nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒01‒03
57 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Energy Efficiency Policy: Surveying the Puzzles By Brennan, Timothy J.
  2. The Role of Behavioural Economics in Energy and Climate Policy By Pollitt, M. G.; Shaorshadze, I.
  3. Assessing the Energy-Efficiency Information Gap: Results from a Survey of Home Energy Auditors By Palmer, Karen; Walls, Margaret; Gordon, Hal; Gerarden, Todd
  4. Re-Evaluating the Role of Energy Efficiency Standards: A Time-Consistent Behavioral Economics Approach By Tsvetan Tsvetanov; Kathleen Segerson
  5. The Private and Public Economics of Renewable Electricity Generation By Severin Borenstein
  6. Modeling a Clean Energy Standard for Electricity: Policy Design Implications for Emissions, Supply, Prices, and Regions By Paul, Anthony; Palmer, Karen; Woerman, Matt
  7. Renewable Energy Best Practices in Promotion and Use for Latin America and the Caribbean By Andrea Luecke
  8. Perspectives for Distributed Generation with Renewable Energy in Latin America and the Caribbean: Analysis of Case Studies for Jamaica, Barbados, Mexico, and Chile By Christiaan Gischler; Nils Janson
  9. Retail Electricity Price Savings from Compliance Flexibility in GHG Standards for Stationary Sources By Burtraw, Dallas; Paul, Anthony; Woerman, Matt
  10. An inter-temporal optimization of flexible nuclear plants operation in market based electricity systems : The case of competition with reservoir By Maria Lykidi; Jean-Michel Glachant; Pascal Gourdel
  11. Delivering a Competitive Australian Power System. Part 1: Australia’s Global Position By Barry Ball; Bertram Ehmann; John Foster; Craig Froome; Ove Hoegh-Guldberg; Paul Meredith; Lynette Molyneaux; Tapan Saha; Liam Wagner
  12. Electricity Consumption, Financial Development and Economic Growth Nexus: A Revisit Study of Their Causality in Pakistan By Muhammad, Shahbaz
  13. The Power Trading Agent Competition By Ketter, W.; Collins, J.; Reddy, P.; Flath, C.; Weerdt, M.M. de
  14. Impacts of Rural Electrification in Rwanda By Bensch, Gunther; Kluve, Jochen; Peters, Jörg
  15. A note on super-hedging for investor-producers By Adrien Nguyen Huu
  16. Uncertainty in diffusion of competing technologies and application to electric vehicles By Plötz, Patrick
  17. What drives the change in UK household energy expenditure and associated CO2 emissions? Implication and forecast to 2020 By Mona Chitnis; Lester C Hunt
  18. Why are the 2000s so different from the 1970s? A structural interpretation of changes in the macroeconomic effects of oil prices in the US By Olivier Blanchard; Marianna Riggi
  19. Fuel Prices and New Vehicle Fuel Economy in Europe By Klier, Thomas; Linn, Joshua
  20. Fuel type based vehicles choice By Matteo Russo
  21. GResilient index to assess the greenness and resilience of the automotive supply chain By Azevedo, Susana G.; Govindan, Kannan; Carvalho, Helena; Cruz-Machado, V.
  22. Gasoline prices, gasoline consumption, and new-vehicle fuel economy: Evidence for a large sample of countries By Paul J. Burke; Shuhei Nishitateno
  23. Oil Exporters to the Euro's Rescue? By Philip K. Verleger
  24. Monetary Policy and the Dutch Disease in a Small Open Oil Exporting Economy By Mohamed Tahar Benkhodja
  25. Precios de exportación de gas natural para Bolivia: Modelación y pooling de pronósticos By Aguilar, Ruben; Valdivia, Daney
  26. Hold Your Breath: A New Index of Air Quality By Andreas Buehn; Mohammad Reza Farzanegan
  27. Airports, Air Pollution, and Contemporaneous Health By Wolfram Schlenker; W. Reed Walker
  28. Anthropogenic Influences on Atmospheric CO2 By David F. Hendry; Felix Pretis
  29. Climate change: where is the hockey stick? evidence from millennial-scale reconstructed and updated temperature time series. By Travaglini, Guido
  30. An Economic Projection to 2050: The OECD "ENV-Linkages" Model Baseline By Jean Chateau; Cuauhtemoc Rebolledo; Rob Dellink
  31. Environmental Structural Decomposition Analysis of Italian Emissions, 1995-2005 By Paola Rocchi; Monica Serrano
  32. Environmental and innovation performance in a dynamic impure public good framework By Massimiliano Corradini; Valeria Costantini; Susanna Mancinelli; Massimiliano Mazzanti
  33. The Environmental Kuznets Curve: Tipping Points, Uncertainty and Weak Identification By Jean-Thomas Bernard; Michael Gavin; Lynda Khalaf; Marcel Voia
  34. The Fossil Endgame: Strategic Oil Price Discrimination and Carbon Taxation By Wie, Jiegen; Wennlock, Magnus; Johansson, Daniel J.A.; Sterner, Thomas
  35. Optimal Fuel-Specific Carbon Pricing and Time Dimension of Leakage By Habermacher, Florian
  36. Should the carbon price be the same in all countries ? By Antoine D'Autume; Katheline Schubert; Cees Withagen
  37. Output-Based Allocation of Emissions Permits for Mitigating the Leakage and Competitiveness Issues for the Japanese Economy By Takeda, Shiro; Arimura, Toshi H.; Tamechika, Hanae; Fischer, Carolyn; Fox, Alan K.
  38. CO2 Prices and Portfolio Management during Phase II of the EU ETS By Maria Mansanet-Bataller
  39. Emissionsrechtemanagement mit dem „CO2-Navigator“ By Wilfried Ehrenfeld
  40. Taxing international emissions trading By Valeria Costantini; Alessio D'Amato; Chiara Martini; Maria Cristina Tommasino; Edilio Valentini; Mariangela Zoli
  41. Are Pollution Permit Markets Harmful for Employment? By Nicolas Sanz; Sonia Schwartz
  42. Climate Change, Employment and Local Development in Poland By Gabriela Miranda; Randall Eberts; Elvira González; Vanessa Foo; Przemyslaw Kulawczuk
  43. The cost of reducing CO2 emissions: Integrating abatement technologies into economic modeling By Olga Kiuila; Thomas F. Rutherford
  44. Employment Impacts of Climate Change Mitigation Policies in OECD: A General-Equilibrium Perspective By Jean Chateau; Anne Saint-Martin; Thomas Manfredi
  45. Implementing the Clean Development Mechanism in Vietnam: potential and limitations By Nhan Thanh Nguyen; Minh Ha-Duong; Sandra Greiner; Michael Mehling
  46. Actuarial risk assessment of expected fatalities attributable to carbon capture and storage in 2050 By Minh Ha-Duong; Rodica Loisel
  47. Mainstreaming the Adaptations and Reducing the Vulnerability of the Poor due to Climate Change By Ranganathan, C.; Palanisami, K.; Kakumanu, K.; Baulraj, A.
  48. Weitzman meets Nordhaus: Expected utility and catastrophic risk in a stochastic economy-climate model By Masako Ikefuji; Roger J. A. Laeven; Jan R. Magnus; Chris Muris
  49. Multiple Threshold Effects for Temperature and Mortality By Chen, Ping-Yu; Chen, Chi-Chung; Chang, Chia-Lin
  50. Addressing Catastrophic Risks: Disparate Anatomies Require Tailored Therapies By Viscusi, W. Kip; Zeckhauser, Richard J.
  51. Valuing life: experimental evidence using sensitivity to rare events By Olivier Chanel; Graciela Chichilnisky
  52. Leveraging Environment and Climate Change Initiatives for Corporate Excellence By Anbumozhi, Venkatachalam; Kimura, Mari; Isono, Kumiko
  53. A Comment on “Efficient Pollution Regulation: Getting the Prices Right” by Muller and Mendelsohn By Fraas, Art; Lutter, Randall
  54. Leading the Way: Coalitional Stability in Technological Cooperation & Sequential Climate Policy By Heinrich H. Nax; Thomas W.L. Norman
  55. Sustainable Cooperation in Global Climate Policy: Specific Formulas and Emission Targets to Build on Copenhagen and Cancun By Valentina Bosetti; Jeffrey A. Frankel
  56. Playing without Aces: Offsets and the Limits of Flexibility under Clean Air Act Climate Policy By Richardson, Nathan
  57. Cost-Effective Unilateral Climate Policy Design: Size Matters By Böhringer, Christoph; Fischer, Carolyn; Einar Rosendahl, Knut

  1. By: Brennan, Timothy J. (Resources for the Future)
    Abstract: Promoting energy efficiency (EE) has become a leading policy response to greenhouse gas emissions, energy dependence, and the cost of new generators and transmission lines. Such policies present numerous puzzles. Electricity prices below marginal production costs could warrant EE policies if EE and energy are substitutes, but they will not be substitutes if the energy price is sufficiently high. Using EE savings to meet renewable energy requirements can dramatically increase the marginal cost of electricity. Rejecting “rationality” of consumer energy choices raises doubts regarding cost–benefit analysis when demand curves may not reveal willingness to pay. Decoupling to guarantee constant profit regardless of use contradicts findings that incentive-based mechanisms outperform cost-of-service regulation. Regulators may implement EE policies to exercise buyer-side market power against generators, increasing consumer welfare but reducing overall economic performance. Encouraging utilities to take over potentially competitive EE contradicts policies to separate competitive from monopoly enterprises.
