nep-ene New Economics Papers
on Energy Economics
Issue of 2010‒10‒02
forty-two papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Oil Shortages, Climate Change and Collective Action By Newbery, D.
  2. A Numerical Analysis of Optimal Extraction and Trade of Oil under Climate Policy By Emanuele Massetti; Fabio Sferra
  3. Peaks, Spikes, and Barrels: Modeling Sharp Movements in Oil Prices By Malika Pant; Martin Mühleisen; Alun H. Thomas
  4. The Linkages between Energy Efficiency and Security of Energy Supply in Europe By Andrea Bigano; Ramon Arigoni Ortiz; Anil Markandya; Emanuela Menichetti; Roberta Pierfederici
  5. Improving the Energy-Efficiency of Buildings: The Impact of Environmental Policy on Technological Innovation By Joëlle Noailly
  6. The Economic Impact of the Green Certificate Market through the Macro Multiplier Approach By Maurizio Ciaschini; Francesca Severini
  7. Is Privatization Enough? Finding Performance Breaks for UK Power Plants By Triebs, T.P.; Pollitt, M.G.
  8. Locational-based Coupling of Electricity Markets: Benefits from Coordinating Unit Commitment and Balancing Markets By van der Weijde, A.H.; Hobbs, B.F.
  9. Investment in New Power Generation under Uncertainty: Benefits of CHP vs Condensing Plants in a Copula-Based Analysis By Westner, Günther; Madlener, Reinhard
  10. Weather Factors and Performance of Network Utilities: A Methodology and Application to Electricity Distribution By Jamasb, T.; Orea, L.; Pollitt, M.G.
  11. The visible hand: electric power capacity arrangements By Léautier, Thomas-Olivier
  12. General Purpose Technologies and Economic Growth: Electricity Diffusion in the Manufacturing Sector Before WWII By Ristuccia, C.A.; Solomou, S.
  13. Econometric Approach to Water Use Estimation in Power Plants By Perini Praveena Sri
  14. Electricity Production with Intermittent Sources By Ambec, Stefan; Crampes, Claude
  15. Optimal Policy Instruments for Externality-Producing Durable Goods under Time Inconsistency By Heutel, Garth
  16. Investment in Cellulosic Biofuel Refineries: Do Renewable Identification Numbers Matter? By Ruiqing Miao; David A. Hennessy; Bruce A. Babcock
  17. The Environment and Directed Technical Change By Daron Acemoglu; Philippe Aghion; Leonardo Bursztyn; David Hemous
  18. The Problem of the Commons: Still Unsettled After 100 Years By Stavins, Robert N.
  19. Controlling Urban Air Pollution Caused by Households: Uncertainty, Prices, and Income By Carlos A. Chavez; John K. Stranlund; Walter Gomez
  20. Forecasting the Path of USS CO2 Emissions Using State-Level Information By Maximillian Auffhammer; Ralf Steinhauser
  21. A Tale of Two Externalities: Environmental Policy and Market Structure By Ana Espinola-Arredondo; Felix Munoz-Garcia
  22. The DICER Model: Methodological Issues and Initial Results By Ramon Arigoni Ortiz; Alexander Golub; Oleg Lugovoy; Anil Markandya; James Wang
  23. Liberalizing Climate-Friendly Goods and Technologies in the WTO: Product Coverage, Modalities, Challenges and the Way Forward By ZhongXiang Zhang
  24. Transporting goods and damages. The role of trade on the distribution of climate change costs By Schenker, Oliver
  25. Assessing China’s Energy Conservation and Carbon Intensity: How Will the Future Differ from the Past? By ZhongXiang Zhang
  26. Implementing Carbon Tariffs: A Fool's Errand? By Michael Owen Moore
  27. Uncertain long-run emissions targets, CO2 price and global energy transition : a general equilibrium approach By DURAND-LASSERVE, Olivier; PIERRU, Axel; SMEERS, Yves
  28. An Experimental Analysis of Compliance in Dynamic Emissions Markets By John K. Stranlund; James J. Murphy; John M. Spraggon
  29. Cost pass-through in strategic oligopoly: Sectoral evidence for the EU ETS By Alexeeva-Talebi, Victoria
  30. North-South Convergence and the Allocation of CO2 Emissions By Humberto Llavador; John E. Roemer; Joaquim Silvestre
  31. 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
  32. Valuation of CCS-Ready Coal-Fired Power Plants: A Multi-Dimensional Real Options Approach By Rohlfs, Wilko; Madlener, Reinhard
  33. International Cooperation on Climate Change Adaptation from an Economic Perspective By Kelly C. de Bruin; Rob B. Dellink; Richard S.J. Tol
  34. The Optimal Climate Policy Portfolio when Knowledge Spills Across Sectors By Emanuele Massetti; Lea Nicita
  35. Copenhagen and Beyond: Reflections on China’s Stance and Responses By ZhongXiang Zhang
  36. In What Format and under What Timeframe Would China Take on Climate Commitments? A Roadmap to 2050 By ZhongXiang Zhang
  37. Alternative Paths toward a Low Carbon World By Valentina Bosetti; Carlo Carraro; Massimo Tavoni
  38. Sharing the Cost of Global Warming By Leroux, Justin; de Villemeur, Étienne
  39. The Impact of Unilateral Climate Policy with Endogenous Plant Location and Market Size Asymmetry By Francesca Sanna-Randaccio; Roberta Sestini
  40. Why Green Parties Should Fear Successful International Climate Agreements By Patrick Laurency; Dirk Schindler
  41. Interactions between State and Federal Climate Change Policies By Lawrence H. Goulder; Robert N. Stavins
  42. Three Key Elements of Post-2012 International Climate Policy Architecture By Sheila M. Olmstead; Robert N. Stavins

  1. By: Newbery, D.
    Abstract: Concerns over future oil scarcity might not be so worrying but for the high carbon content of substitutes, and the limited capacity of the atmosphere to absorb additional CO2 from burning fuel. The paper argues that the tools of economics are helpful in understanding some of the key issues in pricing fossil fuels, the extent to which pricing can be left to markets, the need for, and design of, international agreements on corrective carbon pricing, and the potential prisoners’ dilemma in reaching such agreements, partly mitigated in the case of oil by current taxes and the likely incidence of carbon taxes on the oil price. The ‘Green Paradox’ in which carbon pricing exacerbates climate change is theoretically possible, but empirically unlikely.
