nep-ene New Economics Papers
on Energy Economics
Issue of 2010‒03‒06
thirty-one papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. UK Renewable Energy Policy Since Privatisation By Pollitt, M.G.
  2. Elicting public support for greening the electricity mix using random parameter techniques By Grösche, Peter; Schröder, Carsten
  3. Energy R&D in private and state-owned utilities: an analysis of the major world electric companies By Sterlacchini, Alessandro
  4. Estimating Marginal Costs and Market Power in the Italian Electricity Auctions By Bruno Bosco; Lucia Parisio; Matteo Pelagatti
  5. Optimal Emission Tax with Endogenous Location Choice of Duopolistic Firms By Masako Ikefuji; Jun-ichi Itaya; Makoto Okamura
  6. Electricity consumption and GDP in an electricity community: Evidence from bound testing cointegration and Granger-causality tests By Alinsato, Alastaire Sèna
  7. Europe's gas supplies : diversification with Caspian gas and the “Russian risk” By Catherine Locatelli
  8. Too Much Oil By Reyer Gerlagh
  9. Second-Best Optimal Taxation of Oil and Capital in a Small Open Economy By Alberto Petrucci
  10. A Branch-and-Price Approach for a Ship Routing Problem with Multiple Products and Inventory Constraints By Mare, R. de; Spliet, R.; Huisman, D.
  11. An Economic Breakeven Model of Cellulosic Feedstock Production and Ethanol Conversion with Implied Carbon Pricing By Miranowski, John; Rosburg, Alicia
  12. Kyoto and the carbon content of trade By Aichele, Rahel; Felbermayr, Gabriel
  13. Price relationships in the EU emissions trading system By Julien Chevallier
  14. The EUA-sCER Spread: Compliance Strategies and Arbitrage in the European Carbon Market By Maria Mansanet-Bataller; Julien Chevallier; Morgan Hervé-Mignucci; Emilie Alberola
  15. The innovation impact of EU emission trading: findings of company case studies in the German power sector By Rogge, Karoline S.; Schneider, Malte; Hoffmann, Volker H.
  16. Carbon Prices during the EU ETS Phase II: Dynamics and Volume Analysis By Julien Chevallier
  17. Stochastic Income Statement Planning and Emissions Trading By Henry Dannenberg; Wilfried Ehrenfeld
  18. Cross-country comparison of the replacement incentives of the EU ETS in 2008-12: the case of the power sector By Rogge, Karoline S.; Linden, Christian
  19. Tradable Permits vs Ecological Dumping By Panos Hatzipanayotou; Fabio Antoniou; Phoebe Koundouri
  20. The European carbon market (2005-2007): banking, pricing and risk-hedging strategies By Julien Chevallier
  21. Investments and Financial Flows Induced by Climate Mitigation Policies By Emanuele Massetti; Andrea Bastianin; Alice Favero
  22. European Forests and Carbon Sequestration Services: An Economic Assessment of Climate Change Impacts By Paulo A.L.D. Nunes; Helen Ding; Sonja Teelucksingh
  23. What Drives the International Transfer of Climate Change Mitigation Technologies? Empirical Evidence from Patent Data By Matthieu Glachant; Antoine Dechezleprêtre; Yann Ménière
  24. Structuring International Financial Support for Climate Change Mitigation in Developing Countries By Karsten Neuhoff; Sam Fankhauser; Emmanuel Guerin; Jean Charles Hourcade; Helen Jackson; Ranjita Rajan; John Ward
  25. Climate Change and the Future Impacts of Storm-Surge Disasters in Developing Countries By Susmita Dasgupta; Benoit Laplante; David Wheeler; Siobhan Murray
  26. Potentials and Limits of Bayesian Networks to Deal with Uncertainty in the Assessment of Climate Change Adaptation Policies By Michela Catenacci; Carlo Giupponi
  27. Climate Change Meets Trade in Promoting Green Growth: Potential Conflicts and Synergies By ZhongXiang Zhang
  28. Modeling Biased Technical Change. Implications for Climate Policy By Enrica De Cian; Carlo Carraro; Lea Nicita
  29. Second Best Environmental Policies under Uncertainty By Panos Hatzipanayotou; Panos Hatzipanayotou; Fabio Antoniou; Phoebe Koundouri
  30. Capital Malleability and the Macroeconomic Costs of Climate Policy By Elisa Lanzi; Ian Sue Wing
  31. Fairness, Credibility and Effectiveness in the Copenhagen Accord: An Economic Assessment By Alice Favero; Enrica De Cian

