nep-ene New Economics Papers
on Energy Economics
Issue of 2010‒07‒31
thirty papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. The Economics of Offshire Wind By Richard Green; Nicholas Vasilakos
  2. Storing Wind for a Rainy Day: What Kind of Electricity Does Denmark Export? By Richard Green; Nicholas Vasilakos
  3. Wind Energy in Colombia: A Framework for Market Entry By Walter Vergara; Alejandro Deeb; Natsuko Toba; Peter Cramton; Irene Leino
  4. Long-term contracting in hydro-thermal electricity generation: welfaire and environmental impact By de Villemeur, Étienne; Vinella, Annalisa
  5. Electricity Production with Intermittent Sources By Ambec, Stefan; Crampes, Claude
  6. How much should we pay for interconnecting electricity markets? A real options approach By Álvaro Cartea; Carlos González-Pedraz
  7. The visible hand: electric power capacity arrangements By Léautier, Thomas-Olivier
  8. Is the level of financial sector development a key determinant of private investment in the power sector ? By Ba, Lika; Gasmi, Farid; Noumba Um, Paul
  9. Short-Term Congestion Forecasting in Wholesale Power Markets By Zhou, Qun; Tesfatsion, Leigh; Liu, Chen-Ching
  10. The Impact of Regulation on Pricing Behavior in the Spanish Electricity Market. By Aitor Ciarreta; Maria Paz Espinosa
  11. Short and long-run time-of-use price elasticities in Swiss residential electricity demand By Massimo Filippini
  12. Response of Residential Electricity Demand to Price: The Effect of Measurement Error By Massimo Filippini; Anna Alberini
  13. Energy infrastructure for a high humane and low corbon future By B. Sudhkara Reddy; Hippu Salk Kristle Nathan
  14. L'énergie: facteur d'intégration en Amérique du sud ? (Axe IX, Symposium 37) By Bruna Schausteck Le Prioux
  15. Is the Euro-Area Core Price Index Really More Persistent than the Food and Energy Price Indexes? By José Manuel Belbute
  16. On the dynamics of energy consumption and employment in public and private sector. By Tiwari, Aviral
  17. Strategic Behavior and International Benchmarking for Monopoly Price Regulation: The Case of Mexico By Dagobert L. Brito; Juan Rosellón
  18. Gold and Oil Futures Markets: Are Markets Efficient? By Paresh Kumar Narayan; Seema Narayan; Xinwei Zheng
  19. World Market Impacts of High Biofuel Use in the European Union By Miguel Carriquiry; Fengxia Dong; Xiaodong Du; Amani Elobeid; Jacinto F. Fabiosa; Ed Chavez; Suwen Pan
  20. Costs and Benefits to Taxpayers, Consumers, and Producers from U.S. Ethanol Policies By Bruce A. Babcock; Kanlaya J. Barr; Miguel Carriquiry
  21. Morbidity Costs of Vehicular Air Pollution: Examining Dhaka City in Bangladesh By Tanzir Chowdhury; Mohammad Imran
  22. Sector CO2 and SOx emissions efficiency and investment: homogeneous vs heterogeneous estimates using the Italian NAMEA By Marin, Giovanni
  23. Risk assessment for a Structured Product Specific to the CO2 Emission Permits Market. By Marius-Cristian Frunza; Dominique Guegan
  24. Dynamic factor analysis of carbon allowances prices : From classic Arbitrage Pricing Theory to Switching Regimes. By Marius-Cristian Frunza; Dominique Guegan; Antonin Lassoudière
  25. Potential of carbon markets for small farmers By De Pinto, Alessandro; Magalhaes, Marilia; Ringler, Claudia
  26. Contract Design to Sequester Carbon in Agricultural Soils By Mireille Chiroleu-Assouline; Sébastien Roussel
  27. Optimal capture and sequestration from the carbon emission flow and from the atmospheric carbon stock with heterogeneous energy consuming sectors By Amigues, Jean-Pierre; Lafforgue, Gilles; Moreaux, Michel
  28. How Do International Financial Flows to Developing Countries Respond to Natural Disasters? By Antonio David
  29. Indian Agricultural Scenario and Food Security Concerns in the Context of Climate Change: a Review By Dasgupta, Purnamita; Sirohi, Smita
  30. International Climate Games: From Caps to Cooperation By Peter Cramton; Steven Stoft

  1. By: Richard Green; Nicholas Vasilakos
    Abstract: This paper presents an overview of the main issues associated with the economics of offshore wind. Investment in offshore wind systems has been growing rapidly throughout Europe, and the technology will be essential in meeting EU targets for renewable energy in 2020. Offshore wind suffers from high installation and connection costs, however, making government support essential. We review various policies used in Europe, concluding that tender-based feed-in tariff schemes, as used in Denmark, may be best for providing adequate support while minimising developers' rents. It may prove economic to build an international offshore grid by connecting wind farms belonging to different countries that are sited close to each other
    Keywords: offshore wind power, cost analysis, market trend
    JEL: D43 L13 L94 Q41 Q42
    Date: 2010–07
  2. By: Richard Green; Nicholas Vasilakos
    Abstract: On windy days, Denmark tends to export electricity to its neighbours, and to import power on calm days. Storing electricity in this way thus allows the country to deal with the intermittency of wind generation. We show that this kind of behaviour is theoretically optimal when a region with wind and thermal generation can trade with one based on hydro power. However, annual trends in Denmark's trade follow its output of thermal generation, Nordic production of hydro power, and the amount of water available to Scandinavian generators, not wind generation. We estimate the cost of volatility in Denmark's wind output to equal between 4% and 8% of its market value.
