nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒07‒14
34 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Which electricity market design to encourage the development of demand response? By Vincent Rious, Fabien Roques and Yannick Perez
  2. Factors Influencing German House Owners' Preferences on Energy Retrofits By Achtnicht, Martin; Madlener, Reinhard
  3. A Reexamination of Renewable Electricity Policy in Sweden By Fridolfsson, Sven-Olof; Tangerås, Thomas
  4. The influence of spatial effects on wind power revenues under direct marketing rules By Grothe, Oliver; Müsgens, Felix
  5. Key drivers of PPPs in electricity generation in developing countries : cross-country evidence of switching between PPP investment in fossil fuel and renewable-based generation By Vagliasindi, Maria
  6. Optimization of power plant investments under uncertain renewable energy development paths - A multistage stochastic programming approach By Fürsch, Michaela; Nagl, Stephan; Lindenberger, Dietmar
  7. German Nuclear Phase-out Policy: Effects on European Electricity Wholesale Prices, Emission Prices, Conventional Power Plant Investments and Eletricity Trade By Thure Traber; Claudia Kemfert
  8. Fitting semiparametric Markov regime-switching models to electricity spot prices By Eichler Michael; Tuerk Dennis
  9. Cross-Border Electricity Transmission Investments By Matti Supponen
  10. Regulatory Reform and Corporate Control in European Energy Industries By John J. García and Francesc Trillas
  11. Analysis of the strategic use of forward contracting in electricity markets By Miguel Vazquez
  12. Nemo Omnibus Placet: Exzessive Regulierung und staatliche Willkür By Haucap, Justus; Lange, Mirjam R. J.; Wey, Christian
  13. A Real Options Model for Electricity Capacity Expansion By Joachim Gahungu and Yves Smeers
  14. COLUMBUS - A global gas market model By Hecking, Harald; Panke, Timo
  15. An Analysis of Oil Production by OPEC Countries: Persistence, Breaks, and Outliers By Carlos Pestana Barros; Luis A. Gil-Alana; James E. Payne
  16. Regulations and price discovery: oil spot and futures markets By Ashima Goyal; Shruti Tripathi
  17. How should monetary policy respond to changes in the relative price of oil? considering supply and demand shocks By Michael Plante
  18. Time-varying oil price volatility and macroeconomic aggregates By Michael Plante; Nora Traum
  19. The Dutch Disease in Australia Policy Options for a Three-Speed Economy By W Max Corden
  20. Is Chad affected by Dutch or Nigerian disease? By Kablan, Sandrine; Loening, Josef
  21. Reform Priorities for Sub-national Revenues in Brazil By Teresa Ter-Minassian
  22. Economic analysis of projects in a greenhouse world By Hamilton, Kirk; Stover, Jana
  23. Beyond GDP: Modelling Labour Supply as a ‘Free Time’ Trade-off in a Multiregional Optimal Growth Model By Valentina Bosetti; Frédéric Ghersi
  24. Trade in a 'Green Growth' Development Strategy Global Scale Issues and Challenges By Jaime de Melo
  25. Statistical Basis for Predicting Technological Progress By Bela Nagy; J. Doyne Farmer; Quan M. Bui; Jessika E. Trancik
  26. Economic implications of moving toward global convergence on emission intensities By Timilsina, Govinda R.
  27. Post-Durban Climate Policy Architecture Based on Linkage of Cap-and-Trade Systems By Matthew Ranson; Robert N. Stavins
  28. Carbon Pricing with Output-Based Subsidies: Impacts on U.S. Industries over Multiple Time Frames By Adkins, Liwayway; Garbaccio, Richard; Ho, Mun; Moore, Eric; Morgenstern, Richard
  29. The CCEP Australia Carbon Pricing Survey 2012: Policy uncertainty reigns but carbon price likely to stay By Frank Jotzo
  30. What is the Optimal Offsets Discount under a Second-Best Cap & Trade Policy? By Heather Klemick
  31. Informing Climate Adaptation: A Review of the Economic Costs of Natural Disasters, Their Determinants, and Risk Reduction Options By Kousky, Carolyn
  32. Cleaner Technologies and the Stability of International Environmental Agreements By Benchekroun, H.; Ray Chaudhuri, A.
  33. Rethinking Environmental Federalism in a Warming World By William Shobe; Dallas Burtraw
  34. The Climate Policy Dilemma By Robert S. Pindyck

  1. By: Vincent Rious, Fabien Roques and Yannick Perez
    Abstract: Demand response is a cornerstone problem in electricity markets under climate change constraint. Most liberalized electricity markets have a poor track record at encouraging the deployment of smart meters and the development of demand response. In Europe, different models are considered for demand response, from a development under a regulated regime to a development under competitive perspectives. In this paper, focusing on demand response and smart metering for mid-size and small consumers, we investigate which types of market signals should be sent to demand manager to see demand response emerge as a competitive activity. Using data from the French power system over the last 8 years, we compare the possible market design options to allow demand response to develop. Our simulations demonstrate that with the current market rules, demand response is not a profitable activity in the French electricity industry. Introducing a reserve and/or capacity remuneration could bring additional revenues to demand response providers and improve incentives to put in place demand response programs in a market environment.
