nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒10‒03
33 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. The Effect of Energy Prices on Operation and Investment in OECD Countries: Evidence from the Vintage Capital Model By Steinbuks, J.; Meshreky, A.; Neuhoff, K.
  2. Joint Modelling of Gas and Electricity spot prices By Noufel Frikha; Vincent Lemaire
  3. Welfare impacts of rural electrification : evidence from Vietnam By Khandker, Shahidur R.; Barnes, Douglas F.; Samad, Hussain; Minh, Nguyen Huu
  4. Finance for Renewable Energy: An Empirical Analysis of Developing and Transition Economies By Christa N. Brunnschweiler
  5. Navigating the perfect storm: Reflections on the food, energy, and financial crises By Headey, Derek; Malaiyandi, Sangeetha; Fan, Shenggen
  6. Think Again: Higher Elasticity of Substitution Increases Economic Resilience By P. Dumas; S. Hallegatte
  7. The effects of rent seeking over tradable pollution permits By Nick Hanley; Ian A. MacKenzie
  8. An experimental study of auctions versus grandfathering to assign pollution permits By Jacob K. Goeree; Charles A. Holt; Karen Palmer; William Shobe; Dallas Burtraw
  9. The European Commission and EUA prices: a high-frequency analysis of the EC's decisions on second NAPs By Rotfuß, Waldemar; Conrad, Christian; Rittler, Daniel
  10. Options introduction and volatility in the EU ETS By Julien Chevallier; Yannick Le Pen; Benoît Sévi
  11. An Integrated Approach to Simulate the Impacts of Carbon Emissions Trading Schemes By Xavier Labandeira Villot; Pedro Linares; Miguel Rodríguez
  12. Greenhouse gas mitigation: Issues for Indian agriculture By Nelson, Gerald C.; Robertson, Richard; Msangi, Siwa; Zhu, Tingju; Liao, Xiaoli; Jawajar, Puja
  13. Climate change and the economics of targeted mitigation in sectors with long-lived capital stock By Shalizi, Zmarak; Lecocq, Franck
  14. “Mitigation, Adaptation, Suffering”: In Search of the Right Mix in the Face of Climate Change By Henry Tulkens; Vincent van Steenberghe
  15. Economywide impacts of climate change on agriculture in Sub-Saharan Africa: By Calzadilla, Alvaro; Zhu, Tingju; Rehdanz, Katrin; Tol, Richard S.J.; Ringler, Claudia
  16. Mapping South African farming sector vulnerability to climate change and variability: A subnational assessment By Gbetibouo, Glwadys Aymone; Ringler, Claudia
  17. The impact of climate variability and change on economic growth and poverty in Zambia: By Thurlow, James; Zhu, Tingju; Diao, Xinshen
  18. How Harmful are Adaptation Restrictions By Kelly C. de Bruin; Rob B. Dellink
  19. Climate Change and the Future Impacts of Storm-Surge Disasters in Developing Countries By Susmita Dasgupta; Benoit Laplante; Siobhan Murray; David Wheeler
  20. Climate Change Assessment and Agriculture in General Equilibrium Models: Alternative Modeling Strategies By Ruslana Rachel Palatnik; Roberto Roson
  21. Life’s a breach! Ensuring ‘permanence’ in forest carbon sinks under incomplete contract enforcement By Charles Palmer; Markus Ohndorf; Ian A. MacKenzie
  22. Controlling externalities in the presence of rent seeking By Ian A. MacKenzie
  23. Environmental Policy, Spatial Spillovers and the Emergence of Economic Agglomerations By Anastasios Xepapadeas; Efthymia Kyriakopoulou
  24. ENVIRONMENTAL PROTECTION AND ECONOMIC GROWTH By Kuhl Teles, Vladimir; A. Arraes, Ronaldo
  25. High Stakes in a Complex Game: A Snapshot of the Climate Change Negotiating Positions of Major Developing Country Emitters By Jan von der Goltz
  26. Growth and the pollution convergence hypothesis: A nonparametric approach By Ordás Criado, Carlos; Valente, Simone; Stengos, Thanasis
  27. Sharing the Burden of Adaptation Financing: An Assessment of the Contributions of Countries By Rob Dellink; Michel den Elzen; Harry Aiking; Emmy Bergsma; Frans Berkhout; Thijs Dekker; Joyeeta Gupta
  28. "Revenue management"effects related to financial flows generated by climate policy By Strand, Jon
  29. Climate policy: choosing the right instrument to reap an additional employment dividend By Schöb, Ronnie
  30. Environmental Kuznets Curves for Carbon Emissions: A Critical Survey By Nektarios Aslanidis
  31. The GIC Ag Carbon Index (GIC-ACI): Development, Design, Value Proposition, and Applications (PowerPoint) By Gilmore, Richard; Williams, Dawson; Tanger, Kyle
  32. The Incentives to Participate in, and the Stability of, International Climate Coalitions: A Game-theoretic Analysis Using the Witch Model By Valentina Bosetti; Carlo Carraro; Enrica De Cian; Romain Duval; Emanuele Massetti; Massimo Tavoni
  33. Climate change and individual behavior : considerations for policy By Liverani, Andrea

