nep-ene New Economics Papers
on Energy Economics
Issue of 2011‒05‒30
thirty-one papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Energy Policies for Passenger Motor Vehicles By Kenneth Small
  2. An Electricity Trading System with Tradable Green Certificates and CO2 Emission Allowances By Widerberg, Anna
  3. Effect of transparency on changing views regarding nuclear energy before and after Japan’s 2011 natural disasters: A cross-country analysis By Yamamura, Eiji
  4. A comparative analysis of the future cost of electricity generation in OECD and non-OECD countries By Jason West
  5. China's economic growth engine: The likely types of hardware failure, software failure and power supply failure By Woo, Wing Thye
  6. Finance and Oil. Is there a Resource Curse in Financial Development? By Beck, T.H.L.
  7. OPEC’s oil exporting strategy and macroeconomic (in)stability By Luís Aguiar-Conraria; Yi Wen
  8. Arbitrage and the Price of Oil By Vipin Arora
  9. Asset Value, Interest Rates and Oil Price Volatility By Vipin Arora
  10. Pricing of Gas Swing Options using Monte Carlo Methods By Andrea Klimešová; Tomáš Václavík
  11. El gas de La Guajira y sus efectos económicos sobre el departamento By Andrés Sánchez Jabba
  12. A profit model for spread trading with an application to energy futures By Kanamura, Takashi; Rachev, Svetlozar T.; Fabozzi, Frank J.
  13. National economic and environmental development study: the case of Pakistan By Ahmed, Vaqar; Malik , Amin Aslam Khan; Ramay , Shakeel; Munawwar, Zuhair; Pervaiz, Amir
  14. On the volatility-volume relationship in energy futures markets using intraday data By Julien Chevallier; Benoît Sévi
  15. The Effect of Quality Differentials on Integration of the Seaborne Thermal Coal Market By Jason West
  16. Analysing the Motives Sustaining a Foreign Investment Resurgence in Australian Coal By Jason West
  17. Analysis of the relationship between cost, price and profit in lignite extraction By ciumag, anca; ciumag, marin
  18. Green exports and the global product space: Prospects for EU industrial policy By Mark Huberty; Georg Zachmann
  19. A Nonlinear Offset Program to Reduce Nitrous Oxide Emissions Induced by Excessive Nitrogen Application By Rosas, Juan (Francisco); Babcock, Bruce A.; Hayes, Dermot J.
  20. Greener Homes: An Ex-Post Estimate of the Cost of Carbon Dioxide Emission Reduction using Administrative Micro-Data from the Republic of Ireland By Leahy, Eimear; Tol, Richard S. J.
  21. Reforming the Tax System to Promote Environmental Objectives: An Application to Mauritius By Parry, Ian W.H.
  22. What is the best environmental policy?Taxes, permits and rules under economic and environmental uncertainty By Konstantinos Angelopoulos; George Economides; Apostolis Philippopoulos
  23. Dynamiques d’arbitrage entre écotaxe et permis d’émissions By Arnaud Dragicevic
  24. Sectoral and regional expansion of emissions trading By Christoph Böhringer, Bouwe Dijkstra and Knut Einar Rosendahl
  25. Attitudes to Personal Carbon Allowances By Andersson, David; Löfgren, Åsa; Widerberg, Anna
  26. Using the allocation of emission permits for Strategic Trade purposes By CHristos Constantatos; Lefteris Filippiadis; Eftichios S. Sartzetakis
  27. The Uncertainty about the Total Economic Impact of Climate Change By Tol, Richard S. J.
  28. Can Strategic Environmental and Social Assessment of REDD+ Improve Forest Governance? By Slunge, Daniel; Ekbom, Anders; Loayza, F.; Guthiga, P.; Nyangena, Wilfred
  29. Ecosystem Good and Service Co-Effects of Terrestrial Carbon Sequestration: Implications for the U.S. Geological Survey’s LandCarbon Methodology By Boyd, James; Brookshire, David S.
