/biofuel policies. One can currently find various approaches in the literature of incorporating bioenergy into a CGE framework. This paper intends to give an overview of existing approaches and to critically assess their respective power. Grouping different approaches into categories and highlighting their advantages and disadvantages is important for giving a structure to this rather recent and rapidly growing research area and to provide a guidepost for future work
    Keywords: Induced biased technological change, Putty-clay Vintage Models, Energy, Renewable resources
    JEL: E22 O31 O33 Q42 Q48
    Date: 2008–12
  4. By: Michael Hübler
    Abstract: This paper introduces intra- and inter-sectoral technology diffusion via FDI and imports into a recursive-dynamic CGE model for climate policy analyses. It analyzes China’s accession to a Post Kyoto emission regime that keeps global emissions from 2012 on constant. Due to ongoing energy efficiency gains, partly stemming from international technology diffusion, China will become a net seller of emission permits and steadily reduce emissions, possibly below their 2004 level until 2030. This will reduce the world CO2 price significantly. The impact of supporting foreign firms and of reducing import tariffs on Chinese welfare will not significantly change when China joins the Post Kyoto regime
    Keywords: Technology diffusion, technology transfer, trade, FDI, climate change, China
    JEL: F18 F21 N75 O33
    Date: 2009–01
  5. By: Galvani, Valentina (University of Alberta, Department of Economics); Plourde, Andre (University of Alberta, Department of Economics)
    Abstract: This papers results indicate that futures for crude oil, natural gas and unleaded gasoline fail to enhance the performance of representative energy stocks in terms of return to risk, but do decrease the overall level of risk exposure borne by passive equity investors. Our findings suggest that futures contracts on energy commodities are valuable to market participants with an interest in hedging against price fluctuations in energy markets by buy-and-hold strategies. However, this conclusion is reversed when one takes the perspective of traders whose core interests can be better approximated through the return to risk-bearing. In fact, this paper documents that return-to-risk maximizing agents are unlikely to profit from trading energy futures in addition to energy stocks. Moreover, futures for energy commodities fail to offer significant diversification gains with respect to energy stocks once investors adopt simple dynamic trading strategies that rely on readily available pricing information.
    Keywords: energy markets; diversification benefits; mean-variance spanning
    JEL: G11 G32 M21 O13
    Date: 2009–01–31
  6. By: von der Fehr, Nils-Henrik M. (Dept. of Economics, University of Oslo); Hansen, Petter Vegard
    Abstract: We analyse retailer and household behaviour on the Norwegian electricity market, based on detailed information on prices and other market characteristics. We find that there exists a competitive market segment where a number of retailers compete fiercely for customers, with small margins on all products. However, we also find evidence of monopolistic behaviour, whereby retailers exploit the passivity of some of their customers. We discuss explanations for these results, as well as means to improve market performance.
    Keywords: Electricity retailing; electricity prices;
    JEL: A10
    Date: 2008–06–09
  7. By: Kenny, Charles (The World Bank); Soreide, Tina (The World Bank)
    Abstract: This paper discusses mechanisms of grand corruption in private sector utility provision in developing countries. By the term "grand corruption," the authors abstract from the petty corruption that consumers experience -- for example, when firms and individuals pay bribes to get water delivery or an electricity connection. The paper focuses on decisions made at the government level involving private sector management, ownership, and provision of utility services. Corruption at that level may influence the pace and nature of private sector involvement and competition in utilities, as well as the level and form of investments, subsidies, and prices. On the basis of a literature review and interviews with firms and regulating authorities in two countries, Tanzania and the Philippines, this paper discusses the levels and determinants of grand corruption in utilities. The paper concludes by discussing a research program to extend this knowledge through a cross-country survey instrument.
