nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒09‒16
fourteen papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Public Procurement and the Private Supply of Green Buildings By Timothy Simcoe; Michael W. Toffel
  2. Energy endowments, barriers to trade and industry location in Chinese provinces By Irina Hotz
  3. Energy Savings Potential and Policy for Energy Conservation in Selected Indian Manufacturing Industries. By Gupta, Manish; Sengupta, Ramprasad
  4. Fuel Choices in Rural Maharashtra By David Ian Stern; Jack Gregory
  5. Japan’s Post-Triple-Disaster Growth Strategy By Masahiro Kawai; Peter J. Morgan
  6. Complementarity and the resource curse By Arthur Silve
  7. Migration, congestion externalities, and the evaluation of spatial investments By Taryn Dinkelman; Sam Schulhofer-Wohl
  8. Investment decision making under deep uncertainty -- application to climate change By Hallegatte, Stephane; Shah, Ankur; Lempert, Robert; Brown, Casey; Gill, Stuart
  9. The organization of R&D and environmental policy: So does emission subsidy reduce emissions? By Yasunori Ouchida; Daisaku Goto
  10. Fair, Optimal or Detrimental? Environmental vs. Strategic Use of Border Carbon Adjustment By Matthias Weitzel; Michael Hübler; Sonja Peterson
  11. Spatial and Temporal Responses to an Emissions Trading System Covering Agriculture and Forestry: Simulation Results from New Zealand By Suzi Kerr; Simon Anastasiadis; Alex Olssen; William Power; Levente Tímár; Wei Zhang
  12. Continuous-Time Methods for Integrated Assessment Models By Yongyang Cai; Kenneth L. Judd; Thomas S. Lontzek
  13. Global trade and climate policy scenarios ? Impact on Finland By Janne Niemi; Juha Honkatukia; Ville Kaitila; Markku Kotilainen
  14. Climate policies deserve a negative discount rate By Marc Fleurbaey; Stéphane Zuber

  1. By: Timothy Simcoe (Boston University, School of Management); Michael W. Toffel (Harvard Business School, Technology and Operations Management Unit)
    Abstract: We measure the impact of municipal policies requiring governments to construct green buildings on private-sector adoption of the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) standard. Using matching methods, panel data, and instrumental variables, we find that government procurement rules produce spillover effects that stimulate both private-sector adoption of the LEED standard and supplier investments in green building expertise. Our findings suggest that government procurement policies can accelerate the diffusion of new environmental standards that require coordinated complementary investments by various types of private adopter.
    Date: 2012–09
  2. By: Irina Hotz (Institute of economic research IRENE, Faculty of Economics, University of Neuchâtel, Switzerland)
    Abstract: This study analyzes the determinants of manufacturing activity across Chinese provinces with emphasis on the important role of energy endowments on the location of industries. The data set consists of a panel of 28 Chinese provinces and 13 manufacturing industries for the years 1994, 1997 and 1999-2009. A model of production location is estimated, including comparative advantage and economic geography dynamics. The effects of trade impediments and changes in economic policies on the distribution of economic activity are also considered. Results validate energy as a driving force of industry location. They further show that provincial protectionism poses a problem to market mechanisms, but indicate an increase of concentration of economic activity through time.
    Keywords: China, factor endowments, industry location, energy, externalities, protectionism
    JEL: F18 P2 R14
    Date: 2012–09
  3. By: Gupta, Manish (National Institute of Public Finance and Policy); Sengupta, Ramprasad (National Institute of Public Finance and Policy)
    Abstract: Minimization of damage from the rising trend of global warming would warrant two kinds of action for a country like India: a) abatement of greenhouse gas emissions and b) adaptation to climate change so as to reduce climate change related vulnerability of the people. The target of low carbon economic growth of India in terms of declining energy and carbon intensity of GDP assumes, therefore, a special significance in such context. Of the different options for lowering carbon intensity of GDP, the option of energy conservation through reduced energy intensity of output happens to be cheaper in most cases than the carbon free energy supply technology options. As the industrial sector has the largest sectoral share of final energy consumption in India this paper focuses on the assessment of energy savings potential in seven highly energy consuming industries. The paper estimates the energy savings potential for each of these industries using unit level Annual Survey of Industries data for 2007-08. The paper further develops an econometric model admitting substitutability among energy and other non-energy inputs as well as that among fuels using translog cost function for the selected industries and also for the manufacturing sector as a whole to study the behavioural response of the industries to changes in factor prices or fuel prices. The model uses time series data at the aggregate level of the concerned industry for the period 1991-92 to 2008-09. The results of the model point mostly to the significant response of energy consumption to own price increases and to the insignificance of the responsiveness of the corresponding capital requirement to effect such energy conservation. Besides, a large part of the growth of factor productivity as estimated by the model has been found to be induced by energy price changes, the price neutral component of technical change being negligible. All these have important policy significance in respect of the relevance and direction of fiscal, monetary or other policy instruments for energy conservation in India for abating global warming.