  30. Climate change: From global concern to regional challenge By Leeuwen, E.S. van; Nijkamp, P.; Rietveld, P.
  31. Framework and Tools for Assessing and Understanding the Green Economy at the Local Level By Randall W. Eberts

  1. By: Kenneth Small (Department of Economics, University of California-Irvine)
    Abstract: This paper assesses the costs and effectiveness of several energy policies for light-duty motor vehicles in the United States, using the National Energy Modeling System (NEMS). The policies addressed are higher fuel taxes, tighter vehicle efficiency standards, and financial subsidies and penalties for the purchase of high- and low-efficiency vehicles (feebates). I find that tightening fuel-efficiency standards beyond those currently mandated through 2016, or imposing feebates designed to accomplish similar changes, can achieve by 2030 reductions in energy use by all light-duty passenger vehicles of 7.1 to 8.4 percent. A stronger feebate policy has somewhat greater effects, but at a significantly higher unit cost. High fuel taxes, on the order of $2.00 per gallon (2007$), have somewhat greater effects, arguably more favorable cost-effectiveness ratios, and produce their effects much more quickly because they affect the usage rate of both new and used vehicles. Policy costs vary greatly with assumptions about the reason for the apparent myopia commonly observed in consumer demand for fuel efficiency, and with the inclusion or exclusion of ancillary costs of congestion, local air pollution, and accidents.
    Keywords: Fuel efficiency; Light-duty vehicles; Energy policy; Greenhouse gases; Feebate; Fuel tax
    JEL: L92 R48 Q48 Q54 Q52
    Date: 2011–05
  2. By: Widerberg, Anna (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Combinations of various policy instruments to deal with the threat of climate change are used throughout the world. The aim of this article is to investigate an electricity market with two di¤erent policy instruments, Tradable Green Certi…cates (TGCs) and CO2 emission allowances (an Emission Trading System, ETS). We analyze both the short- and long-run e¤ects of a domestic market and a market with trade. We …nd that increasing the TGC quota obligation will decrease the electricity produced using non-renewable sources as well as the long-run total production of electricity. For the electricity produced using renewable energy sources, an increase in the quota obligation leads to increased production in almost all cases, with assumptions based on historical data. The impacts of the ETS price on the electricity production are negative for all electricity production, which is surprising. This means that the combination of ETS and TGCs gives unexpected and unwanted results for the electricity production using renewable sources, since an increase in the ETS price leads to a decrease in this production. <p>
    Keywords: Climate change; Tradable green certi…cates; Emission allowances; Electricity
    JEL: Q40 Q42 Q48
    Date: 2011–05–19
  3. By: Yamamura, Eiji
    Abstract: Using cross-country data, this paper examines the influence of government transparency on changing views regarding nuclear energy before and after Japan’s natural and nuclear disasters of 2011. Empirical results show that transparency increases the rate of favor for nuclear energy.
    Keywords: Natural disaster; Nuclear energy; Transparency
    JEL: H19 D73 D83 Q54
    Date: 2011–05–11
  4. By: Jason West
    Keywords: energy, investment
    Date: 2011–05
  5. By: Woo, Wing Thye (BOFIT)
    Abstract: The 6th Plenum of the 16th Central Committee of the Communist Party of China (CPC) concluded on October 11, 2006, with the commitment to establish a harmonious society by 2020. The obvious implication from this commitment is that the present major social, economic and political trends are not leading to a harmonious society or, at least, not leading to a harmonious society fast enough. Analytically, if the Chinese economy is depicted as a speeding car, there are three classes of failures (a) a hardware failure from the breakdown of an economic mechanism, a development that is analogous to the collapse of the chassis of the car; (b) a software failure from a flaw in governance that creates frequent widespread social disorders that disrupt production economy-wide and discourage private investment, a situation similar to a car crash that resulted from a fight among the people inside the speeding car; and (c) a power supply failure from hitting either a natural limit or an externally-imposed limit, a situation that is akin, respectively, to the car running out of gas or to the car smashing into a barrier erected by an outsider. For hardware failure we discuss the possible weakening of China's fiscal position generated by the repeated recapitalization of the state banks. For software failure, we discuss possible social disorder caused by outmoded governance. And for power supply failure, we discuss the possible trade disputes from China’s chronic trade imbalances and the physical constraints posed by China’s rapidly deteriorating natural environment.
    Keywords: China; growth; banks; environment
    JEL: O43 O53 P48
    Date: 2011–05–26
  6. By: Beck, T.H.L. (Tilburg University, Center for Economic Research)
    Abstract: This paper shows that the finance and growth relationship is as important in resource-based economies as in other economies. This paper also documents less developed financial systems in resource-based economies and banks that are more liquid, better capitalized and more profitable, but give fewer loans to firms. Firms in resource-based economies use less external finance and a smaller share of them uses bank loans, although there is the same level of demand as in other countries, thus pointing to supply constraints. Overall, there is some indication of a natural resource curse in financial development, which falls more on enterprises than on households. This calls for intensified efforts in resource-based economies to deepen and broaden financial systems.
