nep-ene New Economics Papers
on Energy Economics
Issue of 2010‒03‒13
sixteen papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices By Don Fullerton; Garth Heutel
  2. International Fuel Tax Assessment: An Application to Chile By Parry, Ian; Strand, Jon
  3. How to increase cross border transmission capacity? A case study: Belgium. By Bekaert, David; Meeus, Leonardo; Van Hertem, Dirk; Delarue, Erik; Delvaux, Bram; Küpper, Gerd; Belmans, Ronnie; D'haeseleer, William; Deketelaere, Kurt; Proost, Stefan
  4. Border Tax Adjustments to Negate the Economic Impact of an Electricity Generation Tax By Reyno Seymore; Margaret Mabugu; Jan van Heerden
  5. Reassessing the Oil Security Premium By Brown, Stephen P.A.; Huntington, Hillard G.
  6. "Analyzing and Forecasting Volatility Spillovers and Asymmetries in Major Crude Oil Spot, Forward and Futures Markets" By Chialin Chang; Michael McAleer; Roengchai Tansuchat
  7. Has the Non-oil Sector Decoupled from Oil Sector? A Case Study of Gulf Cooperation Council Countries By Basher, Syed, Abul
  8. The Economic Value of Biochar in Crop Production and Carbon Sequestration By Suzette P. Galinato; Jonathan K. Yoder; David Granatstein
  9. China in the Transition to a Low-Carbon Economy By ZhongXiang Zhang; ;
  10. Does Foreign Aid Reduce Energy and Carbon Intensities in Developing Countries By Bettina Kretschmer; Michael Hübler; Peter Nunnenkamp
  11. Efficient emissions reduction By Béatrice Roussillon; Paul Schweinzer
  12. Does Global Climate Policy Promote Low-Carbon Cities? Lessons Learnt From The CDM By Sippel, Maike; Michaelowa, Axel
  13. Long Term Versus Temporary Certified Emission Reductions in Forest Carbon-Sequestration Programs By Gregmar I. Galinato; Aaron Olanie; Shinsuke Uchida; Jonathan K. Yoder
  14. Adaptation of Forests to Climate Change: Some Estimates By Sedjo, Roger A.
  15. What about local climate governance? A review of promise and problems By Sippel, Maike; Jenssen, Till
  16. Climate Policy Design with Correlated Uncertainties in Offset Supply and Abatement Cost By Fell, Harrison; Burtraw, Dallas; Morgenstern, Richard; Palmer, Karen

  1. By: Don Fullerton; Garth Heutel
    Abstract: Using an analytical general equilibrium model, we find closed form solutions for the effect of energy policy on factor prices and output prices. We calibrate the model to the US economy, and we consider a tax on carbon. By looking at expenditure and income patterns across household groups, we quantify the uses-side and sources-side incidence of the tax. When households are categorized either by annual income or by total annual consumption as a proxy for permanent income, the uses-side incidence is regressive. This result is robust to sensitivity analysis over various parameter values. The sources-side incidence is also regressive, but this result is sensitive to parameter values. Incidence results across regions are also presented.
    JEL: H2 Q5
    Date: 2010–02
  2. By: Parry, Ian (Resources for the Future); Strand, Jon
    Abstract: Most developed and developing country governments levy taxes on gasoline and diesel fuel used by motor vehicles. However, outside of the United States and Europe, automobile and heavy truck externalities have not been quantified, so policymakers have little guidance on whether prevailing tax rates are anywhere close to their corrective levels. This paper develops a general approach for roughly gauging the magnitude of motor vehicle externalities, and hence the corrective tax on gasoline and diesel, for individual countries, based on pooling local data sources with extrapolations from U.S. data. The analysis is illustrated for the case of Chile, though it could be readily applied to other countries with appropriate data collection.