    Keywords: Electricity, Wind generation, Hydro generation, storage, international trade
    JEL: D43 L13 L94 Q41 Q42
    Date: 2010–07
  3. By: Walter Vergara; Alejandro Deeb; Natsuko Toba; Peter Cramton (Economics Department, University of Maryland); Irene Leino
    Abstract: The purpose of this report is to provide decision makers in Colombia (and by extension other countries or regions), who are considering the deployment or consolidation of wind power, with a set of options to promote its use. The options presented are the result of an analysis of the Colombian market; this analysis included simulations and modeling of the country’s power sector, and extensive consultations with operators, managers, and agents. More information on the analysis and simulations is presented in the appendixes. Wind was chosen to exemplify the range of renewable energy alternatives available to complement traditional power sector technologies on the basis of its technical maturity, its relatively low cost compared to other options, the country’s experience, and its wind power potential.
    Keywords: wind energy, Colombia
    JEL: O13
    Date: 2010
  4. By: de Villemeur, Étienne (Toulouse School of Economics (IDEI & GREMAQ)); Vinella, Annalisa (University of Bari)
    Abstract: We consider electricity generation industries where thermal operators imper- fectly compete with hydro operators that manage a (scarce) water stock stored in reservoirs over a natural cycle. We explore how the exercise of intertemporal market power a¤ects social welfare and environmental quality. We show that, as compared to the outcome of spot markets, long-term contracting either exacerbates or alleviates price distortions, depending upon the consumption pattern over the water cycle. Moreover, it induces a second-order environmental e¤ect that, in the presence of a thermal competitive fringe, is critically related to the thermal mar- ket shares in the di¤erent periods of the cycle. We conclude by providing policy insights.
    JEL: L13 L93
    Date: 2010–07–13
  5. By: Ambec, Stefan; Crampes, Claude
    Abstract: The paper analyzes the interaction between a reliable source of electricity production and intermittent sources such as wind or solar power. We first characterize the first-best dispatch and investment in the two types of energy. We put the accent on the availability of the intermittent source as a major parameter of optimal capacity investment. We then analyze decentralization through competitive market mechanisms. We show that decentralizing first best requires to price electricity contingently on wind or solar availability. By contrast, traditional meters impose a second-best uniform pricing, which distorts the optimal mix of energy sources. Decentralizing the either cross-subsidy from the intermittent source to the reliable source of energy or structural integration of the two types of technology.
    Keywords: Renewable resources, wind electricity, solar energy, global warming
    JEL: D24 D61 Q27 Q32 Q42
    Date: 2010–03
  6. By: Álvaro Cartea; Carlos González-Pedraz
    Abstract: An interconnector is an asset that gives the owner the option to transmit electricity between two locations. In financial terms, the value of an interconnector is the same as a strip of real options written on the spread between power prices in two markets. We model the spread based on a: seasonal trend, mean-reverting Gaussian process, and mean-reverting jump process. We express the value of these real options in closed-form. We apply our valuation tool to five pairs of European neighboring markets to value a hypothetical one-year lease of the interconnector. We show valuations for different assumptions about the seasonal component of the spread, and different liquidity caps which proxy for the depth of the interconnected power markets. We derive no-arbitrage lower bounds for the value of the interconnector in terms of electricity futures contracts. We find that, depending on the depth of the market, the jumps in the spread can account for between 1% and 40% of the total value of the interconnector. The two markets where an interconnector would be most (resp. least) valuable are Germany and the Netherlands (resp. France and Germany).