    Keywords: energy efficiency, energy policy, decoupling, monopsony, vertical integration
    JEL: Q48 L94 L51
    Date: 2011–07–06
  2. By: Pollitt, M. G.; Shaorshadze, I.
    Abstract: This article explores how behavioural economics can be applied to energy and climate policy. We present an overview of main concepts of behavioural economics and discuss how they differ from the assumptions of neoclassical economics. Next, we discuss how behavioural economics applies to three areas of energy policy: (1) consumption and habits, (2) investment in energy efficiency, and (3) provision of public goods and support for pro-environmental behaviour. We conclude that behavioural economics seems unlikely to provide the magic bullet to reduce energy consumption by the magnitude required by the International Energy Agency's “450” climate policy scenario. However it offers new suggestions as to where to start looking for potentially sustainable changes in energy consumption. We believe that the most useful role within climate policy is in addressing issues of public perception of the affordability of climate policy and in facilitating the creation of a more responsive energy demand, better capable of responding to weather-induced changes in renewable electricity supply.
    JEL: D03 D10 Q40 Q58
    Date: 2011–12–21
  3. By: Palmer, Karen (Resources for the Future); Walls, Margaret (Resources for the Future); Gordon, Hal; Gerarden, Todd (Resources for the Future)
    Abstract: Commercial and residential buildings are responsible for 42 percent of all U.S. energy consumption and 41 percent of U.S. CO2 emissions. Engineering studies identify several investments in new enegy-efficiency equipment or building retrofits that would more than pay for themselves in terms of lower future energy costs, but homeowners and businesses generally do not have good information about how to take advantage of these opportunities. Energy auditors make up a growing industry of professionals who evaluate building energy use and provide this information to building owners. This paper reports the results of a survey of nearly 500 home energy auditors and contractors that Resources for the Future conducted in summer 2011. The survey asked about the characteristics of these businesses and the services they provide, the degree to which homeowners follow up on their recommendations, and the respondents’ opinions on barriers to home energy retrofits and the role for government. Findings from the survey suggest that the audit industry only partially is filling the information gap. Not enough homeowners know about or understand audits, and the follow-through on recommendations once they do have audits is incomplete. But the survey findings suggest that low energy prices and the high cost of retrofits may be more responsible for these outcomes than failures of information.
    Keywords: energy efficiency, climate change
    JEL: L94 L95 Q40
    Date: 2011–10–14
  4. By: Tsvetan Tsvetanov (University of Connecticut); Kathleen Segerson (University of Connecticut)
    Abstract: The economic models that prescribe Pigovian taxation as the first-best means of reducing energy-related externalities and argue that taxes are superior to energy efficiency standards are typically based on the neoclassical model of rational consumer choice. Yet, observed consumer behavior with regards to energy use and the purchase of energy-using durable goods is generally thought to be far from efficient, giving rise to the concept of the “energy-efficiency gap.” In this paper, we present a welfare analysis of Pigovian taxes and energy efficiency standards that is based on an alternative, time-consistent behavioral model. We adapt the model of temptation and self-control of Gul and Pesendorfer (2001, 2004) to the context of the purchase of energy-using durable goods. Our results suggest that (i) temptation or self-control might be a contributing factor in explaining the energy-efficiency gap, (ii) standards might be used as a commitment device to address inefficiencies in consumer choice that stem from temptation, and (iii) in the presence of temptation, a policy that combines standards with a Pigovian tax can yield higher social welfare than a Pigovian tax alone.
    Keywords: behavioral economics, temptation, self-control, time-consistent preferences, energy-efficiency gap, energy efficiency standards, Pigovian taxes
    JEL: D03 Q48 Q58
    Date: 2011–12
  5. By: Severin Borenstein
    Abstract: Generating electricity from renewable sources is more expensive than conventional approaches, but reduces pollution externalities. Analyzing the tradeoff is much more challenging than often presumed, because the value of electricity is extremely dependent on the time and location at which it is produced, which is not very controllable with some renewables, such as wind and solar. Likewise, the pollution benefits from renewable generation depend on what type of generation it displaces, which also depends on time and location. Without incorporating these factors, cost-benefit analyses of alternatives are likely to be misleading. However, other common arguments for subsidizing renewable power – green jobs, energy security and driving down fossil energy prices – are unlikely to substantially alter the analysis. The role of intellectual property spillovers is a strong argument for subsidizing energy science research, but less persuasive as an enhancement to the value of installing current renewable energy technologies.
    JEL: L94 Q42 Q48
    Date: 2011–12
  6. By: Paul, Anthony (Resources for the Future); Palmer, Karen (Resources for the Future); Woerman, Matt (Resources for the Future)
    Abstract: The electricity sector is responsible for roughly 40 percent of U.S. carbon dioxide (CO2) emissions, and a shift away from conventional coal-fired generation is an important component of the U.S. strategy to reduce greenhouse gas emissions. Toward that goal, several proposals for a clean energy standard (CES) have been put forth, including one espoused by the Obama administration that calls for 80 percent clean electricty by 2035 phased in from current levels of roughly 40 percent. This paper looks at the effects of such a policy on CO2 emissions from the electricity sector, the mix of technologies used to supply electricity, electricity prices, and regional flows of clean energy credits. The CES leads to a 30 percent reduction in cumulative CO2 emissions between 2013 and 2035 and results in dramatic reductions in generation from conventional coal. The policy also results in fairly modest increases on national electricity prices, but this masks a wide variety of effects across regions.
    Keywords: renewables, climate, clean energy standard
    JEL: Q42 Q48 Q54 Q58
    Date: 2011–07–25
  7. By: Andrea Luecke
    Abstract: This paper aims to present a snapshot of some of the best practices in the promotion and use of renewable energy, and provide practical examples of the development of renewable energy markets that countries in Latin America and the Caribbean can replicate. This brief study provides an overview of some of the most widely used renewable energy technologies. It also examines current and potential renewable energy markets in Latin America and the Caribbean, economic development benefits of expanding renewable energy markets, policy tools and mechanisms that have been used to build and promote renewable energy in the United States, and the role governments and the private sector can play. This paper was presented at the Fifth Americas Competiveness Forum for the Inter-American Development Bank and Compete Caribbean Santo Domingo, Dominican Republic, October 5-7, 2011.
    Keywords: Energy & Mining :: Renewable Energy, Private Sector :: Public Private Partnerships, Science & Technology :: Research & Development, renewable energy, Latin America and the Caribbean, energy policy, technology, best practices, Fifth Americas Competiveness Forum for the Inter-American Development Bank and Compete Caribbean Santo Domingo
    Date: 2011–11
  8. By: Christiaan Gischler; Nils Janson
    Abstract: This paper deals with how to promote distributed generation (DG) done with renewable energy in emerging markets of Latin America and the Caribbean (LAC), with the purpose of increasing competitiveness and achieving sustainable economic growth. The paper argues that the key rationale for promoting renewable DG in LAC is to reduce the cost of electricity for a country as a whole. The paper examines four case studies in the Caribbean (Jamaica and Barbados) and Latin America (Mexico and Chile) to assess what these countries are or are not doing, and why, in promoting renewable DG. These cases are also assessed in the light of the experience of Denmark, which has the world's highest share of DG (over 50 percent of electricity generation), mostly done with wind and cogeneration. This paper was presented at the Fifth Americas Competiveness Forum for the Inter-American Development Bank and Compete Caribbean Santo Domingo, Dominican Republic, October 5-7, 2011.
    Keywords: Energy & Mining :: Renewable Energy, Private Sector :: Public Private Partnerships, Energy & Mining :: Electricity, renewable energy, Latin America and the Caribbean, emerging markets, distributed generation, DG, sustainable economic growth, Fifth Americas Competiveness Forum for the Inter-American Development Bank and Compete Caribbean
    Date: 2011–11
  9. By: Burtraw, Dallas (Resources for the Future); Paul, Anthony (Resources for the Future); Woerman, Matt (Resources for the Future)
    Abstract: The EPA will issue rules regulating greenhouse gas (GHG) emissions from existing steam boilers and refineries in 2012. A crucial issue affecting the scope and cost of emissions reductions will be the potential introduction of flexibility in compliance, including averaging across groups of facilities. This research investigates the role of compliance flexibility for the most important of these source categories—existing coal-fired power plants—that currently account for one-third of national emissions of carbon dioxide, the most important greenhouse gas. We find a flexible standard, calibrated to achieve the same emissions reductions as an inflexible approach, reduces the increase in electricity price by 60 percent and overall costs by two-thirds in 2020. The flexible standard also leads to substantially more investment to improve the operating efficiency of existing facilities, whereas the inflexible standard leads to substantially greater retirement of existing facilities.
