nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒02‒28
28 papers chosen by
Roger Fouquet
Imperial College, UK

  1. Advertising to boost energy efficiency: the Power of One campaign and natural gas consumption By Diffney, Sean; Lyons, Sean; Malguzzi Valeri, Laura
  2. Electricity Sector Liberalisation and Innovation: An Analysis of the UK Patenting Activities By Jamasb, T.; Pollitt, M.G.
  3. Unintended Impacts of Multiple Instruments on Technology Adoption By Coria, Jessica
  4. Using Elicited Choice Probabilities to Estimate Random Utility Models: Preferences for Electricity Reliability By Blass, Asher; Lach, Saul; Manski, Charles
  5. Capital Structure and Regulation: Do Ownership and Regulatory Independence Matter? By Bortolotti, Bernardo; Cambini, Carlo; Rondi, Laura; Spiegel, Yossi
  6. Competition and quality in regulated markets with sluggish demand By Brekke, Kurt Richard; Cellini, Roberto; Siciliani, Luigi; Straume, Odd Rune
  7. Do Energy Prices Respond to U.S. Macroeconomic News? A Test of the Hypothesis of Predetermined Energy Prices By Kilian, Lutz; Vega, Clara
  8. Why Does Gasoline Cost so Much? A Joint Model of the Global Crude Oil Market and the U.S. Retail Gasoline Market By Kilian, Lutz
  9. Estimating the Effect of a Gasoline Tax on Carbon Emissions By Davis, Lucas W; Kilian, Lutz
  10. Taxation of Oil Products and GDP Dynamics of Oil-rich Countries By Julien Daubanes
  11. Oil Prices, Profits, and Recessions: An Inquiry Using Terrorism as an Instrumental Variable By Chen, Natalie; Graham, Liam; Oswald, Andrew
  12. Oil Exports, Non Oil GDP and Investment in the GCC Countries By Harb, Nasri
  13. Why Do Many Resource-Rich Countries Have Negative Genuine Saving? Anticipation of Better Times or Rapacious Rent Seeking By van der Ploeg, Frederick
  14. Financial Crash, Commodity Prices and Global Imbalances By Caballero, Ricardo; Farhi, Emmanuel; Gourinchas, Pierre-Olivier
  15. Prix internationaux du pétrole, du gaz naturel, de l’uranium et du charbon : la théorie économique nous aide t-elle à comprendre les évolutions ? By Jacques PERCEBOIS
  16. Cooperation among liquefied natural gas suppliers: is rationalization the sole objective? By Olivier MASSOL; Stéphane TCHUNG-MING
  17. Airline Emission Charges: Effects on Airfares, Service Quality, and Aircraft Design By Jan K. Brueckner; Anming Zhang
  18. A General Framework for Estimating CO2 Emissions By Inmaculada Martínez-Zarzoso
  19. Adaptive management of the climate change problem: bridging the gap between research and public policy By Săvoiu , Gheorghe
  20. The international stock pollutant control: a stochastic formulation By Omar J. Casas; Rosario Romera
  21. Why Previous Estimates of the Cost of Climate Mitigation are Likely Too Low By Beckman, Jayson; Hertel, Thomas
  22. Uncertainty, Climate Change and the Global Economy By Persson, Torsten; von Below, David
  23. Modelling Economic Impacts of Alternative International Climate Policy Architectures: A Quantitative and Comparative Assessment of Architectures for Agreement By Bosetti, Valentina; Carraro, Carlo; Sgobbi, Alessandra; Tavoni, Massimo
  24. Delayed Action and Uncertain Targets. How Much Will Climate Policy Cost? By Bosetti, Valentina; Carraro, Carlo; Sgobbi, Alessandra; Tavoni, Massimo
  25. International Emission Permit Markets with Refunding By Gersbach, Hans; Winkler, Ralph
  26. What is the Top Priority on Climate Change? By Klemperer, Paul
  27. Delayed Participation of Developing Countries to Climate Agreements: Should Action in the EU and US be Postponed? By Bosetti, Valentina; Carraro, Carlo; Tavoni, Massimo
  28. Conspicuous consumption, inconspicuous leisure By Kenneth Arrow; Partha Dasgupta

  1. By: Diffney, Sean (ESRI); Lyons, Sean (ESRI); Malguzzi Valeri, Laura (ESRI)
    Abstract: In this paper we study the recent awareness and persuasion campaign launched by the Irish government to increase energy efficiency and we assess its effect on residential natural gas consumption. We first analyse changes in the daily consumption of natural gas and find that advertising leaflets had a significant effect on natural gas consumption. We then study three surveys administered to 1000 consumers prior to and during the campaign. This repeated cross-section allows us to determine that the efficiency campaign has increased self-reported interest in energy efficiency and awareness of behaviours that curb natural gas consumption. However we do not find any positive effect of the campaign on self-reported energy-saving behaviours.