  1. By: Pollitt, M.G.
    Abstract: The aim of this paper is to look at the UK’s renewable energy policy in the context of its overall decarbonisation and energy policies. This will allow us to explore the precise nature of the ‘failure’ of UK renewables policy and to suggest policy changes which might be appropriate in light of the UK’s institutional and resource endowments. Our focus is on the electricity sector both in terms of renewable generation and to a lesser extent the facilitating role of electricity distribution and transmission networks. We will suggest that the precise nature of the failure of UK policy is rather more to do with societal preferences and the available mechanisms for encouraging social acceptability than it is to do with financial support mechanisms. Radical changes to current policy are required, but they must be careful to be institutionally appropriate to the UK. What we suggest is that current policies exhibit an unnecessarily low benefit to cost ratio, and that new policies for renewable deployment must pay close attention to cost effectiveness.
    Keywords: Renewable electricity, Feed-in-Tariff, Renewable Obligation
    JEL: H23 L98
    Date: 2010–01–29
  2. By: Grösche, Peter; Schröder, Carsten
    Abstract: With its commitment to double the share of renewables in electricity generation to at least 30% by 2020, the German government has embarked on a costly policy course whose public support remains an open empirical question. Building on ample household survey data, we trace peoples' willingness-to-pay (WTP) for various fuel mixes in electricity generation, and capture preference heterogeneity among respondents using random parameter techniques. Based on our estimates, we infer price premia that can be charged for specific electricity mixes while ensuring that a majority of people still supports the policy. Despite that people's WTP for electricity is positively correlated with the share of renewables in electricity generation, our results imply that the financial scope for subsidizing renewables is virtually exhausted. --
    Keywords: green electricity,willingness-to-pay,preference heterogeneity,policy evaluation
    Date: 2010
  3. By: Sterlacchini, Alessandro
    Abstract: The last two decades have witnessed a staggering decline of R&D investment in the fields of energy and electricity. This paper contends that this widespread phenomenon is mainly ascribable to the processes of liberalisation and privatisation of electricity markets which have induced electric utilities to dramatically reduce R&D expenditures. However, a closer inspection to recent data concerned with ten major electric companies of the world shows that not all of them behaved in the same way. The drop of research expenditures was particularly strong among the private or newly-privatised companies, while those that remained under public control did not reduce R&D efforts. Moreover, the choice of maintaining an adequate level of R&D was not at odds with the goal of increasing company profits. According to these findings and to the widely recognised need of a surge of energy R&D, radical policy measures seem necessary. Along with an R&D obligation for private electric utilities, also an extension of public ownership or the introduction of public-private partnerships should be seriously taken into account.
    Keywords: Energy R&D; Electric utilities; Public and private enterprises
    JEL: O30 L94 L33
    Date: 2010–02–25
  4. By: Bruno Bosco (Department of Legal and Economic Systems, Università degli Studi di Milano-Bicocca); Lucia Parisio (Department of Legal and Economic Systems, Università degli Studi di Milano-Bicocca); Matteo Pelagatti (Department of Statistics, Università degli Studi di Milano-Bicocca)
    Abstract: In this paper we examine the bidding behaviour of firm competing in the Italian wholesale electricity market where generators submit hourly supply schedule to sell power. We describe the institutional characteristics of the Italian market and derive generators' equilibrium bidding functions. We also discuss the main empirical strategies followed by the recent econometrical literature to obtain estimates of (unobservable) optimal bids. Then, we use individual bid data, quantity volumes and other control variables to compare actual bidding behaviour to theoretical benchmarks of profit maximization. We obtain estimates of generators' costs to be used in conjunction with hourly market equilibrium prices to derive some measures of the extent of market power in the Italian electricity sector and of its exploitation by firms.
    Keywords: Bidding behaviour in Electricity markets, Estimates of optimal bid functions, Measures of market power
    JEL: D24 L13 L41 L94 L98
    Date: 2010–02
  5. By: Masako Ikefuji (nstitute of Social and Economic Research Osaka University); Jun-ichi Itaya (Hokkaido University); Makoto Okamura (Hiroshima University)
    Abstract: This paper explores optimal environmental tax policy under which duopoly firms strategically choose the location of their plants in a simple three-stage game. We examine how the relationship between the optimal emission tax and the choice of location of duopoly firms affects the welfare of the home country. We characterize the relationship between the optimal emission tax and the fixed cost, depending on the degree of environmental damage from production. Finally, we show the existence of asymmetric equilibrium in which either firm chooses relocation of its plant even if the duopoly firms are identical ex ante.