    Keywords: Financial Development;Natural Resource Curse.
    JEL: G10 G20 Q39
    Date: 2011
  7. By: Luís Aguiar-Conraria; Yi Wen
    Abstract: Aguiar-Conraria and Wen (2008) argued that dependence on foreign oil raises the likelihood of equilibrium indeterminacy (economic instability) for oil importing countries. We argue that this relation is more subtle. The endogenous choices of prices and quantities by a cartel of oil exporters, such as the OPEC, can affect the directions of the changes in the likelihood of equilibrium indeterminacy. We show that fluctuations driven by self-fulfilling expectations under oil shocks are easier to occur if the cartel sets the price of oil, but the result is reversed if the cartel sets the quantity of production. These results offer a potentially interesting explanation for the decline in economic volatility (i.e., the Great Moderation) in oil importing countries since the mid-1980s when the OPEC cartel changed its market strategies from setting prices to setting quantities, despite the fact that oil prices are far more volatile today than they were 30 years ago.>
    Keywords: Organization of Petroleum Exporting Countries ; Petroleum industry and trade
    Date: 2011
  8. By: Vipin Arora
    Abstract: The model simulated in this paper shows that falling interest rates contribute to rising oil prices. This occurs because oil producers treat oil in the ground as an asset and attempt to arbitrage differences between its rate of return and the interest rate. When calibrated to match observed data over the last two decades, model results indicate that this arbitrage behaviour may have made the largest contribution to the pre-crisis boom in oil prices. Productivity driven growth shocks raise the oil price by about 70 percent, but this rises to 150 percent when falling interest rates are included.
    JEL: E37 F47 Q43
    Date: 2011–01
  9. By: Vipin Arora
    Abstract: Simulations from a standard two-region model where producers respond to changes in interest rates are better able to match observed data than an identical model without supply-side responses. This indicates that incorporating the supply-side behaviour of oil producers is quantitatively important when endogenously modeling oil prices. These results have two implications. First, adding supply-side responses can change the oil price/output relationship, which is a continuing topic of research interest. Second, if production is unable to adjust to interest rate changes, an important explanatory factor of oil price volatility may be missing.
    JEL: E37 F47 Q43
    Date: 2011–01
  10. By: Andrea Klimešová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Tomáš Václavík (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Motivated by the changing nature of the natural gas industry in the European Union driven by the liberalization process, we focus on pricing of gas swing options. These options are embedded in typical gas sales agreements in the form of offtake flexibility concerning volume and time. The gas swing option is actually a set of several American puts on a spread between prices of two or more energy commodities. This fact together with the fact that the energy markets are fundamentally different from traditional financial security markets is important for our choice of valuation technique. Due to the specific features of the energy markets, the existing analytic approximations for spread option pricing are hardly applicable to our framework. That is why we employ Monte Carlo methods to model the spot price dynamics of the underlying commodities. The price of an arbitrarily chosen gas swing option is then computed in accordance with the concept of risk-neutral expectations. Finally, our result is compared with the real payoff from the option realized at time of the option execution and the maximum ex-post payoff the buyer could generate in case he knew the future, discounting to the original time of the option pricing.
