nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒09‒09
23 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. What Central Bankers Need to Know about Forecasting Oil Prices By Baumeister, Christiane; Kilian, Lutz
  2. A Spatial Econometric Analysis of the Effect of Vertical Restraints and Branding on Retail Gasoline Pricing By Stephen Hogg; Stan Hurn; Stuart McDonald; Alicia Rambaldi
  3. North Sea Oil and Genuine Saving in the Scottish Economy By Greg Bremner; Rod Cross
  4. The Natural Resource Curse: An Analysis of the Dutch Case based on Sectoral Economies of Scale By Maria-Dolores, Ramon; José Rodolfo, Morales
  5. On the global economic potentials and marginal costs of non-renewable resources By Jean-Francois Mercure; Pablo Salas
  6. Pipeline Power By Franz Hubert; Onur Cobanli
  7. Simple taxation schemes on non–renewable resources extraction By Halkos, George; Papageorgiou, George
  8. Time-Frequency Dynamics of Biofuels-Fuels-Food System By Lukas Vacha; Karel Janda; Ladislav Kristoufek; David Zilberman
  9. Natural Gas Consumption and Economic Growth in Pakistan By Muhammad, Shahbaz; Lean, Hooi Hooi; Abdul, Farooq
  10. Use Less, Pay More: Can Climate Policy Address the Unfortunate Event for Being Poor? By Lucas Bretschger; Nujin Suphaphiphat
  11. Quantities vs. capacities: Minimizing the social cost of renewable energy promotion By Andor, Mark; Flinkerbusch, Kai; Voß, Achim
  12. Economic effects of a nuclear-phase out policy: A CGE analysis By Lucas Bretschger; Lin Zhang
  13. The sensitivity of the South African industrial sector’s electricity consumption to electricity price fluctuations By Roula Inglesi-Lotz
  14. Die Marktprämie im EEG 2012: Ein sinnvoller Beitrag zur Markt- und Systemintegration erneuerbarer Energien? By Gawel, Erik; Purkus, Alexandra
  15. The Influences of Economic and Psychological Factors on Energy-Saving Behavior: A Field Experiment in Matsuyama, Japan By Kenichi Mizobuchi; Kenji Takeuchi
  16. Technical Note on the Construction of the Interregional Input-Output System for the Concession Areas of ANEEL By Eduardo A. Haddad; Maria Carolina C. Marques
  17. Der Markt für und mit erneuerbaren Energien By Christian Vossler; Achim Wambach
  18. Does the Effect of Pollution on Infant Mortality Differ Between Developing and Developed Countries? Evidence from Mexico City By Eva O. Arceo-Gomez; Rema Hanna; Paulina Oliva
  19. Sources of Comparative Advantage in Polluting Industries By Broner, Fernando A; Bustos, Paula; Carvalho, Vasco M
  20. Die Chancen einer effizienten Klimaschutzpolitik müssen genutzt werden By Christian Vossler
  21. The Effects of the Length of the Period of Commitment on the Size of State International Environmental Agreements By Bruno Nkuiya
  22. Faustmann and the Climate By Michael Hoel, Bjart Holtsmark and Katinka Holtsmark
  23. Climate Policy with Bentham-Rawls Preferences By Richard S.J. Tol

  1. By: Baumeister, Christiane; Kilian, Lutz
    Abstract: Recent research has shown that recursive real-time VAR forecasts of the real price of oil tend to be more accurate than forecasts based on oil futures prices of the type commonly employed by central banks worldwide. Such monthly forecasts, however, differ in several important dimensions from the forecasts central banks require when making policy decisions. First, central banks are interested in forecasts of the quarterly real price of oil rather than forecasts of the monthly real price of oil. Second, many central banks are interested in forecasting the real price of Brent crude oil rather than any of the U.S. benchmarks. Third, central banks outside the United States are interested in forecasting the real price of oil measured in domestic consumption units rather than U.S. consumption units. Addressing each of these three concerns involves modeling choices that affect the relative accuracy of alternative forecasting methods. In addition, we investigate the costs and benefits of allowing for time variation in VAR model parameters and of constructing forecast combinations. We conclude that quarterly forecasts of the real price of oil from suitably designed VAR models estimated on monthly data generate the most accurate forecasts among a wide range of methods including forecasts based on oil futures prices, nochange forecasts and forecasts based on models estimated on quarterly data.
