nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒04‒23
thirty papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Direct and indirect energy consumption in China and the United States By Liu, Hongtao; Polenske, Karen R.; Guilhoto, Joaquim José Martins; Xi, Youmin
  2. The World upside down, China's R&D and innovation strategy By Guilhem Fabre; Stephane Grumbach
  3. Energy-Based Economic Development: Mapping the Developing Country Context By Sanya Carley; Sameeksha Desai; Morgan Bazilian
  4. Fossil Fuel Extraction and Climate Policy: A Review of the Green Paradox with Endogenous Resource Exploration By Ines Österle
  5. An Empirical Growth Model for Major Oil Exporters By Esfahani, Hadi Salehi; Mohaddes, Kamiar; Pesaran, Hashem
  6. The Dynamics of Gasoline Prices: Evidence from Daily French Micro Data By Gautier, E.; Le Saout, R.
  7. Can Oil Prices Forecast Exchange Rates? By Domenico Ferraro; Kenneth S. Rogoff; Barbara Rossi
  8. Oil Shocks and the Euro as an Optimum Currency Area By Luís Francisco Aguiar; Teresa Maria Rodrigues; Maria Joana Soares
  9. Rate of return requirement for climate versus petroleum projects By Emhjellen, Magne; Osmundsen, Petter
  10. Oil Revenues, Ethnic Fragmentation and Political Transition of Authoritarian Regimes By Alessandro Cologni; Matteo Manera
  11. An Integer Programming Model for an Energy Supply Game By Beliën, Jeroen; Colpaert, Jan; De Boeck, Liesje; Eyckmans, Johan; Leirens, Wouter
  12. Strengthening Russia's Fiscal Framework By Daria Zakharova; Charleen Gust
  13. Impact of service station networks on purchase decisions of alternative-fuel vehicles By Achtnicht, Martin; Bühler, Georg; Hermeling, Claudia
  14. Recursos naturales y desarrollo en el Chad: ¿maldición de los recursos o inserción periférica? By Artur Colom Jaén
  15. The impact of climate change on generation and transmission in the Australian national electricity market By Bell, William Paul
  16. The impact of climate change on electricity demand in the Australian national electricity market By Bell, William
  17. Reviewing the climate change adaptation readiness of the Australian national electricity market institutions By Bell, William
  18. Light Duty Vehicle Transportation and Global Climate Policy: The Importance of Electric Drive Vehicles By Valentina Bosetti; Thomas Longden
  19. The Market Value of Variable Renewables By Lion Hirth
  20. Electricity Supply and Industrial Specialization: A neoclassical evaluation on Japan's electricity supply constraints (Japanese) By SATO Hitoshi
  21. Development Trajectories, Emission Profile, and Policy Actions: Thailand By Chotichanathawewong, Qwanruedee; Thongplew, Natapol
  22. Economic structure and key sectors analysis of greenhouse gas emissions in Uruguay By Matias Piaggio; Vicent Alcantara Escolano; Emilio Padilla Rosa
  23. Improving Land-use Modelling within CGE to Assess Forest-based Mitigation Potential and Costs By Melania Michetti; Ramiro Parrado
  24. Environmental Policy and Directed Technological Change: Evidence from the European Carbon Market By Raphael Calel; Antoine Dechezleprêtre
  25. Regulated (CDM) and voluntary carbon offset schemes as carbon offset markets: competition or complementarity? By Simon Bisore; Walter Hecq
  26. German car buyers' willingness to pay to reduce CO2 emissions By Achtnicht, Martin
  27. Human Capital, Innovation, and Climate Policy: An Integrated Assessment By Carlo Carraro; Enrica De Cian; Massimo Tavoni
  28. Energy Balance Climate Models, Damage Reservoirs and the Time Profile of Climate Change Policy By William Brock; Gustav Engstrom; Anastasios Xepapadeas
  29. Climate Innovation - The Case of the Central German Chemical Industry By Wilfried Ehrenfeld
  30. Rules vs. Targets: Climate Treaties under Uncertainty By Hans Gersbach; Quirin Oberpriller

  1. By: Liu, Hongtao; Polenske, Karen R.; Guilhoto, Joaquim José Martins; Xi, Youmin
    Abstract: Greenhouse gas reduction and energy consumption are becoming two important issues in both industrialized and developing countries, and policy makers are developing means to reduce total domestic energy use. We evaluate and compare the direct and the indirect energy consumption both in the People’s Republic of China (China) and the United States of America (US) by looking at a series of hybrid energy input-output tables (1997, 2002, and 2007). We also apply structural decomposition analysis (SDA), to identify the factors causing energy intensity (energy consumption per unit of gross domestic product) to differ between the two countries, which lead to potential energy-saving options. Our results show that, besides the differences in direct energy consumption, huge differences also exist in indirect energy consumption between the two countries. Differences in indirect energy consumption are mainly due to differences in technology. Technological change and industrial-structure change are key factors to explain the inequality of energy intensity, while there is a significant trend towards the convergence of sectorial energy efficiency between the two countries.
