nep-ene New Economics Papers
on Energy Economics
Issue of 2010‒06‒04
25 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Building Blocks: Investment in Renewable and Non-Renewable Technologies By Bushnell, James
  2. From Liberalization Towards Integration: Have Markups of EU Electricity Firms Changed? By Ziga Zarnic
  3. European Electricity Market Reforms: Any Signs of Efficiency Improvements? By Ziga Zarnic
  4. Causality between Electricity Consumption & Economic growth : Empirical Evidence from India By Gupta, Geetu; Sahu, Naresh Chandra
  5. Toward Electric Cars and Clean Coal: A Comparative Analysis of Strategies and Strategy-Making in the U.S. and China By Burgelman, Robert A.; Grove, Andrew S.
  6. Factors Determining the Adoption of Energy-saving Technologies in Swiss Firms – An Analysis based on Micro Data By Spyros Arvanitis; Ley Marius
  7. Fuel Tax Incidence and Supply Conditions By Marion, Justin; Muehlegger, Erich
  8. Crude Oil Price shocks to Emerging Markets: Evaluating the BRICs Case By Khan, Salman
  9. What Really Matters: Discounting, Technological Change and Sustainable Climate By Georg Müller-Fürstenberger; Gunter Stephan
  10. Environmental Performance and Regional Innovation Spillovers By Valeria Costantini; Massimiliano Mazzanti; Anna Montini
  11. Geography, environmental efficiency and Italian economic growth: a spatially-adapted Environmental Kuznets Curve By Ciriaci, Daria; Palma, Daniela
  12. International carbon emissions trading and strategic incentives to subsidize green energy By Thomas Eichner; Rüdiger Pethig
  13. Modelling the convenience yield in carbon prices using daily and realized measures By Julien Chevallier
  14. Risk Management and Regulation Compliance with Tradable Permits under Dynamic Uncertainty By Pasquale Lucio Scandizzo; Odin K Knudsen
  15. The Effect of Allowance Allocations on Cap-and-Trade System Performance By Hahn, Robert W.; Stavins, Robert N.
  16. Carbon Capture by Fossil Fuel Power Plants: An Economic Analysis By Islegen, Ozge; Reichelstein, Stefan
  17. Expected fatalities for one wedge of CCS mitigation: Actuarial risk assessment of carbon capture and storage at the global scale in 2050 By Minh Ha-Duong; Rodica Loisel
  18. Catastrophic Natural Disasters and Economic Growth By Eduardo Cavallo; Sebastian Galiani; Ilan Noy; Juan Pantano
  20. How Volatile is ENSO? By LanFen Chu; Chi-Chung Chen; Michael McAleer
  21. Climate change data for Austria and the period 2008-2040 with one day and km^2 resolution By Franziska Strauss; Herbert Formayer; Veronika Asamer; Erwin Schmid
  22. Climate Policy as Expectation Management? By Daiju Narita
  23. What is the best environmental policy? Taxes, permits and rules under economic and environmental uncertainty By Konstantinos Angelopoulos; George Economides; Apostolis Philippopoulos
  24. Trading Off Generations: Infinitely-Lived Agent Versus OLG By Maik T. Schneider; Christian Traeger; Ralph Winkler
  25. Environmental Governance, Globalisation and Economic Performance By Tisdell, Clem

  1. By: Bushnell, James
    Abstract: Over the last several years, there has been a nation-wide intensification of policies directed at increasing the level of renewable sources of electricity.  These environmental policy changes have occurred against a backdrop of shifting economic regulation in power markets that has fundamentally redefined the mechanisms through which investors in power plants earn revenues. Rather than base payments upon costs, revenues in many regions are now based upon fluctuating energy prices and, in some cases, supplemental payments for installed capacity. This paper studies the interaction between these two major forces that are currently dominating the economic landscape of the electricity industry.  Using data from the western U.S., we examine how the large-scale expansion of intermittent resources of generation could influence long-run equilibrium prices and investment decisions under differing wholesale power market designs.  We find that as the level of wind penetration increases, the equilibrium investment mix of other resources shifts towards less baseload and more peaking capacity.  As wind penetration increases, an “average” wind producer earns increasingly more revenue under markets with capacity payments than those that base compensation on energy revenues.   