    Keywords: gasoline tax, diesel tax, externalities, optimal tax, welfare gains, Chile
    JEL: Q48 Q58 R48 H21
    Date: 2010–02–03
  3. By: Bekaert, David; Meeus, Leonardo; Van Hertem, Dirk; Delarue, Erik; Delvaux, Bram; Küpper, Gerd; Belmans, Ronnie; D'haeseleer, William; Deketelaere, Kurt; Proost, Stefan
    Abstract: Cross border capacity allows electric energy to be traded internationally. The electricity sector used to be vertically integrated and often state-owned. High voltage grids were generally developed within the borders of a country. Connecting different national high voltage grids was done to improve the security of the system and to accomodate for a few historical long term contracts. By doing so, the different systems could share their reserve generation capacity. Since the liberalization of the electricity sector, cross border capacity has gained a renewed interest as this can increase the competition in the market. This paper aims to give an overview of recent and planned investments which increase the cross border capacity of Belgium. Also we give an insight into the different technologies which can be used and their advantages and drawbacks are discussed.
    Date: 2009–05
  4. By: Reyno Seymore (Department of Economics, University of Pretoria); Margaret Mabugu (Department of Economics, University of Pretoria); Jan van Heerden (Department of Economics, University of Pretoria)
    Abstract: In the 2008 Budget Review, the South African government announced its intention to levy a 2c/kWh tax on the sale of electricity generated from non-renewable sources. This measure is intended to serve a dual purpose of helping to manage the current electricity supply shortages and to protect the environment (National Treasury 2008). An electricity generation tax is set to have an impact on the South African economy. However, several instruments have been proposed in the literature to protect the competitiveness and economy of a country when it imposes a green tax, one of these remedies being border tax adjustments.This paper evaluates the effectiveness for the South African case, of border tax adjustments (BTAs) in counteracting the negative impact of an electricity generation tax on competitiveness. The remedial effects of the BTAs are assessed in the light of their ability to maintain the environmental benefits of the electricity generation tax. Additionally, the the Global Trade Analysis Project (GTAP) model is used to evaluate the impact of an electricity generation tax on the South African, SACU and SADC economies and to explore the possibility of reducing the economic impact of the electricity generation tax through BTAs. The results show that an electricity generation tax will lead to a contraction in South African gross domestic product (GDP). Traditional BTAs are unable to address these negative impacts. We propose a reversedBTA approach where gains from trade are utilised to counteract the negative effects of an electricity generation tax, while retaining the environmental benefits associated with the electricity generation tax. This is achieved through a lowering of import tariffs, as this will reduce production costs and thereby restore the competitiveness of the South African economy. The reduction in import tariffs not only negates the negative GDP impact of the electricity generation tax, but the bulk of CO2 abatement from the electricity generation tax is retained.
    Date: 2010–02
  5. By: Brown, Stephen P.A. (Resources for the Future); Huntington, Hillard G.
    Abstract: World oil supply disruptions lead to U.S. economic losses. Because oil is fungible in an integrated world oil market, increased oil consumption, whether from domestic or imported sources, increases the economic losses associated with oil supply disruptions. Nevertheless, increased U.S. oil production expands stable supplies and dampens oil price shocks, whereas increased U.S. oil imports boosts the share of world oil supply that comes from unstable producers and exacerbates oil price shocks. Some of the economic losses associated with oil supply disruptions—gross domestic product losses and some transfers abroad—are externalities that can be quantified as oil security premiums. To estimate such premiums for domestic and imported oil, we take into account projected world oil market conditions, probable oil supply disruptions, the market response to oil supply disruptions, and the resulting U.S. economic losses. Our estimates quantify the security externalities associated with increased oil use, which derive from the expected U.S. economic losses resulting from potential disruptions in world oil supply.