    Keywords: Input-output analysis; Structural decomposition analysis; Energy
    JEL: N7 Q43
    Date: 2011
  2. By: Guilhem Fabre (CCJ - Chine, Corée, Japon - CNRS : UMR8173 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Université Paris VII - Paris Diderot); Stephane Grumbach (LIAMA - NETQUEST - CIRAD - CNRS - INRA - INRIA - Chinese Academy of Science (CAS) - Institute of Automation, Chinese Academy of Sciences)
    Abstract: R&D and innovation have become much more strategic than ever before for the growth of China as well as for its global societal upgrade. The Chinese authorities have designed an innovation strategy to face new economic and social challenges. The first part of the paper is focused on the emergence of the policy, in the 2006-2020 Plan for S&T, with a historical perspective explaining the legacy of the past in today's choices. In the second part, we illustrate China's catching up strategy through four sectors (high-speed trains, aeronautics, clean energy, IT) and discuss its potential impact on the world industry.
    Keywords: R&D; innovation; strategy; high speed trains; aeronautics; clean energy; IT
    Date: 2012–02–28
  3. By: Sanya Carley (School of Public and Environmental Affairs, Indiana University); Sameeksha Desai (School of Public and Environmental Affairs, Indiana University); Morgan Bazilian (United Nations Industrial Development Organization)
    Abstract: Energy-based economic development (EBED) can provide economic, social and environmental benefits related to national economic development and sustainable growth activities. As both policy and research interests in responsible mechanisms for economic development grow, EBED benefits are becoming increasingly attractive to planners in both developed and developing countries. The incentives, trade-offs, and payoffs for developing countries, however, are not well documented. To help address that gap, this paper identifies the general scope and role of EBED in a developing economy context, and outlines opportunities and challenges for decision-makers.
    Keywords: Economic Development; Energy, Developing Countries, Sustainable Development
    JEL: O10 O13 O21 Q48
    Date: 2012–04
  4. By: Ines Österle (Centro di Economia Regionale, dei Trasporti e del Turismo CERTeT - Bocconi)
    Abstract: Policies aimed at reducing emissions from fossil fuels may increase climate damages. This “Green Paradox” emerges if resource owners increase near-term extraction in fear of stricter future policy measures. Hans-Werner Sinn (2008) showed that the paradox occurs when increasing resource taxes are applied within a basic exhaustible resource model. This article highlights that the emergence of the Green Paradox within this framework relies on the non-existence of a backstop technology and fixed fossil fuel resources. In doing this, it initially presents a basic exhaustible resource model which includes a backstop technology and shows that the implementation of a specific sales tax path is effective in mitigating global warming. Secondly, it considers the case of costly exploration activities being introduced within the basic model and accounts for the real world condition that the location of fossil fuels is unknown. Under this condition, an increasing cash flow tax is effective in dealing with climate change if policy makers commit to a high initial tax level and to a specific range of growth rates.