    Keywords: Energy efficiency ; Energy conservation ; Derived demand ; Elasticity ; Industry
    JEL: Q41 Q43 Q48
    Date: 2012–09
  4. By: David Ian Stern; Jack Gregory
    Abstract: Traditional biomass remains a large source of energy in developing countries, particular in rural areas. Use of biomass can contribute to deforestation and hence climate change as well as indoor air pollution. Therefore, significant efforts have been made to improve the efficiency with which it is used and to reduce particulate emissions through the adoption of improved stoves and to transition households to modern energy carriers. We report on and analyze the results of an energy use survey in two tribal villages in rural Maharashtra, India. Though there is significant heterogeneity between the effects of the variables in the two villages there are some robust results. We find modest evidence for the 'energy ladder' hypothesis and that use of higher quality energy sources reduces total energy use ceteris paribus. Income elasticities of fuel demand are small. Additionally, we demonstrate that household size, stove ownership, and season influence rural energy choices. However, the effects of improved stoves are small and not consistent across the villages.
    Keywords: Household energy, income elasticity, improved stoves, India
    JEL: Q41 O13
    Date: 2012–07
  5. By: Masahiro Kawai (Asian Development Bank Institute (ADBI)); Peter J. Morgan
    Abstract: The Great East Japan Earthquake on 11 March 2011 was the biggest earthquake recorded in Japanese seismic history, and the fourth largest recorded in the world. The scope of the disaster far exceeded that of the Hanshin Earthquake of 1995. The repercussions of this disaster spread far beyond the geographical areas directly affected. For example, Electric power supply capacity in the Kanto area, which accounts for about 40% of Japanese gross domestic product (GDP), fell at one stage by about 40% from the normal peak—a severe constraint on economic activity, and the supply of nuclear-generated electric power has largely been cut off since then. Production supply chains were significantly disrupted, not only in Japan, but all over Asia. The disaster also highlighted Japan’s many other structural challenges besides reconstruction needs, including persistently low growth, population aging and low fertility, burgeoning government debt, declining international competitiveness, and uncertain energy supplies. Moreover, the global financial crisis and the ongoing euro area financial crisis suggest that Japan needs to create its own growth momentum without relying excessively on markets in the United States (US) and Europe. This paper discusses the scope of these challenges and sets out a long-term strategy for overcoming them and putting the Japanese economy on a stable growth path. Domestically, key areas that need to be focused on are supply-side reforms, including support for R&D in high-technology, knowledge-intensive, green growth areas; deregulation to promote growth in service sectors and agriculture; corporate tax reduction; and increased energy security; as well as fiscal and social security reforms to put the public debt to GDP ratio on a sustainable basis. Externally, Japan needs to link its economy firmly with the strong growth track of emerging Asia and its rapidly growing middle class. It needs to promote greater economic links with the rest of Asia, including moves toward an East Asian FTA and support for the TPP that could eventually develop into a trans-Pacific FTAAP.
    Keywords: Japan, growth strategy, The Great East Japan Earthquake, the Japanese economy
    JEL: E58 E62 F13 H2 H53 J13 L4 O25
    Date: 2012–08
  6. By: Arthur Silve (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper discusses how the economic structure and asset ownership shape economic and political outcomes. Using a simple model of the productive sector, I provide theoretical evidence that complementarities between productive assets reduce the stakes of political competition, and therefore reduce the intensity of the conflict over political power. In particular, these results provide a theoretical explanation for the frequent conflicts associated with abundant mineral resources. They are valid in a democratic setting, where this competition is electoral, but also in any other setting, where competition may be of a more violent nature. I then extend this analysis to show that complementarity of productive assets positively influences the willingness of elite groups to invest in property rights institutions, thus providing an economic explanation for why some countries have endogenously developed a context more favorable to business than others.
