nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒08‒23
sixty-one papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Institutional adaptability to redress electricity infrastructure vulnerability due to climate change By John Foster; William Paul Bell; Craig Froome; Phil Wild; Liam Wagner; Deepak Sharma; Suwin Sandu; Suchi Misra; Ravindra Bagia
  2. Auction Design for Local Reserve Energy Markets By Rosen, Christiane; Madlener, Reinhard
  3. The Evolution of Renewable Energy Policy in OECD Countries: Aggregate Indicators and Determinants By Francesco Nicolli; Francesco Vona
  4. The Multi-faceted Nature of Preferences for Offshore Wind Farm Siting By Vanja WESTERBERG; Jette BREDAHL JACOBSEN; Robert LIFRAN
  5. The Impact of Wind Farms on Property Values: A Geographically Weighted Hedonic Pricing Model By Sunak, Yasin; Madlener, Reinhard
  6. Winners or losers?: State measures in crisis management and the energy markets By Somosi, Sarolta
  7. GA-based dynamic base station operation to improve energy efficiency By Park, Soyoung; Park, Seokji
  8. Factors influencing German house owners' preferences on energy retrofits By Achtnicht, Martin; Madlener, Reinhard
  9. Russia’s Emerging ESCO Market: Prospects and Barriers for Energy Efficiency Investments By Garbuzova , Maria; Madlener, Reinhard
  10. Energy efficiency measurement in agriculture with imprecise energy content information By Blancard, Stephane; Martin, Elsa
  11. Does energy consumption affect growth? By Saten Kumar; Don J. Webber; Antonio Paradiso
  12. Economic growth and electricity consumption in Africa: MS-VAR and MS-GRANGER causality analysis By Bildirici, Melike
  13. Energieeffizienzpotenziale und staatlicher Lenkungsbedarf By Dobroschke, Stephan
  14. Wages in a Factor Proportions Model with Energy Input By Hyeongwoo Kim; Henry Thompson
  15. Poverty and distributional impact of gas price hike in Armenia By Ersado, Lire
  16. Unconventional Natural Gas Development and Infant Health: Evidence from Pennsylvania By Hill, Elaine L.
  17. Volatility Persistence in Crude Oil Markets By Amélie Charles; Olivier Darné
  18. Long-run Trends or Short-run Fluctuations – What Establishes the Correlation between Oil and Food Prices?The Interplay of Standardized Tests and Incentives – An Econometric Analysis with Data from PISA 2000 and PISA 2009 By Karoline Krätschel; Torsten Schmidt
  19. Can Oil-led Growth and Structural Change Go Hand in Hand in Ghana? A Multi-sector Intertemporal General Equilibrium Assessment By Clemens Breisinger, Xinshen Diao, Manfred Wiebelt
  20. Manna from Heaven: The Impact of Nonrenewable Resource Revenues on Other Revenues of Resource Exporters in Latin America and the Caribbean By Rolando Ossowski; Alberto Gonzáles-Castillo
  21. Neoclassical Growth and the Natural Resource Curse Puzzle By Guilló, María Dolores; Pérez-Sebastián, Fidel
  22. Abu Dhabi und Dubai: Wirtschaftliche Entwicklung wie aus 1001 Nacht? By Benner, Maximilian
  23. Competition for Land in the Global Bioeconomy By Hertel, Thomas W.; Steinbuks, Jevgenijs; Baldos, Uris Lantz C.
  24. Food for Fuel: The Effect of U.S. Energy Policy on Indian Poverty By Ural Marchand, Beyza; Chakravorty, Ujjayant; Hubert, Marie-Helene
  25. Aligning climate change mitigation and agricultural policies in Eastern Europe and Central Asia By Larson, Donald F.; Dinar, Ariel; Blankespoor, Brian
  26. Prospects for Corn Ethanol in Argentina By Bruce A. Babcock; Miguel Carriquiry
  27. Preliminary Assessment of the Drought’s Impacts on Crop Prices and Biofuel Production By Bruce A. Babcock
  28. Environmental Tax Reform: Principles from Theory and Practice to Date By Dirk Heine; John Norregaard; Ian W.H. Parry
  29. From Regressive Pollution Taxes to Progressive Environmental Tax Reforms By Mireille Chiroleu-Assouline; Mouez Fodha
  30. Policies to reduce traffic externalities in cities By De Borger B.; Proost S.
  31. A Proposed Fuel Price Stabilization Mechanism through the Use of Financial Derivatives By Juan Antonio Zapata; Carlos Gabriel Rivas; Alejandro Melandri
  32. Propuesta de un mecanismo de estabilización de precios de los combustibles a través del uso de instrumentos financieros derivados By Juan Antonio Zapata; Carlos Gabriel Rivas; Alejandro Melandri
  33. The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment By Richard Schmalensee; Robert Stavins
  34. On the Stochastic Properties of Carbon Futures Prices By Julien Chevallier; Benoît Sévi
  35. Abatement and evolution in the European electric power sector in reaction to the EU ETS carbon price signal. By Shaw, Suzanne
  36. Impact of Carbon Prices: State Production Trends, Inter-state Trade and Carbon Emission Reduction Outcomes in the NEM over the period 2007- 2009. By Phil Wild; William Paul Bell; John Foster
  37. The Incidence of the European Union Emissions Trading System and the Role of Revenue Recycling: Empirical Evidence from Combined Industry- and Household-Level Data By Martin Beznoska; Johanna Cludius; Viktor Steiner
  38. Capped steam ahead: A case study among ship operators on a maritime ETS By Koesler, Simon; Achtnicht, Martin; Köhler, Jonathan
  39. SUPER-ADDITIONALITY: A Neglected Force in Markets for Carbon Offsets By Kanbur, Ravi; Bento, Antonio M.; Leard, Benjamin
  40. An Empirical Investigation of the Balance of Embodied Emission in Trade:Industry Structure and Emission Abatement By Satoshi Honma; Yushi Yoshida
  41. Mitigating environmental risks in small-scale activities: what role for microfinance? A case study from El Salvador By Marion Allet
  42. Green Growth and Equity in the Context of Climate Change : Some Considerations By Jeffrey D. Sachs; Shiv Someshwar
  43. Towards Green Growth in Denmark: Improving Energy and Climate Change Policies By Stéphanie Jamet
  44. Climate Change Mitigation and Green Growth in Developing Asia By Stephen Howes; Paul Wyrwoll
  45. Does Financial Development Reduce CO2 Emissions in Malaysian Economy? A Time Series Analysis By Shahbaz, Muhammad; Solarin, Sakiru Adebola; Mahmood, Haider
  46. Environmental Kuznets Curve for carbon dioxide emissions: lack of robustness to heterogeneity? By Thomas Jobert; Fatih Karanfil; Anna Tykhonenko
  47. Green innovations and organizational change: Making better use of environmental technology By Hottenrott, Hanna; Rexhäuser, Sascha; Veugelers, Reinhilde
  48. Narrowing the Gaps through Regional Cooperation Institutions and Governance Systems By Heinrich-Wilhelm Wyes; Michael Lewandowski
  49. Unobserved State Fragility and the Political Transfer Problem By Faizal Z. Ahmed; Eric Werker
  50. Making or buying environmental public goods: do consumers care? By Douadia Bougherara; Sandrine Costa; Mario Teisl
  51. Defensive Investments and the Demand for Air Quality: Evidence from the NOx Budget Program and Ozone Reductions By Olivier Deschenes; Michael Greenstone; Joseph S. Shapiro
  52. Carbon dioxide emissions and governance: A nonparametric analysis for the G-20 By Halkos, George; Tzeremes, Nickolaos
  53. Which mode of funding developing countries' climate policies under the post-Kyoto framework? By Heuson, Clemens; Peters, Wolfgang; Schwarze, Reimund; Topp, Anna-Katharina
  55. Adaptive Model-Predictive Climate Policies in a Multi-Country Setting By Thierry Bréchet; Carmen Camacho; Vladimir M. Veliov
  56. Building SSPs for Climate Policy Analysis: A Scenario Elicitation Methodology to Map the Space of Possible Future Challenges to Mitigation and Adaptation By Julie Rozenberg; Céline Guivarch; Robert Lempert; Stéphane Hallegatte
  57. How inertia and limited potentials affect the timing of sectoral abatements in optimal climate policy By Vogt-Schilb, Adrien; Meunier, Guy; Hallegatte, Stephane
  58. How inertia and limited potentials affect the timing of sectoral abatements in optimal climate policy By Adrien Vogt-Schilb; Guy Meunier; Stéphane Hallegatte
  60. Risk and Return in Environmental Economics By Robert S. Pindyck
  61. The Choice of Discount Rate for Climate Change Policy Evaluation By Lawrence H. Goulder; Roberton C. Williams III

  1. By: John Foster (Department of Economics, University of Queensland); William Paul Bell (Department of Economics, University of Queensland); Craig Froome; Phil Wild (Department of Economics, University of Queensland); Liam Wagner (Department of Economics, University of Queensland); Deepak Sharma (Centre for Energy Policy, University of Technology, Sydney); Suwin Sandu (Centre for Energy Policy, University of Technology, Sydney); Suchi Misra (Centre for Energy Policy, University of Technology, Sydney); Ravindra Bagia (Centre for Energy Policy, University of Technology, Sydney)
    Abstract: The objectives of this project are to examine the adaptive capacity of existing institutional arrangements in the National Electricity Market (NEM) to existing and predicted climate change conditions. Specifically the project aims to: 1. identify climate change adaptation issues in the NEM; 1. analyse climate change impacts on reliability in the NEM under alternative climate change scenarios to 2030, particularly what adaptation strategies the power generation and supply network infrastructure will need; and 3. assess the robustness of the institutional arrangements that supports effective adaptation. This report provides an extensive literature review to inform and to develop research questions for the project’s four forthcoming reports: 1. the impact of climate change on electricity demand; 2. the impact of climate change on electricity generation capacity and transmission networks; 3. analysing the effects of changes in water availability on electricity demand-supply; and 4. assessing the current institutional arrangements for the development of electricity infrastructure to inform more flexible arrangements for effective adaptation. The review finds that four factors are hindering or required for adaptation to climate change: 1. fragmentation of the NEM both politically and economically; 2. accelerated deterioration of the transmission and distribution infrastructure due to climate change requiring the deployment of technology to defer investment in transmission and distribution; 3. lacking mechanisms to develop a diversified portfolio of generation technologies and energy sources to reduce supply risk; and 4. failing to model and to treat the NEM as a node based entity rather than state based. Section 2 reviews the literature. Section 3 recommends solutions to the four factors of maladaption. Section 4 discusses research questions to test these solutions, which the forthcoming reports will address.