    Keywords: Environmental policy, Relocation, Welfare
    JEL: H23 L13
    Date: 2010–01
  6. By: Alinsato, Alastaire Sèna
    Abstract: This study probes nexus between electricity consumption and GDP for the electricity community of Togo and Benin using ARDL bounds testing approach of cointegration. Long-run equilibrium has been established among these variables for Benin. The study further establishes long- and short-run Granger causality running from GDP to electricity consumption for Benin and short-run Granger causality running from GDP to electricity consumption for Togo. The results of the cointegration test and the causality reflect better the Benin and Togo economies that are less dependent on electricity. The absence of causality running from electricity consumption to GDP implies that electricity demand side management measures can be adopted to reduce the wastage of electricity, which would not affect future economic growth in the community.
    Keywords: ARDL; cointegration; causality; growth; electricity
    JEL: C32 C22 O19
    Date: 2009–07–18
  7. By: Catherine Locatelli (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: The issue of EU gas supply security has become more and more important in the 2000s in the context of the gas market liberalisation and the question of reliability of Russian supplier. One answer to these problems is the EU gas diversification, specifically the opening up of a fourth gas corridor to supply the EU via the “Caucasus” or “southern” route with gas from Central Asia. The feasibility of this strategy might now be called into question. The aim of this article is to examine the new strategies that could emerge in the producing countries as well as those of international oil companies, and then look at what the consequences might be as far as the EU's diversification strategy is concerned. The aim of this article is to identify some of the problems and limits for this corridor.
    Date: 2010–02
  8. By: Reyer Gerlagh (Tilburg University)
    Abstract: Fear for oil exhaustion and its consequences on economic growth has been a driver of a rich literature on exhaustible resources from the 1970s onwards. But our view on oil has remarkably changed and we now worry how we should constrain climate change damages associated with oil and other fossil fuel use. In this climate change debate, economists have pointed to a green paradox: when policy makers stimulate the development of non-carbon energy sources to (partly) replace fossil fuels in the future, oil markets may anticipate a future reduction in demand and increase current supply. The availability of ‘green’ technologies may increase damages. The insight comes from the basic exhaustible resource model. We reproduce the green paradox and to facilitate discussion differentiate between a weak and a strong version, related to short-term and long-term effects, respectively. Then we analyze the green paradox in 2 standard modifications of the exhaustible resource model. We find that increasing fossil fuel extraction costs counteracts the strong green paradox, while with imperfect energy substitutes both the weak and strong green paradox may vanish.
    Keywords: Green Paradox, Climate Change, Exhaustible Resources, Fossil Fuels
    JEL: Q31 Q54
    Date: 2010–02
  9. By: Alberto Petrucci (LUISS University)
    Abstract: This paper analyzes the efficient taxation of oil and capital income in an oil-dependent infinite-lived economy facing perfect capital mobility. Two cases are examined: one with product market imperfections and free tax choice, one with perfect competition and tax restrictions. The optimal tax rates on oil and capital strictly depend on the international tax system implemented; however, they are also affected by the degree of market power and the extent to which monopoly profits are taxed, the type of tax restrictions and the use of oil (as an input or a consumer good). Under the residence-based system, capital income should always be exempted from taxation, while the optimal tax on productive oil may differ from zero. Under the source-based system, second-best taxes on capital and oil are non-zero.
    Keywords: Optimal Factor Taxation, Oil, Capital Income, Residence-based System, Source-Based System
    JEL: E62 H21 Q43 Q48
    Date: 2010–02
  10. By: Mare, R. de; Spliet, R.; Huisman, D. (Erasmus Econometric Institute)
    Abstract: In the oil industry, different oil components are blended in a refinery to fuel products. These products are transported to different harbors by ship. Due to the limited storage capacity at the harbors and the undesirability of a stock-out, inventory levels at the harbors have to be taken into account during the construction of the ship routes. In this paper, we give a detailed description of this problem, which we call the ship routing problem with multiple products and inventory constraints. Furthermore, we formulate this problem as a generalized set-covering problem, and we present a Branch-and-Price algorithm to solve it. The pricing problems have a very complex nature. We discuss a dynamic programming algorithm to solve them to optimality.
