nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒05‒22
thirty papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Technological Change and Energy Demand in Europe By Kurt Kratena; Michael Wüger
  2. The Smart Grid, Entry, and Imperfect Competition in Electricity Markets By Hunt Allcott
  3. The extent of European power markets By Böckers, Veit; Heimeshoff, Ulrich
  4. Electricity price modeling and asset valuation: a multi-fuel structural approach By Rene Carmona; Michael Coulon; Daniel Schwarz
  5. Semi-parametric forecasting of Spikes in Electricity Prices By Adam E Clements; Joanne Fuller; Stan Hurn
  6. The Valuation of Clean Spread Options: Linking Electricity, Emissions and Fuels By Rene Carmona; Michael Coulon; Daniel Schwarz
  7. Integration of intermittent renewable power supply using grid-connected vehicles: A 2030 case study for California and Germany By Dallinger, David; Schubert, Gerda; Wietschel, Martin
  8. Renewables in the energy transition: Evidence on solar home systems and lighting fuel choice in Kenya By Lay, Jann; Ondraczek, Janosch; Stöver, Jana
  9. The Impact of Ethanol Production on U.S. and Regional Gasoline Markets: An Update to 2012 By Xiaodong Du; Dermot J. Hayes
  10. Super-cycles of commodity prices since the mid-ninteenth century By Bilge Erten
  11. Non-Renewable but Inexhaustible – Resources in an Endogenous Growth Model By Martin Stürmer; Gregor Schwerhoff
  12. Fiscal Institutions in Resource-Rich Economies: Lessons from Chile and Norway By Klaus Schmidt-Hebbel
  13. The Resource Curse and Rent-Seeking in Angola By Carlos P. Barros
  14. Designing and Constructing an Exemplar Zero Carbon Primary School in the City of Exeter, United Kingdom By Arthur Tatchell
  15. Macroeconomic Effects of the German Government’s Building Rehabilitation Program By Kronenberg, Tobias; Kuckshinrichs, Wilhelm; Hansen, Patrick
  16. Heterogeneity in the Effect of Home Energy Audits – Theory and Evidence By Manuel Frondel; Colin Vance
  17. Toward low carbon mobility : Tackling road transport emissions By Rémi Russo; Virginie Boutueil
  18. Greenhouse Gas Emissions and Price Elasticities of Transport Fuel Demand in Belgium By Tom Schmitz
  19. The Carbon Dioxide Emissions of Firms: A Spatial Analysis By Matthew A. Cole; Robert J R Elliott; Toshihiro Okubo; Ying Zhou
  20. "Guaranteed Green Jobs: Sustainable Full Employment" By Antoine Godin
  21. Is There a Pollution Haven Effect? Evidence from a Natural Experiment in China By Lu, Yi; Wu, Mingqin; Yu, Linhui
  22. Do "green" state measures make import patterns "climate-friendly"? The case of the Asia-Pacific region By Martin Wermelinger
  23. An Emissions Trading Scheme with Auctioning By Corina Haita
  24. Domestic Pigouvian Taxation and Technological Spillovers under International Emissions Trading By Amanda Spisto
  25. Climate Change Policies in Poland: Minimising Abatement Costs By Balázs Égert
  26. Indicators to Assess the Effectiveness of Climate Change Projects By Nancy McCarthy; Paul Winters; Ana María Linares; Timothy Essam
  27. Narrowing the Gaps through Regional Cooperation Institutions and Governance Systems By Wyes, Heinrich-Wilhelm; Lewandowski, Michael
  28. Participation Games and international environmental agreements: a nonparametric model By Karp, Larry; Simon, Leo
  29. International Environmental Agreements with Mixed Strategies and Investment By Hong, Fuhsai; Karp, Larry
  30. The Political economy of environmental policy with overlapping generations By Karp, Larry; Rezai, Amon

  1. By: Kurt Kratena (WIFO); Michael Wüger (WIFO)
    Abstract: The aim of this paper is the econometric analysis of embodied and induced technological change that reduces energy input and CO2 emissions in production. For this purpose, a model of unit costs and factor demand for 35 industries in 23 EU countries has been set up, based on the World Input-Output Database (WIOD). The deterministic trend usually applied for describing the factor bias for energy is replaced by a mixed term of energy efficiency of physical production capacity and a trend in three energy intensive industries. This new variable for energy saving technological change is linked to the vintage structure of installed capital. By this link technological change becomes induced, if capital and energy are substitutes. If energy and capital are complements, this technological change can only be enforced by measures that accelerate the path of renovating the capital stock. Within the three energy intensive industries we identify one, where induced technological change is energy saving, but energy and capital are complements (pulp and paper), one where energy and capital are very weak substitutes, but technological change is energy using (non-metallic minerals) and one, where energy and capital are substitutes and technological change is energy saving (basic metals). Only in this latter case, price induced technological change can contribute significantly to fossil energy and emission reduction.