    Keywords: Electricity Markets, Climate Change, Australian National Electricity Market (NEM)
    JEL: Q40
    Date: 2012–04
  2. By: Rosen, Christiane (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In this paper we develop an auction mechanism that is designed for a local energy market. It is aimed at enabling regional trading of ancillary services, which enhances the position of the balance group responsible party beyond that of simple accounting. Furthermore, it makes local market participants somewhat more independent from the transmission grid operator, but at the same time provides incentives for investments in distributed generation technologies. A wider spread of some of these technologies can help to save CO2 emissions, whereas the other part can be used to counter the fluctuations of energy from renewable sources, such as wind and solar power. Because of their high margins and small share of total production, ancillary services are well-suited for a remuneration scheme. Participants in the auction are, thus, private households, which imposes specific design characteristics on the auction. Most importantly, it needs to be transparent and easy to understand, as homeowners will typically not have the insights of a professional trader as well as lack a similar position and motivation. Also, the confinement to a single balance group, i.e. a local market, means that especially in the beginning of the trading only a small number of bidders can be expected. Therefore, competition will be limited and the auction design needs to be adapted accordingly. In order to test the performance of the proposed design, a simple multi-agent-based simulation program has been developed. We find that the theoretical predictions hold and that competition quickly leads to price convergence.
    Keywords: Auction; ancillary services; local market; multi-agent-based simulation; distributed generation
    Date: 2012–07
  3. By: Francesco Nicolli (University of Ferrara); Francesco Vona (OFCE Sciences-Po and Skema Business School)
    Abstract: This paper proposes different methods to aggregate heterogeneous policies for renewable energy. We compare time-varying indicators built using principal component analysis with average-based indicators. The main goal of the paper is to account for the evolution of both types of policy indicators with a set of common variables. Our empirical results are consistent with predictions of political-economy models of environmental policies as lobbying, income and, to a less extent, inequality have expected effects on policy. The brown lobbying power, proxied by entry barriers in the energy sector, has negative influence on the policy indicators even when taking into account endogeneity in its effect. The results are also robust to dynamic panel specifications and to the exclusion of groups of countries. Interestingly, too, corruption has only an indirect effect on policy mediated by entry
    Keywords: Renewable Energy Policy, Political Economy, Product Market Regulation, Lobbying, Policy Indicators
    JEL: Q42 Q48 D72 O38
    Date: 2012–07
    Abstract: There is increasing consensus that NIMBYism is a deficient explanation for widespread resistance to the installation of wind power facilities. This paper addresses this deficiency by examining the determinants of tourist preferences over the position of offshore wind farms at different distances from the shore in the Mediterranean Sea. A principal component analysis is used to retrieve general attitudinal themes, which act as covariates in a choice model. We demonstrate the respective role of respondents’ opinions on energy policy, perceived urgency of tackling climate change, NIMBY objections, nationality and education in explaining preferences for the siting of offshore wind farms.
    Date: 2012–07
  5. By: Sunak, Yasin (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: Wind power is the most important renewable energy source in many countries today, characterized by a rapid and extensive diffusion since the 1990s. However, it has also triggered much debate with regard to the impact on landscape and vista. Therefore, siting processes of wind farm projects are often accompanied by massive public protest, because of visual and aural impacts on the surrounding area. These mostly negative consequences are often reflected in property values and house prices. The aim of this paper is to investigate the impact of wind farms on the surrounding property values by means of a geographically-weighted hedonic pricing model. By comparing the predictive performance of standard Ordinary Least Squares (OLS) regression models and Geographically Weighted Regression (GWR) models, we find that, mainly due to a local clustering bias, global OLS estimation is inadequate for capturing the impacts of wind farm proximity on property prices. GWR reveals spatial non-stationarity of the variables and varying spatial patterns of the coefficient estimates across and within the city areas. Moreover, the GWR findings provide evidence for negative local effects of site proximity and of shadowing caused by wind turbines. The analysis was done for a study area in western Germany.
    Keywords: Wind power; Hedonic pricing; Spatial non-stationarity; Geographically Weighted Regression
    JEL: C31 Q24 Q42 R31
    Date: 2012–05
  6. By: Somosi, Sarolta
    Abstract: Several studies have been made about the present global financial crisis that has affected real economy as well. We know the root causes and its consequences. However we found a sector that has not been examined comprehensively in inland studies on the ground of changing environment. It is worth examining the effects on energy sector on the basis of their stages and impacts. Among governmental responses we can find several that hit energy markets, like super-taxes, privatisation or the broadening of state ownership. National supports were introduced for the handling of the financial crisis within the energy sector. However we must add that energy market supports served rather development purposes and not company salvage like we have seen it in other sectors. Also competition rules remained almost as consistent as we experienced it before. Moreover, if recent EU level energy policy projects come true, energy sector can even realize profit from the crisis. Future of the European energy markets depends on the recognition and exploitation of the possibilities coming from new circumstances.
    Keywords: energy markets; economic crisis; state measures
    JEL: H1 L95 L94 L50
    Date: 2012
  7. By: Park, Soyoung; Park, Seokji
    Abstract: --
    Date: 2012
  8. By: Achtnicht, Martin; Madlener, Reinhard
    Abstract: In this paper, we identify key drivers and barriers for the adoption of building energy retrofits 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 retrofitting their homes, but also faced a choice experiment involving different energy retrofit measures. Overall, both the descriptive and econometric results show that house owners who are able to afford it financially, for whom it is profitable, and for whom there is a favorable opportunity, are more likely to undertake energy retrofit 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 retrofit,Choice experiment,Energy effciency,Residential buildings
    JEL: C25 D12 Q40
    Date: 2012
  9. By: Garbuzova , Maria (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: The Russian Energy Service Company (ESCO) market emerges rapidly due to the new energy efficiency legislation that has been implemented since 2009. However, a clear identification of the Russian ESCOs, comparable to those operating in the Western markets, remains rather difficult. Hence, aside from the independent ESCOs identified, further energy service-providing companies were within the scope of this survey. This paper delivers, to the best of our knowledge, the first systematic empirical investigation of the Russian ESCO industry, taking into account experiences from the international ESCO markets. Building on the insights gained from reviewing the existing international and Russian academic and non-academic literature on the ESCO concept, an explorative, questionnaire-based survey among 161 Russian energy companies and organizations was conducted. Twenty eight usable responses were returned, corresponding to a response rate of 17%. Our findings show that the new energy efficiency legislation addresses and supports the state sector. There are almost no state measures supporting the commercial ESCO sector. Most of the projects are financed either through ESCOs’ own funds and direct loans to customers, or by the customers themselves. In contrast, Russian banks rarely provide direct loan financing for energy efficiency projects of ESCOs, but rather offer financial leasing contracts. The contractual form “guaranteed savings”, which is generally more applicable in mature ESCO markets, is gaining in importance, while “shared savings” is barely used.
    Keywords: Energy Efficiency; Financing; Energy Service Company; ESCO; Energy Performance Contracting; EPC; Energy Service Providing Company; ESPC
    Date: 2012–07
  10. By: Blancard, Stephane; Martin, Elsa
    Abstract: Energy efficiency measurement is crucial when planning energy reduction policies. However, decision makers understandably will be reluctant to act in the absence of solid data and results supporting a policy position. The main objective of this paper is to propose an alternative method to measure farm energy efficiency. This method is based on the Data Envelopment Analysis (DEA) approach in a cost framework introduced by Farrell (1957) and developed by Färe et al. (1985). We decompose the energy efficiency measurement into two components, namely technical and allocative efficiencies. Here, input prices are replaced by their energy content. The energy efficiency model is used to explore the optimal input-mix that produces the current outputs at minimum energy-consumption. We show that this decomposition can help policy makers considerably to design accurate energy policies. The presence of uncertainty on data, and more particularly on energy content of inputs, leads us to recommend exploiting the methodologies proposed for calculating the bounds of efficiency measurement in order to produce more robust results. We expect to alert policy-makers in the fact that efficiency is not a fixed value and should be considered with caution. A 2007 database of French farms specialized in crops is used for empirical illustration.