    Keywords: ship routing;multiple-products;inventory constraints;set-partitioning formulation;column generation;branch-and-price
    Date: 2010–02–23
  11. By: Miranowski, John; Rosburg, Alicia
    Abstract: The objectives of this paper include: 1) developing an economic framework to estimate long run equilibrium breakeven prices that cellulosic ethanol processors can pay for the marginal or last unit of biomass feedstock they purchase and still breakeven and that cellulosic feedstock producers need to receive for supplying the last unit of feedstock delivered to a commercial-scale plant; 2) estimating the gap or difference between the biorefinery’s willingness to pay (WTP) or derived demand for the last unit of cellulosic feedstock and the suppliers’ willingness to accept (WTA) or marginal cost (MC) of supplying the last unit of feedstock; 3) completing a life-cycle analysis (LCA) of each feedstock alternative or a “well-to-wheels” accounting of the potential greenhouse gas (GHG) savings associated with feedstock-specific ethanol relative to gasoline; and 4) calculating the carbon price or credit necessary for a biofuel market to exist in the long run. The model is designed to address various policy issues related to cellulosic biofuel production, including cellulosic biofuel production costs, the cost of cellulosic feedstock production when accounting for all costs incurred, government intervention costs either through tax credits and other incentives needed to sustain biofuel markets or through mandates to achieve the revised Renewable Fuels Standard (RFS.2), and finally, the implicit price or credit for CO2e embodied in cellulosic biofuel.
    Date: 2010–02–24
  12. By: Aichele, Rahel; Felbermayr, Gabriel
    Abstract: A unilateral tax on CO2 emissions may drive up indirect carbon imports from non-committed countries, leading to carbon leakage. Using a gravity model of carbon trade, we analyze the effect of the Kyoto Protocol on the carbon content of bilateral trade. We construct a novel data set of CO2 emissions embodied in bilateral trade flows. Its panel structure allows dealing with endogenous selection of countries into the Protocol. We find strong statistical evidence for Kyoto commitments to affect carbon trade. On average, the Kyoto protocol led to substantial carbon leakage but its total effect on carbon trade was only minor. --
    Keywords: Carbon leakage,gravity model,international trade,climate change,embodied emission,input-output analysis
    JEL: F18 Q54 Q56
    Date: 2010
  13. By: Julien Chevallier (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre)
    Abstract: The Emissions Trading Scheme (ETS) constrains industrial polluters to buy/sell CO2 allowances depending on a regional depolluting objective of -8% of CO2 emissions by 2012 compared to 1990 levels. Companies may also buy carbon offsets from developing countries, funding emissions cuts there instead, under a Kyoto Protocol Clean Development Mechanism (CDM). This article critically analyzes the price relationships in the EU emissions trading system. The United Nations Framework Convention on Climate Change (UNFCCC) delivers credits that may be used by European companies for their compliance needs. Certified Emissions Reductions (CERs) from CDM projects are credits flowing into the global compliance market generated through emission reductions. EUAs (EU Allowances) are the tradable unit under the EU ETS. Besides, the EU Linking Directive allows the import for compliance into the EU ETS up to 13.4% of CERs on average. This article details the idiosyncratic risks affecting each emissions market, be it in terms of regulatory uncertainty, economic activity, industrial structure, or the impact of other energy markets. Besides, based on a careful analysis of the EUA and CER price paths, we assess common risk factors by focusing more particularly on the role played by the CER import limit within the ETS.
    Keywords: Kyoto Protocol; Clean Development Mechanism; EU Emissions Trading Scheme; Greenhouse Gases Reductions; Emissions Markets; CDM; EU ETS
    Date: 2010–02–22
  14. By: Maria Mansanet-Bataller (Mission Climat Caisse des Dépôts - Université Panthéon-Sorbonne - Paris I); Julien Chevallier (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre); Morgan Hervé-Mignucci (Mission Climat Caisse des Dépôts - Université Panthéon-Sorbonne - Paris I); Emilie Alberola (Mission Climat Caisse des Dépôts - Université Panthéon-Sorbonne - Paris I)
    Abstract: This article studies the price relationships between EU emissions allowances (EUAs) – valid under the EU Emissions Trading Scheme (EU ETS) – and secondary Certified Emissions Reductions (sCERs) – established from primary CERs generated through the Kyoto Protocol's Clean Development Mechanism (CDM). Given the price differences between EUAs and sCERs, financial and industrial operators may benefit from arbitrage strategies by buying sCERs and selling EUAs (i.e. selling the EUA-sCER spread) to cover their compliance position between these two assets, as industrial operators are allowed to use sCERs towards compliance with their emissions cap within the European system up to 13.4%. Our central results show that the spread is mainly driven by EUA prices and market microstructure variables and less importantly, as we would expect, by emissions-related fundamental drivers. This might be justified by the fact that the EU ETS remains the greatest source of CER demand to date.