    Keywords: exhaustible resources, climate change, carbon prices, prisoners’ dilemma, international agreement, Green Paradox
    JEL: Q32 Q54 H23 L71
    Date: 2010–09–22
  2. By: Emanuele Massetti (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center for Climate Change); Fabio Sferra (Fondazione Eni Enrico Mattei)
    Abstract: We introduce endogenous investments for increasing conventional and non-conventional oil extraction capacity in the integrated assessment model WITCH. The international price of oil emerges as the Nash equilibrium of a non-cooperative game. When carbon emissions are not constrained, oil is used throughout the century, with unconventional oil taking over conventional oil from mid-century onward. When carbon emissions are constrained, oil consumption drops dramatically and the oil price is lower than in the BaU. Unconventional oil is not extracted. Regional imbalances in the distribution of stabilisation costs are magnified and the oil-exporting countries bear, on average, costs three times larger than in previous estimates.
    Keywords: Climate Policy, Integrated Assessment, Oil Production, Oil Revenues, Oil Trade
    JEL: E17 F17 Q32 Q43 Q54
    Date: 2010–09
  3. By: Malika Pant; Martin Mühleisen; Alun H. Thomas
    Abstract: Global oil markets were roiled by sharp price swings in 2008, and economists are still divided over the reasons for the unusual volatility. Those emphasizing fundamentals point to inelastic supply and demand curves, others view the phenomenon mostly as a result of financial investors flocking into commodity markets. This paper attempts to infer the strength of these competing hypotheses, using a simultaneous equation model that enables us to undertake a separate analysis of supply and demand factors. The model broadly captures both the surge and subsequent fall in prices, with a particularly strong impact of demand factors. The model captures a strong effect of a measure for global liquidity but does not find support for a speculative motive.
    Keywords: Oil prices , Oil consumption , Commodity markets , Economic models , Demand , International capital markets , Supply ,
    Date: 2010–08–05
  4. By: Andrea Bigano (Fondazione Eni Enrico Mattei); Ramon Arigoni Ortiz (Basque Centre for Climate Change); Anil Markandya (Basque Centre for Climate Change); Emanuela Menichetti (Observatoire Méditerranéen de l'Energie); Roberta Pierfederici (Fondazione Eni Enrico Mattei)
    Abstract: It can be argued that one way to reduce the dependence from external energy sources, is simply to reduce the demand for energy. Energy savings may thus be considered a policy priority when concerns for energy security are particularly strong. Drawing on an original econometric approach, we check whether policies and measures that affect indicators of energy efficiency performance have an analogous effect on security of supply indicators, both at the whole economy level and within the main sectors of energy use in the EU 15 countries and Norway. Our analyses show that the indicators studied are affected by a number of policies and measures; however very few of them seem able to tackle effectively and simultaneously, energy efficiency, carbon efficiency and energy security. The main lesson to be drawn from this analysis is therefore that there is a number of energy efficiency policies in the EU that do work, but there is no silver bullet able to successfully address different policy objectives. Taking a more general perspective, what seems to work is the policy mix rather than this or that policy in insulation.
    Keywords: Energy Efficiency, Energy Security, Policy Effectiveness, Europe
    JEL: Q40 Q48 Q58 C33
    Date: 2010–05
  5. By: Joëlle Noailly (CPB Netherlands Bureau for Economic Policy Analysis The Hague)
    Abstract: This paper investigates the impact of alternative environmental policy instruments on technological innovations aiming to improve energy-efficiency in buildings. The empirical analysis focuses on three main types of policy instruments, namely regulatory energy standards in buildings codes, energy taxes as captured by energy prices and specific governmental energy R&D expenditures. Technological innovation is measured using patent counts for specific technologies related to energy-efficiency in buildings (e.g. insulation, high-efficiency boilers, energy-saving lightings). The estimates for seven European countries over the 1989-2004 period imply that a strengthening of 10% of the minimum insulation standards for walls would increase the likelihood to file additional patents by about 3%. In contrast, energy prices have no significant effect on the likelihood to patent. Governmental energy R&D support has a small positive significant effect on patenting activities.
    Keywords: Innovation, Technological Change, Patents, Energy-Efficiency, Buildings, Environmental Policy
    JEL: O31 O34 Q55
    Date: 2010–09
  6. By: Maurizio Ciaschini (University of Macerata); Francesca Severini (University of Macerata)
    Abstract: In the last decade, as many other European countries, the Italian Government adopted several reforms in order to increase the use of Renewable Energy Sources (RES). The liberalization of the electricity market that represents one of these reforms aims to reach environmental benefits from the substitution of fossil fuel with renewable sources. The Italian Green Certificate market was introduced in 2002 in order to accomplish this objective and represents a mechanism where a quota of renewable electricity is imposed to suppliers in proportion to their sales. The electricity industries are obliged to meet this condition by producing the quantity of renewable electricity by means of a change in their production process, otherwise they must buy a number of certificates corresponding to the quota. This mechanism changes the importance of the electricity industry first in promoting climate protection, then in terms of the impact on the economy as a whole. A policy aimed to develop the market of green certificates may lead to environmental improvement by switching the energy production process to renewable resources. But above all an increase in demand for green certificates, resulting from a reform on the quota of renewable electricity, can generate positive change in all components of the industrial production. For this purpose, the paper aims to quantify the economic impact of a reform on Green Certificate market for the Italian system by means of the Macro Multiplier (MM) approach. The analysis is performed through the Hybrid Input-Output (I-O) model that allows expressing the energy ows in physical terms (GWh) while all other ows are expressed in monetary terms (€). Moreover, through the singular value decomposition of the inverse matrix of the model, which reveals the set of key structures of the exogenous change of final demand, we identify the appropriate key structure able to obtain both the expected positive total output change and the increase of electricity production from RES.