    Keywords: Market Design; Demand Response; Capacity Market
    Date: 2012–02–24
  2. By: Achtnicht, Martin (Centre for European Economic Research (ZEW)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In this paper, we identify key drivers and barriers for the adoption of building energy retro fits in Germany, which is promoted by public policy as an important measure to address the future challenges of climate change and energy security. We analyze data from a 2009 survey of more than 400 owner-occupiers of single-family detached, semidetached, and row houses in Germany, that was conducted as a computer-assisted personal interview (CAPI). In the survey, respondents were asked directly for reasons for and against retrofi tting their homes, but also faced a choice experiment involving different energy retrofi t measures. Overall, both the descriptive and econometric results show that house owners who are able to afford it fi nancially, for whom it is profi table, and for whom there is a favorable opportunity, are more likely to undertake energy retro fit activities. Based on an estimated mixed logit error component model, we also simulate the incentive effects of different policy options, such as public subsidies and energy tax increases.
    Keywords: Building energy retro fit; Choice experiment; Energy efficiency; Residential buildings
    JEL: C25 D12 Q40
    Date: 2012–06
  3. By: Fridolfsson, Sven-Olof (Research Institute of Industrial Economics (IFN)); Tangerås, Thomas (Research Institute of Industrial Economics (IFN))
    Abstract: Green certificates are the main instrument for promoting renewable electricity (RES-E) in Sweden. But certificates cover only a limited share of total RES-E production. Under partial coverage, crowding out may arise whereby costly new RES-E replaces inexpensive old RES-E. Granting certificates to all of RES-E production improves efficiency, but leaves windfall rent to otherwise profitable facilities. We also analyze transaction costs in the permit process for new RES-E in Sweden. Municipalities veto socially desirable projects because of asymmetrically distributed investment costs and benefits. We propose market-based permit fees rather than limited veto rights as a solution to this NIMBY problem.
    Keywords: Crowding out; Green certificates; NIMBY; Transaction costs; Windfall rent
    JEL: D23 Q48 Q52 Q54
    Date: 2012–06–18
  4. By: Grothe, Oliver (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Müsgens, Felix (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: In many countries worldwide, investment in renewable technologies has been accelerated by the introduction of fixed feed-in tariffs for electricity from renewable energy sources (RES). While fixed tariffs accomplish this purpose, they lack incentives to align the RES production with price signals. <p> Today, due to a growing proportion of renewable electricity, the intermittency of most RES increases the volatility of electricity prices and might even prevent market clearing. Therefore, support schemes for RES have to be modified. Recently, Germany launched a market premium model which gives wind power operators the monthly choice to either receive a fixed feed-in tariff or to risk a - subsided - access to the wholesale electricity market. <p> This paper quantifies the revenues of wind turbines under this new model and, in particular, analyzes whether, when and where producers may profit. We find that the position of the wind turbine within the country significantly influences revenues. The results are of interest and importance for wind farm operators deciding whether electricity should be sold in the fixed tariff or in the wholesale market.
    Keywords: Wind Power; Market Premium Model; Optimal Areas of Production
    JEL: C39 C53 Q42 Q47
    Date: 2012–03–09
  5. By: Vagliasindi, Maria
    Abstract: This paper presents new global evidence on the key determinants of public-private partnership investment in electricity generated by fossil fuels and renewable energy based on a panel data analysis for 105 developing countries over a period of 16 years from 1993 to 2008. It aims to identify the key factors affecting private investors'decision to enter electricity generation, through probit analysis, and the amount of investment sunk in this market segment, based on Heckman's sample selection analysis. The paper shows some evidence of switching from investment in fossil fuels to investment in hydro and renewables and within fossil fuels from oil to natural gas. An interesting result of the econometric analysis is that the likelihood of switching toward renewable investment is driven by long-run environmental factors, such as the increases in the price of oil and the introduction of the Kyoto protocol. Another interesting result is that sector governance support schemes, provided by feed-in tariffs, affect only the entry in renewable based electricity generation and have no impact in reducing the amount of investment in fossil fuel based generation. Economy-wide governance factors, including control for corruption and degree of political competition, are factored in by private investors only in the initial stage of the game when the decision to enter into the generation market is taken and not the amount of investment. This confirms that the first generations of independent power producers have been developed on the basis of long-term power purchase agreements guaranteeing a fixed rate of return, through take-or-pay clauses and/or government guarantees.