    Keywords: energy markets, gas sales agreement, gas swing option, Monte Carlo simulations, spread option pricing
    JEL: C63 G12 G13
    Date: 2011–07
  11. By: Andrés Sánchez Jabba
    Abstract: Los campos de gas en La Guajira suministran cerca del 66% del gas de Colombia, lo que refleja la importancia de éstos para atender las necesidades energéticas del país. Sin embargo, a nivel regional, el impacto de esta actividad sobre el desarrollo y el crecimiento económico ha sido limitado debido a la naturaleza extractiva de la actividad, la cual se podría clasificar como una economía de enclave, ya que los datos indican que la producción de gas en La Guajira no ha generado encadenamientos productivos que permitan potenciar el crecimiento económico del departamento. En ese sentido, la principal contribución de la extracción de gas a la economía guajira se limita a las regalías pagadas a favor de sus entidades territoriales. No obstante, dichas regalías no parecen haberse traducido en mejoras del bienestar social de la población local debido a aspectos relacionados con la corrupción e ineficiencia en la ejecución de los ingresos. Por el contrario, lo que se evidencia es una alta dependencia hacia estos recursos por parte de los entes territoriales, favoreciendo así, la pereza en la generación y diversificación de recursos fiscales. Adicionalmente, las tendencias decrecientes en la producción permiten pronosticar problemas asociados a la capacidad de abastecimiento del recurso y la aparición de déficits fiscales relacionados con las reducciones de los ingresos de regalías. El estudio concluye que la promoción y desarrollo formal de otros sectores, entre los cuales se encuentran el turístico y comercial, constituye un mecanismo apropiado para aumentar los ingresos fiscales y prevenir la formación de déficits futuros. ABSTRACT: Gas sites at La Guajira supply nearly 66% of Colombia’s gas consumption, which reflects the importance of these operations in securing energy needs nationwide. However, at a regional scale, the impact of this activity on economic growth and development has been limited or nonexistent as a result of its extractive nature. Data suggests that this activity has not generated productive chains which favour regional economic growth. Therefore, gas extraction constitutes an enclave economy which characterizes itself by operating as a self sufficient and isolated branch with the regional economy. The main contribution of gas extraction towards economic performance of La Guajira consists of royalties paid in favour of local municipalities and states. Nonetheless, such royalties do not seem to have translated themselves in increases of social welfare due to aspects related to corruption and inefficiency. Moreover, the reliance upon these revenues has become increasingly evident and suggests the appearance of a future fiscal deficit associated with decreasing production trends, high transfer dependency and a narrowed fiscal base, which in turn represents a considerable threat not only to public finances, but also to gas provision at a national scale. The study concludes that promotion and development of formal tourism and commerce constitutes an appropriate mechanism in order to increase fiscal revenues and prevent the aforementioned deficit
    Date: 2011–05–17
  12. By: Kanamura, Takashi; Rachev, Svetlozar T.; Fabozzi, Frank J.
    Abstract: This paper proposes a profit model for spread trading by focusing on the stochastic movement of the price spread and its first hitting time probability density. The model is general in that it can be used for any financial instrument. The advantage of the model is that the profit from the trades can be easily calculated if the first hitting time probability density of the stochastic process is given. We then modify the profit model for a particular market, the energy futures market. It is shown that energy futures spreads are modeled by using a meanreverting process. Since the first hitting time probability density of a mean-reverting process is approximately known, the profit model for energy futures price spreads is given in a computable way by using the parameters of the process. Finally, we provide empirical evidence for spread trades of energy futures by employing historical prices of energy futures (WTI crude oil, heating oil, and natural gas futures) traded on the New York Mercantile Exchange. The results suggest that natural gas futures trading may be more profitable than WTI crude oil and heating oil due to its high volatility in addition to its long-term mean reversion, which offers supportive evidence of the model prediction. --
    Keywords: futures spread trading,energy futures markets,mean-reverting process,first hitting,time probability density,profit model,WTI crude oil,heating oil,natural gas
    JEL: C51 G29 Q40
    Date: 2011
  13. By: Ahmed, Vaqar; Malik , Amin Aslam Khan; Ramay , Shakeel; Munawwar, Zuhair; Pervaiz, Amir
    Abstract: Pakistan is a developing country bracing for significant economic growth and development in the future. In this regards, the country is poised to shift towards an increased reliance upon its indigenous coal reserves to fuel its development in the 2010-2050 time frame. Although this will significantly raise its projected greenhouse gas emissions, the present study has identified numerous measures which can be taken to shift this future development pathway on to a lower carbon and more climate friendly trajectory. The country, however, requires this shift to be supported through the access and transfer of appropriate technologies and finance. The ensuing “additional” financial needs for mitigation for a cleaner development future range from between U$ 8 billion and U$ 17 billion. These have been identified in this report along with a potential of 18% and 40% reduction of emissions between below “Business As Usual” scenario which is possible with a shift towards cleaner technologies. These clean development investments, however, need to be made in the near future as otherwise the energy future of Pakistan will get locked into the lower cost - higher carbon options. This mitigation costing estimate will, however, need to be refined and focused further as Pakistan identifies not only the specific technologies that it needs for this low carbon shift (through carrying out the “Technology Needs Assessment”) but also the programmatic, sectoral as well as project specific NAMAs (Nationally Appropriate Mitigation Actions) in the near future. Pakistan is also highly vulnerable to the impacts of climate change and faces immense