    Keywords: Environmental Policy, Hybrid I-O model, Macro Multiplier
    JEL: C67 E23 Q43 Q48
    Date: 2010–09
  7. By: Triebs, T.P.; Pollitt, M.G.
    Abstract: The literature shows that for most UK industries privatization might be necessary but is not sufficient to produce economic benefits. Often prior changes in management or later changes in market structure and regulation have larger impacts than privatization itself. We ask what changes around privatization had the greatest impact on efficiency for UK electricity generators. We analyse the effects of privatization and other changes in incentives on plant efficiency using a newly compiled unbalanced panel of about 60 plants for the years 1980 to 2004. We measure efficiency as input demands for two standard inputs, fuel and labour as well as three air emissions, CO2, SO2, and NOx. We model the change in efficiency as a single intercept break and allow for the break to occur at an unknown date. Inference for breaks and break dates relies on Quandt-Andrews type tests. We find breaks associated with efficiency increases for fuel and labour. Breaks and efficiency changes for the three emissions are generally related to fuel efficiency though there are instances where efficiencies move in opposite directions suggesting trade-off between fuel efficiency and emissions exist. There are no breaks prior to privatization. All breaks occur after privatization. Efficiency increases first for labour and later for fuel. We conclude that electricity privatization like other UK privatizations was a unique event. Privatization was important to prepare the ground but it seems that only the subsequent restructuring of the industry, the reduction of political interference in fuel choice, and investment in new and more efficient generation technologies increased efficiency.
    Keywords: Privatization, efficiency, structural breaks
    JEL: L33 L16 L51 L94
    Date: 2010–09–22
  8. By: van der Weijde, A.H.; Hobbs, B.F.
    Abstract: We formulate a series of stochastic models for committing and dispatching electric generators subject to transmission limits. The models are used to estimate the benefits of electricity locational marginal pricing (LMP) that arise from better coordination of day-ahead commitment decisions and real-time balancing markets in adjacent power markets when there is significant uncertainty in demand and wind forecasts. The unit commitment models optimise schedules under either the full set of network constraints or a simplified net transfer capacity (NTC) constraint, considering the range of possible real-time wind and load scenarios. The NTC-constrained model represents the present approach for limiting day-ahead electricity trade in Europe. A subsequent redispatch model then creates feasible real-time schedules. Benefits of LMP arise from decreases in expected start-up and variable generation costs resulting from consistent consideration of the full set of network constraints both day-ahead and in real-time. Meanwhile, using LMP to coordinate adjacent balancing markets provides benefits because it allows intermarket flow schedules to be adjusted in real-time in response to changing conditions. These models are applied to a stylised four-node network, examining the effects of varying system characteristics on the magnitude of the locational-based unit commitment benefits and the benefits of intermarket balancing. Although previous EPRG WORKING PAPER studies have examined the benefits of LMP, these usually examine one specific system, often without a discussion of the sources of these benefits, and with simplifying assumptions about unit commitment. <br><br>We conclude that both categories of benefits are situation dependent, such that small parameter changes can lead to large changes in expected benefits. Although both can amount to a significant percentage of operating costs, we find that the benefits of balancing market coordination are generally larger than the unit commitment benefits.
    Keywords: Electricity prices, international electricity exchange, electricity market model, electricity transmission
    JEL: L94
    Date: 2010–09–22
  9. By: Westner, Günther (E.ON Energy Projects GmbH); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In this paper, we apply a spread-based real options approach to analyze the decision-making problem of an investor who has the choice between an irreversible investment in a condensing power plant without heat utilization and a plant with combined heat-and-power (CHP) generation. Our investigation focuses on large-scale fossil-fueled generation technologies and is based on a stochastic model that uses copula functions to provide the input parameter of the real options model. We define the aggregated annual spread as assessment criteria for our investigation since it contains all relevant volatile input parameters that have an impact on the evaluation of investment decisions. We show that the specific characteristics of CHP plants, such as additional revenues from heat sales, promotion schemes, specific operational features, and a beneficial allocation of CO2 allowances, have a significant impact on the option value and therefore on the optimal timing for investment. For the two fossil-fueled CHP technologies investigated (combined-cycle gas turbine and steam turbine), we conclude from our analysis that a high share of CHP generation reduces the risk exposure for the investor. The maximal possible CHP generation depends significantly on the local heat demand in the surroundings of the power plant. Considering this, the size of the heat sink available could gain more relevance in the future selection process of sites for new large-scale fossil power plants.
    Keywords: Combined heat and power; Real options; Investment under uncertainty; Copula function
    JEL: C46 C61 D81 Q41
    Date: 2010–09
  10. By: Jamasb, T.; Orea, L.; Pollitt, M.G.
    Abstract: Incentive regulation and efficiency analysis of network utilities often need to take the effect of important external factors, such as the weather conditions, into account. This paper presents a method for estimating the effect of weather conditions on the costs of electricity distribution networks using parametric techniques. It examines whether the use of popular statistical variable reduction techniques is conceptually and econometrically sound for analyzing the effect of weather on the network costs. In this paper we estimate cost functions with the whole set of weather variables, identifying, when necessary, a subset of variables that can accurately reflect the effects of weather conditions. We show that weather conditions significantly affect distribution costs and the absence of weather variables has a downward biased impact on the effect of quality on costs. Also, the performance of statistical weather composites to capture this effect is poor. Finally, we show that there is a distinction between the effects of persistent and time varying weather conditions.
    Keywords: Electricity distribution cost, separability, weather composites, instrumental variable estimator
    JEL: L15 L51 L94
    Date: 2010–09–22
  11. 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
  12. By: Ristuccia, C.A.; Solomou, S.
    Abstract: This paper evaluates the diffusion of electricity within the context of a GPT perspective. The paper develops a new comparative data set on the usage of electricity in the manufacturing sectors of the US, Britain, France, Germany and Japan and proceeds to evaluate the hypotheses of a productivity slowdown and of a productivity bonus as postulated by many existing GPT models.
    Keywords: Copyright; General Purpose Technologies, Economic Growth, Economic History, Productivity, Long Swings
    JEL: N11 N12 N13 N14 N60 O40
    Date: 2010–04–30
  13. By: Perini Praveena Sri
    Abstract: The purpose of this paper is to examine water use estimation in hydel and thermal electric power plants in selected regions i.e. Coastal, Rayalaseema and Telangana regions of Andhra Pradesh. The study primarily focuses on the realistic fundamental premise that thermal electric and hydro electric energy generation is responsible for the largest monthly volume of water withdrawals in four seasons (i.e. summer, rainy, winter and post monsoon season) of a year. [WP-2010-019]
    Keywords: Thermal water withdrawals, hydel water withdrawals, storage capacity, tail water level, actual generation, condenser cooling and ash disposal.
