nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒12‒06
thirty-one papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. The Impact of Temperature Changes on Residential Energy Use By Richard S. J. Tol; Sebastian Petrick; Katrin Rehdanz
  2. Market Liberalization and Market Integration - Essays on the Nordic Electricity Market By Lundgren, Jens
  3. Coordinating cross‐border congestion management through auctions: An experimental approach to European solutions By Céline Jullien; Virginie Pignon; Stéphane Robin; Carine Staropoli
  4. Straw potential for energy purposes in Poland and optimal allocation to major co-firing power plants By Stelios Rozakis; Dimitris Kremmydas; Rafal Pudelko; M Borzecka-Walker; A. Faber
  5. Empirical essays on ex post evaluations of competition and regulatory authorities decisions and policy reforms. By Ozbugday, F.C.
  6. Regulation and Unintended Consequences By Färe, Rolf; Grosskopf, Shawna
  7. Scrapping a Wind Turbine: Policy Changes, Scrapping Incentives and Why Wind Turbines in Good Locations Get Scrapped First By Mauritzen, Johannes
  8. Effect of the Fukushima accident on saving electricity: The case of the Japanese Professional Baseball League By Yamamura, Eiji
  9. Managing and Harnessing Volatile Oil Windfalls By Van Den Bremer, Ton; van der Ploeg, Frederick
  10. Testing the weak-form efficiency of the WTI crude oil futures market By Zhi-Qiang Jiang; Wen-Jie Xie; Wei-Xing Zhou
  11. Car User Taxes, Quality Characteristics and Fuel Efficiency: Household Behavior and Market Adjustment By Bruno de Borger; Jan Rouwendal
  12. Implications of Alternative Mitigation Policies on World Prices for Fossil Fuels and Agricultural Products By Paltsev, Sergey
  13. Natural Gas and U.S. Economic Activity By Arora, Vipin; Lieskovsky, Jozef
  14. Relations UE-Russie : les enjeux d'une nouvelle architecture gazière By Catherine Locatelli
  15. Endogenous Investment Decisions in Natural Gas Equilibrium Models with Logarithmic Cost Functions By Daniel Huppmann
  16. Environmental Kuznets Curve in an Open Economy: A Bounds Testing and Causality Analysis for Tunisia By Muhammad, Shahbaz; Naceur , Khraief; Gazi Salah , Uddin
  17. The Decarbonization of China's Agriculture By Huang, Yongfu; He, Jingjing
  18. Evaluation of long-dated investments under uncertain growth trend, volatility and catastrophes By Gollier, Christian
  19. The Optimal Carbon Tax and Economic Growth: Additive versus Multiplicative Damages By Armon Rezai; Frederick van der Ploeg; Cees Withagen
  20. Carbon Price Dynamics – Evidence from Phase II of the European Emission Trading Scheme By Wilfried Rickels; Dennis Görlich; Gerrit Oberst; Sonja Peterson