    Keywords: oil markets, energy security, oil prices, economic activity
    JEL: Q4 Q48
    Date: 2010–02–05
  6. By: Chialin Chang (Department of Applied Economics, National Chung Hsing University); Michael McAleer (Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute); Roengchai Tansuchat (Faculty of Economics, Maejo University)
    Abstract: Crude oil price volatility has been analyzed extensively for organized spot, forward and futures markets for well over a decade, and is crucial for forecasting volatility and Value-at-Risk (VaR). There are four major benchmarks in the international oil market, namely West Texas Intermediate (USA), Brent (North Sea), Dubai/Oman (Middle East), and Tapis (Asia-Pacific), which are likely to be highly correlated. This paper analyses the volatility spillover and asymmetric effects across and within the four markets, using three multivariate GARCH models, namely the constant conditional correlation (CCC), vector ARMA-GARCH (VARMA-GARCH) and vector ARMA-asymmetric GARCH (VARMA-AGARCH) models. A rolling window approach is used to forecast the 1-day ahead conditional correlations. The paper presents evidence of volatility spillovers and asymmetric effects on the conditional variances for most pairs of series. In addition, the forecast conditional correlations between pairs of crude oil returns have both positive and negative trends. Moreover, the optimal hedge ratios and optimal portfolio weights of crude oil across different assets and market portfolios are evaluated in order to provide important policy implications for risk management in crude oil markets.
    Date: 2010–02
  7. By: Basher, Syed, Abul
    Abstract: As oil and gas are exhaustible resources, the need for economic diversification has gained momentum in the Gulf Cooperation Council (GCC) countries immediately after the end of the first oil boom in 1973-74. Economic diversification, in the context of GCC countries, implies development of the non-oil sector and reduction of the proportion of government revenue and export proceeds from the oil and gas sector. Applying newly developed measures of business cycle synchronicity between oil and non-oil sectors in three GCC economies (Kuwait, Qatar and Saudi Arabia), we show both the degree of diversification achieved so far and the direction of diversification in terms of individual non-oil sectors. Overall, Kuwait and Saudi Arabia appear to be moderately ahead than Qatar in reducing their dependence on oil. Nevertheless, by developing large production capacities of natural gas, Qatar has recently reduced its dependence on oil in favor of natural gas. A quantitative assessment of the determinants of business cycle synchronization is also provided.
    Keywords: Business cycle; Synchronization; Oil price; Fiscal policy; GCC countries.
    JEL: E62 Q32 E32 H30
    Date: 2010–03–02
  8. By: Suzette P. Galinato; Jonathan K. Yoder; David Granatstein (School of Economic Sciences, Washington State University)
    Abstract: This paper estimates the economic value of biochar application on agricultural cropland for carbon sequestration and its soil amendment properties. In particular, we consider the carbon emissions avoided when biochar is applied to agricultural soil, instead of agricultural lime, the amount of carbon sequestered, and the value of carbon offsets, assuming there is an established carbon trading mechanism for biochar soil application. We use winter wheat production in Eastern Whitman County, Washington as a case study, and consider different carbon offset price scenarios and different prices of biochar to estimate a farm profit. Our findings suggest that it may be profitable to apply biochar as a soil amendment under some conditions if the biochar market price is low enough and/or a carbon offset market exists.
    Keywords: Biochar, Carbon sequestration, Crop, Farm profitability, Soil amendment
    JEL: Q16 Q54
    Date: 2010–02
  9. By: ZhongXiang Zhang (East-West Center); ;
    Abstract: China, from its own perspective can not afford to, and from an international perspective, is not allowed to continue on the conventional path of encouraging economic growth at the expense of the environment. The country needs to transform its economy to effectively address concern about a range of environmental problems from burning fossil fuels and steeply rising oil import and international pressure to exhibit greater ambition in fighting global climate change. This paper first discusses China’s own efforts towards energy saving and pollutants cutting, the widespread use of renewable energy and participation in clean development mechanism, and puts carbon reductions of China’s unilateral actions into perspective. Given that that transition to a low carbon economy cannot take place overnight, the paper then discusses China’s policies on promoting the use of low-carbon energy technologies and nuclear power and efforts to secure stable oil and gas supplies during this transition period. Based on these discussions, the paper provides some recommendations on issues related to energy conservation and pollution control, wind power, nuclear power, clean coal technologies, and overseas oil and gas supplies, and articulates a roadmap for China regarding its climate commitments to 2050.