    Date: 2010
  14. 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: 2010–03–24
  15. By: Heutel, Garth (University of North Carolina at Greensboro, Department of Economics)
    Abstract: Empirical evidence suggests that individual choices often display behavioral anomalies, like time-inconsistent preferences. For example, a household's preferences at the time of purchase of energy-intensive durable goods like cars and appliances may differ from its preferences later on, "underweighting" future operating costs. The standard solution to market failures caused by externalities—Pigouvian pricing—is suboptimal under time inconsistency. I investigate how public policies aimed at externalities can be optimally designed when consumers exhibit such behavior. An optimal policy includes an instrument to correct the market failure (externality) and an instrument to correct the behavioral anomaly. Either instrument can be an incentive-based policy or a command-and-control policy; behavioral anomalies do not uniquely warrant command-and-control regulations. I calibrate the model to the US automobile market. Preliminary simulation results suggest that, for cars, the second-best gasoline tax is 18%–45% higher than marginal external damages. The optimal price policy includes a gasoline tax set about equal to marginal external damages and a tax related to a car's fuel economy that increases the price of an average non-hybrid car by about $750–$2200 relative to the price of an average hybrid car.
    Keywords: time inconsistency; externality; gasoline; Pigouvian tax
    JEL: Q50
    Date: 2010–09–20
  16. By: Ruiqing Miao; David A. Hennessy (Center for Agricultural and Rural Development (CARD)); Bruce A. Babcock (Center for Agricultural and Rural Development (CARD); Midwest Agribusiness Trade Research and Information Center (MATRIC))
    Abstract: A floor and trade policy in Renewable Identification Numbers (RINs) is the market mechanism by which U.S. biofuel consumption mandates are met. A conceptual model is developed to study the impact of RINs on stimulating investment in cellulosic biofuel refineries. In a two-period framework, we compare the first-period investment level (FIL) in three scenarios: (1) laissez-faire, (2) RINs under a nonwaivable mandate (NWM) policy, and (3) RINs under a waivable mandate (WM) policy. Results show that when firm-level marginal costs are constants, then RINs under WM policy do not stimulate FIL but they do increase the expected profit of more efficient investors. When firm-level marginal costs are not constants, however, RINs under WM policy stimulate FIL. RINs under NWM policy may or may not stimulate FIL, depending on the distribution of second-period cellulosic biofuel prices and on firm-level marginal costs. Key words: cellulosic biofuels, investment, Renewable Identification Numbers, waivable mandate
    JEL: D24 L52 Q48
    Date: 2010–09
  17. By: Daron Acemoglu (Massachusetts Institute of Technology and Canadian Institute for Advanced Research); Philippe Aghion (Harvard University, Stockholm School of Economics and Canadian Institute for Advanced Research); Leonardo Bursztyn (Harvard University); David Hemous (Harvard University)
    Abstract: This paper introduces endogenous and directed technical change in a growth model with environmental constraints. A unique final good is produced by combining inputs from two sectors. One of these sectors uses "dirty" machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both “carbon taxes” and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth.
    Keywords: Environment, Exhaustible Resources, Directed Technological Change, Innovation
    Date: 2010–07
  18. By: Stavins, Robert N.
    Abstract: The problem of the commons is more important to our lives and thus more central to economics than a century ago when Katharine Coman led off the first issue of the American Economic Review. As the U.S. and other economies have grown, the carrying-capacity of the planet — in regard to natural resources and environmental quality — has become a greater concern, particularly for common-property and open-access resources. The focus of this article is on some important, unsettled problems of the commons. Within the realm of natural resources, there are special challenges associated with renewable resources, which are frequently characterized by open access.An important example is the degradation of open-access fisheries. Critical commons problems are also associated with environmental quality. A key contribution of economics has been the development of market-based approaches to environmental protection. These instruments are key to addressing the ultimate commons problem of the twenty-first century — global climate change.
    Keywords: common-property resource, open-access resource, fisheries, global climate change
    JEL: Q22 Q28 Q50 Q54 Q58
    Date: 2010–09–22
  19. By: Carlos A. Chavez (Departamento de Economia, Universidad de Concepcion Chile); John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst); Walter Gomez (Departamento de Ingenieria Matematica, Universidad de la Frontera Chile)
    Abstract: We examine the control of air pollution caused by households burning wood for heating and cooking in the developing world. Since the problem is one of controlling emissions from nonpoint sources, regulations are likely to be directed at household choices of wood consumption and combustion technologies. Moreover, these choices are subtractions from, or contributions to, the pure public good of air quality. Consequently, the efficient policy design is not independent of the distribution of household income. Since it is unrealistic to assume that environmental authorities can make lump sum income transfers part of control policies, efficient control of air pollution caused by wood consumption entails a higher tax on wood consumption and a higher subsidy for more efficient combustion technologies for higher income households. Among other difficulties, implementing a policy to promote the adoption of cleaner combustion technologies must overcome the seemingly paradoxical result that efficient control calls for higher technology subsidies for higher income households.
    Keywords: efficiency, urban air pollution, nonpoint pollution, environmental policy, uncertainty
    JEL: L51 H23 Q28
    Date: 2010–07
  20. By: Maximillian Auffhammer; Ralf Steinhauser
    Abstract: In this paper we compare the most common reduced form models used for emissions forecasting, point out shortcomings and suggest improvements. Using a U.S. state level panel data set of CO2 emissions we test the performance of existing models against a large universe of potential reduced form models. Our preferred measure of model performance is the squared out-of-sample prediction error of aggregate CO2 emissions. We find that leading models in the literature, as well as models selected based on an emissions per capita loss measure or different in-sample selection criteria, perform significantly worse compared to the best model chosen based directly on the out-of-sample loss measure defined over aggregate emissions. Unlike the existing literature, the tests of model superiority employed here account for model search or ‘data snooping’ involved in identifying a preferred model. Forecasts from our best performing model for the United States are 100 million tons of carbon lower than existing scenarios predict.
    JEL: Q43 C53
    Date: 2010–08
  21. By: Ana Espinola-Arredondo; Felix Munoz-Garcia (School of Economic Sciences, Washington State University)
    Abstract: This paper examines the two externalities that a country's environmental regulation imposes on other country's welfare: an environmental externality, due to transboundary pollution, and a competitive advantage externality, as regulations affect domestic firms' abatement costs, which impact the profits of their foreign competitors. We first analyze the emission standards that countries independently set under different market structures and then compare them with the standards set under international environmental agreements that internalize one or both types of externalities. The paper hence disentangles the effect of each externality. We show that firms’ profits increase when countries participate in international treaties if the environmental damage from pollution is relatively low and such pollution is not significantly transboundary. We hence demonstrate that international environmental agreements can serve as cooperative devices firms use to ameliorate overproduction and increase profits, without the need to form collusive agreements.