  1. By: Steinbuks, J.; Meshreky, A.; Neuhoff, K.
    Abstract: This paper analyzes the effect of energy prices on energy efficiency, separately accounting for operational and investment choices in different sectors. For this purpose, capital stock is characterised by vintages with different intensities of energy use, calculated as a function of exogenously-evolving technology availability and energy prices. Our model separately accounts for substitution between inputs to for production (labour, energy and materials), and the potential for more efficient use of these inputs by choosing more efficient technologies at the time of investment. The model is estimated for 23 OECD countries across four sectors, and their respective prices for final energy consumption over the period 1990-2005. Vintage representation of capital stock significantly improves the explanatory value of the model at the sector level. Our results imply that rising energy costs result in substantial decline in energy use in the long-run.
    Keywords: energy efficiency, energy prices, investment, vintage capital model
    JEL: D24 E22 Q41 Q43
    Date: 2009–09–24
  2. By: Noufel Frikha (PMA); Vincent Lemaire (PMA)
    Abstract: The recent liberalization of the electricity and gas markets has resulted in the growth of energy exchanges and modelling problems. In this paper, we modelize jointly gas and electricity spot prices using a mean-reverting model which fits the correlations structures for the two commodities. The dynamics are based on Ornstein processes with parameterized diffusion coefficients. Moreover, using the empirical distributions of the spot prices, we derive a class of such parameterized diffusions which captures the most salient statistical properties: stationarity, spikes and heavy-tailed distributions. The associated calibration procedure is based on standard and efficient statistical tools. We calibrate the model on French for electricity and on UK market for gas, and then simulate some trajectories which reproduce well the observed prices behavior. Finally, we illustrate the importance of the correlation structure and of the presence of spikes by measuring the risk on a power plant portfolio.
    Date: 2009–10
  3. By: Khandker, Shahidur R.; Barnes, Douglas F.; Samad, Hussain; Minh, Nguyen Huu
    Abstract: Access to electricity is crucial for economic development and there is a growing body of literature on the impact of rural electrification on development. However, most studies have so far relied on cross-sectional surveys comparing households with and without electricity, which have well known causal attribution problems. This paper is one of the first studies to examine the welfare impacts of households’ rural electrification based on panel surveys conducted in 2002 and 2005 for some 1,100 households in rural Vietnam,. The findings indicate that grid electrification has been both extensive (connecting all surveyed communes by 2005) and intensive (connecting almost 80 percent of the surveyed households by 2005). Vietnam is unusual in that once electricity is locally available, both rich and poor households are equally likely to get the connection. The econometric estimations suggest that grid electrification has significant positive impacts on households’ cash income, expenditure, and educational outcomes. The benefits, however, reach a saturation point after prolonged exposure to electricity. Finally, this study recommends investigating the long-term benefits of rural electrification - not just for households, but for the rural economy as a whole.
    Keywords: Energy Production and Transportation,Electric Power,Engineering,Access to Finance,Rural Poverty Reduction
    Date: 2009–09–01
  4. By: Christa N. Brunnschweiler (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: This paper examines the role of the financial sector in renewable energy (RE) development. Although RE can bring socio-economic and environ- mental benefits, its implementation faces a number of obstacles, especially in non-OECD countries. One of these obstacles is financing: underdevel- oped financial sectors are unable to efficiently channel loans to RE produc- ers. The influence of financial sector development on the use of renewable energy resources is confirmed in panel data estimations on up to 119 non- OECD countries for 1980-2006. Financial intermediation, in particular commercial banking, has a significant positive effect on the amount of RE produced, and the impact is especially large when we consider non- hydropower RE such as wind, solar, geothermal, and biomass. There is also evidence that the adoption of the Kyoto Protocol has had a significant positive impact on the development of the RE sector.