    Keywords: Energy Production and Transportation,Energy Demand,Emerging Markets,Environment and Energy Efficiency,Energy and Environment
    Date: 2012–07–01
  6. By: Fürsch, Michaela (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Nagl, Stephan (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Lindenberger, Dietmar (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: Electricity generation from renewable energy sources (RES-E) is supposed to increase signi ficantly within the coming decades. However, uncertainty about the progress of necessary infrastructure investments, public acceptance and cost developments of renewable energies renders the achievement of political plans uncertain. <p> Implementation risks of renewable energy targets are challenging for investment planning, because different RES-E shares fundamentally change the optimal mix of dispatchable power plants. Speci cally, uncertain future RES-E deployment paths induce uncertainty about the steepness of the residual load duration curve and the hourly residual load structure. <p> In this paper, we show how uncertain future RES-E penetrations impact the electricity system and try to quantify effects for the Central European power market. We use a multi-stage stochastic investment and dispatch model to analyze effects on investment choices, electricity generation and system costs. Our main findings include that the uncertain achievement of RES-E targets signi ficantly effects optimal investment decisions. <p> First, a higher share of technologies with a medium capital/operating cost ratio is cost-efficient. Second, the value of storage units in systems with high RES-E penetrations might decrease. Third, in the case of the Central European power market, costs induced by the implementation risk of renewable energies seem to be rather small compared to total system costs.
    Keywords: Multi-Stage Stochastic Programming; Renewable Energy; Power Plant Optimization
    JEL: C61 C63 Q40
    Date: 2012–05–09
  7. By: Thure Traber; Claudia Kemfert
    Abstract: The German decision to finally phase-out nuclear electricity has led to a debate on its effects on electricity prices, emission prices in the European emission trading system, as well as on international electricity trade. We investigate these effects with a Electricity market model for Europe with investments in power plants under oligopolistic conditions in Germany. We find modest price increases on the German wholesale market by the mid-term 2020 and an effect of the accelerated nuclear phase- out of between four and twelve percent. Moreover, the increase in the emission allowance prices due to the change in nuclear policy is between 1:8 and 3 Euro per ton of CO2 by the same period. The large variations in our results are induced by four combinations of the European emission trading policy and the success of the German energy efficiency policy. Most pronounced price effects are found in scenarios with a successful energy savings policy, which acts as a substitute for new power plants. Moreover, the tighter the emission trading system is, the larger are the effects of the accelerated phase-out on electricity and emission prices. Under a tight system, however, investments in conventional generation are likely to be dominated by natural gas fired plants since the decrease of utilization rates induced by renewable energies are more important for coal fired power plants with their relative high investment costs.
    Keywords: energy modeling; nuclear phase-out; climate policy; oligopoly
    JEL: C63 L13 L94 Q38
    Date: 2012
  8. By: Eichler Michael; Tuerk Dennis (METEOR)
    Abstract: Recently regime-switching models have become the standard tool for modeling electricity prices.These models capture the main properties of electricity spot prices well but estimation of themodel parameters requires computer intensive methods. Moreover, the distribution of the pricespikes must be assumed given although the high volatility of the spikes makes it difficult tocheck this assumption. Consequently, there are a number of competing proposals. Alternatively wepropose the use of a semiparametric Markov regime-switching model that does not specify thedistribution under the spike regime. To estimate the model we use robust estimation techniques asan alternative to commonly applied estimation approaches. The model in combination with theestimation framework is easier to estimate, needs less computation time and distributionalassumptions. To show its advantages we compare the proposed model with a well establishedMarkov-switching model in a simulation-study. Further we apply the model to Australian logprices.The results are in accordance with the results from the simulation-study, indicating that theproposed model might be advantageous whenever the distribution of the spike process is notsufficiently known. The results are thus encouraging and suggest the use of our approach whenmodeling electricity prices and pricing derivatives.
    Keywords: econometrics;
    Date: 2012
  9. By: Matti Supponen
    Abstract: The objective of this paper is to analyse what targets and criteria should be followed for electricity transmission investments which would be beneficial for Europe. The paper indicates that there is serious underinvestment in the European transmission network from the overall welfare point of view. The paper demonstrates that in transmission investments there is an important dimension of welfare distribution between the countries connected but also within the countries due to the change in the market outcome when an interconnector is built. The paper shows that it is possible to develop objective criteria for interconnector investments. Social welfare benefits from price arbitrage should be one criterion but several other criteria should be used as well including price convergence, security of supply and competition benefits. Flaws in market design, capacity calculation and capacity allocation need to be addressed to provide efficient signals for interconnector investments. This should include designing of optimal price zones for Europe.
    Keywords: Electricity transmission network; investments
    Date: 2012–02–24
  10. By: John J. García and Francesc Trillas
    Abstract: The deregulation process in the EU electricity sector triggered strategic decisions that led to industry restructuring. This paper presents preliminary evidence of the impact of this process on investors, using event studies and estimation techniques such as least squares and GARCH. Our findings suggest three stylized facts: 1) regulatory reform in Europe was certainly accompanied by a takeover wave, as predicted by Mitchell and Mulherin (1996); 2) mergers and acquisitions had a positive impact on the stock price of target firms, and a much lower and sometimes even a negative impact for the bidding firms; 3) the effect of takeover announcements on the returns of competitors of the merging firms depends on the degree of market power. In countries with high market power (like Spain) competitors significantly increase share returns upon takeover announcements, whereas in countries with lower market power (like England and Wales) returns do not change significantly.
