nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒11‒21
37 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Public policies for a sustainable energy sector: regulation, diversity and fostering of innovation By Costantini Valeria; Crespi Francesco
  2. Making Combined Heat and Power District Heating(CHP-DH) networks in the United Kingdom economically viable: a comparative approach By Kelly, S.; Pollitt, M.G.
  3. The Effect of Market Power on Electricity Storage Utilization: The Case of Pumped Hydro Storage in Germany By Wolf-Peter Schill; Claudia Kemfert
  4. Can Merchant Interconnectors Deliver Lower and More Stable Prices? The Case of NorNed By Parail, V.
  5. Investment in Electricity Markets with Asymmetric Technologies By Talat S. Genc; Henry Thille
  6. Demand for Electricity Connection in Rural Areas: The Case of Kenya By Abdullah, Sabah; Jeanty, P.W.
  7. Rural electrification programmes in Kenya: Policy conclusion from a valuation study By Abdullah, Sabah; Markandya, Anil
  8. Economic Potential of Renewable Energy in Vietnam's Power Sector By Nhan Thanh Nguyen; Minh Ha-Duong
  9. Neo-additive capacities and updating By Eichberger, Jürgen; Grant, Simon; Lefort, Jean-Philippe
  10. Biomass Fuel Consumption and Dung Use as Manure - Evidence from Rul Households in the Amrahara Region of Ethiopia By Mekonnen, Alemu; Köhlin, Gunnar
  11. The Jatropha Biofuels Sector in Tanzania 2005-9: Evolution Towards Sustainability? By Adrian Marjolein Caniels; Henny Romijn
  12. Divesting power By Federico, Giulio; Lopez, Angel L.
  13. Macroeconomic and welfare consequences of high energy prices By Twimukye, Evarist; Matovu, John Mary
  14. Evidence of unspanned stochastic volatility in crude-oil market By Razvan Tudor
  15. Iran‘s Oil Wealth: Treasure and Trouble for the Shah‘s Regime. A Context-sensitive Analysis of the Ambivalent Impact of Resource Abundance By Miriam Shabafrouz
  16. Job Satisfaction and Quit Intentions of Offshore Workers in the UK North Sea Oil and Gas Industry By Dickey, Heather; Watson, Verity; Zangelidis, Alexandros
  17. Did easy money in the dollar bloc fuel the global commodity boom? By Christopher Erceg; Luca Guerrieri; Steven B. Kamin
  18. Growth, Development and Natural Resources: New Evidence Using a Heterogeneous Panel Analysis By Cavalcanti, T.V.V.; Mohaddes, K.; Raissi, M.
  19. Growth and the pollution convergence hypothesis: a nonparametric approach. By C. Ordás Criado; S. Valente; T. Stengos
  20. Can global de-carbonization inhibit developing country industrialization ? By Mattoo, Aaditya; Subramanian, Arvind; van der Mensbrugghe, Dominique; He, Jianwu
  21. Towards certified carbon footprints of products - a road map for data production - Climate Bonus project report (WP3) By Adriaan Perrels; Kirsi Usva; Mikko Hongisto; Merja Saarinen; Ari Nissinen; Juha-Matti Katajajuuri; Pauliina Nurmi; Sirpa Kurppa; Sirkka Koskela
  22. Introducing carbon constraint in the steel sector: ULCOS scenarios and economic modeling By Elie Bellevrat; Philippe Menanteau
  23. The New Roadmap for Measuring and Valuing Carbon in the Agribusiness Sector By Williams, Dawson
  24. Regulation, Allocation, and Leakage in Cap-and-Trade Markets for CO2 By James B. Bushnell; Yihsu Chen
  25. On Fair Pricing of Emission-Related Derivatives By Juri Hinz; Alex Novikov
  26. Responding to threats of climate change mega-catastrophes By Kousky, Carolyn; Rostapshova, Olga; Toman, Michael; Zeckhauser, Richard
  27. A Stochastic Optimal Control Model of Pollution Abatement By D. Dragone; L. Lambertini; G. Leitmann; A. Palestini
  28. Climate volatility and poverty vulnerability in Tanzania By Ahmed , Syud Amer; Diffenbaugh, Noah S.; Hertel , Thomas W.; Lobell, David B.; Ramankutty, Navin; Rios, Ana R.; Rowhani, Pedram
  29. Reconciling climate change and trade policy By Mattoo, Aaditya; Subramanian, Arvind; van der Mensbrugghe, Dominique; He, Jianwu
  30. Climate Policy and Corporate Behaviour By Commins, Nicola; Lyons, Seán; Schiffbauer, Marc; Tol, Richard S. J.
  31. Global Climate Policy Architecture and Political Feasibility: Specific Formulas and Emission Targets to Attain 460 ppm CO2 Concentrations By Valentina Bosetti; Jeffrey A. Frankel
  32. International Cooperation on Climate Change Adaptation from an Economic Perspective By De Bruin, Kelly C.; Dellink, Rob B.; Tol, Richard S. J.
  33. Responding to Sea Level Rise - A Study of Options to Combat Coastal Erosion in The Philippines By Jaime Kim E. Bayani; Moises A. Dorado; Rowena A. Dorado
  34. Protect or Retreat - How Should Kalimantan Deal with Rising Sea Levels Caused by Climate Change? By Akhmad R. Saidy; Yusuf Azis
  35. The Long-Lived Effects of Historic Climate on the Wealth of Nations By Bluedorn, John C.; Valentinyi, Akos; Vlassopoulos, Michael
  36. Distributional effects of Finland's climate policy package - Calculations with the new income distribution module of the VATTAGE model By Jouko Kinnunen; Kimmo Marttila; Juha Honkatukia
  37. Counting Only the Hits? The Risk of Underestimating the Costs of Stringent Climate Policy By Tavoni, Massimo; Tol, Richard S. J.

