nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒05‒08
twenty-six papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions By Frankel, Jeffrey A.
  2. Energy use, emissions, economic growth and trade: A Granger non-causality evidence for Malaysia By Ismail, Mohd Adib; Mawar, Murni Yunus
  3. Renewable Technologies and Risk Mitigation in Small Island Developing States (SIDS): Fiji's Electricity Sector By Matthew Dornan; Frank Jotzo
  4. Dynamic Long-Term Modelling of Generation Capacity Investment and Capacity Margins: a GB Market Case Study By Eager,D.; Hobbs, B.; Bialek, J.
  5. Estimating market power in homogenous product markets using a composed error model: application to the California electricity market By Orea, L.; Steinbuks, J.
  6. Finding the Optimal Way of Electricity Production in Pakistan By Zeshan, Muhammad
  7. The inter-relation between heating systems, ventilation systems, insulation, energy price growth rates and discount rate for different dwelling types in Flanders (Belgium): a cost and E-level analysis By Audenaert, Amaryllis; De Boeck, Liesje; Geudens, Ken; Buyle, Matthias
  8. The Energy Paradox of Sectoral Change and the Future Prospects of the Service Economy By Christian Gross; Ulrich Witt
  9. Dutch Sectoral Energy Intensity Developments in International Perspective, 1987-2005 By Peter Mulder; Henri L.F. de Groot
  10. Applications of statistical mechanics to economics: Entropic origin of the probability distributions of money, income, and energy consumption By Victor M. Yakovenko
  11. Petro populism By Egil Matsen, Gisle J. Natvik and Ragnar Torvik
  12. Volatility Spillover, Interdependence, Comovements across GCC, Oil and U.S. Markets and Portfolio Management Strategies in a Regime-Changing Environment By A. Khalifa; S. Hammoudeh; Edoardo Otranto
  13. INCREASING RETURN TO SMART CITIES By Lööf, Hans; Nabavi, Pardis
  14. A model of coopetitive game for the environmental sustainability of a global green economy By Carfì, David; Schilirò, Daniele
  15. Centralization and Accountability: Theory and Evidence from the Clean Air Act By Boffa, F.; Piolatto, A.; Ponzetto, G.A.M.
  16. Synergies and Trade-offs between Climate and Local Air Pollution: Policies in Sweden By Bonilla, Jorge; Coria, Jessica; Sterner, Thomas
  17. Expert Elicitation of the Value per Statistical Life in an Air Pollution Context By Hammitt, James; Roman, Henry; Stieb, David; Walsh, Tyra
  18. Is There an Environmental Kuznets Curve for Bangladesh? By Faridul, Islam; Muhammad, Shahbaz
  19. Sustainable Cooperation in Global Climate Policy: Specific Formulas and Emission Targets By Bosetti, Valentina; Frankel, Jeffrey A.
  20. An introduction to the Carbon Farming Initiative: Key principles and concepts By Andrew Macintosh; Lauren Waugh
  21. Maximum Carbon Taxes in the Short Run By Richard Tol
  22. The Role of Green Fiscal Mechanisms in Developing Countries: Lessons Learned: Case Study By Sophia Peters
  23. Environmental Policy and Directed Technological Change: Evidence from the European Carbon Market By Raphael Calel; Antoine Dechezleprêtre
  24. Super-Additionality: A Neglected Force in Markets for Carbon Offsets By Bento, Antonio; Kanbur, Ravi; Leard, Benjamin
  25. Indicators to Assess the Effectiveness of Climate Change Projects By Nancy McCarthy; Paul Winters; Ana Maria Linares; Timothy Essam
  26. Trade Policy Implications of Carbon Labels on Food By Baddeley, Shane; Cheng, Peter; Wolfe, Robert

  1. By: Frankel, Jeffrey A. (Harvard University)
    Abstract: Countries with oil, mineral or other natural resource wealth, on average, have failed to show better economic performance than those without, often because of undesirable side effects. This is the phenomenon known as the Natural Resource Curse. This paper reviews the literature, classified according to six channels of causation that have been proposed. The possible channels are: (i) long-term trends in world prices, (ii) price volatility, (iii) permanent crowding out of manufacturing, (iv) autocratic/oligarchic institutions, (v) anarchic institutions, and (vi) cyclical Dutch Disease. With the exception of the first channel--the long-term trend in commodity prices does not appear to be downward--each of the other channels is an important part of the phenomenon. Skeptics have questioned the Natural Resource Curse, pointing to examples of commodity-exporting countries that have done well and arguing that resource exports and booms are not exogenous. The relevant policy question for a country with natural resources is how to make the best of them.
