nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒04‒13
fifteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Discounting for Climate Change By Anthoff, David; Tol, Richard S. J.; Yohe, Gary W.
  2. Intergenerational Justice when Future Worlds Are Uncertain By Humberto Llavador; John E. Roemer; Joaquim Silvestre
  3. The Ethics of Distribution in a Warming Planet By John E. Roemer
  4. Interactions of Reduced Deforestation and the Carbon Market: The Role of Market Regulations and Future Commitments By Anger, Niels; Dixon, Alistair; Livengood, Erich
  5. What is the Top Priority on Climate Change? By Paul Klemperer
  6. Environmental Damage and Price Taking Behaviour by Firms and Consumers By Harold Houba; Hans Kremers
  7. On Cleaner Technologies in a Transboundary Pollution Game By Benchekroun, H.; Ray Chaudhuri, A.
  8. Knowledge Base Determinants of Technology Sourcing in the Clean Development Mechanism Projects By Doranova, Asel; Costa, Ionara; Duysters, Geert
  9. EU Policies and Cluster Development of Hydrogen Communities By bleischwitz, raimund; bader, nikolas; dannemand, per; nygaard, anne
  10. Education, Corruption and the Natural Resource Curse By Aldave, Iván; García-Peñalosa, Cecilia
  11. Extracting More From EITI By Dilan Ölcer; Helmut Reisen
  12. Oil and Unemployment in Germany By Löschel, Andr; Oberndorfer, Ulrich
  13. Una aproximación al problema de optimalidad y eficiencia en el sector eléctrico colombiano By Miguel Andrés Espinosa Farfán
  14. Implementing the EU Renewables Directive By Neuhoff, K.
  15. Human Resource Constraints for Electricity Regulation in Developing Countries: Has Anything Changed? By Pollitt, M.G.; Stern, J.

  1. By: Anthoff, David; Tol, Richard S. J.; Yohe, Gary W.
    Abstract: It is well-known that the discount rate is crucially important for estimating the social cost of carbon, a standard indicator for the seriousness of climate change and desirable level of climate policy. The Ramsey equation for the discount rate has three components: the pure rate of time preference, a measure of relative risk aversion, and the rate of growth of per capita consumption. Much of the attention on the appropriate discount rate for long-term environmental problems has focussed on the role played by the pure rate of time preference in this formulation. We show that the other two elements are numerically just as important in considerations of anthropogenic climate change. The elasticity of the marginal utility with respect to consumption is particularly important because it assumes three roles: consumption smoothing over time, risk aversion, and inequity aversion. Given the large uncertainties about climate change and widely asymmetric impacts, the assumed rates of risk and inequity version can be expected to play significant roles. The consumption growth rate plays four roles. It is one of the determinants of the discount rate, and one of the drivers of emissions and hence climate change. We find that the impacts of climate change grow slower than income, so that the effective discount rate is higher than the real discount rate. The differential growth rate between rich and poor countries determines the time evolution of the size of the equity weights. As there are a number of crucial but uncertain parameters, it is no surprise that one can obtain almost any estimate of the social cost of carbon. We even show that, for a low pure rate of time preference, the estimate of the social cost of carbon is indeed arbitrary – as one can exclude neither large positive nor large negative impacts in the very long run. However, if we probabilistically constrain the parameters to values that are implied by observed behaviour, we find that the social cost of carbon, corrected for uncertainty and inequity, is 61 US dollar per metric tonne of carbon.
    Keywords: Social cost of carbon, climate change, pure time preference, risk aversion, inequity aversion, income elasticity, time horizon, uncertainty
    JEL: Q54
    Date: 2009
  2. By: Humberto Llavador (Universitat Pompeu Fabra); John E. Roemer (Yale University); Joaquim Silvestre (University of California, Davis)
    Abstract: Suppose that there exists a positive (exogenous) probability that at each date of a possibly infinite future, the human species will disappear. We postulate an Ethical Observer (EO) who must solve an intertemporal welfare maximization problem under this kind of uncertainty, with preferences that satisfy the expected utility hypothesis. Various social welfare criteria are expressed as alternative von Neumann-Morgenstern utility functions for the EO: utilitarianism, Rawlsianism, and an extension of the latter that corrects for the size of population. Our analysis covers, first, a simple cake-eating economy, where the utilitarian and Rawlsian recommend the same intergenerational allocation. Second, we consider a productive economy with education and capital. There, however, the recommendations of the two Ethical Observers are in general (but not always) different. Surprisingly, when the utilitarian optimization program diverges, then it is optimal for the extended Rawlsian to ignore the uncertainty concerning the possible disappearance of the human species in the future. We conclude with some thoughts about what these results imply for the issue of intergenerational welfare maximization in the presence of global warming.