    Keywords: Companies; Electricity supply industry deregulation; Oligopoly; Stock Market
    Date: 2012–06–22
  11. By: Miguel Vazquez
    Abstract: Absence of arbitrage is one of the fundamental tools to describe financial markets. The no-arbitrage price of any financial contract represents players’ valuation of the uncertain future income stream that will result from the contract. This reasoning is based on considering future income streams as exogenously defined variables. When spot markets do not behave under the assumption of perfect competition, future income streams might depend on players’ strategies. If this is the case, price differences between the forward and the spot markets do not imply the existence of arbitrage opportunities, as market players cannot take advantage of such differences. The paper will study the forward-spot interaction in the presence of spot market power. It will be shown that, when producers anticipate that forward sales reduce spot price, they can react in the forward market to compensate for the spot price decrease. Hence, players profits are, considering both forward and spot markets, equivalent to the ones obtained in the case where no forward trading is allowed. The paper also develops a multi-period model that considers the role of private information, aimed to represent that past spot prices are signals of the probability of future spot prices. In this context, there is an additional incentive when playing in the spot market, which is associated with the sensitivity of forward prices to past spot decisions. This often results in spot prices equal to the ones obtained in the no-trade case. The policy implications of the previous results will be discussed. Actually, it will be shown that the number of regulatory measures based on forward contracting that can be used to mitigate market power is considerably small.
    Keywords: Forward markets; oligopoly; private information
    Date: 2012–03–09
  12. By: Haucap, Justus; Lange, Mirjam R. J.; Wey, Christian
    Abstract: -- This paper develops the hypothesis that the inclusion of multiple objectives into laws widens the discretionary powers of executive institutions. As the decision how to balance trade-offs is removed from the political to the executive sphere, policy making becomes less transparent and also less accountable. While including numerous objectives into law may serve as an acknowledgement to the various interests of a heterogeneous citizenry, the pursuit of conflicting objectives implies that public bureaucracies instead of parliaments are given powers to decide about trade-offs. We conjecture that a bureaucracy that has multiple objectives will be less accountable and, therefore, (i) use its instruments excessively and (ii) favor instruments that are effective in the short run, but may be harmful in the long run. We illustrate our hypotheses, analyzing (a) the increasing number of objectives enshrined in Germany's Energy Industry Law and (b) the conflict between the European Commission and the German Government about potential regulatory holidays for new infrastructure investment in telecommunications markets.
    Date: 2012
  13. By: Joachim Gahungu and Yves Smeers
    Abstract: This paper proposes a real option capacity expansion model for power generation with several technologies that differ in operation and investment costs. The economy is assumed perfectly competitive and the instantaneous payoff accruing from the generation system is the instantaneous welfare defined as the usual sum of consumer and producer surplus. The computation of this welfare requires the solution of a multi- technology optimization problem and the obtained optimal function value is not additively separable in generation capacities, contrary to what is generally assumed in multi asset real option models to prove the optimality of a myopic behavior. Using the geometric Brownian motion as uncertainty driver we propose two regression models to approximate the instantaneous welfare. A first, additively separable approximation implies the optimality of myopia. The second approximation is non separable and hence forces to take myopic behavior as an assumption. Using myopia as an assumption, we propose a semianalytic method which combines Monte Carlo simulations (used to compute the value of the marginal capacity) and analytical treatment (to solve an optimal stopping problem on a regression scheme).
    Keywords: Real options; capacity expansion; power investment; optimal dispatch
    Date: 2012–02–21
  14. By: Hecking, Harald (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Panke, Timo (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: A model of the global gas market is presented which in its basic version optimises the future development of production, transport and storage capacities as well as the actual gas ows around the world assuming perfect competition. Besides the transport of natural gas via pipelines also the global market for lique ed natural gas (LNG) is modeled using a hub-and-spoke approach. <p> While in the basic version of the model an inelastic demand and a piecewise-linear supply function are used, both can be changed easily, e.g. to a Golombek style production function or a constant elasticity of substitution (CES) demand function. <p> Due to the usage of mixed complementary programming (MCP) the model additionally allows for the simulation of strategic behaviour of dierent players in the gas market, e.g. the gas producers.
    Keywords: Natural gas market; partial equilibrium modelling; MCP
    JEL: C61 L72 Q34 Q41
    Date: 2012–03–09
  15. By: Carlos Pestana Barros (Technical University of Lisbon); Luis A. Gil-Alana (University of Navarra); James E. Payne (Illinois State University)
    Abstract: This study examines the degree of persistence, potential breaks and outliers of oil production for OPEC member countries within a fractional integration modelling framework using monthly data from January 1973 to October 2008. The results indicate there is mean reverting persistence in oil production with breaks identified in ten out of the fourteen countries examined. Thus, shocks affecting the structure of OPEC oil production will have persistent effects in the long run for all countries, and in some cases the effects are expected to be permanent.