  1. By: Costantini Valeria; Crespi Francesco
    Abstract: Many industrialised countries have Introduced environmental policy measures in order to reduce negative externalities linked to economic activities. These policy actions produce different effects on the economic system depending on the regulatory tools adopted and the specific objective of public intervention. The impact on innovation is particularly difficult to predict, especially with regard to the direction of technological change. As a case study, we have chosen the energy sector where the strong interrelations between socio-economic and technological dimensions may exacerbate the negative consequences of implementing conflicting policies. The aim of this paper is to show how the lack of strong coordination between different public policies implemented in the energy sector may lead to an incoherent policy mix with negative effects on the development and diffusion of environmentally-friendly energy technologies. We have adopted a gravity equation model based on bilateral export flows of technologies for production and consumption of renewable energies and energy-saving technologies for OECD countries. Our key findings show that alternative measures of public support in the energy sector have been producing contrasting effects on the international competitiveness of energy technologies.
    Date: 2009–10
  2. By: Kelly, S.; Pollitt, M.G.
    Abstract: As global fuel reserves are depleted, alternative and more efficient forms of energy generation and delivery will be required. Combined Heat and Power with District Heating (CHP-DH) provides an alternative energy production and delivery mechanism that is less resource intensive, more energy efficient and provides greater energy security than many popular alternatives. This article presents a comparative analysis between several operational CHP-DH networks across the UK, these include: Aberdeen, Barkantine, Woking, Southampton, Nottingham and Sheffield. It will be shown that the economic viability of CHP-DH networks depends on several factors, namely: (1) the optimisation of engineering and design principles; (2) organisational and regulatory frameworks, and finally; (3) financial and economic factors. It was found that in the long term DH is competitive with other energy supply and distribution technologies such as electricity and gas. However, in the short to medium term it is shown that economic risk, regulatory uncertainty and lock-in of existing technology are the most significant barriers to the implemention of CHP-DH networks.
    Keywords: ESCO, Combined Heat and Power (CHP), Co-generation Energy Service Company, District Heating, Community Heating, Renewable Energy, Energy Efficiency, Private Wire Network (PWN)
    Date: 2009–11–13
  3. By: Wolf-Peter Schill; Claudia Kemfert
    Abstract: In this paper, we develop the game-theoretic electricity market model ElStorM that includes the possibility of strategic electricity storage. We apply the model to the German electricity market and analyze different realistic and counterfactual cases of strategic and non-strategic pumped hydro storage utilization by different players. We find that the utilization of storage capacities depends on the operator and its ability to exert market power both regarding storage and conventional generation capacities. The distribution of storage capacities among players also matters. A general finding is that strategic operators tend to under-utilize their storage capacities. This affects generation patterns of conventional technologies and market outcomes. Strategic under-utilization of storage capacities might also diminish their potential for renewable energy integration. Accordingly, economic regulation of existing and future storage capacities may be necessary, depending on policy objectives. We also find that the introduction of electricity storage generally increases overall welfare, while outcomes vary between different cases. Strategic storage utilization decreases consumer rent compared to non-strategic storage utilization. However, this effect is less pronounced if storage capacities are distributed among several players.
    Keywords: Electricity market modeling, pumped hydro storage, strategic storage, oligopoly, market power, Germany, ElStorM
    JEL: Q40 Q41 L13 D43
    Date: 2009
  4. By: Parail, V.
    Abstract: This paper estimates the effect of the merchant interconnector between Norway and the Netherlands on the level and residual volatility of hourly day-ahead electricity prices in the two connected markets. The price effects are estimated using single equation ARMA models and the volatility effects are estimated using EGARCH models with multiplicative heteroskdasticity. Both the level and volatility effects on prices are found to be modest. This result implies that the majority of welfare gains resulting from trade across the interconnector are likely to be accrued to its owners, undermining the practical validity of the theoretical argument that lumpiness in transmission investment leads to a divergence between social and private benefits of transmission investment. This paper finds that, on the scale of NorNed, there is little evidence to suggest that transmission capacity between different markets cannot be provided competitively.
    Keywords: merchant interconnectors, electricity prices, price volatility, time series, egarch
    JEL: C22 G10 L9 L94
    Date: 2009–11–13
  5. By: Talat S. Genc (University of Guelph, Department of Economics); Henry Thille (University of Guelph, Department of Economics)
    Abstract: We study competition between hydro and thermal electricity generators under demand uncertainty. Producers compete in quantities and each is constrained: the thermal generator by capacity and the hydro generator by water availability. We analyze a two-period game emphasizing the incentives for capacity investments by the thermal generator. We characterize both Markov perfect and open-loop equilibria. In the Markov perfect equilibrium, investment is discontinuous in initial capacity and higher than it is in the open-loop equilibrium. However, since there are two distortions in the model, equilibrium investment can be either higher or lower than the efficient investment.
    Keywords: Electricity markets; Dynamic game; Duopoly; Capacity investment.