    Keywords: Investment; Renewable Energy; Capacity Markets
    Date: 2010–05–25
  2. By: Ziga Zarnic
    Abstract: This paper presents an ex-post empirical analysis of the impact of European electricity mar- ket reforms on markups of rms. The working hypothesis is that further economic integration would bring competition into electricity markets re ected by lower markups of electricity rms. The results show that reforms have gradually reduced the markups, but the markup premium of incumbent rms is on average larger than theoretical models would predict under eective economic integration. Considering regional proximity and heterogeneity of rms along the supply chain, the results suggest that better market access and cross-border arbitrage disci- plined the markups, but have not led to competitive market outcomes due to prevailing market concentration and insucient unbundling of transmission and distribution channels.
    Keywords: Economic integration; electricity rms; EU; price-cost margins; service market regulation
    JEL: F10 L11 L51 L94
    Date: 2010
  3. By: Ziga Zarnic
    Abstract: This paper investigates whether European electricity market reforms have induced any changes in rm eciency either through productive, allocative or dynamic eciency improve- ments. In particular, this ex-post analysis looks closely at productivity eects of changing industry structure, ownership structure and regulation with respect to barriers to entry and access to wholesale and retail markets. Based on the European rm-level data for the period 1996-2007, the results indicate sluggish productivity improvements of European electricity rms due to reforms implemented in the last decade. In particular, productivity gains are associated with high-productivity rms close to the technology frontier, while no signicant impact is found for the laggards. Looking from a dynamic perspective, it seems that the clos- est are the rms to the frontier the more they are able to improve productivity in response to liberalization eorts stimulating competition.
    Keywords: EU electricity market reforms; rms; productivity; regulation; TFP
    JEL: F10 L11 L51 L94
    Date: 2010
  4. By: Gupta, Geetu; Sahu, Naresh Chandra
    Abstract: In this study ,an attempt has been made to investigate causality between electricity consumption and economic growth in India by adopting Granger Engel causality model for 1960-2006 period .Test results shows that electricity consumption has positive effect on economic growth. The paper support for the reforms in power sector and indicates that electricity act as a catalyst in realizing various social and economic goals.
    Keywords: Electricity consumption; Economic growth ; Granger Engel causality; India .
    JEL: Q48 Q49 Q40
    Date: 2009–10–08
  5. By: Burgelman, Robert A. (Stanford University); Grove, Andrew S. (Intel Corporation)
    Abstract: The Bass seminars at the Stanford University Graduate School of Business offer faculty and small groups of students the opportunity to interact in highly focused and intense ways on research topics of common interest. Our S373 Bass seminar "Strategic Thinking in Action--in Business and Beyond," has focused in the last several years on the energy situation facing the United States. The fall 2009 seminar focused on the development and adoption of the electric car and clean coal technologies in the U.S. and China. Together with the seminar participants we wanted to study the current strategies of both countries for dealing with these two issues, and we also wanted to study how they approach the strategy-making process. This research paper describes the results.
    Date: 2010–02
  6. By: Spyros Arvanitis (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Ley Marius (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This study investigates the factors that determine the inter-firm and intra-firm adoption rates of energy-saving technologies. These factors can be on theoretical terms firm-specific rank effects, inducement effects, adoption barriers as well as order, stock and epidemic effects that are related to different kinds of external effects. Data for 2324 Swiss firms for the year 2008 are used that contain information about four categories of energy-saving technology applications (electromechanical and electronic applications; applications in motor vehicle and traffic engineering; in building construction; and in power-generating processes) that are studied separately. The results show that there are significant differences with respect to rank effects and adoption barriers between inter-and intra-firm diffusion. In practically all cases positive epidemic and/or network effects outweigh potential negative stock and order effects. Inducement effects, particularly those traced back to intrinsic motivations for environmentfriendly technologies, show clearly positive effects on the adoption rates.