    Date: 2012–04
  2. By: Ismail, Mohd Adib; Mawar, Murni Yunus
    Abstract: This paper investigates the relationship among energy, emissions and economic growth in Malaysia with the presence of trade activities. We employ Johansen’s (1995) approach to investigate the relationship. Using annual data from 1971 to 2007, the empirical results shows that there are long-run causalities among energy, emission and economic growth, and among energy, emissions, export and capital, while the short-run Granger non-causality test shows that there are unidirectional causalities running from energy to economic growth and capital, from economic growth to capital and from emissions to export. The short-run results show that the Malaysian data support the growth hypothesis relationship between energy and economic growth, in which the conservation policies such as reduction measures in energy use will not work to improve the environment. In contrast, in the long-run, the feedback hypothesis is observed. Therefore, we suggest the policy makers in Malaysia to focus on long-run conservation policies.
    Keywords: Emissions; Economic growth; Export; VECM; Causality; Impulse-response function; Malaysia
    JEL: C32 Q50 Q43
    Date: 2012
  3. By: Matthew Dornan (Development Policy Centre, Crawford School of Public Policy, The Australian National University); Frank Jotzo (Crawford School of Public Policy, The Australian National University.)
    Abstract: In recent years, renewable energy technologies have been advocated in Small Island Developing States (SIDS) in the Pacific as a risk-mitigation measure against oil price volatility. Despite this, there have been no attempts to measure the impact of renewable technologies on financial risk in these countries. This paper develops and applies a stochastic simulation model in order to assess the effect of renewable technologies on the financial risk and cost of electricity supply in Fiji. The modelling results support investments in some, although not all, renewable technologies. Investments in low-cost, low-risk technologies such as energy efficiency, geothermal, biomass and bagasse technologies are found to lower both portfolio generation costs and financial risk. This suggests the Government of Fiji should be encouraging further investment in these technologies, commensurate with increases in total electricity supply. It also suggests that the FEA should prioritise such investments over its planned expansion of hydro-power generation. Renewable technology investments in other SIDS in the Pacific are likely to involve similar risk mitigation benefits.
    Keywords: renewables, Pacific, Fiji, risk mitigation
    JEL: Q20 Q40 Q42 N57
    Date: 2012–02
  4. By: Eager,D.; Hobbs, B.; Bialek, J.
    Abstract: Many governments who preside over liberalised energy markets are developing policies aimed at promoting investment in renewable generation whilst maintaining the level of security of supply customers have come to expect. Of particular interest is the mix and amount of generation investment over time in response to policies promoting high penetrations of variable output renewable power such as wind. Modelling the dynamics of merchant generation investment in market environments can inform the debate. Such models need improved methods to calculate expected output, costs and revenue of thermal generation subject to varying load and random independent thermal outages in a power system with high penetrations of wind. This paper presents a dynamic simulation model of the aggregated Great Britain (GB) generation investment market. The short-term energy market is simulated using probabilistic production costing based on the Mix of Normals distribution technique with a residual load calculation (load net of wind output). Price mark-ups due to market power are accounted for. These models are embedded in a dynamic model in which generation companies use a Value at Risk (VaR) criterion for investment decisions. An `energy-only' market setting is used to estimate the economic profitability of investments and forecast the evolution of security of supply. Simulated results for the GB market case study show a pattern of increased relative security of supply risk during the 2020s. In addition, fixed cost recovery for many new investments can only occur during years in which more frequent supply shortages push energy prices higher. A sensitivity analyses on a number of key model assumptions provides insight into factors affecting the simulated timing and level of generation investment. This is achieved by considering the relative change in simulated levels of security of supply risk metric such as de-rated capacity margins and expected energy unserved. The model can be used as a decision support tool in policy design, in particular how to address the increased `energy-only market revenue risk facing thermal generation, particularly peaking units, that rely on a small number of high price periods to recover fixed costs and make adequate returns on investment.
    Keywords: Power generation economics, Mix of Normals distribution, Thermal power generation, Wind power generation.