    JEL: Q48 Q41
    Date: 2009–02
  2. By: Jamasb, T.; Pollitt, M.G.
    Abstract: Liberalisation has had a marked effect on innovative activities in the electricity industry. R&D and patenting activities are generally regarded respectively as innovative inputs to and outputs from technological progress. Electricity reforms have resulted in a reduction in R&D spending in the sector. This paper examines the effect of reforms on patenting activity in the UK electricity sector. The results indicate that electricity related patents in non-nuclear and renewable technologies have increased in the post-liberalisation period. We attribute this trend to increased commercialisation of the sector. While this development is positive, we argue that a lasting decline in R&D will in the longer run reduce technological progress in the sector. In order to maintain the pace of innovation, we discuss the need for a framework for innovation systems that is commensurate with the incentive mechanisms of a liberalised sector.
    Keywords: Electricity, patent, innovation, technology, liberalisation
    JEL: L94 O31 Q32 Q38
    Date: 2009–01
  3. By: Coria, Jessica (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: There are many situations where environmental authorities use a mix of environmental policy instruments, rather than one single instrument, to address environmental concerns. For example, one instrument may be used to reduce overall emissions of a pollutant while another is used to address specific seasonal concerns. Very little work has been done on the economic impacts of the application of multiple instruments. This paper investigates the unintended impacts of the interaction of a tradable permits scheme with direct seasonal regulations on the rate of adoption of advanced abatement technologies.<p>
    Keywords: Technology adoption; environmental policy; tradable permits; emission standards; interaction of policies
    JEL: O33 Q53 Q55 Q58
    Date: 2009–02–23
  4. By: Blass, Asher; Lach, Saul; Manski, Charles
    Abstract: When data on actual choices are not available, researchers studying preferences sometimes pose choice scenarios and ask respondents to state the actions they would choose if they were to face these scenarios. The data on stated choices are then used to estimate random utility models, as if they are data on actual choices. Stated choices may differ from actual ones because researchers typically provide respondents with less information than they would have facing actual choice problems. Elicitation of choice probabilities overcomes this problem by permitting respondents to express uncertainty about their behavior. This paper shows how to use elicited choice probabilities to estimate random utility models with random coefficients and applies the methodology to estimate preferences for electricity reliability in Israel.
    Keywords: Choice probabilities; stated choices; WTP for electricity reliability
    JEL: C2 C25 C42 D12 L51 L94
    Date: 2008–11
  5. By: Bortolotti, Bernardo; Cambini, Carlo; Rondi, Laura; Spiegel, Yossi
    Abstract: We construct a comprehensive panel data of 92 publicly traded European utilities over the period 1994-2005 in order to study the relationship between capital structure, regulated prices, and firm value, and examine if and how this interaction is affected by ownership structure and regulatory independence. We show that regulated firms in our sample tend to have a higher leverage if they are privately-controlled and if they are regulated by an independent regulatory agency. Moreover, we find that the leverage of these firms has a positive and significant effect on their regulated prices, but not vice versa, and it also has a positive and significant effect on their market values. Our results are consistent with the theory that privately-controlled firms use leverage strategically to shield themselves against regulatory opportunism.
    Keywords: capital structure; leverage; private and state ownership; Regulated utilities; regulatory agencies; regulatory independence
    JEL: G31 G32 L33
    Date: 2008–12
  6. By: Brekke, Kurt Richard; Cellini, Roberto; Siciliani, Luigi; Straume, Odd Rune
    Abstract: We investigate the effect of competition on quality in regulated markets (e.g., health care, higher education, public utilities), using a Hotelling framework, in the presence of sluggish demand. We take a differential game approach, and derive the open-loop solution (providers commit to an optimal investment plan at the initial period) and the feedback closed-loop solution (providers move investments in response to the dynamics of the states). If the marginal cost of provision is increasing, the steady state quality is higher under the open- loop solution than under the closed-loop solution. Fiercer competition (lower transportation costs and/or less sluggish demand) leads to higher quality in both solutions, but the quality response to increased competition is weaker when players use closed-loop strategies. In both solutions, quality and demand move in opposite directions over time on the equilibrium path to the steady state.