associated challenges in coping with its unavoidable effects and economic implications. This study has highlighted the need to treat adaptation to climate change as a primary development issue for Pakistan. The potential impacts and sectors demanding prioritized adaptation have been identified in this study and the, associated, costs of adaptation have been estimated utilizing three diverse modeling methodologies – using GDP projections, per-capita figures and “flood” disaster modeling. The resulting adaptation cost figures range from between U$ 6 billion to U$ 14 billion/year that Pakistan would have to spend at an average in the 2010-2050 time frame to cope with the effects of climate change while it will be also left to, unavoidably, bear significant “residual damage” costs induced due to climate change. The top-down adaptation costing analysis applied in this report is aimed at providing a reasonable first approximation that can be refined over time as relevant and reliable local data becomes available especially from research focusing on sector specific adaptation costing. Most significantly the report reinforces the fact that the issue of climate change is, thus, not only an environmental issue challenging the country but an issue which will directly impinge upon the country’s economic, financial and development future as it deals with its extreme vulnerability to climate change. The significant climate costs identified in this study inextricably shows that climate change is an issue which Pakistan can ill afford to ignore in the future. Finally the report has identified the major financing options available for climate change related activities in Pakistan as well as the significant unilateral climate resources, U$ 4.5 billion in 2007-2009 alone, that the country is already committing to climate change without getting any global recognition for its efforts. In future, global financing will need to augment and leverage such national financial commitments. Also, as climate finance becomes increasingly available at the global level, it would be essential to enact appropriate assimilative national capacity in Pakistan to direct this finance towards nationally identified priorities as well as channelize it transparently and efficiently through consolidated financial mechanisms like a National Climate Change Fund which has been proposed through this study.
    Keywords: climate change Pakistan
    JEL: Q54
    Date: 2011–02
  14. By: Julien Chevallier; Benoît Sévi
    Abstract: This paper investigates the relationship between trading volume and price volatility in the crude oil and natural gas futures markets when using high-frequency data. By regressing various realized volatility measures (with/without jumps) on trading volume and trading frequency, our results feature a contemporaneous and largely positive relationship. Furthermore, we test whether the volatility-volume relationship is symmetric for energy futures by considering positive and negative realized semivariance. We show that (i) an asymmetric volatility-volume relationship indeed exists, (ii) trading volume and trading frequency significantly affect negative and positive realized semivariance, and (iii) the information content of negative realized semivariance is higher than for positive realized semivariance.
    Keywords: Trading Volume; Price Volatility; Crude Oil Futures; Natural Gas Futures; High-Frequency Data; Realized Volatility; Bipower Variation; Median Realized Volatility; Realised Semivariance; Jump
    JEL: C15 C32 C53 G1 Q4
    Date: 2011
  15. By: Jason West
    Keywords: Arbitrage, thermal coal, energy, Kalman filter
    JEL: C12 C51 Q41
    Date: 2011–08
  16. By: Jason West
    Keywords: Coal, Investment, Energy
    Date: 2011–06
  17. By: ciumag, anca; ciumag, marin
    Abstract: From the point of view of coal consumers, which is visible to the naked eye is the price and size and its size dynamics is necessary for attention to anyone, due the fact that directly or indirectly, everyone in the situation of power buyer. In the area of lignite extraction, it is maintaing the relationship between the cost and profit.The law of demand and supply makes also the demand causes by the price and also the obvious changes in demand lead to changes in production. Production cost level is the critical threshold of profitability and as such, the manufacturers will be willing to supply at a price below cost. Dependence of the price arises also to the cost. At the same time, between the costs and profits, there is an inverse relationship. In order to maximize profits, in the extraction of lignite areas, is required to identify solutions to reduce production costs.
    Keywords: cost; price; profit; lignite; production
    JEL: M41
    Date: 2010–11–27
  18. By: Mark Huberty; Georg Zachmann
    Abstract: We test if and where industrial policy to promote â??greenâ?? industry development can improve competitiveness in export markets. Proponents of â??green growthâ?? have argued that domestic promotion of â??greenâ?? energy will generate improved comparative advantage in export markets for high-technology goods such as wind turbines or solar cells. If this holds depends on if domestic market expansion can, on its own, support firm competitiveness abroad. We find evidence that industrial policy may work for wind turbines, but we find no evidence that it works for solar cells. Furthermore, domestic renewable energy promotion is more likely to translate into improved international competitiveness if a country already possesses skills, technologies, and industrial sectors closely related to the sector in question. By locating the wind turbine and solar cell sectors in the global product space of traded goods, we are able to show that, net of historical competitiveness and domestic market size, green industrial policy functions best when capitalising on pre-existing industrial capacities, rather than trying to create them. Finally, our finding that policy appears to work for wind turbines but not solar cells may reflect the greater tradeability of solar cells, which may mean that expansion of domestic demand leads to more imports rather than expanded domestic production. While this paper suggests conditions under which green industrial policy might prove effective in economic development, it makes no claims about whether this represents an efficient approach to either growth or emissions reduction. This evidence recommends caution in using economic growth and competitiveness arguments as the primary justification for investments in renewable energy.