    Keywords: Discounted utilitarianism, Rawlsian, Sustainability, Maximin, Uncertainty, Expected utility, von Neumann-Morgenstern, Dynamic welfare maximization
    JEL: D63 D81 O40 Q54 Q56
    Date: 2009–04
  3. By: John E. Roemer (Yale University)
    Abstract: The discounted-utilitarian social welfare function (DU) is used by the great majority of researchers studying intergenerational resource allocation in the presence of climate change (e.g., W. Nordhaus, M. Weitzman, N. Stern, and P. Dasgupta). I present three justifications for using DU: (1) the view that the first generation's preferences should be hegemonic, (2) the viewpoint of a utilitarian Ethical Observer who maximizes expected utility when the existence of future generations is uncertain, and (3) axiomatic justifications (as in classical social-choice theory). I argue that only justification (2) provides an ethically convincing justification, and that, only if one endorses utilitarianism as a good ethic. Recent work by Llavador, Roemer and Silvestre challenges the utilitarian assumption, and argues that sustaining human welfare at the highest possible level forever, or sustaining the growth rate of human welfare (at a fixed exogenous growth rate), are more attractive ethical choices. The work of these authors, which studies the optimal intergenerational paths of resource allocatiobn under the sustainabilitarian objectives, is briefly reviewed and contrasted with the discounted-utilitarian approach.
    Keywords: Climate change, Intergenerational justice, Sustainability, Utilitarianism
    JEL: D70 D90 D63
    Date: 2009–04
  4. By: Anger, Niels; Dixon, Alistair; Livengood, Erich
    Abstract: Reducing emissions from deforestation and degradation (REDD) has been proposed as a potentially inexpensive and plentiful source of emission abatement to supplement other longterm climate policies. However, critics doubt that REDD credits are environmentally equivalent to domestic emission reductions, and suggest an excess supply may disrupt carbon markets. In this context, we investigate the economic implications of emissions market regulations and future emissions reduction commitments, as well as uncertainties in REDD credit supply. Numerical simulations with a multi-country equilibrium model of the global emissions market show unrestricted exchange of REDD units reduces the international carbon price by half and cuts Annex I compliance costs by roughly one third. Restricting supply or demand of REDD credits reduces price impacts, but comes at the cost of economic efficiency. Alternatively, Annex I reduction commitments could be increased by almost two thirds at constant carbon prices. While REDD provides large economic benefits for tropical rainforest regions, any REDD policy scenario also reduces wealth transfers to traditional CDM host countries through increased competition on the supply-side of the carbon market.
    Keywords: Climate Change, Kyoto Protocol, Emissions Trading, Deforestation, REDD
    JEL: C60 D61 Q23 Q58
    Date: 2009
  5. By: Paul Klemperer (Nuffield College, Oxford University)
    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).
    Date: 2009–01–01
  6. By: Harold Houba (VU University Amsterdam); Hans Kremers (Deutsches Institut für Wirtschaftsforschung (DIW))
    Abstract: Integrated assessment models lack a microeconomic foundation in modelling environmental damages to the economy. To overcome this, damage coefficients are incorporated in standard microeconomic models. Firms and consumers take both damages and prices as given. Demand, supply, profit and expenditure functions under damage coefficients are derived that allow easy implementation in applied economic models through appropriate price distortions related to such coefficients. For the consumer, Slutsky's equations are derived. The different speeds of equilibrium adjustment in economic and climate models is reconciled in the Recursive Equilibrium with Environmental Damages (REED). An exchange economy and Robinson Crusoe economy illustrate our approach.
    Keywords: environmental damage; substitution effects; income effects; Slutky's equations; equilibrium
    JEL: Q41 Q51 Q52 D11 D12 D51
    Date: 2009–04–07
  7. By: Benchekroun, H.; Ray Chaudhuri, A. (Tilburg University, Center for Economic Research)
    Abstract: We show that in a non-cooperative transboundary pollution game, a cleaner technology (i.e., a decrease in the emission to output ratio) induces each country to increase its emissions and ultimately can yield a higher level of pollution and reduce social welfare.