    Date: 2011–01–18
  16. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Shruti Tripathi (Indira Gandhi Institute of Development Research)
    Abstract: In a period of great oil price volatility, the paper assesses the role of expected net demand compared to liquidity and leverage driven expansion in net long positions. We apply time series tests for mutual and across exchange causality, and lead-lag relationships, between crude oil spot and futures prices on two international and one Indian commodity exchange. We also search for short duration bubbles, and how they differ across exchanges. The results show expectations mediated through financial markets did not lead to persistent deviations from fundamentals. There is mutual Granger causality between spot and futures, and in the error correction model for mature exchanges, spot leads futures. Mature market exchanges lead in price discovery. Futures in these markets lead Indian (daily) futures-markets are integrated. But there is stronger evidence of short-term or collapsing bubbles in mature market futures compared to Indian, although mature markets have a higher share of hedging. Indian regulations such as position limits may have mitigated short duration bubbles. It follows leverage due to lax regulation may be responsible for excess volatility. Well-designed regulations can improve market functioning.
    Keywords: crude oil spot, futures; commodity exchanges; short duration bubbles; position limits
    JEL: G13 G15 G18 E44 C32
    Date: 2012–03
  17. By: Michael Plante
    Abstract: This paper examines optimal monetary policy in a New Keynesian model, where the relative price of oil is affected by exogenous supply shocks and a productivity-driven demand shock. When wages are flexible, stabilizing core inflation is optimal and the nominal rate rises (falls) in response to a demand (supply) shock. When both prices and wages are sticky, core inflation falls (rises) in response to the demand (supply) shock. Stabilizing CPI inflation generates small welfare losses only if the demand shock is the main driver of oil prices. Based on a VAR estimated using post-1986 data for the U.S., both shocks have had minimal impacts on core inflation. The federal funds rate rises in response to the demand shock but falls in response to the supply shock, consistent with the predictions of the theoretical model for a policy that stabilizes core inflation.
    Keywords: Price levels ; Economic development
    Date: 2012
  18. By: Michael Plante; Nora Traum
    Abstract: We illustrate the theoretical relation among output, consumption, investment, and oil price volatility in a real business-cycle model. The model incorporates demand for oil by a firm, as an intermediate input, and by a household, used in conjunction with a durable good. We estimate a stochastic volatility process for the real price of oil over the period 1986–2011 and utilize the estimated process in a nonlinear approximation of the model. For realistic calibrations, an increase in oil price volatility produces a temporary decrease in durable spending, while precautionary savings motives lead investment and real GDP to rise. Irreversible capital and durable investment decisions do not overturn this result.
    Keywords: Time-series analysis ; Consumption (Economics) ; Capital investments ; Natural resources ; Energy consumption
    Date: 2012
  19. By: W Max Corden
    Abstract: This paper expounds the concept of Dutch Disease as it applies currently to Australia, noting the various gains and losses resulting from the Australian mining boom. "Dutch Disease" refers to the adverse effects through real exchange rate appreciation that such a boom can have on various export and import-competing industries. Particular firms or industries may be both gainers and losers. The distinction is made between the Booming Sector (mining), the Lagging Sector (exports not part of the Booming Sector, and import-competing goods and services), and the Non-tradable Sector. The main discussion focuses on policy options, given a floating exchange rate regime. What should the government do – if anything - to reduce or avoid this Dutch "disease"? The principal options are: Do nothing, piecemeal protectionism, and run a fiscal surplus, combined with lowering the interest rate and possibly establishing a Sovereign Wealth Fund. Piecemeal protectionism is likely to be politically popular but there are strong arguments against it. The costs of any measures that successfully moderate real appreciation of the exchange rate and thus Dutch Disease effects are noted, and may be considerable. This is "exchange rate protection". Gains to some industries are likely to be balanced by losses to others. It is shown, surprisingly, that a fiscal surplus that is financed by taxation of the profits of the Booming Sector may not significantly moderate real appreciation. The reason is that this sector is to a significant extent foreign owned. An issue is whether firms and industries can be clearly divided into those that belong to the Non-tradable Sector and those that belong to the Lagging Sector, the latter being the losers from Dutch Disease. If such a clear distinction cannot usually be made, then the case for "doing nothing" is strengthened.
    Date: 2012
  20. By: Kablan, Sandrine; Loening, Josef
    Abstract: We examine the effects of the ‘natural resource curse’ on Chad and find little evidence for Dutch disease. Structural vector auto-regression suggests that changes in domestic output and prices are overwhelmingly determined by aggregate demand and supply shocks, and while oil production and high international prices negatively affect agricultural output, the effects are small. Consistent with empirical evidence for neighbouring Cameroon, we observe minimal impact on Chad’s manufacturing sector. We associate our findings with structural underemployment and the inefficient use of existing production factors. In this context, increased public expenditures in tradable sectors present the opportunity to make oil revenues an engine of national development.
    Keywords: Natural resource curse; Dutch disease; Chad; Structural VAR
    JEL: O11 E32 E30 O13 E61
    Date: 2012–06–30
  21. By: Teresa Ter-Minassian
    Abstract: This paper surveys the system of sub-national own revenues and the inter- governmental transfer system (including the sharing of oil revenues) in Brazil, highlighting their critical flaws. The latter include heavy reliance on a mixed- origin/destination-based value-added tax and many sub-national governments’ inadequate exploitation of the tax bases assigned to them. The paper then discusses reform priorities, outlining a comprehensive reform strategy and some initial steps that could be taken toward its implementation in the near term, as well as related political economy considerations.