    Keywords: abuse; access to capital; access to finance; Access to information; accessibility; accountability; anti-corruption; Asian Development Bank; assets; asymmetric information; authority;
    Date: 2008–12–01
  8. By: Holmberg, P.; Newbery, D; Ralph, D.
    Abstract: In most wholesale electricity markets generators must submit stepfunction offers of supply to a uniform price auction, and the market is cleared at the price of the most expensive offer needed to meet realised demand. Such markets can most elegantly be modelled as the purestrategy, Nash Equilibrium of continuous supply functions, in which each supplier has a unique profit maximising choice of supply function given the choices of other suppliers. Critics argue that the discreteness and discontinuity of the required steps can rule out pure-strategy equilibria and may result in price instability. This paper argues that if prices must be selected from a finite set the resulting step function converges to the continuous supply function as the number of steps increases, reconciling the apparently very disparate approaches to modelling electricity markets.
    Keywords: Auctions, supply function equilibria, convergence of stepfunctions, electricity markets.
    JEL: D43 D44 C62 L94
    Date: 2008–12
  9. By: Yannick LE PEN; Benoît SEVI
    Abstract: This paper evaluates convergence of energy intensities for a group of 97 countries in the period 1971-2003. Convergence is tested using a recent method proposed by Pesaran (2007) [M.H. Pesaran. A pair- wise approach to testing for output and growth convergence. Journal of Econometrics 138, 312-355.] based on the stochastic convergence criterion. Main advantages of this method are that results do not depend on a benchmark against which convergence is assessed, and that it is more robust. Applications of several unit-root tests as well as a stationarity test uniformly reject the global convergence hypothesis. Locally, for Middle-East, OECD and Europe sub-groups, non-convergence is less strongly rejected. The introduction of possible structural breaks in the analysis only marginally provides more support to the convergence hypothesis.
    Keywords: Energy intensity, pair-wise test, unit-root test, stationarity test, structural break, convergence
    JEL: C32 O40 Q43 Q50
    Date: 2008
  10. By: Silvia Giacomelli (Banca d'Italia)
    Abstract: This paper analyzes the evolution of the natural gas distribution sector in Italy from the 2000 reform with the aim of evaluating the regulatory framework, its implementation and its effects on firms and consumers. Market fragmentation has diminished significantly over the years; however, the number of very small firms in the market is still high. In the competitive tender procedures held so far, the number of bidders and the concession fees awarded have been high; however, regulatory loopholes and concerns over the ability of municipalities to organize and carry out competitive procedures have emerged. Tariff regulation has led to a reduction of distribution prices, but firms are highly profitable, which might indicate that they still enjoy significant rents. The uncertainty and variability of the tariff system and the delays in the implementation of third-party access regulation has hindered the development of competition in the residential gas market. The new rules on the size of local markets and on bidding criteria should significantly improve the regulatory framework of tenders.
    Keywords: Natural Gas Distribution, Local Public Utilities, Economic Regulation
    JEL: L95 L98
    Date: 2008–09
  11. By: Alagidede, Paul; Lange, Ian
    Abstract: Monthly U.S. coal price time series data are tested to determine the persistence of shocks. The time series is then disaggregated by length of agreement to further explore the first and second moments of pricing behaviour. Results show that prices have a variance that changes over time and tend to be highly persistent. Prices from long-term transaction agreements tend to require more lags and have a higher degree of persistence.
    Keywords: Coal prices; Variability; Persistence and randomness
    Date: 2009–01–18
  12. By: Naghshineh-Pour, Amir
    Abstract: The global financial crisis is set to depress oil producing economies. As the crisis is already pushing down oil prices, a firm response to the fallout of the crisis from governments and central banks is expected. Oil prices have tumbled more than 70% since their July peak and there are fears they could continue their plunge because of diminishing demand caused by the current financial meltdown. Though, the Iranian government does not seem to be greatly concerned about the ongoing global situation, although many Iranian economists believe that sanctions and the international financial crisis will soon be taking their toll on Iran’s economy by unfavorably affecting oil, trade, and trade financing. Even if the relative isolation from the world’s economy may seem to protect Iran from the negative impact of the global financial crisis to a certain extend at least for now, plunging oil prices and a massive credit deterioration suggest otherwise.