    Keywords: Central banks; Forecasting methods; Oil futures prices; Out-of-sample forecast; Quarterly horizon; Real price of oil; Real-time data; VAR
    JEL: C53 E32 Q43
    Date: 2012–09
  2. By: Stephen Hogg (UQ); Stan Hurn (QUT); Stuart McDonald (UQ); Alicia Rambaldi
    Abstract: This paper builds an econometric model of retail gas competition to explain the pricing decisions of retail outlets in terms of vertical management structures, input costs and the characteristics of the local market they operate within. The model is estimated using price data from retail outlets from the South-Eastern Queensland region in Australia, but the generic nature of the model means that the results will be of general interest. The results indicate that when the cost of crude oil and demographic variations across different localities are accounted for, branding (i.e. whether the retail outlet is affiliated with one of the major brand distributers - Shell, Caltex, Mobil or BP) has a statistically significant positive effect on prices at nearby retail outlets. Conversely, the presence of an independent (non-branded) retailer within a locality has the effect of lowering retail prices. Furthermore, the results of this research show that service stations participating in discount coupon schemes with the two major retail supermarket chains have the effect of largely off-setting the price increase derived from branding affiliation. While, branding effects are not fully cancelled out, the overall effect is that prices are still higher than if branding did not occur.
    Keywords: Retail Gasoline Pricing, Vertical Restraints, Shop-a-Docket Discount Scheme, Spatial Econometrics, Australia
    JEL: C21 L13
    Date: 2012–08–27
  3. By: Greg Bremner (Dundee Business School, University of Abertay Dundee); Rod Cross (Department of Economics, University of Strathclyde)
    Abstract: The World Bank has published estimates of sustainability of consumption paths by adjusting saving rates to take account of the depletion of non-renewable resources. During the period of North Sea oil production Scotland has been in a fiscal union with the rest of the UK. The present paper adjusts the World Bank data to produce separate genuine saving estimates for Scotland and the rest of the UK for 1970-2009, based on a 'derivation' principle for oil revenues. The calculations indicate that Scotland has had a negative genuine saving rate for most of the period of exploitation of North Sea oil resources, with genuine saving being positive in the rest of the UK during this period.
    Keywords: Genuine savings; Adjusted net savings; North Sea oil; Derivation principle
    JEL: Q32 H72
    Date: 2012–07
  4. By: Maria-Dolores, Ramon; José Rodolfo, Morales (Departamentos y Servicios::Departamentos de la UMU::Fundamentos del Análisis Económico)
    Abstract: This paper analyzes the curse of natural resources from a new approach, taking as reference object the economy of the Netherlands. It is shown how the deindustrialization process of an economy suffers as a result of the natural resource sector development, and how it may cause lower growth rates when the industrial sector has certain features. As a starting point, we proceed with an estimation of production functions for different sectors of the economy in order to quantify the economies of scale in each of them. Subsequently, by means of a constrained optimization model, a boom in the natural resource sector is simulated and the results obtained under different scenarios are discussed by comparing them with a base scenario. The results obtained suggest that the curse of natural resources can occur if the expansion of the natural resource sector is high, in this case being the lower economic growth rate. This curse could be mitigated by expanding the areas of high productivity in non-tradable goods. It is also noted that the higher the labour market rigidity the result it will be a lower economic growth rate, and a combination of these rigidities with a pronounced expansion in the resource sector could lead to further reductions in economic growth rates.
    Keywords: Resoruce curse, Economies of scale, Growth, Dutch disease
    JEL: D12 R23
    Date: 2012–02
  5. By: Jean-Francois Mercure; Pablo Salas
    Abstract: A model is presented in this work for simulating endogenously the evolution of the marginal costs of production of energy carriers from non-renewable resources, their consumption, depletion pathways and timescales. Such marginal costs can be used to simulate the price formation of energy commodities. Drawing on previous work where a global database of energy resource economic potential was constructed, this work uses cost distributions of non-renewable resources in order to evaluate global flows of energy commodities. A mathematical framework is given to calculate endogenous flows of energy resources given an exogenous commodity price path. This framework can be used in reverse in order to calculate an exogenous marginal cost of production of energy carriers given an exogenous carrier demand. These two approaches generate limiting scenarios that depict extreme use of natural resources. The theory is however designed for use within economic models and models of technological change such as the Future Technology Transformations (FTT) family of models. In this work, it is implemented in the global power sector model FTT:Power, with which scenarios of global resource use and marginal costs of production of energy commodities are detailed. Policy implications are given.