    Keywords: EUA-sCER Spread; Arbitrage; Emissions Markets
    Date: 2010–01–13
  15. By: Rogge, Karoline S.; Schneider, Malte; Hoffmann, Volker H.
    Abstract: This paper provides a comprehensive analysis of how the European Emission Trading System (EU ETS) as the core climate policy instrument of the European Union has impacted innovation. Towards this end, we investigate the impact of the EU ETS on research, development, and demonstration (RD&D), adoption, and organizational change. In doing so, we pay particular attention to the rela-tive influences of context factors (policy mix, market factors, public acceptance) as well as firm characteristics (value chain position, technology portfolio, size, vision). Empirically, our analysis is based on multiple case studies with 19 power generators, technology providers, and project developers in the German power sector which we conducted from June 2008 until June 2009. We find that the innovation impact of the EU ETS has remained limited so far because of the scheme’s initial lack in stringency and predictability and the relatively greater importance of context factors. Additionally, the impact varies tremendously across technologies, firms, and innovation dimensions, and is most pronounced for RD&D on carbon capture technologies and corporate procedural change. Our analysis suggests that the EU ETS by itself may not provide sufficient incentives for fundamental changes in corporate climate innovation activities at a level adequate for reaching political long-term targets. Based on the study’s findings, we derive a set of policy and research recommendations. --
    Keywords: EU ETS,emission trading,innovation,technological change,adoption,diffusion,organizational change,power sector
    Date: 2010
  16. By: Julien Chevallier (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre)
    Abstract: The European Union Emissions Trading Scheme (EU ETS) is the largest emissions trading scheme to date. This article summarizes the principle elements behind the trading system, and details the carbon price dynamics during Phase II (2008-2012), along with an analysis of traded volumes. The main findings emphasize that the EU ETS is a rapidly growing market, which yields to innovative learning process for all participants involved: policy makers, industrial operators, and financial analysts. Besides, these results shed some light on the usefulness of credit project mechanisms, which may result in the medium-term in integrated ‘world' carbon markets between various regional and/or national ETS.
    Keywords: EU ETS; Carbon Price; Phase II; CER ; Spot Price ; Futures Price ; Options Price
    Date: 2010–02–23
  17. By: Henry Dannenberg; Wilfried Ehrenfeld
    Abstract: Since the introduction of the European CO2 emissions trading system (EU ETS), the development of CO2 allowance prices is a new risk factor for enterprises taking part in this system. In this paper, we analyze how risk emerging from emissions trading can be considered in the stochastic profit and loss planning of corporations. Therefore we explore which planned figures are affected by emissions trading. Moreover, we show a way to model these positions in a planned profit and loss account accounting for uncertainties and dependencies. Consequently, this model provides a basis for risk assessment and investment decisions in the uncertain environment of CO2 emissions trading.
    Keywords: CO2,emissionstrading,EUETS,risk,stochasticbusinessplanning
    JEL: D81 G32 L59 Q54 Q56 Q58
    Date: 2010–02
  18. By: Rogge, Karoline S.; Linden, Christian
    Abstract: In this paper, we conduct a cross-country quantitative analysis of the replacement incentives generated by the EU ETS for the power sector in 2008-12. In order to do so, the allocation rules of the Member States are applied to concrete reference power plants for three different fuel types (lignite, hard coal and gas). Based on these calculations, we compare installation-specific replacement in-centives across the Member States. Our analysis shows that replacement incentives vary significantly across Member States and typically deviate from the incentives provided in the reference case of full auctioning. Furthermore, the EU ETS allocation rules lead to perverse incentives in approximately 30% of the possible replacement options. Only 5 MS do not provide any perverse incentives. Finally, we explore the link between replacement incentives and allocation types. Based on our findings, we derive policy recommendations for the design of emission trading schemes emerging around the world. --
    Keywords: EU emission trading scheme (EU ETS),replacement,adoption,diffusion,power sector,allocation rules
    Date: 2010
  19. By: Panos Hatzipanayotou (Athens University of Economics and Business and CES-ifo); Fabio Antoniou (Athens University of Economics and Business); Phoebe Koundouri (Athens University of Economics and Busines)
    Abstract: In this paper we examine an alternative policy scenario, where governments allow polluting firms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to under-regulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting firms and countries since the prisoners’ dilemma is moderated.