    Keywords: Real options, Bull Call Spread, Interconnector, Electricity prices, Jumps, Jump filter
    JEL: G13 Q41
    Date: 2010–07
  7. By: Léautier, Thomas-Olivier
    Abstract: One of the main purposes of the restructuring of the electric power industry in the 1990s was to "push to the market" decisions and risks associated with generation investment. Yet, markets appear to have failed to deliver "optimal" generation capacity, hence policy makers around the world are implementing various capacity provision arrangements to remedy this market failure. This articles provides a systematic analysis of these arrangements. It first examines "single market" designs, and finds that average Value of Lost Load pricing, implemented in Texas, does not restore investment incentives unless generation is perfectly competitive. Even more surprising, it finds that Operating Reserves pricing can worsen the underinvestment problem. It then examines "dual markets" designs, and finds that the two most commonly advocated approaches, the "capacity markets" and "reliability options" approaches both restore optimal investment incentives. Furthermore, both coincide if the "technical" parameters selected by the System Operator also coincide.
    Date: 2010–04–30
  8. By: Ba, Lika; Gasmi, Farid; Noumba Um, Paul
    Abstract: This paper seeks to assess the extent to which a country's overall level of development and that of its financial sector, in particular, are factors that attract private capital into infrastructure projects. The authors investigate these effects in a 1990-2007 dataset on the power sector in 37 developing countries. The results suggest that economic growth is a key determinant of private investors'investment in infrastructure projects, and that investors tend to take countries’ governance quality into account in their decisions to invest. The empirical results highlight that the development of the financial sector also plays a significant role in private investors'decisions to enter infrastructure sectors. In particular, the degree of country risk and exchange rate volatility is found to be negatively related to the volume of private sector investment in power projects. Furthermore, when the banking sector and the capital market are separately treated in the analysis, the existence of a well functioning capital market is the main attracting factor. In addition, the existence of an independent energy regulatory authority significantly improves the level of private investors'implication in energy projects. When accounting for the interactions between the overall economic development and the financial sector development variables, the effects of these variables are still significant and the results also confirm the importance of an independent energy sector regulator.
    Keywords: Emerging Markets,Debt Markets,Economic Theory&Research,Access to Finance,Private Participation in Infrastructure
    Date: 2010–07–01
  9. By: Zhou, Qun; Tesfatsion, Leigh; Liu, Chen-Ching
    Abstract: Short-term congestion forecasting is highly important for market participants in wholesale power markets that use Locational Marginal Prices (LMPs) to manage congestion. Accurate congestion forecasting facilitates market traders in bidding and trading activities and assists market operators in system planning. This study proposes a new short-term congestion forecasting algorithm based on the concept of system patterns—combinations of status flags for transmission lines and generating units. The advantage of this algorithm relative to standard statistical forecasting methods is that structural aspects underlying power market operations are exploited to reduce forecast error.  Forecasting results based on a NYISO case study demonstrate the feasibility and accuracy of the proposed algorithm.
    Keywords: wholesale power market; locational marginal price; Congestion forecasting; load partitioning; convex hull algorithm; LMP forecasting; system patterns
    JEL: C1 C53 C6 D4 L1 Q4
    Date: 2010–07–19
  10. By: Aitor Ciarreta (Universidad del Pais Vasco); Maria Paz Espinosa (Universidad del Pais Vasco)
    Abstract: In this paper we measure the impact of regulatory measures which affected the Spanish electricity wholesale market in the period 2002-2005. Our approach is based on the fact that regulation changes firms' incentives and therefore their market behavior. In the absence of any regulation firms would choose profit- maximizing prices on their residual demands so that the observed gap between optimal and actual prices provides a measure of the effect of regulation. Our results indicate that regulation has decreased wholesale prices considerably, but became less effective at the end of the sample period which explains the change of regulatory regime introduced in 2006.
    Keywords: Regulation, electricity markets, pricing
    JEL: L11 L13 L51
    Date: 2010–07–21
  11. By: Massimo Filippini (Centre for Energy Policy and Economics (CEPE), Department of Management, Technology and Economics, ETH Zurich and Department of Economics, Università della Svizzera Italiana, Switzerland)
    Abstract: This paper presents an empirical analysis on the residential demand for electricity by time-of-day. This analysis has been performed using aggregate data at the city level for 22 Swiss cities for the period 2000 to 2006. For this purpose, we estimated two log-log demand equations for peak and off-peak electricity consumption using a static and a dynamic partial adjustment approach. These demand functions were estimated using several econometric approaches for panel data, for example LSDV, RE for static models and corrected LSDV, and GMM estimators for dynamic models. The attempt of this empirical analysis has been to highlight some of the characteristics of the Swiss residential electricity demand. The estimated short-run own price elasticities are lower than 1, whereas in the long-run these values, as expected, are higher than 1. The estimated short run as well as long run cross-price elasticities are positive. This result shows that peak and off-peak electricity are substitutes. In this context, time differentiated prices should provide an economic incentive to customers so that they can modify consumption patterns by reducing peak demand and shifting electricity consumption from peak to off-peak periods.
