nep-ene New Economics Papers
on Energy Economics
Issue of 2013‒01‒19
37 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao

  1. The Energy-Policy Efficiency Gap: Was There Ever Support for Gasoline Taxes? By Christopher R. Knittel
  2. Environmental Policy and the Energy Eficiency of Vertically Differentiated Consumer Products By Magdalena Stadejek; Alexander Haupt
  3. Does Subsidizing Investments in Energy Efficiency Reduce Energy Consumption?: Evidence from Germany By Caroline Dieckhöner
  4. A Dynamic Optimization on Energy Efficiency in Developing Countries By Wang, Dong
  5. The effect of feed-in tariffs on the production cost and the landscape externalities of wind power generation in West Saxony, Germany By Martin Drechsler; Jürgen Meyerhoff; Cornelia Ohl
  6. Adapting to Climate Change: The Remarkable Decline in the U.S. Temperature-Mortality Relationship over the 20th Century By Alan Barreca; Karen Clay; Olivier Deschenes; Michael Greenstone; Joseph S. Shapiro
  7. Forecasting extreme electricity spot prices By Volodymyr Korniichuk
  8. The Incentive to Invest in Thermal Plants in the Presence of Wind Generation By di Cosmo, Valeria; Malaguzzi Valeri, Laura
  9. Using Supervised Environmental Composites in Production and Efficiency Analyses: An Application to Norwegian Electricity Networks By Orea, Luis; Growitsch, Christian; Jamasb, Tooraj
  10. The cost of domestic fuel cell micro-CHP systems By Green, R; Staffell, I
  11. Optimal investment and the ambiguous aggregation of expert opinions By Stergios Athanassoglou; Valentina Bosetti; Gauthier de Maere d'Aertryckey
  12. Market Development for Green Cars By Andrea Beltramello
  13. The Impact of Forward Trading on Tacit Collusion: Experimental Evidence By Schubert, Jens
  14. Dams, Development and Displacement: Towards More Inclusive and Social Futures By Tanya Wragg-Morris
  15. Causes of energy shortage in Pakistan: An empirical evidence By Mubashir Qasim; Koji Kotani
  16. Procura final de energia em Portugal: Existe evidência sobre a presença de memória longa? By José Manuel Belbute
  17. Why are crude oil prices high when global activity is weak? By Ratti, Ronald A; Vespignani, Joaquin L.
  18. The macroeconomic and financial effects of oil price shocks By Zhou, Song; Wang, Dong
  19. Recursos Naturales y Crecimiento Económico en Colombia: ¿Maldición de los Recursos? By Jacobo Campo Robledo; W. Andrés Sanabria Parrado
  20. Aggregate impacts of recent U.S. natural gas trends By Arora, Vipin
  21. China’s Coal Chemical Industry: In the View of Governance Challenges By Xu, Xiaoran; Wang, Dong
  22. Analysis on Conflicts of China’s Coal Tax Reform By Wang, Dong
  23. Interactions Between Emission Trading Systems and Other Overlapping Policy Instruments By Nils Axel Braathen
  24. Investment Incentives under Emission Trading: An Experimental Study By Eva Camacho-Cuena; Till Requate; Israel Waichman
  25. Does the Effect of Pollution on Infant Mortality Differ between Developing and Developed Countries? Evidence from Mexico City By Arceo, Eva; Hanna, Rema; Oliva, Paulina
  26. Moving Forward with Incorporating "Catastrophic" Climate Change into Policy Analysis By Elizabeth Kopits; Alex L. Marten; Ann Wolverton
  27. How Volatile is ENSO for Global Greenhouse Gas Emissions and the Global Economy? By Lan-Fen Chu; Michael McAleer; Chi-Chung Chen
  28. International Environmental Agreements, Fiscal Federalism, and Constitutional Design By Wolfgang Buchholz; Alexander Haupt; Wolfgang Peters
  29. Potentially Harmful International Cooperation on Global Public Good Provision By Wolfgang Buchholz; Richard Cornes; Dirk Rübbelke
  30. Evaluation of long-dated investments under uncertain growth trend, volatility and catastrophes By Gollier, Christian
  31. Climate Change Negotiations from an Industry Perspective By Paula Bennati
  32. Evaluation Mechanisms for Climate Finance By Olga Kovalchuk
  33. Which mode of funding developing countries’ climate policies under the post-Kyoto framework? By Clemens Heuson; Wolfgang Peters; Reimund Schwarze; Anna-Katharina Topp
  34. Cost?benefit Analyses of Climate Change By Jorge Hargrave; Ronaldo Seroa da Motta; Gustavo Luedemann
  35. Trade Barriers in Policies that Regulate Greenhouse Gases By Ronaldo Seroa da Motta
  36. The Targets of the Copenhagen Accord and the Cancun and Durban Agreements By Ronaldo Seroa da Motta; Jorge Hargrave; Gustavo Luedemann