    Keywords: transboundary pollution;technological innovation;differential game
    JEL: Q55
    Date: 2009
  8. By: Doranova, Asel (UNU-MERIT); Costa, Ionara (UNU-MERIT); Duysters, Geert (UNU-MERIT, Technical University Eindhoven)
    Abstract: The Clean Development Mechanism (CDM) is one of the three greenhouse gas emission reduction and trading instruments of the Kyoto Protocol (KP). The CDM allows governments and business entities from developed countries to offset their emissions liabilities by reducing or avoiding emissions in developing countries, where it is often cheaper to do so. Examples of CDM projects include the installation of various renewable energy producing facilities, cutting the GHG emissions in industry and waste management, or projects focused on improving energy efficiency. From the sustainable development perspectives CDM has been alleged as a new channel of transfer and diffusion of climate friendly technologies (CFT) in developing countries. However we are evidencing that the majority of the CDM projects deploy local sources of technology, which challenges the North- South technology transfer paradigm established under the sustainable development agenda of the KP. This paper is an attempt to explain technology sourcing patterns in CDM projects through employment of knowledge base determinants. On the basis of an empirical analysis we conclude that in countries with a stronger knowledge base in CFT, CDM project implementers tend to go for local and combined technologies and less for foreign technologies.
    Keywords: Clean Development Mechanism, CDM, Kyoto Protocol, Technology
    JEL: Q01 Q28 Q48 O31 O33 O38
    Date: 2009
  9. By: bleischwitz, raimund; bader, nikolas; dannemand, per; nygaard, anne
    Abstract: This study takes on the issue of political and socio-economic conditions for the hydrogen economy as part of a future low carbon society in Europe. It is subdivided into two parts. A first part reviews the current EU policy framework in view of its impact on hydrogen and fuel cell development. In the second part an analysis of the regional dynamics and possible hydrogen and fuel cell clusters is carried out. The current EU policy framework does not hinder hydrogen development. Yet it does not constitute a strong push factor either. EU energy policies have the strongest impact on hydrogen and fuel cell development even though their potential is still underexploited. Regulatory policies have a weak but positive impact on hydrogen. EU spending policies show some inconsistencies. Regions with a high activity level in HFC also are generally innovative regions. Moreover, the article points out certain industrial clusters that favours some regions' conditions for taking part in the HFC development. However, existing hydrogen infrastructure seems to play a minor role for region's engagement. An overall well-functioning regional innovation system is important in the formative phase of an HFC innovation system, but that further research is needed before qualified policy implications can be drawn. Looking ahead the current policy framework at EU level does not set clear long term signals and lacks incentives that are strong enough to facilitate high investment in and deployment of sustainable energy technologies. The likely overall effect thus seems to be too weak to enable the EU hydrogen and fuel cell deployment strategy. According to our analysis an enhanced EU policy framework pushing for sustainability in general and the development of hydrogen and fuel cells in particular requires the following: 1) A strong EU energy policy with credible long term targets; 2) better coordination of EU policies: Europe needs a common understanding of key taxation concepts (green taxation, internalisation of externalities) and a common approach for the market introduction of new energy technologies; 3) an EU cluster policy as an attempt to better coordinate and support of European regions in their efforts to further develop HFC and to set up the respective infrastructure.
    Keywords: hydrogen; energy policy; clusters; regions; innovation
    JEL: R58 O18 Q48 O52
    Date: 2008–12
  10. By: Aldave, Iván (Central Bank of Peru and GREQAM); García-Peñalosa, Cecilia (GREQAM and CNRS)
    Abstract: The empirical evidence on the determinants of growth across countries has found that growth is lower when natural resources are abundant, corruption widespread and educational attainment low. An extensive literature has examined the way in which these three variables can impact growth, but has tended to address them separately. In this paper we argue that corruption and education are interrelated and that both crucially depend on a country’s endowment of natural resources. The key element is the fact that resources affect the relative returns to investing in human and in political capital, and, through these investments, output levels and growth. In this context, inequality plays a key role both as a determinant of the possible equilibria of the economy and as an outcome of the growth process.