    Keywords: Strategic Environmental Policy, Tradable Permits, Race to the top
    JEL: Q58 F12 F18
    Date: 2010–01
  20. By: Julien Chevallier (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre)
    Abstract: At the stage of international post-Kyoto negotiations, the adoption of ambitious public policies raises an increasing interest, as society has a whole is more concerned by the scale of damages and the potential irreversibility linked to climate change. The introduction of a tradable permits market in Europe on January 1, 2005, in order to provide incentives to Member-States to take early abatement measures, may be seen as a decisive first step towards that direction. The creation of the EU ETS has indeed revealed the key role played by the European Union in the preservation of the global public good that constitutes the climate. This article reviews the market rules of the European carbon market during 2005-2007. More particularly, it synthesizes theoretical and empirical analyses of banking and borrowing provisions, price drivers and risk-hedging strategies attached to tradable quotas, which were introduced to cover the CO2 emissions of around 10,600 installations in Europe.
    Keywords: Climate Change Policy; Emissions Trading; EU ETS; European carbon market; Banking Borrowing; Carbon Pricing; Spot Prices; Futures Prices; Option Prices; Risk-Hedging Strategies
    Date: 2010–02–22
  21. By: Emanuele Massetti (Fondazione Eni Enrico Mattei); Andrea Bastianin (Fondazione Eni Enrico Mattei); Alice Favero (Fondazione Eni Enrico Mattei)
    Abstract: In this paper we use the hybrid integrated model WITCH to quantify and analyze the investments and financial flows stimulated by a climate policy to stabilize Greenhouse Gases concentrations at 550ppm CO2-eq at the end of the century. We focus on investments to decarbonize the power sector and on investments in knowledge creation. We examine the financial flows associated with the carbon market and the implications for the international trade of oil. Criticalities in investment requirements will emerge when coal power plants with carbon capture and sequestration and nuclear power plants are deployed around 2020-2040, both in high and low income regions. Investments in energy related R&D increase sharply and might cause stress in the short term. However, the transition to a low-carbon world, although costly, appears to be manageable from a financial point of view. In particular, R&D financial needs can easily be accommodated using revenues from the carbon market, which is expected to eventually become more important than the oil market in terms of traded value.
    Keywords: Climate Change, Mitigation, Carbon Finance, Emission Trading, Energy Investments
    JEL: Q01 Q43 Q54 O32 O11
    Date: 2010–02
  22. By: Paulo A.L.D. Nunes (University of Venice); Helen Ding (Ca’ Foscari University of Venice and Fondazione Eni Enrico Mattei); Sonja Teelucksingh (ondazione Eni Enrico Mattei and University of the West Indies)
    Abstract: This paper reports an original economic valuation of the impact of climate change on the provision of forest regulating services in Europe. To the authors’ knowledge the current paper represents the first systematic attempt to estimate human well-being losses with respect to changes in biodiversity and forest regulating services that are directly driven by climate change. First, selected 34 European countries are grouped by their latitude intervals to capture the differentiated regional effects of forests in response to climate change. Moreover, the future trends of forest areas and stocked carbon in 2050 are projected through the construction and simulation of global circulation models such as HADMC3 following four different future developing paths described by the four IPCC scenarios. Finally, the valuation exercise is anchored in an ecosystem service based approach, involving the use of general circulation models and integrated assessment models. Our findings address two dimensions in the evaluation of climate impacts on European forests: Firstly, future projections yield different states of the world depending upon the IPCC scenario adopted. Secondly, spatial issues matter in an assessment of the distributional impacts of climate change, as these impacts are not distributed in a uniform way across the European countries under consideration.
    Keywords: Economic Valuation, Forest Ecosystem, Carbon Sequestration, Climate Change Impacts
    JEL: Q23 Q51 Q57
    Date: 2010–01
  23. By: Matthieu Glachant (CERNA, Mines ParisTech); Antoine Dechezleprêtre (Mines Paris Tech, CERNA); Yann Ménière (Mines Paris Tech, CERNA)
    Abstract: Using patent data from 66 countries for the period 1990–2003, we characterize the factors which promote or hinder the international diffusion of climate-friendly technologies on a global scale. Regression results show that technology-specific capabilities of the recipient countries are determinant factors. In contrast, the general level of education is less important. We also show that restrictions to international trade—e.g., high tariff rates—and lax intellectual property regimes negatively influence the international diffusion of patented knowledge. A counter-intuitive result is that barriers to foreign direct investments can promote transfers. We discuss different possible interpretations.
    Keywords: Climate Change, Technology Diffusion, Technology Transfer
    JEL: O33 O34 Q54
    Date: 2010–02
  24. By: Karsten Neuhoff; Sam Fankhauser; Emmanuel Guerin; Jean Charles Hourcade; Helen Jackson; Ranjita Rajan; John Ward
    Abstract: In the Copenhagen Accord of December 2009, developed countries agreed to provide start-up finance for adaptation in developing countries and expressed the ambition to scale this up to $100 billion per year by 2020. The financial mechanisms to deliver this support have to be tailored to country and sector specific needs so as to enable domestic policy processes and self sustaining business models, and to limit policy risk exposure for investors while complying with budgetary constraints in OECD countries. This paper structures the available financial mechanisms according to the needs they can address, and reports on experience with their application in bilateral and multilateral settings.