    Keywords: residential electricity demand by time-of-use, time-of-use rates, panel data, partial adjustment model
    JEL: D D2 Q Q4 Q5
    Date: 2010–07
  12. By: Massimo Filippini (Centre for Energy Policy and Economics (CEPE), Department of Management, Technology and Economics, ETH Zurich and Department of Economics, University of Lugano, Switzerland); Anna Alberini (Department of Agricultural Economics, university of Maryland, US and Centre for Energy Policy and Economics (CEPE), ETH Zurich, Switzerland)
    Abstract: In this paper we present an empirical analysis of the residential demand for electricity using annual aggregate data at the state level for 48 US states from 1995 to 2007. We estimate a dynamic partial adjustment model using the Kiviet corrected LSDV (1995) and the Blundell-Bond (1998) estimators. In addition to the lagged dependent variable, our equation includes energy prices, income, cooling and heating degree days, and average household size. We find that the short-run own price elasticity of consumption is similar across LDSV, bias-corrected LSDV and the variant of the Blundell-Bond where we instrument for price. The short-run elasticity is the lowest when we use the Blundell-Bond GMM approach that treats the price of electricity as exogenous. The long-term elasticities produced by the Blundell-Bond system GMM methods are largest, and that from the bias-corrected LDSV is greater than that from the conventional LSDV. From an energy policy point of view, the results obtained using the Blundell-Bond estimator where we instrument for price imply that there is room, in an electricity system mainly based on coal and gas power plants, for discouraging residential electricity consumption and curbing greenhouse gas emissions by imposing a carbon tax.
    Keywords: residential electricity and gas demand, US states, panel data, dynamic panel data models, partial adjustment model
    JEL: D D2 Q Q4 Q5
    Date: 2010–07
  13. By: B. Sudhkara Reddy (Indira Gandhi Institute of Development Research); Hippu Salk Kristle Nathan (Indira Gandhi Institute of Development Research)
    Abstract: Presently India is facing the twin challenge of energy universalization as well as emission reduction. Nearly 0.4 billion people in India- mostly residing in rural areas- do not have access to electricity and more than 0.8 billion people do not use modern cooking fuels. Provision of energy services however needs to take into account the global temperatures rise, which if to be limited to 2øC more from its pre-industrial value, Green House Gas (GHG) emissions must be halved by 2050 from its 1990 level. Energy infrastructure plays a key role to meet this dual challenge of universalization of energy services and reduction of energy-induced emissions. Assessing India's infrastructure, this study presents the high humane (Energy universalization) and low carbon scenarios and discusses investment needs, financing mechanisms and the key policy issues.
    Keywords: Energy climate nexus, Energy universalization, Infrastructure Investments, Financing mechanisms, Energy efficiency
    JEL: P28 Q41 Q42 Q48
    Date: 2010–06
  14. By: Bruna Schausteck Le Prioux (CREDAL - Centre de recherche et de documentation de l'Amérique latine - CNRS : UMR7169 - Université de la Sorbonne nouvelle - Paris III)
    Abstract: L'énergie est une question stratégique pour toutes les nations et est la clé pour le développement économique et social. La question énergétique a été cruciale pour l'interdépendance et la coopération en Amérique du sud, donnant lieu à plusieurs interconnexions électriques depuis les années 1970 et gazières depuis les années 1990. Cependant, depuis quelques années, l'énergie ne semble plus accomplir son rôle intégrateur dans le sous-continent. Les épisodes de la non-exportation de gaz argentin vers le Chili et l'Uruguay en 2001, la nationalisation des raffineries de pétrole en Bolivie en 2006 et le durcissement de la « petro-diplomatie » vénézuélienne depuis ont instauré un climat de méfiance entre les États. La question principale à laquelle nous voulons donner des éléments de réponse est la suivante : dans quelle mesure l'énergie est-elle un thème intégrateur en Amérique du sud ? Nous abordons ce thème à l'aide des concepts de Keohane et Nye, avec notamment la conviction que le thème énergétique exacerbe le sentiment de vulnérabilité, tout en y ajoutant des réflexions liées à la valeur donnée par chaque pays aux ressources énergétiques. Nous analysons les diverses phases de l'intégration liées à l'énergie en Amérique du sud depuis les années 70 afin de mieux comprendre la situation actuelle, ainsi que les intérêts des principaux pays de la région en faveur ou non de l'intégration.