    JEL: O13 P4 Q4
    Date: 2012–04–25
  5. By: Orea, L.; Steinbuks, J.
    Abstract: This study contributes to the literature on estimating market power in homogenous product markets. We estimate a composed error model, where the stochastic part of the firm’s pricing equation is formed by two random variables: the traditional error term, capturing random shocks, and a random conduct term, which measures the degree of market power. Treating firms’ conduct as a random parameter helps solving the issue that the conduct parameter can vary between firms and within firms over time. The empirical results from the California wholesale electricity market suggest that realization of market power varies over both time and firms, and reject the assumption of a common conduct parameter for all firms. Notwithstanding these differences, the estimated firm-level values of the conduct parameter are closer to Cournot than to static collusion across all specifications. For some firms, the potential for realization of the market power unilaterally is associated with lower values of the conduct parameter.
    Keywords: market power, random conduct parameter, composed error model, asymmetric distributions, California electricity market
    JEL: C34 C51 L13 L94
    Date: 2012–04–25
  6. By: Zeshan, Muhammad
    Abstract: Present study reveals the impact of electricity production on economic growth in Pakistan. It covers the period of 1975-2010 and assumes a log-linear relationship between the variables. Both the bounds test and Johansen test for cointegration indicate a unique long-run relationship between the variables. However; higher tariff rates, associated with thermal power plants, are eroding the private business investment in short-run. Based on these facts, this study advocates the promotion of hydropower plants that are beneficial for two reasons. First, it would produce clean power in the country. Second, cost of production would also drop resulting in lower tariff rates. Finally; it finds bi-directional causal relationship between the variables in long-run, whereas no causal relationship has been found in short-run.
    Keywords: Hydropower; Cointegration; Causality
    JEL: Q42
    Date: 2012–04–01
  7. By: Audenaert, Amaryllis (Artesis Hogeschool Antwerpen, Universiteit Antwerpen); De Boeck, Liesje (Hogeschool-Universiteit Brussel (HUB)); Geudens, Ken (Universiteit Antwerpen); Buyle, Matthias (Artesis Hogeschool Antwerpen)
    Abstract: Enhancing energy performance of buildings remains key in order to achieve the European Union climate and energy objectives. In this context, Europe produced the Energy Performance of Buildings Directive (EPBD). This directive is converted in Flanders into the “Energy Performance and Interior Climate” (EPB). Taking into consideration the EPB requirements, this study will investigate the profitability of insulation of facade, roof, floor and glazing (moderate, high and very high insulation level), energy price growth rates (for gas, oil and electricity) and discount rate in combination with different heating systems (condensing gas boiler, non-condensing gas boiler, oil boiler, and heat pump) and ventilation systems (C and D) for three representative types of dwellings in Flanders (terraced, semi-detached and detached). To this purpose, we will compute the net present value of all related costs with respect to each scenario as well as the E-level. The analysis clearly reveals that the condensing gas boiler with heat exchanger performs best in terms of E-level and net present value of the total costs for all dwelling types. The insulation costs to obtain higher insulation levels are largely compensated by the decrease in energy costs. The discount rate largely influences the total costs and a rise in the energy price growth rate of gas or oil might cause a switch in the gas boiler or oil boilers to be the cheapest heating system in terms of total costs. The total costs in the event of using a heat pump always significantly exceed the total costs of the other heating systems, although being the second best in terms of E-level. Finally, the E-level and U-values/K-value are not aligned in the current EPB policy, resulting in too stringent E-levels.
    Keywords: cost analysis, E-level, heating system, ventilation system, dwelling type, insulation level
    Date: 2012–01
  8. By: Christian Gross; Ulrich Witt
    Abstract: Persistently rising energy prices have revived interest in the economic impact of changing energy costs. We explore the effects of these costs on sectoral change, particularly in relation to the rise and future prospects of the "service economy". Following Baumol?s cost disease hypothesis, (unexplained) productivity differentials between the industrial and service sectors are often utilized to explain the recent dominance of the service sector. We hypothesize that the productivity differential results from the respective technological opportunities for substituting energy for labor in each of the sectors. To test our hypothesis, we analyze the U.S. economy for the period from 1970 to 2005. By means of the Autoregressive Distributed Lags (ARDL) bounds test, we examine whether a cointegrating relationship exists, in a given sector, between labor productivity and variables from our model representing the technological substitution conditions. Our findings support this hypothesis. Therefore, we can conclude that productivity differentials between the sectors may vanish if, as a result of rising energy costs, the substitution incentives are likely to fade out. Such a development might put the future of the service economy at risk.