    Keywords: climate policy, efficiency, EPA, Clean Air Act, coal, compliance flexibility, regulation
    JEL: K32 Q54 Q58
    Date: 2011–07–15
  10. By: Maria Lykidi (ADIS - Analyse des Dynamiques Industrielles et Sociales - Département d'Economie - Université Paris XI - Paris Sud); Jean-Michel Glachant (ADIS - Analyse des Dynamiques Industrielles et Sociales - Département d'Economie - Université Paris XI - Paris Sud, European University Institute - Department of Economics); Pascal Gourdel (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: In electricity markets where competition has been established for a long time, a nuclear operator familiar with the operation of such markets could be interested in the optimal long-term management of a flexible nuclear set (like the French) in a competitive market. To obtain a long vision of the optimal management of a nuclear set, we realize a full inter-temporal optimization of the production which results from the maximization of the value of generation over the whole game. Our model takes into consideration the periodical shut-down of nuclear units to reload their fuel, which permits to analyze the nuclear fuel as a stock behaving like a reservoir. A flexible nuclear reservoir permits different allocations of the nuclear fuel during the different demand seasons of the year. Our analysis is realized within a general deterministic dynamic framework where perfect competition is assumed and two flexible types of generation exist : nuclear and thermal non-nuclear. The marginal cost of nuclear production is (significantly) lower that the one of non-thermal production, which induces a discontinuity of producers' profit. In view of this price discontinuity, a "regularization" of the merit order price is achieved within our numerical model which leads to an alternative optimization problem (reglarized problem) that constitutes a good approximation of our initial problem. We also prove that in the absence of binding productions constraints, solutions are fully characterized by a constant nuclear production. However, such solutions do not exist within our numerical model because of production constraints that are active at the optimum. Finally, we study the maximization of social welfare in an identical framework. Similarly, we demonstrate that in the absence of binding production constraints a constant non-nuclear thermal production is a characteristic property of solutions of the social welfare maximization problem.
    Keywords: Electricity market, nuclear generation, inter-temporal optimal reservoir operation, competition with reservoir, price discontinuity, social welfare.
    Date: 2011–11
  11. By: Barry Ball (Global Change Institute, University of Queensland); Bertram Ehmann; John Foster (Department of Economics, University of Queensland); Craig Froome; Ove Hoegh-Guldberg (Global Change Institute, University of Queensland); Paul Meredith (Department of Physics, University of Queensland); Lynette Molyneaux (Department of Economics, University of Queensland); Tapan Saha (School of Information Technology and Electrical Engineering); Liam Wagner (Department of Economics, University of Queensland)
    Abstract: Historically Australia’s ample supply of coal has underpinned its power system. Competing countries however have used a variety of different energy sources and, as a result of this diversity, many have a more resilient power system to provide future electrical power. this report looks at Australia’s global position with respect to its resource-rich competitors.
    Keywords: Distributed Generation. Energy Economics, Electricity Markets, Renewable Energy
    JEL: Q40
    Date: 2011–12
  12. By: Muhammad, Shahbaz
    Abstract: This study contributes to energy economic literature by incorporating financial development in neo-classical production function to investigate the electricity consumption and economic growth nexus in case of Pakistan. ARDL bounds testing approach has been applied to examine cointegration between the series over the period of 1971-2009. The direction of causal relationship between the variables is tested by applying VECM Granger causality approach and robustness of causality has been checked by innovative accounting approach (IAA). Our findings confirm the existence of cointegration among the variables. The results indicate that financial development, electricity consumption, capital and labour contribute to economic growth. The VECM Granger causality analysis reveals that feedback hypothesis is found between electricity consumption and economic growth, financial development and electricity consumption, economic growth and financial development, capital and economic growth and, capital and financial development. This implies that energy (electricity) conservation policies will not be appreciated in case of Pakistan. Furthermore, government of Pakistan should encourage making investments on research and development to articulate new energy savings technology to sustain economic growth. In this manner, financial sector should launch new financial policy to encounter the rising demand for electricity and enhance the process of capitalization to raise economic growth by offering and distributing financial resources to efficient and profit oriented ventures.
    Keywords: Electricity Consumption; Financial Development; Economic Growth
    JEL: Q4
    Date: 2011–12–22
  13. By: Ketter, W.; Collins, J.; Reddy, P.; Flath, C.; Weerdt, M.M. de
    Abstract: This is the specification for the Power Trading Agent Competition for 2012 (Power TAC 2012). Power TAC is a competitive simulation that models a “liberalized†retail electrical energy market, where competing business entities or “brokers†offer energy services to customers through tariff contracts, and must then serve those customers by trading in a wholesale market. Brokers are challenged to maximize their profits by buying and selling energy in the wholesale and retail markets, subject to fixed costs and constraints. Costs include fees for publication and withdrawal of tariffs, and distribution fees for transporting energy to their contracted customers. Costs are also incurred whenever there is an imbalance between a broker’s total contracted energy supply and demand within a given timeslot. The simulation environment models a wholesale market, a regulated distribution utility, and a population of energy customers, situated in a real location on Earth during a specific period for which weather data is available. The wholesale market is a relatively simple call market, similar to many existing wholesale electric power markets, such as Nord Pool in Scandinavia or FERC markets in North America, but unlike the FERC markets we are modelling a single region, and therefore we do not model location-marginal pricing. Customer models include households and a variety of commercial and industrial entities, many of which have production capacity (such as solar panels or wind turbines) as well as electric vehicles. All have “real-time†metering to support allocation of their hourly supply and demand to their subscribed brokers, and all are approximate utility maximizers with respect to tariff selection, although the factors making up their utility functions may include aversion to change and complexity that can retard uptake of marginally better tariff offers. The distribution utility models the regulated natural monopoly that owns the regional distribution network, and is responsible for maintenance of its infrastructure and for real-time balancing of supply and demand. The balancing process is a market-based mechanism that uses economic incentives to encourage brokers to achieve balance within their portfolios of tariff subscribers and wholesale market positions, in the face of stochastic customer behaviors and weather-dependent renewable energy sources. The broker with the highest bank balance at the end of the simulation wins.
    Keywords: power;portfolio management;sustainability;preferences;energy;trading agent competition;electronic commerce;autonomous agents;policy guidance
    Date: 2011–12–14
  14. By: Bensch, Gunther (RWI); Kluve, Jochen (Humboldt University Berlin and RWI); Peters, Jörg (RWI)
    Abstract: Rural electrification is believed to contribute to the achievement of the MDG. In this paper, we investigate electrification impacts on different indicators. We use household data that we collected in Rwanda in villages with and without electricity access. We account for self-selection and regional differences by using households from the electrified villages to estimate the probability to connect for all households – including those in the non-electrified villages. Based on these probabilities we identify counterfactual households and find robust evidence for positive effects on lighting usage. Effects on income and children's home studying become insignificant if regional differences are accounted for.
    Keywords: rural electrification, energy access, impact evaluation, matching, difference-in-difference
    JEL: O12 O13 O18 O22
    Date: 2011–12
  15. By: Adrien Nguyen Huu (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine, FiME - Laboratoire de Finance des Marchés d'Energie - Université Paris IX - Paris Dauphine)
    Abstract: We study the situation of an investor-producer who can trade on a financial market in continuous time and can transform some assets into others by means of a discrete time production system, in order to price and hedge derivatives on produced goods. This general framework covers the interesting case of an electricity producer who wants to hedge a financial position and can trade commodities which are also inputs for his system. This extends the framework of Bouchard and Nguyen (2011) to continuous time for concave and bounded production functions. We introduce the flexible concept of conditional sure profit along the idea of the no sure profit condition of Rasonyi (2009) and show that it allows one to provide a closedness property for the set of super-hedgeable claims in a very general setting. Using standard separation arguments, we then deduce a dual characterization of the latter.
    Keywords: markets with proportional transaction costs; non-linear returns; no-arbitrage; super-replication theorem; electricity markets; energy derivatives
    Date: 2011–12–20
  16. By: Plötz, Patrick
    Abstract: The diffusion of innovations is an important process and its models have applications in many fields, with particular relevance in technological forecast. The logistic equation is one of most important models in this context. Extensions of this approach as the Lotka-Volterra model have been developed to include the effect of mutual influences between technologies such as competition. However, many of the parameters entering this description are uncertain, difficult to estimate or simply unknown, particularly at early stages of the diffusion. Here, a systematic way to study the effect of uncertain or unknown parameters on the future diffusion of interacting innovations is proposed. The input required is a general qualitative understanding of the system: is the mutual influence positive or negative and does it apply symmetrically to either technology? Since the parameters enter the problem via a set of coupled non-linear differential equations, the approach proposed here goes beyond simple Monte-Carlo-like methods where the result is an explicit function of the parameters. The methodology is developed in detail and applied the case of three types of upcoming electric vehicle propulsion technologies. The findings indicate that competition between electric vehicles and mild hybrid vehicles implies a slow decline of the latter. The approach can easily be generalised to include other initial conditions, more technologies or other technological areas to find stable results for future market evolution independent of specific parameters. --
    Keywords: diffusion of innovations,logistic equation,competition,electric vehicles,Monte Carlo methods
    Date: 2011
  17. By: Mona Chitnis (Surrey Energy Economics Centre (SEEC) and Research Group on Lifestyles Values and Environment (RESOLVE), University of Surrey); Lester C Hunt (Surrey Energy Economics Centre (SEEC) and Research Group on Lifestyles Values and Environment (RESOLVE), University of Surrey)
    Abstract: Given the amount of direct and indirect CO2 emissions attributable to UK households, policy makers need a good understanding of the structure of household energy expenditure and the impact of both economic and non-economic factors when considering policies to reduce future emissions. To help achieve this, the Structural Time Series Model is used here to estimate UK ‘transport’ and ‘housing’ energy expenditure equations for 1964-2009. This allows for the estimation of a stochastic trend to measure the underlying energy expenditure trend and hence capture the non-trivial impact of ‘non-economic factors’ on household ‘transport’ and ‘housing’ energy expenditure; as well as the impact of the traditional ‘economic factors’ of income and price. The estimated equations are used to show that given current expectations, CO2 attributable to ‘transport’ and ‘housing’ expenditures will not fall by 29% (or 40%) in 2020 compared to 1990, and is therefore not consistent with the latest UK total CO2 reduction target. Hence, the message for policy makers is that in addition to economic incentives such as taxes, which might be needed to help restrain future energy expenditure, other policies that attempt to influence lifestyles and behaviours also need to be considered.