    Keywords: renewable energy, financial sector, banking, development
    JEL: O13 O16
    Date: 2009–08
  5. By: Headey, Derek; Malaiyandi, Sangeetha; Fan, Shenggen
    Abstract: "The closely interlinked food, fuel and financial crises pose a significant new challenge to the global effort to reduce poverty. In short run, the oil-biofuels nexus was clearly the driving force behind the surge in food prices, but export restrictions and panic purchases turned a tightened market situation into a crisis. New evidence reveals that food prices rose sharply in many countries and that global poverty levels have increased markedly. The good news is that the supply response in many countries was strong. The impacts of the financial crisis on poor countries have yet to fully roll out, but it is clear that additional people will fall into poverty and become food insecure. In the long run, there are strong indications that the global food system is fundamentally changing in a number of dimensions. Biofuels are here to stay, and energy and food prices have adjusted to a higher equilibrium, albeit with large volatility. Trade protection has also resurfaced, but so too have renewed investments in the agricultural sector. These fundamental shifts bring with them opportunities and risks that require internationally coordinated responses with strong national buy-in, as well as timely and relevant research." from authors' abstract
    Keywords: Food crisis, Energy crisis, Financial crisis, Agricultural development, Poverty, Public investment, Development strategies,
    Date: 2009
  6. By: P. Dumas (Centre International de Recherche sur l’Environnement et le Développement (CIRED)); S. Hallegatte (Ecole Nationale de la Météorologie, Météo-France and CIRED)
    Abstract: This paper shows that, counter-intuitively, a higher elasticity of substitution in model production function can lead to reduced economic resilience and larger vulnerability to shocks in production factor prices. This result is due to the fact that assuming a higher elasticity of substitution requires a recalibration of the production function parameters to keep the model initial state unchanged. This result has consequences for economic analysis, e.g., on the economic vulnerability to climate change.
    Keywords: Substitution, Calibration, Constant Elasticity of Substitution, Shock
    JEL: D24 E17 E23
    Date: 2009–08
  7. By: Nick Hanley (Department of Economics, University of Stirling, Scotland, UK); Ian A. MacKenzie (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: The establishment of a tradable permit market requires the regulator to select a level of aggregate emissions and then distribute the associated permits (rent) to specific groups. In most circumstances, these decisions are often politically contentious and frequently influenced by rent seeking behaviour. In this paper, we use a contest model to analyse the effects of rent seeking effort when permits are freely distributed (grandfathered). Rent seeking behaviour can influence both the share of permits which an individual firm receives and also the total supply of permits. This latter impact depends on the responsiveness of the regulator to aggregate rent seeking effort. Using a three-stage game, we show that rent seeking can influence both the distribution of rents and the ex post value of these rents, whilst welfare usually decreases in the responsiveness of the regulator.
    Keywords: tradable permit market, rent seeking, initial allocation
    JEL: D72 D78 Q53
    Date: 2009–07
  8. By: Jacob K. Goeree; Charles A. Holt; Karen Palmer; William Shobe; Dallas Burtraw
    Abstract: We experimentally study auctions versus grandfathering in the initial assignment of pollution permits that can be traded in a secondary spot market. Low and high emitters compete for permits in the auction, while permits are assigned for free under grandfathering. In theory, trading in the spot market should erase inefficiencies due to initial mis-allocations. In the experiment, high emitters exercise market power in the spot market and permit holdings under grandfathering remain skewed towards high emitters. Furthermore, the opportunity costs of “free” permits are fully “passed through.” In the auction, the majority of permits are won by low emitters, reducing the need for spot-market trading. Auctions generate higher consumer surplus and slightly lower product prices in the laboratory markets. Moreover, auctions eliminate the large “windfall profits” that are observed in the treatment with free, grandfathered permit allocations.
    Keywords: Pollution permits, auctions, grandfathering, experiments
    JEL: C92 D43 D44 Q58
    Date: 2009–09
  9. By: Rotfuß, Waldemar; Conrad, Christian; Rittler, Daniel
    Abstract: This paper empirically examines price formation in the European Union Emissions Trading Scheme (EU ETS). Our analysis shows that unexpected allocations of European Union Allowances (EUAs) lead to pronounced price reactions of the expected signs. Moreover, we find evidence that the adjustment of EUA prices to the European Commission's decisions on second National Allocation Plans (NAPs) is not instantaneous, but takes up to six hours after the decision announcement.
    Keywords: EU ETS,price formation,European Union Allowance (EUA),European Commission
    JEL: G13 G14 G15 G19 Q4 Q5
    Date: 2009
  10. By: Julien Chevallier; Yannick Le Pen; Benoît Sévi
    Abstract: To improve risk management in the European Union Emissions Trading Scheme (EU ETS), the European Climate Exchange (ECX) has introduced option instruments in October 2006 after regulatory authorization. The central question we address is: can we identify a potential destabilizing effect of the introduction of options on the underlying market (EU ETS futures)? Indeed, the literature on commodities futures suggest that the introduction of derivatives may either decrease (due to more market depth) or increase (due to more speculation) volatility. As the identi¯cation of these effects ultimately remains an empirical question, we use daily data from April 2005 to April 2008 to document volatility behavior in the EU ETS. By instrumenting various GARCH models, endogenous break tests, and rolling window estimations, our results overall suggest that the introduction of the option market had no effect on the volatility in the EU ETS. These finding are robust to other likely in°uences linked to energy and commodity markets.