    Keywords: intégration régionale, énergie, Amérique du sud
    Date: 2010–06–30
  15. By: José Manuel Belbute (Universidade de Évora, Departamento de Economia e CEFAGE-UE)
    Abstract: The purpose of this paper is to measure the degree of persistence of the overall, core, food and energy Harmonized Indexes of Consumer Prices for the European Monetary Zone (HICP-EAs) and to identify its implications for decision-making in the private sector and in public policy. Using a non-parametric approach, our results demonstrate the presence of a statistically significant level of persistence in four HICP-EAs: headline, core, food and energy. Moreover, contrary to popular belief, the core index does not reflect permanent price changes. We also find evidence that the food and energy price indexes are more volatile and more persistent than the other two price indexes. Our results also show a reduction in persistence for both the headline and the core price indexes after the implementation of the single monetary policy, but not for food and energy. These results have important implications for both the private sector and for policymakers who use the core as a reference price index for their decision-making because the use of this index can lead to an erroneous perception of price movements
    Keywords: Harmonized Index of Consumption Prices, Core Inflation, Euro Area, Persistence
    JEL: C14 C22 E31 E52
    Date: 2010
  16. By: Tiwari, Aviral
    Abstract: This study intended to analyze the direction of Granger-causality between energy consumption and employment in public and private sector. We have adopted DL approach for Granger-causality analysis. We found from the whole analysis that there is evidence of bidirectional causality between energy consumption and employment in organized public and private sector. Therefore our study supports for our third testable hypothesis i.e., “feedback hypothesis”.
    Keywords: Energy consumption; Public and Private sector employment; Granger causality.
    JEL: J45 C22 J48
    Date: 2010–05–11
  17. By: Dagobert L. Brito; Juan Rosellón
    Abstract: This paper looks into various models that address strategic behavior in the supply of gas by the Mexican monopoly Pemex. The paper has three very strong technical results. First, the netback pricing rule for the price of domestic natural gas (based on a Houston benchmark price) leads to discontinuities in Pemex's revenue function. Second, having Pemex pay for the gas it uses and the gas it flares increases the value of the Lagrange multiplier associated with the gas processing constraint. Third, if the gas processing constraint is binding, having Pemex pay for the gas it uses and flares does not change the short run optimal solution for the optimization problem, so it will have no impact on short-run behavior. These results imply three clear policy recommendations. The first is that the arbitrage point be fixed by the amount of gas Pemex has the potential to supply in the absence of processing and gathering constraints. The second is that Pemex be charged for the gas it uses in production and the gas it flares. The third is that investment in gas processing and pipeline should be in a separate account from other Pemex investment.
    Keywords: Natural gas, strategic pricing, benchmark regulation, gas pipelines, Mexico
    JEL: L51 L95 Q4 Q48
    Date: 2010
  18. By: Paresh Kumar Narayan; Seema Narayan; Xinwei Zheng
    Abstract: In this paper we examine the long-run relationship between gold and oil spot and futures markets. We draw on the conceptual framework that when oil price rises, it creates inflationary pressures, which instigate investments in gold as a hedge against inflation. We test for the long-run relationship between gold and oil futures prices at different maturity and unravel evidence of cointegration. This implies that: (a) investors use the gold market as a hedge against inflation, and (b) the oil market can be used to predict the gold market prices and vice versa, thus these two markets are jointly inefficient, at least for the sample period considered in this study.
    Keywords: Gold; Oil; Spot and Futures Markets; Inflation; Cointegration
    Date: 2010–07–16
  19. By: Miguel Carriquiry (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Fengxia Dong (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Xiaodong Du (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Amani Elobeid (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Jacinto F. Fabiosa (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Ed Chavez; Suwen Pan
    Abstract: This study examines the world market impact of an expansion in the biofuel sector in the European Union with particular focus on indirect land-use impacts. In the first scenario, an increase of 1 million tonnes oil equivalent (Mtoe) of wheat ethanol use in the European Union expands world land area used in agricultural commodity production by 366,000 hectares, representing an increase of 0.039% in total area. In the second scenario, an increase of 1 Mtoe of rapeseed oil biodiesel use in the European Union expands world land area by 352,000 hectares, representing an increase of 0.038% in total area. With additional land use somewhat close between the two scenarios, the main difference is the spatial distribution of the sources of additional supply. Because the wheat sector, especially in the European Union, is large (26.4 million hectares), when wheat use for ethanol production expands, most of the adjustment is met within the European Union, with only a 9% reduction in net exports required. In contrast, since the rapeseed sector is smaller (only 7.8 mha in the EU), 57% of additional rapeseed oil used for expanded biodiesel production is supplied from higher imports, allowing substantial adjustment by countries outside of the European Union.