  21. The Clean Development Mechanism in a Global Carbon Market By Thierry Brechet; Yann Meniere; Pierre M. Picard
  22. Is the Clean Development Mechanism Effective for Emission Reductions? By Huang, Yongfu; He, Jingjing; yTarp, Finn
  23. Is the Clean Development Mechanism Promoting Sustainable Development? By Huang, Yongfu; He, Jingjing; Tarp, Finn
  24. Joining the CCS Club! Insights from a Northwest European CO2 Pipeline Project By Massol, O.; Tchung-Ming, S.
  25. On the Spatial Economic Impact of Global Warming By Desmet, Klaus; Rossi-Hansberg, Esteban
  26. The Economic Costs of Climate Change: A Multi-Sector Impact Assessment for Vietnam By Arndt, Channing; Tarp, Finn; Thurlow, James
  27. The persistence of shocks in GDP and the estimation of the potential economic costs of climate change By Richard S. J. Tol; Francisco Estrada; Carlos Gay-García
  28. Multi-model analyses of the economic and energy implications for China and India in a post-Kyoto climate regime By Daniel J.A. Johansson; Paul L. Lucas; Matthias Weitzel; Erik O. Ahlgren; A.B. Bazaz; Wenying Chen; Michel G.J. den Elzen; Joydeep Ghosh; Qiao-Mei Liang; Sonja Peterson; Basanta K. Pradhan; Bas J. van Ruijven; P.R. Shukla; Detlef P. van Vuuren; Yi-Ming Wei
  29. The value-added of sectoral disaggregation: Implications on competitive consequences of climate change policies By Alexeeva-Talebi, Victoria; Böhringer, Christoph; Löschel, Andreas; Voigt, Sebastian
  30. Use Less, Pay More: Can Climate Policy Address the Unfortunate Event for Being Poor? By Lucas Bretschger; Nujin Suphaphiphat
  31. Informed Selection of Future Climates By Arndt, Channing; Fant, Charles; Robinson, Sherman; Strzepek, Kenneth

  1. By: Richard S. J. Tol (Department of Economics, University of Sussex, UK; Institute for Environmental Studies, Vrije Universiteit, Amsterdam, Netherlands; Department of Spatial Economics, Vrije Universiteit, Amsterdam, Netherlands); Sebastian Petrick (Kiel Institute for the World Economy); Katrin Rehdanz (Kiel Institute for the World Economy; Department of Economics, Christian-Albrechts-University Kiel, Germany)
    Abstract: In order to explore the impact of climate change on energy use, we estimate an energy demand model that is driven by temperature, prices and income. The estimation is based on an unbalanced panel of 62 countries over three decades. We limit the analysis to the residential sector and distinguish four different fuel types (coal, electricity, natural gas and oil). Compared to previous papers, we have a better geographical coverage and consider both a heating and cooling threshold as well as further non-linearities in the impact of temperature on energy demand and temperature-income interactions. We find that oil, gas and electricity use are driven by a non-linear heating effect: Energy use decreases with rising temperatures due to a reduced demand for energy for heating purposes, but the speed of that decrease declines with rising temperature levels. We cannot find a significant impact of temperature on the demand for cooling energy.
    Keywords: Climate change, energy demand, heating and cooling effect, temperature
    JEL: Q41 Q43
    Date: 2012–11
  2. By: Lundgren, Jens (Department of Economics, Umeå School of Business and Economics)
    Abstract: This thesis consists of four self-contained papers related to the Nordic electricity market. Paper [I] examine how the reform of the Nordic electricity markets has affected competition in the electric power supply market, Nord Pool. The question is if the common power market has been competitive or if electric power generators have had market power during the period 1996 -2004. Moreover, since there was a stepwise evolution from national markets to a multinational power market, we also ask how the degree of market power has evolved during this integration process. The results show that electric power generators have had a small, but statistically significant, degree of market power during the whole period. However, studying the integration effect, i.e. how the market power has been affected by additional countries joining Nord Pool, it show that the degree of market power has been reduced and finally vanished as the market has expanded and more countries joined the collaboration. Paper [II] analyse how the deregulation of the Swedish electricity market has affected the price of electric power and how the change in electric power price, in turn, has affected consumers’ welfare. The result shows that the change in pricing principle of electric power following the deregulation has increased consumer welfare over the period studied (1996-2006), with welfare gains about 100 SEK per customer per year, indicating a three per cent welfare gain for the average customer. Paper [III] study whether (and to what extent) the multinational electricity market integration has affected the price dynamics at the Nordic power exchange. The results shows that a larger electricity market seems to reduce the probability of sudden price jumps, but also that the effect on volatility seem to depend on the characteristics, i.e. production structure, of the integrated markets. In Paper [IV] a two-stage study is conducted to investigate the extent to which shocks in the demand and supply for electricity translate into price jumps, and the extent to which this process is affected by the prevailing market structure. The main findings from the study is that whether demand and supply shocks translate into price jumps largely depends on the prevailing market structure, i.e. on how far the market works from capacity constraints. A notable feature of the empirical analysis is also that the marginal effects from positive demand and negative supply shocks on the jump probabilities are mostly insignificant and of small magnitude.
    Keywords: Consumer welfare; Electricity price; Market integration; Market power; Price jump
    JEL: C22 C32 D43 D60 L10 L13 L43 L69
    Date: 2012–11–20
  3. By: Céline Jullien (MTS - Management Technologique et Strategique - Grenoble École de Management (GEM)); Virginie Pignon (EDF R&D Division - EDF Recherche et Développement); Stéphane Robin (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Carine Staropoli (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne)
    Abstract: Competition among producers within an integrated electricity system is impeded by any limited transmission capacity there may be at its borders. Two alternative market mechanisms have recently been designed to organize the allocation of scarce transmission capacity at cross-border level: (i) the "implicit auction", already used in some countries, and (ii) the "coordinated explicit auction", proposed by the European Transmission System Operators (ETSO) but not implemented yet. The main advantage of the explicit auction is that it allows each country to keep its own power exchange running. In the European institutional context, this is seen as a factor of success of a market reform, although the explicit auction (not coordinated) is known to be less efficient than the implicit mechanism. The addition of a coordination dimension in the explicit auction is intended to solve problems of international flows. We use an experimental methodology to identify and compare in a laboratory setting the efficiency properties of these two market mechanisms, given a market structure similar to the existing one in continental Europe, i.e. a competitive oligopoly. Our main result highlights the inefficiency of the coordinated explicit auction compared to the performance of the implicit auction, measured in terms of both energy prices and transmission capacity allocation. We suggest that the poor performance of the coordinated explicit auction in the laboratory is due to the level of individual expectations about both energy and transmission prices that the mechanism demands. One solution to resolve this problem when the mechanism is implemented in the field would be to design an additional and secondary market for "used" transmission capacity.