    Date: 2012–09
  6. By: Franz Hubert (Humboldt–Universitat zu Berlin); Onur Cobanli (Humboldt–Universitat zu Berlin)
    Abstract: We use cooperative game theory to analyze the impact of three controversial pipeline projects on the power structure in the Eurasian trade of natural gas. Two of them, Nord Stream and South Stream, allow Russian gas to bypass transit countries, Ukraine and Belarus. Nord Stream’s strategic value turns out to be huge, justifying the high investment cost for Germany and Russia. The additional leverage obtained through South Stream, in contrast, appears small. The third project, Nabucco, aims at diversifying Europe’s gas imports by accessing producers in Middle East and Central Asia. It curtails Russia’s power, but the benefits accrue mainly to Turkey, while the gains for the EU are negligible.
    Keywords: Bargaining Power, Network, Trade links, Natural Gas
    JEL: L5 L9 O22
    Date: 2012–09
  7. By: Halkos, George; Papageorgiou, George
    Abstract: Traditional economic theory, up to the middle of the twentieth century, builds up the production functions regardless of the inputs’ scarcity. In the last few decades it has become clear that in many cases inputs are depletable quantities and at the same time a lot of constraints are imposed in their usage in order to ensure economic sustainability. Furthermore, the management of exploitation and use of natural resources (either exhaustible or renewable) has been discussed by analyzing dynamic models applying methods of Optimal Control Theory. This theory provides solutions that are concerned with a single decision maker who can control the model’s dynamics facing a certain performance index to be optimized. In this paper we consider some simple taxation schemes based both on price charged and on the stock size as well. As the feedback taxation rules are more efficient than the other (non feedback) rules we have constructed the simple taxation scheme and found the analytical expression of the tax function.
    Keywords: Non-renewable resources; differential games; Markov equilibrium
    JEL: Q32 C61 Q30 C62
    Date: 2012–08
  8. By: Lukas Vacha; Karel Janda; Ladislav Kristoufek; David Zilberman
    Abstract: For the first time, we apply the wavelet coherence methodology on biofuels (ethanol and biodiesel) and a wide range of related commodities (gasoline, diesel, crude oil, corn, wheat, soybeans, sugarcane and rapeseed oil). This way, we are able to investigate dynamics of correlations in time and across scales (frequencies) with a model-free approach. We show that correlations indeed vary in time and across frequencies. We find two highly correlated pairs which are strongly connected at low frequencies - ethanol with corn and biodiesel with German diesel - during almost the whole analyzed period (2003-2011). Structure of correlations remarkably changes during the food crisis - higher frequencies become important for both mentioned pairs. This implies that during stable periods, ethanol is correlated with corn and biodiesel is correlated with German diesel mainly at low frequencies so that they follow a common long-term trend. However, in the crisis periods, ethanol (biodiesel) is lead by corn (German diesel) even at high frequencies (low scales), which implies that the biofuels prices react more rapidly to the changes in their producing factors.
    Date: 2012–09
  9. By: Muhammad, Shahbaz; Lean, Hooi Hooi; Abdul, Farooq
    Abstract: Natural gas is a dominant fuel in Pakistan. It offers the cheapest and a cleaner alternative source of energy. This paper examines the relationship of natural gas consumption and economic growth in Pakistan. We include capital, labor and exports in the model with multivariate framework. The ARDL bounds testing approach to cointegration and innovative accounting approach are employed to investigate the dynamic causality relationships among the variables. We find the existence of long-run relationship among the variables. Natural gas consumption, real capital, labor and real exports are positively affecting the economic growth in Pakistan. Furthermore, we support the natural gas consumption-led-growth hypothesis and suggest that the natural gas conservation policies may retard the rate of economic growth.
    Keywords: Gas Consumption; Economic Growth
    JEL: Q4
    Date: 2012–08–05
  10. By: Lucas Bretschger (ETH Zurich, Switzerland); Nujin Suphaphiphat (ETH Zurich, Switzerland)
    Abstract: The paper develops a two-region endogenous growth model with climate change affecting the countries' capital stocks negatively. We compare two different policies aimed at supporting less developed countries: climate mitigation by rich countries, which diminishes the increase in stock pollution and hence capital depreciation, and income transfers in the tradition of development aid. Under a mild set of assumptions we find that active climate policies are more efficient for rich economies and also, remarkably, better for poor countries than additional development aid. The main reason is the difference between the two policies with respect to their effects on economic growth. The results are robust with respect to possible model extensions.