    Keywords: EU ETS, Option prices, Volatility, GARCH, Rolling Estimation, Endogenous Structural Break Detection
    JEL: Q48 Q57 Q58
    Date: 2009
  11. By: Xavier Labandeira Villot; Pedro Linares; Miguel Rodríguez
    Abstract: The present paper aims to reliably depict the impact of the European Union Emissions Trading Scheme (EU ETS) on Spain under different assumptions about the industries involved. Prior analyses, based either on highly aggregated macroeconomic or specific electricity industry models, have been limited in degree of detail or scope. Two types of modeling were combined in the present study: general equilibrium was used to assess the impact on different industries and to explain cross-industry changes, and partial equilibrium to suitably model the complex and crucial electricity system. Combining and interrelating these two models yields the effects on price, carbon dioxide (CO2) emissions and distributional patterns in Spain of both the current policy and an alternative in which all industries take part in the EU ETS. Since Spain is a key participant in this scheme, the conclusions and policy implications stemming from this paper are relevant to and useful for post-Kyoto arrangements.
    Date: 2009–09
  12. By: Nelson, Gerald C.; Robertson, Richard; Msangi, Siwa; Zhu, Tingju; Liao, Xiaoli; Jawajar, Puja
    Abstract: "By some estimates, agricultural practices account for 20 percent of India's total greenhouse gas (GSG) emissions; thus, cost-effective reductions in agricultural emissions could significantly lower India's overall emissions. We explore mitigation options for three agricultural sources of GHGs—methane (CH4) emissions from irrigated rice production, nitrous oxide (N2O) emissions from the use of nitrogenous fertilizers, and the release of carbon dioxide (CO2) from energy sources used to pump groundwater for irrigation. We also examine how changes in land use would affect carbon sequestration. We find great opportunities for cost-effective mitigation of GHGs in Indian agriculture, but caution that our results are based on a variety of data sources, some of which are of poor quality." from authors' abstract
    Keywords: Greenhouse gas, Climate change, Mitigation, Sequestration, Mid-season drying, groundwater, Pumping, Payments for environmental services,
    Date: 2009
  13. By: Shalizi, Zmarak; Lecocq, Franck
    Abstract: Mitigation investments in long-lived capital stock (LLKS) differ from other types of mitigation investments in that, once established, LLKS can lock-in a stream of emissions for extended periods of time. Moreover, historical examples from industrial countries suggest that investments in LLKS projects or networks tend to be lumpy, and tend to generate significant indirect and induced emissions besides direct emissions. Looking forward, urbanization and rapid economic growth suggest that similar decisions about LLKS are being or will soon be made in many developing countries. In their current form, carbon markets do not provide correct incentives for mitigation investments in LLKS because the constraint on carbon extends only to 2012, and does not extend to many developing countries. Targeted mitigation programs in regions and sectors in which LLKS is being built at rapid rate are thus necessary to avoid getting locked into highly carbon-intensive LLKS. Even if the carbon markets were extended (geographically, sectorally, and over time), public intervention would still be required, for three main reasons. First, to ensure that indirect and induced emissions associated with LLKS are taken into account in investor’s financial cost-benefit analysis. Second, to facilitate project or network financing to bridge the gap between carbon revenues that accrue over time as the project/network unfolds and the capital needed upfront to finance lumpy investments. Third, to internalize other non-carbon externalities (e.g., local pollution) and/or to lift barriers (e.g., lack of capacity to handle new technologies) that penalize the low-carbon alternatives relative to the high-carbon ones.
    Keywords: Transport Economics Policy&Planning,Energy Production and Transportation,Energy and Environment,Environment and Energy Efficiency,Carbon Policy and Trading
    Date: 2009–09–01
  14. By: Henry Tulkens (CORE, Université catholique de Louvain); Vincent van Steenberghe (Belgian Federal Ministry for the Environment)
    Abstract: The usually assumed two categories of costs involved in climate change policy analysis, namely abatement and damage costs, hide the presence of a third category, namely adaptation costs. This dodges the determination of an appropriate level for them. Including adaptation costs explicitly in the total environmental cost function allows one to characterize the optimal (cost minimizing) balance between the three categories, in statics as well as in dynamics. Implications are derived for cost benefit analysis of adaptation expenditures.