    Keywords: auctions; congestion management; electricity markets; experimental economics
    Date: 2012
  4. By: Stelios Rozakis (Department of Agricultural Economics and Rural Development, Agricultural University of Athens, Iera Odos 75, Athens 11855, Greece); Dimitris Kremmydas (Department of Agricultural Economics and Rural Development, Agricultural University of Athens, Iera Odos 75, Athens 11855, Greece); Rafal Pudelko ("Department of Agrometeorology and Applied Informatics, Institute of Soil Sciences and Plant Cultivation (IUNG), State Research Institute, Czartoryskich 8, 24-100 Pulawy, Poland"); M Borzecka-Walker ("Department of Agrometeorology and Applied Informatics, Institute of Soil Sciences and Plant Cultivation (IUNG), State Research Institute, Czartoryskich 8, 24-100 Pulawy, Poland"); A. Faber ("Department of Agrometeorology and Applied Informatics, Institute of Soil Sciences and Plant Cultivation (IUNG), State Research Institute, Czartoryskich 8, 24-100 Pulawy, Poland")
    Abstract: Agricultural waste and especially straw can provide a significant share of biomass energy. However, due to the nature of agricultural production, the need for carbon sequestration in soils and other aspects of food production, only part of straw potential may be treated as waste and spent on energy production. Based on statistical data from Polish Central Statistical Office (CSU) was modelled on a scale of local districts (NUTS-5) the actual production of straw, the needs of its local use and the possibility of redistribution of excessive quantities to regions with a deficit of straw. As a result the straw surplus that could be used in the energy sector was obtained along with its geographical distribution. Next a cost-minimizing transport model is used to optimise straw allocation among main power plants all over the country taking into account capacities and technical constraints of co-firing biomass with coal. Results are detailed at the municipal level indicating excess capacity for biomass co-firing by plant and region to be satisfied by additional biomass sources such as biomass from forest or energy plantations.
    Keywords: Straw potential, Poland, GIS, co-firing, transport models
    JEL: Q16 Q41
    Date: 2012
  5. By: Ozbugday, F.C. (Tilburg University)
    Abstract: Abstract: Fatih Cemil’s main specialization field is competition and regulatory economics. In this dissertation, he conducts several empirical analyses on various regulatory experiments in different industries such as health care, manufacturing and electricity distribution. These experiments take place in different countries such as the Netherlands, Germany and New Zealand. The dissertation consists of 4 parts including 6 chapters. The first part contains two empirical studies on the analysis of the confidential exemption requests in the Netherlands, which were allowed under the new Competition Act. The second part contains two short empirical letters on the analysis of the change in the competition law in the Netherlands. The main purpose of the third part is to test whether clinical quality in German hospitals increases with the publication of quality results by an external authority. The fourth and final part consists of a study that examines the operational cost efficiency and pricing behavior of regulation-exempt consumer-owned electricity suppliers in New Zealand. Each part has important conclusions and policy implications for similar regulatory decisions, experiments and policies to be designed in the future.
    Date: 2012
  6. By: Färe, Rolf (Dept. of Economics); Grosskopf, Shawna (CERE, Centre for Environmental and Resource Economics)
    Abstract: Production of desirable outputs such as Kwh of electricity are often accompanied by the production of undesirable or ‘bad’ outputs such as SO2. These undesirable outputs are frequently regulated in the sense that their production is not allowed to exceed certain amounts. In this paper we analyze what we call the unintended consequences of regulation of bads where that regulation limits the quantity of bads produced. We consider the simple case in which there is one good and one bad output. Under constant returns to scale we provide a theorem that characterizes the situation in which quantity regulation of the bad output restricts the production of the intended good output. Our theorem is in the spirit of Shephard’s proof of the Law of Diminishing Returns.