    Keywords: Complementarity ; Political Economy ; Property Rights ; Conflict
    Date: 2012–09
  7. By: Taryn Dinkelman; Sam Schulhofer-Wohl
    Abstract: Evaluations of new infrastructure in developing countries typically focus on direct effects, such as the impact of an electrification program on household energy use. But if new infrastructure induces people to move into an area, other local publicly provided goods may become congested, offsetting the benefit of the infrastructure. We use a simple model to show how to measure the net benefit of a place-based program without data on land prices—an indicator that is commonly used to measure congestion in developed countries but that often cannot be used in poor countries because land markets are missing or land prices are badly measured. Our model shows that congestion externalities are especially large when land markets are missing. To illustrate, we estimate the welfare impact of a recent household electrification program in South Africa. Congestion externalities from migration reduced local welfare gains by half.
    Keywords: South Africa
    Date: 2012
  8. By: Hallegatte, Stephane; Shah, Ankur; Lempert, Robert; Brown, Casey; Gill, Stuart
    Abstract: While agreeing on the choice of an optimal investment decision is already difficult for any diverse group of actors, priorities, and world views, the presence of deep uncertainties further challenges the decision-making framework by questioning the robustness of all purportedly optimal solutions. This paper summarizes the additional uncertainty that is created by climate change, and reviews the tools that are available to project climate change (including downscaling techniques) and to assess and quantify the corresponding uncertainty. Assuming that climate change and other deep uncertainties cannot be eliminated over the short term (and probably even over the longer term), it then summarizes existing decision-making methodologies that are able to deal with climate-related uncertainty, namely cost-benefit analysis under uncertainty, cost-benefit analysis with real options, robust decision making, and climate informed decision analysis. It also provides examples of applications of these methodologies, highlighting their pros and cons and their domain of applicability. The paper concludes that it is impossible to define the"best"solution or to prescribe any particular methodology in general. Instead, a menu of methodologies is required, together with some indications on which strategies are most appropriate in which contexts. This analysis is based on a set of interviews with decision-makers, in particular World Bank project leaders, and on a literature review on decision-making under uncertainty. It aims at helping decision-makers identify which method is more appropriate in a given context, as a function of the project's lifetime, cost, and vulnerability.
    Keywords: Climate Change Economics,Climate Change Mitigation and Green House Gases,Science of Climate Change,Global Environment Facility,Water Supply and Sanitation Governance and Institutions
    Date: 2012–09–01
  9. By: Yasunori Ouchida (Department of Economics, Hiroshima University); Daisaku Goto (Graduate School for International Development and Cooperation, Hiroshima University)
    Abstract: This paper reexamines the Poyago-Theotoky model and provides additional investigation that was conducted under a corrected environmental damage parameter. As new findings, we obtain the following. First, social welfare under a time-consistent emission tax (emission subsidy) policy is always welfare-enhancing rather than the case of laissez-faire. Second, if the environmental damage parameter is sufficiently small, then the equilibrium emission tax rate is invariably negative. It is therefore an emission subsidy. Moreover, total emissions under the emission subsidy become smaller than those under laissez-faire if the damage parameter is sufficiently small, and if the R&D cost is low. However, total emissions under the emission subsidy become greater than those under laissez-faire if the damage parameter is sufficiently small, and if the R&D cost is high.