    Date: 2011–05
  19. By: Rosas, Juan (Francisco); Babcock, Bruce A.; Hayes, Dermot J.
    Abstract: On average, U.S. farmers choose to apply nitrogen fertilizer at a rate that exceeds the ex post agronomically optimal rate. The technology underlying the yield response to nitrogen rewards producers who over apply in years when rainfall is excessive. The overapplication of nutrients has negative environmental consequences because the nitrogen that is not taken up by the plant will typically volatilize causing N2O emissions, or leach causing water pollution. We present a nonlinear offset program that induces farmers to reduce their nitrogen applications to the level that will be consumed by the plant in a typical year and, as a result, reduce N2O emissions from agriculture. The offset program is nonlinear because of the nonlinear relationship between N2O and nitrogen application rates. We assume that the farmer solves an expected utility maximization problem, choosing the optimal nitrogen application rate. The key contribution is a set of simulations that shows that modest offset payments will induce participation in the program and will have a significant impact on both expected and actual N2O emissions without having a significant impact on actual or expected yields. We also find that more risk-averse farmers will reduce emissions by a greater amount than less risk-averse farmers. Finally, we show the distribution of emission reductions induced by this nonlinear offset scheme.
    Keywords: nitrogen fertilizer; carbon offsets; nitrous oxide; pollution; uncertainty.
    JEL: D8 Q12 Q18 Q51 Q53 Q54
    Date: 2011–04–28
  20. By: Leahy, Eimear; Tol, Richard S. J.
    Abstract: We assess the subsidy for the installation of biomass boilers and wood gasification boilers under the Greener Homes Scheme in Ireland. We find that the (implicit) subsidy per tonne of carbon dioxide avoided varies hugely across households. The current policy costs 17% too much for the emissions avoided, or avoids 17% too few emissions for the money spent. The subsidy reduces welfare (including environmental benefits) by 42%.
    Keywords: cost/Ireland/Policy/Republic of Ireland
    Date: 2011
  21. By: Parry, Ian W.H. (Resources for the Future)
    Abstract: Fiscal instruments are potentially among the most effective, and cost-effective, options for addressing externalities related to poor air quality, urban road congestion, and greenhouse gases. This paper takes a case study, focused on Mauritius (a pioneer in the use of green taxes) to illustrate how existing taxes, especially on fuels and vehicles, could be reformed to better address these externalities. We discuss, in particular, an explicit carbon tax; a variety of options for reforming vehicle taxes to meet environmental, equity, and revenue objectives; and a progressive transition to usage-based vehicle taxes to address congestion.
    Keywords: Mauritius, green taxes, global warming, congestion, vehicle taxes
    JEL: Q56 Q58 H23 R48
    Date: 2011–05–17
  22. By: Konstantinos Angelopoulos (University of Glasgow); George Economides (Athens University of Economics and Business); Apostolis Philippopoulos (Athens University of Economics and Business, University of Glasgow and Visiting Scholar at the Bank of Greece)
    Abstract: We welfare rank different types of second-best environmental policy. The focus is on the roles of uncertainty and public finance. The setup is the basic stochastic neoclassical growth model augmented with the assumptions that pollution occurs as a by-product of output produced and environmental quality is treated as a public good. To compare different policy regimes, we compute the welfare-maximizing value of the second-best policy instrument in each regime. In all cases studied, pollution permits are the worst recipe, even when their revenues are used to finance public abatement. When the main source of uncertainty is economic, the best recipe is to levy taxes (on pollution or output) and use the collected tax revenues to finance public abatement. However, when environmental uncertainty is the dominant source of extrinsic uncertainty, Kyoto-like rules for emissions, being combined with tax-financed public abatement, are better than taxes. Finally, comparing pollution and output taxes, the latter are better.