    Keywords: Sectoral Change, Energy, Technical Change, Productivity Growth, Baumol's disease
    JEL: D24 O41 O47 Q43 Q57
    Date: 2012–04–26
  9. By: Peter Mulder (VU University Amsterdam); Henri L.F. de Groot (VU University Amsterdam)
    Abstract: This paper makes use of a new dataset to investigate energy intensity developments in the Netherlands over the period 1987-2005. The dataset allows for a comparison with 18 other OECD countries. A key feature of our analysis is that we combine a cross-country perspective with a high level of sectoral detail, covering 49 sectors. Particularly innovative is our evaluation of energy intensity developments in a wide range of Service sectors. We find that across sectors energy intensity levels in the Netherlands on average decreased only marginally, and increased in Services. This performance is in general worse than the OECD average, especially between 1987 and 1995. Changes in the sectoral composition of the economy play an important role in explaining aggregate trends. In the Manufacturing sector about half of the efficiency improvements were undone by a shift towards a more energy-intensive industry structure, while in the Service sector about one-third of the decrease in efficiency was undone by a shift towards a less energy-intensive sector structure.
    Keywords: Energy Intensity; Decomposition; Sectoral Analysis
    JEL: O13 O47 O5 Q43
    Date: 2012–05–01
  10. By: Victor M. Yakovenko
    Abstract: This Chapter is written for the Festschrift celebrating the 70th birthday of the distinguished economist Duncan Foley from the New School for Social Research in New York. This Chapter reviews applications of statistical physics methods, such as the principle of entropy maximization, to the probability distributions of money, income, and global energy consumption per capita. The exponential probability distribution of wages, predicted by the statistical equilibrium theory of a labor market developed by Foley in 1996, is supported by empirical data on income distribution in the USA for the majority (about 97%) of population. In addition, the upper tail of income distribution (about 3% of population) follows a power law and expands dramatically during financial bubbles, which results in a significant increase of the overall income inequality. A mathematical analysis of the empirical data clearly demonstrates the two-class structure of a society, as pointed out Karl Marx and recently highlighted by the Occupy Movement. Empirical data for the energy consumption per capita around the world are close to an exponential distribution, which can be also explained by the entropy maximization principle.
    Date: 2012–04
  11. By: Egil Matsen, Gisle J. Natvik and Ragnar Torvik (Department of Economics, Norwegian University of Science and Technology)
    Abstract: We aim to explain petro populism–the excessive use of oil revenues to buy political support. To reap the full gains of natural resource income politicians need to remain in office over time. Hence, even a purely rent-seeking incumbent who only cares about his own welfare, will want to provide voters with goods and services if it promotes his probability of remaining in office. While this incentive benefits citizens under the rule of rent-seekers, it also has the adverse effect of motivating benevolent policymakers to short-term overprovision of goods and services. In equilibrium politicians of all types indulge in excessive resource extraction, while voters reward policies they realize cannot be sustained over time. Our model explains how resource wealth may generate political competition that reduces the tenability of equilibrium policies.
    Date: 2012–04–30
  12. By: A. Khalifa; S. Hammoudeh; Edoardo Otranto
    Abstract: This study examines the volatility transmissions across the Gulf Arab states (GCC) stock markets and the linkages between these markets and the United States stock and oil markets, using the Multi-chain Markov Switching model. This approach enables the distinction between different transmission types including volatility spillover, interdependence, comovements and independence. The results demonstrate the presence of different transmissions between the markets and that the type of transmission is highly sensitive to the state of the economy characterized by turbulence or tranquility. They support strong interdependence between the oil price, the U.S. S&P 500 index, Saudi Arabia and Abu Dhabi. There is also a strong spillover from the U.S. S&P 500 index to Oman and Kuwait, but interdependence with Dubai. There are also different diversification opportunities between the GCC markets. Policy implications on portfolio strategies under different states are also discussed.