    Keywords: Financial mechanism, risk guarantee, development, climate policy
    JEL: F30 G20 R38
    Date: 2010
  25. By: Susmita Dasgupta; Benoit Laplante; David Wheeler; Siobhan Murray
    Abstract: The implications of sea-level rise and storm surges for 84 developing countries and 577 of their cyclone-vulnerable coastal cities with populations greater than 100,000 are explored. Combining the most recent scientific and demographic information, they estimate the future impact of climate change on storm surges that will strike coastal populations, economies, and ecosystems. Focus is on the distribution of heightened impacts, because the authors believe that greater knowledge of their probable variation will be useful for local and national planners, as well as international donors. [WP No. 182].
    Keywords: vulnerable, coastal cities, developing countries, economies, populations, demographic formations, climate change, disasters, cyclonic storm, damaging flood conditions, migration, tropical cyclone intensity, regional variability
    Date: 2010
  26. By: Michela Catenacci (Fondazione Eni Enrico Mattei); Carlo Giupponi (Ca' Foscari University Centre for Environmental Economics and Management, and Fondazione Eni Enrico Mattei)
    Abstract: Bayesian networks (BNs) have been increasingly applied to support management and decision-making processes under conditions of environmental variability and uncertainty, providing logical and holistic reasoning in complex systems since they succinctly and effectively translate causal assertions between variables into patterns of probabilistic dependence. Through a theoretical assessment of the features and the statistical rationale of BNs, and a review of specific applications to ecological modelling, natural resource management, and climate change policy issues, the present paper analyses the effectiveness of the BN model as a synthesis framework, which would allow the user to manage the uncertainty characterising the definition and implementation of climate change adaptation policies. The review will let emerge the potentials of the model to characterise, incorporate and communicate the uncertainty, with the aim to provide an efficient support to an informed and transparent decision making process. The possible drawbacks arising from the implementation of BNs are also analysed, providing potential solutions to overcome them.
    Keywords: Adaptation to Climate Change, Bayesian Network, Uncertainty
    JEL: Q54
    Date: 2010–01
  27. By: ZhongXiang Zhang (Senior Fellow Research Program East-West Center)
    Abstract: To date, border adjustment measures in the form of emissions allowance requirements (EAR) under the U.S. proposed cap-and-trade regime are the most concrete unilateral trade measure put forward to level the carbon playing field. If improperly implemented, such measures could disturb the world trade order and trigger a trade war. Because of these potentially far-reaching impacts, this paper focuses on this type of unilateral border adjustment, which requires importers to acquire and surrender emissions allowances corresponding to the embedded carbon contents in their goods from countries that have not taken climate actions comparable to that of home country. This discussion is mainly on the legality of unilateral EAR under the WTO rules. Given that the inclusion of border carbon adjustment measures is widely considered essential to secure passage of any U.S. legislation capping its greenhouse gas emissions, the paper argues that, on the U.S. side, in designing such trade measures, WTO rules need to be carefully scrutinised, and efforts need to be made early on to ensure that the proposed measures comply with them. After all, a conflict between the trade and climate regimes, if it breaks out, helps neither trade nor the global climate. The U.S. needs to explore, with its trading partners, cooperative sectoral approaches to advancing low-carbon technologies and/or concerted mitigation efforts in a given sector at an international level. Moreover, to increase the prospects for a successful WTO defence of the Waxman-Markey type of border adjustment provision, there should be: 1) a period of good faith efforts to reach agreements among the countries concerned before imposing such trade measures; 2) consideration of alternatives to trade provisions that could be reasonably expected to fulfill the same function but are not inconsistent or less inconsistent with the relevant WTO provisions; and 3) trade provisions that can refer to the designated special international reserve allowance pool, but should allow importers to submit equivalent emission reduction units that are recognized by international treaties to cover the carbon contents of imported products. The paper concludes by arguing that the major developing countries being targeted by such border carbon adjustment measures should make the best use of the forums provided under the United Nations Framework Convention on Climate Change and its Kyoto Protocol to effectively deal with the proposed border adjustment measures to their advantage.