    Keywords: biofuels, land use, partial equilibrium model, rapeseed oil biodiesel scenario, wheat ethanol scenario.
    Date: 2010–07
  20. By: Bruce A. Babcock (Center for Agricultural and Rural Development (CARD); Midwest Agribusiness Trade Research and Information Center (MATRIC)); Kanlaya J. Barr; Miguel Carriquiry (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI))
    Abstract: The U.S. ethanol industry is lobbying hard for an extension of existing ethanol import tariffs and blenders tax credits before they expire at the end of 2010. The purpose of this study is to examine the likely consequences on the U.S. ethanol industry, corn producers, taxpayers, fuel blenders, and fuel consumers if current policy is not extended. Impacts of different ethanol policies in both 2011 and 2014 were estimated. Estimates were obtained by developing a new stochastic model that calculates market-clearing prices for U.S. ethanol, Brazilian ethanol, and U.S. corn. The model is stochastic because market-clearing prices are calculated for 5,000 random draws of corn yields and wholesale gasoline prices. Key assumptions in this study are that the strong growth in flex-fuel vehicles in Brazil continues; intermediate ethanol blends with few restrictions are implemented in U.S. markets in 2014; U.S. ethanol production capacity reaches 15 billion gallons in 2014; and Brazilian ethanol production increases by at least 45% by 2014. Projected strong demand for ethanol in Brazil combined with a largely saturated U.S. ethanol market means that elimination of ethanol import tariffs would have almost no impact on U.S. corn and ethanol markets in 2011. Elimination of the tax credit would impact markets modestly, with ethanol production declining by an average of about 700 million gallons. This reduction in ethanol production would cause corn prices to drop by an average of 23 cents per bushel. Ethanol prices would drop by 12 cents per gallon. Elimination of the tax credit would shift the burden of meeting mandates from taxpayers to blenders and consumers. Taxpayers would save more than $6 billion through elimination of the tax credit, or almost $7.00 per gallon of ethanol produced in excess of mandated amounts. The impacts of a change in U.S. ethanol policy in 2014 are larger than 2011 impacts because Brazil has a chance to respond by ramping up its ability to export in response to trade liberalization. But because of strong domestic demand growth in Brazil and limits on how fast Brazilian ethanol production can increase, the impacts of a change in policy are still modest. As long as the mandate is maintained, U.S. ethanol production drops by no more than 500 million gallons, corn prices drop by no more than 16 cents per bushel, and ethanol prices drop by no more than 35 cents per gallon. If the impact of intermediate blends is not as strong as assumed in this study, then there will be less incentive for Brazil to export ethanol and the impacts of tariff elimination would be even more modest.
    Keywords: blenders tax credit, Brazilian ethanol, ethanol import tariffs, U.S. ethanol policy.
    Date: 2010–07
  21. By: Tanzir Chowdhury; Mohammad Imran
    Abstract: This study estimates the morbidity costs of reduction in air pollution in Dhaka, the capital of Bangladesh, using the Cost-of-Illness (COI) approach. COI is defined as the sum of lost earnings due to workdays lost or restricted activity days and the mitigation expenditure borne due to illness. The data for the research comes from seasonal household surveys using health diaries. We use a random-effects Zero Inflated Poisson regression model to estimate the equation for lost earnings and use a random-effects Tobit Regression to estimate the equation for mitigation expenditure. We find that the annual savings from reducing air pollution to meet national safety standards is Taka 131.37 (USD 1.88) per person from reductions in lost earnings and Taka 150.49 (USD 2.15) per person from reductions in medical expenditure. The annual saving to the population of Dhaka is Taka 2.39 billion or USD 34.09 million. Our estimates, which are based on primary data, provide significantly lower estimates of the benefits of reducing air pollution in Dhaka relative to previous analyses that has relied on the benefit-transfer approach. [SANDEE Working Paper No. 47-10]
    Keywords: Air Pollution, Health Benefit, Health Production Function, Cost-of-Illness, Panel Data, Random-Effects Zero Inflated Poisson Model, Random-Effects Tobit Model
    Date: 2010
  22. By: Marin, Giovanni
    Abstract: The relationships between emissions ad economic drivers differ substantially both across countries and across sectors. In this paper I investigate cross-sector heterogeneity of emissions (CO2 and SOx) / investments relationships of Italian branches for the period 1990-2006 by using the Italian NAMEA (National Accounting Matrix including Environmental Accounts). The ‘environmental’ direction of investments in different types of capital goods is crucial in the prediction of future patterns of environmental efficiency due to the persistence of the choices regarding the features of the capital stock. Within this relationship, the role of variations in prices of energy fuels and in environmental taxes is considered to identify relevance and the direction of the technical changes induced by prices and taxes. I compare homogeneous estimates (FE) with heterogeneous estimates (SUR): homogeneity of slopes across branches is always rejected (aggregation bias). Furthermore, results differ substantially between CO2 and SOx, due to different environmental and economic features of the two types of emissions. Results show a relevant role of economic forces (investments) in explaining CO2 dynamics while SOx trends are determined to higher extent by exogenous events. The potential role of ICTs in promoting more environmental efficient production processes has not been exploited yet by Italian manufacturing sectors.