    Keywords: Climate Change, Mitigation, Adaptation, Suffering
    JEL: Q5 H0
    Date: 2009–09
  15. By: Calzadilla, Alvaro; Zhu, Tingju; Rehdanz, Katrin; Tol, Richard S.J.; Ringler, Claudia
    Abstract: "Two possible adaptation options to climate change for Sub-Saharan Africa are analyzed under the SRES B2 scenario. The first scenario doubles the irrigated area in Sub-Saharan Africa by 2050, compared to the baseline, but keeps total crop area constant. The second scenario increases both rainfed and irrigated crop yields by 25 percent for all Sub-Saharan African countries. The two adaptation scenarios are analyzed with IMPACT, a partial equilibrium agricultural sector model combined with a water simulation module, and with GTAP-W, a general equilibrium model including water resources. The methodology combines the advantages of a partial equilibrium approach, which considers detailed water-agriculture linkages, with a general equilibrium approach, which takes into account linkages between agriculture and nonagricultural sectors and includes a full treatment of factor markets. The efficacy of the two scenarios as adaptation measures to cope with climate change is discussed. Due to the limited initial irrigated area in the region, an increase in agricultural productivity achieves better outcomes than an expansion of irrigated area. Even though Sub-Saharan Africa is not a key contributor to global food production or irrigated food production, both scenarios help lower world food prices, stimulating national and international food markets." from authors' abstract
    Keywords: Computable general equilibrium, Climate change, Agriculture, integrated assessment, Sub-Saharan Africa,
    Date: 2009
  16. By: Gbetibouo, Glwadys Aymone; Ringler, Claudia
    Abstract: "This paper analyzes the vulnerability of South African farmers to climate change and variability by developing a vulnerability index and comparing vulnerability indicators across the nine provinces of the country. Nineteen environmental and socio-economic indicators are identified to reflect the three components of vulnerability: exposure, sensitivity, and adaptive capacity. The results of the study show that the region's most vulnerable to climate change and variability also have a higher capacity to adapt to climate change. Furthermore, vulnerability to climate change and variability is intrinsically linked with social and economic development. The Western Cape and Gauteng provinces, which have high levels of infrastructure development, high literacy rates, and low shares of agriculture in total GDP, are relatively low on the vulnerability index. In contrast, the highly vulnerable regions of Limpopo, KwaZulu Natal and the Eastern Cape are characterized by densely populated rural areas, large numbers of small-scale farmers, high dependency on rainfed agriculture and high land degradation. These large differences in the extent of vulnerability among provinces suggest that policy makers should develop region-specific policies and address climate change at the local level." from authors' abstract
    Keywords: Climate change, Agriculture, Vulnerability, Adaptive capacity, Exposure, Sensitivity, Climate variability,
    Date: 2009
  17. By: Thurlow, James; Zhu, Tingju; Diao, Xinshen
    Abstract: "We combined a hydro-crop model with a dynamic general equilibrium (DCGE) model to assess the impacts of climate variability and change on economic growth and poverty reduction in Zambia. The hydro-crop model is first used to estimate the impact of climate variability on crop yields over the past three decades and such analysis is done at the crop level for each of Zambia's five agroecological zones, supported by the identification of zonal-level extreme weather events using a drought index analysis. Agricultural production is then disaggregated into these five agroelcological zones in the DCGE model. Drawing on the hydro-crop model results at crop level across the five zones, a series of simulations are designed using the DCGE model to assess the impact of climate variability on economic growth and poverty. We find that climate variability costs the country US$4.3 billion over a 10-year period. These losses reach as high as US$7.1 billion under Zambia's worst rainfall scenario. Moreover, most of the negative impacts of climate variability occur in the southern and central regions of the country, where food insecurity is most vulnerable to climate shocks. Overall, climate variability keeps 300,000 people below the national poverty line by 2016. A similar method is also used to examine the potential impact of climate change on the economy based on projections of a well-known global climate model and two hypothetical scenarios. We find that the effects of current patterns of climate variability dominate over those of potential climate change in the near future (until 2025). Differences in assumptions regarding rainfall changes influence both the size (to a large degree) and direction (to a lesser extent) of the economic impact of climate change. If rainfall declines by 15 percent, then climate change enhances the negative effects of climate variability by a factor of 1.5 and pushes an additional 30,000 people below the poverty line over a 10-year period. Moreover, the effects of climate change and variability compound each other, with the number of poor people rising to 74,000 if climate change is coupled with Zambia's worst 10-year historical rainfall pattern." from authors' abstract
    Keywords: Climate variability, General equilibrium model, Agriculture, Poverty, Climate change, Development strategies,
    Date: 2009
  18. By: Kelly C. de Bruin (Wageningen University); Rob B. Dellink (Environmental Economics and Natural Resources Group, Wageningen University and Institute for Environmental Studies, VU University Amsterdam)
    Abstract: The dominant assumption in economic models of climate policy remains that adaptation will be implemented in an optimal manner. There are, however, several reasons why optimal levels of adaptation may not be attainable. This paper investigates the effects of suboptimal levels of adaptation, i.e. adaptation restrictions, on the composition and level of climate change costs and on welfare. Several adaptation restrictions are identified and then simulated in a revised DICE model, extended with adaptation (AD-DICE). We find that especially substantial over-investment in adaptation can be very harmful due to sharply increasing marginal adaptation costs. Furthermore the potential of mitigation to offset suboptimal adaptation is investigated. When adaptation is not possible at extreme levels of climate change, it is cost-effective to use more stringent mitigation policies in order to keep climate change limited, thereby making adaptation possible. Furthermore not adjusting the optimal level of mitigation to these adaptation restrictions may double the costs of adaptation restrictions, and thus in general it is very harmful to ignore existing restrictions on adaptation when devising (efficient) climate policies.