    Keywords: Green Paradox, Supply-side dynamics, Climate Policy, Exhaustible Resources, Fossil Fuels, Exploration
    JEL: Q31 Q54 Q58 H23 H32
    Date: 2012–03
  5. By: Esfahani, Hadi Salehi (University of Illinois at Urbana-Champaign); Mohaddes, Kamiar (University of Cambridge); Pesaran, Hashem (University of Cambridge)
    Abstract: This paper develops a long-run growth model for a major oil exporting economy and derives conditions under which oil revenues are likely to have a lasting impact. This approach contrasts with the standard literature on the "Dutch disease" and the "resource curse", which primarily focuses on short-run implications of a temporary resource discovery. Under certain regularity conditions and assuming a Cobb-Douglas production function, it is shown that (log) oil exports enter the long-run output equation with a coefficient equal to the share of capital (α). The long-run theory is tested using quarterly data on nine major oil economies, six of which are current members of OPEC (Iran, Kuwait, Libya, Nigeria, Saudi Arabia, and Venezuela), plus Indonesia which is a former member, and Mexico and Norway, which are members of the OECD. Overall, the test results support the long-run theory. The existence of long-run relations between real output, foreign output and real oil income is established for six of the nine economies considered. The exceptions, Mexico and Norway, do not possess sufficient oil reserves for oil income to have lasting impacts on their economies. At their current production rates, the proven oil reserves of Mexico and Norway are expected to last 9 and 10 years respectively, as compared to reserve-production ratios of OPEC members, which lie in the range of 45 to 125 years. For Indonesia, whose share of oil income in GDP has been declining steadily over the past three decades, the theory suggests that the effect of oil income on the economy's steady state growth rate will vanish eventually, and this is indeed confirmed by the results. Sensible estimates of α are also obtained across the six economies with long-run output equations, and impulse responses are provided for the effects of shocks to oil income and foreign output in these economies.
    Keywords: growth models, long run and error correcting relations, major oil exporters, OPEC member countries, oil exports and foreign output shocks
    JEL: C32 C53 E17 F43 F47 Q32
    Date: 2012–04
  6. By: Gautier, E.; Le Saout, R.
    Abstract: Using millions of individual gasoline prices collected at a daily frequency, we examine the speed at which market refined oil prices are transmitted to consumer liquid fuel prices. We find that on average gasoline prices are modified once a week and the distribution of price changes displays a M-shape as predicted by a menu-cost model. Using a reduced form state-dependent pricing model with time-varying random thresholds, we find that the degree of pass through of wholesale prices to retail gasoline prices is on average 0.77 for diesel and 0.67 for petrol. The duration for a shock to be fully transmitted into prices is about 10 days. There is no significant asymmetry in the transmission of wholesale price to retail prices.
    Keywords: price stickiness, menu costs, (S,s) models, gasoline price.
    JEL: E31 D43 L11
    Date: 2012
  7. By: Domenico Ferraro; Kenneth S. Rogoff; Barbara Rossi
    Abstract: This paper investigates whether oil prices have a reliable and stable out-of-sample relationship with the Canadian/U.S dollar nominal exchange rate. Despite state-of-the-art methodologies, we find little systematic relation between oil prices and the exchange rate at the monthly and quarterly frequencies. In contrast, the main contribution is to show the existence of a very short-term relationship at the daily frequency, which is rather robust and holds no matter whether we use contemporaneous (realized) or lagged oil prices in our regression. However, in the latter case the predictive ability is ephemeral, mostly appearing after instabilities have been appropriately taken into account
    JEL: C22 C53 F31 F37
    Date: 2012–04
  8. By: Luís Francisco Aguiar (Universidade do Minho - NIPE); Teresa Maria Rodrigues (University of Minho); Maria Joana Soares (Universidade do Minho)
    Abstract: SWe use wavelet analysis to study the impact of the Euro adoption on the oil price macroeconomy relation in the Euroland. We uncover evidence that the oil-macroeconomy relation changed in the past decades. We show that after the Euro adoption some countries became more similar with respect to how their macroeconomies react to oil shocks. However, we also conclude that the adoption of the common currency did not contribute to a higher degree of synchronization between Portugal, Ireland and Belgium and the rest of the countries in the Euroland. On the contrary, in these countries the macroeconomic reaction to an oil shock became more asymmetric after adopting the Euro.
    Keywords: Oil prices; Business cyles, the Euro, Optimum Currency Areas; Wavelet analysis
    JEL: Q43 C22 E32 F44
    Date: 2012
  9. By: Emhjellen, Magne (Petoro); Osmundsen, Petter (UiS)
    Abstract: Many sosio-economic rates of returns for climate projects have been used in analysing the present value of the climate benefit. However, little attention has been devoted to profitability assessments based on commercial considerations. Economic valuation of climate projects, seen from the perspective of a commercial company, is the subject of this article. In particular, we examine the required rate of return for a project where the uncertainty in the CO2 quota price is the main market uncertainty. We complement the existing climate literature by examining the required rate of return of a climate project in a Capital Asset Pricing Model (CAPM) setting. We find that the CO2 quota price has slightly more systematic risk in the period calculated than the oil price, and estimate the nominal required rate of return for the value of CO2 reduction to be 7.3 percentage points.