    Keywords: Transboundary pollution, strategic environmental policy, international environmental agreement, market structure
    JEL: C72 F12 H23 Q28
    Date: 2010–05
  22. By: Ramon Arigoni Ortiz; Alexander Golub; Oleg Lugovoy; Anil Markandya; James Wang
    Abstract: This paper introduces DICER, a model for the integrated assessment of climate – economy interactions within an optimal growth framework developed upon the structure of the DICE2007 model. We present the methodological differences introduced so far in DICER and some preliminary results of its deterministic version. We observe interesting results when comparing to other IAMs, such as (i) lower peak temperatures; (ii) radiative forcing differences; (iii) differences in control rates; and (iv) sensitivity of results to parameters such as climate sensitivity. A further innovation of this work has been to account for uncertainty and risk through an application of option pricing. The method allows for a simple representation of the risks through measures of volatility in the damages and abatement costs and shows that taking these factors into account lowers maximum mean temperatures by about 0.5oC. We also present some methodological issues that need to be dealt with in the near future in DICER.<br />
    Keywords: Climate change, Integrated Impact Assessment Model (IAM), damage function
    Date: 2010–07
  23. By: ZhongXiang Zhang (enior Fellow Research Program East-West Center)
    Abstract: The Doha Round Agenda (paragraph 31(3)) mandates to liberalize environmental goods and services. This mandate offers a good opportunity to put climate-friendly goods and services on a fast track to liberalization. Agreement on this paragraph should represent one immediate contribution that the WTO can make to fight against climate change. This paper presents the key issues surrounding liberalized trade in climate-friendly goods and technologies in WTO environmental goods negotiations. It begins with what products to liberalize and how. Clearly, WTO environmental goods negotiations to date show that WTO member countries are divided by this key issue. Focusing on the issue, the paper explores options available to liberalize trade in climate-friendly goods and technologies, both within and outside the WTO, and along with these discussions, discusses how to serve the best interests of developing countries.
    Keywords: Environmental Goods and Services, Low-Carbon Goods and Technologies, Doha Round, WTO
    JEL: F18 F13 Q56 Q54 Q58 Q48
    Date: 2010–09
  24. By: Schenker, Oliver
    Abstract: Impacts from climate change vary signicantly across world regions. Whereas regions in tropical and subtropical areas will sufer severely from the eects of climate change, are the impact estimates for regions in more northern latitudes relative moderate. But regions can not be considered as independent from each others exposure. In this paper we examine the spillover of climate change impacts between regions through international trade within a climate sensitive, dynamic CGE model with international trade. Under the emission scenario SRES A1B we observe at the end of the twenty-first century regional losses between 2 and 13 % GDP relative to a scenario without climate change. By means of a decomposition method we show that such a spillover of damages through international trade has a signicant influence, positive or negative, on the total costs of climate change for a region. For regions with low exposure to climate change and high adaptive capacities, spillover effects are responsible for a third of total costs from climate change.
    Keywords: Climate Change; Multi-regional Dynamic CGE Model; International Trade; Decomposition of General Equilibrium Effects.
    JEL: C68 O41 F47 D58
    Date: 2010–07–19
  25. By: ZhongXiang Zhang (Research Program East-West Center)
    Abstract: As an important step towards building a “harmonious society” through “scientific development”, China has incorporated for the first time in its five-year economic plan an energy input indicator as a constraint. While it achieved a quadrupling of its GDP while cutting its energy intensity by about three quarters between 1980 and 2000, China has had limited success in achieving its own 20% energy-saving goal set for 2010 to date. Despite this great challenge at home, just prior to the Copenhagen climate summit, China pledged to cut its carbon intensity by 40-45% by 2020 relative its 2005 levels to help to reach an international climate change agreement at Copenhagen or beyond. This raises the issue of whether such a pledge is ambitious or just represents business as usual. To put China’s climate pledge into perspective, this paper examines whether this proposed carbon intensity goal for 2020 is as challenging as the energy-saving goals set in the current 11th five-year economic blueprint, to what extent it drives China’s emissions below its projected baseline levels, and whether China will fulfill its part of a coordinated global commitment to stabilize the concentration of greenhouse gas emissions in the atmosphere at the desirable level. Given that China’s pledge is in the form of carbon intensity, the paper shows that GDP figures are even more crucial to the impacts on the energy or carbon intensity than are energy consumption and emissions data by examining the revisions of China’s GDP figures and energy consumption in recent years. Moreover, the paper emphasizes that China’s proposed carbon intensity target not only needs to be seen as ambitious, but more importantly it needs to be credible. Given that China has shifted control over resources and decision making to local governments as the result of the economic reforms during the past three decades, the paper argues the need to carefully examine those objective and subjective factors that lead to the lack of local official’s cooperation on the environment, and concludes that their cooperation, and strict implementation and coordination of the policies and measures enacted are of paramount importance to meeting China’s existing energy-saving goal in 2010, its proposed carbon intensity target in 2020 and whatever climate commitments beyond 2020 that China may take.
    Keywords: Energy Saving, Renewable Energy, Carbon Intensity, Post-Copenhagen Climate Negotiations, Climate Commitments, China
    JEL: Q42 Q43 Q48 Q52 Q53 Q54 Q58
    Date: 2010–07
  26. By: Michael Owen Moore (Department of Economics/Institute for International Economic Policy, George Washington University)
    Abstract: Some governments are considering taxes on imports based on carbon content from countries that have not introduced climate change policies. Such carbon border taxes appeal to domestic industries facing higher charges for their own carbon emissions. This research demonstrates that there are enormous practical difficulties surrounding such plans. Various policies are evaluated according to World Trade Organization compliance, administrative plausibility, help in meeting environmental goals, and ability to deal with domestic pressures. The steel industry is used as a case study in this analysis. All considered policies arguably fail to meet at least one of these constraints, bringing into question the plausibility that a carbon border tax can be practical policy.