    Keywords: NAMEA; SUR; eco-innovation; emissions efficiency
    JEL: Q55 O33 C33
    Date: 2010–07
  23. By: Marius-Cristian Frunza (Centre d'Economie de la Sorbonne et Sagacarbon); Dominique Guegan (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: The aim of this work is to use a new modelling technique for CO2 emission prices, in order to estimate the risk associated with a related, structured product. After a short discussion of the specificities of this market, we investigate several modelling methods for CO2 emission prices. We use these results for risk modeling of the swap between two CO2 related instruments : the European Union Allowances and the Certified Emission Reductions. We estimate the counterparty risk for this kind of transaction and evaluate the impact of different models on the risk measure and the allocated capital.
    Keywords: Carbon, generalized hyperbolic distribution, value-at-risk, CER, EUA, Swap.
    Date: 2010–06
  24. By: Marius-Cristian Frunza (Centre d'Economie de la Sorbonne et Sagacarbon - Caisse des Dépôts); Dominique Guegan (Centre d'Economie de la Sorbonne - Paris School of Economics); Antonin Lassoudière (Sagacarbon - Caisse des dépôts)
    Abstract: The aim of this paper is to identify the fundamental factors that drive the allowances market and to built an APT-like model in order to provide accurate forecasts for CO2. We show that historic dependency patterns emphasis energy, natural gas, oil, coal and equity indexes as major factors driving the carbon allowances prices. There is strong evidence that model residuals are heavily tailed and asymmetric, thereby generalized hyperbolic distribution provides with the best fit results. Introducing dynamics inside the parameters of the APT model via a Hidden Markov Chain Model outperforms the results obtained with a static approach. Empirical results clearly indicate that this model could be used for price forecasting, that it is effective in and out of sample producing consisten results in allowances futures price prediction.
    Keywords: Carbon, EUA, energy, Arbitrage Pricing Theory, switching regimes, hidden Markov Chain model, forecast.
    Date: 2010–06
  25. By: De Pinto, Alessandro; Magalhaes, Marilia; Ringler, Claudia
    Abstract: While agriculture accounts for an estimated 10 to 14 percent of total greenhouse gas emissions, its role as a mitigating force is receiving increasing attention. This discussion paper provides a quick overview of the literature on the climate change mitigation potential of agriculture, the regulatory and voluntary frameworks under which such a contribution could be rewarded, and the economic literature that focuses on agriculture’s participation in climate change mitigation efforts. While there is general agreement on the potential for mitigation, several barriers have prevented farmers from entering the so-called carbon markets. The paper reviews the main challenges faced by smallholder farmers in accessing such markets.
    Keywords: carbon markets, Carbon sequestration, Smallholder farmers,
    Date: 2010
  26. By: Mireille Chiroleu-Assouline (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Sébastien Roussel (LAMETA - Laboratoire Montpellierain d'économie théorique et appliquée - CNRS : UMR5474 - INRA : UR1135 - CIHEAM - Université Montpellier I - Montpellier SupAgro)
    Abstract: According to several studies, agricultural carbon sequestration could be a relatively low cost opportunity to mitigate greenhouse gas (GHG) concentration and a promising means that could be institutionalised. However the potential for additional carbon quantities in agricultural soils is critical and comes from the agricultural firms behaviour with regards to land heterogeneity. In this paper, our aim is to set incentive mechanisms to enhance carbon sequestration by agricultural firms. A policymaker has to arrange incentives as agricultural firms have private information and do not spontaneously switch to the required practices. Moreover, a novelty in our paper is to show that the potential for additional carbon sequestration is similar to an exhaustible resource. As a result, we construct an intertemporal principal-agent model with adverse selection. Our contribution is to specify contracts in order to induce truthful revelation by the firms regarding their intrinsic characteristics towards carbon sequestration, while analytically characterizing the optimal path to sequester carbon as an exhaustible resource.