    Keywords: Iran; Financial Crisis; Oil Revenue; Currency Exchange; Currency Crash
    JEL: O5
    Date: 2009–01
  13. By: Lund, Diderik (Dept. of Economics, University of Oslo)
    Abstract: The literature on taxation of rents from nonrenewable resources uses different theoretical assumptions and methods and a variety of empirical observations to arrive at widely diverging conclusions. Many studies use models and methods which disregard uncertainty, investigating distortionary effects of different taxes on whether, when, and how to explore for, develop and operate resource deposits. Introducing uncertainty into the analysis opens a range of challenges, and leads to results which cast doubt upon the relevance of studies which neglect uncertainty. There are, however, several ways to analyze uncertainty, regarding companies' behavior, resource price processes, and diversification opportunities, all with different implications for taxation. Methods developed in financial economics since the 1980's are promising, but still not in widespread use. Some more specific topics covered in this review are optimal risk sharing between companies and gov- ernments, time consistency and scal stability, the relationship between taxes and discount rates, and transfer pricing.
    Keywords: Natural resources; rent tax; royalty; oil; minerals; energy
    JEL: B20 H20 H25 L71 O13 Q38
    Date: 2009–01–01
  14. By: paunic, alida
    Abstract: Significant non renewable energy reserves could lead to lower investment in renewable technologies and further help growth of GHG emissions. Current state of renewable technology allows implementation at competitive market rate (wind) whose development could bring further industrial prosperity, environmental benefits, international recognition, reduce future energy uncertainties, keep natural resources to future generation leaving positive bequest value Canada large GNP brings, besides well being , obligation of clean technology developments taking leading role in promotion of sustainable development, helping developing and low income countries to import technologies, develop its renewable possibilities and keep strong commitments and respect in international agreements.
    Keywords: renewables; Canada;
    JEL: Q32 Q50
    Date: 2009–01–07
  15. By: René Lalonde; Philipp Maier; Dirk Muir
    Abstract: The authors explore the usefulness of macroeconomic models in analyzing global economic developments by examining movements in commodity prices between July 2007 and July 2008. They use the Bank of Canada's version of the Global Economy Model and investigate the longerterm outlook for commodity prices by constructing two different, globally consistent, scenarios for emerging Asia. In the first scenario, the authors assume that a persistent increase in emerging Asia's productivity underlies its sustained growth; in the second scenario, they assume that a combination of productivity increases and a temporary demand shock underlie its growth. The demand for commodities increases in both scenarios, but, by comparing the two, the authors reveal that each scenario has considerably different economic implications. Allowing for the possibility that a small share of emerging Asia's growth might be fuelled by a temporary demand shock generates a strong "boom-bust" outcome for emerging Asia, and amplifies the volatility in commodity markets. The authors also investigate the possibility that emerging markets react to inflation by revaluing their exchange rates by 10 per cent. This affects the outlook for commodities only marginally.
    Keywords: International topics; Recent economic and financial developments
    JEL: E30 E50 E58 E60
    Date: 2009
  16. By: Paulson, Nicholas; Babcock, Bruce A.; Hart, Chad E.; Hayes, Dermot J.
    Date: 2008–05–15
  17. By: Tokgoz, Simla; Elobeid, Amani; Fabiosa, Jacinto F.; Hayes, Dermot J.; Babcock, Bruce A.; Yu, Tun-Hsiang (Edward); Dong, Fengxia; Hart, Chad E.
    Abstract: Projections of U.S. ethanol production and its impacts on planted acreage, crop prices, livestock production and prices, trade, and retail food costs are presented under the assumption that current tax credits and trade policies are maintained. The projections were made using a multi-product, multi-country deterministic partial equilibrium model. The impacts of higher oil prices, a drought combined with an ethanol mandate, and removal of land from the Conservation Reserve Program (CRP) relative to baseline projections are also presented. The results indicate that expanded U.S. ethanol production will cause long-run crop prices to increase. In response to higher feed costs, livestock farmgate prices will increase enough to cover the feed cost increases. Retail meat, egg, and dairy prices will also increase. If oil prices are permanently $10-per-barrel higher than assumed in the baseline projections, U.S. ethanol will expand significantly. The magnitude of the expansion will depend on the future makeup of the U.S. automobile fleet. If sufficient demand for E-85 from flex-fuel vehicles is available, corn-based ethanol production is projected to increase to about 29 billion gallons per year with the higher oil prices. The direct effect of higher feed costs is that U.S. food prices would increase by a minimum 1.1% over baseline levels.