    Keywords: carbon tariffs, climate change, environmental policy
    JEL: F13 F18 H23
    Date: 2010–06
  27. By: DURAND-LASSERVE, Olivier (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium; IFP, Economics Department, Rueil- Malmaison, France.); PIERRU, Axel (IFP, Economics Department, Rueil- Malmaison, France.); SMEERS, Yves (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)
    Abstract: The persistent uncertainty about mid-century CO2 emissions targets is likely to affect not only the technological choices that energy-producing firms will make in the future but also their current invest- ment decisions. We illustrate this effect on CO2 price and global energy transition within a MERGE-type general-equilibrium model framework, by considering simple stochastic CO2 policy scenarios. In these scenarios, economic agents know that credible long-run CO2 emissions targets will be set in 2020, with two possible outcomes: either a ”hard cap” or a ”soft cap”. Each scenario is characterized by the relative probabilities of both possible caps. We derive consistent stochastic trajectories - with two branches after 2020 - for prices and quantities of energy commodities and CO2 emissions permits. The impact of uncertain long-run CO2 emissions targets on prices and technological trajectories is discussed. In addition, a simple marginal approach allows us to analyze the Hotelling rule with risk premia observed for certain scenarios
    JEL: C68 Q41 Q43 Q52
    Date: 2010–06–01
  28. By: John K. Stranlund (Department of Resource Economics, University of Massachusetts Amherst); James J. Murphy (Department of Economics, University of Alaska Anchorage); John M. Spraggon (Department of Resource Economics, University of Massachusetts Amherst)
    Abstract: Two important design elements for emission trading programs are whether and to what extent firms are able to bank emissions permits, and how these programs are to be enforced. In this paper we present results from laboratory emissions markets designed to investigate enforcement and compliance when these markets allow permit banking. Banking is motivated by a decrease in the aggregate permit supply in the middle of multi-period trading sessions. Consistent with theoretical insights, our experiments suggest that high permit violation penalties have little deterrence value in dynamic emissions markets, and that the main challenge of enforcing these programs is to motivate truthful self-reports of emissions.
    Keywords: compliance, enforcement, emissions trading, laboratory experiments, permit markets, permit banking
    JEL: C91 L51 Q58
    Date: 2010–08
  29. By: Alexeeva-Talebi, Victoria
    Abstract: Price adjustments, particularly the cost pass-through relationships, are at the core of the analysis on how asymmetric climate change policy initiates two channels of carbon leakage: (decreasing) market shares and profit margins. Using advanced time-series techniques, this paper explores the pass-through relationships in an oligopoly setting. Under the condition of oligopolistic competition with strategic interactions, the cost pass-through of domestic firms is restricted by strategic interactions with foreign competitors. The empirical section demonstrates that strategic pricing in the presence of the incomplete cost pass-through is by far the prevailing behaviour of German energy-intensive sectors participating in the EU Emissions Trading Scheme (ETS). The relatively low cost pass-through rates in the long-run in most sectors in our sample - in comparison to studies which do not account for strategic interactions - are consistent with earlier findings. Additional costs induced by the EU ETS are therefore likely to be absorbed through a reduction of profit margin, creating incentives to relocate business abroad. Policy implications of the results are that strategic interactions between domestic and foreign firms could be a critical factor in applying offsetting instruments to address carbon leakage domestically. Accounting for oligopolistic structures - with and without strategic interactions - should therefore be a central issue within the broader context of how market structure affects climate change policies. -- Die vorliegende Arbeit untersucht das Kostenüberwälzungsverhalten deutscher Unternehmen (d.h. die Anpassung der Outputpreise an die Inputpreisveränderungen), welche am EU-Emissionshandel (EU EHS) teilnehmen. Die Analyse ist so umfassend wie die vorhandenen Daten für Deutschland es erlauben und betrachtet die Industriezweige Papier und Zellstoff, Chemie, Gummi und Kunststoff sowie die nicht-metallischen Mineralstoffe. Obwohl strategische Interaktionen von inländischen energieintensiven Sektoren mit ausländischen Wettbewerbern relevant sind, werden diese typischerweise von der empirischen Literatur zur Kostenweitergabe nicht berücksichtigt. Der stilisierte theoretische und empirische Rahmen des Papiers wendet daher eine Variante des Mark-up-Modells zur Preisbestimmung in strategischen Oligopolen an, wobei die strategischen Interaktionen zwischen inländischen und ausländischen Firmen das Kostenüberwälzungsverhalten deutscher Produzenten einschränkt. Der empirische Teil zeigt auf, dass die Mehrheit der deutschen Produzenten mit den ausländischen Wettbewerbern interagiert und somit eine unvollständige Kostenüberwälzung aufweist. Unsere Ergebnisse zeigen, dass hohe Marktmacht bei heimischen Produzenten auf relativ homogenen Produktmärkten zu geringeren Kostenüberwälzungsraten und einer stärkeren Ausrichtung auf die ausländischen Preise führt. Hingegen gilt: Je höher die Marktmacht bei heimischen Produzenten auf relativ heterogenen Produktmärkten ist, umso höher sind die Kostenüberwälzungsraten und umso weniger relevant sind die strategischen Interaktionen mit der ausländischen Konkurrenz.
    Keywords: cost pass-through,strategic oligopoly,emissions trading scheme
    JEL: F18 C22 L11
    Date: 2010
  30. By: Humberto Llavador; John E. Roemer; Joaquim Silvestre
    Abstract: We postulate a two-region world, comprised of North (calibrated after the US) and South (calibrated after China). Our optimization results show the compatibility of the following three desiderata: (1) Global CO2 emissions follow a conservative path that leads to the stabilization of concentrations at 450 ppm. (2) North and South converge to a path of sustained growth at 1% per year (28.2% per generation) in 2075. (3) During the transition to the steady state, North also grows at 1% per year while South’s rates of growth are markedly higher. The transition paths require a drastic reduction of the share of emissions allocated to North, large investments in knowledge, both in North and South, as well as very large investments in education in South. Surprisingly, in order to sustain North’s utility growth rate, some output must be transferred from South to North during the transition. Although undoubtedly subject to many caveats, our results support a degree of optimism by providing prima facie evidence of the possibility of tackling climate change in a way that is fair both across generations and across regions while allowing for positive rates of human development.
    Keywords: Convergence, CO2 emissions, North-South, climate change, sustainability, growth.