    Keywords: General equilibrium; uncertainty; environmental policy
    JEL: C68 D81 H23
    Date: 2010–10
  23. By: Arnaud Dragicevic
    Abstract: This paper proposes three analyses of the tradeoff mechanism between ecotax and carbon credit. Our wish is to compare the ecotax level with the carbon credit price, subject to the minimization of the cost inherent to emissions. We redefine the calculus equations of the firm profit, in which we inject the parameters of energy intensity and emission intensity. We proceed to one static and two dynamic studies, whither we adapt the methodology of population dynamics. Our results highlight a simple tradeoff rule between ecotax and carbon credit, both in the static and dynamic models. In uncertainty, the rule determines whether the level of environmental tax is under- or overvalued compared to the carbon credit price. As well, the study enables to determine the global level of tax revenue attainable by the enforcement of the environmental taxation. <P>Ce papier propose trois analyses sur le mécanisme d’arbitrage entre écotaxes et permis d’émissions. Notre souhait est de comparer le niveau de l’écotaxe avec le prix du permis d’émissions, sous contrainte de minimisation du coût inhérent aux émissions. Nous redéfinissons les équations de calcul du profit des entreprises où nous injectons les paramètres d’intensité énergétique et de facteur d’émissions. Nous procédons à une étude statique puis à deux études dynamiques dans lesquelles nous adaptons la méthodologie de la dynamique des populations. Nos résultats mettent en exergue une simple règle d’arbitrage entre écotaxe et permis d’émissions, aussi bien dans le modèle statique que les modèles dynamiques. Dans l’incertitude, la règle détermine si le niveau de la taxe environnementale est sous- ou surévalué par rapport au prix du permis d’émissions. L’étude permet également de déterminer le niveau global des recettes fiscales atteignable par la mise en vigueur de l’éco-fiscalité.
    Keywords: diseconomic profit, environmental taxation, emissions trading, evolutionary game theory., profit déséconomique, éco-fiscalité, bourse du carbone, théorie des jeux évolutionnaires.
    JEL: C7 F18 H21 H23 H32
    Date: 2011–05–01
  24. By: Christoph Böhringer, Bouwe Dijkstra and Knut Einar Rosendahl (Statistics Norway)
    Abstract: We consider an international emissions trading scheme with partial sectoral and regional coverage. Sectoral and regional expansion of the trading scheme is beneficial in aggregate, but not necessarily for individual countries. We simulate international CO2 emission quota markets using marginal abatement cost functions and the Copenhagen 2020 climate policy targets for selected countries that strategically allocate emissions in a bid to manipulate the quota price. Quota exporters and importers generally have conflicting interests about admitting more countries to the trading coalition, and our results indicate that some countries may lose substantially when the coalition expands in terms of new countries. For a given coalition, expanding sectoral coverage makes most countries better off, but some countries (notably the USA and Russia) may lose out due to loss of strategic advantages. In general, exporters tend to have stronger strategic power than importers.
    Keywords: Emissions Trading; Allocation of Quotas; Strategic Behavior
    JEL: C61 C72 Q25
    Date: 2011–05
  25. By: Andersson, David (Physical Resource Theory, Dept of Energy and Environment, Chalmers University of Technology); Löfgren, Åsa (Department of Economics, School of Business, Economics and Law, Göteborg University); Widerberg, Anna (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: A personal carbon allowance (PCA) scheme targets emissions from individual consumption and allocates allowances directly to individuals by dividing the carbon budget on a per capita basis. In this study we analyse the results of a survey sent out to a representative sample of the Swedish population regarding attitudes to a potential PCA scheme. The distinctive design of a PCA scheme is likely to give rise to specific factors affecting individuals attitudes, such as the perceived fairness of the allocation of allowances and corresponding redistribution of wealth, as well as the perceived complexity of the scheme. We perform an ordered probit analysis with attitude to PCAs as the dependent variable, controlling for a number of variables potentially affecting such attitudes. Interestingly, our findings indicate that the most important variable explaining attitudes to the scheme is the perception of respondents that this type of policy instrument seems very complex. <p>
    Keywords: Attitudes; Climate change; Environment; Fairness; Personal carbon allowances; Public opinion; Tradable energy quotas
    JEL: D12 D60 H23 Q48 Q58
    Date: 2011–05–19
  26. By: CHristos Constantatos (Department of Economics, University of Macedonia); Lefteris Filippiadis (Concordia University); Eftichios S. Sartzetakis (Department of Economics, University of Macedonia)
    Abstract: When the market of tradable emissions permits is perfectly competitive, free allocation of permits through some discretionary rules corresponds to lump sum transfers and cannot have strategic effects. This conclusion is reversed when transactions costs are introduced in the TEP market. Transactions costs proportional to the value of permits exchanged create a gap between selling and the buying price, thus resulting in lower opportunity costs for the holder of excess permits. This can be effectively exploited by a government in order to encourage its firm to gain larger share in an international market. When costs per transaction are fixed, the above effects disappear for those firms participating in the market. For small firms, however, participation may be prohibitively expensive, turning the opportunity cost of any permits hold, equal to zero. This suggests that free permits may create strategic effects within the hands of small firms but not when granted to larger firms.