  37. The political economy of Australia’s climate change and clean energy legislation: lessons learned By Spencer, Thomas; Carole-Anne , Senit; Anna, Drutschinin

  1. By: Christopher R. Knittel
    Abstract: From 1864 to 1972, the real price of oil fell by, on average, over one percent per year. This trend dramatically broke when prices for crude increased by over 650 percent from 1972 to 1980. Policy makers adopted several policies designed to keep oil prices in check and reduce consumption. Missing from these policies were taxes on either oil or gasoline, prompting a long economics literature documenting the inefficiencies of these alternative policies. In this paper, I review the policy discussion related to the transportation sector that occurred during the time through the lens of the printed press. In doing so, I pay particular attention to whether gasoline taxes were "on the table," as well as how consumers viewed the inefficient set of policies that were ultimately adopted. The discussions at the time suggest that meaningful changes in gasoline taxes were on the table; the public discussion seemed to be much greater than it is today. Some in Congress and many presidential advisors in the Nixon, Ford, and, Carter administrations supported and proposed gasoline taxes. The main roadblocks for taxes were Congress and the American people. Polling evidence at the time suggests that consumers preferred price controls and rationing and vehicle taxes over higher gasoline taxes or letting gasoline prices clear the market. Given the saliency of rationing and vehicle taxes, it seems difficult to argue that these alternative polices were adopted because they hide their true costs.
    JEL: H23 K32 L50 L62 L91 Q38 Q41
    Date: 2013–01
  2. By: Magdalena Stadejek (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder)); Alexander Haupt (School of Management (Plymouth Business School))
    Abstract: We analyse optimal environmental policies in a market that is vertically differentiated in terms of the energy efficiency of products. Considering energy taxes, subsidies to firms for investment in more eco-friendly products, and product standards, we are particularly interested in how distributional goals in addition to environmental goals shape the choice of policy instruments. We Önd that an industry-friendly government levies an energy tax to supplement a lax product standard, but shies away from subsidies to firms. By contrast, a consumer-friendly government relies heavily on a strict product standard and additionally implements a moderate subsidy to firms, but avoids energy taxes.
    Keywords: Energy tax, energy efficiency standard, subsidy, vertically differentiated markets, product quality
    JEL: Q58 Q48 L13
    Date: 2012–07
  3. By: Caroline Dieckhöner
    Abstract: Improving energy efficiency is one of the three pillars of the European energy and climate targets for 2020 and has led to the introduction of several policy measures to promote energy efficiency. The paper analyzes the effectiveness of subsidies in increasing energy efficiency in residential dwellings. An empirical analysis is conducted in which the effectiveness of subsidies on the number of dwelling modernizations is investigated. Next, the impact of renovations on energy consumption is analyzed using a differences-in-differences-in-differences approach for modernizations made in given subsidy program periods, as well as for ownership status and household types for more than 5000 German households between 1992 and 2010. By controlling for socio-economic status, dwelling characteristics and macro-indicators, it becomes apparent that homeowners invest significantly more and have significantly lower heating expenditures than their tenant counterparts. Thus, the landlord-tenant problem tends to broaden the energy efficiency gap. It is also found that the number of modernizations made by landlords does not increase with higher subsidies. However, the renovations made during the subsidy periods decrease the heating consumption of tenants. Given the conditions that homeowners already invest more in energy efficiency, they increase modernizations only slightly with increasing subsides. However, these modernizations during subsidy periods do not further decrease homeowners' energy consumption. Thus, the large part of the overall subsidies received by homeowners can be identified as windfall profits.