    JEL: D24 L13 L94
    Date: 2009
  6. By: Abdullah, Sabah; Jeanty, P.W.
    Abstract: A modern form of energy, in particular electricity for household use, is an important vehicle in alleviating poverty in developing countries. However, access and costs of connecting to this service for most poor in these countries is inconceivable. Policies promoting electricity connection in rural areas are known to be beneficial in improving the socio-economic and health well-being for households. This paper examines willingness to pay (WTP) for rural electrification connection in Kisumu district, Kenya, using the contingent valuation method (CVM). A nonparametric and a parametric model are employed to estimate WTP values for two electricity products: grid electricity (GE) and photovoltaic (PV) electricity. The results indicate that respondents are willing to pay more for GE services than PV and households favoured monthly connection payments over a lump sum amount. Some of the policies suggested in this paper include: subsidizing the connection costs for both sources of electricity, adjusting the payment periods, and restructuring the market ownership of providing rural electricity services.
    Keywords: Contingent valuation; Double bounded; Electricity connection; Rural; Willingness to pay (WTP)
    Date: 2009–11
  7. By: Abdullah, Sabah; Markandya, Anil
    Abstract: Developing countries have struggled with low electrification rates in the rural areas. This study investigates one major issue impeding the rural electrification programmes in rural Kenya: high connection payments. The paper uses estimates obtained from a stated preference study, namely a contingent valuation method completed in 2007, to examine the willingness to pay to connect to grid-electricity and photovoltaic services. Expanding rural electrification will need subsidies, but the study shows that some forms of subsidy are more effective than others. The key findings suggest that the government needs to reform the energy subsidies, increase market ownership and performance of private suppliers, establish financial schemes and create markets that vary according to social-economic and demographic groups.
    Keywords: Sub-Saharan Africa; willingness to pay (WTP); affordability; energy; rural electrification
    Date: 2009–09
  8. By: Nhan Thanh Nguyen (CIRED - Centre international de recherche sur l'environnement et le développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Nationale des Ponts et Chaussées - Ecole Nationale du Génie Rural des Eaux et Forêts); Minh Ha-Duong (CIRED - Centre international de recherche sur l'environnement et le développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Nationale des Ponts et Chaussées - Ecole Nationale du Génie Rural des Eaux et Forêts)
    Abstract: A bottom-up Integrated Resource Planning model is used to examine the economic potential of renewable energy in Vietnam's power sector. In a baseline scenario without renewables, coal provides 44% of electricity generated from 2010 to 2030. The use of renewables could reduce that figure to 39%, as well as decrease the sector's cumulative emission of CO2 by 8%, SO2 by 3%, and NOX by 4%. In addition, renewables could avoid installing 4.4 GW in fossil fuel generating capacity, conserve domestic coal, decrease coal and gases imports, improving energy independence and security. Wind could become cost-competitive assuming high but plausible on fossil fuel prices, if the cost of the technology falls to 900 US$/kW.
    Keywords: integrated resource planning; renewable energy; electricity generation
    Date: 2009
  9. By: Eichberger, Jürgen; Grant, Simon; Lefort, Jean-Philippe
    Abstract: This paper shows that, for CEU preferences, the axioms consquentialism, state independence and conditional certainty equivalent consistency under updating characterise a family of capacities, called Genralised Neo-Additive Capacities (GNAC). This family contains as special cases among others neo-additive capacities as introduced by Chateauneuf, Eichberger, and Grant(2007), Hurwicz capacities, and ε-contaminations. Moreover, we will show that the convex version of a GNAC is the only capacity for which the core of the Full-Bayesian Updates of a capacity, introduced by Jaffray (1992), equals the set of Bayesian updates of the probability distributions in the core of the original capacity.
    Keywords: Ambiguity; Updating; Choquet Expected Utility; neo-additive capacities; Conditional Certainty Equivalent Consistency
    JEL: D81 D82
    Date: 2009–11–04
  10. By: Mekonnen, Alemu; Köhlin, Gunnar (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Soil nutrient depletion is a critical problem, contributing to low agricultural productivity and the limited domestic food supply in sub-Saharan Africa. Fertilizer use in Ethiopia is one of the lowest in sub-Saharan Africa. Particularly in the northern half of the Ethiopian highlands, use of dung as manure is also limited partly because of a significant level of dung consumption as a source of household fuel. Use of dung as fuel is also an important cause of health problems, mainly through indoor air pollution. Plantation interventions are carried out based on the expectation that fuelwood could substitute for dung, thus increasing agricultural productivity. This study examined (1) the determinants of rural households’ decision to use dung as fuel and as manure, and (2) the determinants of consumption of woody biomass and dung as household fuel sources. We found that the decision to use dung as fuel and manure was influenced by household assets (such as livestock and land size), as well as household characteristics (such as family size and age-sex composition of members), suggesting the important role of asset, product, and labor market imperfections. The type of stove and distance to towns also influenced fuel use. We found no evidence that woody biomass and dung were substitutes as household fuel, and in fact there were indications that they are complements. These results suggest the need to focus on asset-poor households to address the limited use of manure. Moreover, energy issues should be considered simultaneously. Encouraging the use of more appropriate (or energy efficient) stoves and other sources of energy that can reduce the use of dung as fuel are important options because they can improve energy efficiency and agricultural productivity, as well as improved health from reduced indoor air pollution.<p>
    Keywords: Biomass fuel; dung use; manure; Ethiopia
    JEL: Q12 Q42 Q56
    Date: 2009–11–19
  11. By: Adrian Marjolein Caniels; Henny Romijn
    Abstract: Biofuel production from the tropical plant Jatropha curcas L. has recently attracted a great deal of attention. Some anticipate substantial social and environmental benefits from its cultivation, while at the same time expecting sound profitability for investors. Others are more doubtful, envisaging large trade-offs between the pursuit of social, environmental and economic objectives. The paper explores these issues in Tanzania, a forerunner in the cultivation of Jatropha in Africa. We trace how isolated Jatropha biofuel experiments in the country developed since their inception in early 2005 towards a fully fledged sectoral production and innovation system; and investigate to what extent that system has been capable of developing ánd maintaining sustainable practices and producing sustainable outcomes. The application of evolutionary economic theory allows us to view the ongoing development processes in the sector as a result of evolutionary variation and selection on the one hand, and revolutionary contestation between different coalitions of stakeholders on the other. Both these processes constitute significant engines of change in the sector. While variation and selection is driven predominantly by localised learning, the conflict-driven dynamics are highly globalised. The sector is found to have moved some way towards a full sectoral innovation and production system, but it is impossible to predict whether a viable sector with a strong "triple bottom line" orientation will ultimate emerge, since many issues surrounding the social, environmental and financial sustainability still remain unresolved.