    Keywords: Tradeable Emissions Permits, strategic trade policy.
    JEL: Q20 Q28
    Date: 2011–06
  27. By: Tol, Richard S. J.
    Abstract: This paper uses a vote-counting procedure to estimate the probability density function of the total economic impact as a parabolic function of global warming. There is a wide range of uncertainty about the impact of climate change up to 3ºC, and the information becomes progressively more diffuse beyond that. Warming greater than 3ºC most likely has net negative impacts, and warming greater than 7ºC may lead to a total welfare loss. The expected value of the social cost of carbon is about $29/tC in 2015 and rises at roughly 2% per year.
    Keywords: Climate change/uncertainty/impacts/Social cost of carbon/cost
    Date: 2011–04
  28. By: Slunge, Daniel (Department of Economics, School of Business, Economics and Law, Göteborg University); Ekbom, Anders (Department of Economics, School of Business, Economics and Law, Göteborg University); Loayza, F. (The World Bank, Environment Department); Guthiga, P. (Kenya Institute for Public Policy Research and Analysis (KIPPRA), Kenya); Nyangena, Wilfred (Kenya Institute for Public Policy Research and Analysis (KIPPRA), Kenya)
    Abstract: The Forest Carbon Partnership Facility has recently proposed the application of strategic environmental social assessment (SESA) for incorporating environmental and social considerations in the preparation of REDD+ initiatives. This paper discusses the potential contribution of SESA to REDD+ initiatives drawing on experiences from earlier attempts to large scale forestry sector reforms and a recent World Bank pilot program on strategic environmental assessment. The paper suggests that SESA can be a useful approach for strengthening institutions and governance needed for managing diverse environmental and social impacts related to REDD+. More specifically, SESA can enhance policy making and governance through raising attention to environmental and social priorities, strengthening constituencies for policy change and improving social accountability. In order for SESA to contribute to these outcomes it needs to be assured that broad national “ownership” is achieved and that it becomes part of a long-term policy learning process with repeated and sustained stakeholder interaction. Through strengthening constituencies in policy reform SESA can potentially reduce the risk of regulatory capture of REDD+ by vested interests and make institutional checks and balances more effective. An analysis of Kenyas process of preparing a national REDD+ strategy is used to illustrate our case in the paper. <p>
    Keywords: REDD; forest management; GHG emissions; governance; stakeholder participation; World Bank
    JEL: Q23 Q28 Q54
    Date: 2011–04–26
  29. By: Boyd, James (Resources for the Future); Brookshire, David S.
    Abstract: This paper describes specific ways in which the analysis of ecosystem goods and services can be included in terrestrial carbon sequestration assessments and planning. It specifically reviews the U.S. Geological Survey’s LandCarbon assessment methodology for ecosystem services. The report assumes that the biophysical analysis of co-effects should be designed to facilitate social evaluation. Accordingly, emphasis is placed on natural science strategies and outputs that complement subsequent economic and distributional analysis.
    Keywords: ecosystem services, carbon sequestration, land use planning
    Date: 2011–05–20
  30. By: Leeuwen, E.S. van; Nijkamp, P.; Rietveld, P.
    Date: 2011
  31. By: Randall W. Eberts
    Abstract: The transition to a green economy will imply many changes in the labour market locally and the local development systems. The impacts are still difficult to measure as definitions vary and policy uncertainties persist. The OECD Local Economic and Employment Development (LEED) Programme is making an important contribution to these debates with its project on Climate Change, Employment and Local Development which is looking at the obstacles hindering green growth at the local level and the policy frameworks needed to ensure skills availability, economic activity and market opportunities in the green economy. This report was prepared by Prof. Randall W. Eberts from the W.E. Upjohn Institute for Employment Research Kalamazoo in the United States. It makes a valuable contribution to the OECD LEED work on the transition to a green economy and its implications at the local level.
    Date: 2011–05

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