    JEL: Q42 Q48 Q52 Q54 Q58
    Date: 2010–02
  10. By: Bettina Kretschmer; Michael Hübler; Peter Nunnenkamp
    Abstract: Advanced OECD countries are widely held responsible to contain global carbon emissions by providing financial and technical support to developing economies, where emissions are increasing most rapidly. It is open to question, however, whether more generous official development assistance would help fight climate change effectively. Empirical evidence on the effects of foreign aid on energy and emission intensities in recipient countries hardly exists. We contribute to closing this gap by considering energy use and carbon emissions as dependent climate-related variables, and the volume and structure of aid as possible determinants. In particular, we assess the impact of aid that donors classify to be specifically related to energy issues. In addition to OLS estimations, we perform dynamic panel GMM and LSDVC (corrected least squared dummy variables) estimations. We find that aid tends to be effective in reducing the energy intensity of GDP in recipient countries. All the same, the carbon intensity of energy use is hardly affected. Scaling up aid efforts would thus be insufficient to fight climate change beyond improving energy efficiency
    Keywords: Energy intensity, CO2 emissions, foreign aid, developing countries
    JEL: F35 Q41 Q55
    Date: 2010–02
  11. By: Béatrice Roussillon; Paul Schweinzer
    Date: 2010
  12. By: Sippel, Maike; Michaelowa, Axel
    Abstract: An increasing proportion of greenhouse gas emissions is produced in urban areas in industrializing and developing countries. Recent research shows that per capita emissions in cities like Bangkok, Cape Town or Shanghai have already reached the level of cities like London, New York or Toronto. Large parts of the building stock and service infrastructure in cities in rapidly developing countries is built in the coming decade or two. Decisions taken in this sector today may therefore lock in a high emissions path. Based upon a survey of projects under the Clean Development Mechanism (CDM) of the Kyoto Protocol, we find that only about 1% of CDM projects have been submitted by municipalities, mostly in the waste management sector. This low participation is probably due to a lack of technical know how to develop CDM projects and an absence of motivation due to the long project cycle and the limited “visibility” of the projects for the electorate. Projects in the buildings and transport sector are rare, mainly due to heavy methodological challenges. A case study of the city network ICLEI and its experience with cities’ participation in the CDM adds insights from the practitioner side. We conclude that CDM reforms may make it easier for municipalities to engage in the CDM, and that new forms of cooperation between municipalities and project developers, potentially facilitated by ICLEI, are required to help to realize the urban CDM potential.
    Keywords: CDM; cities; energy; climate policy; mitigation; transport; waste; local authorities
    JEL: Q5 H7 Q42 O13 Q4
    Date: 2009–11
  13. By: Gregmar I. Galinato; Aaron Olanie; Shinsuke Uchida; Jonathan K. Yoder (School of Economic Sciences, Washington State University)
    Abstract: Under the Clean Development Mechanism (CDM) of the Kyoto Protocol, forest projects can receive returns for carbon sequestration via two credit instruments: temporary (tCERs) or long-term certified emission reductions (lCERs). This article develops a theoretical model of optimal harvesting strategies that compares private optimal harvest decision under these two instruments. We find that risk neutral landowners are likely to prefer instituting lCERs over tCERs to maximize surplus. A particular type of early harvest penalty implemented under the lCERs is critical in determining the length of rotation intervals and the carbon credit supply. When this penalty is an increasing function of the difference in biomass before and after harvesting across verification periods, the landowner may choose longer or shorter rotation intervals compared to the Faustmann rotation. The resulting supply curve may have a backward bending region over a range of carbon prices.