    Keywords: natural resources, corruption, human capital, growth, inequality
    JEL: O11 O13 O15
    Date: 2009–04
  11. By: Dilan Ölcer; Helmut Reisen
    Abstract: The Extractive Industries Transparency Initiative (EITI, aims to improve transparency and accountability by the full publication and verification of company payments and government revenues. The revenues flowing from natural resources extraction are huge. EITI is one of the international soft-law tools most supported by the international community to curb corruption and help the 3.5 billion people – half the population of the planet – living in resource-rich countries to benefit from the sale of their natural resources. Almost six years after the initiative was launched, the results are elusive for several countries. Figure 1 below shows that governments’ public endorsement of the EITI principles does not, on average, improve the perception of corruption levels in their countries. Moreover, according to the World Bank Worldwide Governance Indicators, corruption control in EITI countries is worse than in non-EITI resource-rich countries. EITI countries’ scores deteriorated between 2002 and 2007. While these corruption indices are not limited to extractive industries, given their importance in the countries concerned, one would expectmore visible improvements in these indicators.
    Date: 2009–02
  12. By: Löschel, Andr; Oberndorfer, Ulrich
    Abstract: In this paper, we analyze oil price impacts on unemployment for Germany. Firstly, we survey theoretical and empirical literature on the oil-unemployment relationship and relate them to the German case. Secondly, we illustrate this issue within the framework of a vector autoregression (VAR) approach for Germany. For this purpose, we use three different specifications in order to adequately address the uncertainty related to the construction of an adequate oil variable. Using monthly data from 1973 to 2008, we show that oil price increases induce a rise in unemployment in the German labor market. Moreover, for a restricted sample period for post-unification Germany, we oppose claims that the oil to macroeconomy relationship has weakened since the 1980s. However, our results suggest that it has become more important to construct adequate measures of oil price variables.
    Keywords: oil price, unemployment, Germany
    JEL: E24 Q43
    Date: 2009
  13. By: Miguel Andrés Espinosa Farfán
    Abstract: El articulo propone un modelo teórico para entender el funcionamiento del mercado spot de energía en Colombia; en particular se analiza el comportamiento para las subastas multiunidades más conocidas, Vickrey, Discriminatoria y Uniforme. El modelo teórico, siendo un juego de información incompleta, incluye características propias del sector eléctrico colombiano, como reconciliaciones, contratos e incertidumbre en la demanda a suplir. El análisis empírico se concentra en los términos de eficiencia y optimalidad. Se entiende eficiencia como la condición en la cual los agentes ganadores de la subasta, son los agentes con menores costos. El artículo encuentra evidencia de efectos adversos en el reporte de costos por parte de las reconciliaciones negativas para el periodo 2000 a 2007. Por otro lado, un mecanismo es óptimo si es el mecanismo que lleva al menor gasto por parte del subastador. Las comparaciones de gasto muestran que bajo una subasta discriminatoria, éste hubiese sido menor que el gasto efectivamente realizado por el mercado colombiano.
    Date: 2009–02–19
  14. By: Neuhoff, K.
    Abstract: The European Renewables Directive requires Member States to deliver on average 20% of their final energy consumption by 2020 using renewable energy sources. To deliver this target, Member States have to adjust planning procedures, evaluate energy market design, provide grid and supply infrastructure, and implement support schemes that limit regulatory risk for finance. The paper discusses how quantitative policy indicators can allow governments to measure and manage the successful implementation of the necessary policies to deliver the renewable targets. The indicators need to be designed so that they can focus on individual components of the policy framework and measure whether the envisaged annual deployment level of a technology is compatible with the framework in place in a country. Increased transparency provided by policy indicators facilitates management of policy implementation, enhances accountability of governments and can inform the reporting of Member States to the European Commission. This allows technology companies to have confidence in projected deployment levels and triggers private sector investment in the supply chain to provide the necessary production capacity.
    Keywords: Renewables Directive, Intermediate Indicators, Targets.
    JEL: H77 L50 L94 O14 O33
    Date: 2009–04–07
  15. By: Pollitt, M.G.; Stern, J.
    Abstract: We provide strong evidence that there are significant human resource constraints which limit the scale and, hence, the scope and potential effectiveness of electricity/energy regulatory agencies in developing countries. We summarise the key findings in our earlier Domah, Pollitt and Stern paper (2002). We then consider what new evidence there is on regulatory staffing levels since 2001/2002 and on the implications of high fixed costs for developing countries’ electricity and regulatory policies. Our conclusion is that little has changed over the intervening period.
    Keywords: electricity regulation, human resource constraints, developing countries.
    JEL: L30 N40 O15
    Date: 2009–04–07

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