    Keywords: Regulation; Unintended Consequences
    JEL: Q40
    Date: 2012–11–20
  7. By: Mauritzen, Johannes (Research Institute of Industrial Economics (IFN))
    Abstract: The most common reason for scrapping a wind turbine in Denmark is to make room for a newer turbine. The decision to scrap a wind turbine is then highly dependent on an opportunity cost that comes from the interaction of scarce land resources, technological change and changes in subsidy policy. Using a Cox regression model I show that turbines that are located in areas with better wind resources are at a higher risk of being scrapped. Policies put in place in order to encourage the scrapping of older, poorly placed turbines actually have a larger effect on well-placed turbines.
    Keywords: Wind power scrapping; Nordic electricity market; Cox regression model
    JEL: D22 D92 L94 O13 Q42
    Date: 2012–11–16
  8. By: Yamamura, Eiji
    Abstract: This paper investigates whether and the extent to which the Fukushima nuclear accident 2011 affected human behavior based on a natural experiment with the Japanese Professional Baseball League. Comparing the duration of games in the 2010 and 2011 seasons reveals the following. (1) The duration of a game in the 2011 season was shorter than that in 2010, especially during the summer when Japan was experiencing an electricity shortage. (2) The duration of a game played on a holiday is longer than that played on a workday in 2011, whereas there is no difference between a holiday and workday game in 2010. (3) The greater the distance between Fukushima and the location the game is played, the longer the duration of the game in 2011. This was not observed in 2010. These findings imply that a nuclear accident increased the incentive of baseball players to engage in successful collective action to save electricity by decreasing the duration of a game, especially when the probability of an electricity shortage was high.
    Keywords: Nuclear accident; collective action; duration of a game; saving electricity; Japanese Professional Baseball League
    JEL: Z13 L94 L83 Q54 D79
    Date: 2012–11–15
  9. By: Van Den Bremer, Ton; van der Ploeg, Frederick
    Abstract: Three funds are necessary to manage an oil windfall: intergenerational, liquidity and investment funds. The optimal liquidity fund is bigger if the windfall lasts longer and oil price volatility, prudence and the GDP share of oil rents are high and productivity growth is low. We apply our theory to the windfalls of Norway, Iraq and Ghana. The optimal size of Ghana’s liquidity fund is tiny even with high prudence. Norway’s liquidity fund is bigger than Ghana’s. Iraq’s liquidity fund is colossal relative to its intergenerational fund. Only with capital scarcity, part of the windfall should be used for investing to invest. We illustrate how this can speed up the process of development in Ghana despite domestic absorption constraints.
    Keywords: economic development; Ghana; inefficiency; intergenerational fund; Iraq; liquidity fund; Norway; oil price volatility; precautionary buffers; public investment; sovereign wealth
    JEL: D91 E21 E22 Q32
    Date: 2012–11
  10. By: Zhi-Qiang Jiang (ECUST); Wen-Jie Xie (ECUST); Wei-Xing Zhou (ECUST)
    Abstract: We perform detrending moving average analysis (DMA) and detrended fluctuation analysis (DFA) of the WTI crude oil futures prices (1983-2012) to investigate its efficiency. We further put forward a strict statistical test in the spirit of bootstrapping to verify the weak-form market efficiency hypothesis by employing the DMA (or DFA) exponent as the statistic. We verify the weak-form efficiency of the crude oil futures market when the whole period is considered. When we break the whole series into three sub-series separated by the outbreaks of the Gulf War and the Iraq War, our statistical tests uncover that only the Gulf War has the impact of reducing the efficiency of the crude oil market. If we split the whole time series into two sub-series based on the signing date of the North American Free Trade Agreement, we find that the market is inefficient in the sub-periods during which the Gulf War broke out. We also perform the same analysis on short time series in moving windows and find that the market is inefficient only when some turbulent events occur, such as the oil price crash in 1985, the Gulf war, and the oil price crash in 2008. Our analysis may offer a new understanding of the efficiency of the crude oil futures market and shed new lights on the investigation of the efficiency in other financial markets.