    Keywords: Emission subsidy, Emission tax, Emission reduction, Environmental R&D, Cournot duopoly
    JEL: O32 L13 Q55 Q58
    Date: 2012–09
  10. By: Matthias Weitzel; Michael Hübler; Sonja Peterson
    Abstract: We carry out a detailed sensitivity analysis of border carbon adjustment (rates) by applying a global Computable General Equilibrium (CGE) GTAP7-based model. We find different incentives for the regions in the climate coalition to raise carbon-based border tax rates (BTAX) above the standard rate that mimics an equalisation of carbon prices across regions. Herein, the strategic use of BTAX (the manipulation of the terms of trade) is stronger for all coalition regions than the environmental use (the reduction of carbon emissions abroad). Higher BTAX can reduce carbon leakage but with a declining marginal effect. Furthermore, we find different incentives for regions outside the coalition to oppose high BTAX rates: Russia and the other energy exporters would oppose it, while the Low-Income Countries would not because of benefits from the trade diversion effect. Thus, BTAX encourages the former to join the coalition, while compensating transfers are necessary to encourage the other (developing) countries including China and India
    Keywords: climate policy, border tax adjustment, leakage, trade diversion, coalitions, general equilibrium mod
    JEL: F13 F18 Q54
    Date: 2012–08
  11. By: Suzi Kerr (Motu Economic and Public Policy Research); Simon Anastasiadis (Motu Economic and Public Policy Research); Alex Olssen (Motu Economic and Public Policy Research); William Power (GNS Science); Levente Tímár (Motu Economic and Public Policy Research and GNS Science); Wei Zhang (Ministry for Primary Industries)
    Abstract: We perform simulations using the integrated Land Use in Rural New Zealand (LURNZ) model to analyse the effect of various New Zealand emissions trading scheme (ETS) scenarios on land-use, emissions, and output in a temporally and spatially explicit manner. We compare the impact of afforestation to the impact of other land-use change on net greenhouse gas emissions, and evaluate the importance of the forestry component of the ETS relative to the agricultural component. We also examine the effect of land-use change on the time profile of net emissions from the forestry sector. Our projections for the mid-2020s suggest that under a comprehensive ETS, sequestration associated with new planting could be significant; it may approach 20 percent of national inventory agricultural emissions in 2008. Most of this is driven by the reward for forestry rather than a liability for agricultural emissions. Finally, we present projections of future agricultural output under various policy scenarios.
    Keywords: land use; land-use change; LURNZ; greenhouse-gas emissions; afforestation; forestry removals; New Zealand Emissions Trading Scheme; integrated modelling; agricultural production
    JEL: Q15 Q18 Q23 Q54
    Date: 2012–09
  12. By: Yongyang Cai; Kenneth L. Judd; Thomas S. Lontzek
    Abstract: Continuous time is a superior representation of both the economic and climate systems that Integrated Assessment Models (IAM) aim to study. Moreover, continuous-time representations are simple to express. Continuous-time models are usually solved by discretizing time, but the quality of a solution is significantly affected by the details of the discretization. The numerical analysis literature offers many reliable methods, and should be used because alternatives derived from “intuition” may be significantly inferior. We take the well-known DICE model as an example. DICE uses 10-year time steps. We first identify the underlying continuous-time model of DICE. Second, we present mathematical and computational methods for transforming continuous-time deterministic perfect foresight models into systems of finite difference equations. While some transformations create finite difference systems that look like a discrete-time dynamical system, the only proper way to view the finite difference system is as an approximation of the continuous-time problem. DICE is an example where the usage of finite difference methods from numerical analysis produces far superior approximations than do simple discrete-time systems.
    JEL: C61 C63 D81 Q54
    Date: 2012–09
  13. By: Janne Niemi; Juha Honkatukia; Ville Kaitila; Markku Kotilainen
    Abstract: In this study we use the dynamic version of the GTAP model to analyse the effects of global trade policy changes and their interaction with different global climate policy regimes from Finland?s point of view, and in particular, implications for Finnish export sectors. Scenarios explore further trade liberalisation as well as effects of higher-than-current tariffs on world markets. As a complementary dimension we analyse the impact of a global climate agreement that will lead to an additional improvement in energy efficiency and impose limitations to GHG emissions.<br><br>We find a general trend towards a greater weight of services sector in Finland?s total exports volume, whilst the share of traditionally important heavy industry and electronics industries declines. These trends are amplified by further trade liberalisation and slowed down by new barriers for trade. The global coverage of climate policy is particularly significant for energy-intensive industries.
    Keywords: trade policy, climate policy, general equilibrium model
    JEL: Q58 C68 F13
    Date: 2012–09–03
  14. By: Marc Fleurbaey (Economic Theory Center - Princeton University, Le Collège d'études mondiales/FMSH - Fondation Maison des sciences de l'homme); Stéphane Zuber (Le Collège d'études mondiales/FMSH - Fondation Maison des sciences de l'homme, CERSES - Centre de recherche sens, ethique, société - CNRS : UMR8137 - Université Paris V - Paris Descartes)
    Abstract: We defend a methodology of discounting, for the evaluation of the long-term effects of climate policies, which relies on a social welfare objective, against the view that the market rate of return should be used for that purpose. We also show that in the long run, the discount rate for such policies should focus on the worst-case scenario for the most disadvantaged populations. As a consequence, it is likely that the appropriate discount rate for climate policies should be negative, implying a high priority for the future.
    Keywords: discounting; climate policy; intergenerational equity
    Date: 2012–07–10

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