    Keywords: embodied and induced technological change, vintage models, emission mitigation policies
    Date: 2012–05–08
  2. By: Hunt Allcott
    Abstract: Most US consumers are charged a near-constant retail price for electricity, despite substantial hourly variation in the wholesale market price. The Smart Grid is a set of emerging technologies that, among other effects, will facilitate "real-time pricing" for electricity and increase price elasticity of demand. This paper simulates the effects of this increased demand elasticity using counterfactual simulations in a structural model of the Pennsylvania-Jersey-Maryland electricity market. The model includes a different approach to the problem of multiple equilibria in multi-unit auctions: I non-parametrically estimate unobservables that rationalize past bidding behavior and use learning algorithms to move from the observed equilibrium counterfactual bid functions. This routine is nested as the second stage of a static entry game that models the Capacity Market, an important element of market design in some restructured electricity markets. There are three central results. First, I find that an increase in demand elasticity could actually increase wholesale electricity prices in peak hours, contrary to predictions from short run models, while decreasing Capacity Market prices and total entry. Second, although the increased demand elasticity from the Smart Grid reduces producers' market power, in practice this would be a small channel of efficiency gains relative to forestalled entry. Third, I find that the gross welfare gains from moving a typical consumer to the Smart Grid, under the assumed demand parameters and before subtracting out the initial infrastructure costs, are about 10 percent of the consumer's total wholesale electricity costs.
    JEL: D24 D43 D44 L10 L51 L94 Q4 Q41
    Date: 2012–05
  3. By: Böckers, Veit; Heimeshoff, Ulrich
    Abstract: This paper analyzes the convergence process of Central-West European wholesale electricity markets from 2004 to the beginning of 2011. Jevon's law of price indifference is scrutinized using price correlation, parametric and nonparametric tests of price-differences and cointegration analysis. As a unique identifaction strategy national bank holidays are used as exogenous system shocks to trace the degree of market integration before the advent of the so-called market coupling of European power markets. In order to avoid overestimation of the degree of market integration, we specifically control for seasonal effects and common input factors. While the overall degree of integration between Germany and its neighbours has increased in the course of time, results suggest that only Austria and Germany already constitute a joint price area and that market coupling increases the convergence of markets at least between its participants. --
    Keywords: Market Structure,Spatial Market Delineation,Time Series Econometrics,Energy Data, Electricity,Europe
    JEL: C32 L1 L40 L94 Q40
    Date: 2012
  4. By: Rene Carmona; Michael Coulon; Daniel Schwarz
    Abstract: We introduce a new and highly tractable structural model for spot and derivative prices in electricity markets. Using a stochastic model of the bid stack, we translate the demand for power and the prices of generating fuels into electricity spot prices. The stack structure allows for a range of generator efficiencies per fuel type and for the possibility of future changes in the merit order of the fuels. The derived spot price process captures important stylized facts of historical electricity prices, including both spikes and the complex dependence upon its underlying supply and demand drivers. Furthermore, under mild and commonly used assumptions on the distributions of the input factors, we obtain closed-form formulae for electricity forward contracts and for spark and dark spread options. As merit order dynamics and fuel forward prices are embedded into the model, we capture a much richer and more realistic dependence structure than can be achieved by classical reduced-form models. We illustrate these advantages by comparing with Margrabe's formula and a simple cointegration model, and highlight important implications for the valuation of power plants.
    Date: 2012–05
  5. By: Adam E Clements (QUT); Joanne Fuller (QUT); Stan Hurn (QUT)
    Abstract: The occurrence of extreme movements in the spot price of electricity represent a significant source of risk to retailers. Electricity markets are often structured so as to allow retailers to purchase at an unregulated spot price but then sell to consumers at a heavily regulated price. As such, the ability to forecast price spikes is an important aspect of effective risk management. A range of approaches have been considered with respect to modelling electricity prices, including predicting the trajectory of spot prices, as well as more recently, focusing of the prediction of spikes specifically. These models however, have relied on time series approaches which typically use restrictive decay schemes placing greater weight on more recent observations. This paper develops an alternative, semi-parametric method for forecasting that does not rely on this convention. In this approach, a forecast is a weighted average of historical price data, with the greatest weight given to periods that exhibit similar market conditions to the time at which the forecast is being formed. Weighting is determined by comparing short-term trends in electricity price spike occurrences across time, including other relevant factors such as load, by means of a multivariate kernel scheme. It is found that the semi-parametric method produces forecasts that are more accurate than the previously identified best approach for a short forecast horizon.