    Keywords: Climate policy; development aid; endogenous growth; stock pollution
    JEL: O10 Q52 Q54
    Date: 2012–08
  11. By: Andor, Mark; Flinkerbusch, Kai; Voß, Achim
    Abstract: In this article we show how different promotion schemes for renewables affect economic welfare. Our starting point is that external benefits of renewable electricity supply besides the abatement of greenhouse gases are not related to actual electricity generation but to producing and installing capacity. We argue that generation based subsidies such as feed-in tariffs and bonus payments can only be a second-best solution. Our model framework allows us to explain how these second-best instruments cause welfare losses in an environment of volatile demand. We postulate that capacity payments for renewables should be implemented in order to avoid unnecessary social costs. --
    Keywords: Renewable Energy Sources,Energy Policy,Promotion Instruments
    JEL: Q41 Q48 H23
    Date: 2012
  12. By: Lucas Bretschger (ETH Zurich, Switzerland); Lin Zhang (ETH Zurich, Switzerland)
    Abstract: The paper investigates the long-run consequences of a phase-out of nuclear energy for the Swiss economy. We apply the CITE model, a CGE model with fully endogenous growth, and complement it with a bottom-up model. We find that the nuclear phase-out can be achieved at relatively low costs, even when the expansion capacities of other technologies are limited. Consumer welfare decreases by 0.4% at the maximum compared to business as usual. Our results show that an economy can cope well with ambitious energy policies through sufficient innovation. Economic growth is not slowed down significantly. The phase-out policy contributes to a structural shift in favor of innovative, energy extensive sectors. It does not work against the climate policy goals but rather accelerates the transition to a less energy-dependent economy.
    Keywords: Energy and growth; nuclear phase out; CGE model; induced innovation
    JEL: Q43 C68 Q48 O41
    Date: 2012–08
  13. By: Roula Inglesi-Lotz (Department of Economics, University of Pretoria, South Africa)
    Abstract: Numerous studies have assumed that the price elasticity of electricity demand remains constant through the years that is industrial consumers behave the same way to price fluctuations regardless the actual price level. This paper proposes that the price elasticity of industrial electricity demand is time varying. To do so, the Kalman filter methodology is employed in an effort to provide the policy makers with more information on the behaviour of the industrial sector with regards to electricity price changes, focusing on the period from 1970 to 2007. To capture other factors affecting electricity consumption, such as real output and employment are also included in the specification. The findings show that price sensitivity changed since the 1970s: it has decreased in absolute values from -1 in 1980 to -0.953 in 1990 and then stabilised at around -0.95 showing that the industrial sector has experienced an inelastic demand. In other words, the behaviour of the industrial consumers did not vary significantly in the 2000s. In the long run and as the prices increase, probably reaching the levels of the 1970s or even before, the industrial sector’s behaviour might change and the elasticity might end up at levels higher than one (elastic).
    Keywords: Electricity consumption; Kalman filter; price elasticity; industrial sector
    Date: 2012–08
  14. By: Gawel, Erik; Purkus, Alexandra
    Abstract: Mit der steigenden Bedeutung erneuerbarer Energien im Stromsektor stellt sich zunehmend die Herausforderung ihrer Marktintegration, d. h. die Einbeziehung in den Steuerungs- und Ver-gütungsmechanismus des Strommarktes, sowie ihrer Systemintegration, d. h. die stärkere Einbindung in die Netzstabilisierung. Für eine effiziente und versorgungssichere Transformation des Energie-systems ist es notwendig, die Erzeugung von Strom aus Erneuerbaren verstärkt an kurz- wie langfristigen Marksignalen auszurichten. Das EEG 2012 führte hierzu als zentrales Instrument das Marktprämienmodell ein, um Anlagenbetreiber stärker an den Markt heranzuführen, sowie um Anreize für eine bedarfsgerechtere Stromproduktion zu setzen. Bereits ein halbes Jahr nach der Einführung steht die Marktprämie jedoch in der Kritik, hohe Zusatzkosten ohne entsprechenden Mehrwert zu schaffen. Der vorliegende Artikel wertet erste empirische Erfahrungen aus und untersucht auf dieser