    Keywords: competition; quality; Regulated markets
    JEL: H42 I11 I18 L13
    Date: 2008–08
  7. By: Kilian, Lutz; Vega, Clara
    Abstract: Models that treat innovations to the price of energy as predetermined with respect to U.S. macroeconomic aggregates are widely used in the literature. For example, it is common to order energy prices first in recursively identified VAR models of the transmission of energy price shocks. Since exactly identifying assumptions are inherently untestable, this approach in practice has required an act of faith in the empirical plausibility of the delay restriction used for identification. An alternative view that would invalidate such models is that energy prices respond instantaneously to macroeconomic news, implying that energy prices should be ordered ast in recursively identified VAR models. In this paper, we propose a formal test of the identifying assumption that energy prices are predetermined with respect to U.S. macroeconomic aggregates. Our test is based on regressing cumulative changes in daily energy prices on daily news from U.S. macroeconomic data releases. Using a wide range of macroeconomic news, we find no compelling evidence of feedback at daily or monthly horizons, contradicting the view that energy prices respond instantaneously to macroeconomic news and supporting the use of delay restrictions for identification.
    Keywords: Gasoline price; Identification; Impulse responses; News; Oil price
    JEL: C32 E37 Q43
    Date: 2008–10
  8. By: Kilian, Lutz
    Abstract: There is an important distinction between the price of gasoline in the U.S. and the price of crude oil in global markets that is often ignored in discussions of the impact of higher energy prices. This paper makes explicit the relationship between demand and supply shocks in these two markets. Building on a recently proposed structural VAR model of the global crude oil market, it explores the implications of a joint VAR model of the global market for crude oil and the U.S. market for motor gasoline. It is shown that it is essential to understand the origins of a given gasoline price shock, before predicting the likely path of the price of gasoline or of gasoline consumption, since each demand and supply shock is associated with responses of different magnitude, pattern and persistence. The paper assesses the overall importance of these shocks in explaining the variation in U.S. gasoline prices and consumption growth, as well as their relative contribution to the surge in U.S. gasoline prices since 2002. The findings have important implications for the future evolution of the real price of gasoline. Although there is considerable uncertainty about the determinants of the price of gasoline, this paper makes the case that the real price of gasoline is likely to remain high for several years.
    Keywords: Demand shock; Dynamic effects; Gasoline consumption; Gasoline price; Price of crude oil; Refiners; Supply shock
    JEL: Q43
    Date: 2008–07
  9. By: Davis, Lucas W; Kilian, Lutz
    Abstract: Several policymakers and economists have proposed the adoption of a carbon tax in the United States. It is widely recognized that such a tax in practice must take the form of a tax on the consumption of energy products such as gasoline. Although a large existing literature examines the sensitivity of gasoline consumption to changes in price, these estimates may not be appropriate for evaluating the effectiveness of such a tax. First, most of these studies fail to address the endogeneity of gasoline prices. Second, the responsiveness of gasoline consumption to a change in tax may differ from the responsiveness of consumption to an average change in price. We address these challenges using a variety of methods including traditional single-equation regression models, estimated by least squares or instrumental variables methods, and structural vector autoregressions. We compare the results from these approaches, highlighting the advantages and disadvantages of each. Our preferred approach exploits the historical variation in U.S. federal and state gasoline taxes. Our most credible estimates imply that a 10 cent per gallon increase in the gasoline tax would reduce U.S. gasoline consumption by 4% and reduce total U.S. carbon emissions by about 1%. We conclude that there is no statistical evidence that a gasoline tax increase of the magnitude recently contemplated by policymakers would reduce carbon emissions enough to reach the targets described by the United Nation’s Intergovernmental Panel on Climate Change in 2007.