    JEL: H21 H22 H24
    Date: 2012–05
  22. By: Hamilton, Kirk; Stover, Jana
    Abstract: Recent carbon market prices are substantially lower than mean or median estimates of the social cost of carbon in the literature. Intuition would therefore suggest that'investment errors'are being made, in the sense that markets favor higher carbon-emitting projects, while global welfare would be larger with lower carbon-emitting projects. This intuition is correct in specific circumstances, but not others. For any comparison of two alternative projects, there is a carbon switching price that equalizes their net social benefits. From the perspective of maximizing global welfare, investment errors only occur when this switching price lies between the carbon market price and the social cost of carbon. Data on the costs of high-carbon and low-carbon electric generation projects suggest that there is no financing gap using mean or median published figures, but for precautionary (95th percentile) choices of the social cost of carbon, there is a financing gap between carbon market prices and the switching price that would trigger investment in the global welfare-maximizing low-carbon project. A global carbon fund to finance this gap could be conceived, but stricter emission caps and reforms of carbon markets are likely to be a more efficient solution to the problem.
    Keywords: Climate Change Mitigation and Green House Gases,Climate Change Economics,Markets and Market Access,Carbon Policy and Trading,Energy Production and Transportation
    Date: 2012–07–01
  23. By: Valentina Bosetti (FEEM, Fondazione Eni Enrico Mattei, and CMCC Centro Euro-Mediterraneo per i Cambiamenti Climatici); Frédéric Ghersi (CIRED – Centre International de Recherche sur l’Environnement et le Développement)
    Abstract: In this paper we develop the standard utility function of a Ramsey-type optimal growth model to account for a ‘market-time’ vs. ‘free-time’ trade-off. To do so, we introduce a free-time preference coefficient that measures the utility gained by deviating from a maximum labour supply defined as the combination of a 95% labour force participation rate for the 20 to 69 year-old population, and 3000 annual working hours (50 effective 60-hour weeks). We calibrate this free-time preference coefficient for 12 world regions on statistical and projected data from the United Nations, the International Labour Organisation and the OECD. We illustrate a prospective use of this modelling development by comparing the consequences of convergence of the free-time preference coefficients of all world regions to the contrasted Western European vs. United States value. Over the 21st century, compared to a business-as-usual trajectory defined by maintained regional disparities in free time preference, convergence to US free time preference induces a 0.3% decrease in global discounted labour market time, but a 4.2% increase in discounted global GDP sustained by a 2.5% increase in primary energy consumption that translates into a 1.7% increase in cumulated CO2-equivalent emissions; convergence to Western European free time preference decreases labour market time by 13.8%, GDP by 11.7%, primary energy consumption by 10.7% and cumulated CO2-equivalent emissions by 9.1%.
    Keywords: Ramsey Growth Model, Endogenous Labour Supply. Utility of Leisure, Beyond GDP Welfare Valuation
    JEL: C0 O4
    Date: 2012–06
  24. By: Jaime de Melo (University of Geneva and FERDI)
    Abstract: The paper surveys the state of knowledge about the trade-related environmental consequences of a country’s development strategy along three channels: (i) direct trade-environment linkages (overexploitation of natural resources and trade-related transport costs);(ii) ‘virtual trade’ in emissions resulting from production activities; (iii) the product mix attributes of a ‘green-growth’ strategy (environmentally preferable products and goods for environmental management). Main conclusions are the following. Trade exacerbates over-exploitation of natural resources in weak institutional environments, but there is little evidence that differences in environmental policies across countries have led to significant ‘pollution havens’. Trade policies to ‘level the playing field’ would be ineffective and result in destructive conflicts in the WTO. Lack of progress at the Doha round suggests the need to modify the current system of global policy making.
    Keywords: Environmental Goods, Natural Resources, Green Growth, Trade and Climate
    JEL: F18 Q56
    Date: 2012–06
  25. By: Bela Nagy; J. Doyne Farmer; Quan M. Bui; Jessika E. Trancik
    Abstract: Forecasting technological progress is of great interest to engineers, policy makers, and private investors. Several models have been proposed for predicting technological improvement, but how well do these models perform? An early hypothesis made by Theodore Wright in 1936 is that cost decreases as a power law of cumulative production. An alternative hypothesis is Moore's law, which can be generalized to say that technologies improve exponentially with time. Other alternatives were proposed by Goddard, Sinclair et al., and Nordhaus. These hypotheses have not previously been rigorously tested. Using a new database on the cost and production of 62 different technologies, which is the most expansive of its kind, we test the ability of six different postulated laws to predict future costs. Our approach involves hindcasting and developing a statistical model to rank the performance of the postulated laws. Wright's law produces the best forecasts, but Moore's law is not far behind. We discover a previously unobserved regularity that production tends to increase exponentially. A combination of an exponential decrease in cost and an exponential increase in production would make Moore's law and Wright's law indistinguishable, as originally pointed out by Sahal. We show for the first time that these regularities are observed in data to such a degree that the performance of these two laws is nearly tied. Our results show that technological progress is forecastable, with the square root of the logarithmic error growing linearly with the forecasting horizon at a typical rate of 2.5% per year. These results have implications for theories of technological change, and assessments of candidate technologies and policies for climate change mitigation.