    Keywords: Integrated Assessment Modelling, Adaptation, Climate Change
    JEL: Q25 Q28
    Date: 2009–07
  19. By: Susmita Dasgupta; Benoit Laplante; Siobhan Murray; David Wheeler
    Abstract: As the climate changes during the 21st century, larger cyclonic storm surges and growing populations may collide in disasters of unprecedented size. As conditions worsen, variations in coastal morphology will magnify the effects in some areas, while largely insulating others. In this paper, we explore the implications for 84 developing countries and 577 of their cyclone-vulnerable coastal cities with populations greater than 100,000. Combining the most recent scientific and demographic information, we estimate the future impact of climate change on storm surges that will strike coastal populations, economies and ecosystems. We focus on the distribution of heightened impacts, because we believe that greater knowledge of their probable variation will be useful for local and national planners, as well as international donors. Our results suggest gross inequality in the heightened impact of future disasters, with the most severe effects limited to a small number of countries and a small cluster of large cities.
    Keywords: climate change; developing countries; disasters; coastal cities; storm surges; coastal populations; economic activity
    Date: 2009–09
  20. By: Ruslana Rachel Palatnik (Fondazione Eni Enrico Mattei); Roberto Roson (Universitá Ca’ Foscari di Venezia)
    Abstract: Agricultural sectors play a key role in the economics of climate change. Land as an input to agricultural production is one of the most important links between economy and the biosphere, representing a direct projection of human action on the natural environment. Agricultural management practices and cropping patterns have a vast effect on biogeochemical cycles, freshwater availability and soil quality. Agriculture also plays an important role in emitting and storing greenhouse gases. Thus, to consistently investigate climate policy and future pathways for the economic and natural environment, a realistic representation of agricultural land-use is essential. Computable General Equilibrium (CGE) models have increasingly been used to this purpose. CGE models simulate the simultaneous equilibrium in a set of interdependent markets, and are especially suited to analyze agricultural markets from a global perspective. However, modelling agricultural sectors in CGE models is not a trivial task, mainly because of differences in temporal and geographical aggregation scales. The aim of this study is to overview some proposed modelling strategies, by reviewing the available literature and highlighting the different trade-offs involved in the various approaches.
    Keywords: Computable General Equilibrium (CGE), Partial Equilibrium (PE), Agriculture, Land Use, Climate Change
    JEL: C68 D58 Q24 Q51 Q54
    Date: 2009–08
  21. By: Charles Palmer (IED Institute for Environmental Decisions, ETH Zurich); Markus Ohndorf (IED Institute for Environmental Decisions, ETH Zurich); Ian A. MacKenzie (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: As carbon sinks, forests play a critical role in helping to mitigate the growing threat from anthropogenic climate change. Forest carbon offsets transacted between GHG emitters in industrialised countries and sellers in developing countries have emerged as a useful climate policy tool. A model is developed that investigates the role of incentives in forestry carbon sequestration contracts. It considers the optimal design of contracts to ensure landowner participation and hence, permanence in forest carbon sinks in a context of uncertain opportunity costs and incomplete contract enforcement. The optimal contract is driven by the quality of the institutional framework in which the contract is executed, in particular, as it relates to contract enforcement. Stronger institutional frameworks tend to distort the seller’s effort upwards away from the full enforcement outcome. This also leads to greater amounts of carbon sequestered and higher conditional payments made to the seller. Further, where institutions are strong, there is a case for indexing the payment to the carbon market price if permanence is to be ensured. That is, as the carbon price increases, the payment could be raised and vice versa.
    Keywords: forest carbon offsets, permanence, contract design, incomplete enforcement
    JEL: K12 Q15
    Date: 2009–07
  22. By: Ian A. MacKenzie (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: Contests are a common method to describe the distribution of many different types of rents. Yet in many of these situations the utilisation of the prize plays an important role in determining agents payoffs and incentives. In this paper, we investigate the incentives to expend effort for a prize that produces consumption externalities and consider alternative regulatory policies. We find relatively more global consumption externalities will increase (decrease) rent seeking when con- sumption externalities are negative (positive). We show how introducing Pigouvian taxation (possibly with revenue transfer) and Coasean bargaining alters equilib- rium effort and payoffs. Pigouvian taxation tends to reduce both effort and payoffs whereas this is not always the case for Coasean bargaining. In the presence of suf- ficiently large consumption externalities, establishing Pigouvian taxation coupled with some element of lump-sum transfer may reduce costly rent seeking effort and improve the welfare of some agents compared to other approaches.