    Keywords: Crop-farming, Data Envelopment Analysis, energy efficiency, uncertainty, Research and Development/Tech Change/Emerging Technologies, Research Methods/ Statistical Methods, D24, O13, Q15, Q4,
    Date: 2012
  11. By: Saten Kumar (Department of Economics, Auckland University of Technology, Auckland, New Zealand.); Don J. Webber (Department of Accounting, Economics and Finance, University of the West of England, Bristol, UK); Antonio Paradiso (Department of Economics, University of Rome La Sapienza, Rome, Italy)
    Abstract: A review of the literature reveals discrepancies between estimates of the impact of energy consumption on output and growth. This paper highlights the importance of underlying theoretical concerns, extends a neoclassical growth model to include energy consumption, applies panel data cointegration methods that deal with cross-sectional dependence and structural breaks to a sample of thirteen high energy consuming countries, and provides empirical estimates of the impact of energy consumption on output and growth. Results suggest that energy consumption has a permanent positive effect on output levels but has no statistically significant effect on growth. We suggest that rebound effects may confound the observable effects of energy on growth and that the effects on the environment of attempts to stimulate economic growth may never be forecast correctly ex ante.
    Keywords: Energy consumption per capita; Level effect; Growth effect.
    JEL: O40 Q40
    Date: 2012–04
  12. By: Bildirici, Melike
    Abstract: Knowledge of the direction of the causality between electricity consumption and economic growth is of primary importance if appropriate energy policies and energy conservation measures are to be devised.This study estimates the causality relationship between electricity consumption and economic growth by Markov Switching Vector Auto Regression (VAR) and Markov Switching Granger Causality methods for some emerging countries; Brunei, Cameron, Côte d'Ivoire, Nigeria, South Africa, Togo and Zimbabwe. The results from MS-VAR models show that in regime one, two and three, Electricity Consumption (EC) is the Granger cause of the Gross Domestic Product (GDP) and GDP is the Granger cause of the EC. In sum, we find some evidence of bidirectional GC between the EC and the GDP.
    Keywords: Economic Growth; Electricity Consumption; MS-VAR; MS-Granger Causality
    JEL: C0 N7
    Date: 2012–01–29
  13. By: Dobroschke, Stephan
    Abstract: Die langfristigen Klimaschutzziele sehen bis zum Jahr 2020 im Vergleich zu 2008 eine Senkung des Primärenergieverbrauchs um 20% vor, bis zum Jahr 2050 wird eine Senkung um 50% angestrebt. Zur Erreichung dieser Ziele stehen zunehmend Maßnahmen zur Steigerung nachfrageseitiger Energieeffizienz im Vordergrund. Dies wird zum Anlass genommen, den aktuellen Forschungsstand im Bereich der Energieeffizienz und staatlicher Eingriffslegitimation ausführlich aufzuarbeiten und zunächst zu klären, was eigentlich unter einer Steigerung der Energieeffizienz und einer Energieeffizienzlücke zu verstehen ist. Auf Basis einer theoretisch fundierten Instrumentendiskussion wird schließlich eine zweistufige Instrumentierung vorgeschlagen, bestehend aus einer Anlastung energieträgerspezifischer negativer externer Effekte sowie, in zweiter Instanz, aus Maßnahmen zur Korrektur marktlicher Rahmenbedingungen. -- Long-term environment goals consist of a reduction of primary energy consumption of 20% by 2020 as well as of 50% by 2050, comparing to the year 2008. In order to achieve these goals, an increasing number of political actions are recently being implemented. In this respect, the political attention turns more and more to demand-oriented measures to increase energy efficiency. For this reason, an extensive review of actual research is being undertaken, followed by an elaboration on the actual meanings of energy efficiency and the energy efficiency gap. On these grounds, an instrumental discussion on how to successfully address energy efficiency reduction potentials is being conducted. From a political perspective, this leads to a two-stage strategy: According to environmental impacts of respective primary energy carriers, negative external effects are to be charged at first. Only secondly, market failures may be corrected.
    Keywords: Energieeffizienz,Energieeffizienzlücke,Marktversagen,umweltpolitische Markteingriffe,Klimaschutz,energy efficiency,energy efficiency gap,market failure,climate protection,market interventionism
    JEL: Q43 Q48
    Date: 2012
  14. By: Hyeongwoo Kim; Henry Thompson
    Abstract: This paper examines US wage adjustment in a structural vector autoregression of the factor proportions model of production and trade with energy, capital, and labor inputs. Data cover the years 1949 to 2006. The wage adjusts to changes in inputs levels and output prices over 6 to 8 years. Energy has a more robust wage impact than capital. The wage reacts weakly if at all to the falling price of manufactures and rising price of services over the sample period. Estimates relate directly to factor proportions theory, suggesting robust substitution with labor in the middle of the factor intensity ranking.
    Keywords: Wages; Energy; Factor Proportions Model; Vector Autoregression
    JEL: F11
    Date: 2012–07
  15. By: Ersado, Lire
    Abstract: Armenia meets about 75 percent of its energy needs through imports, with natural gas imports from Russia accounting for about 80 percent of total energy imports and 60 percent of total primary energy supply. Because of high dependence on imported energy, Armenia is vulnerable to external energy price shocks, which are often beyond the control of its policymakers. A most recent case in point was the 2010 Russian gas tariff increase, which led to a nearly 40 percent increase in the retail gas price for residential consumers. Coming on the heels of the global economic recession that hit Armenia's economy hard, the price hike amplified the impact on households that rely primarily on gas for heating and cooking. Using aggregate energy consumption data and a nationally representative household survey immediately before the crisis, this paper provides an overview of household energy consumption patterns, highlights Armenia's energy vulnerability, and estimates the direct poverty and distributional impacts of the increase in the cost of imported gas. The analysis shows that the gas price hike resulted in a significant increase in energy expenditures, with disproportionately higher impact on the poor and vulnerable households. The paper concludes with a discussion on the effectiveness of the mitigation measures employed by the Government of Armenia.
    Keywords: Energy Production and Transportation,Energy and Environment,Environment and Energy Efficiency,Transport and Environment,Water and Industry
    Date: 2012–07–01
  16. By: Hill, Elaine L.
    Keywords: Environmental Economics and Policy, Health Economics and Policy, Research and Development/Tech Change/Emerging Technologies,
    Date: 2012–07
  17. By: Amélie Charles (Audencia - Audencia); Olivier Darné (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272)
    Abstract: Financial market participants and policy-makers can benefit from a better understanding of how shocks can affect volatility over time. This study assesses the impact of structural changes and outliers on volatility persistence of three crude oil markets - Brent, West Texas Intermediate (WTI) and Organization of Petroleum Exporting Countries (OPEC) - between January 2, 1985 and June 17, 2010. Firstly, we identify the time points at which structural changes occurred using the modified ICSS test developed by Sansó et al. (2004) and then incorporate this information into the volatility modeling. Our results indicated that the degree of persistence of volatility is reduced by incorporating the variance changes into the volatility model. Secondly, we identify outliers using intervention analysis and conditional heteroscedasticity model. These large shocks can be associated with particular event patterns, such as the invasion of Kuwait by Iraq, the Operation Desert Storm, the Operation Desert Fox, and the Global Financial Crisis as well as OPEC announcements on production reduction or US announcements on crude inventories. We show that outliers can bias the estimation of the persistence of the volatility. Taking into account outliers on the volatility modelling process may improve the understanding of volatility in crude oil markets.
    Keywords: Crude oil; volatility persistence; structural breaks; outliers; GARCH
    Date: 2012–07–19
  18. By: Karoline Krätschel; Torsten Schmidt
    Abstract: In this paper we use the frequency domain Granger causality test of Breitung/Candelon (2006) to analyse short- and long-run causality between energy prices and prices of food commodities. We find that the oil price Granger causes all the considered food prices. However, when controlling for business cycle fluctuations this link exists especially at low frequencies. Thus, short-run phenomena like herd behaviour and speculation do not seem to have a considerable effect on the studied food prices. The relation between oil and food prices is rather established by long-term developments. A possible explanation for this could be the production of biofuel.
    Keywords: Granger causality; spectral analysis; commodity prices
    JEL: C32 E43
    Date: 2012–07
  19. By: Clemens Breisinger, Xinshen Diao, Manfred Wiebelt
    Abstract: Unlike in Asia, the manufacturing sector has not (yet) become a driver of structural change in Africa. One common explanation is that the natural resource-focus of many African economies leads to Dutch disease effects. To test this argument for the case of newly found oil in Ghana we develop a multi-sector intertemporal general equilibrium model with endogenous savings and investment behavior. Results show that in addition to the well-known short-term Dutch disease effects, long-term structural effects can indeed impede Asian-style economic transformation in Ghana (and other resource rich countries). We also demonstrate how oil wealth may go hand in hand with structural change in the future
    Keywords: transformation, growth, structural change, oil revenue, Dutch disease, Ghana, intertemporal general equilibrium
    JEL: C68 D58 D90 F43 O11 O41 O55
    Date: 2012–07
  20. By: Rolando Ossowski; Alberto Gonzáles-Castillo
    Abstract: This paper examines the impact of the availability of fiscal revenues from nonrenewable resources on other revenues of Latin American and Caribbean resource-exporting countries. It compares the performance of nonresource revenues in these countries to that in other countries in the region. The effect of resource revenue on nonresource revenue is found to be negative and statistically significant, with structural breaks both over time and across countries. Nonresource revenues have risen considerably, but they are still lower on average than in comparator countries, and the wedge between both groups of countries has widened over time. They also tend to be more volatile. The paper also analyzes the composition of nonresource revenues. It finds that the performance of VAT and nonresource income taxes of resource exporters has been similar to that of other countries, but revenues from other taxes (including excises) have been lower. The paper's findings have important policy implications. Especially for resource exporters with fiscal vulnerabilities to shocks and sustainability issues, strengthening nonresource revenues would be important to create adequate fiscal space to meet expenditure needs. Oil exporters should also consider phasing out their costly, inefficient, and poorly targeted petroleum subsidies, with compensating measures to protect vulnerable groups.