    Keywords: Climate Projects; Decision Analysis
    JEL: G10
    Date: 2012–04–11
  10. By: Alessandro Cologni (Edison Trading, Edison S.p.A., Italy); Matteo Manera (Department of Statistics, University of Milan-Bicocca and Fondazione Eni Enrico Mattei, Italy)
    Abstract: Natural resources are generally associated to negative effects on the political environment of a country. This paper explores the impact that oil revenues have on the establishment of a given political system. Based on previous literature, a political economy perspective is employed. A simple game theoretical approach in order to explain the relationships between oil revenues, political instability (conflicts) and emergence of different political systems is presented. The implementation of particular redistributive fiscal policies together with the possibility that paternalistic or “predatory" autocracies emerge are considered. Under certain circumstances, a process of full democratization is argued not to represent an optimal choice for the oil-rich authoritarian nations. Since governments prefer to remain nondemocratic, in order to prevent internal conflicts from occurring, authoritarian countries have to undertake redistributive activities. Under other assumptions, governments of oil-rich nations prefer to introduce large military sectors. The present analysis determines how the emergence of redistributive of predatory policies depends on relevant parameters related to initial income, oil revenues and social inequality. Finally, we study the importance of socio-ethnical fragmentation in determining the political transition of oil producing nations.
    Keywords: Natural Resources, Rentier States, Conflict and Endogenous Political Regimes
    JEL: C72 D74 O13 P16
    Date: 2012–04
  11. By: Beliën, Jeroen (Hogeschool-Universiteit Brussel (HUB)); Colpaert, Jan (Hogeschool-Universiteit Brussel (HUB)); De Boeck, Liesje (Hogeschool-Universiteit Brussel (HUB)); Eyckmans, Johan (Hogeschool-Universiteit Brussel (HUB)); Leirens, Wouter
    Abstract: This paper presents an Integer Programming (IP) model for solving an online energy supply game. Instead of a traditional approach in which students are given a problem statement and asked to develop an IP model, both the problem and data are hidden in the game. Next to developing IP modeling skills, students also become familiar with the properties of several energy supply systems. A classroom experiment proves that the game component, together with the use of a current topic such as energy supply, motivates students more to build IP models when compared to classical approaches.
    Keywords: game, energy supply, spreadsheet modeling, integer programming
    Date: 2012–01
  12. By: Daria Zakharova; Charleen Gust
    Abstract: Though many aspects of Russia's fiscal policy framework are close to best practice on paper, actual practice in recent years has been moving away from best practice. In particular, the continued focus on the overall rather than the nonoil balance, and the regular use of supplemental budgets to spend windfall oil revenues contribute to procylicality of fiscal policy, risking costly boom-bust cycles. Against this background, this paper suggests several improvements to the framework for fiscal policy.
    Keywords: Commodity price fluctuations , Fiscal policy , Fiscal sustainability , Nonoil sector , Oil prices , Oil producing countries , Oil revenues ,
    Date: 2012–03–14
  13. By: Achtnicht, Martin; Bühler, Georg; Hermeling, Claudia
    Abstract: In this paper, we study the impact of fuel availability on demand for alternative-fuel vehicles, using data from a survey of some 600 potential car buyers in Germany. The survey was conducted as a computer-assisted personal interview and included a choice experiment involving cars with various fuel types. Applying a standard logit model, we show that fuel availability influences choices positively, but its marginal utility diminishes with supply. Furthermore, we derive consumers' marginal willingness to pay for an expanded service station network. The results suggest that a failure to expand the availability of alternative fuel stations represents a significant barrier to the widespread adoption of alternative-fuel vehicles. --
    Keywords: Alternative Fuels,Automobile,Fueling Infrastructure,Stated Preference
    JEL: C25 D12 R41
    Date: 2012
  14. By: Artur Colom Jaén (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: The significant increase in foreign investment in the African extractive sector in the last decade has refuelled the debate on the effects on development of the rents generated in this sector. From the resource curse theory, it is argued that the negative effects on development of these rents have to do basically with internal disfunctions, getting around the elements and external actors that shape and influence these internal features. The case of Chad, an oil-producing country since 2003 with the support of the World Bank, is presented and analysed in this article, and we reach the conclusion that the analysis of the peripherical insertion of the country is crucial to understand the disfunctions generated by oil rent.