    Keywords: biofuels, Jatropha, evolutionary theory, sustainability, stakeholder conflict, learning, Tanzania
    Date: 2009–11
  12. By: Federico, Giulio (IESE Business School); Lopez, Angel L. (IESE Business School)
    Abstract: We study alternative market power mitigation measures in a model where a dominant producer faces a competitive fringe with the same cost structure. We characterise the asset divestment by the dominant firm which achieves the greatest reduction in prices. This divestment entails the sale of marginal assets whose cost range encompasses the post-divestment price. A divestment of this type can be several times more effective in reducing prices than divestments of baseload (or low-cost) assets. We also establish that financial contracts (modeled as Virtual Power Plant schemes) are at best equivalent to baseload divestments in terms of consumer welfare.
    Keywords: Divestments; Virtual power plants; contracts; market power; electricity; antitrust remedies;
    JEL: D42 L13 L40 L94
    Date: 2009–08–01
  13. By: Twimukye, Evarist; Matovu, John Mary
    Abstract: The current wave of volatile international oil process coupled with the low hydro-energy generation continues to exert negative impacts on the Ugandan economy. This paper analyzes the extent to which changes in energy prices affect the economy and examines policy options that can be udertaken to curculate the negative effetcs. The imapct of higher oil prices takes a large toll on all sectors including agriculture, manufacturing and services. with the existing loses in productivity of generating hydro electricity, this has exacerbated the energy crisis. The combined output loss for the manufacturing sector due to increase in fuel prices and a shortage of electricity is estimated at 2 percent on annual basis. While the government has title control on the international prices of oil, further private and public investments in the energy sector are called for to alleviate the shortages of energy.
    Keywords: Oil, Energy, Hydro-electricity, Public investment, Twimukye, Matovu, EPRC, Industrial Organization, Institutional and Behavioral Economics, International Development, International Relations/Trade, Political Economy, Production Economics, Productivity Analysis, Public Economics, Resource /Energy Economics and Policy, Risk and Uncertainty,
    Date: 2009
  14. By: Razvan Tudor
    Abstract: The purpose of this paper is to conduct a comprehensive analysis of unspanned stochastic volatility in commodity markets with focus and empirical evidence on crude-oil market. Using crude-oil futures and options on futures data from New York Mercantile Exchange (NYMEX) there are presented model-free results that strongly suggest the presence of unspanned stochastic volatility in the crude-oil market. Sharp oil prices changes exert influence on macroeconomic activity in general and crude-oil industry in particular. The importance of the results is that they show the extent to which volatility risk is spanned by the futures contracts. The extent to which crude-oil futures contracts trading span volatility will indicate if options on futures are redundant securities or there is needed a mixed strategy combining both types of crude-oil market derivatives (futures and options) to fully hedge against volatility risk.
    Keywords: unspanned stochastic volatility, oil market
    Date: 2009–10
  15. By: Miriam Shabafrouz (GIGA Institute of Global and Area Studies)
    Abstract: The Iranian revolution still appears to be a puzzle for theoretical approaches linking political instability and/or violent conflict to the resource wealth of a country. It therefore works well as a case study for the purposes of this paper: to show the necessity of a broader approach to the resource-violence link and to highlight the “context approach.” The focus is on the violence that accompanied the events preceding the revolution, and also on the fact that this violence was mainly exercised by the rulers and—excluding the activities of militant groups—only very randomly by the masses. Many relevant contextual conditions had an impact on the downfall of the shah’s regime: demographic (population growth, urbanization) and cultural factors (religious tradition, national identity); the vivid memory of several historical events; the personal preferences of central actors— mainly both the shahs—which in combination brought the country to an impasse; and the religious opposition to the regime. But upon closer examination, it becomes clear that many of those factors were influenced by resource-specific conditions such as the amount and the use of oil income, sudden oil-price drops, and external interference aimed mainly at the domination of the oil sector. It was the specific interplay of these and other contextual conditions—as much resource-specific as general, and both within the country and on an international scale—that finally brought about the downfall of the regime.