    Keywords: biofuels, corn acreage, crop prices, ethanol production, food prices
    Date: 2008–05–15
  18. By: Babcock, Bruce A.
    Date: 2008–05–15
  19. By: Yonas G. Hamda; Jing Li (South Dakota State University)
    Abstract: The year 2008 will long be remembered as a year when corn based ethanol has seen tremendous change. The Energy Independence and Security Act, which passed in late 2007, gave a huge boost to the industry as it mandated an increase in biofuel production and use. In 2008, the industry witnessed record high prices on corn and crude oil. Ultimately, a big ethanol and distiller’s grain company--Vera Sun Energy-- filed for Chapter 11 bankruptcy leaving farmers with contracts wondering what will happen next. South Dakota is a major corn growing and ethanol producing state and this article assesses the relative magnitude of corn based ethanol on the local economy in terms of distribution of ethanol plants and corn disappearance ratios.
    Keywords: ethanol, south dakota, farm policy
    JEL: Q18 Q13
    Date: 2008–12
  20. By: Böhringer, Christoph; Moslener, Ulf; Oberndorfer, Ulrich; Ziegler, Andreas
    Abstract: We analyze the productivity effects of environmental (green) investment as well as of environmental expenditures and energy expenditures. For this purpose, we follow a production function approach where we account for these investment and expenditure categories as inputs. Based on a panel dataset for the German manufacturing industry between 1996 and 2002 we find that both environmental and energy expenditures do not contribute to production growth. In contrast, environmental investment positively impinges upon production growth as a productivity driver. We thus conclude that environmental regulation should stimulate investment in order to be compatible with economic goals such as productivity.
    Keywords: environmental performance, environmental regulation, productivity
    JEL: D24 Q28 Q58
    Date: 2008
  21. By: Nævdal , Eric (Ragnar Frisch Centre for Economic Research); Vislie, Jon (Dept. of Economics, University of Oslo)
    Abstract: Discounting in the presence of catastrophic risk is a hotly debated issue, in particular with respect to climate change. Many scientists and laymen concerned with potentially catastrophic impacts feel that if an increase in the discount rate drastically increases the likelihood of catastrophic outcomes, this discredits economic cost-benefit calculations. This paper argues that this intuition is sound and that if cost-benefit calculations are done within a model that encompasses the type of catastrophic risk that these scientists worry about, the resulting stabilization target will only be slightly influenced by the discount rate. This is shown within a stylized model of a risk neutral decision maker facing a problem with a catastrophic threshold with unknown location.
    Keywords: climate change; discounting; catastrophic risk; optimal control
    JEL: A10
    Date: 2008–11–01
  22. By: Johann Eekhoff; Janina Jänsch; Steffen J. Roth; Christian Vossler
    Abstract: In diesem Diskussionspapier wird die Möglichkeit dargestellt, durch eine maßgebliche Nutzung des Clean Development Mechanism (CDM) die vorgegebenen Klimaschutzziele möglichst effizient, also mit möglichst geringen Kosten zu erreichen. Eine effiziente Reduzierung der CO2-Emissionen hilft, die für die Erreichung umweltpolitischer Ziele verbundenen Kosten auf das unvermeidbare Maß zu begrenzen und somit die Zustimmung der Bevölkerung zu ehrgeizigen Klimaschutzzielen nicht leichtfertig zu gefährden.