    Keywords: ousehold behavior, econometric analysis, energy effciency, demand modelling
    Date: 2012
  4. By: Wang, Dong
    Abstract: This paper introduces a way for measuring the energy efficiency in economics besides the methods in physics. The linkage among energy efficiency, energy consumption and other macroeconomic variables is demonstrated primarily. Based on the methodology of dynamic optimization, a maximum problem of energy efficiency over time is subjected to the extended Solow growth model and instantaneous investment rate. In this model, energy consumption is set as control variable and investment is regarded as state variable. The analytic solutions can be derived and the diagrammatic analysis provides saddle-point equilibrium. With assigning values to parameters, a numerical simulation is presented; meanwhile the optimal paths of investment and energy consumption can be drawn. The discussion on modelling and implications is organized in the end. The dynamic optimization encourages governments in developing countries to pursue higher energy efficiency as it can reduce energy use without influencing the achievement of steady state in terms of Solow model.
    Keywords: energy efficiency; dynamic optimization; develpment
    JEL: O13 P28 Q43
    Date: 2012–11–24
  5. By: Martin Drechsler; Jürgen Meyerhoff; Cornelia Ohl (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder))
    Abstract: Although wind power is currently the most efficient source of renewable energy, the cost of wind electricity still exceeds the market price. Subsidies in the form of feed-in tariffs (FIT) have been introduced in many countries to support the expansion of wind power. These tariffs are highly debated. Proponents say they are necessary to pave the way for decarbonising energy production. Opponents argue they prevent a welfare-optimal energy supply. Thus, in a case study we try to shed light on the welfare economic aspect of FIT by combining spatial modelling and economic valuation of landscape externalities of wind turbines. We show for the planning region West Saxony, Germany, that setting FIT in a welfare optimal manner is a challenging task. If set too high the production costs are overly increased, lowering social welfare. If set too low energy production targets may not be reached and/or external costs are overly increased, again lowering social welfare. Taking a closer look at the tariffs offered by the German Renewable Sources Energy Act we find for West Saxony that the tariffs quite well meet economic welfare considerations. One should note, however, that this finding might apply only to the present data set.
    Keywords: feed-in tariff, spatial allocation, wind power
    Date: 2012–07
  6. By: Alan Barreca; Karen Clay; Olivier Deschenes; Michael Greenstone; Joseph S. Shapiro
    Abstract: Adaptation is the only strategy that is guaranteed to be part of the world's climate strategy. Using the most comprehensive set of data files ever compiled on mortality and its determinants over the course of the 20th century, this paper makes two primary discoveries. First, we find that the mortality effect of an extremely hot day declined by about 80% between 1900-1959 and 1960-2004. As a consequence, days with temperatures exceeding 90°F were responsible for about 600 premature fatalities annually in the 1960-2004 period, compared to the approximately 3,600 premature fatalities that would have occurred if the temperature-mortality relationship from before 1960 still prevailed. Second, the adoption of residential air conditioning (AC) explains essentially the entire decline in the temperature-mortality relationship. In contrast, increased access to electricity and health care seem not to affect mortality on extremely hot days. Residential AC appears to be both the most promising technology to help poor countries mitigate the temperature related mortality impacts of climate change and, because fossil fuels are the least expensive source of energy, a technology whose proliferation will speed up the rate of climate change.