    Keywords: Recursos naturales, maldición de los recursos, Chad
    JEL: O55 Q34
    Date: 2012–01
  15. By: Bell, William Paul
    Abstract: This paper aims to identify climate change adaptation issues in the Australian National Electricity Market (NEM) by assessing the robustness of the institutional arrangements that support effective adaptation from the supply side. This paper finds that three major factors are hindering or are required for adaptation to climate change: institutional fragmentation both economically and politically; distorted transmission and distribution investment deferment mechanisms; and lacking mechanisms to develop a diversified portfolio of generation technology and energy sources to reduce supply risk. Proposed solutions to the three factors are discussed. These proposed solutions are tested and examined in forthcoming papers.
    Keywords: Climate change adaptation; electricity generation; electricity transmission; Australian National Electricity Market
    JEL: O2 O13 Q3 Q01 Q4 Q5 L94 R38
    Date: 2012–01–31
  16. By: Bell, William
    Abstract: This paper aims to identify climate change adaptation issues in the Australian National Electricity Market (NEM) by assessing the robustness of the institutional arrangements that support effective adaptation from the demand side. This paper finds that three major factors are hindering or are required for adaptation to climate change: institutional fragmentation both economically and politically; distorted transmission and distribution investment deferment mechanisms; and failure to model and to treat the NEM as a node based entity rather than state based. Proposed solutions to the three factors are discussed. These proposed solutions are tested and examined in forthcoming reports.
    Keywords: Climate change adaptation; electricity demand; Australian National Electricity Market
    JEL: R22 O13 Q3 Q01 Q2 Q4 Q5 L94 R38
    Date: 2012–02–02
  17. By: Bell, William
    Abstract: This paper aims to identify climate change adaptation issues in the Australian National Electricity Market by assessing the robustness of the institutional arrangements that support effective adaptation. The paper finds that three major factors are hindering or are required for adaptation to climate change: institutional fragmentation both economically and politically; distorted transmission and distribution investment deferment mechanisms; and lacking mechanisms to develop a diversified energy portfolio. Proposed solutions to the three factors are discussed. These proposed solutions are tested and examined in forthcoming reports.
    Keywords: Climate change adaptation; electricity demand; electricity generation; transmission; distribution; Australian National Electricity Market
    JEL: R22 O13 Q3 Q01 Q2 Q4 Q5 L94 R38
    Date: 2012–02–02
  18. By: Valentina Bosetti (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center for Climate Change); Thomas Longden (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center for Climate Change)
    Abstract: With a focus on establishing whether climate targets can be met under different personal transport scenarios we introduce a transport sector representing the use and profile of light domestic vehicles (LDVs) into the integrated assessment model WITCH. In doing so we develop long term projections of light domestic vehicle use and define potential synergies between innovation in the transportation sector and the energy sector. By modelling the demand for LDVs, the use of fuels, and the types of vehicles introduced we can analyse the potential impacts on the whole economy. We find that with large increases in the use of vehicles in many regions around the globe, the electrification of LDVs is important in achieving cost effective climate targets and minimising the impact of transportation on other sectors of the economy.
    Keywords: Light Duty Vehicles, Transportation, Climate Change Policy, Electric Drive Vehicles, Research and Development
    JEL: Q54 R41 O3
    Date: 2012–03
  19. By: Lion Hirth (Vattenfall Europe AG)
    Abstract: The income that wind and solar power receive on the market is affected by the variability of their output. At times of high availability of the primary energy source, they supply electricity at zero marginal costs, shift the supply curve (merit-order curve) to the right and thereby reduce the equilibrium price of electricity during that hour. The size of this merit-order effect depends on the amount of installed renewable capacity, the slope of the merit-order curve, and the intertemporal flexibility of the electricity system. Thus the price of wind power falls with higher penetration rates, even if the average electricity price remains constant. This work quantifies the effect of variability on the market value of renewables using a calibrated model of the European electricity market. The relative price of German wind power (value factor) is estimated to fall from 110% of the average electricity price to 50% as generation increases from zero to 30% of total consumption. For solar power, the drop is even sharper. Hence competitiveness for large-scale renewables deployment will be more difficult to accomplish than often believed.