    Keywords: Household energy expenditure; CO2 emissions; Structural Time Series Model
    Date: 2011–12
  18. By: Olivier Blanchard (International Monetary Fund, MIT, NBER); Marianna Riggi (Bank of Italy)
    Abstract: In the 1970s, large increases in the price of oil were associated with sharp decreases in output and large increases in inflation. In the 2000s, even larger increases in the price of oil were associated with much milder movements in output and inflation. Using a structural VAR approach, Blanchard and Gali (2009) argued that this reflected a change in the causal relation from the price of oil to output and inflation. They then argued that this change could be due to a combination of three factors, namely, a smaller share of oil in production and consumption, lower real wage rigidity and better monetary policy. Their argument, based on simulations of a simple new-Keynesian model, was informal. Our purpose in this paper is to take the next step, and to estimate the explanatory power and contribution of each of these factors. To do so, we use a minimum distance estimator that minimizes, over the set of structural parameters and for each of two samples (pre- and post-1984), the distance between the empirical SVAR-based impulse response functions and those implied by a new-Keynesian model. Our empirical results point to an important role for all three factors.
    Keywords: oil prices, wage rigidities, monetary policy credibility.
    JEL: E20 E32 E52
    Date: 2011–11
  19. By: Klier, Thomas; Linn, Joshua (Resources for the Future)
    Abstract: This paper evaluates the effect of fuel prices on new vehicle fuel economy in the eight largest European markets. The analysis spans the years 2002–2007 and uses detailed vehicle registration and specification data to control for policies, consumer preferences, and other potentially confounding factors. Fuel prices have a statistically significant effect on new vehicle fuel economy in Europe, but this estimated effect is much smaller than that for the United States. Within Europe, fuel economy responds more in the United Kingdom and France than in the other large markets. Overall, substantial changes in fuel prices would have relatively small effects on the average fuel economy of new vehicles sold in Europe. We find no evidence that diesel fuel prices have a large effect on the market share of diesel vehicles.
    Keywords: fuel prices, fuel economy, new vehicles, Europe
    Date: 2011–09–07
  20. By: Matteo Russo (University of Roma 3, Italy)
    Abstract: The aim of the paper is to analyse the researches performed so far on vehicle choice according to the fuel type. There are different reasons to be interested in this theme. Among the most relevant we recall the following: a. increasing costs of conventional fuel; b. development of new fuel types; c. different fuel efficiency; d. higher productivity standards, due to crisis of car corporations; e. Italy’s car fleet has a 30% of vehicles that are ten years or older and also by a strong preference towards buying gasoline and diesel fuelled vehicles. The paper proposes a critical analysis of vehicle choice analysis based on fuel type (e.g. gasoline/diesel, CNG and hybrid). A significant number of studies are centred on the consumer. As noted by Achtnicht (2008) the choice depends on the person’s age, gender and level of schooling. Other authors have inquired the actual gap between the performance of conventional fuels (diesel/gasoline) and that of alternative fuel (hybrid). The lack of a diffused network of refuelling stations, particularly with reference to the CNG (compressed natural gas), has also been highlighted by Achtnicht, Buhler e Hermeling (2009). Several electrical car market development researches, such as the Salerno’s and Zito’s ones (2004), have stressed its high purchasing price and its maintenance costs. We will consider, for the different studies, the methodologies used by the authors, their specific area of research, the results obtained, the criticalities, and eventually the trends and developments.
    Date: 2011
  21. By: Azevedo, Susana G. (Department of Business and Economics); Govindan, Kannan (Department of Business and Economics); Carvalho, Helena (UNIDEMI - Department of Mechanical and Industrial Engineering); Cruz-Machado, V. (UNIDEMI - Department of Mechanical and Industrial Engineering)
    Abstract: Purpose: The purpose of this paper is to suggest an Index entitled GResilient Index to assess the greenness and resilience of the automotive companies and corresponding supply chain. Design/methodology/approach: An integrated assessment model is proposed based on Green and Resilient practices. These practices are weighted according to their importance to the automotive supply chain competitiveness. The Delphi technique is used to obtain the weights for the focused supply chain paradigms and corresponding practices. The model is then tested using a case study approach in the automotive supply chain. Findings: The case study results confirmed the applicability of this Index in a real-world supply chain. The results show that the Resilient supply chain management paradigm is the one considered as the one that more contributes for the automotive supply chain competitiveness. Research limitations/implications: The proposed Index was developed in the automotive sector context therefore it could not be adjusted to a different one. Future research could consider other aggregation methods for the Index construction. Practical implications: Supply chain participants will be able to evaluate the performance of their companies or supply chain in terms of Green and Resilient paradigms. Also, the Index can be effectively employed for functional benchmarking among competing companies and supply chains.
    Keywords: Green; resilient; supply chain management; index; automotive industry
    JEL: C60
    Date: 2011–11–01
  22. By: Paul J. Burke; Shuhei Nishitateno
    Abstract: Countries differ considerably in terms of the price drivers pay for gasoline. This paper uses data for a large sample of countries to provide new evidence on the implications of these differences for the consumption of gasoline for road transport and the fuel economy of new vehicles. To address the potential for simultaneity bias in ordinary least squares estimation, we use a country's oil reserves as an instrument for its average gasoline pump price. We obtain estimates of the long-run price elasticity of gasoline demand of between -0.2 and -0.4, a smaller elasticity than most existing estimates. The results also indicate that higher gasoline prices induce consumers to substitute to vehicles that are more fuel-efficient, with an estimated elasticity of +0.2. While gasoline demand and fuel economy are both inelastic with respect to gasoline prices, there is considerable scope for low-price countries to achieve gasoline savings and vehicle fuel economy improvements via reducing gasoline subsidies and/or increasing gasoline taxes.
    Keywords: vehicle, gasoline demand, fuel use, fuel economy, gasoline price
    JEL: N70 L91 Q43 Q48
    Date: 2011
  23. By: Philip K. Verleger (Peterson Institute for International Economics)
    Abstract: Energy-exporting countries have more at risk than any other participant in the world economy if the euro crisis plunges Europe into recession. These countries would likely experience greater losses in 2012 should Europe fail. Oil and natural gas prices would plummet, and the price collapse would likely be larger than the 2008–09 decline. Energy-exporting countries therefore should be working feverishly with the International Monetary Fund (IMF) and the European Union to rescue the euro. They, along with China and other large holders of foreign exchange reserves, should lend to the IMF to help it construct an emergency lending facility with capacity of more than €1 trillion. The fund, administered by the IMF, would be used to buy bonds issued by Greece, Italy, Spain, Portugal, and Ireland. The goal should be to bring interest rates on long-term bonds down to 3 percent. Simultaneously, efforts should be redoubled to fix the economic problems in the troubled nations and restore balance to their budgets. An energy price collapse would increase disruptions in energy-exporting countries, promote economic ills in some consuming nations, such as Canada, and almost certainly start yet a third, even more violent, economic cycle.
    Date: 2011–12
  24. By: Mohamed Tahar Benkhodja (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    Abstract: In this paper, we compare, first, the impact of a windfall and a boom sectors on the economy of an oil exporting country and their welfare implications ; in a second step, we analyze how monetary policy should be conducted to insulate the economy from the main impact of these shocks, namely the Dutch Disease. To do so, we built a Multisector DSGE model with nominal and real rigidities. The main finding is that Dutch disease effect arise after spending and resource movement effects in the following cases : i) flexible prices and wages both in the case of a windfall and in the case of a boom ; ii) flexible wage and sticky price only in the case of a …fixed exchange rate. In other cases, Dutch disease effect can be avoided if : prices are sticky and wages are flexible when the exchange rate is flexible ; iii) prices and wages are sticky whatever the objective of the central bank is in both cases : windfall and boom. We also compare the source of fluctuation that leads to Dutch disease effect and we conclude that the windfall leads to a strong e¤ect in terms of de-industrialization compared to a boom. The choice of flexible exchange rate regime also helps to improve welfare.
    Keywords: Monetary Policy, Dutch Disease, Oil Prices, Small Open Economy
    JEL: E52 F41 Q40
    Date: 2011
  25. By: Aguilar, Ruben; Valdivia, Daney
    Abstract: The boom of commodity prices was affected by the last economic crisis. The importance of these prices - forecasting – for small and developing countries becomes an important factor in the structure of their balance sheets. In this context, we apply a pooling of different projections methods for fuel prices which are the determinants of natural gas export prices under each contract. The first three forecast methods of these fuels are developed in a short run model where in its dynamic structure is nested the long-term relationship between WTI and fuel prices and the fourth method is a univariate model by its components. The oil path price for the first three projections are also developed under three approaches: i) a GARCH model, ii) WTI future prices and iii) a dynamic GARCH model weighted by the forecast of global oil supply and only with reference purposes we made an ARIMA projection model by components. The pool of projections permits us to evaluate gas export prices ex post. We conclude that the pooling of projections report best statistical properties.