    Keywords: Iran, oil, revolution, resource curse, rentier state theory, context approach
    Date: 2009–11
  16. By: Dickey, Heather; Watson, Verity; Zangelidis, Alexandros
    Abstract: The North Sea oil and gas industry currently faces recruitment and retention difficulties due to a shortage of skilled workers. The vital contribution of this sector to the U.K. economy means it is crucial for companies to focus on retaining existing employees. One means of doing this is to improve the job satisfaction of workers. In this paper, we investigate the determinants of job satisfaction and intentions to quit within the U.K. North Sea oil and gas industry. We analyse the effect of personal and workplace characteristics on the job satisfaction and quit intentions of offshore employees. The data used were collected using a self-completed questionnaire. Job satisfaction was analysed using an ordinal probit model and quit intentions were analysed using a binary probit model. 321 respondents completed the questionnaire. We find that respondents in good financial situations, those whose skills are closely related to their job, and those who received training reported higher levels of job satisfaction. Furthermore, we establish the importance of job satisfaction, promotion prospects and training opportunities in determining workers’ intentions to quit the offshore oil and gas sector. To encourage better retention, companies should seek to adopt policies that focus not only on pay but also provide promotion and training opportunities aimed at investing in their employees’ skills development.
    Keywords: Job satisfaction; Quit intentions; U.K. offshore industry; Principal components analysis
    JEL: J63 J28
    Date: 2009–11–16
  17. By: Christopher Erceg; Luca Guerrieri; Steven B. Kamin
    Abstract: Among the various explanations for the runup in oil and commodity prices of recent years, one story focuses on the role of monetary policy in the United States and in developing economies. In this view, developing countries that peg their currencies to the dollar were forced to ease their monetary policies after reductions in U.S. interest rates, leading to economic overheating, excess demand for oil and other commodities, and rising commodity prices. We assess that hypothesis using the Federal Reserve staff’s forward-looking, multicountry, dynamic general equilibrium model, SIGMA. We find that even if many developing country currencies were pegged to the dollar, an easing of U.S. monetary policy would lead to only a transitory runup in oil prices. Instead, strong economic growth in many developing economies, as well as shortfalls in oil production, better explain the sustained runup in oil prices observed until earlier this year. Moreover, a closer look at exchange rates and interest rates around the world suggests that the monetary policies of many developing economies, including in East Asia, are less closely influenced by U.S. policies than is frequently assumed.
    Date: 2009
  18. By: Cavalcanti, T.V.V.; Mohaddes, K.; Raissi, M.
    Abstract: This paper explores whether natural resource abundance is a curse or a blessing. In order to do so, we firstly develop a theory consistent econometric model, in which we show that there is a long run relationship between real income, the investment rate, and the real value of oil production. Secondly, we investigate the long-run (level) effects of natural resource abundance on domestic output as well as the short-run (growth) effects. Thirdly, we make use of a non-stationary panel approach which explicitly es- timates the long-run relationships from annual data as opposed to the dynamic and static panel approaches which might in fact estimate the high-frequency relationships. Fourthly, we account for cross-country dependencies that arise potentially from oil price shocks and other unobserved common factors, and allow countries to respond differently to these shocks. Finally, we explicitly recognize that there is a substantial heterogeneity in our sample, consisting of 53 oil exporting and importing countries with annual data between 1980-2006, and adopt the methodology developed by Pesaran (2006) for estimation. This approach considers different dynamics for each country and is consistent under both cross-sectional dependence and cross-country heterogeneity. We also check the robustness of these results by using the fully modified OLS method of Pedroni (2000). Our non-stationary approach also allows for country-specific unobserved factors, such as social and human capital, to be captured in the fixed effects and the heterogeneous trends together with any omitted factors. Our estimation results, using the real value of oil production, rent or reserves as a proxy for resource endowment, indicate that oil abundance is in fact a blessing and not a curse, exhibited through both the long-run and the short-run effects.
    Keywords: Growth models, natural resource curse, cointegration, cross sectional dependence, common correlated effects, and oil.
    JEL: C23 O13 O40 Q32
    Date: 2009–11–13
  19. By: C. Ordás Criado (Center for Energy Policy and Economics (CEPE)); S. Valente (Center of Economic Research (CER)); T. Stengos (Department of Economics, University of Guelph.)
    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
  20. By: Mattoo, Aaditya; Subramanian, Arvind; van der Mensbrugghe, Dominique; He, Jianwu
    Abstract: Most economic analyses of climate change have focused on the aggregate impact on countries of mitigation actions. The authors depart first in disaggregating the impact by sector, focusing particularly on manufacturing output and exports because of the potential growth consequences. Second, they decompose the impact of an agreement on emissions reductions into three components: the change in the price of carbon due to each country’s emission cuts per se; the further change in this price due to emissions tradability; and the changes due to any international transfers (private and public). Manufacturing output and exports in low carbon intensity countries such as Brazil are not adversely affected. In contrast, in high carbon intensity countries, such as China and India, even a modest agreement depresses manufacturing output by 6-7 percent and manufacturing exports by 9-11 percent. The increase in the carbon price induced by emissions tradability hurts manufacturing output most while the Dutch disease effects of transfers hurt exports most. If the growth costs of these structural changes are judged to be substantial, the current policy consensus, which favors emissions tradability (on efficiency grounds) supplemented with financial transfers (on equity grounds), needs re-consideration.
    Keywords: Climate Change Mitigation and Green House Gases,Climate Change Economics,Environment and Energy Efficiency,Energy and Environment,Carbon Policy and Trading
    Date: 2009–11–01
  21. By: Adriaan Perrels; Kirsi Usva; Mikko Hongisto; Merja Saarinen; Ari Nissinen; Juha-Matti Katajajuuri; Pauliina Nurmi; Sirpa Kurppa; Sirkka Koskela
    Abstract: This report is a part of a series of reports from the Climate Bonus project. The report illustrates the basic structure of a system that could produce strict and reliable data needed for generating product-oriented carbon footprints in Finland. It also represents a road map for developing the system for the energy and food sectors. Steering mechanisms, standards and possible data sources central to the system are also reviewed. Accuracy and a scope of the outlined system should be developed step by step, starting from the major emission sources, processes and products. Account has also been taken of linkages between the proposed system and existing environmental management systems, annual reporting practices and the European emission-trading scheme (EU-ETS).