    Keywords: Wind Power, Solar Power, Electricity Market, Power Generation Economics, Renewables, Value Factor, Numerical Modelling
    JEL: Q42 O13 D24 D61
    Date: 2012–03
  20. By: SATO Hitoshi
    Abstract: Since the nuclear power plant accident caused by the Great East Japan Earthquake, business and policy makers have raised serious concerns about the impact of electricity supply constraints on the Japanese economy. This paper examines the extent to which electricity supply constraints would affect manufacturing production in Japan. For this purpose, an empirical model based on a standard-neoclassical trade model is estimated for gauging how sectoral output share is influenced by electricity capacity and productivities, using panel data from 1990-2008 for 15 Organisation for Economic Co-operation and Development (OECD) countries and 12 manufacturing sectors. Our estimates suggest that the impact of productivity-adjusted electricity capacity (effective capacity) on industry output is generally rather small relative to that of the industry's own total factor productivity (TFP), and this tendency is more acute in the short-run. However, decreases in effective capacity will negatively affect output share in several industries including electrical equipment, transport equipment, and machinery. Japan tends to have high output share in these sectors relative to other OECD countries, which implies that electricity supply constraints may weaken its comparative advantage.
    Date: 2012–04
  21. By: Chotichanathawewong, Qwanruedee (Asian Development Bank Institute); Thongplew, Natapol (Asian Development Bank Institute)
    Abstract: In Thailand climate change has been integrated into the formulation of several national plans and policies. Both the public and private sector have been actively involved in reducing greenhouse gas emissions, with a series of measures and actions implemented in each sector. The development of renewable energy and the promotion of energy conservation and efficiency have been the primary means to mitigate greenhouse gas emissions in Thailand and though it has made significant progresses toward green and low-carbon development, there is a need to further address the issue.
    Keywords: climate change; thailand; greenhouse gas emissions; renewable energy; low-carbon development
    JEL: Q54 Q58
    Date: 2012–04–13
  22. By: Matias Piaggio (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona); Vicent Alcantara Escolano (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona); Emilio Padilla Rosa (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: This paper identifies the key sectors in greenhouse gas emissions of the Uruguayan economy through input–output analysis. This allows to precisely determine the role played by the different productive sectors and their relationship with other sectors in the relation between the Uruguayan productive structure and atmospheric pollution. In order to guide policy design for GHG reduction, we decompose sectors liability between the pollution generated through their own production processes and the pollution indirectly generated in the production processes of other sectors. The results show that all the key polluting sectors for the different contaminants considered are relevant because of their own emissions, except for the sector Motor vehicles and oil retail trade, which is relevant in CO2 emissions because of its pure, both backward and forward, linkages. Finally, the best policy channels for controlling and reducing GHGs emissions are identified, and compared with the National Climate Change Response Plan (NCCRP) lines of action.
    Keywords: Greenhouse gas emissions, input–output, Key sectors, Uruguay
    JEL: C67 Q40 Q43 Q56
    Date: 2012–04
  23. By: Melania Michetti (Centro Euro-mediterraneo per i Cambiamenti Climatici (CMCC), Fondazione Eni Enrico Mattei (FEEM), Università Cattolica del Sacro Cuore di Milano); Ramiro Parrado (Centro Euro-mediterraneo per i Cambiamenti Climatici (CMCC), Fondazione Eni Enrico Mattei (FEEM), Università Ca’ Foscari di Venezia)
    Abstract: We present a computable general equilibrium model properly modified to analyse the potential role of the European forestry sector within climate mitigation. Improvements on database and modelling frameworks allow accounting for land heterogeneity across and within regions and for land transfers between agriculture, grazing, and forestry. The forestry sector has been modified to track carbon mitigation potential from both intensive and extensive forest margins, which have been calibrated according to a forest sectoral model. Two sets of climate policies are simulated. In a first scenario, Europe is assumed to commit unilaterally to reduce CO2 emissions by 20% and 30%, by 2020. In a second scenario, in addition to the emissions quotas, progressively higher forest sequestration subsidies are paid to European firms to foster the implementation of forestry practices. Results show that including forest carbon in the compliance strategy decreases European policy costs and carbon price, while it does not lead to significant reductions in carbon leakage. We conclude that while European forests can reinforce other mitigation measures, their contribution as a stand-alone abatement strategy results insufficient to comply with emissions reduction targets. Additionally, carbon sinks provided by European temperate forests do not offer considerable mitigation potential if compared with other forest biomes around the world. A much higher forest mitigation would require other regions to take part in a climate stabilization agreement, especially those where old-growth forests exist.