Grundlage, inwieweit das Marktprämienmodell in seiner aktuellen Ausgestaltung zur Marktintegration und/oder zur Systemintegration beiträgt, und ob es grundsätzlich geeignet scheint, diese Ziele zu erreichen (Effektivität). Zudem wird diskutiert, welche Effizienzgewinne sich realisieren lassen, und welche Zusatzkosten der Integrationsadministrierung dabei entstehen (Effizienz). Während die Marktintegration i. e. S. (Unterwerfung unter das allgemeine Marktpreis-risiko) gar nicht Ziel des Marktprämienmodells ist, konnte die Teilnahme an der Direktvermarktung signifikant gesteigert werden. Allerdings ergeben sich hohe Zusatzkosten und Mitnahmeeffekte, und der gesamtwirtschaftliche Nutzen einer graduellen Heranführung an den Markt ist zweifelhaft. Eine verbesserte Systemintegration wird über das Instrument zwar angesteuert, doch reichen die gesetzten Anreize für eine signifikante Flexibilisierung der Einspeisung vor allem im Fall fluktuierender Erneuerbarer nicht aus. Eine Fortführung des Modells in seiner jetzigen Ausgestaltung erscheint daher nicht empfehlenswert. Abschließend wird ein Ausblick auf mögliche Alternativlösungen gegeben. -- With the share of renewable energies within the electricty sector rising, improving their market integration (i. e. inclusion in the steering and remuneration processes of the electricity market) and system integration (i. e. enhanced responsibility for grid stability) is of increasing importance. To transform the energy system efficiently while ensuring security of supply, it is necessary to increase the alignment of renewable electricity production with short- and long-term market signals. The German Renewable Energy Sources Act 2012 introduced the market premium to provide market experience to renewable plant operators and incentives for demand-oriented electricity production. Half a year after its introduction, the instrument is already being criticised as ineffective and expensive. Building on early experiences, this article examines whether the market premium in its current design improves market and/or system integration, and if it seems suitable in principle to contribute to these aims (effectiveness). Also, potential efficiency gains and additional costs of administering integration are discussed (efficiency). While market integration in a strict sense (i. e. exposing renewables to price risks) is not the purpose of the market premium, it has successfully increased participation in direct marketing. However, additional costs and windfall profits are high, and the benefits of gradually leading plant operators towards the market are questionable. Incentives for demand-oriented electricity production are established, but they prove insufficient particularly in the case of intermittent renewable energy sources. A continuation of the instrument in its current form therefore does not seem recommendable. To conclude, potential alternative solutions are presented.
    Keywords: EEG,Effizienz,Erneuerbare Energien,Marktintegration,Marktprämie,Netzstabilität,Efficiency,Grid Stability,Market Integration,Market Premium,Renewable Energies,Renewable Energy Sources Act (EEG)
    Date: 2012
  15. By: Kenichi Mizobuchi (Department of Economics, Matsuyama University); Kenji Takeuchi (Graduate School of Economics,Kobe University)
    Abstract: This study examines the influences of economic and psychological factors on electricity conservation behavior. A random selection of 236 Japanese households participated in the field experiment, and they were offered two interventions, such as monetary rewards depending on their reduction in electricity consumption and comparative feedback. The average saving rates of the (i) economic incentive group (5.9%) and (ii) economic incentive with comparative feedback group (8.2%) are statistically larger than those of the (iii) control group (1.6%). Our econometric analysis confirmed that economic and psychological factors have a positive influence on the decision concerning whether to save electricity, and a reward combined with comparative feedback is most effective. Psychological factors also affect the decision about how much to save electricity, while economic incentive factors do not influence this decision. In particular, social norms, which are psychological factors, have a consistent effect on both the whether and how decisions. Responses to the questionnaire before and after the experiment suggest that participants may have underestimated the marginal costs of the electricity saving.