    Keywords: carbon tax; elasticity; gasoline consumption; gasoline tax; global warming; price endogeneity
    JEL: C53
    Date: 2009–02
  10. By: Julien Daubanes (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: This article proposes a complementary explanation for why oil-rich economies have experienced a relative low GDP growth over the last decades: the proportion of taxes in the prices of petroleum products have been globally increasing for the four last decades, thus making oil revenues grow slower than output from manufacturing and yielding a low growth of oil-exporting countries' GDPs. This is illustrated in a two-country model of oil depletion examining why a net oil-exporting country and a net oil-importing country are dierently affected by increasing taxes on the resource use. The hypothesis is constructed on the theory of non-renewable resources taxation. The argument is based on the distributional effects of taxes on exhaustible resources, that are mainly borne by the suppliers. The theoretical predictions are not invalidated when put up against available statistics.
    Keywords: Oil curse, Non-renewable resources, Taxes, Oil revenues, GDP
    JEL: Q3 O4 F4
    Date: 2009–02
  11. By: Chen, Natalie; Graham, Liam; Oswald, Andrew
    Abstract: Nearly all post-war recessions were preceded by oil-price shocks, but is this because spikes in the price of oil cause economic downturns? At the heart of this question lies an identification problem: oil prices and the state of the world economy are endogenously determined. This paper uses terrorist incidents as an instrumental variable. In an international panel of industries, we show that, after correction for simultaneity bias -- though not before -- the price of oil has large negative effects upon profitability. We test for weak instruments and check sub-sample robustness. Our findings seem to lend support to the claim that oil-price spikes can be a source of recessions.
    Keywords: Energy prices; Industries; Oil shocks; Profitability
    JEL: E3 L6
    Date: 2008–08
  12. By: Harb, Nasri
    Abstract: This paper studies the long and short-run relationship between oil exports, non oil GDP and investment in five major oil exporting countries. Its goal is to verify the effect of natural resources exports on the economic performance. It considers the effect of cross sectional correlations and uses the corresponding panel unit root tests to study the long-run characteristics of our series. The results show that resources' exports have no long-run relationship with the macro variables. A VAR analysis is used to estimate the short-run dynamics and shows that the effect of oil exports on those variables depends on local policies.
    Keywords: GCC; Natural Resources; Oil; Productivity; Investment; Labor Force; Unit root; Growth; Cointegration; VAR.
    JEL: O53 C23 C22 O40 F43
    Date: 2008–06
  13. By: van der Ploeg, Frederick
    Abstract: We investigate the Hartwick rule for saving of a nation necessary to sustain a constant level of private consumption for a small open economy with an exhaustible stock of natural resources. The amount by which a country saves and invests less than the marginal resource rents equals the expected capital gains on reserves of natural resources plus the expected increase in interest income on net foreign assets plus the expected fall in the cost of resource extraction due to expected improvements in extraction technology. Effectively, depletion is then postponed until better times. This suggests that it is not necessarily sub-optimal for resource-rich countries to have negative genuine saving. However, in countries with different groups with imperfectly defined property rights on natural resources, political distortions induce faster resource depletion than suggested by the Hotelling rule. Fractionalised societies with imperfect property rights build up more foreign assets than their marginal resource rents, but in the long run accumulate less foreign assets than homogenous societies. Hence, such societies end up with lower sustainable consumption and are worse off, especially if seepage is strong, the number of rival groups is large and the country does not enjoy much monopoly power on the resource market. Genuine saving is zero in such societies. However, World Bank genuine saving figures based on market rather than accounting prices will be negative, albeit less so in more fractionalised societies with less secure property rights.
    Keywords: accounting price; capital; common pool; exhaustible resources; extraction technology; fractionalisation; genuine saving; Hartwick rule; Hotelling rule; property rights; seepage; sovereign wealth fund; sustainable consumption; voracity
    JEL: E20 F32 O13 Q01 Q32
    Date: 2008–10
  14. By: Caballero, Ricardo; Farhi, Emmanuel; Gourinchas, Pierre-Olivier
    Abstract: In this paper we argue that the persistent global imbalances, the subprime crisis, and the volatile oil and asset prices that followed it, are tightly interconnected. They all stem from a global environment where sound and liquid financial assets are in scarce supply. Our story goes as follows: Global asset scarcity led to large capital flows toward the U.S. and to the creation of asset bubbles that eventually crashed. The crash in the real estate market was particularly complex from the point of view of asset shortages since it compromised the whole financial sector, and by so doing, closed many of the alternative saving vehicles. Thus, in its first phase, the crisis exacerbated the shortage of assets in the world economy, which triggered a partial recreation of the bubble in commodities and oil markets in particular. The latter led to an increase in petrodollars seeking financial assets in the U.S. Thus, rather than the typical destabilizing role played by capital outflows during financial crises, petrodollar flows became a source of stability for the U.S. The second phase of the crisis is more conventional and began to emerge toward the end of the summer of 2008. It became apparent then that the financial crisis would permeate the real economy and sharply slow down global growth. This slowdown worked to reverse the tight commodity market conditions required for a bubble to develop, ultimately destroying the commodity bubble.