    Keywords: Economics :: Fiscal Policy, Economics :: Economic Development & Growth, Environment & Natural Resources, Nonrenewable resources, Oil revenues, Mineral revenues, Domestic revenue effort, Nonresource revenues, Value-added tax, Income tax, Petroleum subsidies
    JEL: E62 H20 H21 H55 O13 O23 Q30 Q33
    Date: 2012–08
  21. By: Guilló, María Dolores (Departamento de Métodos Cuantitativos y Teoría Económica y IUDESP); Pérez-Sebastián, Fidel (Departamento de Fundamentos del Análisis Económico)
    Abstract: The traditional view that natural riches increase the wealth of nations has been recently challenged by empirical findings that point out that natural inputs are negatively related to growth. This paper shows, within a two-sector neo-classical growth model with international trade in goods, that these two views can be reconciled. Natural inputs directly affect both long-run income and transitional growth. These two effects can be positive or negative depending on input elasticities. Furthermore, they go in opposite directions, creating a tension that complicates the interpretation of estimated-coefficient signs in growth regressions. Quantitative results show that the two effects can be significant.
    Keywords: neoclassical growth; resource curse; convergence
    JEL: F11 F43 O11 O13 O41
    Date: 2012–07–26
  22. By: Benner, Maximilian
    Abstract: The development of Abu Dhabi and Dubai during past years seems breathtaking. Both emirates pursue a strategy of diversifying their economic structure and thus of becoming less dependent on oil and gas. The obvious goal is to secure their prosperity for an era beyond oil. Diversification is a relevant strategic imperative for other resource-rich developing countries, too. In view of the current transformation processes in Arab countries the question whether differing strategies of the two emirates can pose a model for other countries becomes highly significant.
    Keywords: Abu Dhabi; Dubai; diversification; industrialization; industrial policy
    JEL: O25 O10 L78 L71 O20 O14
    Date: 2011–03
  23. By: Hertel, Thomas W.; Steinbuks, Jevgenijs; Baldos, Uris Lantz C.
    Abstract: The global land use implications of biofuel expansion have received considerable attention in the literature over the past decade. Model-based estimates of the emissions from cropland expansion have been used to assess the environmental impacts of biofuel policies. And integrated assessment models have estimated the potential for biofuels to contribute to greenhouse gas abatement over the coming century. All of these studies feature, explicitly or implicitly, competition between biofuel feed stocks and other land uses. However, the economic mechanisms governing this competition, as well as the contribution of biofuels to global land use change, have not received the close scrutiny that they deserve. The purpose of this paper is to offer a deeper look at these factors. We begin with a comparative static analysis which assesses the impact of exogenously specified forecasts of biofuel expansion over the 2006-2035 period. Global land use change is decomposed according to the three key margins of economic response: extensive supply, intensive supply, and demand. Under the International Energy Agency’s “New Policies” scenario, biofuels account for nearly one-fifth of global land use change over the 2006-2035 period. The paper also offers a comparative dynamic analysis which determines the optimal path for first and second generation biofuels over the course of the entire 21st century. In the absence of GHG regulation, the welfare-maximizing path for global land use allocates 170 Mha to biofuel feed stocks by 2100, with the associated biofuels accounting for about 30% of global liquid fuel consumption. This area expansion is somewhat diminished by expected climate change impacts on agriculture, while it is significantly increased by a moderately aggressive GHG emissions target and by advances in conversion efficiency of second generation biofuels. Keywords: Biofuels, global land use, partial equilibrium analysis, comparative statics, comparative dynamics, climate change impacts, carbon policies.
    Keywords: Biofuels, global land use, partial equilibrium analysis, comparative statics, comparative dynamics, climate change impacts, carbon policies, Land Economics/Use, Resource /Energy Economics and Policy, Q11, Q15, Q24, Q42, Q54,
    Date: 2012
  24. By: Ural Marchand, Beyza (University of Alberta, Department of Economics); Chakravorty, Ujjayant (Tufts University); Hubert, Marie-Helene (University of Rennes)
    Abstract: Many countries have adopted energy policies that promote biofuels as a substitute for gasoline in transportation. For instance, 40% of U.S. grain is now used for energy and this share is expected to rise significantly under the current Renewable Fuels Mandate. This paper examines the distributional effects of the U.S. mandate on India. First, we use a model with endogenous land use to estimate the effect of biofuel policy on the world price of food commodities, in particular rice, wheat, sugar and meat and dairy, which provide almost 70% of Indian food calories. We obtain world price increases of the order of 10% for most of these commodities. Using Indian micro-level survey data for consumption and income, we carefully estimate the effect of these price increases on household welfare. We account for negative consumption impacts as well as the positive effects through wages and income. We consider both perfect and imperfect pass-through from world to domestic prices. We show that the net impact on welfare is negative as well as regressive, i.e., U.S. biofuels policy affects the poorest people the most. About 42 million new poor may be created in India alone. Under imperfect pass-through, this number declines to 16 million. The main implication is that U.S. energy policy that mandates the production of fuel from food may lead to a sharp increase in world poverty.
    Keywords: clean energy; food prices; household welfare; renewable fuel standards; poverty
    JEL: D31 O12 Q24 Q42
    Date: 2012–08–01
  25. By: Larson, Donald F.; Dinar, Ariel; Blankespoor, Brian
    Abstract: Greenhouse gas emissions are largely determined by how energy is created and used, and policies designed to encourage mitigation efforts reflect this reality. However, an unintended consequence of an energy-focused strategy is that the set of policy instruments needed to tap mitigation opportunities in agriculture is incomplete. In particular, market-linked incentives to achieve mitigation targets are disconnected from efforts to better manage carbon sequestered in agricultural land. This is especially important for many countries in Eastern Europe and Central Asia where once-productive land has been degraded through poor agricultural practices. Often good agricultural policies and prudent natural resource management can compensate for missing links to mitigation incentives, but only partially. At the same time, two international project-based programs, Joint Implementation and the Clean Development Mechanism, have been used to finance other types of agricultural mitigation efforts worldwide. Even so, a review of projects suggests that few countries in Eastern Europe and Central Asia take full advantage of these financing paths. This paper discusses mitigation opportunities in the region, the reach of current mitigation incentives, and missed mitigation opportunities in agriculture. The paper concludes with a discussion of alternative policies designed to jointly promote mitigation and co-benefits for agriculture and the environment.
    Keywords: Climate Change Mitigation and Green House Gases,Wetlands,Climate Change Economics,Environmental Economics&Policies,Energy and Environment
    Date: 2012–06–01
  26. By: Bruce A. Babcock (Center for Agricultural and Rural Development (CARD)); Miguel Carriquiry (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI))
    Abstract: Countries that export biofuel feedstocks such as grain or sugar and that are also importers of motor fuels will have a natural competitive advantage over other countries in the production of biofuels. Argentina is one of a very few countries that both export potential feedstocks and import gasoline and diesel. This combination means that an Argentine ethanol plant will pay less for feedstock and receive a higher price for ethanol than an ethanol plant located in a country that imports feedstocks and exports motor fuels. Argentina is the world’s second-largest exporter of corn. This export status, when combined with high internal transportation costs, lowers the price of corn in the major production areas of Argentina. In addition, Argentina’s farmers need to plant more corn to create a more sustainable balance between corn and soybeans. In particular, in Argentina’s northern production regions, the large amount of crop residue from increased corn plantings is needed to help build soil quality. Thus there is significant potential for expansion of corn in Argentina, which makes corn an even better feedstock for ethanol. The variable or direct cost of converting a ton of corn into ethanol in Argentina is comparable to conversion costs in the United States, with the exception that natural gas costs more in Argentina. For a plant that does not dry distillers grains, conversion costs would be approximately $40 per ton of corn processed. Drying distillers grains adds about $10 per ton. The domestic price of corn in Argentina not only reflects the cost of transporting corn from the interior to Rosario, but it also reflects the effects of export taxes and the need to obtain government permission to export. Over the period from October 2010 to March 2012, the cost of corn to an ethanol plant in the state of Iowa in the United States averaged $110 more per ton than the local price of corn paid to farmers in Córdoba over the same period, and $140 more per ton than the Salta corn price. Argentina also has a large livestock sector that can readily use distillers grains from corn ethanol plants. Plants that are located close to cattle operations can sell wet distillers grains to these operations thereby saving the cost of drying. Plants that have dryers installed can export distillers grains. Livestock producers in many countries have learned how to use imported distillers grains from US ethanol plants over the last few years, so Argentina would have the ability to export dried distillers grains.