    Date: 2012–11
  11. By: Bruno de Borger (University of Antwerp); Jan Rouwendal (VU University Amsterdam)
    Abstract: We study the impact of fuel taxes and kilometer taxes on households' choices of vehicle quality, on their demand for kilometers driven, and on fuel consumption. Moreover, embedding this information in a model of the car market, we analyze the implications of these taxes for the opportunity costs of owning cars of different quality. Higher quality raises the fixed cost of car ownership, but it may raise (engine size, acceleration speed, etc.) or reduce (fuel technology, etc.) the variable user cost. Our results show that kilometer charges and fuel taxes have very different implications. For example, a higher fuel tax raises household demand for more fuel efficient cars, provided that the demand for car use is inelastic; it reduces the demand for characteristics that raise variable user costs. Surprisingly, however, a kilometer tax unambiguously reduces the demand for more fuel efficient cars. Incorporating price adjustments at the market level, we find th at fuel taxes raise the <I>marginal</I> fixed opportunity cost of better fuel efficiency at all quality levels. <I>Total</I> annual opportunity costs of owning highly fuel efficient cars increase, while they decline for cars of low fuel efficiency. We further find that both a fuel tax and a kilometer charge reduce the <I>total</I> annual fixed ownership cost for car attributes that raise the variable cost of driving (engine power, acceleration speed, etc.). There is thus in general a trade-off between fixed and variable car costs: if the latter increase - due to higher fuel prices or a kilometer charge - total demand for cars decreases and a return to equilibrium is only possible by a decrease in fixed costs. All theoretical results are illustrated using a numerical version of the model. The analysis shows that modeling the effect of tax changes on household behavior alone can produce highly misleading results.
    Keywords: car market; car quality; fuel tax; kilometer charge; market equilibrium
    JEL: H22 L62
    Date: 2012–11–16
  12. By: Paltsev, Sergey
    Keywords: climate change mitigation, fuel prices, agricultural prices, biofuels, computable general equilibrium
    Date: 2012
  13. By: Arora, Vipin; Lieskovsky, Jozef
    Abstract: Previous empirical work has shown that real natural gas prices have a small to negligible impact on total U.S. industrial production and most of its sub-indices. We first show that these results still hold with a sample that runs through mid-2012 and uses a different natural gas price. Concerns about the joint determination of the real natural gas price and U.S. economic activity lead us to reassess these results using a multivariate framework. Our model shows that natural gas does affect U.S. economic activity, but primarily through changes in natural gas production. We also show that natural gas supply, inventory demand, and responses to events in the oil market have been the most important contributors to the real natural gas price since 2000. In terms of approximate point estimates, our results indicate that increases in natural gas supply can raise total U.S. industrial production by 0.1 to 0.5 percent under plausible scenarios.
    Keywords: Natural gas; VAR; Granger causality; endogenous; industrial production
    JEL: F47 E37 Q43
    Date: 2012–11
  14. By: Catherine Locatelli (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : FRE3389 - Université Pierre Mendès-France - Grenoble II)
    Abstract: La sécurité gazière de l'UE est un facteur clé de sa politique énergétique. Les relations contractuelles basées sur des contrats de long terme dans les années 1970 et 1980 ont conduit à une relative stabilité des échanges d'énergie entre l'Union et ses fournisseurs de gaz. Mais depuis le milieu des années 1990, l'ouverture du marché gazier de l'UE à la concurrence et le désir de créer un marché unique du gaz conduit à une profonde réorganisation du secteur. Dans ce contexte, l'UE entend redéfinir la façon dont elle gère ses relations avec ses principaux fournisseurs, comme la Russie, en tentant d'imposer un modèle basé sur la concurrence, le dégroupage des industries de réseau et la privatisation. Ce " modèle européen " n'est pas celui que la Russie a l'intention de mettre en œuvre dans son secteur gazier, malgré les grands changements en cours sur son marché domestique. Une approche basée sur l'utilisation préférentielle des instruments étatiques s'oppose au multilatéralisme et aux principes de la concurrence de l'UE. Le pouvoir normatif de l'UE est donc en contradiction avec l'environnement institutionnel du secteur de l'énergie russe. Dans ce contexte, il est peu probable que les standards issus des règles et des institutions de l'UE puissent servir de cadre unique aux relations énergétiques entre l'UE et la Russie.
    Date: 2012–11
  15. By: Daniel Huppmann
    Abstract: The liberalisation of the natural gas markets and the importance of natural gas as a transition fuel to a low-carbon economy have led to the development of several large-scale equilibrium models in the last decade. These models combine long-term market equilibria and investments in infrastructure while accounting for market power by certain suppliers. They are widely used to simulate market outcomes given different scenarios of demand and supply development, environmental regulations and investment options. In order to capture the specific characteristics of natural gas production, most of these models apply a logarithmic production cost function. However, no model has so far combined this cost function type with endogenous investment decisions in production capacity. Given the importance of capacity constraints in the determination of the natural gas supply, this is a serious shortcoming of the current literature. This paper provides a proof that combining endogenous investment decisions and a logarithmic cost function yields indeed a convex minimization problem, paving the way for an important extension of current state-of-the-art equilibrium models.