    Keywords: Electricity Prices, Prices Spikes, Semi-parametric, Multivariate Kernel
    JEL: C14 C53
    Date: 2012–05–16
  6. By: Rene Carmona; Michael Coulon; Daniel Schwarz
    Abstract: The purpose of the paper is to present a new pricing method for clean spread options, and to illustrate its main features on a set of numerical examples produced by a dedicated computer code. The novelty of the approach is embedded in the use of structural models as opposed to reduced-form models which fail to capture properly the fundamental dependencies between the economic factors entering the production process.
    Date: 2012–05
  7. By: Dallinger, David; Schubert, Gerda; Wietschel, Martin
    Abstract: This paper describes a method to characterize the fluctuating electricity generation of renewable energy sources (RES) in a power system and compares the different parameters for California and Germany. Based on this method describing the fluctuation and residual load, the potential contribution of grid-connected vehicles to balancing generation from renewable energy sources is analyzed for a 2030 scenario using the agent-based simulation model PowerACE. The analysis reveals that integrating fluctuating RES is possible with less effort in California because of a higher correlation between RES generation and the load curve here. In addition, RES capacity factors are higher for California and therefore the ratio of installed capacity to peak load is lower. Germany, on the other hand, faces extreme residual load changes between periods with and without supply from RES. In both power system scenarios, grid-connected vehicles play an important role in reducing residual load fluctuation if smart charging is used. Uncontrolled charging or static time-of-use tariffs do not significantly improve the grid integration of RES. --
    Date: 2012
  8. By: Lay, Jann; Ondraczek, Janosch; Stöver, Jana
    Abstract: We study the determinants of households' choices of lighting fuels in Kenya including the option of using solar home systems (SHS). Our goal is to add new evidence on the factors that influence the introduction and adoption of decentralized and less carbon-intensive energy sources in developing countries, and, more generally, to the empirical debate on the energy ladder. We capitalize on a unique representative survey on energy use and sources from Kenya, one of the few relatively well-established SHS markets in the world. Our results reveal some very interesting patterns of the fuel transition in the context of lighting fuel choices. While we find clear evidence for a cross-sectional energy ladder, the income threshold for modern fuel use - including solar energy use - to move beyond traditional and transitional fuels is very high. Income and education turn out to be key determinants of SHS adoption, but we also find a very pronounced effect of SHS clustering, i.e. the prevalence of SHS systems in the proximity of a potential user increases the likelihood of adoption. In addition, we do not find a negative correlation between grid access and SHS use. --
    Keywords: renewable energy,household fuel choice,lighting fuel choice,solar power use,solar home systems,Kenya,energy ladder,KIHBS
    JEL: D12 O12 Q42
    Date: 2012
  9. By: Xiaodong Du; Dermot J. Hayes (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI))
    Abstract: We update the findings of the impact of ethanol production on U.S. and regional gasoline markets as reported previously in Du and Hayes (2009 and 2011), by extending the data to December 2011. The results indicate that over the period of January 2000 to December 2011, the growth in ethanol production reduced wholesale gasoline prices by $0.29 per gallon on average across all regions. The Midwest region experienced the biggest negative impact of $0.45/gallon, while the regions of East Coast, West Coast, and Gulf Coast experienced negative impacts of similar magnitudes around $0.20/gallon. Based on the data of 2011 only, the marginal impacts on gasoline prices are found to be substantially higher given the increasing ethanol production and higher crude oil prices. The average effect across all regions increases to $1.09/gallon and the regional impact ranges from $0.73/gallon in the Gulf Coast to $1.69/gallon in the Midwest.
    Date: 2012–05
  10. By: Bilge Erten
    Abstract: Decomposition of real commodity prices suggests four super-cycles during 1865-2009 ranging between 30-40 years with amplitudes 20-40 percent higher or lower than the long-run trend. Non-oil price super-cycles follow world GDP, indicating they are essentially demand-determined; causality runs in the opposite direction for oil prices. The mean of each super-cycle of non-oil commodities is generally lower than for the previous cycle, supporting the Prebisch-Singer hypothesis. Tropical agriculture experienced the strongest and steepest long-term downward trend through the twentieth century, followed by non-tropical agriculture and metals, while real oil prices experienced a long-term upward trend, interrupted temporarily during the twentieth century.