    Keywords: energy-saving technologies, technology adoption
    JEL: O31 O33
    Date: 2010–05
  7. By: Marion, Justin (University of California, Santa Cruz); Muehlegger, Erich (Harvard University)
    Abstract: In this paper, we provide new evidence regarding the pass-through of diesel and gasoline taxes to prices, and how the estimated pass-through depends on a variety of supply conditions including a measure of state residual supply elasticity, and refinery and inventory constraints. In addition, we estimate the response of tax incidence to gasoline content regulations, which complicate the supply chain by increasing product heterogeneity. We find that state gasoline and diesel taxes are on average fully passed on to consumers. We also find that the pass-through of diesel taxes is greater in settings where untaxed uses of diesel are more important, which corresponds to times when residual supply is more elastic. We find that only half of the state diesel tax is passed on to consumers when U.S. refinery capacity utilization is above 95 percent. Gasoline taxes, on the other hand, are fully passed through regardless of season or capacity utilization, indicating that a gas tax holiday would provide price relief to consumers. We find that regional gasoline content regulations affect pass-through--we estimate tax pass-through is 22 percentage points lower in a state using two blends of gasoline than a state using one blend of gasoline.
    Date: 2010–04
  8. By: Khan, Salman
    Abstract: In this paper we investigate the relationship between the crude oil and the stock market in terms of returns and volatility-spillover for the BRIC countries by using cointegration and the VECM-MGARCH technique. The results reveal that the oil and the market returns are cointegrated in all the markets. The results from VECM indicate stable, bidirectional, long-run relationship between oil prices and market returns while short-run linkages were found to be absent in all the cases except Russia where it significantly affects the BRENT prices. In terms of shock transmission and volatility spillover, the relationship is significant and bidirectional in all the cases. The analyses conclude that BRIC countries stock markets are highly integrated with the oil market.
    Keywords: Multivariate GARCH; Cointegration; Oil Price; Stock markets; VECM
    JEL: O16 C22 Q4
    Date: 2010–04–30
  9. By: Georg Müller-Fürstenberger; Gunter Stephan
    Abstract: This paper discusses the interplay between the choice of the discount rate, greenhouse gas mitigation and endogenous technological change. Neglecting the issue of uncertainty it is shown that the green golden rule stock of atmospheric carbon is uniquely determined, but is not affected by technological change. More general it is shown analytically within the framework of a reduced model of integrated assessment that optimal stationary stocks of atmospheric carbon depend on the choice of the discount rate, but are independent of the stock of technological knowledge. These results are then reinforced numerically in a fully specified integrated assessment analysis.
    Keywords: Integrated Assessment; discount rate; endogenous technological change; climate change
    JEL: Q40 O13
    Date: 2010–05
  10. By: Valeria Costantini; Massimiliano Mazzanti; Anna Montini
    Abstract: The achievement of positive environmental performance at national level could strongly depend on differences in local capabilities of both institutions and the private business sector. Environmental regulation alone is a weak instrument if the institutional and business environment cannot transform regulation strengths into opportunities. In this paper, we use the new environmental accounting matrix for polluting emissions now available for the 20 Italian Regions that covers 24 sectors and combines a shift-share approach with spatial econometric modelling. We provide evidence of the role played by internal innovation, innovation spillovers and regional policies in shaping the geographical distribution of environmental performance achievements.
    Keywords: Environmental Performance, Technological Innovation, Regional Spillovers, Polluting Emissions, Italian Regions
    JEL: Q53 Q55 Q56 R15
    Date: 2010–05
  11. By: Ciriaci, Daria; Palma, Daniela
    Abstract: The present paper tests the hypothesis that environmental degradation and per capita income follow an inverted-U-shaped relationship (the so-called Environmental Kuznets Curve) at the Italian Nut3 level over the period 1990-2005. We adopt a spatial econometric approach to account for the localised nature of environmental damage. In this spatially-adapted EKC, we explicitly introduced the role of energy intensive sectors to control for local industrial structure. The experiment brought to light the existence of significant heterogeneity at the Italian Nut3 level and highlighted major differences between geographical clusters from the point of view of “ecological efficiency”.