    Keywords: econometrics and statistical methods; energy and macroeconomics
    JEL: C01 Q43
    Date: 2011–10–10
  26. By: Andreas Buehn; Mohammad Reza Farzanegan
    Abstract: Environmental quality and climate change have long attracted attention in policy debates. Recently, air quality has emerged on the policy agenda. We calculate a new index of air quality using CO2and SO2 emissions per capita as indicators and provide a ranking for 122 countries from 1985 to 2005.The empirical analysis supports the EKC hypothesis and shows a significant influence of determinants such as energy efficiency, industrial production, electricity produced from coal sources, and urbanization on air quality. According to our index, Luxemburg, Norway, Iceland, Switzerland, and Japan are among the top 5 countries in terms of air quality performance. The Democratic Republic of Congo, Eritrea, Ethiopia, Togo, and Nepal performed worst in 2005.
    Keywords: Air quality, MIMIC model, EKC hypothesis, Development, Emissions
    JEL: Q56 Q58
    Date: 2011–12
  27. By: Wolfram Schlenker; W. Reed Walker
    Abstract: Airports are some of the largest sources of air pollution in the United States. We demonstrate that daily airport runway congestion contributes significantly to local pollution levels and contemporaneous health of residents living nearby and downwind from airports. Our research design exploits the fact that network delays originating from large airports on the East Coast increase runway congestion in California, which in turn increases daily pollution levels around California airports. Using the component of California air pollution driven by airport congestion, we find that carbon monoxide (CO) leads to significant increases in hospitalization rates for asthma, respiratory, and heart related emergency room admissions that are an order of magnitude larger than conventional estimates: A one standard deviation increase in daily pollution levels leads to an additional $1 million in hospitalization costs for respiratory and heart related admissions for the 6 million individuals living within 10km (6.2 miles) of the 12 largest airports in California. While infants and the elderly are more sensitive to air pollution, we also find significant relationships for the adult population. The health impacts are driven by CO, not NO2 or O3, and occur at levels far below existing EPA mandates. Our results suggest there may be sizable morbidity benefits from lowering the existing CO standard.
    JEL: H0 I1 Q5
    Date: 2011–12
  28. By: David F. Hendry; Felix Pretis
    Abstract: We identify anthropogenic contributions to atmospheric CO2 measured at Mauna Loa using a statistical automatic model selection algorithm (Autometrics). We find that vegetation, temperature and other natural factors alone cannot explain the trend or the variation in CO2 growth. Industrial production components, driven by business cycles and economic shocks, are highly significant contributors.
    Keywords: Climate change, CO2 emissions, Impulse-indicator saturation, Autometrics
    JEL: Q5 C5
    Date: 2011
  29. By: Travaglini, Guido
    Abstract: The goal of this paper is to test on a millennial scale the magnitude of the recent warmth period, known as the “hockey-stick”, and the relevance of the causative anthropogenic climate change hypothesis advanced by several academics and worldwide institutions. A select batch of ten long-term climate proxies, included in the NOAA 92 PCN dataset all of which running well into the nineties, is updated to the year 2011 by means of a Time-Varying Parameter Kalman Filter SISO model for state prediction. This procedure is applied by appropriately selecting as observable one out of the HADSST2 and of the HADCRUT3 series of instrumental temperature anomalies available since the year 1850. The updated proxy series are thereafter individually tested for the values and time location of their four maximum non-neighboring attained temperatures. The results are at best inconclusive, since three of the updated series, including Michael Mann’s celebrated and controversial tree-ring reconstructions, do not refute the hypothesis, while the others quite significantly point to different dates of maximum temperature achievements into the past centuries, in particular those associated to the Medieval Warm Period.
    Keywords: Climate Change; Hockey Stick Controversy; Time Series; Kalman Filter
    JEL: C51 C22 Q54
    Date: 2011–12–25
  30. By: Jean Chateau; Cuauhtemoc Rebolledo; Rob Dellink
    Abstract: This document describes economic baseline projections to 2050 for several world regions. It describes how socio-economic drivers are used to create a consistent projection of economic activity for the coming decades, applying the general framework of “conditional convergence”. This economic baseline is created using the ENV-Linkages model version 3. This baseline is used for modelling analysis with the ENVLinkages model as carried out for the OECD Environmental Outlook to 2050 (to be released in Spring 2012). Specific attention is given in this paper to projections for the energy system as part of the economy, to allow detailed links between economic activity and environmental pressures, including emissions of greenhouse gases (GHGs).<BR>Ce document décrit les projections économiques mondiales d’un scénario de référence à l’horizon 2050. Il explique comment les différents déterminants socio-économiques sont combinés entre eux pour créer une projection cohérente de l’activité économique pour les décennies à venir, sur la base d’un cadre d’analyse fondé sur la « convergence conditionnelle ». Ce scénario économique de référence est obtenu au moyen de simulations du modèle ENV-linkages (version 3). Ce compte central est utilisé comme point de référence des exercices de simulations numériques proposées dans les « Perspective de l’Environnement de l’OCDE à l’horizon 2050 » (à paraître au printemps 2012). Une attention particulière aux projections énergétiques est entreprise, dans la mesure où celles-ci sont des éléments centraux de l’interaction entre activité économique et pression sur l’environnement, au travers notamment des émissions de gaz à effets de serre.
    Keywords: climate change, general equilibrium models, long-term scenarios, modèle d'équilibre général calculable, changement climatique, scénarios de long-terme
    JEL: D58 H23 O54 Q56
    Date: 2011–12–15
  31. By: Paola Rocchi; Monica Serrano (Universitat de Barcelona)
    Abstract: This study analyses the evolution of greenhouse gas (GHG) emissions and acidification emissions for Italy in the years 1995-2005. Looking at data, while emissions that contribute to the local problem of acidification have been decreasing quite constantly, GHG emissions have been showing a slight increase due to the rise of carbon dioxide. The aim is therefore to highlight how different economic factors have driven the evolution of Italian emissions. The main factors considered are economic growth, the development of a technology allowing a more environment-friendly way of production, and the structure of consumption. The methodology proposed is a structural decomposition analysis (SDA), a method that permits to decompose the changes of the variable of interest among different driving forces and to reveal the relevance of each factor. Moreover, the analysis considers the relevance of international trade and it tries to deal with the problem of responsibility. That is, through international trade relationships a country could be exporting polluting production processes without a real reduction of the pollution implied in its consumption pattern. For this purpose, the SDA is firstly applied to the emissions caused by domestic production. This corresponds to a production-based approach (PBA). Successively, the analysis moves toward a consumption-based approach (CBA) and the decomposition is applied to emissions related to domestic production or foreign production that satisfies domestic demand. In this way the exercise allows a first check of the importance of international trade and it highlights some results at global as well at sector level that can indicate in which direction further analysis should be carried on.
    Keywords: problem of responsibility., namea data, structural decomposition analysis
    JEL: C67 Q53 Q56 D57
    Date: 2011
  32. By: Massimiliano Corradini; Valeria Costantini; Susanna Mancinelli; Massimiliano Mazzanti
    Abstract: We model investment decisions regarding innovation and emissions abatement in a dynamic theoretical framework, where knowledge stock is considered as an impure public good. The reaction function between one representative agent’s investments in innovation and the other agents’ investments in the public characteristic of the impure public good has positive slope under general conditions and that its sensitiveness is affected by assumptions on the elasticity of substitution in the benefit function as well as on the degree of complementarity between the private and the public characteristic. The positivity of the reaction function is then empirically tested in an econometric estimation. We exploit an original database by gathering innovation efforts as well as emissions over the period 1996-2006 for 15 European countries and 23 manufacturing sectors. Empirical results show that innovation investment is positively driven by the public characteristics provided by other sectors, with different reactivity strength for different polluting emissions.
    Keywords: impure public goods, environmental externalities, innovation spillovers
    JEL: D21 H41 O33 Q53 Q55
    Date: 2011–11
  33. By: Jean-Thomas Bernard; Michael Gavin; Lynda Khalaf; Marcel Voia
    Abstract: We consider an empirical estimation of the Environmental Kuznets Curve (EKC) for carbon dioxide and sulphur, with a focus on confidence set estimation of the tipping point. Various econometric – parametric and nonparametric – methods are considered, reflecting the implications of persistence, endogeneity, the necessity of breaking down our panel regionally, and the small number of countries within each panel. In particular, we propose an inference method that corrects for potential weak-identification of the tipping point. Weak identification may occur if the true EKC is linear while a quadratic income term is nevertheless imposed into the estimated equation. Relevant literature to date confirms that non-linearity of the EKC is indeed not granted, which provides the motivation for our work. Viewed collectively, our results confirm an inverted U-shaped EKC in the OECD countries but generally not elsewhere, although a local-pollutant analysis suggest favorable exceptions beyond the OECD. Our measures of uncertainty confirm that it is difficult to identify economically plausible tipping points. Policy-relevant estimates of the tipping point can nevertheless be recovered from a local-pollutant long-run or non-parametric perspective.