    Date: 2012–07
  27. By: Bruce A. Babcock (Center for Agricultural and Rural Development (CARD))
    Abstract: Drought has sharply decreased the size of the US corn and soybean crops this year. While there is no way of knowing for sure how low yields will go, the continuation of hot and dry weather in the major corn and soybean producing areas indicates that yield losses could be of historic proportions. The potential economic impact of low yields—particularly corn yields—is heightened this year because of a low buffer stock of corn, and because 10 percent of our motor fuel supply comes from corn. This briefing paper presents preliminary estimates of the economic impacts of low US corn and soybeans yields. The impacts are estimated for the 2012–13 crop year that begins on September 1st. Because we do not know what future yields will be or what future gasoline prices will be, we make the preliminary estimates using a stochastic partial equilibrium model. This type of model solves for market-clearing prices for a large number of random “draws†of yields and gasoline prices. The model is calibrated to information that is available to us at the current time, including the USDA’s supply and demand projections and the level of futures prices for gasoline, corn, and ethanol.
    Date: 2012–07
  28. By: Dirk Heine; John Norregaard; Ian W.H. Parry
    Abstract: This paper recommends a system of upstream taxes on fossil fuels, combined with refunds for downstream emissions capture, to reduce carbon and local pollution emissions. Motor fuel taxes should also account for congestion and other externalities associated with vehicle use, at least until mileage-based taxes are widely introduced. An examination of existing energy/environmental tax systems in Germany, Sweden, Turkey, and Vietnam suggests that there is substantial scope for policy reform. This includes harmonizing taxes for pollution content across different fuels and end-users, better aligning tax rates with values for externalities, and scaling back taxes on vehicle ownership and electricity use that are redundant (on environmental grounds) in the presence of more targeted taxes.
    Keywords: Cross country analysis , Energy taxes , Environmental protection , Germany , Sweden , Tax reforms , Tax system reviews , Turkey , Vietnam ,
    Date: 2012–07–06
  29. By: Mireille Chiroleu-Assouline (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne); Mouez Fodha (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, LEO - Université d'Orléans)
    Abstract: European countries have increased their use of environmental tax instruments by designing new tax bases. But, many countries have to face the opposition of the public opinion, for fear of the distributive consequences of these environmental tax reforms. This paper sheds light on the distributive consequences of environmental tax policies when households are heterogeneous. The objective is to assess whether an environmental tax reform could be Pareto improving, when the revenue of the pollution tax is recycled by a change in the labor tax properties. We show that, whatever the degree of regressivity of the environmental tax alone, it is possible to design a recycling mechanism that renders the tax reform Pareto improving, by simultaneously decreasing the average rate of the wage tax and increasing its progressivity.
    Keywords: Environmental tax reform; heterogeneity; welfare analysis; tax progressivity
    Date: 2012–07
  30. By: De Borger B.; Proost S.
    Abstract: This paper considers various policy measures to reduce traffic externalities in cities, including externality-reducing investments, tolls, emission standards, low emission zones, and bypass capacity to guide traffic around the city center. Using a simple model that distinguishes local and through traffic, we study the optimal use of these instruments by an urban government that cares for the welfare of its inhabitants, and we compare the results with those preferred by a federal authority that takes into account the welfare of all road users. Our results include the following. First, compared to the federal social optimum, we show that the city government will over-invest in externality-reducing infrastructure whenever this infrastructure increases the generalized cost of transit traffic. Second, comparing emission standards and road tolls, we find that cities with a lot of commuters will favor tolls, even though from the federal perspective standards are better. Third, when implementing low emission zones, the urban government will set both the fee for non-compliance and the standard at a higher level than the federal government. Moreover, at sufficiently high transit levels the urban government will prefer imposing a toll instead of implementing a low emission zone. Fourth, if the city can toll the urban infrastructure, it will only invest in bypass capacity when it is allowed to earn extra toll revenues on the bypass that exceed investment costs. Although the paper focuses on non-congestion externalities, most insights also hold in the presence of congestion.
    Date: 2012–07
  31. By: Juan Antonio Zapata; Carlos Gabriel Rivas; Alejandro Melandri
    Abstract: This is the context in which this study has been designed, which proposes a discussion of the fundamentals of employing a mechanism based on the use of financial hedging instruments to mitigate the impact of oil price volatility on the cost of oil derivatives. For the purpose of contributing to the consideration of alternatives, the possibility of supplementing these financial instruments with the implementation of price stabilization funds is also examined, in view of some existing experiences with the latter in the region. The document seeks to support the analysis by modeling the possible results of applying these mechanisms to a regional economy. To this end, the authors received the assistance and collaboration of authorities and officials from the Government of Peru, which made it possible to base the modeling exercise on the behavior of real regional market variables. Furthermore, the study simulates a price stabilization scheme "suggested" for such market aimed at mitigating the volatility of the prices of oil refinery by-products, and quantifies the possible results on the basis of a simplified theoretical simulation. The purpose of this study is to serve as a basic working paper, the main aim of which is to open a window of interest and support a dialogue on the application of stabilization mechanisms that help discuss specific proposals, analyze regulatory frameworks, and develop models to be applied to the price of oil and its derivatives in the countries of the region.
    Keywords: Energy & Mining :: Petroleum, Coal & Natural Gas, Energy & Mining :: Energy Markets, Financial Sector :: Financial Markets, Simulation, financial instruments, derivatives
    JEL: G14
    Date: 2012–03
  32. By: Juan Antonio Zapata; Carlos Gabriel Rivas; Alejandro Melandri
    Abstract: El presente estudio propone la discusión de los fundamentos de la utilización de un mecanismo basado en el uso de instrumentos financieros de cobertura para la mitigación del impacto de la volatilidad del precio del petróleo en el costo de sus productos derivados. A fin de contribuir a la consideración de alternativas se plantea aquí también la posible complementación del uso de estos instrumentos financieros en conjunción con la implementación de fondos de estabilización de precios, en vista de la existencia de algunas experiencias con estos últimos en la región. Como parte del trabajo se ha procurado sustentar los análisis con una modelación del posible resultado de aplicación de estos mecanismos en una economía de la región. Para ello se contó con el apoyo y colaboración de autoridades y funcionarios del Gobierno de Perú, lo cual permitió basar la modelación en el comportamiento de las variables propias de un mercado real de la región. El estudio avanza en la simulación de un esquema "sugerido" de estabilización de precios del petróleo para dicho mercado destinado a mitigar la volatilidad de los precios de los subproductos refinados; y cuantifica sus posibles resultados, a partir de una simulación teórica simplificada. Este estudio se presenta como un documento básico de trabajo, con el fin último de generar espacios de interés y apoyar un diálogo sobre la aplicación de mecanismos de estabilización, que permitan la discusión de propuestas específicas, análisis de marcos regulatorios y el desarrollo de modelos de aplicación a los precios del petróleo y sus derivados, en los países de la Región.
    Keywords: Energía y minería :: Petróleo, carbón y gas natural, Energía y minería :: Mercados de energía, Sector financiero :: Mercados financieros, instrumentos financieros, derivados, simulación
    JEL: G19
    Date: 2012–03
  33. By: Richard Schmalensee; Robert Stavins
    Abstract: Two decades have passed since the Clean Air Act Amendments of 1990 launched a grand experiment in market-based environmental policy: the SO2 cap-and-trade system. That system performed well but created four striking ironies. First, this system was put in place to curb acid rain, but the main source of benefits from it was unexpected. Second, a substantial source of this system’s cost-effectiveness was an unanticipated consequence of earlier railroad deregulation. Third, it is ironic that cap-and-trade has come to be demonized by conservative politicians in recent years, since this market-based, cost-effective policy innovation was initially championed and implemented by Republican administrations. Fourth, court decisions and subsequent regulatory responses have led to the collapse of the SO2 market, demonstrating that what the government gives, the government can take away.
    JEL: Q40 Q48 Q54 Q58
    Date: 2012–08
  34. By: Julien Chevallier (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense); Benoît Sévi (GRANEM - Department of Law, Economics, and Management - Université d'Angers)
    Abstract: In this paper, we are interested in deriving the stochastic properties of CO2 emission allowance futures prices. First, we review the extant mathematical and environmental economics literatures, and explain the main findings from both continuous- and jump-diffusion models. Second, we derive our own empirical application by means of the activity signature function (Todorov and Tauchen (2010,2011)). The central result is that the evolution of the carbon futures price can be described in terms of a pure jump-diffusion process. For instance, important cases of information shocks leading to allowance price jump can be addressed when modelled as an appropriately sampled, centered Lévy or Poisson process.
    Keywords: Carbon Price; Stochastic Modeling; Activity Signature Function
    Date: 2012–03
  35. By: Shaw, Suzanne
    Abstract: Le secteur électrique, le plus important du SCEQE (système communautaire d’échange de quotas), aura un rôle déterminant dans les réductions d’émissions relevant du SCEQE. Une compréhension de la réaction de ce secteur face aux prix du quota européen de carbone (ou EUA pour European Union Allowance), à court terme au niveau de la production d’électricité, et à long terme au niveau des investissements du secteur, est essentielle pour appréhender l'impact potentiel du SCEQE en tant qu'instrument de réduction d’émissions. Elle permettra également une analyse du rôle de ce secteur dans la réalisation des objectifs du SCEQE. L’analyse du secteur électrique dans la phase II du SCEQE confirme les prénotions du marché d’un basculement de la production d’électricité à partir du charbon vers une production basée plus sur le gaz et la biomasse, pour un champ de prix de l’EUA donné. En outre, les estimations en termes des émissions au niveau européen corroborent celles des acteurs du marché d'une phase II longue. Toutefois, guidé par une anticipation de long terme et face à des incertitudes, le secteur effectue des réductions d’émissions durant cette Phase. Le potentiel de réduction d’émissions du secteur électrique dans le court terme est limité par l'inertie de la composition du parc électrique. L’analyse du secteur à long terme, d'ici à 2030, montre que le prix des EUA peut jouer un rôle dans l'évolution du mix technologique du parc pour atteindre un parc globalement moins intense en émissions – le prix de l’EUA faciliterait même l'émergence de la CSC (capture et stockage du carbone). Ainsi l’intégration du prix du carbone dans les décisions d’investissement pourrait avoir un rôle significatif dans la décarbonisation du secteur à long-terme.