    Keywords: Environmental Kuznets curves; Spatial econometrics; global and local pollutants; Geographically Weighted Regression Model.
    JEL: Q56 O13 Q53 C21
    Date: 2010–05–25
  12. By: Thomas Eichner; Rüdiger Pethig
    Abstract: This paper examines strategic incentives to subsidize green energy in a group of countries that operates an international carbon emissions trading scheme. Welfare-maximizing national governments have the option to discriminate against energy from fossil fuels by subsidizing green energy, although in our model green energy promotion is not efficiency enhancing. The cases of small and large countries turn out to exhibit significantly differences. While small countries refrain from subsidizing green energy and thus implement the efficient allocation, large permit-importing countries subsidize green energy in order to influence the permit price in their favor.
    Keywords: emissions trading, black energy, green energy, energy subsidies
    JEL: H21 Q42 Q48
    Date: 2010
  13. By: Julien Chevallier (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre)
    Abstract: This article investigates the modelling of the convenience yield in the European carbon market by using daily and intradaily measures of volatility. The convenience yield stems from differences in spot and futures prices, and can explain why firms hold inventories. The main findings are that (i) a simple AR(4) process best describes the 2008 convenience yield, and (ii) there exists a non linear relation between spot and futures prices. The approach developed in this article captures 74% of the explanatory power for the 2008 convenience yield variable in an autoregressive framework, with carbon spot price levels, moving averages and carbon futures realized volatility measures as exogenous regressors. These results are of interest for energy utilities, risk-managers, and traders exposed to the variation of carbon prices.
    Keywords: Convenience Yield; Carbon Price; EU ETS; High frequency Data; Realized Volatility
    Date: 2010–03–15
  14. By: Pasquale Lucio Scandizzo (Faculty of Economics, University of Rome "Tor Vergata"); Odin K Knudsen (JPMorgan Chase & Co)
    Abstract: In this paper, we explore the effects of dynamic uncertainty on the risk management of regulated industries and emission market. We consider as major sources of uncertainty the stochastic growth of demand for the industry output (e.g. electric energy) and the ensuing lack of information on the pollution levels of individual firms, their behavior and the behavior of the regulator. These sources of uncertainty are common in pollution permit trading as not only does the market respond to the volatility of fundamentals but also to the vagaries of the institutional structure, created by public policy and enforced through regulation. The paper shows that in the presence of strategic behavior on the part of the agents involved, even though both the level and the volatility of output increases over time, trading of permits is a highly effective instrument of risk management, since it allows the firms to pool the risks arising from the volatile environment, thereby simplifying enforcement, reducing emissions and improving resource allocation. Moreover, uncertainty plays a subtle influencing role, since on one hand it broadens the regulator’s deterrent power over potential polluters, while on the other it reduces the expected value of the sanction for the individual firm.
    Keywords: risk; permits; regulation; enforcement; dynamic uncertainty; option; pricing; equilibrium
    JEL: K34 H40 Q52
    Date: 2010–05–28
  15. By: Hahn, Robert W. (Sustainable Consumption Institute, University of Manchester and Georgetown Center for Business and Public Policy, Georgetown); Stavins, Robert N. (Harvard U and Resources for the Future)
    Abstract: We examine an implication of the "Coase Theorem" which has had an important impact both on environmental economics and on public policy in the environmental domain. Under certain conditions, the market equilibrium in a cap-and-trade system will be cost-effective and independent of the initial allocation of tradable rights. That is, the overall cost of achieving a given aggregate emission reduction will be minimized, and the final allocation of permits will be independent of the initial allocation. We call this the independence property. This property is very important because it allows equity and efficiency concerns to be separated in a relatively straightforward manner. In particular, the property means that the government can establish the overall pollution-reduction goal for a cap-and-trade system by setting the cap, and leave it up to the legislature--such as the U.S. Congress--to construct a constituency in support of the program by allocating the allowances to various interests without affecting either the environmental performance of the system or its aggregate social costs. Our primary objective in this paper is to examine the conditions under which the independence property is likely to hold--both in theory and in practice. A number of factors can call the independence property into question theoretically, including market power, transaction costs, non-cost-minimizing behavior, and conditional allowance allocations. We find that, in practice, there is support for the independence property in some, but not all cap-and-trade applications.