    JEL: D62 D63 D90 O40 O40 Q54 Q55 Q56 Q58
    Date: 2010–08
  31. 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
  32. By: Rohlfs, Wilko (Chair of Heat and Mass Transfer, Faculty of Mechanical Engineering, RWTH Aachen University); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In this paper, we develop a multi-factor real options model for a two-stage investment problem where a coal-fired power plant is later retrofitted with carbon capture and storage (CCS). A capture-ready power plant with lower retrofit costs is compared with a conventional one and higher CCS retrofit costs. The stochastic variables considered are the price of electricity, the price of CO2 permits, capturing, transporting and storing (CTS) costs and CCS retrofit investment costs. Fuel costs are disregarded due to the constant boiler size in case of a retrofit, resulting in constant fuel consumption but lower electricity output of the CCS plant. Two retrofit options that reduce the power plant’s net efficiency from 46% to 30% and 35%, respectively, and an integrated CCS power plant with an efficiency of 38.5% are investigated. <p>In a numerical simulation with realistic parameterization, we find a low probability for a retrofit even after fifteen to twenty years, caused by the high uncertainty and the adverse impact of the electricity price and the CO2 permit price. This renders the capture-ready option unattractive and calls for investments in conventional coal-fired power plants with later CCS investments at higher costs than for the case of a capture ready pre-installation.
    Keywords: CCS; Real options; Capture-ready; Coal; Power generation; Retrofit
    JEL: C63 O30
    Date: 2010–07
  33. By: Kelly C. de Bruin (Environmental Economics and Natural Resources Group Wageningen University); Rob B. Dellink (Environmental Economics and Natural Resources Group, Wageningen University); Richard S.J. Tol (Institute for Environmental Studies, Vrije Universiteit Economic and Social Research Institute, and Department of Spatial Economics, Vrije Universiteit)
    Abstract: This paper investigates the economic incentives of countries to cooperate on international adaptation financing. Adaptation is generally implicitly incorporated in the climate change damage functions as used in Integrated Assessment Models. We replace the implicit decision on adaptation with explicit adaptation in a multi-regional setting by using an adjusted RICE model. We show that making adaptation explicit will not affect the optimal mitigation path when adaptation is set at its optimal level. Sub-optimal adaptation will, however, change the optimal mitigation path. Furthermore this paper studies for different forms of cooperation what effects international adaptation transfers will have on (i) domestic adaptation and (ii) the optimal mitigation path. Adaptation transfers will fully crowd out domestic adaptation in a first best setting. Transfers will decrease overall mitigation in our numerical simulations. An analytical framework is used to analyse the most important mechanisms and a numerical model is used to assess the magnitude of effects.
    Keywords: Climate Change, Adaptation Funding, Integrated Assessment Modeling
    JEL: H41 Q4 Q54
    Date: 2010–05
  34. By: Emanuele Massetti (Fondazione Eni Enrico Mattei and Euro-Mediterranean Center for Climate Change); Lea Nicita (Fondazione Eni Enrico Mattei)
    Abstract: This paper studies the implications for climate policy of the interactions between environmental and knowledge externalities. Using a numerical analysis performed with the hybrid integrated assessment model WITCH, extended to include mutual spillovers between the energy and the non-energy sector, we show that the combination between environmental and knowledge externalities provides a strong rationale for implementing a portfolio of policies for both emissions reduction and the internalisation of knowledge externalities. Moreover, we show that implementing technology policy as a substitute for stabilisation policy is likely to increase global emissions.
    Keywords: Technical Change, Climate Change, Development, Innovation, Spillovers
    JEL: C72 H23 Q25 Q28 O31 O41 Q54
    Date: 2010–07
  35. By: ZhongXiang Zhang (Research Program East-West Center)
    Abstract: China had been singled out by Western politicians and media for dragging its feet on international climate negotiations at Copenhagen, the accusations previously always targeted on the U.S. To put such a criticism into perspective, this paper provides some reflections on China’s stance and reactions at Copenhagen. While China’s reactions are generally well rooted because of realities at home, some reactions could have been handled more effectively for a better image of China. The paper also addresses the reliability of China’s statistics on energy and GDP, the issue crucial to the reliability of China’s carbon intensity commitments. The paper discusses flaws in current international climate negotiations and closes with my suggestion that international climate negotiations need to focus on 2030 as the targeted date.
    Keywords: Copenhagen Climate Negotiations, Emissions Reductions, Carbon Intensity Target, Binding Emissions Caps, Statistics on Energy and GDP, Coal and Energy Consumption, China, USA
    JEL: Q41 Q43 Q48 Q52 Q54 Q58 O53
    Date: 2010–07
  36. By: ZhongXiang Zhang (Senior Fellow Research Program East-West Center)
    Abstract: In what format and under what timeframe China would take on climate commitments is of significant relevance to China because it is facing great pressure both inside and outside international climate negotiations to exhibit greater ambition and is being confronted with the threats of trade measures. It is of significant global relevance as well because when China’s emissions peak is crucial to determine when global emissions would peak and because what China is going to do in what format has significant implications for the level and ambition of commitments from other countries. In response to these concerns and to put China in a positive position, this paper maps out the roadmap for China’s specific climate commitments towards 2050. Taking many factors into consideration, the paper argues that China needs to take on absolute emissions caps around 2030. While this date is later than the time frame that the U.S. and other industrialized countries would like to see, it would probably still be too soon from China’s perspective. However, it is hard to imagine how China could apply the brakes so sharply as to switch from rapid emissions growth to immediate emissions cuts, without passing through several intermediate phases. To that end, the paper envisions that China needs the following three transitional periods of increasing climate obligations before taking on absolute emissions caps that will lead to the global convergence of per capita emissions by 2050: First, further credible energy-conservation commitments starting 2013 and aimed at cutting China’s carbon intensity by 45-50% by 2020; second, voluntary “no lose” emission targets starting 2018; and third, binding carbon intensity targets as its international commitment starting 2023. Overall, this proposal is a balanced reflection of respecting China’s rights to grow and recognizing China’s growing responsibility for increasing greenhouse gas emissions as China is approaching the world’s largest economy.