    Keywords: Environmental Kuznets Curve, Fieller method, Delta method, CO2 and SO2 emissions, Confidence set, Tipping point, Climate policy
    JEL: C52 Q51 Q52 Q56
    Date: 2011
  34. By: Wie, Jiegen; Wennlock, Magnus; Johansson, Daniel J.A.; Sterner, Thomas
    Abstract: This paper analyzes how fossil fuel-producing countries can counteract climate policy. We analyze the exhaustion of oil resources and the subsequent transition to a backstop technology as a strategic game between the consumers and producers of oil, which we refer to simply as “OECD” and “OPEC,” respectively. The consumers, OECD, derive benefits from oil, but worry about climate effects from carbon dioxide emissions. OECD has two instruments to manage this: it can tax fuel consumption and decide when to switch to a carbon-neutral backstop technology. The tax reduces climate damage and also appropriates some of the resource rent. OPEC retaliates by choosing a strategy of price discrimination, subsidizing oil in its domestic markets. The results show that price discrimination enables OPEC to avoid some of the adverse consequences of OECD’s fuel tax and its switch to the backstop technology by consuming a larger share of the oil in its own domestic markets. Our results suggest that persuading fossil exporters to stop subsidizing domestic consumption will be difficult.
    Keywords: dynamic games, stock externalities, carbon tax, non-renewable resources, energy subsidies
    JEL: D62 H23 Q34 Q54
    Date: 2011–09–19
  35. By: Habermacher, Florian
    Abstract: All current, and likely near-term future, climate protection measures only cover a limited fraction of global emissions. A single value attached to CO2 (independent of the source that generates it), for market based instruments such as CO2 taxes or cap-and-trade systems, is insufficient to account for the complex economic interlinkages between specific emission-generating activities and CO2 emissions throughout the world. First, static partial and general equilibrium models illustrate how different types of emissions are subject to specific General Equilibrium Translation Factors and leakage effects, which define the optimal pattern of fuel-specific, unilateral carbon taxes. The leakage, which implies that regional emission avoidance may partly be offset in other regions and time periods, depends on the type of resources involved and the characteristics of the markets in which they are traded. Second, a dynamic model accounting for fuel exhaustibility shows that the time-dimension is crucial and that the relevant medium-term leakage may be much larger than suggested static rates. Sensible leakage rates depend on discount rates for future emissions and on uncertain future technological and political developments. The traditional leakage literature does not explicitly consider these elements, even though in their absence overall leakage would approach 100 %. Instead, literature has mainly focused on static fuel supply curves and rates of contemporaneous leakage. The numerical simulations show that in a business-as-usual scenario the optimal unilateral OECD climate tax rate on CO2 emissions from oil may be only half of the tax rate on emissions from coal. This is reverted if the CO2 intensive coal-to-liquids conversion processes become an important additional source of liquid fuels in future: negative leakage occurs and the optimal current climate tax on oil emissions may be up to two times the genuine regional willingness to pay for global emission reductions, even if the substitution of crude oil by synthetic liquids starts only in the future.
    Keywords: Unilateral climate policy, fuel specific carbon tax, fossil fuel exhaustion/depletion, leakage over time, general equilibrium resource market, coal-to-liquids, liquefaction, OECD.
    JEL: Q58 Q54 Q41 H23 H21 Q56
    Date: 2011–11
  36. By: Antoine D'Autume (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Katheline Schubert (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Cees Withagen (VU University Amsterdam - Department of Spatial Economics)
    Abstract: International differences in fuel taxation are huge, and may be justified by different local negative externalities that taxes must correct, as well as by different preferences for public spending. In this context, should a worldwide unique carbon tax be added to these local taxes to correct the global warming externality ? We address this question in a second best framework à la Ramsey, where public goods have to be financed through distortionary taxation and the cost of public funds has to be weighted against the utility of public goods. We show that when lump-sum transfers between countries are allowed for, the second best tax on the polluting good may be decomposed into three parts : one, country specific, dealing with the local negative externality, a second one, country specific, dealing with the cost of public funds, and a third one, global, dealing with the global externality and which can be interpreted as the carbon price. Our main contribution is to show that the uniqueness of the carbon price should still hold in this second best framework. Nevertheless, if lump-sum transfers between governments are impossible to implement, international differentiation of the carbon price is the only way to take care of equity concerns.
    Keywords: Carbon price, second best, Pigovian taxation.
    Date: 2011–08
  37. By: Takeda, Shiro; Arimura, Toshi H.; Tamechika, Hanae; Fischer, Carolyn (Resources for the Future); Fox, Alan K.
    Abstract: The adoption of domestic emissions trading schemes (ETS) can impose a heavy burden on energy-intensive industries. In particular, energy-intensive industries competing with foreign competitors could lose their international edge. Although the abatement of carbon dioxide (CO2) emissions in industrialized countries entails the reduction of their energy-intensive production, a corresponding increase in the production of energy-intensive goods in countries without CO2 regulations may lead to carbon “leakage.” This paper examines the effects of various allocation methods for granting emissions permits in the Japanese ETS on the economy and CO2 emissions using a multiregional and multisector computable general equilibrium model. Specifically, we apply the Fischer and Fox (2007) model to the Japanese economy to address carbon leakage and competitiveness issues. We compare auction schemes, grandfathering schemes, and output-based allocation (OBA) schemes. We further extend the model by examining a combination of auctions and OBA. Though the auction scheme is found to be the best in terms of macroeconomic impacts (welfare and GDP effects), the leakage rate is high and the harm to energy-intensive sectors can be significant. OBA causes less leakage and damage to energy-intensive sectors, but the macroeconomic impact is undesirable. Considering all three effects—leakage, competitiveness, and macroeconomics—we find that combinations of auctions and OBA (with gratis allocations solely to energy-intensive, trade-exposed sectors) are desirable.
    Keywords: climate change, emissions trading, emissions permit allocations, output-based allocation, auction, grandfathering, international competitiveness, carbon leakage, CGE analysis
    JEL: C68 D42
    Date: 2011–09–16
  38. By: Maria Mansanet-Bataller (Department of Financial Economics, Faculty of Economics, University of Valencia)
    Abstract: Since the launch of the European Union Emission Trading Scheme (EU ETS), the interest in the trade of EUAs is constantly increasing among academics and market participants. The objective of this article is twofold: (i) a detailed description of this new market is provided for portfolio managers, and (ii) a comprehensive study of the implications of including Phase II EUAs in diversified portfolios is undertaken using as expected returns both historical and risk-adjusted returns. The results show that the opportunity set do not vary if we consider historical returns and that if we take into account risk-adjusted returns the efficient set only increases if the investor takes a short position in Phase II EUAs.
    Keywords: CO2 Futures, Portfolio Management
    Date: 2011–01
  39. By: Wilfried Ehrenfeld
    Abstract: The emission rights management module of the software package “CO2-Navigator“ is a corporate emissions rights management instrument designed to provide an overview of the allocation and transactions of CO2 emission allowances at any time of the calendar year. During the acquisition, the relevant dates, quantities and prices are collected. The daily updated inventory of allowances is also reported. Based on the current state of the emissions from an installation, an estimate of the allowance coverage for the balance sheet day of the current year is realized, using an emission profile characteristic for the firm. Here, a possible under- or over- coverage is graphically illustrated and quantified. The module is thus a useful tool in the risk management process of emission intensive companies. A possible subsequent investment analysis, e. g. a stochastic investment planning, builds on the data supplied by this module. This paper describes the motivation and technical conception of this instrument.
    Keywords: CO2, emission rights management, emissions trading
    JEL: D81 G32 L59 Q54 Q58
    Date: 2011–12
  40. By: Valeria Costantini; Alessio D'Amato; Chiara Martini; Maria Cristina Tommasino; Edilio Valentini; Mariangela Zoli
    Abstract: Most tradable permit regimes have ignored the role of emission allowance taxation whereas the OECD and the European Union have emphasized the need for further investigation of the related efficiency and effectiveness consequences. The aim of our paper is to take a first step in this direction. We illustrate a theoretical model featuring I representative competitive firms/countries. Our theoretical results show that accounting for permit taxation implies a distortion in the equilibrium price as well as an impact on emissions distribution across countries. The specific features of these distortions are then investigated through a Computable General Equilibrium model in which several options for taxes on net sellers’ permit revenues and defiscalization of net buyers’ permit costs are simulated. Welfare analysis is performed, suggesting that the design of permit taxation is relevant in determining how welfare gains and losses are distributed across countries.
    Keywords: international emissions trading, permit taxation, computable general equilibrium
    JEL: H23 Q58
    Date: 2011–12
  41. By: Nicolas Sanz (CEREGMIA, Université des Antilles et de la Guyane); Sonia Schwartz (CAE, Université Paul Cézanne)
    Abstract: This paper investigates if pollution permit markets are harmful for employment within a Wage Setting-Price Setting (WS-PS) model. The employment level is determined according to several financing unemployment benefits: a wage tax or the revenue of the pollution permit auction. We first show that a permit market weakens the union market power. Whatever the way that unemployment benefits are financed, the choice of the pollution cap is always neutral on the employment levels, and these latter always increase if the technology to reduce pollution become more efficient. Depending on the value of the wage tax, the employment level can be higher or lower when unemployment benefits are financed by pollution permits rather than a wage tax.