    JEL: H11 L51 Q58
    Date: 2010–03
  16. By: Islegen, Ozge (Stanford University); Reichelstein, Stefan (Stanford University)
    Abstract: For fossil fuel power plants to be built in the future, carbon capture and storage (CCS) technologies offer the potential for significant reductions in CO2 emissions. We examine the break-even value for CCS adoptions, that is, the critical value in the charge for CO2 emissions that would justify investment in CCS capabilities. Our analysis takes explicitly into account that the supply of electricity at the wholesale level (generation) is organized competitively in some U.S. jurisdictions, while in others a regulated utility provides integrated generation and distribution services. For either market structure, we find that emissions charges in the range of $25-$30 per tonne of CO2 would be the break-even value for adopting CCS capabilities at new coal-fired power plants. The corresponding break-even values for natural gas plants are substantially higher, near $60 per tonne. Our break-even estimates serve as a basis for projecting the change in electricity prices once carbon emissions become costly. CCS capabilities effectively put an upper bound on the rise in electricity prices. We estimate this bound to be near 30% at the retail level for both coal and natural gas plants. In contrast to the competitive power supply scenario, however, these price increases materialize only gradually for a regulated utility. The delay in price adjustments reflects that for regulated firms the basis for setting product prices is historical cost, rather than current cost.
    Date: 2009–12
  17. By: 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); Rodica Loisel (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: This study estimates the human cost of failures in the CCS industry in 2050, using the actuarial approach. The range of expected fatalities is assessed for all steps of the CCS : additional coal production, carbon capture, transport, injection and storage, based on empirical evidence from technical or social analogues. The main finding is that a few hundred fatalities per year should be expected if the technology is used to avoid emitting 1 GtC yr-1 in 2050 at 1 500 baseload coal power plants. Implementing the CCS would arguably save several tens of thousands of lives in 2050 by mitigating climate change. Thus, in terms of expected life saved, CCS benefits outweigh its costs. The large majority of fatalities are attributable to mining more coal, next would be shipping casualties. These risks compare to today's industrial hazards : technical, knowable and occupational dangers for which there are socially accepted non-zero risk levels. If storage sites perform at safety levels socially tolerated today in analogue installations, expected fatalities per year due to leakage, while an important concern for the local public, should have a minor contribution in the total expected fatalities per year : less than one. But that condition on storage site performance will be disproved if a single fatality occurs before 2030.
    Keywords: CCS, risk, analogue, storage safety, mortality, actuarial approach.
    Date: 2010–05
  18. By: Eduardo Cavallo (Inter-American Development Bank, Research Department); Sebastian Galiani (Washington University in St. Louis); Ilan Noy (University of Hawaii, Department of Economics); Juan Pantano (Washington University in St. Louis)
    Abstract: We examine the short and long run average causal impact of catastrophic natural disasters on economic growth by combining information from comparative case studies. We assess the counterfactual of the cases studied by constructing synthetic control groups taking advantage of the fact that the timing of large sudden natural disasters is an exogenous event. We ?find that only extremely large disasters have a negative effect on output both in the short and long run. However, we also show that this result from two events where radical political revolutions followed the natural disasters. Once we control for these political changes, even extremely large disasters do not display any signi?cant effect on economic growth. We also fi?nd that smaller, but still very large natural disasters, have no discernible effect on output in the short run or in the long run.
    Keywords: Natural Disasters, Political Change, Economic Growth and Causal Effects.