    Keywords: Carbon Intensity Target, Binding Emissions Caps, Post-Copenhagen Climate Negotiations, Energy Saving; Renewable Energy, Clean Development Mechanism, China, USA, India
    JEL: Q42 Q48 Q52 Q54 Q58
    Date: 2010–09
  37. By: Valentina Bosetti (Fondazione Eni Enrico Mattei, CESifo and CMCC); Carlo Carraro (Fondazione Eni Enrico Mattei, University of Venice, CEPR, CESifo and CMCC); Massimo Tavoni (Fondazione Eni Enrico Mattei, Princeton University and CMCC)
    Abstract: This paper analyzes the economic and investment implications of a series of climate mitigation scenarios, characterized by different levels of ambition in terms of long term stabilization goals and the transition to attain them. In particular, the implications of fairly ambitious scenarios are investigated for the first time by means of the model WITCH. Although milder climate objectives can be achieved at moderate costs, our results show that stringent stabilization paths, compatible with the target of the European Union and the G8, might have important economic repercussions. The timing of mitigation action influences the cost of meeting a target as well the stringency of the targets we can aspire to. To contain costs it is crucial to rely on a wide mitigation portfolio. Strong reductions in energy consumption through enhanced energy efficiency and life style changes are needed to achieve stringent climate policies. The analysis carried out in the present paper contains several idealistic assumptions that could be violated in the real world where some technologies may not be fully available, technology transfers and diffusion are imperfect, some world regions may not accept to reduce their GHG emissions, trading might be limited to some sectors or to a fraction of the total abatement effort, etc. This would increase the challenge of climate protection and the costs of reducing GHG emissions.
    Keywords: Climate Policy, Stabilization Costs
    JEL: C72 H23 Q25 Q28
    Date: 2010–05
  38. By: Leroux, Justin (HEC Montréal, CIRANO and CIRPEE); de Villemeur, Étienne (Toulouse School of Economics (IDEI & GREMAQ))
    Abstract: Due to meteorological factors, the distribution of the environmental damage due to climate change bears no relationship to that of global emissions. We argue in favor of offsetting this discrepancy, and propose a "global insurance scheme" to be fincanced according to countries responsibility for climate change. Because GHG decay very slowly, we argue that the actual burden of global warming should be shared on the basis of cumulated emissions, raher than sharing the expected costs of actual emissions as in a Pigovian taxation scheme. We characterize new versions of two well-known cost-sharing schemes by adapting the responsibility theory of Bossert and Fleurbaey (1996) to a context with externalities.
    JEL: D62 D63 Q54
    Date: 2010–07
  39. By: Francesca Sanna-Randaccio (Sapienza Università di Roma); Roberta Sestini (Sapienza Università di Roma)
    Abstract: This paper analyses the impact of unilateral climate policy on firms’ international location strategies in emission-intensive sectors, when countries differ in terms of market size. The cases of partial and total relocation via foreign direct investment are separately considered. A simple international duopoly model highlights the differences between short-term and long-term effects. In the short-term no change in location is a likely outcome in very capital-intensive sectors, and when there is a strategy shift this takes the form of partial instead of total relocation. In the long-run total relocation becomes a feasible outcome. However we found that, when tighter mitigation measures are introduced by the larger country and unit transport cost is high, with a pronounced market asymmetry the probability of firms not relocating abroad is high even in the long-term. The welfare implications of unilateral environmental measures are assessed considering global industrial pollution and accounting for shifts in location strategy.
    Keywords: Foreign Direct Investment, Carbon Leakage, Climate Policy, Relocation, Transport Costs, Welfare
    JEL: F12 F23 Q58
    Date: 2010–09
  40. By: Patrick Laurency; Dirk Schindler
    Abstract: In recent years, differences between traditional and green parties have been leveled with respect to climate protection. We show that this convergence in party platforms can be explained by successful international climate agreements. We set up a voting model where political parties differ in their preferences for climate protection and where climate protection causes both resource costs and distortions in the international allocation of production. Successful international agreements, which increase climate protection, reduce effective abatement costs and affect traditional parties in a different way than green parties, since a lower preference for climate protection implies a higher price (cost) elasticity of demand. Furthermore, we point out that increasing flexibility and efficiency in abatement mechanisms is preferable to forming a climate coalition that focuses directly on emission reduction commitments.
    Keywords: Climate Protection, Political Economy, Platform Convergence
    Date: 2010
  41. By: Lawrence H. Goulder (Stanford University National Bureau of Economic Research Resources for the Future); Robert N. Stavins (John F. Kennedy School of Government, Harvard University, Resources for the Future National Bureau of Economic Research)
    Abstract: Federal action addressing climate change is likely to emerge either through new legislation or via the U.S. EPA’s authority under the Clean Air Act. The prospect of federal action raises important questions regarding the interconnections between federal efforts and state-level climate policy developments. In the presence of federal policies, to what extent will state efforts be cost-effective? How does the co-existence of state- and federal-level policies affect the ability of state efforts to achieve emissions reductions? This paper addresses these questions. We find that state-level policy in the presence of a federal policy can be beneficial or problematic, depending on the nature of the overlap between the two systems, the relative stringency of the efforts, and the types of policy instruments engaged. When the federal policy sets limits on aggregate emissions quantities, or allows manufacturers or facilities to average performance across states, the emission reductions accomplished by a subset of U.S. states may reduce pressure on the constraints posed by the federal policy, thereby freeing facilities or manufacturers to increase emissions in other states. This leads to serious “emissions leakage” and a loss of cost-effectiveness at the national level. In contrast, when the federal policy sets prices for emissions or does not allow manufactures to average performance across states, these difficulties are usually avoided. Even in circumstances involving problematic interactions, there may be other attractions of state-level climate policy. We evaluate a number of arguments that have been made to support state-level climate policy in the presence of federal policies, even when problematic interactions arise.
    Keywords: Global Climate Change, Federalism, Cap-And-Trade, Carbon Tax, Regulation
    JEL: H11 H77 K32 L51 Q48 Q54
    Date: 2010–07
  42. By: Sheila M. Olmstead (chool of Forestry and Environmental Studies, Yale University, Resources for the Future); Robert N. Stavins (John F. Kennedy School of Government, Harvard University, Resources for the Future, National Bureau of Economic Research)
    Abstract: We describe three essential elements of an effective post-2012 international global climate policy architecture: a means to ensure that key industrialized and developing nations are involved in differentiated but meaningful ways; an emphasis on an extended time path of targets; and inclusion of flexible market-based policy instruments to keep costs down and facilitate international equity. This architecture is consistent with fundamental aspects of the science, economics, and politics of global climate change; addresses specific shortcomings of the Kyoto Protocol; and builds upon the foundation of the United Nations Framework Convention on Climate Change.
    Keywords: Global Climate Change, Global Warming, Policy Architecture, Kyoto Protocol
    JEL: Q54 Q58 Q48 Q39
    Date: 2010–07

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