    Keywords: monopolistic competition, equilibrium employment, pollution permit market, unemployment benefits
    JEL: E24 J50 L13 Q52 Q58
    Date: 2011–06
  42. By: Gabriela Miranda; Randall Eberts; Elvira González; Vanessa Foo; Przemyslaw Kulawczuk
    Abstract: This report presents analysis on the cases of Podlaskie and Pomorskie in Poland in the context of a transition to the green economy. This study seeks to examine the current situation in these two regions in terms of labour market, economic development, and skills provision, with a specific focus on the green economy. <p> The report analyses the impacts of climate change (including its effects on policy and regulations) on the local labour markets in Podlaskie and Pomorskie and provides policy recommendations on how make the best use of the assets in place to boost green economic activities while creating greener jobs. <p> The report examines the role that the public sector and other key labour market institutions play in facilitating the transition to a green economy. Although it is certain that the impact of this transition on jobs, on the workforce and on businesses will vary from region to region, it is also certain that those regions investing in the right skills and removing barriers to green entrepreneurship and growth will gain from this new context.
    Date: 2011–12
  43. By: Olga Kiuila (Faculty of Economic Sciences, University of Warsaw); Thomas F. Rutherford (Centre for Energy Policy and Economics, ETH Zurich)
    Abstract: We explore two methods of incorporating bottom-up abatement cost estimates into top-down modeling: economy-wide and sector-specific. Carbon emissions depend basically on technology and scale. Given the technology options, abatement is possible without a substantial reduction in scale. Otherwise the change must come purely through a reduction in demand. Our analysis shows that the cost of environmental policy is considerably overestimated by top-down models if a bottom-up abatement cost curve is not included. Using the data for the Swiss economy, we demonstrate two techniques of representing abatement function explicitly in a computable general equilibrium model: a traditional and a hybrid (discrete technology modeling) approaches. The results suggest that the current climate policy in Switzerland will not be able to move the economy towards the required 10% CO2 reduction. Both approaches provide virtually the same results when calibration process is precisely executed, which contradicts the results in previous studies..
    Keywords: cost curve, elasticity of substitution, computable general equilibrium model, hybrid modeling, carbon tax
    JEL: C68 D24 H21 Q52
    Date: 2011
  44. By: Jean Chateau; Anne Saint-Martin; Thomas Manfredi
    Abstract: Using a computable general equilibrium, this paper quantifies the GDP and employment effects of an illustrative greenhouse gas emissions reduction policy. The paper first analyses the direct negative economic effects of the emissions restrictions on GDP and examines labour sectoral reallocations in a framework where labour markets are perfectly flexible. The model is then modified to incorporate labour market imperfections in OECD countries that could generate unemployment, namely, short-run rigidities in real wage adjustment. It is shown that imperfect wage adjustment increases the cost of mitigation policy since unemployment increases in the short-run, but that the carbon tax revenue generated can be recycled so as offset some or all of this effect, notably when it is used to reduce wage-taxes. Thus, taking realistic labour market imperfections into account in a CGE model affects the GDP costs of mitigation policy in two ways: first by introducing extra costs due to the increased unemployment that such policy may entail; second by creating the possibility of a double dividend effect when carbon taxes are recycled so as to reduce distorting taxes on labour income..<BR>A l’aide d’un modèle d’équilibre général calculable ce papier cherche à quantifier les effets sur l’emploi et le PIB d’une politique d’atténuation du changement climatique. Dans un premier temps, le papier analyse les effets négatifs directs sur le PIB d’une politique de réduction des émissions et examine les réallocations sectorielles de l’emploi, dans un cadre où les marchés du travail sont considérés comme parfaitement flexibles. Dans un second temps une hypothèse d’imperfection du marché du travail dans les pays de l’OCDE est adoptée, cette hypothèse peut créer du chômage en raison de rigidité dans l’ajustement des salaires réels. Dans un tel cas, il est montré que les recettes fiscales associées à une taxe carbone peuvent permettre de mettre en place des politiques d’emploi actives, telles des réductions des impôts sur les salaires, qui peuvent à court-terme contrecarrer l’effet négatif de la politique d’atténuation du changement climatique. Ainsi, la prise en compte dans un modèle EGC d’une imperfection du marché du travail altère la perception des effets sur le PIB des politiques de changement climatique de deux façons : premièrement en soulignant les coûts supplémentaires qu’une telle politique peut entraîner en termes d’emplois et secondement en créant des conditions favorables à l’apparition d’un phénomène de double-dividende associée à des politiques adéquates d’utilisation des recettes fiscales liées aux taxes carbones.
    Keywords: unemployment, CGE model, climate change mitigation policy, carbon pricing, chômage, modèle EGC, Politique d’atténuation du changement climatique, valeur du carbone
    JEL: D58 E24 H23 Q54
    Date: 2011–12–12
  45. By: Nhan Thanh Nguyen (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - AgroParisTech); Minh Ha-Duong (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - AgroParisTech); Sandra Greiner (Climate Focus - Climate Focus B.V.); Michael Mehling (Ecologic Institute - Ecologic Institute)
    Abstract: The Clean Development Mechanism (CDM) in Vietnam is used way below its full potential. In spite of efforts to further CDM projects in the recent years, Vietnam still lags behind the comparable neighboring countries in term of registered CDM projects. Especially, though 2008 and 2009 have seen a fast growth in the pipeline in the country but only 14 projects were registered as at 2 December 2009. This development progress is low to the country's greater potential and makes it as a late starter on the global CDM rise when the window of opportunity created by the first Kyoto Protocol period has almost closed. This paper analyzes the barriers explaining this late start and slow catch-up. It suggests strategic policy recommendations which could increase the attractiveness of investment business in the context of climate change protection in Vietnam.
    Keywords: climate policy; development; vietnam
    Date: 2011
  46. By: Minh Ha-Duong (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Nationale du Génie Rural des Eaux et Forêts); Rodica Loisel (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Nationale du Génie Rural des Eaux et Forêts)
    Abstract: This study estimates the human cost of failures in the CCS industry in 2050, using the actuarial approach. The range of expected fatalities is assessed integrating all steps of the CCS chain: additional coal production, coal transportation, carbon capture, transport, injection and storage, based on empirical evidence from technical or social analogues. The main finding is that a few hundred fatalities per year should be expected if the technology is used to avoid emitting 1 GtC yr-1 in 2050 at baseload coal power plants. The large majority of fatalities are attributable to mining and delivering more coal. These risks compare to today's industrial hazards: technical, knowable and occupational dangers for which there are socially acceptable non-zero risk levels. Some contemporary European societies tolerate about one fatality per thousand year around industrial installations. If storage sites perform like that, then expected fatalities per year due to leakage should have a minor contribution in the total expected fatalities per year: less than one. But to statistically validate such a safety level, reliability theory and the technology roadmap suggest that CO2 storage demonstration projects over the next 20 years have to cause exactly zero fatality.
    Keywords: CCS, risk, analogue, storage safety, mortality, actuarial approach.
    Date: 2011
  47. By: Ranganathan, C. (Asian Development Bank Institute); Palanisami, K. (Asian Development Bank Institute); Kakumanu, K. (Asian Development Bank Institute); Baulraj, A. (Asian Development Bank Institute)
    Abstract: Many rural poor people in developing countries depend on agriculture and are highly influenced by climatic change. Adaptation to climate change impacts is increasingly being observed in both physical and ecological systems as well as in human adjustments to resource availability and risk at different spatial and societal scales. This paper reviews some of the options for reducing the vulnerability of the poor through integrated climate change adaptation strategies. The paper explains the climate change effects on agricultural production, adoption experiences in the context of sustainable livelihoods, integration of structural and nonstructural measures, amelioration effects and their costs, and the role of informal institutions in implementation.
    Keywords: climate change; agricultural production; poverty reduction
    JEL: N55 O13 Q54
    Date: 2011–12–19
  48. By: Masako Ikefuji; Roger J. A. Laeven; Jan R. Magnus; Chris Muris
    Abstract: We specify a stochastic economy-climate model, adapting Nordhaus' deterministic economy-climate model by allowing for Weitzman-type stochasticity. We show that, under expected power utility, the model is fragile to heavy-tailed distributional assumptions and we derive necessary and sufficient conditions on the utility function to avoid fragility. We solve our stochastic economy-climate model for two cases with compatible pairs of utility functions and heavy-tailed distributional assumptions. We further develop and implement a procedure to learn the input parameters of our model and show that the model thus specified produces robust optimal policies. The numerical results indicate that higher levels of uncertainty lead to less abatement and consumption, and to more investment.
    Date: 2011–12
  49. By: Chen, Ping-Yu; Chen, Chi-Chung; Chang, Chia-Lin
    Abstract: Heat waves and cold fronts have become frequent of late, and have caused serious disruptions around the world, especially in the mid- and high-latitudes. In future, human beings are likely to face more serious, frequent and long-lasting extreme climate events, with consequent greater damage to human life. This paper uses the multiple panel threshold model to test whether there are threshold effects between temperature and mortality, using a panel of 78 major cities in 22 OECD countries for 1990-2008. From the empirical analysis, we find that the relationship between temperature and mortality has three threshold effects, namely 15.21℉ (-9.33℃), 46.97℉ (8.32℃), and 87.53℉ (30.85℃). If the temperature is below 15.21℉ (-9.33℃), the magnitude of the temperature effect below 15.21℉ (-9.33℃) is greater than the effect between 15.21℉ (-9.33₀C) and 46.97℉ (8.32₀C). When the temperature exceeds 87.53℉ (30.85℃), higher temperature leads to higher mortality rate. Based on the estimated coefficients of mean temperatures in four regimes, we separate 78 cities into five areas with latitudes below 30°, 31°-40°, 41°-50°, and 61°-70°, and predict the impacts of future climate change on mortality for 2021-2040, 2041-2060, and 2061-2100. In summer, climate is predicted to increase mortality rates for 2021-2040, 2041-2060, and 2061-2100. For latitudes 41°-50° and 51°-60°, the increased mortality rate is much larger than for other latitudes. In winter, the increased magnitude induced by climate change is found to be greater than in summer.