    Keywords: GCC markets; S&P 500; Oil price; Multi-chain MS model; Volatility Transmissions
    JEL: C32 G11 G15
    Date: 2012
  13. By: Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Nabavi, Pardis (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: The UN estimates that 70% of the world's growing population will live in cities by 2050. How will this affect climate change, economic growth and economic equality? The first conclusion in this paper is that the growing urban population and increased spatial density create opportunities for policy measures that could limit or reduce carbon emissions. Second, the economic importance of technological spillover, human capital externalities and innovation may have become more important over time. Since all these three factors are positively related to proximity, the implication is that the city's economic importance as a growth engine has become even stronger. The final conclusion is that the distribution of the value added will remain skewed also in the more populated and possible more productive cities.
    Keywords: Agglomeration economies; climate change; innovation; growth
    JEL: O18 O31 Q54 Q55 R11
    Date: 2012–04–27
  14. By: Carfì, David; Schilirò, Daniele
    Abstract: The present paper provides a model of coopetitive game for environmental sustainability of a global green economy, looking for a win-win solution within a complex construct of a type originally devised by Branderburger and Nalebuff. The model here suggested is environmental sustainable since it should lead to maintain natural capital, by using mainly renewable resources. In addition, this model of coopetitive games for environmental sustainability aims at reducing emissions of greenhouse gases, determining the reduction of global pollution, in this way it contributes to the establishment of a sustainable and lasting global green economy. Finally, the model determines a change in the patterns of consumption of households towards goods and human behaviors with a lower environmental impact. So the coopetitive strategy, in our model, consists in implementing a set of policy decisions, whose purpose is to be environmental sustainable and to enforce the global green economy. This is why the coopetitive variable is represented by a set of variables that together guarantee the achievement of the environmental sustainability of a global green economy. Thus, this original model aims to enrich the set of tools for environmental policies.
    Keywords: Cooopetitive Games; Coopetition; Environmental Sustainability; Global Green Economy
    JEL: Q42 Q30 C78 C71 Q56 Q20 Q58 C72
    Date: 2012–05
  15. By: Boffa, F.; Piolatto, A.; Ponzetto, G.A.M. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: This paper studies fiscal federalism when voter information varies across regions. We develop a model of political agency with heterogeneously informed voters. Rentseeking politicians provide public goods to win the votes of the informed. As a result, rent extraction is lower in regions with higher information. In equilibrium, electoral discipline has decreasing returns. Thus, political centralization e¢ ciently reduces aggregate rent extraction. The model predicts that a region's benefits from centralization are decreasing in its residents' information. We test this prediction using panel data on pollutant emissions across U.S. states. The 1970 Clean Air Act centralized environ- mental policy at the federal level. In line with our theory, we find that centralization induced a differential decrease in pollution for uninformed relative to informed states.
    Keywords: Political centralization;Government accountability;Imperfect information;Interregional heterogeneity;Elections;Environmental policy;Air pollution .
    JEL: D72 D82 H73 H77 Q58
    Date: 2012
  16. By: Bonilla, Jorge (Department of Economics, School of Business, Economics and Law, Göteborg University); Coria, Jessica (Department of Economics, School of Business, Economics and Law, Göteborg University); Sterner, Thomas (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: In this paper, we explore the synergies and tradeoffs between abatement of global and local pollution. We built a unique dataset of Swedish heat and power plants with detailed boiler-level data 2001-2009 on not only production and inputs but also emissions of CO2 and NOx. Both pollutants are subject to strict policies in Sweden. CO2 is subject to multiple levels of governance using environmental instruments such as the EU ETS and Swedish carbon taxes; NOx – as a precursor of acid rain and eutrophication – is regulated by a heavy fee. Using a quadratic directional output distance function, we characterize changes in technical efficiency as well as patterns of substitutability in response to the policies mentioned. The fact that generating units face a trade-off between the pollutants indicates a need for policy coordination.<p>
    Keywords: Interaction of environmental policies; shadow pricing; directional distance function; climate change; local pollution.
    JEL: H23 L51 L94 L98 Q48
    Date: 2012–04–30
  17. By: Hammitt, James; Roman, Henry; Stieb, David; Walsh, Tyra
    Abstract: The monetized value of avoided premature mortality typically dominates the calculated benefits of air pollution regulations; therefore, characterization of the uncertainty surrounding these estimates is key to good policymaking. Formal expert judgment elicitation methods are one means of characterizing this uncertainty. They have been applied to characterize uncertainty in the mortality concentration-response function, but have yet to be used to characterize uncertainty in the economic values placed on avoided mortality. We report the findings of a pilot expert judgment study for Health Canada designed to elicit quantitative probabilistic judgments of uncertainties in Value-per-Statistical-Life (VSL) estimates for use in an air pollution context. The two-stage elicitation addressed uncertainties in both a base case VSL for a reduction in mortality risk from traumatic accidents and in benefits transferrelated adjustments to the base case for an air quality application (e.g., adjustments for age, income, and health status). Results for each expert were integrated to develop example quantitative probabilistic uncertainty distributions for VSL that could be incorporated into air quality models.