    Keywords: Greenhouse gases (GHG), carbon footprint, indirect emissions, life cycle assessment (LCA), input-output modelling, monitoring of emissions, verification, guarantee of origin, environmental product declaration (EPD), product certification, supply chain management
    JEL: Q49 Q01 Q56 Q54 Q19 O13 O31 Q55 O33
    Date: 2009–10–30
  22. By: Elie Bellevrat (Enerdata S.A. - Aucune); Philippe Menanteau (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: Modeling activities and scenario building are at the heart of the economic analysis delivered by the ULCOS program. Two main objectives were followed in the framework of SP9. First the modeling team had to provide a set of coherent energy economic scenarios using POLES model. Second, the economic conditions for the emergence of the ULCOS technologies were analyzed. ULCOS contributes to the elaboration of contrasted scenarios that the steel industry could face in the long term. To aim at these objectives specific tools have been used: POLES model for the global energy system modeling and ISIM model for the steel sector based prospective ([1] Hidalgo, 2003). The most promising steel production technologies identified in ULCOS Phase 1 have been introduced into ISIM as generic technologies. ISIM was then integrated as a module into POLES modeling system. The main model outputs are the energy prices and mixes and the steel sector balances with a focus on the technology mix. Actually the climate policy scenarios developped in project allow making recommendations to the steel industry in terms of sustainable development but also in terms of business strategy.
    Date: 2009–09
  23. By: Williams, Dawson
    Keywords: carbon, greenhouse gas emissions, agribusiness, carbon market, Agribusiness, Environmental Economics and Policy, Q, D,
    Date: 2009–06–10
  24. By: James B. Bushnell; Yihsu Chen
    Abstract: The allocation of emissions allowances is among the most contentious elements of the design of cap-and-trade systems. In this paper we develop a detailed representation of the US western electricity market to assess the potential impacts of various allocation proposals. Several proposals involve the "updating'' of permit allocation, where the allocation is tied to the ongoing output, or input use, of plants. These allocation proposals are designed with the goals of limiting the pass-through of carbon costs to product prices, mitigating leakage, and of mitigating costs to high-emissions firms. However, some forms of updating can also inflate permit prices, thereby limiting the benefits of such schemes to high emissions firms. Rather than mitigating the impact on high carbon producers, the net operating profit of such firms can actually be lower under input-based updating than under auctioning. This is due to the fact that product prices (and therefore revenues) are lower under input-based updating, but overall compliance costs are relatively comparable between auctioning and input-based updating. In this way, the anticipated benefits from allocation updating are reduced and further distortions are introduced into the trading system.
    JEL: L9 Q50
    Date: 2009–11
  25. By: Juri Hinz (Department of Mathematics, National University of Singapore); Alex Novikov (Department of Mathematical Sciences, University of Technology, Sydney)
    Abstract: The climate rescue is on the top of many agendas. In this context, emission trading schemes are considered as promising tools. The regulatory framework of an emission trading scheme introduces a market for emission allowances and creates need for risk management by appropriate financial contracts. In this work, we address logical principles underlying their valuation.
    Keywords: environmental risk; emission derivatives
    Date: 2009–08–01
  26. By: Kousky, Carolyn; Rostapshova, Olga; Toman, Michael; Zeckhauser, Richard
    Abstract: There is a low but uncertain probability that climate change could trigger"mega-catastrophes,"severe and at least partly irreversible adverse effects across broad regions. This paper first discusses the state of current knowledge and the defining characteristics of potential climate change mega-catastrophes. While some of these characteristics present difficulties for using standard rational choice methods to evaluate response options, there is still a need to balance the benefits and costs of different possible responses with appropriate attention to the uncertainties. To that end, the authors present a qualitative analysis of three options for mitigating the risk of climate mega-catastrophes - drastic abatement of greenhouse gas emissions, development and implementation of geoengineering, and large-scale ex ante adaptation - against the criteria of efficacy, cost, robustness, and flexibility. They discuss the composition of a sound portfolio of initial investments in reducing the risk of climate change mega-catastrophes.
    Keywords: Climate Change Mitigation and Green House Gases,Climate Change Economics,Science of Climate Change,Hazard Risk Management,Transport and Environment
    Date: 2009–11–01
  27. By: D. Dragone; L. Lambertini; G. Leitmann; A. Palestini
    Abstract: We model a dynamic monopoly with environmental externalities,investigating the adoption of a tax levied on the firm's instantaneous contribution to the accumulation of pollution. The latter process is subject to a shock, which is i.i.d. across instants. We prove the existence of an optimal tax rate such that the monopoly replicates the same steady state welfare level as under social planning. Yet, the corresponding output level, R&D investment for environmental friendly technologies and surplus distribution necessarily differ from the socially optimal ones.