    Keywords: Adverse selection ; agriculture ; carbon sequestration ; incentives ; land-use
    Date: 2010–03
  27. By: Amigues, Jean-Pierre (Toulouse School of Economics (INRA and LERNA)); Lafforgue, Gilles (Toulouse School of Economics (INRA-LERNA)); Moreaux, Michel (Toulouse Business School and Toulouse School of Economics (INRA-LERNA))
    Abstract: We characterize the optimal exploitation paths of two primary energy resources. The first one is a non-renewable polluting resource, the second one a pollution-free renewable resource. Both resources can supply the energy needs of two sectors. Sector 1 is able to reduce the potential carbon emissions generated by its non-renewable energy consumption at a reasonable cost while sector 2 cannot. Another possibility is to capture the carbon spread in the atmosphere but at a significantly higher cost. We assume that the atmospheric carbon stock cannot exceed some given ceiling and that this constraint is effective. We show that there may exist paths along which it is optimal to begin by fully capturing the sector 1's potential emission flow before the ceiling constraint begins to be effective. Also there may exist optimal paths along which both capture devices have to be activated, in which case the potential emission flow of sector 1 is firrst fully abated and next the society must resort to the atmospheric carbon reducing device.
    JEL: Q31 Q32 Q41 Q42 Q54
    Date: 2010–02–11
  28. By: Antonio David
    Abstract: This paper uses multivariate dynamic panel analysis to examine the response of international financial flows to natural disasters. The models estimated for a large sample of developing countries point to differentiated responses of specific types of financial flows. The results show that remittance inflows increase significantly in response to shocks to both climatic and geological disasters. The models suggest a nuanced role for foreign aid. While the responses of aid flows to natural disaster shocks in general tend not to be statistically significant, international assistance to low income countries increases following geological disaster shocks. Furthermore, the results show that typically, other private capital flows (bank lending and equity) do not attenuate the effects of disasters and in some specifications, even amplify the negative economic effects of these events. The conclusions of the paper have implications for capital/financial account management policies. In particular, countries should take their vulnerability to natural disasters into account when considering the costs and benefits of the liberalization of private capital flows.
    Date: 2010–07–14
  29. By: Dasgupta, Purnamita; Sirohi, Smita
    Abstract: This paper presents a brief review of the trends in foodgrain production in India, the determinants of its growth and domestic foodgrain supply projections to draw inferences about the future foodgrain production trends. The foodgrain supply forecasts are examined in relation to the likely demand of foodgrains to answer whether India would have a situation of food surplus or deficit. The paper summarizes the supply and demand side aspects of food security in the context of climate change- covering on one hand, the climate change impact on availability and stability of food supplies and on the other, its likely influence on the access and utilization dimensions of food demand.
    Keywords: food security; climate change
    JEL: Q11 O13 Q54
    Date: 2010
  30. By: Peter Cramton (Economics Department, University of Maryland); Steven Stoft
    Abstract: Greenhouse gas abatement is a public good, so climate policy is a public-goods game and suffers from the free-rider incentives that make the outcome of such games notoriously uncooperative. Adopting an international agreement can change the nature of the game, reducing or exacerbating the uncooperative tendencies of the players. We analyze alternative international agreements as variations of the public-goods game, and examine the incentives for cooperation under each alternative. The addition of cap-and-trade rules to the basic public-goods game is found to polarize the free-rider incentives of that game, encouraging those who would abate the most to target even higher abatement levels and those who would abate the least to target lower, and even negative, abatement levels. Such polarization between developed and developing countries is familiar from both the Kyoto and Copenhagen climate summits. Since cap-and-trade rules decrease cooperation by developing countries, developed countries are led to reject the game’s outcome and in the process prevent agreement on a set of quantity targets. To break this deadlock and shift the equilibrium toward cooperation, a modification of the public-goods game based on price rather than quantities is needed. This involves a global price target and equity transfers via a Green Fund that rewards adoption of and compliance with such a target. The Nash equilibrium of one such game is analyzed for a group of three countries similar to the United States, China and India.
    Keywords: global warming, climate change, climate treaty, cap and trade, carbon tax, carbon price, public goods
    JEL: Q54 Q56 Q58 H41 D78
    Date: 2010

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