    Date: 2008–01
  23. By: Dinar, Ariel (University of California); Mahfuzur Rahman, Shaikh (Texas Tech University,); Larson, Donald (The World Bank); Ambrosi, Philippe (The World Bank)
    Abstract: The Clean Development Mechanism, a provision of The Kyoto Protocol, allows countries that have pledged to reduce their greenhouse gas emissions to gain credit toward their treaty obligations by investing in projects located in developing (host) countries. Such projects are expected to benefit both parties by providing low-cost abatement opportunities for the investor-country, while facilitating capital and technology flows to the host country. This paper analyzes the Clean Development Mechanism market, emphasizing the cooperation aspects between host and investor countries. The analysis uses a dichotomous (yes/no) variable and three continuous variants to measure the level of cooperation, namely the number of joint projects, the volume of carbon dioxide abatement, and the volume of investment in the projects. The results suggest that economic development, institutional development, the energy structure of the economies, the level of country vulnerability to various climate change effects, and the state of international relations between the host and investor countries are good predictors of the level of cooperation in Clean Development Mechanism projects. The main policy conclusions include the importance of simplifying the project regulation/clearance cycle; improving the governance structure host and investor countries; and strengthening trade or other long-term economic activities that engage the countries.
    Keywords: Abatement; animal waste; Approach; atmosphere; availability; barrier; bilateral trade; biomass; Business Climate; business environment; business regulation; business regulations; capital investments
    Date: 2008–11–01
  24. By: Ang, James
    Abstract: Although the economy of China has grown very strongly over the last few decades, this spectacular performance has come at the expense of rapid environmental deterioration. Amidst animated debate on the issue of global warming, this study attempts to explore the determinants of CO2 emissions in China using aggregate data for more than half a century. Adopting an analytical framework that combines the environmental literature with modern endogenous growth theories, the results indicate that CO2 emissions in China are negatively related to research intensity, technology transfer and the absorptive capacity of the economy to assimilate foreign technology. Our findings also indicate that more energy use, higher income and greater trade openness tend to cause more CO2 emissions.
    Keywords: Environmental pollution; endogenous growth theory; R&D; China.
    JEL: Q50 O53 O30 Q40 O40
    Date: 2009–02–09
  25. By: Asheim, Geir B. (Dept. of Economics, University of Oslo); Holtsmark, Bjart (Statistics Norway)
    Abstract: Recent contributions show that climate agreements with broad participation can be implemented as weakly renegotiation-proof equilibria in simple models of greenhouse gas abatement where each country has a binary choice between cooperating (i.e., abate emissions) or defecting (no abatement). Here we show that this result carries over to a model where countries have a continuum of emission choices. Indeed, a Pareto-efficient climate agreement can always be implemented as a weakly renegotiation-proof equilibrium, for a sufficiently high discount factor. This means that one need not trade-off a “narrow but deep” treaty with a “broad but shallow” treaty.
    Keywords: Climate agreements; Pareto-effiency; greenhouse gases;
    JEL: A10
    Date: 2008–08–12
  26. By: Thomas S. Lontzek; Wilfried Rickels
    Abstract: In the presence of rising carbon concentrations more attention should be given to the role of the oceans as a sink for atmospheric carbon. We do so by setting up a simple dynamic global carbon cycle model with two reservoirs containing atmosphere and two ocean layers. The net flux between these reservoirs is determined by the relative reservoir size and therefore constitutes a more appropriate description of the carbon cycle than a proportional decay assumption. We exploit the specific feature of our model, the mixing of the carbon reservoirs, by allowing for a special form of carbon capture and storage: The capture of CO2 from the air and the sequestration of CO2 into the deep ocean reservoir. We study the socially optimal anthropogenic intervention of the global carbon cycle using a non-renewable resource stock. We find that this kind of carbon capture and storage facilitates achieving strict stabilization targets for the atmospheric carbon content. It accelerates the slow natural flux within the carbon cycle, and because of its temporary abatement character it dampens the overshooting of the atmospheric reservoir. Furthermore, we analyze the optimal paths of the carbon tax. The carbon tax shows to be inverted u-shaped but depending on the initial sizes of the reservoirs and the speed of carbon fluxes between the reservoirs we also find the optimal tax to be increasing, decreasing or u-shaped. Finally, we suggest to link the level of the carbon tax to the declining ability of the deep ocean to absorb atmospheric carbon