    Abstract: The electricity sector is the single most important EU ETS sector and will have determinant role in EU ETS emissions and emissions reductions. As such, understanding the reaction of the sector to EUA or carbon permit prices, both in the short-term (production) and in the long-term (investment) is important to analyse the potential impact of EU ETS policy and implications for achieving policy objectives. Analysis of the electricity sector for Phase II of the EU ETS confirms the general market expectation of switching from coal-based to gas-based, but also biomass-based, technologies with increasing EUA prices. Moreover, the emissions results of the model for the short-term corroborate market estimations of a long Phase II, but indicate that abatement occurs in spite of this, as actors are guided by longer term anticipations of stricter targets and hedge against uncertainty. However, the abatement potential of the power sector in the short-term is limited by the inertia of the park technology mix. Analysis of the sector over the longer term, to 2030, shows that the EUA price can play a role in changing the technology mix of the park towards less emissions-intensive one – even facilitating the emergence of CCS (carbon capture and storage) – and thus increase the potential for achievable emissions reductions compared to a situation where no consideration is given to EUA prices in investment.
    Keywords: secteur électrique; SCEQE; changement climatique; mixe technologique; émissions; Electricity sector; EU ETS; climate change; technology mix; emissions;
    JEL: Q54 Q51 Q42 Q43
    Date: 2012–06
  36. By: Phil Wild (Department of Economics, University of Queensland); William Paul Bell (Department of Economics, University of Queensland); John Foster (Department of Economics, University of Queensland)
    Abstract: The aim of this article is to investigate the impact that the introduction of a carbon price signal will have on fuel switching within the electricity generation sector from sources of generation with high carbon footprints to sources of generation with lower carbon footprints. To examine this issue, we assess production trends, inter-state trade and carbon emission outcomes in the states making up the Australian National Electricity Market (NEM). In order to assess this, we employ an agent based model of the NEM called the ANEM model which contains many of the salient features of the NEM: intra-state and inter-state transmission branches, regional location of generators and load centres and accommodation of unit commitment features. A DC OPF algorithm is used to determine optimal dispatch of generation plant within the ANEM model. We utilise ANEM model scenario runs to examine the impact of carbon prices on production trends, inter-state trade and on carbon emission outcomes.
    Keywords: carbon price, carbon emission reductions, agent-based model, DC OPF Algorithm, Australian National Electricity Market (NEM)
    JEL: C61 C63 D24 L94
    Date: 2012–04
  37. By: Martin Beznoska; Johanna Cludius; Viktor Steiner
    Abstract: We calculate the expected incidence of the European Union Emissions Trading System (EU-ETS) using industry and household-level data. By combining data on direct CO2 emissions by production sector from the German Environmental Account with the German Input-Output Accounts, we calculate the CO2 intensity of each sector covered by the EU-ETS. We focus on the impact of price increases in the electricity sector, both directly in the form of higher electricity bills for consumers and indirectly through products that use electricity as an input to production. Taking into account behavioral effects derived from an estimated consumer-demand system, we provide incidence calculations on the basis of the German Income and Expenditure Survey for the year 2008 data updated to 2013. We confirm the ex-ante expected regressive effect, which is, however, both rather small in magnitude and can be offset and even more than offset by revenue recycling, in particular the reduction of social security contributions on labor income.
    Keywords: European Union Emissions Trading System, tax incidence, revenue recycling, Almost Ideal Demand System
    JEL: D12 H23 Q52
    Date: 2012
  38. By: Koesler, Simon; Achtnicht, Martin; Köhler, Jonathan
    Abstract: International shipping is an important emitter of greenhouse gases. The International Maritime Organization (IMO) is discussing different approaches to reduce maritime CO2 emissions, in particular market-based mechanisms. In this paper, we assess potential implications of a maritime emission trading scheme (ETS) on the organisation and operations of shipping companies, primarily on the basis of a case study involving ship operators. Our results suggest that there is no knock-out criterion why a cap-andtrade approach should not work in the shipping sector in practice. A maritime ETS has the potential to engage this sector into cost-efficient emission reduction if designed to account for the special characteristics of the international shipping industry. --
    Keywords: emission trading,international shipping,maritime emissions
    JEL: L91 Q54 Q58 R48
    Date: 2012
  39. By: Kanbur, Ravi; Bento, Antonio M.; Leard, Benjamin
    Keywords: Environmental Economics and Policy, Research and Development/Tech Change/Emerging Technologies,
    Date: 2012–04
  40. By: Satoshi Honma (Faculty of Economics, Kyushu Sangyo University); Yushi Yoshida (Faculty of Economics, Kyushu Sangyo University)
    Abstract: Using the world panel dataset for the pollution emission embedded in international trade of 132 countries for the period between 1988 and 2008, we investigate whether the balance of embodied emission in trade (BEET) is consistent with the implication of pollution haven hypothesis. By using two differently constructed datasets, we are able to distinguish between the composition (i.e., changes in industry structure of international trade) effect and the technique (i.e., improvement in emission abatement) effect. We find that the composition effect is neither related with the income level nor the democracy level of countries whereas the technique effect is. The empirical evidence provides a partial support that income level is negatively related with the BEET.
    Keywords: Balance of embodied emission in trade; Environment; Industry structure; International trade; Pollution haven hypothesis.
    JEL: F18 O13 Q56
    Date: 2012–07
  41. By: Marion Allet
    Abstract: Small-scale activities in developing countries face environmental risks that represent direct threats to populations’ health and livelihoods. Recently, some donors and experts have claimed that microfinance institutions (MFIs) could play a role in fostering pro-environmental behaviours among their client microentrepreneurs. This paper seeks to identify the challenges that an MFI can face when implementing an environmental risk management program. We based our analysis on a case study of a pilot program in El Salvador, where we conducted 95 semi-structured interviews with microfinance clients, loan officers and managers. Our study first revealed that, despite a real interest from its staff, the MFI had some difficulties in building internal skills and conciliating its environmental and performance objectives, which compromised the effective implementation of the program. Furthermore, we identified that the pilot program, as it was designed, did not sufficiently take into account the psychological and economic barriers to behaviour change. Finally, we found that the effort of the microfinance institution was in some cases countered by external factors out of its reach, such as inadequate national regulations.
    Keywords: Microfinance; Microenterprises; Small Enterprises; Environmental Behaviour; Behaviour Change; Environmental Management; Environmental Risks; Pollution
    JEL: D30 G21 O17 Q53 Q56
    Date: 2012–07
  42. By: Jeffrey D. Sachs (Asian Development Bank Institute); Shiv Someshwar
    Abstract: Green growth entails several different kinds of processes : conversion to low-carbon energy, climate resilience, and response to climate shocks. Equity implies a fair sharing of the costs, within countries and between countries. The authors set out to explore some of the ways that equity has been considered in climate change discussions. They discuss per capita emission right approaches, and highlight key challenges in the application of equity in global climate change negotiations. They provide a brief overview of key approaches to carbon financing, focusing on some recent cost estimations of potential climate change impacts, as well as of projected needs for green growth programs. The diversity of estimates and present evidence on the apparent gulf between available public financing and green growth needs are highlighted; and considerations of implementing green growth, focusing on building climate resilience and responding to climate shocks are discussed. In conclusion, the authors present one approach to a global Green Fund to receive assessed contributions of member countries and disburse grant and loan fund to low-income and middle-income countries to pursue green growth programs.