    Keywords: externalities, contest, natural resources
    JEL: C72 D63 D62 D31 Q53
    Date: 2009–07
  23. By: Anastasios Xepapadeas (Athens University of Economics and Business); Efthymia Kyriakopoulou (Athens University of Economics and Business)
    Abstract: We explain the spatial concentration of economic activity, in a model of economic geography, when the cost of environmental policy - which is increasing in the concentration of emissions - and an immobile production factor act as centrifugal forces, while positive knowledge spillovers and iceberg transportation costs act as centripetal forces. We study the agglomeration effects caused by trade-offs between centripetal and centrifugal forces. The above effects govern firms’ location decisions and as a result, they define the distribution of economic activity across space. We derive the rational expectations equilibrium and the social optimum, compare the outcomes and characterize the optimal spatial policies.
    Keywords: Agglomeration, Spatial Economics, Environmental Policy, Knowledge Spillovers, Transportation Cost
    JEL: R3 Q5 H2
    Date: 2009–09
  24. By: Kuhl Teles, Vladimir; A. Arraes, Ronaldo
    Abstract: This paper explores the link between environmental policy and economic growth by employing an extension of the AK Growth Model. We include a state equation for renewable natural resources. We assume that the change in environmental regulations induces costs and that economic agents also derive some utility from capital stock accumulation vis-`a-vis the environment. Using the Hopf bifurcation theorem, we show that cyclical environmental policy strategies are optimal, providing theoretical support for the Environmental Kuznets Curve.
    Date: 2009–08–24
  25. By: Jan von der Goltz
    Abstract: Developing countries with large greenhouse gas emissions play a decisive role in negotiating a post-Kyoto climate agreement. No effective program to reduce global emissions is possible without their support. At the same time, developing countries face a delicate task in balancing their growing responsibility for a livable climate with the pursuit of continued economic development. This article discusses the negotiating positions major developing country emitters are taking on core issues. Among the most vital unsettled questions are burden sharing between developed and developing countries, the role of the market in the international climate architecture, as well as implementation arrangements. An annex discusses current mitigation policies of major developing country emitters, and argues that developing countries are already taking meaningful action to limit the growth of their greenhouse gas emissions.
    Keywords: climate change; negotiations; Copenhagen; developing countries; emissions; economic development
    Date: 2009–08
  26. By: Ordás Criado, Carlos; Valente, Simone; Stengos, Thanasis
    Abstract: The pollution-convergence hypothesis is formalized in a neoclassical growth model with optimal emissions reduction: pollution growth rates are positively correlated with output growth (scale effect) but negatively correlated with emission levels (defensive effect). This dynamic law is empirically tested for two major and regulated air pollutants - nitrogen oxides (NOX) and sulfur oxides (SOX) - with a panel of 25 European countries spanning over years 1980-2005. Traditional parametric models are rejected by the data. However, more flexible regression techniques - semiparametric additive specifications and fully nonparametric regressions with discrete and continuous factors - confirm the existence of the predicted positive and defensive effects. By analyzing the spatial distributions of per capita emissions, we also show that cross-country pollution gaps have decreased over the period for both pollutants and within the Eastern as well as the Western European areas. A Markov modeling approach predicts further cross-country absolute convergence, in particular for SOX. The latter results hold in the presence of spatial non-convergence in per capita income levels within both regions.
    Keywords: Air pollution; convergence; economic growth; mixed nonparametric regressions; distribution dynamics.
    JEL: C14 C23 Q53
    Date: 2009–09–17
  27. By: Rob Dellink (Institute for Environmental Studies (IVM)); Michel den Elzen (Netherlands Environmental Assessment Agency); Harry Aiking (nstitute for Environmental Studies (IVM), VU University); Emmy Bergsma (Institute for Environmental Studies (IVM), VU University); Frans Berkhout (Institute for Environmental Studies (IVM), VU University); Thijs Dekker (Institute for Environmental Studies (IVM), VU University); Joyeeta Gupta (Institute for Environmental Studies (IVM), VU University)
    Abstract: Climate change may cause most harm to countries that contribute least to greenhouse gas emissions. This paper identifies deontology, solidarity and consequentialism as the principles that can serve as a basis for a fair international burden sharing scheme of adaptation costs. We translate these principles into criteria that can be applied in assigning contributions of individual countries, namely historical responsibility, equality and capacity to pay. Specific political and scientific choices are discussed, highlighting implications for international burden-sharing. Combining historical responsibility and capacity to pay seems a promising starting point for international negotiations on the design of burden-sharing schemes. From the numerical assessment, it is clear that UNFCCC Annex I countries carry the greatest burden under most scenarios, but contributions differ substantially subject to the choice of an indicator for capacity to pay. The total financial contribution by the Annex I countries could be in the range of $55-68 billion annually.