    Date: 2012–07
  26. By: Timilsina, Govinda R.
    Abstract: One key contentious issue in climate change negotiations is the huge difference in carbon dioxide (CO2) emissions per capita between more advanced industrialized countries and other nations. This paper analyzes the costs of reducing this gap. Simulations using a global computable general equilibrium model show that the average the carbon dioxide intensity of advanced industrialized countries would remain almost twice as high as the average for other countries in 2030, even if the former group adopted a heavy uniform carbon tax of $250/tCO2 that reduced their emissions by 57 percent from the baseline. Global emissions would fall only 18 percent, due to an increase in emissions in the other countries. This reduction may not be adequate to move toward 2050 emission levels that avoid dangerous climate change. The tax would reduce Annex I countries'gross domestic product by 2.4 percent, and global trade volume by 2 percent. The economic costs of the tax vary significantly across countries, with heavier burdens on fossil fuel intensive economies such as Russia, Australia, the United Kingdom and the United States.
    Keywords: Climate Change Mitigation and Green House Gases,Environment and Energy Efficiency,Climate Change Economics,Energy and Environment,Carbon Policy and Trading
    Date: 2012–07–01
  27. By: Matthew Ranson (Harvard University, Harvard Kennedy School); Robert N. Stavins (John F. Kennedy School of Government, Harvard University)
    Abstract: The outcome of the December 2011 United Nations climate negotiations in Durban, South Africa, provides an important new opportunity to move toward an international climate policy architecture that is capable of delivering broad international participation and significant global CO2 emissions reductions at reasonable cost. We evaluate one important component of potential climate policy architecture for the post-Durban era: links among independent tradable permit systems for greenhouse gases. Because linkage reduces the cost of achieving given targets, there is tremendous pressure to link existing and planned cap-and-trade systems, and in fact, a number of links already or will soon exist. We draw on recent political and economic experience with linkage to evaluate potential roles that linkage may play in post-Durban international climate policy, both in a near-term, de facto architecture of indirect links between regional, national, and sub-national cap-and-trade systems, and in longer-term, more comprehensive bottom-up architecture of direct links. Although linkage will certainly help to reduce long-term abatement costs, it may also serve as an effective mechanism for building institutional and political structure to support a future climate agreement.
    Keywords: Global Climate Change, Market-Based Instruments, Cap-and-Trade, Carbon Pricing, Carbon Taxes, Linkage, International Climate Policy Architecture
    JEL: Q54 Q58 Q40 Q48
    Date: 2012–05
  28. By: Adkins, Liwayway; Garbaccio, Richard; Ho, Mun (Resources for the Future); Moore, Eric; Morgenstern, Richard (Resources for the Future)
    Abstract: The effects of a carbon price on U.S. industries are likely to change over time as firms and customers gradually adjust to new prices. The effects will also depend on offsetting policies to compensate losers and the number of countries implementing comparable policies. We examine the effects of a $15/ton CO2 price, including Waxman-Markey-type allocations, on a disaggregated set of industries, over four time horizons—-the very-short-, short-, medium-, and long-runs—-distinguished by the ability of firms to raise output prices, change their input mix, and reallocate capital. We find that if firms cannot pass on higher costs, the loss in profits in a number of energy-intensive, trade-exposed (EITE) industries will be substantial. When output prices can rise to reflect higher energy costs, the reduction in profits is substantially smaller, and the offsetting policies in H.R. 2454 reduce output and profit losses even more. Over the medium- and long-terms, however, when more adjustments occur, the impact on output is more varied due to general equilibrium effects. We find that the use of the output-based rebates and other allocations in H.R. 2454 can substantially offset the output losses over all four time frames considered. Trade or "competitiveness" effects from the carbon price explain a significant portion of the fall in output for EITE sectors, but in absolute terms, the trade impacts are modest and can be reduced or even reversed with the subsidies. The subsidies are less effective, however, in preventing emissions leakage to countries not adopting carbon policies. Roughly half of U.S. trade-related leakage to non-policy countries can be explained by changes in the volume of trade and the other half by higher emissions intensities induced by lower world fuel prices.