    Keywords: Comparative feedback; Economic incentive, Electricity saving, Field experiment, Household energy use, Social norm
    Date: 2012–04
  16. By: Eduardo A. Haddad; Maria Carolina C. Marques
    Abstract: The objective of this technical note is to document the methodology used to generate an interregional inputoutput system (IIOS) for the Concession Areas of ANEEL. The system consists of 58 regions closely associated with the territories of the concession areas under contract with the Federal Government. It also includes up to 110 products and 15 sectors in each region, identifying the spatial and sectoral linkages in the Brazilian interregional system. This is the first study ever that attempts to model the economies of all the concession areas of electric-power distribution services in an integrated framework for Brazi
    Keywords: Interregional input-output model; energy; market areas, spatial linkages
    JEL: C67 D57 Q41 Q43 R12 R15
    Date: 2012–08–13
  17. By: Christian Vossler; Achim Wambach
    Keywords: renewable energies
    Date: 2011–09
  18. By: Eva O. Arceo-Gomez; Rema Hanna; Paulina Oliva
    Abstract: Much of what we know about the marginal effect of pollution on infant mortality is derived from developed country data. However, given the lower levels of air pollution in developed countries, these estimates may not be externally valid to the developing country context if there is a nonlinear dose relationship between pollution and mortality or if the costs of avoidance behavior differs considerably between the two contexts. In this paper, we estimate the relationship between pollution and infant mortality using data from Mexico. We find that an increase of 1 parts per billion in carbon monoxide (CO) over the last week results in 0.0032 deaths per 100,000 births, while a 1 μg/m3 increase in particulate matter (PM10) results in 0.24 infant deaths per 100,000 births. Our estimates for PM10 tend to be similar (or even smaller) than the U.S. estimates, while our findings on CO tend to be larger than those derived from the U.S. context. We provide suggestive evidence that a non-linearity in the relationship between CO and health explains this difference.
    JEL: O1 Q53
    Date: 2012–08
  19. By: Broner, Fernando A; Bustos, Paula; Carvalho, Vasco M
    Abstract: We study the determinants of comparative advantage in polluting industries. We combine data on environmental policy at the country level with data on pollution intensity at the industry level to show that countries with laxer environmental regulation have a comparative advantage in polluting industries. Further, we address the potential problem of reverse causality. We propose an instrument for environmental regulation based on meteorological determinants of pollution dispersion identified by the atmospheric pollution literature. We find that the effect of environmental regulation on the pattern of trade is causal and comparable in magnitude to the effect of physical and human capital.
    Keywords: air pollution; comparative advantage; environmental regulation; international trade
    JEL: F11 F18 Q53 Q56
    Date: 2012–09
  20. By: Christian Vossler
    Keywords: climate protection policy
    Date: 2011–02
  21. By: Bruno Nkuiya
    Abstract: This paper extends the standard model of self-enforcing dynamic international environmental agreements by allowing the length of the period of commitment of such agreements to vary as a parameter. It analyzes the pattern of behavior of the size of stable coalitions, the stock of pollution, and the emission rate as a function of the length of the period of commitment. It is shown that the length of the period of commitment can have very significant effects on the equilibrium. We show numerically that at the initial date, as the length of commitment is increased, the potential gain from cooperation tends to diminish, increasing the disincentive to ratify the agreements. This suggests that considerable attention should be given to the determination of the length of such international agreements.
    Keywords: International environmental agreements, global pollution, stock pollution, dynamc games
    JEL: Q5 C73 F53
    Date: 2012
  22. By: Michael Hoel, Bjart Holtsmark and Katinka Holtsmark (Statistics Norway)
    Abstract: This paper presents an adjusted Faustmann Rule for optimal harvest of a forest in the presence of a social cost of carbon emissions. A contribution of the paper is to do this within theoretical and numerical frameworks that take account of the dynamics and interactions of the forest's multiple carbon pools within an infinite time horizon model. With our less restrictive assumptions we find that a social cost of carbon has a significantly stronger effect on the optimal harvest age than found in earlier studies. Considered is also how increased use of harvest residues for energy purposes and storage of carbon in building materials and furniture should influence the length of the rotation period. The theoretical results are quantified within a numerical framework.
    Keywords: climate; forestry; biofuels; Faustmann; carbon.
    JEL: Q23 Q54 Q42
    Date: 2012–08
  23. By: Richard S.J. Tol (Department of Economics, University of Sussex, UK; Institute for Environmental Studies, Department of Spatial Economics, Vrije Universiteit, Amsterdam, The Netherlands)
    Abstract: A Bentham-Rawls welfare function is the weighted sum of the net present welfare (Bentham) and the welfare of the worst-off generation (Rawls). If utility is non-decreasing over time, optimal climate policy is more stringent in the near-term under Bentham preferences than under Bentham-Rawls preferences. If utility is decreasing, Bentham-Rawls abatement is higher. If there is a chance of decreasing utility, Bentham-Rawls optimal climate policy is probably less stringent than Bentham policy.
    Keywords: climate policy; social cost of carbon; Bentham-Rawls preferences
    JEL: Q54
    Date: 2012–08

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