    Keywords: Super-cycles, commodity prices, band-pass filters, Prebisch-Singer hypothesis
    JEL: C22 E3 Q02
    Date: 2012–02
  11. By: Martin Stürmer (Institute for International Economic Policy (IIW), University of Bonn); Gregor Schwerhoff (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: This paper proposes an endogenous growth model with an essential non-renewable resource, where economic growth enables firms to invest in innovation in the extraction technology and to allocate more capital to resource extraction. Innovation in the extraction technology offsets the deterioration of ore qualities and keeps the production costs of the non-renewable resource constant. Aggregate output as well as production and use of the non-renewable resource increase exponentially. Our model explains the long-run trends of non-renewable resource prices and world production over more than 200 years. If historical trends in technological progress and in the deterioration of ore qualities continue, it is in the realm of possibility that non-renewable resources are de facto inexhaustible. Our results suggest that the industrialization in China and other emerging economies contributes to keeping non-renewable resource prices constant in the long run.
    Keywords: Non-Renewable Resources, Endogenous Growth, Extraction Technology
    JEL: O44 Q32 Q33
    Date: 2012–05
  12. By: Klaus Schmidt-Hebbel
    Abstract: Resource-rich economies in general, and Arab oil exporters in particular, are at a critical juncture, facing the challenge of revamping their fiscal policy institutions and conduct to strengthen macroeconomic and financial stability, raise growth, and improve intra/inter-generational equity. This paper starts by reviewing the international evidence on fiscal policies and outcomes in resource-rich economies at large and Arab oil-exporting countries in particular, which suggests that strong fiscal (and political) institutions can turn the resource curse into a blessing. Then the paper provides comparative reviews of Chile’s and Norway’s decade-long experience in setting up new fiscal institutions and rules to manage their resource rents, aiming at and, in fact, attaining more macroeconomic and financial stability, higher growth, and improved equity. Specific reform lessons to strengthen fiscal institutions and policies are drawn for resource-rich economies and Arab oil exporters.
    Keywords: Fiscal institutions, Fiscal rules, Resource-rich economies, Chile, Norway
    JEL: E61 E62 E63 H61
    Date: 2012
  13. By: Carlos P. Barros
    Abstract: This paper analyses the resource curse and rent-seeking behaviour, aiming to advance the understanding of chronic poverty and underdevelopment in Angola. The paper presents a profile of Angola in terms of its politics, resources, economy and society. We find a paradox in the way that the country is currently being run. On one hand, it is adhering to sound macroeconomic policies, prescribed and drawn up by the IMF, partly intended to confront a “rentier state” characterised by widespread, high-level corrupt practices, such as nepotism. These are fuelled by the vast revenues that flow into Angola from its chief export, oil. At the same time, the majority of Angola?s population live in various degrees of poverty. On the other hand, political power is concentrated in the possession of a neopatrimonialist regime that is unlikely to change the status quo of its own volition in favour of a greater transparency and efforts to achieve a more equitable distribution of wealth and social inclusion. Policy implications are derived.
    Keywords: Angola; rent seeking
    Date: 2012–02
  14. By: Arthur Tatchell
    Abstract: Montgomery Primary School is the UK's first "zero carbon" in use and "climate-change-ready" exemplar school built to the Passivhaus standard. Its design and solar generating electrical power plant enable its electricity bill to be zero each year.
    Keywords: climate change, zero carbon, sustainable, passive design, energy demand
    Date: 2012–04
  15. By: Kronenberg, Tobias; Kuckshinrichs, Wilhelm; Hansen, Patrick
    Abstract: The German government maintains programs providing financial support for the rehabilitation of buildings with the aim of reducing energy consumption and greenhouse gas emissions in the building sector. Lately, these programs have received additional attention for three reasons: First, the government’s new Energy Concept from 2010 incorporates a substantial expansion of building rehabilitation activities. Second, the programs have been used as a tool for macroeconomic stabilization in the wake of the 2008/2009 financial crisis. Third, the government is concerned about the public deficit and all kinds of public expenditure are coming under increasing scrutiny. The aim of our paper is to contribute to a fact-based discussion of the costs and benefits of the building rehabilitation program. We develop an extended input-output model (STEIN) to estimate the macroeconomic effects of the rehabilitation measures that received funding and how they affect the public deficit, focusing on the revenue from income taxes and social security contributions (SSC) as well as taxes on products and production. Our findings indicate that the programs induce substantial public revenue mainly through income taxes and SSC which have to be weighed against the program cost. We also estimate the distribution of public cost and public revenue between different levels of government (national level, federal state level and municipality level). If the rehabilitation measures do not crowd out other investment projects, the net effect on the public deficit turns out to be positive.