    Keywords: Multiple panel threshold model; temperature; mortality rates; climate change
    JEL: I12 Q54
    Date: 2011–11–21
  50. By: Viscusi, W. Kip (Vanderbilt University); Zeckhauser, Richard J. (Harvard University)
    Abstract: Catastrophic risks differ in terms of their natural or human origins, their possible amplification by human behaviors, and the relationships between those who create the risks and those who suffer the losses. Given their disparate anatomies, catastrophic risks generally require tailored therapies, with each prescribed therapy employing a specific portfolio of policy strategies. Given that catastrophic risks occur rarely, and impose extreme losses, traditional mechanisms for controlling risks--bargaining, regulation, liability--often function poorly. Commons catastrophes arise when a group of actors collectively impose such risks on themselves. When the commons is balanced, that is, when the parties are roughly symmetrically situated, a range of regulatory mechanisms can perform well. However, unbalanced commons--such as exist with climate change--will challenge any control mechanism with the disparate parties putting forth proposals to limit their own burdens. When humans impose catastrophic risks predominantly on others--as with deepwater oil spills--the risks are external. For those risks, the analysis shows, a single responsible party should be identified. Primary emphasis should then be placed on a two-tier liability system. Parties engaged in activities posing such catastrophic risks would be subject to substantial minimum financial requirements, strict liability for all damages, and a risk-based tax for expected losses that would exceed the responsible party's ability to pay. Utilizing the financial incentives of this two-tier liability system would decrease the current reliance on regulatory policy, and would alter the role of regulators with a tilt toward financial oversight efforts and away from direct control. Catastrophic risks will always be with us. But as rare, extreme events, society has little experience with them, and current mechanisms are poorly designed to control them. Only a tailored therapy approach offers promise of significant improvement.
    JEL: G22 H00 K32 Q30
    Date: 2011–11
  51. By: Olivier Chanel (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Graciela Chichilnisky (Department of Statistics - Columbia University)
    Abstract: Global environmental phenomena like climate change, major extinction events or flutype pandemics can have catastrophic consequences. By properly assessing the outcomes involved - especially those concerning human life - economic theory of choice under uncertainty is expected to help people take the best decision. However, the widely used expected utility theory values life in terms of the low probability of death someone would be willing to accept in order to receive extra payment. Common sense and experimental evidence refute this way of valuing life, and here we provide experimental evidence of people's unwillingness to accept a low probability of death, contrary to expected utility predictions. This work uses new axioms of choice, especially an axiom that allows extreme responses to extreme events, and the choice criterion that they imply. The implied decision criteria are a combination of expected utility with extreme responses, and seem more consistent with observations.
    Keywords: Decision under risk; Value of Prevented Fatality; Expected Utility; Experiment; Catastrophic risk
    Date: 2011–12–13
  52. By: Anbumozhi, Venkatachalam (Asian Development Bank Institute); Kimura, Mari (Asian Development Bank Institute); Isono, Kumiko (Asian Development Bank Institute)
    Abstract: This paper reviews selected initiatives taken by Asian countries to comply with emerging global sustainability standards, reporting, and management systems, and tracks the response of Asian businesses to global environmental concerns, examines market based innovations including new regulations that augmented corporate excellence, and identifies future directions for business that lead low carbon society. It recommends governments and business to join forces in supporting low carbon initiatives, drawing upon market mechanisms through reconfiguring national environmental policies and strategies.
    Keywords: climate change initiatives; global sustainability standards; low carbon initiatives; environmental policies
    JEL: M19 Q30 Q48 Q56
    Date: 2011–12–21
  53. By: Fraas, Art (Resources for the Future); Lutter, Randall (Resources for the Future)
    Abstract: In their recent paper , Efficient Pollution Regulation: Getting the Prices Right (henceforth, EPR), Muller and Mendelsohn describe a broader, more appealing concept of efficiency that incorporates information on damages caused by emissions from specific sources: “The science and economics related to pollution control”, they write, “have advanced to the point where regulations can now move from cost-effectiveness to efficiency.” We argue that despite the appeal of the EPR solution, its conclusion that source-specific marginal damage estimates are ready for use in regulations is simply incompatible with the empirical evidence presented in EPR. In particular, we explore the implications of the EPR finding of negative marginal damages from NOx emissions for many heavily populated counties. The associated nonconvexities, we show, imply that the source-specific trading ratios that EPR advocates lead to unattractive outcomes not likely to be efficient. We also discuss how the EPR assumption that the regulators know damages with certainty oversimplifies key aspects of efficient air pollution regulation.
    Date: 2011–08–03
  54. By: Heinrich H. Nax; Thomas W.L. Norman
    Abstract: The World’s nations have yet to reach a truly effective treaty to control the emission of greenhouse gases. The importance of compatibility with private incentives of individual countries has been acknowledged (at least by game theorists) in designing climate policies for the post-Kyoto world. Individually incentive-compatible agreements, however, may still be spoilt if coalitional incentives to deviate as a group exist. As a first step toward understanding these incentives from a game-theoretic perspective, we propose a hybrid noncooperative-cooperative game theory model of coalition formation in technology collaboration. Serious coalitional instabilities inherent to the existing climate policy architectures are revealed. It turns out that coalitionally stable agreements are achieved via intermediate self-selecting subcoalitions. The sequence of coalitions forming and the size of the direct and spillover effects of R&D collaboration on countries’ individual production technologies determine the effectiveness of the agreements to reduce carbon emissions. These coalitional group motives are already becoming important in the practice of climate change negotiations.
    Keywords: Climate change policy, Coalitions, Cooperative game theory, Environmental agreements, Externalities, Mechanism design, Noncooperative game theory, R&D
    JEL: C71 C73 D62 D86 F53 H87 Q54
    Date: 2011
  55. By: Valentina Bosetti; Jeffrey A. Frankel
    Abstract: We explore a framework that could be used to assign quantitative allocations of emissions of greenhouse gases (GHGs), across countries, one budget period at a time. Under the two-part plan: (i) China, India, and other developing countries accept targets at Business as Usual (BAU) in the coming budget period, the same period in which the US first agrees to cuts below BAU; and (ii) all countries are asked in the future to make further cuts in accordance with a common numerical formula to all. The formula is expressed as the sum of a Progressive Reductions Factor, a Latecomer Catch-up Factor, and a Gradual Equalization Factor. This paper builds on our previous work in many ways. First we update targets to reflect pledges made by governments after the Copenhagen Accord of December 2010 and confirmed at the Cancun meeting of December 2011. Second, the WITCH model, which we use to project economic and environmental effects of any given set of emission targets, has been refined and updated to reflect economic and technological developments. We include the possibility of emissions reduction from bio energy (BE), carbon capture and storage (CCS), and avoided deforestation and forest degradation (REDD+) which is an important component of pledges in several developing countries. Third, we use a Nash criterion for evaluating whether a country’s costs are too high to sustain cooperation.
    JEL: Q54
    Date: 2011–12
  56. By: Richardson, Nathan (Resources for the Future)
    Abstract: The U.S. Environmental Protection Agency (EPA) continues to move ahead with regulation of greenhouse gas emissions under the Clean Air Act (CAA). Previous work has indicated that basic forms of compliance flexibility—trading—appear to be legally permissible under the relevant part (Section 111) of the CAA. This paper takes a close look at more expansive and ambitious types of flexibility: trading between different kinds of sources, biomass co-firing, and, above all, offsets. It concludes that most types of such extended flexibility are either legally incompatible with the CAA, or so legally problematic that EPA is unlikely to adopt them. This has important implications for both the costs of CAA climate policy and the level of environmental benefits that are achievable. It also creates tension between CAA climate policy and state-level policies, such as California’s, that aim to include various forms of extended flexibility.
    Keywords: Clean Air Act, offsets, carbon, GHGs, greenhouse gases, flexibility, §111, §111(d), CAA, biomass co-firing, AB32
    Date: 2011–12–05
  57. By: Böhringer, Christoph; Fischer, Carolyn (Resources for the Future); Einar Rosendahl, Knut
    Abstract: Given the bleak prospects for a global agreement on coordinated policies to mitigate climate change, political pressure is increasing among industrialized countries for unilateral abatement. A major challenge thereby is the appropriate response to the threat of emissions leakage. Border carbon adjustments and output-based allocation of emissions allowances can increase effectiveness of unilateral action but introduce distortions of their own. We assess the relative attractiveness of these anti-leakage measures as a function of the abatement coalition size. We first develop a partial equilibrium analytical framework to gain generic insights on how these instruments affect emissions within and outside the coalition. We then employ a large-scale computable general equilibrium model of international trade and energy use to assess the cost-effectiveness of alternative anti-leakage strategies as the coalition evolves toward global coverage. We find that full border adjustments rank first in global cost-effectiveness, followed by import tariffs and then output-based rebates. The differences across anti-leakage measures and the overall appeal of such measures decline with the size of the abatement coalition. In terms of cost incidence, the abatement coalition prefers border carbon adjustments over output-based rebates; the opposite holds true for countries outside the coalition.
    Keywords: emissions leakage, border carbon adjustments, output-based allocation
    JEL: Q2 Q43 H2 D61
    Date: 2011–07–22

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