    JEL: E0 F3 F4
    Date: 2008–12
  15. By: Jacques PERCEBOIS
    Abstract: L’objet de cet article est d’analyser le fonctionnement des marchés internationaux de l’énergie, ceux du pétrole, du gaz naturel, du charbon et de l’uranium et de voir plus particulièrement si la théorie économique nous aide à mieux comprendre les évolutions observées depuis trente ans.
    Keywords: Prix internationaux, pétrole, gaz naturel, uranium, charbon, théorie économique
    Date: 2009
  16. By: Olivier MASSOL; Stéphane TCHUNG-MING
    Abstract: This paper examines the development of cooperative strategies between 12 countries exporting Liquefied Natural Gas (LNG) and belonging to the Gas Exporting Countries Forum (GECF). This economic study is more specifically focused on a scenario often raised: that of the emergence of a cooperative approach designed with the sole aim of logistic rationalization, and which would not have any effect on LNG prices. As this is a standard transportation problem, we first assess the gains that may result from this cooperative approach using a simple static model calibrated on the year 2007. The numerical results obtained suggest that, in the absence of a gain redistribution policy, this cooperative strategy will probably not be adopted because cooperation would not be a rational move for some exporters. The problem of gain sharing is then formulated using cooperative game theory concepts. Several gain sharing methods have been studied, including the Shapley value and various nucleolus-inspired concepts. Our results suggest that the choice of a redistribution policy appears relatively restricted. Out of the methods studied, only one – the per capita nucleolus - satisfies two key requirements: core belonging and monotonicity (in the aggregate). Lastly, coordination costs are considered and we determine the maximum amount that can be tolerated by such a cooperation. In view of the low level of this amount and the relative complexity of the sharing method implemented, we consider that the credibility of a logistic cooperation scenario exempt from market power should be reappraised.
    Keywords: Liquefied Natural gas, Cooperative game theory, linear programming problem
    JEL: L71 C71
    Date: 2009
  17. By: Jan K. Brueckner; Anming Zhang (Department of Spacial Economics, VU University, Amsterdam)
    Abstract: This paper explores the effect of airline emissions charges on airfares, airline service quality, aircraft design features, and network structure, using a detailed and realistic theoretical model of competing duopoly airlines. These impacts are derived by analyzing the effects of an increase in the effective price of fuel, which is the path by which emissions charges will alter airline choices. The results show that emission charges will raise fares, reduce flight frequency, increase load factors, and raise aircraft fuel efficiency, while having no effect on aircraft size. Given that these adjustments occur in response to the treatment of an emissions externality that is currently unaddressed, they represent efficient changes that move society closer to a social optimum.
    Keywords: Emissions; Global warming; Airlines
    JEL: H23 L9
    Date: 2009–01
  18. By: Inmaculada Martínez-Zarzoso (Ibero-Amerika Institut, Universität Göttingen / Germany)
    Abstract: This paper proposes a new analytical framework with which to analyze the determinants of global CO2 emissions. It contributes to the existing literature by examining the determinants of CO2 emissions using a flexible functional form (transcendental logarithmic model), taking into account the presence of dynamic effects and allowing for heterogeneity in the sample of countries. The sample covers 121 countries and the period analyzed extends from 1975 through 2003. Two main results emerge. First, a static specification is rejected against a dynamic model. Second, the data also reject a general specification for all countries; hence slopeheterogeneity in the estimated coefficients has to be modeled. Conversely, the STIRPAT model is generally accepted for high-income countries, whereas for developing countries several interaction terms also play a role in explaining CO2 emissions.