    Keywords: Climate Change, Climate Mitigation, General Equilibrium Modelling, Forestry
    JEL: D58 Q23 Q54 Q58
    Date: 2012–03
  24. By: Raphael Calel (Grantham Research Institute on Climate Change and the Environment, London School of Economics); Antoine Dechezleprêtre (Centre for Economic Performance, London School of Economics)
    Abstract: The European Union Emissions Trading Scheme (EU ETS) has aimed to encourage the development of low-carbon technologies by putting a price on carbon emissions. Using a newly constructed data set that links 8.5 million European companies with their patenting history and their regulatory status under EU ETS, we investigate the hypothesis that the EU ETS has encouraged development of low-carbon technologies. Exploratory data analysis reveals a rapid increase in low-carbon patenting activities at the EPO since 2005, especially among EU ETS regulated companies during the Scheme's second phase. Naive estimates obtained by comparing EU ETS and non-EU ETS firms suggest that the Scheme may be responsible for up to 30% of the increase in low-carbon patenting of regulated companies. However, more refined estimates that combine matching methods with difference-in-differences provide evidence that the EU ETS has not impacted the direction of technological change. This finding appears to be robust to a number of stability and sensitivity checks. While we cannot completely rule out the possibility that the EU ETS has impacted only large companies for which suitable unregulated comparators cannot be found, our findings suggest that the EU ETS so far has had at best a very limited impact on low-carbon technological change.
    Keywords: Directed Technological Change, EU Emissions Trading Scheme, Policy Evaluation
    JEL: Q54 Q58
    Date: 2012–04
  25. By: Simon Bisore; Walter Hecq
    Abstract: As one of the offsetting instruments, the Clean Development Mechanism (CDM) allows industrialized countries to meet their compliance objectives by undertaking and financing project activities in developing countries with certified emissions reductions (CERs) in return. Next to Kyoto mechanisms, voluntary offset markets for GHG emissions reductions that are not compliant with the Kyoto Protocol are developing quickly. Emissions offsets in this latter category are verified by official or independent agents but are not certified by regulatory authorities for use as a compliance instrument, and are commonly referred to as verified emissions reductions (VERs) which are not a standardized commodity. This paper compares the two types of projects-based carbon offset markets and analyses the question of complementarity or competition between them in their contribution to the mitigation of global warming as well as to sustainable development in the host countries.
    Keywords: Climate change; CDM carbon offset market; Voluntary carbon offset; Competition; Complementarity; Standards; Carbon credits; Sustainable development
    Date: 2012–04
  26. By: Achtnicht, Martin
    Abstract: Motorized individual transport strongly contributes to global CO2 emissions, due to its intensive usage of fossil fuels. Current political efforts addressing this issue (i.e. emission performance standards in the EU) are directed towards car manufacturers. This paper focuses on the demand side. It examines whether CO2 emissions per kilometer is a relevant attribute in car choices. Based on a choice experiment among potential car buyers from Germany, a mixed logit specification is estimated. In addition, distributions of willingness-to-pay measures for an abatement of CO2 emissions are obtained. The results suggest that the emissions performance of a car matters substantially, but its consideration varies heavily across the sampled population. In particular, some evidence on gender, age and education effects on climate concerns is provided. --
    Keywords: Choice experiment,CO2 emissions,Mixed logit,Passenger cars,Willingness to pay
    JEL: C25 D12 Q51
    Date: 2012
  27. By: Carlo Carraro (University of Venice, Fondazione Enrico Mattei, CEPR, CESifo and CMCC); Enrica De Cian (Fondazione Enrico Mattei and CMCC); Massimo Tavoni (Fondazione Enrico Mattei and CMCC)
    Abstract: This paper looks at the interplay between human capital and innovation in the presence of climate and educational policies. Using recent empirical estimates, human capital and general purpose R&D are introduced in an integrated assessment model that has been extensively applied to study climate change mitigation. Our results suggest that climate policy stimulates general purpose as well as clean energy R&D but reduces the incentive to invest in human capital formation. Human capital increases the productivity of labour and the complementarity between labour and energy drives its pollution-using effect (direct effect). When human capital is an essential input in the production of generic and energy dedicated knowledge, the crowding out induced by climate policy is mitigated, thought not completely offset (indirect effect). The pollution-using implications of the direct effect prevail over the indirect contribution of human capital to the creation of new and cleaner knowledge. A policy mix that combines educational as well as climate objectives offsets the human capital crowding-out with a moderate, short-term consumption loss. Human capital is complement to all forms of innovation and an educational policy stimulates both energy and general purpose innovation. This result has important policy implications considering the growing concern that effective climate policy is conditional on solid economic development and therefore it needs to be supplemented by other policy targets.