    JEL: I10 I12 I18 Q54
    Date: 2013–01
  7. By: Volodymyr Korniichuk
    Abstract: We propose a model for forecasting extreme electricity prices in real time (high frequency) settings. The unique feature of our model is its ability to forecast electricity price exceedances over very high thresholds, where only a few (if any) observations are available. The model can also be applied for simulating times of occurrence and magnitudes of the extreme prices. We employ a copula with a changing dependence parameter for capturing serial dependence in the extreme prices and the censored GPD for modelling their marginal distributions. For modelling times of the extreme price occurrences we propose an approach based on a negative binomial distribution. The model is applied to electricity spot prices from Australia's national electricity market.
    Keywords: electricity spot prices, copula, GPD, negative binomial distribution
    JEL: C53 C51 C32
    Date: 2012–12–27
  8. By: di Cosmo, Valeria; Malaguzzi Valeri, Laura
    Abstract: In a deregulated market, the decision to build new thermal power plants rests with private investors and they will decide whether to invest on the basis of expected profits. This paper evaluates how such profits are affected by the increasing presence of wind generation. We use hourly historical data for the Irish Single Electricity Market, a compulsory pool market with capacity payments, and simulate future series of electricity shadow prices, bids of representative plants and wind generation. We estimate the correlation between shadow price and installed wind capacity on the basis of past data, finding a negative correlation. We then evaluate the effects of increased wind capacity on thermal power plants' expected profits. We find that increasing installed wind from the current level of 2000MW to about 3000MW causes a larger decrease in profits for baseload gas plants and a smaller decrease for less flexible coal-fuelled plants. The decrease in profits is of the order of 1 to 2 per cent.
    Keywords: data/electricity/wind generation
    Date: 2012–12
  9. By: Orea, Luis (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Growitsch, Christian (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Jamasb, Tooraj (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: Supervised dimension reduction methods have been extensively applied in different scientific fields like biology and medicine in recent years. However, they have hardly ever been used in micro economics, and in particular cost function modeling. Nonetheless, these methods can also be useful in regulation of natural monopolies such as gas, water, and electricity networks, where firms’ cost and performance can be affected by a large number of environmental factors. In order to deal with this ‘dimensionality’ problem we propose using a supervised dimension reduction approach that aims to reduce the dimension of data without loss of information. Economic theory suggests that in the presence of other relevant production (cost) drivers, the traditional all-inclusive assumption is not satisfied and, hence, production or cost predictions (and efficiency estimates) might be biased. This paper shows that purging the data using a partial regression approach allows us to address this issue when analyzing the effect of weather and geography on cost efficiency in the context of the Norwegian electricity distribution networks.
    Keywords: supervised composites; environmental conditions; electricity networks
    JEL: L15 L51 L94
    Date: 2012–12–02
  10. By: Green, R; Staffell, I
    Date: 2012–07–30
  11. By: Stergios Athanassoglou; Valentina Bosetti; Gauthier de Maere d'Aertryckey
    Abstract: How should a decision-maker assess the potential of an investment when a group of experts provides strongly divergent estimates on its expected payoff? To address this question, we propose and analyze a variant of the well-studied -maxmin model in decision theory. In our framework, and consistent to the paper's empirical focus on R&D investment, experts' subjective probability distributions are allowed to be action-dependent. In addition, the decision maker constrains the sets of priors to be considered in accordance with ethical considerations and/or operational protocols. Using tools from convex and conic optimization, we are able to establish a number of analytical results including a closed-form expression of our model's value function, a thorough investigation of its differentiability properties, and necessary conditions for optimal investment. We apply our framework to original data from a recent expert elicitation survey on solar technology. The analysis suggests that more aggressive investment in solar technology R&D is likely to yield significant dividends even, or rather especially, after taking ambiguity into account. Keywords: expert aggregation; ambiguity; -maxmin; second-order cone programming; renewable energy R&D
    Date: 2012
  12. By: Andrea Beltramello
    Abstract: This report presents and analyses policies, programmes and approaches for the development, market introduction and diffusion of green cars. It reviews government policies in a number of OECD countries as well as a selection of non-OECD economies. The report attempts to provide: i) a better understanding of the growing market for green vehicles; ii) new analytical instruments to identify policies and approaches that could be designed and put in place, notably with the aim of fostering the uptake of green cars; and iii) to the extent possible, insights into the efficiency and effectiveness of existing policies, as well as guidance on how to assess the impact of future measures.