    Keywords: Energy efficiency; CO2 emissions; building rehabilitation; economic stimulus
    JEL: E62 C67 Q4
    Date: 2012–05–15
  16. By: Manuel Frondel; Colin Vance
    Abstract: A longstanding question in the study of energy demand concerns the role of information as a determinant of home-efficiency improvements. Although the provision of information via home energy audits is frequently asserted to be an effective means for governments to encourage the implementation of efficiency-enhancing renovations, empirical support for this assertion is tenuous at best. Apart from self-selection issues with respect to receiving an audit, two other factors have complicated attempts to measure their effect: first, the nature of the information provided by the audit is typically unobserved, and, second, the response to this information may vary over households. Using household-level data from Germany, we address both sources of heterogeneity by estimating a random-parameter model of four retrofitting alternatives. In addition to confirming the importance of costs and savings as determinants of renovation choices, our results suggest that the effects of consultancy vary substantially across households, with some households responding negatively to the provision of information.
    Keywords: Energy audit; mixed logit; random-coefficient models
    JEL: C35 D81 Q41
    Date: 2012–04
  17. By: Rémi Russo (Chaire économie du climat - Chaire économie du climat); Virginie Boutueil (LVMT - Laboratoire Ville, Mobilité, Transport - Université Paris Est Marne-la-Vallée - Ecole des Ponts ParisTech - IFSTTAR UMR-T9404)
    Abstract: The ever-increasing trend to greater mobility has brought about a situation in which considerations of sustainable development might call for restrictions on the continued growth of the global mobility of people and goods. The transport sector is not the biggest contributor to greenhouse gas emissions, but accounts for a constant part in them and heavily depends on non-renewable fossil fuel. The prevalence of road transport in the sector's emissions makes it a priority in this necessary effort to move away from a carbon-intensive mobility. This study gives an overview of the options for progressing towards a low-carbon road transport. The solutions include necessary technological advances, and behavioural and organizational changes without which the benefits from these advances would be reduced. Economic instruments and public policies are needed to provide a vital support to this transition. In this regard, although emission abatements in the sector are generally considered to be costly, setting a price to CO2 emissions can prove an efficient way of adjusting relative prices according to comparative environmental benefits, thus favouring lower-carbon solutions. The options already experimented and the most credible ways forward give a glimpse of mobility's future, and food for thought to make it even better.
    Keywords: low-carbon mobility; CO2 emissions; carbon pricing; economic incentives; carbon tax; road transport; electric vehicle
    Date: 2011–09–01
  18. By: Tom Schmitz
    Abstract: Since 1990, Belgium has managed to bring down greenhouse gas emissions in most domains of economic activity. Road transport, as in many other countries, is a notable exception to this pattern: emissions have steadily increased, driven by an ever higher consumption of petrol and diesel. Even though the current overall performance will probably be sufficient to reach the reduction objectives of the Kyoto protocol, transport emissions thus need to be targeted in the future. One possible measure aimed at reducing them, an increase in fuel taxes, is examined in detail in this paper. The success of such a policy depends on the price elasticity of fuel demand, and therefore, the latter is estimated for Belgium and other European countries. The elasticities obtained are relatively small: in Belgium, for instance, a 10% increase in prices would cause consumption to fall by around 1.8% in the short-run and 2.3% in the medium run. Tax increases alone will thus certainly be insufficient for cutting emissions at this time horizon. Nevertheless, as a supporting measure in a more general reduction strategy, they could still yield substantial advantages. This Working Paper relates to the 2011 OECD Economic Review of Belgium (<P>Émissions de gaz à effet de serre et élasticités-prix de la demande de carburants en Belgique<BR>Depuis 1990, la Belgique a réussi à réduire ses émissions de gaz à effet de serre (GES) dans la plupart des domaines d'activité économique. Comme dans de nombreux autres pays, le transport routier constitue à cet égard une exception notable : ses émissions ont régulièrement augmenté, sous l'effet d'une consommation toujours croissante d'essence et de gazole. Même si les performances globales actuelles seront sans doute suffisantes pour atteindre les objectifs de réduction des émissions de GES du Protocole de Kyoto, un objectif doit donc être défini pour les futures émissions des transports. Une des mesures envisageables pour les faire diminuer, une hausse des taxes sur les carburants, est examinée de manière approfondie dans ce document. La réussite d'une telle mesure dépend de l'élasticité-prix de la demande de carburants, ce qui nous amène à estimer celle-ci pour la Belgique et d'autres pays européens. Les élasticités obtenues sont relativement modestes : en Belgique, par exemple, une hausse des prix de 10 % entraînerait un recul de la consommation de l'ordre de 1.8 % à court terme, et de 2.3 % à moyen terme. De simples augmentations des taxes seront donc certainement insuffisantes pour réduire les émissions à cet horizon. Néanmoins, en tant que mesures d'accompagnement s'inscrivant dans le cadre d'une stratégie plus générale de réduction des émissions de GES, elles pourraient avoir des retombées positives substantielles. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Belgique 2011 (