    Keywords: Climate Policy, Innovation, Human capital
    JEL: O33 O41 Q43
    Date: 2012–03
  28. By: William Brock (University of Wisconsin, Department of Economics); Gustav Engstrom (Beijer Institute of Ecological Economics); Anastasios Xepapadeas (Athens University of Economics and Business)
    Abstract: A simplified energy balance climate model is considered with the global mean temperature as the state variable, and an endogenous ice line. The movements of the ice line towards the Poles are associated with damage reservoirs where initial damages are high and then eventually vanish as the ice caps vanish and the damage reservoir is exhausted. We couple this climate model with a simple economic growth model and we show that the endogenous ice line induces a nonlinearity. This nonlinearity when combined with two sources of damages - the conventional damages due to temperature increase and the reservoir damages - generates multiple steady states and Skiba points. It is shown that the policy ramp implied by this model calls for high mitigation now. Simulation results suggest that the policy ramp could be U-shaped instead of the monotonically increasing with low starting mitigation gradualist policy ramp.
    Keywords: Energy Balance Climate Models, Damage Reservoir, Ice Line, Permafrost, Heat Diffusion, Policy Ramp, Skiba Points
    JEL: Q54 Q58
    Date: 2012–03
  29. By: Wilfried Ehrenfeld
    Abstract: In this article, we describe the results of a multiple case study on the indirect corporate innovation impact of climate change in the Central German chemical industry. We investigate the demands imposed on enterprises in this context as well as the sources, outcomes and determining factors in the innovative process at the corporate level. We argue that climate change drives corporate innovations through various channels. A main finding is that rising energy prices were a key driver for incremental energy efficiency innovations in the enterprises’ production processes. For product innovation, customer requests were a main driver, though often these requests are not directly related to climate issues. The introduction or extension of environmental and energy management systems as well as the certification of these are the most common forms of organizational innovations. For marketing purposes, the topic of climate change was hardly utilized so far. As the most important determinants for corporate climate innovations, corporate structure and flexibility of the product portfolio, political asymmetry regarding environmental regulation and governmental funding were identified.
    Keywords: climate change, innovation, chemical industry, Central Germany
    JEL: Q55 O33 O38 Q54 O31
    Date: 2012–04
  30. By: Hans Gersbach (ETH Zurich, Switzerland); Quirin Oberpriller (ETH Zurich, Switzerland)
    Abstract: We demonstrate the advantages of a climate treaty based solely on rules for international permit markets when there is uncertainty about abatement costs and environmental damages. Such a ‘Rules Treaty’ comprises a scaling factor and a refunding rule. Each signatory can freely choose the number of permits it allocates to domestic firms. For every permit so issued, an international agency is allowed to issue additional permits in accordance with the scaling factor. The agency auctions all additional permits and refunds all the revenues to the signatories according to the refunding rule. Our main finding is that for a sufficiently large scaling factor, the Rules Treaty approximates the globally optimal outcome in every state of the world. In this sense, newly arriving information is optimally processed. This is in stark contrast to treaties based on emission targets, even if countries fully comply with such targets. If countries are sufficiently homogeneous there exists, moreover, a refunding rule under which every country that abates more under the treaty than in the status quo ante can be compensated, so that all countries will participate voluntarily. If, however, countries are rather heterogeneous, some may decline to participate.
    Keywords: Rules Treaties, Target Treaties, Climate Change, Uncertainty, Global Refunding Scheme, International Permit Markets
    JEL: D81 H23 H41 Q54
    Date: 2012–04

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