    Keywords: Natural gas, equilibrium model, endogenous investment, capacity expansion, logarithmic cost function
    JEL: C61 Q41 L71
    Date: 2012
  16. By: Muhammad, Shahbaz; Naceur , Khraief; Gazi Salah , Uddin
    Abstract: The aim of this paper is to investigate the existence of environmental Kuznets curve (EKC) in an open economy like Tunisia using annual time series data for the period of 1971-2010. The ARDL bounds testing approach to cointegration is applied to test long run relationship in the presence of structural breaks and vector error correction model (VECM) to detect the causality among the variables. The robustness of causality analysis has been tested by applying the innovative accounting approach (IAA). The findings of this paper confirmed the long run relationship between economic growth, energy consumption, trade openness and CO2 emissions in Tunisian Economy. The results also indicated the existence of EKC confirmed by the VECM and IAA approaches. The study has significant contribution for policy implications to curtail energy pollutants by implementing environment friendly regulations to sustain the economic development in Tunisia.
    Keywords: EKC; Energy; Tunisia
    JEL: O1 Q4
    Date: 2012–11–01
  17. By: Huang, Yongfu; He, Jingjing
    Abstract: Agriculture is one of the major greenhouse gas (GHG) emission sources in China. This paper aims to identify the key factors that have led to rising GHG emissions in China.s agricultural sector in recent decades. This research allows for spatial dependence
    Keywords: agriculture; emission reductions; spatial dependence; China
    Date: 2012
  18. By: Gollier, Christian
    Abstract: Because of the uncertainty about how to model the growth process of our economy, there is still much confusion about which discount rates should be used to evaluate actions having long-lasting impacts, as in the contexts of climate change, social security reforms or large public infrastructures for example. We characterize efficient discount rates when the growth of log consumption follows a random walk with uncertain parameters. We examine different models in which the parametric uncertainty affects the trend and the volatility of growth, or the frequency of catastrophes. This uncertainty implies that the term structures of the risk free discount rate and of the aggregate risk premium are respectively decreasing and increasing. It also implies that the discount rate is increasing with maturity if the beta of the investment is larger than half of relative risk aversion. Another important consequence of parametric uncertainty is that the risk premium is not proportional to the beta of the investment. Finally, we apply our findings to the evaluation of climate change policy. We argue in particular that the beta of actions to mitigate climate change is relatively large, so that the term structure of the associated discount rates should be increasing.
    Keywords: asset prices, term structure, risk premium, decreasing discount rates, parametric uncertainty, CO2 beta, rare events, macroeconomic catastrophes.
    JEL: E43 G11 G12 Q54
    Date: 2012–11
  19. By: Armon Rezai; Frederick van der Ploeg; Cees Withagen
    Abstract: In a calibrated integrated assessment model we investigate the differential impact of additive and multiplicative damages from climate change for both a socially optimal and a business-as-usual scenario in the market economy within the context of a Ramsey model of economic growth. The sources of energy are fossil fuel which is available at a cost which rises as reserves diminish and a carbon-free backstop supplied at a decreasing cost. If damages are not proportional to aggregate production output, and the economy is along a development path, the social cost of carbon and the optimal carbon tax are smaller as damages can more easily be compensated for by higher output. As a result, the economy switches later from fossil fuelto the carbon-free backstop and leaves less fossil fuel in situ. This is in contrast to a partial equilibrium analysis with damages in utility rather than in production which finds that the willingness to forsake current consumption to avoid future global warming is higher (lower) under additive damages in a growing economy if the elasticity of intertemporal substitution is smaller (bigger) than one.
    Keywords: climate change, multiplicative damages, additive damages, integrated assessment models, Ramsey growth model, fossil fuel, carbon-free backstop
    JEL: H21 Q51 Q54
    Date: 2012–09–10
  20. By: Wilfried Rickels; Dennis Görlich; Gerrit Oberst; Sonja Peterson
    Abstract: In this paper we empirically investigate potential determinants of allowance (EUA) price dynamics in the European Union Emission Trading Scheme (EU ETS) during Phase II. In contrast to previous papers, we analyze a significantly longer time series, place particular emphasis on the importance of price variable selection, and include an extensive data of renewable energy feed-in in Europe. We show (i) that results are extremely sensitive to choosing different price series of potential determinants, such as coal and gas prices, (ii) that EUA price dynamics are only marginally influenced by renewable energy provision in Europe, and iii) that EUA prices currently do not reflect marginal abatement costs across Europe. We conclude that the expectation of a more mature allowance market in Phase II cannot be confirmed
    Keywords: Carbon emission trading, EU ETS, Carbon price influence factors, Fuel switching
    JEL: C22 G14 Q54
    Date: 2012–11
  21. By: Thierry Brechet; Yann Meniere; Pierre M. Picard
    Abstract: This paper discusses the role of the Clean Development Mechanism (CDM) on the market for carbon quotas and countries’ commitments to reduce their carbon emission levels. We show that the CDM contributes to an efficient funding of clean technology investments in least developed countries. However, the CDM is not neutral on the global level of carbon emissions as it entices countries to raise their emission caps. The CDM may also make inappropriate the inclusion of any country that takes no emission abatement commitment. It can even make inefficient a country’s decision to commit to an emission target.