    JEL: O40 O47
    Date: 2010–04–28
  19. By: Ashenfelter, Orley; Storchmann, Karl
    Abstract: In this paper we measure the effect of year to year changes in the weather on wine prices and winery revenue in the Mosel Valley in Germany in order to determine the effect that climate change is likely to have on the income of wine growers. A novel aspect of our analysis is that we compare the estimates based on auction, retail, and wholesale prices. Although auction prices are based on actual transactions, they provide a thick market only for high quality, expensive wines and may overestimate climateâs effect on farmer revenues. Wholesale prices, on the other hand, do provide broad coverage of all wines sold and probably come closest to representing the revenues of farmers. Overall, we estimate a 1°C increase in temperature would yield an increase in farmer revenue of about 30 percent.
    Keywords: wine, global warming, auction prices, retail prices, wholesale prices, Demand and Price Analysis, Environmental Economics and Policy,
    Date: 2010–05
  20. By: LanFen Chu; Chi-Chung Chen; Michael McAleer (University of Canterbury)
    Abstract: The El Niños Southern Oscillations (ENSO) is a periodical phenomenon of climatic interannual variability, which could be measured through either the Southern Oscillation Index (SOI) or the Sea Surface Temperature (SST) Index. The main purpose of this paper is to analyze these two indexes in order to capture the volatility inherent in ENSO. The empirical results show that both the ARMA(1,1)-GARCH(1,1) and ARMA(3,2)-GJR(1,1) models are suitable for modelling ENSO volatility accurately. The empirical results show that 1998 is a turning point, which indicates that the ENSO strength has increased since 1998. Moreover, the increasing ENSO strength is due to the increase in greenhouse gas emissions. The ENSO strengths for SST are predicted for the year 2030 to increase from 29.62% to 81.5% if global CO2 emissions increase by 40% to 110%, respectively. This indicates that we will be faced with an even stronger El Nino or La Nina in the future if global greenhouse gas emissions continue to increase unabated.
    Keywords: ENSO; SOI; SOT; Greenhouse Gas Emissions; Volatility; GARCH; GJR; EGARCH
    Date: 2010–04–01
  21. By: Franziska Strauss (Department of Economics and Social Sciences, University of Natural Resources and Applied Life Sciences, Vienna); Herbert Formayer (Institute of Meteorology, University of Natural Resources and Applied Life Sciences, Vienna); Veronika Asamer (Department of Economics and Social Sciences, University of Natural Resources and Applied Life Sciences, Vienna); Erwin Schmid (Department of Economics and Social Sciences, University of Natural Resources and Applied Life Sciences, Vienna)
    Abstract: We have developed climate change data for Austria and the period from 2008 to 2040 with temporal and spatial resolution of one day and one km^2 based on historical daily weather station data from 1975 to 2007. Daily data from 34 weather stations have been processed to 60 spatial climate clusters with homogeneous climates relating to mean annual precipitation sums and mean annual temperatures from the period 1961-1990. We have performed regression model analysis to compute a set of daily climate change data for each climate cluster. The integral parts of our regression models are i) the extrapolation of the observed linear temperature trend from 1975 to 2007 using an average national trend of ~0.05 °C per year derived from a homogenized dataset, and ii) the repeated bootstrapping of temperature residuals and of observations for solar radiation, precipitation, relative humidity, and wind to ensure consistent spatial and temporal correlations. The repeated bootstrapping procedure has been performed for all weather parameters based on the observed climate variabilities from the period 1975-2007. To account for a wider range of precipitation patterns, we have also developed precipitation scenarios including higher or lower annual precipitation sums as well as unchanged annual precipitation sums with seasonal redistribution. These precipitation scenarios constitute together with the bootstrapped scenarios of temperature, solar radiation, relative humidity and wind our climate change spectrum for Austria until 2040. These climate change data are freely available and we invite users to apply and comment on our high resolution climate change data.
    Keywords: regional climate change data; statistical climate change model; uncertainty spectrum; temperature trend; Austria.