    Keywords: Post-2012 climate negotiations, Border carbon adjustments, Carbon tariffs, Emissions allowance requirements, Cap-and-trade regime, Lieberman-Warner bill,Waxman-Markey bill, World Trade Organization, Kyoto Protocol, Developing countries, United States
    JEL: F18 Q48 Q54 Q56 Q58
    Date: 2010–02
  28. By: Enrica De Cian (Fondazione Eni Enrico Mattei); Carlo Carraro (University of Venice, Fondazione Eni Enrico Mattei, CEPR, CESifo and CMCC); Lea Nicita (Fondazione Eni Enrico Mattei)
    Abstract: Climate-economy models aiming at quantifying the costs and effects of climate change impacts and policies have become important tools for climate policy decision-making. Although there are several important dimensions along which models differ, this paper focuses on a key component of climate change economics and policy, namely technical change. This paper tackles the issues of whether technical change is biased towards the energy sectors, the importance of the elasticity of substitution between factors in determining this bias and how mitigation policy is likely to affect it. The analysis is performed using the World Induced Technical Change model, WITCH. Three different versions of the model are proposed. The starting set-up includes endogenous technical change only in the energy sector. A second version introduces endogenous technical change in both the energy and non-energy sectors. A third version of the model embodies different sources of technical change, namely R&D and human capital. Although different formulations of endogenous technical change have only a minor influence on climate policy costs, the macroeconomic effects on knowledge and human capital formation can vary greatly.
    Keywords: Technical Change, Climate Policy, Stabilization Cost
    JEL: C72 H23 Q25 Q28
    Date: 2010–01
  29. By: Panos Hatzipanayotou; Panos Hatzipanayotou (Athens University of Economics and Business and CES-ifo); Fabio Antoniou (Athens University of Economics and Business); Phoebe Koundouri (Athens University of Economics and Busines)
    Abstract: We construct a strategic trade model of an international duopoly, whereby production by exporting firms generates a local pollutant. Governments use environmental policies, i.e., an emissions standard or a tax, to control pollution and for rent shifting purposes. Contrary to their firm, however, governments are unable to perfectly foresee the actual level of demand, the cost of abatement and the damage caused from pollution. Under these modes of uncertainty we derive sufficient conditions under which the governments optimally choose an emissions tax over an emissions standard.
    Keywords: Strategic Environmental Policy, Pollution, Choice of Policy Instrument, Uncertainty
    JEL: F12 F18 Q58
    Date: 2010–01
  30. By: Elisa Lanzi (School of Advanced Studies in Venice (SSAV) and Fondazione Eni Enrico Mattei (FEEM)); Ian Sue Wing (Dept. of Geography & Environment, Boston University and Joint Program on the Science & Policy of Global Change, MIT)
    Abstract: This paper argues for introducing the role of capital malleability into the analysis of environmental policies. The issue is explored by means of a theoretical model, a numerical analysis and a computable general equilibrium (CGE) model. Considering the three approaches together is fundamental in obtaining theory-compatible policy-relevant results. The model outcomes reveal differences between results under separate assumptions regarding the malleability of capital. When capital is imperfectly malleable a carbon policy is less effective than under the assumption of perfect malleability of capital. Therefore, it is important that, especially for the analysis of short-term environmental regulations, the issue of capital malleability is taken into consideration.
    Keywords: General Equilibrium, CGE Models, Climate Change Policy
    JEL: C68 D58 H22 Q43
    Date: 2010–02
  31. By: Alice Favero (Fondazione Eni Enrico Mattei and University of Venice); Enrica De Cian (Fondazione Eni Enrico Mattei and University of Venice)
    Abstract: State-of-the-art literature on climate change policies has proposed numerous approaches for the Post-Kyoto agreement. However, in analysing the outcome of negotiations, the feeling is that a huge gap exists between policy makers and scientists. This paper tries to bridge this gap by providing a critical and comparative analysis of the Copenhagen Accord provisions, linking them to a part of the climate-economy literature. It assesses Copenhagen outcome in terms of economic efficiency, environmental effectiveness and political credibility. Our conclusion suggests that the Copenhagen Accord succeeded in considering some of the climate policy principles, namely credibility, equity and fairness. First, the change in political leadership indicates a more collaborative mood. Regarding equity and fairness, developing countries obtained an explicit commitment by developed countries for technology, but especially financial transfers, though on a conditional basis. The major limitation of the Accord is the way it addresses the trade-off between politically viability, thus implicitly fairness, and economic and environmental effectiveness. Therefore, future negotiations should deal with the eventuality of a global temperature increase above the 2 degrees, even in the presence of successful global mitigation.
    Keywords: International Climate Policy Architecture, Integrated Assessment Model, Post-Kyoto
    JEL: Q54 Q56 Q43
    Date: 2010–02

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