    Keywords: carbon price, competitiveness, input-output analysis, computable general equilibrium models, output-based allocations, carbon leakage
    JEL: F14 D D57 D58 H23
    Date: 2012–06–29
  29. By: Frank Jotzo
    Abstract: The inaugural Australia Carbon Pricing Survey elicits expectations about the future of carbon pricing from experts working for Australia's largest greenhouse gas emitting companies, the carbon finance and investment industry and selected other experts. The survey indicates pervasive uncertainty about the future of Australia's carbon pricing scheme, but also a strong expectation that carbon pricing will be a feature of Australia's economic policy framework in the medium to long term. 79% of respondents expect that there will be a carbon price in Australia in 2020. But 40% expect that the current scheme will be repealed by the end of 2016. Of those who expect repeal, almost half think that a carbon price will be re-instated by 2020. Factoring in expectations of a possible zero carbon price, the average expected effective Australian carbon price falls from its initial level of $23 per tonne of carbon dioxide equivalent to $10 to $11 per tonne during 2016-18, before climbing to $22 per tonne in 2025. Assessments vary greatly between respondents, illustrating the extent of policy uncertainty. Nevertheless, 69% of respondents from large carbon emitters indicate that their companies have cut emissions in anticipation of a carbon price, and 84% expect their company to do so over the next three years – not withstanding significant uncertainty about whether the carbon price may be repealed. The survey also covers expectations about future prices in the EU emissions trading scheme and credits under the Clean Development Mechanism, the Australian price floor and linking with the EU scheme, and the future of Australia's national emissions target.
    Keywords: Carbon pricing, emissions trading, public policy, expert survey, Australia
    JEL: Q52 Q54 Q58
    Date: 2012–06
  30. By: Heather Klemick
    Abstract: Despite concerns about additionality, leakage, permanence, and verification, carbon offsets have been proposed as a core component of recent cap-and-trade proposals in order to contain costs, involve uncapped sectors in GHG reduction goals, and build mitigation capacity in developing countries. Discounting the value of offsets relative to GHG allowances (i.e., setting a trading ratio less than one) has been suggested as one approach to protect the integrity of the cap. This paper presents a simple theoretical model to derive the optimal trading ratio between offsets and allowances when coverage of emissions by the cap-and-trade and offsets programs is incomplete. I discuss the relationship between the trading ratio and the GHG cap and offsets baseline, which jointly determine the stringency of the policy. While a discount for leakage is always optimal, one notable result is that if “hot air” is introduced by setting either the baseline cap or the cap too leniently, an extra discount is warranted.
    Keywords: offsets, additionality, leakage, baseline, cap and trade, second-best theory
    JEL: D62 H23 Q54 Q58
    Date: 2012–07
  31. By: Kousky, Carolyn (Resources for the Future)
    Abstract: This paper reviews the empirical literature on the economic impacts of natural disasters to inform both climate adaptation policy and the estimation of potential climate damages. It covers papers that estimate the short- and long-run economic impacts of weather-related extreme events as well as studies regarding the determinants of the magnitude of those damages (including fatalities). The paper also includes a discussion of risk reduction options and the use of such measures as an adaptation strategy for predicted changes in extreme events with climate change.
    Keywords: natural disaster damages, climate adaptation, risk mitigation
    JEL: Q54 D1 E2 O1
    Date: 2012–07–05
  32. By: Benchekroun, H.; Ray Chaudhuri, A. (Tilburg University, Tilburg Law and Economics Center)
    Abstract: Abstract: This paper shows that, if countries are farsighted when deciding whether to defect from a coalition, then the implementation of cleaner technologies may jeopardize the chances of reaching an international environmental agreement. The grand coalition may be destabilized by the implementation of cleaner technologies, ultimately resulting in higher global emissions and lower global welfare. We further show that the higher the stock of pollution at the instant when the cleaner technology is implemented, the more likely that the above mechanism unfolds. We examine a reduction in the emission per output ratio as well as measures that enhance the natural rate of decay of stock pollutants.
    Keywords: transboundary pollution;renewable resource;clean technologies;coalition formation;differential games.
    JEL: Q20 Q54 Q55 Q58 C73
    Date: 2012
  33. By: William Shobe (University of Virginia); Dallas Burtraw (Resources for the Future)
    Abstract: Climate change policy analysis has focused almost exclusively on national policy and even on harmonizing climate policies across countries, implicitly assuming that the harmonization of climate policies at the subnational level would be mandated or guaranteed. We argue that the design and implementation of climate policy in a federal union will diverge in important ways from policy design in a unitary government. National climate policies built on the assumption of a unitary model of governance are unlikely to achieve the expected outcome due to interactions with policy choices made at the subnational level. In a federal system, the information and incentives generated by a national policy must pass through various levels of subnational fiscal and regulatory policy. Effective policy design must recognize both the constraints and opportunities presented by a federal structure of government. Furthermore, policies that take advantage of the federal structure of government can improve climate governance outcomes.
    Keywords: climate change, subsidiarity, states, federalism, climate governance
    JEL: Q54 Q58 H7
    Date: 2012–01–18
  34. By: Robert S. Pindyck
    Abstract: Climate policy poses a dilemma for environmental economists. The economic argument for stringent GHG abatement is far from clear. There is disagreement among both climate scientists and economists over the likelihood of alternative climate outcomes, over the nature and extent of the uncertainty over those outcomes, and over the framework that should be used to evaluate potential benefits from GHG abatement, including key policy parameters. I argue that the case for stringent abatement cannot be based on the kinds of modeling exercises that have permeated the literature, but instead must be based on the possibility of a catastrophic outcome. I discuss how an analysis that incorporates such an outcome might be conducted.
    JEL: D81 Q51 Q54
    Date: 2012–07

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