    Keywords: Belgium, road transport, greenhouse gas emissions, elasticity of fuel demand, fuel taxes, Belgique, transport routier, émissions de gaz à effet de serre, élasticité de la demande de carburants, taxes sur les carburants
    JEL: Q42 Q48 Q58
    Date: 2012–04–26
  19. By: Matthew A. Cole (Department of Economics, University of Birmingham); Robert J R Elliott (University of Birmingham); Toshihiro Okubo (Keio University, Japan); Ying Zhou (Aston University, UK)
    Abstract: In order to gain a greater understanding of firms' 'environmental behaviour' this paper explores the factors that influence firms' emissions intensities and provides the first analysis of the determinants of firm level carbon dioxide (CO2) emissions. Focussing on Japan, the paper also examines whether firms' CO2 emissions are influenced by the emissions of neighbouring firms and other possible sources of spatial correlation. Results suggest that size, the capital-labour ratio, R&D expenditure, the extent of exports and concern for public profile are the key determinants of CO2 emissions. Local lobbying pressure, as captured by regional community characteristics, does not appear to play a role, however emissions are found to be spatially correlated. This raises implications for the manner in which the environmental performance of firms is modelled in future.
    Date: 2012–05
  20. By: Antoine Godin
    Abstract: In most economies, the potential of saving energy via insulation and more efficient uses of electricity is important. In order to reach the Kyoto Protocol objectives, it is urgent to develop policies that reduce the production of carbon dioxide in all sectors of the economy. This paper proposes an analysis of a green-jobs employer-of-last-resort (ELR) program based on a stock-flow consistent (SFC) model with three productive sectors (consumption, capital goods, and energy) and two household sectors (wage earners and capitalists). By increasing the energy efficiency of dwellings and public buildings, the green-jobs ELR sector implies a shift in consumption patterns from energy consumption toward consumption of goods. This could spur the private sector and thus increase employment. Lastly, the jobs guarantee program removes all involuntary unemployment and decreases poverty while lowering carbon dioxide emissions. The environmental policy proposed in this paper is macroeconomic and offers a structural change of the economy instead of the usual micro solutions.
    Keywords: Full Employment; Green Jobs; Stock-flow Consistent
    JEL: E24 J08 Q48
    Date: 2012–05
  21. By: Lu, Yi; Wu, Mingqin; Yu, Linhui
    Abstract: In this paper, we investigate whether there is a pollution haven effect, specifically, the effect of environmental regulations on firm location. Our identification uses the Two Control Zones (TCZ) policy implemented by the Chinese government in 1998. The difference-in-differences (DID) estimation shows that cities with tougher environmental regulations attract less foreign direct investment (FDI). Specifically, being listed as a TCZ city causes the amount of FDI to drop by 41%. Our results are robust to various robustness checks on the validity of the DID estimation and other estimation concerns.
    Keywords: Pollution haven effect; Difference-in-differences estimation; Two control zones; Natural experiment
    JEL: D21 L25 R11
    Date: 2012–05
  22. By: Martin Wermelinger
    Abstract: This paper estimates to what extent "green" crisis-era measures have an impact on the "climate-friendliness" of imports in the Asia-Pacific region. Testable predictions and the empirical strategy are derived from the seminal paper of Eaton and Kortum (2002). The empirical results show that at the intensive margin implemented "green" measures are associated with an increase of sourcing from more rather than less energy intensive countries. One reason for this surprising result may be that governments have presented the state interventions as being "green" although the main purpose was not the environment. At the extensive margin, results are slightly more promising. The implementation of "green" measures seems to decrease the likelihood that imports are sourced from a relatively more energy intensive origin. However, the results are not very strong as to statistical and economic significance. In sum, only limited evidence for environmental benefits of "green" crisis-era interventions through the import channel exist. The implementation of such measures may in fact be associated with an environmental degradation of imports. Moreover, supplier countries being "close" competitors to the interventionist country (in terms of technology levels) relatively loose import share if discriminatory "green" measures are implemented. Stated differently, the alleged "green" measures protect domestic against foreign suppliers with similar technology levels.