    Date: 2012–10–09
  22. By: Huang, Yongfu; He, Jingjing; yTarp, Finn
    Abstract: This research studies whether the Clean Development Mechanism (CDM) of the Kyoto Protocol achieves its objective of emission reductions in the host countries. It empirically investigates the impacts of CDM projects on CO? emission reductions for 60 CDM ho
    Keywords: clean development mechanism, emission reductions, dynamic panel data model; X-differencing
    Date: 2012
  23. By: Huang, Yongfu; He, Jingjing; Tarp, Finn
    Abstract: One of the dual objectives of the Clean Development Mechanism (CDM) of the Kyoto Protocol is to promote sustainable development in the host countries. With different CDM indicators for 58 CDM host countries over 2005-10, this paper empirically assesses wh
    Keywords: clean development mechanism, sustainable development, dynamic panel data model, long-differencing
    Date: 2012
  24. By: Massol, O.; Tchung-Ming, S.
    Abstract: The large-scale diffusion of Carbon Capture and Storage (CCS) imposes the construction of a sizeable CO2 pipeline infrastructure. This paper analyzes the conditions for a widespread adoption of CCS by a group of emitters that can be connected to a common pipeline system. It details a quantitative framework capable of assessing how the tariff structure and the regulatory constraints imposed on the pipeline operator impact the overall cost of CO2 abatement via CCS. This modeling framework is applied to the case of a real European CO2 pipeline project. We find that the obligation to use cross-subsidy-free pipeline tariffs has a minor impact on the minimum CO2 price required to adopt the CCS. In contrast, the obligation to charge non-discriminatory prices can either impede the adoption of CCS or significantly raises that price. Besides, we compared two alternative regulatory frameworks for CCS pipelines: a common European organization as opposed to a collection of national regulations. The results indicate that the institutional scope of that regulation has a limited impact on the adoption of CCS compared to the detailed design of the tariff structure imposed to pipeline operators.
    Keywords: OR in environment and climate change; carbon capture and storage; CO2 pipeline; club theory; regulation; cross-subsidy-free tariffs
    Date: 2012
  25. By: Desmet, Klaus; Rossi-Hansberg, Esteban
    Abstract: We propose a dynamic spatial theory to analyze the geographic impact of climate change. Agricultural and manufacturing firms locate on a hemisphere. Trade across locations is costly, firms innovate, and technology diffuses over space. Energy used in production leads to emissions that contribute to the global stock of carbon in the atmosphere, which affects temperature. The rise in temperature differs across latitudes and sectors. We calibrate the model to analyze how climate change affects the spatial distribution of economic activity, trade, migration, growth, and welfare. We assess quantitatively the impact of migration and trade restrictions, energy taxes, and innovation subsidies.
    Keywords: carbon; climate change; growth; international and regional trade; migration; mobility frictions; regional economics; space
    Date: 2012–11
  26. By: Arndt, Channing; Tarp, Finn; Thurlow, James
    Abstract: Unlike existing studies, we adopt a multi-sectoral approach and consider the full range of climate projections. Biophysical damages are translated into economic costs using a dynamic economywide model. Our results for Vietnam indicate that the negative im
    Keywords: climate change, uncertainty, multi-sector, CGE model, Vietnam
    Date: 2012
  27. By: Richard S. J. Tol (Department of Economics, University of Sussex, UK; Institute for Environmental Studies, Vrije Universiteit, Amsterdam, Netherlands; Department of Spatial Economics, Vrije Universiteit, Amsterdam, Netherlands); Francisco Estrada (Centro de Ciencias de la Atmósfera, Universidad Nacional Autónoma de México, Ciudad Universitaria, Circuito Exterior, Mexico; Institute for Environmental Studies, Vrije Universiteit, Amsterdam, Netherlands; ); Carlos Gay-García (Centro de Ciencias de la Atmósfera, Universidad Nacional Autónoma de México, México)
    Abstract: Integrated assessment models (IAMs) typically ignore the impact of climate change on economic growth, or simply scale down output and hence the entire future growth. In this manner, IAMs typically assume that the shocks caused by climate change impacts dissipate and have no persistence at all, affecting only the period when they occur. Clearly, this could lead to the underestimation of costs of climate change at global, regional, national and local scales. We adopt an empirical approach for analyzing the observed GDP series for different world regions in order to estimate the persistence of shocks on growth. We interpret the direct impact of climate change as such shocks, and use the estimated models to assess the implications for growth. We compare this to the scaling method pioneered by Nordhaus (Nordhaus and Boyer, 2000). A simple version of the widely used PAGE2002 model (Hope, 2006) is applied to conduct a sensitivity analysis varying the degree of a persistence measure in simulated future GDP. It is shown that when a persistence similar to the observed one is chosen, the economic impacts of climate change are considerably larger in comparison to the "zero persistence" implied by the original scaling method. If the persistence of shocks is ignored, as it is currently done by most IAMs, the economic impacts of climate change can be severely underestimated. Results are not sensitive to the selection of the discount rate. Moreover, it is shown that the original scaling method embedded in most IAMs can be interpreted as assuming an autonomous, costless, extremely large and effective (reactive) adaptation capacity.