    Keywords: CO2 emissions, developing countries, panel data, population growth, urbanization
    JEL: Q25 Q4 Q54
    Date: 2009–02–12
  19. By: Săvoiu , Gheorghe
    Abstract: There are important differences between adaptation to normal climate and adaptation to climate change. One scientific community is organized to address extreme probabilities in current distributions, and their disaster potential. Another scientific community addresses the longer-term changes in the climate system. There are important differences between natural hazard (extreme and unpredictable events) and disaster as natural hazard with disastrous economic and social consequences as a matter of enormous concern. Finally, disaster management means a forecast for the real disaster events and after these disasters occurred, a post disaster attitude is necessary to ameliorate the situation and to take measures for rapid recovery. In this paper the author tries to address the description, understanding and prediction of extreme events in the weather system and their impact across a range of natural and socio-economic phenomena. Other goals of the paper are to present the weather and climate characteristics, the statistics of extreme events and to evaluate their impact on economy. Thus one major task of the work is to address the management of natural disasters caused by weather: the management of event forecast, risk assessment for various regions, and disaster management after the event occur. At the intersection between Economics, Management and Science of Weather Processes, this interdisciplinary study will provide the reader with insight and tools to address contemporary climate and weather hazard management problems.
    Keywords: weather disasters; natural hazard; human vulnerability; extreme events; statistics and impact; management of event forecast; regional risk assessment; post disaster management.
    JEL: G32 Q54
    Date: 2008–02
  20. By: Omar J. Casas; Rosario Romera
    Abstract: In this paper we provide a stochastic dynamic game formulation of the economics of international environmental agreements on the transnational pollution control when the environmental damage arises from stock pollutant that accumulates, for accumulating pollutants such as CO2 in the atmosphere. To improve the cooperative and the noncooperative equilibrium among countries, we propose the criteria of the minimization of the expected discounted total cost. Moreover, we consider Stochastic Dynamic Games formulated as Stochastic Dynamic Programming and Cooperative versus Noncooperative Stochastic Dynamic Games. The performance of the proposed schemes is illustrated by a real data based example.
    Keywords: Stochastic optimal control, Markov decision processes, Stochastic dynamic programming, Stochastic dynamic games, International pollutant control, Environmental economics, Sustainability,
    JEL: C61 C63 C73 C44 D70 Q20
    Date: 2009–02
  21. By: Beckman, Jayson; Hertel, Thomas
    Abstract: Computable general equilibrium (CGE) models have been heavily utilized in analyses of the costs of Greenhouse Gas mitigation policies. This is in large part due to their ability to simulate potential impacts of prospective economic policies taking into inter-sectoral and international interactions. Although CGE models have received heavy usage; they are often criticized as being insufficiently validated. Key parameters are often not econometrically estimated, and the performance of the model as a whole is rarely checked against historical outcomes. As a consequence, questions frequently arise as to how much faith one can put in CGE results. Our findings indicate that many earlier CGE-based studies may have understated the cost of meeting these targets by overstating the price elasticity of demand for energy. These results suggest that we must revisit the cost of climate policies in light of newly validated CGE models.
    Date: 2009
  22. By: Persson, Torsten; von Below, David
    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.
    Keywords: Climate-economy models; Global warming; Monte Carlo study
    JEL: E17 O13 Q54
    Date: 2008–10
  23. By: Bosetti, Valentina; Carraro, Carlo; Sgobbi, Alessandra; Tavoni, Massimo
    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
  24. By: Bosetti, Valentina; Carraro, Carlo; Sgobbi, Alessandra; Tavoni, Massimo
    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: Climate Policy; Delayed Action; Stabilisation Costs; Uncertainty
    JEL: C72 H23 Q25 Q28
    Date: 2008–09
  25. By: Gersbach, Hans; Winkler, Ralph
    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 agreements; international permit markets; tradeable permits
    JEL: H23 H41 Q54
    Date: 2008–11
  26. By: Klemperer, Paul
    Abstract: What should be the West's top priority for climate-change policy? This article is a revised and updated version of my talk to the Potsdam Global Sustainability Symposium (which drafted the Potsdam Declaration presented to the 2007 UN Climate Change Conference in Bali).
    Keywords: climate change mitigation; sustainability
    JEL: Q5 Q54 Q56 Q58
    Date: 2009–01
  27. By: Bosetti, Valentina; Carraro, Carlo; Tavoni, Massimo
    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: Climate Policy; Delayed Action; Stabilisation Costs; Uncertain Participation
    JEL: C72 H23 Q25 Q28
    Date: 2008–09
  28. By: Kenneth Arrow; Partha Dasgupta
    Date: 2009

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