    Keywords: international trade, trade policy, green growth
    JEL: F13 F18
    Date: 2012–05
  23. By: Corina Haita
    Abstract: I propose an emissions trading scheme which mimics the upcoming third phase design of the European Union Emissions Trading Scheme, with auction as initial allocation method. Risk-averse polluters and speculators, participating in the scheme, respond idiosyncratically to an economy-wide shock. I find that a polluter’s willingness to pay for permits in the auction increases in her risk aversion and in the shock volatility if aggregated and individual sensitivities to this shock satisfy certain conditions. For a particular region, of low sensitivity and high emissions rate, the polluter’s willingness to pay for permits decreases in the expected secondary market price. Numerical simulations show that if all polluters emit at the same rate, the secondary market facilitates a wealth transfer from the most sensitive to the least sensitive polluters. The risk aversion exacerbates polluters’ sensitivity to the shock when forming their valuations: for the same sensitivity level, the risk aversion decreases their valuations. The model predicts that, in a scheme with polluters only and homogeneous responses to the shock, the secondary market trading volume decreases in the uncertainty faced by the economy.
    Date: 2012–05–07
  24. By: Amanda Spisto (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: I model an economy featuring two representative firms in two countries, one in each country, where one firm innovates and generates technological unilateral spillovers. I analyze a partial equilibrium model in two different scenarios: in the first one, the innovating firm is under a domestic emissions taxation, while the other country does not implement any environmental policy. Government of the innovating firm introduces a tax credit aimed at incentivizing investment in cleaner abatement technologies. Finally, in the second scenario, the two countries take part to an international ETS. Comparisons among results from di¤erent scenarios are shown in the analytical part of the study. I conclude that, under specific assumpitons, overlapping regulations might be welfare improving.
    Keywords: Pigouvian Taxation, International ETS, policy mix, trans- boundary pollution, international technological spillover.
    JEL: Q58 H23
    Date: 2012–05–08
  25. By: Balázs Égert
    Abstract: Poland is on track to meet its international greenhouse-gas emissions commitments. However, it will need to cut emissions significantly in the future, if the European Commission’s proposal on the Low Carbon Roadmap is adopted. Policies should ensure that the country’s substantial reduction potential, mainly linked to the energy sector’s high emissions intensity, and implying overall abatement costs above the EU-average, is realised in a least-cost fashion by imposing an economy-wide single carbon price. This stands in contrast with current explicit and implicit carbon prices, which vary widely across different sectors of the economy. Crucial to least-cost abatement is also a high responsiveness to the EU-ETS carbon price signal. While Poland has made good progress in complying with EU regulations related to the energy sector, the large share of public ownership and the lack of effective separation between electricity producers and distributors may blur the price signal for investment decisions in generation capacity. The isolation of the Polish electricity market implies a need for more investment in low-emission technologies in Poland to achieve a given emissions-reduction target, whereas a deeper integration with neighbouring electricity markets would spread the burden more efficiently across countries. The cost-efficiency advantage of uniform support to renewables via green certificates should be retained to minimise abatement costs. Government policies aimed at a higher share of nuclear power and natural gas from shale formations need to take fully into account tail risks and the short- and long-term environmental costs of the use of the former and fully consider environmental risks related to extraction of the latter. Energy efficiency policies can help to address market failure but should not be allowed to distort relative carbon prices. This Working Paper relates to the 2012 OECD Economic Review of Poland (<P>Politiques liées au changement climatique en Pologne : minimiser les coûts de réduction des émissions<BR>La Pologne est en voie de tenir ses engagements internationaux en matière d’émissions de gaz à effet de serre. Elle devra toutefois réduire sensiblement ses émissions à l’avenir si la proposition de la Commission européenne concernant la Feuille de route pour une économie sobre en carbone est adoptée. Les politiques mises en oeuvre devraient s’attacher à exploiter au moindre coût l’important potentiel de réduction des émissions du pays, principalement lié à la forte intensité d’émissions du secteur de l’énergie et qui implique des coûts globaux de réduction supérieurs à la moyenne de l’UE, en imposant un prix unique du carbone pour toute l’économie. Cet objectif contraste avec les prix explicites et implicites actuels du carbone, qui sont très variables selon les secteurs. Une forte sensibilité aux signaux de prix du carbone fournis par le SCEQE est également essentielle à la réduction des émissions au moindre coût. En dépit des progrès significatifs accomplis par la Pologne pour se conformer aux réglementations de l’UE dans le secteur énergétique, l’importance de l’actionnariat public et l’absence de séparation effective entre les producteurs et les distributeurs d’électricité peuvent brouiller le signal de prix pour les