    JEL: Y1 Y9 Z0
    Date: 2010–05
  22. By: Daiju Narita
    Abstract: It is believed that the primary economic solution to climate change is an introduction of a carbon pricing system anchored to the social cost of carbon, either as a form of tax or tradable permits. Potentially significant externalities accompanying the introduction of emission-reducing technologies, however, imply that the standard argument does not capture some important aspects for the designing of climate policy such as expectation-driven technology adoption. By using a simple model, we show some possible cases where carbon emission reduction progresses in a self-fulfilling prophecy by firms expecting others’ future actions. In such circumstances, the carbon pricing system does not have much influence on determining the final outcome of economy-wide emission reduction. This highlights the danger of overemphasis on finding the “right” carbon price in policy making and the role of climate policy as expectation management
    Keywords: climate policy, technology choice, expectations, multiple equilibria
    JEL: Q54 O33
    Date: 2010–05
  23. By: Konstantinos Angelopoulos; George Economides; Apostolis Philippopoulos
    Abstract: We welfare rank different types of second-best environmental policy. The focus is on the roles of uncertainty and public finance. The setup is the basic stochastic neoclassical growth model augmented with the assumptions that pollution occurs as a by-product of output produced and environmental quality is treated as a public good. To compare different policy regimes, we compute the welfaremaximizing value of the second-best policy instrument in each regime. In all cases studied, pollution permits are the worst recipe, even when their revenues are used to finance public abatement. When the main source of uncertainty is economic, the best recipe is to levy taxes (on pollution or output) and use the collected tax revenues to finance public abatement. However, when environmental uncertainty is the dominant source of extrinsic uncertainty, Kyoto-like rules for emissions, being combined with tax-financed public abatement, are better than taxes. Finally, comparing pollution and output taxes, the latter are better
    Keywords: General equilibrium; uncertainty; environmental policy.
    JEL: C68 D81 H23
    Date: 2010–04
  24. By: Maik T. Schneider; Christian Traeger; Ralph Winkler
    Abstract: The prevailing literature discusses intergenerational trade-offs predominantly in infinitely-lived agent models despite the finite lifetime of individuals. We discuss these trade-offs in a continuous time OLG framework and relate the results to the infinitely-lived agent setting. We identify three shortcomings of the latter: First, underlying normative assumptions about social preferences cannot be deduced unambiguously. Second, the distribution among generations living at the same time cannot be captured. Third, the optimal solution may not be implementable in overlapping generations market economies. Regarding the recent debate on climate change, we conclude that it is indispensable to explicitly consider the generations' life cycles.
    Keywords: climate change; discounting; infinitely-lived agents; intergenerational equity; overlapping generations; time preference
    JEL: D63 H23 Q54
    Date: 2010–03
  25. By: Tisdell, Clem
    Abstract: Increasing globalisation of economic activity and accompanying economic growth have been factors in the worldwide loss of natural environments and biodiversity loss, and these losses have accelerated since the beginning of the Industrial Revolution, Emissions of many types of pollutants and wastes from human activity are rising globally and are exceeding the capacity of natural environments to absorb and neutralize them. This problem is exacerbated by the fact that the quality and size of some natural sinks for neutralizing them (such as forests) are declining. Consequently, these wastes are accumulating in many environments and pose a growing threat to human welfare and to sustainable economic development. There are, for instance, global concerns about greenhouse gas emissions, about the release of ozone-depleting substances and about the worldwide loss of existing biodiversity. Many new transboundary and local environmental issues have also emerged as a result of global economic growth. After considering such matters, arguments for global governance and the international harmonization of rules for regulating environmental use are examined. Reasons why the global spread of the Western evolved economic system reduces moral responsibility for environmental damage and increases the need for greater and more effective global and international environmental governance are outlined. Subsequently, several important global and international environmental problems are identified and shortcomings in their governance are highlighted. Further analysis is then completed to discover reasons why as economic globalisation increases, there are continuing failures in market and political systems to provide adequate governance of global and international environmental problems.
    Keywords: environmental economics, environmental governance, environmental law, environmental regulation, globalisation, global warming, greenhouse gases, transboundary pollution, transboundary natural resources., Environmental Economics and Policy,
    Date: 2009–11

This nep-ene issue is ©2010 by Roger Fouquet. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.