    JEL: C61 H21 H23 Q52
    Date: 2009–11
  28. By: Ahmed , Syud Amer; Diffenbaugh, Noah S.; Hertel , Thomas W.; Lobell, David B.; Ramankutty, Navin; Rios, Ana R.; Rowhani, Pedram
    Abstract: Climate models generally indicate that climate volatility may rise in the future, severely affecting agricultural productivity through greater frequency of yield-diminishing climate extremes, such as droughts. For Tanzania, where agricultural production is sensitive to climate, changes in climate volatility could have significant implications for poverty. This study assesses the vulnerability of Tanzania’s population to poverty to changes in climate variability between the late 20th century and early this century. Future climate scenarios with the largest increases in climate volatility are projected to make Tanzanians increasingly vulnerable to poverty through its impacts on the production of staple grains, with as many as 90,000 additional people, representing 0.26 percent of the population, entering poverty in the median case. Extreme poverty-increasing outcomes are also found to be greater in the future under certain climate scenarios. In the 20th century, the greatest predicted increase in poverty was equal to 880,000 people, while in the 21st century, the highest possible poverty increase was equal to 1.17 million people (approximately 3.4 percent of the population). The results suggest that the potential impacts of changes in climate volatility and climate extremes can be significant for poverty in Sub-Saharan African countries like Tanzania.
    Keywords: Rural Poverty Reduction,Climate Change Mitigation and Green House Gases,Science of Climate Change,Regional Economic Development,Climate Change Economics
    Date: 2009–11–01
  29. By: Mattoo, Aaditya; Subramanian, Arvind; van der Mensbrugghe, Dominique; He, Jianwu
    Abstract: There is growing clamor in industrial countries for additional border taxes on imports from countries with lower carbon prices. The authors confirm the findings of other research that unilateral emissions cuts by industrial countries will have minimal carbon leakage effects. However, output and exports of energy-intensive manufactures are projected to decline potentially creating pressure for trade action. A key factor affecting the impact of any border taxes is whether they are based on the carbon content of imports or the carbon content in domestic production. Their quantitative estimates suggest that the former action when applied to all merchandise imports would address competitiveness and environmental concerns in high income countries but with serious consequences for trading partners. For example, China’s manufacturing exports would decline by one-fifth and those of all low and middle income countries by 8 per cent; the corresponding declines in real income would be 3.7 per cent and 2.4 per cent. Border tax adjustment based on the carbon content in domestic production, especially if applied to both imports and exports, would broadly address the competitiveness concerns of producers in high income countries and less seriously damage developing country trade.
    Keywords: Climate Change Mitigation and Green House Gases,Climate Change Economics,Environment and Energy Efficiency,Energy and Environment,Transport Economics Policy&Planning
    Date: 2009–11–01
  30. By: Commins, Nicola; Lyons, Seán; Schiffbauer, Marc; Tol, Richard S. J.
    Abstract: In this paper, we study the impact of energy taxes and the EU ETS on a large number of firms in Europe between 1996 and 2007. Using company level micro-data, we examine how firms in different sectors were affected by environmental policies. Aspects of behaviour and performance studied include total factor productivity, employment levels, investment behaviour and profitability. On the whole, energy taxes increased total factor productivity and returns to capital but decreased employment, with a mixed effect on investment, for the sectors included in our analysis. However, large sectoral variation is observed, with some industries losing out in terms of productivity and profitability when faced with increased energy taxes, while others benefitted.
    Keywords: Climate policy/employment/energy taxes/europe/firm performance/investment/Policy/Productivity
    Date: 2009–11
  31. By: Valentina Bosetti; Jeffrey A. Frankel
    Abstract: Many analysts have identified three important gaps in the Kyoto Protocol: the absence of emission targets extending far into the future, the absence of participation by the United States, China, and other developing countries, and the absence of reason to think that members will abide by commitments. It appears that political constraints on the country-by-country distribution of economic costs are a key stumbling block to filling these gaps. This paper investigates formulas that assign quantitative allocations of emissions, across countries, one budget period at a time, to see if it is possible to satisfy the constraints. The two-part plan: (i) China and other developing countries accept targets at BAU in the coming budget period, the same period in which the US first agrees to cuts below BAU; and (ii) all countries are asked in the future to make further cuts in accordance with a formula which sums up a Progressive Reductions Factor, a Latecomer Catch-up Factor, and a Gradual Equalization Factor. An earlier plan for specific parameter values in the formulas – Frankel (2009), as analyzed by Bosetti, et al (2009) – achieved the environmental goal that concentrations of CO2 plateau at 500 ppm by 2100. It succeeded in obeying our political constraints, such as keeping the economic cost for every country below the thresholds of Y=1% of income in Present Discounted Value, and X=5% of income in the worst period. In pursuit of more aggressive environmental goals, we now advance the dates at which some countries are asked to begin cutting below BAU, within our framework. We also tinker with the values for the parameters in the formulas. The resulting target paths for emissions are run through the WITCH model to find their economic and environmental effects. We find that it is not possible to attain a 380 ppm CO2 goal (roughly in line with the 2°C target) without violating our political constraints. We were however, able to attain a concentration goal of 460 ppm CO2 with looser political constraints. The most important result is that we had to raise the threshold of costs above which a country drops out, to as high as Y =3.4% of income in PDV terms, or X =12 % in the worst budget period. Whether one concludes from these results that the more aggressive environmental goals are, or are not, attainable at reasonable economic costs, the approach developed here provides a framework for exploring maximization of the tradeoff between the benefits of cutting global emissions and the political feasibility of getting individual countries to share the burden.