décisions d’investissement dans les capacités de production. L’isolement du marché polonais de l’électricité implique qu’il faudra procéder à de plus lourds investissements dans les technologies sobres en émissions pour atteindre un objectif donné de réduction des émissions, alors qu’une intégration plus poussée avec les marchés de l’électricité des pays voisins permettrait un partage plus efficient des coûts entre les différents pays. Il faudrait maintenir l’avantage coût-efficacité du système de soutien uniforme aux énergies renouvelables sous forme de certificats verts en vue de minimiser les coûts de réduction des émissions. Les politiques publiques destinées à accroître la part de l’énergie nucléaire et du gaz naturel à partir des gisements de schiste doivent tenir pleinement compte des risques d’événements extrêmes et des coûts environnementaux à court et long termes de l’utilisation du nucléaire, et intégrer pleinement les risques environnementaux potentiels induits par l’extraction des schistes bitumineux. Les politiques axées sur l’efficacité énergétique peuvent contribuer à remédier aux défaillances du marché, mais elles ne devraient pas aller jusqu’à fausser les prix relatifs du carbone. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Pologne 2012 (
    Keywords: global warming, GHG emissions, environmental policies, carbon price, abatement cost, renewables, nuclear power, negative externalities, énergie renouvelable, réchauffement climatique, politiques environnementales, émissions de GES, coût d'abattement, énergies nucléaire, externalités négatives
    JEL: H23 Q41 Q42 Q48 Q52 Q53 Q54 Q58
    Date: 2012–04–24
  26. By: Nancy McCarthy; Paul Winters; Ana María 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: Environment & Natural Resources :: Biodiversity & Natural Resources Management, Environment & Natural Resources :: Climate Change, impact evaluation guidelines
    JEL: H43 Q54 Q56
    Date: 2012–04
  27. By: Wyes, Heinrich-Wilhelm (Asian Development Bank Institute); Lewandowski, Michael (Asian Development Bank Institute)
    Abstract: Regional governance systems and national frameworks to address climate change and accelerate green growth in Asia are reviewed and tools to address climate change are outlined. Options for regional level political institutions and financial architecture needed to fulfill voluntary pledges and programs are suggested and potentials, options, and challenges regarding monitoring, reporting, and verification systems are analyzed. In conclusion, policy measures for adaption and mitigation to climate change are provided.
    Keywords: climate change; green growth; asia
    JEL: H87
    Date: 2012–05–08
  28. By: Karp, Larry; Simon, Leo
    Abstract: We examine the size of stable coalitions in a participation game that has been used to model international environmental agreements, cartel formation, R&D spillovers, and monetary policy. The literature to date has relied on parametric examples; based onthese examples, a consensus has emerged that in this kind of game, the equilibrium coalition size is small, except possibly when the potential benefits of cooperation are also small. In this paper, we develop a non-parametric approach to the problem, and demonstrate that the conventional wisdom is not robust. In a general setting, we identify conditions under which the equilibrium coalition size can be large even when potential gains are large. Contrary to previously examined leading special cases, we show that reductions in marginal abatementcosts in an international environmental game can increase equilibrium membership, and we provide a measure of the smallest reduction in costs needed to support a coalition of arbitrary size.
    Keywords: Natural Resources and Conservation, Social Sciences, stable coalitions, participation games, International Environmental Agreement, climate agreement, trans-boundary pollution, investment spillovers
    Date: 2012–02–13
  29. By: Hong, Fuhsai; Karp, Larry
    Abstract: We modify a canonical participation game used to study International Environmental Agreements (IEA), considering both mixed and pure strategies at the participation stage, and including a prior cost-reducing investment stage. The use of mixed strategies at the participation stage reverses a familiar result and alsoreverses the policy implication of that result: with mixed strategies, equilibriumparticipation and welfare is higher in equilibria that involve higher investment.
    Keywords: Natural Resources and Conservation, Social Sciences, International Environmental Agreement, climate agreement, participation games, investment, mixed strategy
    Date: 2012–05–08
  30. By: Karp, Larry; Rezai, Amon
    Abstract: A two-sector OLG model illuminates previously unexamined intergenerationaleffects of a tax that protects an environmental stock. A traded asset capitalizes the economic returns to future tax-induced environmental improvements, benefiting the current asset owners, the old generation. Absent a transfer, the tax harms the young generation by decreasing their real wage. Future generations benefit fromthe tax-induced improvement in environmental stock. The principalintergenerational conflict arising from public policy is between generationsalive at the time society imposes the policy, not between generations alive at different times. A Pareto-improving policy can be implemented under various political economy settings.
    Keywords: Natural Resources and Conservation, Economics, open-access resource, two-sector overlapping generations, resource tax, generational conflict, environmental policy, dynamic bargaining
    Date: 2012–05–07

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