    Keywords: Adaptation Financing, Burden-Sharing, Historical Responsibility
    JEL: Q54
    Date: 2009–07
  28. By: Strand, Jon
    Abstract: This paper discusses possible macroeconomic implications for low-income countries of increased revenue inflows that may follow from implementing certain global greenhouse gas mitigation policies. Such revenue sources include revenue from emissions offset mechanisms, direct investments, and financial transfers that form parts of possible future mitigation treaties. In the short run such revenue will come mainly from offset markets and donor-sponsored programs, with some additional financial inflows due to foreign direct investments. In the longer run, comprehensive global cap-and-trade or carbon tax schemes could provide a potentially much larger revenue flow to many low-income countries. The author argues that the macroeconomic implications of such flows are manageable in the short run, but the larger revenues resulting from global emissions schemes could overwhelm this capacity and lead to a number of potential macroeconomic management problems.
    Keywords: Debt Markets,Emerging Markets,Economic Theory&Research,,Access to Finance
    Date: 2009–09–01
  29. By: Schöb, Ronnie
    Abstract: Climate protection should use environmental policy instruments that raise revenues, which can be used, for instance, to cut labour taxes to alleviate unemployment in economies suffering from high and persistent unemployment. This paper elaborates the possibilities of an employment dividend of climate policies and shows the potential importance of such a second dividend for a comprehensive cost-benefit analysis of climate policy. It is argued that national attempts to reap such a double dividend may be bound to fail if resource suppliers can respond in a way that leads to a large-scale international reallocation of environmental rents. Only a internationally coordinated uniform base tax on CO2 that complements already existing emission trading systems could keep revenues from climate policy in those countries bearing the cost of fighting global warming and thus leave them with the option on a second dividend.
    Keywords: Climate policy,double-dividend hypothesis,employment dividend,supplier responses
    JEL: Q54 H20
    Date: 2009
  30. By: Nektarios Aslanidis (University Rovira Virgili)
    Abstract: The empirical finding of an inverse U-shaped relationship between per capita income and pollution, the so-called Environmental Kuznets Curve (EKC), suggests that as countries experience economic growth, environmental deterioration decelerates and thus becomes less of an issue. Focusing on the prime example of carbon emissions, the present article provides a critical review of the new econometric techniques that have questioned the baseline polynomial specification in the EKC literature. We discuss issues related to the functional form, heterogeneity, “spurious” regressions and spatial dependence to address whether and to what extent the EKC can be observed. Despite these new approaches, there is still no clear-cut evidence supporting the existence of the EKC for carbon emissions.
    Keywords: Environmental Kuznets Curve, Carbon Emissions, Functional Form, Heterogeneity, “Spurious” Regressions, Spatial Dependence
    JEL: C20 Q32 Q50 O13
    Date: 2009–09
  31. By: Gilmore, Richard; Williams, Dawson; Tanger, Kyle
    Abstract: Presented to USDA Economists Group, Washington, DC, 16 July 2009
    Keywords: Carbon Market, index, emissions, Agribusiness, Financial Economics, Resource /Energy Economics and Policy, Risk and Uncertainty, Q, C, G,
    Date: 2009–07–16
  32. By: Valentina Bosetti (Princeton University, FEEM and CCMC); Carlo Carraro (University of Venice, FEEM, CEPR, CESifo and CMCC); Enrica De Cian (FEEM); Romain Duval (OECD); Emanuele Massetti (FEEM and CCMC); Massimo Tavoni (Princeton University, FEEM and CCMC)
    Abstract: This paper uses WITCH, an integrated assessment model with a game-theoretic structure, to explore the prospects for, and the stability of broad coalitions to achieve ambitious climate change mitigation action. Only coalitions including all large emitting regions are found to be technically able to meet a concentration stabilisation target below 550 ppm CO2eq by 2100. Once the free-riding incentives of non-participants are taken into account, only a “grand coalition” including virtually all regions can be successful. This grand coalition is profitable as a whole, implying that all countries can gain from participation provided appropriate transfers are made across them. However, neither the grand coalition nor smaller but still environmentally significant coalitions appear to be stable. This is because the collective welfare surplus from cooperation is not found to be large enough for transfers to offset the free-riding incentives of all countries simultaneously. Some factors omitted from the analysis, which might improve coalition stability, include the co-benefits from mitigation action, the costless removal of fossil fuel subsidies, as well as alternative assumptions regarding countries’ bargaining behaviour.
    Keywords: Climate Policy, Climate Coalition, Game Theory, Free Riding
    JEL: C68 C72 D58 Q54
    Date: 2009–08
  33. By: Liverani, Andrea
    Abstract: Climate change is anthropogenic - the product of billions of acts of daily consumption. That solutions need to be anthropogenic too is well accepted. Yet, suggested solutions are normally cast in the realms of finance and technology, often neglecting the primal root of the problem: individual behavior. An emerging body of social-psychology scholarship has examined the barriers and drivers of individual behavior in relation to both adaptation and mitigation. This paper reviews some of its conclusions, and suggests policy areas that should be considered in devising appropriate interventions.
    Keywords: Environmental Economics&Policies,Climate Change,Transport and Environment,Energy Production and Transportation,Environment and Energy Efficiency
    Date: 2009–09–01

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