    Keywords: forest rotation, long term certified emission reductions (lCERs), carbon sequestration
    JEL: Q2 Q54 Q23
    Date: 2009–12
  14. By: Sedjo, Roger A. (Resources for the Future)
    Abstract: This paper is based on a World Bank–sponsored effort to develop a global estimate of adaptation costs, considering the implications of global climate change for industrial forestry. It focuses on the anticipated impacts of climate change on forests broadly, on industrial wood production in particular, and on Brazil, South Africa, and China. The aim is to identify likely damages and possible mitigating investments or activities. The study draws from the existing literature and the results of earlier investigations reporting the latest comprehensive projections in the literature. The results provide perspective as well as estimates and projections of the impacts of climate change on forests and forestry in various regions and countries. Because climate change will increase forest productivity in some areas while decreasing it elsewhere the impacts vary for positive to negative by region. In general, production increases will shift from low-latitude regions in the short term to high latitude regions in the long term. Planted forests will offer a major vehicle for adaptation.
    Keywords: forests, climate change, adaptation, productivity, plantations, industrial wood, climate models
    JEL: Q20 Q23 Q55
    Date: 2010–01–26
  15. By: Sippel, Maike; Jenssen, Till
    Abstract: A large proportion of greenhouse gas emissions is produced in urban areas, particularly in high income countries. Cities are also vulnerable to the impacts of climate change, and particularly so in developing countries. Therefore, local climate policies for mitigation and adaptation have to play an important role in any effective global climate protection strategy. Based upon a systematic literature review, this article gives a comprehensive overview of motivation and challenges for local climate governance. A large part of the literature focuses on mitigation and cities in industrialized countries. The review also includes the smaller and emerging body of literature on adaptation and cities in developing or industrializing countries. Motivations and challenges we find fall into broad categories like ‘economic’, ‘informational’, ‘institutional’, ‘liveability’ or ‘political/cultural’. We conclude that the mix of motivation and challenges is city-specific, and that the national framework conditions are important. It matters, whether cities engage in mitigation or adaptation policies, whether they are located in developing, industrializing or industrialized countries, and at which stage of climate policy-making cities are. For many cities, cost savings are a primary motivation for local mitigation policies, while perceived vulnerability and a commitment to development is the primary motivator for adaptation policies. The collective action problem of climate protection (also known as ‘Tragedy of the Commons’) and inappropriate legal frameworks are key barriers to mitigation policies. Challenges for adaptation include financial constraints, and a lack of expertise, cooperation, leadership and political support. Understanding their specific motivation and challenges may support cities in developing appropriate local climate action plans. Furthermore, the understanding of motivation and challenges can inform other policy levels that want to help realize the local climate protection potential.
    Keywords: Climate policy; local authorities; cities; mitigation; adaptation; energy; local climate governance
    JEL: Q5 H7 Q42 O13 Q4
    Date: 2009–11
  16. By: Fell, Harrison (Resources for the Future); Burtraw, Dallas (Resources for the Future); Morgenstern, Richard (Resources for the Future); Palmer, Karen (Resources for the Future)
    Abstract: Current and proposed greenhouse gas cap-and-trade systems allow regulated entities to offset abatement requirements by paying unregulated entities to abate. These offsets from unregulated entities are believed to contain system costs and stabilize allowance prices. However, the supply of offsets is highly uncertain. Furthermore, the offset supply uncertainty may be correlated with other sources of uncertainty in emissions trading systems. This paper presents a model that incorporates both uncertainties in the supply of offsets and in abatement costs. Using numerical methods we solve the model under a variety of parameter settings, including a system that includes allowance price controls. We find that as uncertainty in offsets and uncertainty in abatement costs become more negatively correlated, expected abatement plus offset purchase costs increase, as does the variability in allowance prices and emissions from the regulated sector. Imposing an allowance price collar that limits the upper and lower cost substantially mitigates cost increases as well as the variability in prices and emissions, while roughly maintaining expected environmental outcomes.
    Keywords: climate change, offsets, cap-and-trade, price collars, stochastic dynamic programming
    JEL: Q54 Q58 C61
    Date: 2010–01–12

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