    Keywords: exhaustible resource, CCS, ocean sinks, ocean sequestration, air capture, carbon tax, carbon cycle
    JEL: Q32 Q54 C61
    Date: 2008–12
  27. By: Karen Turner (Department of Economics, University of Strathclyde); Nick Hanley (Department of Economics, University of Stirling); Janine De Fence (Department of Economics, University of Strathclyde)
    Abstract: The Environmental Kuznets Curve (EKC) hypothesis focuses on the argument that rising prosperity will eventually be accompanied by falling pollution levels as a result of one or more of three factors: (1) structural change in the economy; (2) demand for environmental quality increasing at a more-than-proportional rate; (3) technological progress. Here, we focus on the third of these. In particular, energy efficiency is commonly regarded as a key element of climate policy in terms of achieving reductions in economy-wide CO2 emissions over time. However, a growing literature suggests that improvements in energy efficiency will lead to rebound (or backfire) effects that partially (or wholly) offset energy savings from efficiency improvements. Where efficiency improvements are aimed at the production side of the economy, the net impact of increased efficiency in any input to production will depend on the combination and relative strength of substitution, output/competitiveness, composition and income effects that occur in response to changes in effective and actual factor prices, as well as on the structure of the economy in question, including which sectors are targeted with the efficiency improvement. In this paper we consider whether increasing labour productivity will have a more beneficial, or more predictable, impact on CO2/GDP ratios than improvements in energy efficiency. We do this by using CGE models of the Scottish regional and UK national economies to analyse the impacts of a simple 5% exogenous (and costless) increase in energy or labour augmenting technological progress.
    Keywords: Scomputable general equilibrium models; technical progress; energy efficiency; labour productivity; environmental kuznets curve
    JEL: D57 D58 R15 Q41 Q43
    Date: 2009–01
  28. By: Hotel , Michael (Dept. of Economics, University of Oslo)
    Abstract: Fossil fuels are non-renewable carbon resources, and the extraction path of these resources depends both on present and future demand. When this “Hotelling feature”is taken into consideration, the whole price path of carbon fuel will shift downwards as a response to the reduced cost of the renewable substitute. An implication of this is that greenhouse gas emissions in the near future may increase as a response to the reduced cost of the renewable substitute. If this is the case, increased climate costs may outweigh the bene…ts of reduced costs of a substitute, thus reducing overall social welfare.
    Keywords: Climate change; exhaustible resources; renewable energy
    JEL: Q30 Q42 Q54
    Date: 2008–12–02
  29. By: Alexeeva-Talebi, Victoria; Anger, Niels; Löschel, Andreas
    Abstract: Ambitious unilateral EU environmental policy has raised concerns about adverse competitiveness implications for European energy-intensive and export-oriented sectors. We analyze the economic and environmental implications of two different measures to address these concerns in the EU Emission Trading Scheme (EU ETS): border tax adjustments (BTA) and the Clean Development Mechanism (CDM). Numerical simulations with a computable general equilibrium model of the global economy demonstrate that alternative BTA regimes are suitable to alleviate adverse competiveness implications of unilateral European climate policy on energy-intensive and export-oriented industries. The regulatory protection of these industries via subsidies for EU exporters and tariffs for non-EU importers goes, however, at the expense of sectors which are excluded from the EU ETS. We show that the choice of alternative benchmarks (i.e. carbon intensities) for the level of BTA substantially affects these competitiveness implications. The simulations further indicate that limited access to low-cost emission abatement via the CDM in the EU ETS alleviates adverse competitiveness impacts to a comparable extent as the most ambitious BTA scheme. Increasing “where-flexibility” of emission abatement thus represents an attractive market-based alternative to the application of border tax adjustments in unilateral climate policy.
    Keywords: Emissions Trading, EU ETS, Competitiveness, Border tax adjustments, Clean Development Mechanism, CGE model
    JEL: D58 F18 H23 Q48
    Date: 2008

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