    Keywords: Value per statistical life, air pollution, expert judgment, uncertainty analysis
    Date: 2012–01
  18. By: Faridul, Islam; Muhammad, Shahbaz
    Abstract: The Environmental Kuznets Curve (EKC) posits that environmental degradation increases at the initial stages, but declines as the economy achieves a certain level of economic growth, measured in per capita income terms. This postulated relation produces an inverted Ushaped curve. The topic has drawn much research attention for both developed and emerging economies. Over the past few decades Bangladesh has been achieving remarkable rates of economic growth. A dense population along with a growing industrial base has raised the specter of a looming environmental crisis. The present study empirically investigates the EKC hypothesis for Bangladesh using data from 1971 to 2010. The Autoregressive distributed lag (ARDL) approach to cointegration has been implemented for a long run relation; and the Granger causality within the vector error correction model (VECM) for the short run dynamics. The series are found to be cointegrated. We find that energy consumption is a major contributor to CO2 emissions. Trade openness improves environment, but urbanization worsens it. Economic growth, energy consumption, trade and urbanization Granger cause CO2 emissions. Knowledge of the existence of an EKC relation can help craft appropriate policies to promote economic growth and identify the turning point, and help preserve the environment.
    Keywords: EKC; ARDL; VECM; Bangladesh
    JEL: Q5
    Date: 2012–04–16
  19. By: Bosetti, Valentina (Fondazione Eni Enrico Mattei); Frankel, Jeffrey A. (Harvard University)
    Abstract: We explore a framework that could be used to assign quantitative allocations of emissions of greenhouse gases (GHGs), across all countries, one budget period at a time, as envisioned at the December 2011 negotiations in Durban. 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 2009 and confirmed at the Cancun meeting of December 2010. 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: 2012–04
  20. By: Andrew Macintosh; Lauren Waugh
    Abstract: Carbon-based border tax adjustments (BTAs) have recently been proposed by some OECD countries to level the carbon playing field and target major emerging economies. This paper applies a multi-sector dynamic computable general equilibrium (CGE) model to estimate the impacts of the BTAs implemented by US and EU on ChinaÕs sectoral carbon emissions. The results indicate that BTAs will cut down export prices and transmit the effects to the whole economy, reducing sectoral output-demands from both supply side and demand side. On the supply side, sectors might substitute away from exporting toward domestic market, increasing sectoral supply; while on the demand side, the domestic income may be strikingly cut down due to the decrease in export price, decreasing sectoral demand. Furthermore, such shrinkage of demand may similarly reduce energy prices, which leads to energy substitution effect and somewhat stimulates carbon emissions. Depending on the relative strength of the output-demand effect and energy substitution effect, sectoral carbon emissions and energy demands will vary across sectors, with increasing, decreasing or moving in a different direction. These results suggest that an incentive mechanism to encourage the widespread use of environment-friendly fuels and technologies will be more effective.
    Date: 2012–03
  21. By: Richard Tol (Department of Economics, University of Sussex, Institute for Environmental Studies and Department of Spatial Economics, Vrije Universiteit, Amsterdam)
    Abstract: A cap is imposed on the carbon tax rate if the total tax revenue is not allowed to increase. Using recent data on the carbon-intensity of the economy and the overall tax take, I show that this cap constrains almost any climate policy in at least some countries. A larger number of countries, emitting a substantial share of global carbon dioxide, cannot fully participate if the carbon tax (or equivalent alternative regulation) is high enough to meet the 2ºC target. For that target, the carbon tax revenue in 2020 is greater than 10% of total tax revenue in every country.