    Date: 2012–09
  13. By: Schubert, Jens
    Abstract: This article reports the results of a laboratory experiment that examines the strategic effect of forward contracts on market power in infinitely repeated duopolies. Two competing effects motivate the experimental design. Allaz and Vila (1993) argue that forward markets act like additional competitors in that they increase quantity competition among firms. Conversely, Liski and Montero (2006) argue that forward contracting can facilitate collusive outcomes by enabling firms to soften competition. The experiment provides a first simultaneous test of these rival effects. Contrary to previous experimental studies, the results do not support the quantity-competition effect. Further, the findings provide evidence in support of the collusive hypothesis.
    Keywords: Cournot oligopoly; Collusion; Experiments; Forward markets; Electricity markets
    JEL: L13 Q49 D43 C91 C72
    Date: 2013–01–01
  14. By: Tanya Wragg-Morris (IPC-IG)
    Abstract: As we move toward ?The Future We Want? (United Nations, 2012), broader awareness and concerns that link social, environmental and economic sustainability have become significantly more influential, at least politically. While there are clear linkages between these factors, they also have the potential individually to negate the other(s), and thus it cannot be assumed that this is still sustainable development. To be considered also are issues of social and environmental justice and, critically, the potential socio-economic costs to be borne by those targeted as beneficiaries whose lives are to bettered by taking such action. (?)
    Keywords: Dams, Development and Displacement: Towards More Inclusive and Social Futures
    Date: 2012–12
  15. By: Mubashir Qasim (World Fish Center); Koji Kotani (International University of University)
    Abstract: We address the causes of electricity shortage in Pakistan by examining data over the period 1971-2010 with time series analysis. The novelty lies in characterizing energy shortage via an index comprising the demands of electricity, gas and oil as well as via the information of public electricity supply. In particular, this index enables a simple empirical approach where energy shortage cannot be directly measured as data. Our main findings are as follows: first, end-consumers adjust their energy demand to the prices only in long run. Second, under-utilization of installed power generation capacity encourages fossil fuel consumption for private electricity. Third, uninterrupted electricity supply could be attained through regulating private electricity generation. Fourth, the relative demand for electricity increases and then decreases with real income in relation to gas and oil. Overall, our investigation implies that price adjustments tactics adopted by the government are not effective policies to deal with power shortage if oriented to short-run impacts. Rather, the government should focus on improving utilization rate of installed power plants and re-channeling the use of oil and gas for public electricity generation. Otherwise, energy shortage shall be worsened with economic growth in Pakistan.
    Keywords: energy shortage, energy consumption index, electricity price, oil prices
    JEL: Q57 Q58
    Date: 2013–01
  16. By: José Manuel Belbute (Universidade de Évora, Departamento de Economia & CEFAGE-UE, Portugal)
    Abstract: A persistente escalada do preço dos combustíveis fósseis à qual está associada uma enorme volatilidade de curto prazo, assim como as crescentes preocupações com as emissões de gases com efeitos sobre as alterações climáticas, alimentou nos últimos anos a discussão e as preocupações de política, do seu desenho e eficácia, sobre as possibilidades de substituição das fontes energéticas. O presente artigo pretende dar um contributo para essa discussão ao avaliar a hipótese da presença de memória longa na procura energética desagregada em Portugal. Usando dados mensais da Direção Geral de Energia e Minas (DGEM) e do Eurostat entre 1985 e 2011, os nossos resultados sugerem que não é possível rejeitar a hipótese da presença de memória longa na procura de energia agregada e desagregada (petróleo e derivados, eletricidade, carvão e gaz), com reversão para a média de forma muito lenta. resultados têm importantes implicações de política, pois sugerem que os choques de política têm efeitos permanentes na procura energética em Portugal.