    JEL: Q50
    Date: 2009–11
  32. By: De Bruin, Kelly C.; Dellink, Rob B.; Tol, Richard S. J.
    Abstract: This paper investigates the economic incentives of countries to cooperate on international adaptation financing. Adaptation is generally implicitly incorporated in the climate change damage functions as used in Integrated Assessment Models. We replace the implicit decision on adaptation with explicit adaptation in a multi-regional setting by using an adjusted RICE model. We show that making adaptation explicit will not affect the optimal mitigation path when adaptation is set at its optimal level. Sub-optimal adaptation will, however, change the optimal mitigation path. Furthermore this paper studies for different forms of cooperation what effects international adaptation transfers will have on (i) domestic adaptation and (ii) the optimal mitigation path. Adaptation transfers will fully crowd out domestic adaptation in a first best setting. Transfers will decrease overall mitigation in our numerical simulations. An analytical framework is used to analyse the most important mechanisms and a numerical model is used to assess the magnitude of effects.
    Keywords: Adaptation Funding/Climate change/Integrated Assessment Modeling
    Date: 2009–10
  33. By: Jaime Kim E. Bayani (Department of Economics, College of Economics and Management, University of the Philippines, Los Banos); Moises A. Dorado (Department of Economics, College of Economics and Management, University of the Philippines, Los Banos); Rowena A. Dorado (Department of Economics, College of Economics and Management, University of the Philippines, Los Banos)
    Abstract: Sea erosion is currently affecting many coastal areas in the Philippines. Natural factors such as wind and waves are to blame, as are human activities such as coral reef destruction. The scale and impact of this problem are both expected to become more widespread due to climate change and sea level rise. Continuing urbanization and the development of more coastal communities in the country are also likely to make the situation worse. To assess possible responses to this problem, this study has investigated coastal erosion in one of the country's more developed coastal coastal regions. It finds that this coastline is vulnerable to the impact of erosion and that, if nothing is done, the problem will cause hundreds of million of Php worth of damage. It also finds that a planned protection strategy is the most rational approach to adopt. Such a strategy is socially and politically acceptable, justifiable from an economic perspective and also preserves the area's beaches along with the social services they provide.
    Keywords: sea level rise, coastal, Philippines
    Date: 2009–08
  34. By: Akhmad R. Saidy (Faculty of Agriculture Lambung Mangkurat University and Environmental Research Center Lambung Mangkurat University); Yusuf Azis (Faculty of Agriculture Lambung Mangkurat University and Environmental Research Center Lambung Mangkurat University)
    Abstract: Many scientists think that a rise in sea levels caused by global warming will be one of the key future environmental challenges facing many low-lying coastal regions. In Indonesia, there is considerable concern about the impact this problem will have on large areas of reclaimed coastal swampland in South Kalimantan. It is thought that over 150,000 ha of this land, which is currently being farmed for rice and other food crops, are at risk, and that this will jeopardize the livelihoods of many thousands of farmers and their communities. To help decide what the best response to this unfolding crisis is, the study focuses on the province of South Kalimantan which is already experiencing salination of its freshwater due to rises in sea level, especially during the dry season. The study finds that building dikes to protect farmland is the most cost-effective response. It finds that this approach would cost society less than doing nothing and that it is a better option from an economic point of view that relocating farmers to new farmland at a higher altitude.
    Keywords: sea level rise, Indonesia
    Date: 2009–08
  35. By: Bluedorn, John C.; Valentinyi, Akos; Vlassopoulos, Michael
    Abstract: We investigate the long-run consequences of historic, climatic temperatures (1730-2000) for the modern cross-country income distribution. Using a newly constructed dataset of climatic temperatures stretching over three centuries (18th, 19th, and 20th), we estimate a robust and significant time-varying, non-monotonic effect of climatic temperature upon current incomes for a cross-section of 167 countries. We find a large, positive effect of 18th century climatic temperature and an even larger, negative effect of 19th century climatic temperature upon current incomes. When historic, climatic temperature is introduced, the effect of 20th century climatic temperature on current income is either weakly positive or insignificant. Our findings are robust to various sub-samples, additional geographic controls, and alternative income measures. The negative relationship between current, climatic temperature and current income that is commonly estimated appears to reflect the long-run effect of climatic variations in the 18th and 19th centuries.
    Keywords: climate; temperature; economic performance; geography; history
    JEL: O11 N50 O57 O50 O40
    Date: 2009–11–17
  36. By: Jouko Kinnunen; Kimmo Marttila; Juha Honkatukia
    Abstract: In this report we present a new version of the VATTAGE AGE (Applied General Equilibrium) model, which enables distributional analysis of policy changes. We also report estimation results of LES consumption function for eight socioeconomic groups. We use climate policy as an example for the distributional effects. Our model results show that the planned climate policy measures are not very regressive in their nature. In contrast, they seem to distribute the costs of climate policy rather evenly. An exception to this rule is farmer households, the real consumption of which seems to reduce less than that of other groups.
    Keywords: Rredistributive effects, environmental taxes, computable general equilibrium models, econometric model estimation
    JEL: C51 C68 H23
    Date: 2009–11–13
  37. By: Tavoni, Massimo; Tol, Richard S. J.
    Abstract: This paper warns against the risk of underestimating the costs -and the uncertainty about the costs- of achieving stringent stabilization targets. We argue that a straightforward review of integrated assessment models results produces biased estimates for the more ambitious climate objectives such as those compatible with the 2°C of the European Union and the G8. The magnitude and range of estimates are significantly reduced because only the most optimistic results are reported for such targets. We suggest a procedure that addresses this partiality. The results show highly variable costs for the most difficult scenarios.
    Keywords: risk/Policy/uncertainty/European Union
    Date: 2009–10

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