    Keywords: climate policy, carbon tax, target setting
    JEL: H21 Q54
    Date: 2012–04
  22. By: Sophia Peters
    Abstract: With an eye toward the Latin American and Caribbean (LAC) Region, this case study provides a practical guide to fiscal instruments that can promote climate change agendas, focusing on lessons learned from country experiences implementing these mechanisms. As most countries have historically relied on regulatory instruments to meet environmental goals, there are few documented studies of green fiscal policies in developing countries. This case study aims to add to that literature. The paper is divided into the following sections. It first discusses the role of fiscal policy in national climate change programming. It then analyzes the fiscal mechanisms used to promote climate change agendas, drawing on developing country cases. It continues to discuss the challenges that the Latin American context poses for green fiscal policy. Finally, it concludes with lessons learned and recommendations from country experiences implementing these mechanisms.
    Keywords: Environment & Natural Resources :: Climate Change, Economics :: Fiscal Policy, Economics :: Monetary Policy, Energy & Mining :: Renewable Energy, Lessons Learned, Green Fiscal Policy, carbon tax, tax policies, fuel taxes, feed-in tariffs,
    Date: 2012–03
  23. By: Raphael Calel; Antoine Dechezleprêtre
    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: O31 Q55 Q58
    Date: 2012–04
  24. By: Bento, Antonio; Kanbur, Ravi; Leard, Benjamin
    Abstract: Climate change mitigation programs classify two types of carbon offsets: Additional and non-additional. Additional offsets are offsets that correspond to actual reductions in emissions. In contrast, non-additional offsets are offsets that do not correspond to emissions reductions. These offsets are created because offset projects with business-as-usual (BAU) emissions below their assigned baseline can claim offsets up to the baseline without reducing emissions. Since the sale and use of non-additional offsets by firms in climate mitigation programs has the effect of raising aggregate emissions, an extraordinary amount of focus has been on ensuring that offsets are additional. However, we show here that there is an emissions component that has been neglected in current policy design. This component, which we call Super-additional reductions, are emissions reductions which do not lead to a supply of offsets. Super-additional reductions arise from offset projects with BAU emissions above their baseline. These projects are awarded a quantity of offsets that is lower than the project's emissions reductions. The presence of such emissions reductions without supply of equivalent offsets has the effect of lowering aggregate emissions and lessening the impact of non-additional offsets. Our numerical simulations show that super-additional reductions can be as large as the supply of non-additional offsets, and in some scenarios can even exceed them. Neglecting this component during the climate policy design process can lead to the setting of overly stringent baselines or other policy instruments, ultimately raising the compliance costs of achieving emissions reduction targets.
    Keywords: Additionality and Non-Additionality; Baseline Emissions; Carbon Offsets; Economic Compliance Costs; Emissions targets; Super-Additionality
    JEL: Q52 Q54
    Date: 2012–04
  25. By: Nancy McCarthy; Paul Winters; Ana Maria Linares; Timothy Essam
    Abstract: Determining reasonable indicators for climate change projects is complicated by the long-term horizon of both mitigation and adaptation project impacts as well as the uncertainty associated with climate change impacts. Actions taken now are often designed to have an impact in the uncertain and distant future and may not directly mitigate or adapt to climate change, but be taken as a step to prepare for future actions. Further complicating identification of indicators is the fact that there is a spectrum of projects, from the pure climate change-focused projects to those that provide climate change benefits as one part of an overall development program, and finally to those with only incidental indirect effects. The objective of this document is to discuss SMART (Specific, Measurable, Achievable, Realistic and Timely) indicators that can be used for assessing the impact of climate change projects, including those that seek to adapt to the expected impacts of climate change and those that promote low carbon emissions growth strategies to mitigate greenhouse gases.
    Keywords: climate chance, indicators, development effectiveness, impact evaluation
    JEL: H43 Q54 Q56
    Date: 2012–04
  26. By: Baddeley, Shane; Cheng, Peter; Wolfe, Robert
    Abstract: Despite the presence of food miles labels and carbon labels on the market for many years, relatively little data is available on how consumers respond to these labels. It is one thing to show people saying in surveys they will use carbon labels, and quite another to have evidence of people actually using them. Carbon labels could be complicated to develop and implement fairly, with significant burdens on producers, especially in developing countries. If the only problem that a carbon label solves is relieving the bad conscience of rich western consumers, then they will be a disaster. Tackling climate change is too urgent to waste time and resources on anything that may prove to be a sideshow.
    Keywords: trade, policy carbon, labels, wto, Agricultural and Food Policy, International Relations/Trade,
    Date: 2011–10

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