    Keywords: Persistência, memória longa, Procura final de energia, persistência, Modelo ARFIMA, Portugal.
    JEL: C22 O13 Q41
    Date: 2013
  17. By: Ratti, Ronald A; Vespignani, Joaquin L.
    Abstract: There have been substantial increases in liquidity in recent years and real oil prices have almost returned to the high levels achieved before the Global financial crisis. Unanticipated increases in global real M2 lead to statistically significant increases in real oil prices. The cumulative impact of global real M2 on the real price of crude oil is important in the recovery of oil price over 2009 to 2011.
    Keywords: Keywords: Oil Price; Global Liquidity
    JEL: Q41 E32 E31 Q43
    Date: 2012–12–01
  18. By: Zhou, Song; Wang, Dong
    Abstract: The oil price shock is considered as a major contributor to economic fluctuation. In this paper, we investigate whether the impulse responses of different macroeconomic variables and financial variables to the oil price shock and the effect of interest rates change. And we also use Granger Causality Test to evaluate the correlation between oil prices, stock markets and gold prices. Estimation results based on the U.S. data suggest that: (i) The oil price shock has a significant impact on inflation, stock markets and gold prices and it also has a short-term impact on interest rates. (ii) Co-movement of oil prices, stock markets and gold prices exist. (iii) Changing interest rates as monetary policy can induce price puzzle in order to reduce the inflation caused by the oil price shock.
    Keywords: VAR; Granger Causality; oil prices
    JEL: E32 Q43
    Date: 2012–11–02
  19. By: Jacobo Campo Robledo; W. Andrés Sanabria Parrado
    Abstract: La “maldición de los recursos naturales” es un término acuñado por Auty (1993) y reforzado por los resultados de Sachs y Warner (1995, 1999) para explicar por qué países con una mayor riqueza relativa de recursos naturales tienden a crecer a tasas inferiores que los países que tienen menos recursos naturales. Este documento estudia de manera empírica la existencia de una “maldición de los recursos” en la economía colombiana, para tal efecto, se aplica análisis de series de tiempo, encontrando evidencia para afirmar la paradoja, explicada por la exportación de café, petróleo y área de tierra destinada a la agricultura para el periodo comprendido entre 1970 – 2010.
    Date: 2012–12–30
  20. By: Arora, Vipin
    Abstract: Predictions about the macroeconomic impacts of recent U.S. natural gas trends vary widely. I re-evaluate the possible effects on U.S. economic activity using a standard general equilibrium model. Within this framework I show that increases in natural gas supply result in small-to-moderate economic gains, even with unemployment or under-utilized capital. Subsequent rises in economy-wide productivity are the key to magnifying the economic impacts of greater natural gas supply and resources. The 1995-2000 period, where U.S. productivity growth was driven by information technology, is a good starting point for comparing how American productivity may evolve because of natural gas.
    Keywords: Natural gas; general equilibrium; unemployment; variable capacity; shale; productivity
    JEL: E27 E17 D24 Q43
    Date: 2013–01–11
  21. By: Xu, Xiaoran; Wang, Dong
    Abstract: This paper examines the China’s coal chemical strategy. As a part of national energy strategy, China’s coal chemical industry induces conflicts on technical level, economic level and policy level. The analysis of this paper is under the policy framework and discusses the causes and effects of these conflicts and also proposes some possible solutions.