    Keywords: Green growth, Equity, Climate change, low carbon, carbon financing, global Green Fund
    JEL: Q2 Q5
    Date: 2012–07
  43. By: Stéphanie Jamet
    Abstract: Denmark’s green growth strategy focuses on moving the energy system away from fossil fuels and investing in green technologies, while limiting greenhouse gas (GHG) emissions. On the whole, current policies should allow Denmark to reach near-term climate change targets, but may not be sufficient to achieve its most ambitious targets. The challenge is to achieve objectives in a cost-effective manner and to ensure that these ambitions contribute as much as possible to global GHG emissions mitigation and to stronger and greener growth in Denmark. Better exploiting interactions with EU and international policies, finding the appropriate way to support green technologies and reducing GHG emissions in sectors not covered by the EU emission trading scheme are key issues which need to be addressed to meet this challenge. This Working Paper relates to the 2012 OECD Economic Survey of Denmark (<P>Vers une croissance verte au Danemark : améliorer les politiques énergétiques et climatiques<BR>La stratégie de croissance verte du Danemark vise pour l’essentiel à supprimer les combustibles fossiles du système énergétique et à investir dans les technologies vertes, tout en limitant les émissions de gaz à effet de serre (GES). Dans l’ensemble, les mesures en cours devraient permettre au Danemark d’atteindre les objectifs d’atténuation du changement climatique à court terme mais peut-être pas de réaliser ses objectifs les plus ambitieux. Toute la difficulté sera de les atteindre de manière économiquement efficiente et de veiller à ce que ces ambitions contribuent au mieux à l’atténuation des émissions de GES dans le monde ainsi qu’à une croissance plus forte et plus verte au niveau national. Pour faire face à ce défi, le Danemark devra mieux exploiter les interactions avec les politiques mises en oeuvre dans le cadre de l’UE et à l’échelle internationale, trouver le meilleur moyen de soutenir les technologies vertes et réduire les émissions de GES dans les secteurs qui ne relèvent pas du système communautaire d’échange de quotas d’émissions. Ce Document de travail se rapporte à l’Étude économique de l’OCDE du Danemark, 2012 (
    Keywords: Denmark, renewable energy, climate change, carbon tax, greenhouse gas emissions, green technologies, climate change mitigation policy, energy security, Danemark, énergie renouvelable, changement climatique, émissions de gaz à effet de serre, politiques d’atténuation du changement climatique, taxe carbone, technologies respectueuses de l'environnement
    JEL: Q48 Q54 Q58
    Date: 2012–06–28
  44. By: Stephen Howes (Asian Development Bank Institute (ADBI)); Paul Wyrwoll
    Abstract: Developing Asia is the driver of today’s emissions intensive global economy. As the principle source of future emissions, the region is critical to the task of global climate change mitigation. Reflecting this global reality and a range of related domestic issues, the governments of the People’s Republic of China, India, Indonesia, Thailand, and Viet Nam have embarked upon an ambitious policy agenda. This report reviews the present and future policy settings for climate change mitigation and green growth in Asia’s major emerging economies. Although recent targets and commitments will involve a fundamental change in emissions trajectories, the urgency and extent of necessary global action requires ambition to be raised even further in developing Asia. An additional transformation will be required for the trajectory of emissions and energy demand, as well as the future composition of the power generation mix. Achieving these transformations will not be easy. There are a substantial number of policy instruments available, yet significant obstacles stand in the way of their effective deployment. Governments face a number of policy challenges, including : energy sector reform, economic reform, strengthening institutional capacity, and securing international support. The principal conclusion of this analysis is that the task facing Asia’s policymakers is not simply one of setting targets and pursuing narrowly focused policies to reach them. Rather, a broad–scale approach involving all sections of the economy and government will be required to achieve the shift to a sustainable, low-emissions development trajectory.
    Keywords: Climate change, Green growth, mitigation, developing Asia, emerging economies, carbon emissions
    JEL: O44 Q54 Q58 Q40 Q42 Q53 Q56 O10
    Date: 2012–07
  45. By: Shahbaz, Muhammad; Solarin, Sakiru Adebola; Mahmood, Haider
    Abstract: This study deals with the question whether financial development reduces CO2 emissions or not in case of Malaysia. For this purpose, we apply the bounds testing approach to cointegration for long run relations between the variables. The study uses annual time series data over the period 1971-2008. Ng-Perron stationarity test is applied to test the unit root properties of the series. Our results validate the presence of cointegration between CO2 emissions, financial development, energy consumption and economic growth. The empirical evidence also indicates that financial development reduces CO2 emissions. Energy consumption and economic growth add in CO2 emissions. The Granger causality analysis reveals the feedback hypothesis between financial development and CO2 emissions, energy consumption and CO2 emissions and, between CO2 emissions and economic growth. The present study provides new sights for policy making authorities to use financial sector as an instrument to decline energy emissions.
    Keywords: Financial development; CO2 emissions; Cointegration
    JEL: Q5 Q4
    Date: 2012–08–01
  46. By: Thomas Jobert (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université de Nice Sophia Antipolis (UNS)); Fatih Karanfil (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense); Anna Tykhonenko (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université de Nice Sophia Antipolis (UNS))
    Abstract: This paper focuses solely on the energy consumption, carbon dioxide ( 2 CO ) emissions and economic growth nexus applying the iterative Bayesian shrinkage procedure. The environmental Kuznets curve (EKC) hypothesis is tested using this method for the first time in this literature and the results obtained suggest that: first, the EKC hypothesis is rejected for 49 out of the 51 countries considered when heterogeneity in countries' energy efficiencies and cross-country differences in the 2 CO emissions trajectories are accounted for; second, a classification of the results with respect to countries' development levels reveals that an overall inverted U-shape curve is due to the fact that increase in gross domestic product (GDP) in the high-income countries decreases emissions, while in the low-income countries it increases emissions.
    Keywords: Environmental Kuznets curve; Bayesian shrinkage estimator; Heterogeneity
    Date: 2012–07–29
  47. By: Hottenrott, Hanna; Rexhäuser, Sascha; Veugelers, Reinhilde
    Abstract: The literature on within-firm organizational change and productivity suggests that firms can make more efficient use of certain technologies if complementary forms of organization are adopted. This issue may be of even greater importance for the case of greenhouse gas (GHG) abatement technologies imposed by public authority as to reduce social costs of climate change while they are not necessarily expected to increase private returns. Previous research, however, has largely neglected this aspect. Using German firm-level data, we find that organizational change increases the returns to he use of CO2 reducing technologies and that joint adoption leads to higher productivity. Without having introduced complementary organizational innovations, the adoption of CO2 reducing technologies is associated with lower productivity. --
    Keywords: firm behavior,technical change,innovation,environmental innovation,organizational change,productivity
    JEL: D23 O33 O32 Q55 L23 D24
    Date: 2012
  48. By: Heinrich-Wilhelm Wyes (Asian Development Bank Institute (ADBI)); Michael Lewandowski
    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: regional cooperation, regional governance systems, regional institutions, financial architecture, Climate change
    JEL: H87
    Date: 2012–05
  49. By: Faizal Z. Ahmed (Oxford University); Eric Werker (Harvard Business School, Business, Government and the International Economy Unit)
    Abstract: Autocrats experiencing a windfall in unearned income may find it optimal to donate to other countries some of the windfall in order to make the state a less attractive prize to potential insurgents. We put forward a model that makes that prediction, as well as the additional predictions that the recipients of the aid may themselves become more repressive with high levels of aid and experience conflict with medium levels of aid. We call these joint phenomena the political transfer problem, and argue that the largest windfall of the 20th century, the period from 1973-85 during which oil prices were at all-time highs, produced long-run political dynamics consistent with the model. In particular, major oil exporters have been politically repressive, generous with foreign aid when oil prices are high, and free of civil war; in contrast, the recipients of petro aid were relatively repressive (and peaceful) during the period of high oil prices, but subject to civil war when oil prices fell and aid was reduced. Surprisingly, the political transfer problem did not seem to materialize when oil prices again began to creep up in the 21st century; this nonexistence of the problem can be explained by the model against the backdrop of evolving geopolitics and economics.
    JEL: F35 F59 N45 O19 Q34
    Date: 2012–07
  50. By: Douadia Bougherara; Sandrine Costa; Mario Teisl
    Abstract: Firms may voluntary abate pollution using one of two options: internalizing its own external effects and incuring abatement costs ("making") or delegating environmental protection by purchasing offsets ("buying"). We aim to elicit consumers' WTP for producers' use of the "making" option as compared to the "buying" option, controlling for spatial effects (joint local public goods) and level of GHG emissions. Using a stated choice survey with 722 respondents, we find consumers are more willing to pay for a "making" policy. Consumers do not significantly care for the producers' use of offsets when the level of local externalities is controlled for.
    Keywords: offsets, willingness to pay, stated choice
    JEL: Q53 Q54 Q58
    Date: 2012
  51. By: Olivier Deschenes; Michael Greenstone; Joseph S. Shapiro
    Abstract: Willingness to pay for air quality is a function of health and the costly defensive investments that contribute to health, but there is little research assessing the empirical importance of defensive investments. The setting for this paper is a large US emissions cap and trade market – the NOx Budget Trading Program (NBP) – that has greatly reduced NOx emissions since its initiation in 2003. Using rich quasi-experimental variation, we find that the reductions in NOx emissions decreased the number of summer days with high ozone levels by about 25%. The NBP also led to reductions in expenditures on prescription pharmaceutical expenditures of about 1.9%. Additionally, the summer mortality rate declined by approximately 0.5%, indicating that there were about 2,200 fewer premature deaths per summer, mainly among individuals 75 and older. The monetized value of the reductions in pharmaceutical purchases and mortality rates are each roughly $900 million annually, suggesting that defensive investments are a significant portion of willingness to pay for air quality. Finally, we cautiously conclude that the reductions in ozone are the primary channel for these reductions in defensive investments and mortality rates, which indicates that willingness to pay for ozone reductions is larger than previously understood.
    JEL: D1 H4 I1 Q4 Q5
    Date: 2012–08
  52. By: Halkos, George; Tzeremes, Nickolaos
    Abstract: This paper applies nonparametric estimators to examine countries’ carbon dioxide (CO2) emissions and governance relationship. By using data for the time period 1996-2010 of the twenty largest economies (Group of twenty, G-20) the dynamics of the considered relationship are analyzed. Six governance measures are included in our analysis (Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption) as have been defined in World Governance Indicators from the World Bank. The empirical findings reveal a nonmonotonic relationship between countries’ CO2 emissions and the examined governance measures. In addition and with respect to the environmental policy makers, a significant difference on the number of governance measures influencing countries’ carbon dioxide emissions which is subject to countries’ specific regional and development variations is recorded. Finally, the carbon dioxide emissions-governance relationship is highly nonlinear and appears that countries’ higher governance quality does not always result to lower carbon dioxide emission levels.