    Keywords: Climate change; economic impacts; dynamic model
    JEL: Q54
    Date: 2012–11
  28. By: Daniel J.A. Johansson; Paul L. Lucas; Matthias Weitzel; Erik O. Ahlgren; A.B. Bazaz; Wenying Chen; Michel G.J. den Elzen; Joydeep Ghosh; Qiao-Mei Liang; Sonja Peterson; Basanta K. Pradhan; Bas J. van Ruijven; P.R. Shukla; Detlef P. van Vuuren; Yi-Ming Wei
    Abstract: This paper presents a modeling comparison project on how the 2°C climate target could affect economic and energy systems development in China and India. The analysis uses a framework that harmonizes baseline developments and soft-links seven national and global models being either economy wide (CGE models) or energy system models. The analysis is based on a global greenhouse gas emission pathway that aims at a radiative forcing of 2.9 W/m2 in 2100 and with a policy regime based on convergence of per capita CO2 emissions with emissions trading. Economic and energy implications for China and India vary across models. Decreased energy intensity is the most important abatement approach in the CGE models, while decreased carbon intensity is most important in the energy system models. Reliance on Coal without Carbon Capture and Storage (CCS) is significantly reduced in most models, while CCS is a central abatement technology in energy system models, as is renewable and nuclear energy. Concerning economic impacts China bears in general a higher cost than India, as China benefits less from emissions trading. Costs are also affected by changes in fossil fuel prices, currency depreciation from capital inflow from carbon trading and timing of emission reductions
    Keywords: Climate policy; China; India
    JEL: N7 O13 P28 Q4
    Date: 2012–11
  29. By: Alexeeva-Talebi, Victoria; Böhringer, Christoph; Löschel, Andreas; Voigt, Sebastian
    Abstract: Global impact assessment of unilateral climate policies is commonly based on multi-sector, multi-region computable general equilibrium (CGE) models that are calibrated to consistent accounts of production, consumption, and bilateral trade flows. However, global economic databases such as GTAP treat energy-intensive and trade-exposed industries rather in aggregate, thereby missing potentially important details on the heterogeneity of these sectors. In this paper, we elaborate on the availability of data resources and methodological issues in disaggregating energy-intensive and tradeexposed sectors that receive larger attention in the public policy debate on unilateral emission regulation: non-ferrous metals, iron and steel and non-metallic minerals. Our sensitivity analysis revolves around three types of unobserved heterogeneity at the sub-sectoral level: trade elasticities, energy consumption and technology specifications. Drawing on the example of border tax adjustments, we find that for all given technology specifications and variation in energy shares, the biggest differences emerge from variations in Armington elasticities. Even moderate changes in Armington elasticities can alter the magnitude and the sign of the effects at the sectoral level. The implications of sub-sectoral disaggregation are not as pronounced for macroeconomic indicators and leakage as for sectoral indicators. --
    Keywords: sectoral disaggregation,emissions trading,border adjustment,competitiveness,carbon leakage
    JEL: D58 H21 H22 Q48
    Date: 2012
  30. By: Lucas Bretschger; Nujin Suphaphiphat
    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 additonial 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: 2012–06
  31. By: Arndt, Channing; Fant, Charles; Robinson, Sherman; Strzepek, Kenneth
    Abstract: Analysis of climate change is often computationally burdensome. Here, we present an approach for intelligently selecting a sample of climates from a population of 6800 climates designed to represent the full distribution of likely climate outcomes out to
    Keywords: Gaussian quadrature sampling, climate uncertainty, computational burden, information theory
    Date: 2012

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