    Keywords: Carbon dioxide emissions; Governance; G-20 countries; Nonparametric analysis
    JEL: Q50 C14 H11 C50
    Date: 2012–08–01
  53. By: Heuson, Clemens; Peters, Wolfgang; Schwarze, Reimund; Topp, Anna-Katharina
    Abstract: Funding developing countries' climate policies after Cancun (COP16) has a dual goal: firstly, to support mitigation of developing countries in order to sustain the two-degree pathway of stabilising the global mean temperature; secondly, to empower the vulnerable countries in low-income regions to adapt to and recover from the most adverse impacts of climate change. So far, the political and scientific discussion has mainly concentrated on the appropriate level of funding. Referring to the newly emerging climate finance architecture under the post-Kyoto framework, this paper argues that a stronger focus must be put on the question: which mode of funding to choose? This is for the reason that the currently discussed funding instruments, such as earmarking of industrialised countries' transfer payments to developing countries for reducing loss and damages, mitigation, or adaptation costs, may cause fundamental changes in the countries' strategic behaviour concerning mitigation and adaptation efforts. Moreover, some of the instruments fall short of a minimum requirement for the donors to voluntarily provide means, and thus cannot guarantee sustained funding. We develop our results in a non-cooperative two-country framework in which donor and recipient decide on mitigation in the first, and on adaptation in the second stage of the game. --
    Keywords: adaptation,climate policy,funding,mitigation,non-cooperative behaviour
    JEL: C72 D61 F35 Q54
    Date: 2012
  54. By: Mount, Timothy D.
    Keywords: Environmental Economics and Policy,
    Date: 2012–07–18
  55. By: Thierry Bréchet (CORE - Louvain School of Management); Carmen Camacho (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne); Vladimir M. Veliov (ORCOS - Institute of Mathematical Methods in Economics)
    Abstract: The purpose of this paper is to extend the use of integrated assessment models by defining rational policies based on predictive control and adaptive behavior. The paper begins with an review of the main IAMs and their use. Then the concept of Model Predictive Nash Equilibrium (MPNE) is introduced within a general model involving heterogeneous economic agents operating in (and interfering with) a common environment. This concept captures the fact that agents do not have a perfect foresight for several ingredients of the model, including that of the environment. A version of the canonical IAM (DICE) is developed as a benchmark case. The concept of MPNE is then enhanced with adaptive learning about the environmental dynamics and the damages caused by global warming. The approach is illustrated by some numerical experiments in a two-region setting for several scenarios.
    Keywords: Integrated assessment; adaptative behavior; learning; climate change
    Date: 2012–04
  56. By: Julie Rozenberg (CIRED); Céline Guivarch (CIRED); Robert Lempert (RAND Corporation, Santa Monica Office); Stéphane Hallegatte (World Bank and Météo France)
    Abstract: The scientific community is now developing a new set of scenarios, referred to as Shared Socio-economic Pathways (SSPs) to replace the SRES scenarios. To be used to investigate adaptation and mitigation, SSPs need to be contrasted along two axes: challenges to mitigation, and challenges to adaptation. This paper proposes a methodology to develop SSPs with a “backward” approach. The methodology is based on (i) an a priori identification of potential drivers of mitigation and adaptation challenges; (ii) a modelling exercise to transform these drivers into a large set of scenarios; (iii) an a posteriori selection of a few SSPs among these scenarios, such that they cover the uncertainty space in terms of challenges to adaptation and mitigation. This methodology is applied to the selection of a few SSPs, but it could also be applied to any specific decisions faced by decision-makers. From a large database of runs built by many models, the methodology would allow selecting the most relevant scenarios for a specific decision, i.e. scenarios that best predict when the analyzed choice performs poorly or well.
    Keywords: Socio-Economic Scenarios, Climate Policy, Mitigation, Adaptation, Shared Socio-Economic Pathways, Scenario Elicitation Methodology
    JEL: Q42 Q48 D72 O38
    Date: 2012–07
  57. By: Vogt-Schilb, Adrien; Meunier, Guy; Hallegatte, Stephane
    Abstract: This paper investigates the optimal timing of greenhouse gas abatement efforts in a multi-sectoral model with economic inertia, each sector having a limited abatement potential. It defines economic inertia as the conjunction of technical inertia -- a social planner chooses investment on persistent abating activities, as opposed to choosing abatement at each time period independently -- and increasing marginal investment costs in abating activities. It shows that in the presence of economic inertia, optimal abatement efforts (in dollars per ton) are bell-shaped and trigger a transition toward a low-carbon economy. The authors prove that optimal marginal abatement costs should differ across sectors: they depend on the global carbon price, but also on sector-specific shadow costs of the sectoral abatement potential. The paper discusses the impact of the convexity of abatement investment costs: more rigid sectors are represented with more convex cost functions and should invest more in early abatement. The conclusion is that overlapping mitigation policies should not be discarded based on the argument that they set different marginal costs (`"different carbon prices"') in different sectors.
    Keywords: Climate Change Economics,Climate Change Mitigation and Green House Gases,Transport Economics Policy&Planning,Environment and Energy Efficiency,Energy and Environment
    Date: 2012–08–01
  58. By: Adrien Vogt-Schilb (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - AgroParisTech); Guy Meunier (ALISS - Alimentation et sciences sociales - INRA : UR1303); Stéphane Hallegatte (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - AgroParisTech, CNRM-GAME - Groupe d'étude de l'atmosphère météorologique - CNRS : URA1357 - INSU - Météo France)
    Abstract: This paper investigates the optimal timing of greenhouse gas abatement efforts in a multi-sectoral model with economic inertia, each sector having a limited abatement potential. It defines economic inertia as the conjunction of technical inertia --- a social planner chooses investment on persistent abating activities, as opposed to choosing abatement at each time period independently --- and increasing marginal investment costs in abating activities. It shows that in the presence of economic inertia, optimal abatement efforts (in dollars per ton) are bell-shaped and trigger a transition toward a low-carbon economy. The authors prove that optimal marginal abatement costs should differ across sectors: they depend on the global carbon price, but also on sector-specific shadow costs of the sectoral abatement potential. The paper discusses the impact of the convexity of abatement investment costs: more rigid sectors are represented with more convex cost functions and should invest more in early abatement. The conclusion is that overlapping mitigation policies should not be discarded based on the argument that they set different marginal costs (''different carbon prices'') in different sectors.
    Keywords: climate change mitigation; sectoral policies; optimal policies; optimal timing; inertia; when-flexibility; how-flexibility; overlapping policies
    Date: 2012–08–01
  59. By: Yu-Fu Chen; Michael Funke
    Abstract: The possibility of low-probability extreme natural events has reignited the debate over the optimal intensity and timing of climate policy. In this paper, we contribute to the literature by assessing the implications of low-probability extreme events on environmental policy in a continuous-time real options model with “tail risk”. In a nutshell, our results indicate the importance of tail risk and call for foresighted pre-emptive climate policies.
    Keywords: Climate Policy, Extreme Events, Real Options, Levy process
    JEL: D81 Q54 Q58
    Date: 2012–06
  60. By: Robert S. Pindyck
    Abstract: I examine the risk/return tradeoff for environmental investments, and its implications for policy choice. Consider a policy to reduce carbon emissions. To what extent does the value of such a policy depend on the expected future damages from global warming versus uncertainty over those damages, i.e., on the expected benefits from the policy versus their riskiness? And to what extent should the policy objective be a reduction in the expected temperature increase versus a reduction in risk? Using a simple model of a stock externality (e.g., temperature) that evolves stochastically, I examine the ``willingness to pay" (WTP) for alternative policies that would reduce the expected damages under ``business as usual" (BAU) versus the variance of those damages. I also show how one can compute ``iso-WTP" curves (social indifference curves) for combinations of risk and expected returns as policy objectives. Given cost estimates for reducing risk and increasing expected returns, one can compute the optimal risk-return mix for a policy, and the policy's social surplus. I illustrate these results by calibrating the model to data for global warming.
    JEL: D81 Q5 Q54
    Date: 2012–07
  61. By: Lawrence H. Goulder; Roberton C. Williams III
    Abstract: Nearly all discussions about the appropriate consumption discount rate for climate-change policy evaluation assume that a single discount rate concept applies. We argue that two distinct concepts and associated rates apply. We distinguish a social-welfare-equivalent discount rate appropriate for determining whether a given policy would augment social welfare (according to a postulated social welfare function) and a finance-equivalent discount rate suitable for determining whether the policy would offer a potential Pareto improvement. Distinguishing the two rates helps resolve arguments as to whether the choice of discount rate should be based on ethical considerations or empirical information (such as market interest rates), and about whether the discount rate should serve a prescriptive or descriptive role. Separating out the two rates also helps clarify disputes about the appropriate stringency of climate change policy. We find that the structure of leading numerical optimization models used for climate policy analysis may have helped contribute to the blurring of the differences between the two rates. In addition, we indicate that uncertainty about underlying ethical parameters or market conditions implies that both rates should decline as the time-horizon increases.
    JEL: D61 D63 H43 Q54
    Date: 2012–08

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