    Keywords: Coal chemical industry; low carbon; renewable energy
    JEL: L5 Q42 P28 Q43 L88
    Date: 2013–01–14
  22. By: Wang, Dong
    Abstract: This paper investigates the conflicts which are resulted from coal tax reform in China from economic and public policy perspectives. An analytical framework involving actors, values, interests and institution has been applied. China’s central government eagers to achieve fiscal revenue increase, environmental protection and energy conversation goals by a good governance of coal system. As a traditional and feasible policy instrument, taxation is regarded for dealing with energy issues in politics and governance. However, coal tax reform proposal has induced many controversies in China. The causes of that include value conflicts of all actors, competing interests of all parties and institutional barriers of economic, politics and legislation. Therefore, the government cannot regulate coal issues only through taxation. The case reveals that good governance on coal cannot be achieved only by economic tools as the coal system contains so high stake and involves so many players.
    Keywords: energy tax; coal tax regime; policy instrument; energy conflicts
    JEL: Q38 Q32 H20 Q48
    Date: 2012–10–23
  23. By: Nils Axel Braathen
    Abstract: Well designed emission trading systems are environmentally effective and economically efficient instruments to address emissions of CO2 and other greenhouse gases. This paper discusses interactions that can occur when a cap-and-trade based emission trading system is combined with overlapping policy instruments (environmentally related taxes, subsidies, ‘command-and-control regulations, information instruments, etc.), addressing emissions stemming from the same sources.
    Date: 2011–06
  24. By: Eva Camacho-Cuena (LEE & Economics Department, Universitat Jaume I, Castellón, Spain); Till Requate (Economics Department, University of Kiel, Germany); Israel Waichman (Department of Economics, University of Heidelberg, Germany)
    Abstract: This paper presents the results of an experimental investigation on incentives to adopt advanced abatement technology under emissions trading. Our experimental design mimics an industry with small asymmetric polluting firms regulated by different schemes of tradable permits. We consider three allocation/auction policies: auctioning off (costly) permits through an ascending clock auction, grandfathering permits with re-allocation through a single-unit double auction, and grandfathering with reallocation through an ascending clock auction. Our results confirm both dynamic and static theoretical equivalence of auctioning and grandfathering. We nevertheless find that although the market institution used to reallocate permits does not impact the dynamic efficiency from investment, it affects the static efficiency from permit trading.
    Keywords: Environmental policy, abatement technology, taxes, permit trading, auctions opportunity, Ultimatum Game
    JEL: C92 D44 L51 Q28 Q55
    Date: 2012
  25. By: Arceo, Eva (CIDE, Mexico City); Hanna, Rema (Harvard University); Oliva, Paulina (University of CA, Santa Barbara)
    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 (mu)g/m[superscript 3] increase in particulate matter (PM[subscript 10]) results in 0.24 infant deaths per 100,000 births. Our estimates for PM[subscript 10] 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.
    Date: 2012–11
  26. By: Elizabeth Kopits; Alex L. Marten; Ann Wolverton
    Abstract: It has often been stated that current studies aimed at understanding the magnitude of optimal climate policy fail to adequately capture the potential for “catastrophic” impacts of climate change. While economic modeling exercises to date do provide evidence that potential climate catastrophes might significantly influence the optimal path of abatement, there is a need to move beyond experiments which are abstracted from important details of the climate problem in order to substantively inform the policy debate. This paper provides a foundation for improving the economic modeling of potential large scale impacts of climate change in order to understand their influence on estimates of socially efficient climate policy. We begin by considering how the term “catastrophic impacts” has been used in the scientific literature to describe changes in the climate system and carefully review the characteristics of the events that have been discussed in this context. We contrast those findings with a review of the way in which the economic literature has modeled the potential economic and human welfare impacts of events of this nature. We find that the uniform way in which the economic literature has typically modeled such impacts along with the failure to understand differences in the end points and timescales examined by the natural science literature has resulted in the modeling of events that do not resemble those of concern. Based on this finding and our review of the scientific literature we provide a path forward for better incorporating these events into integrated assessment modeling, identifying areas where modeling could be improved even within current modeling frameworks and others where additional work is needed.
    Keywords: climate change, catastrophes, integrated assessment model
    JEL: Q54 Q58
    Date: 2013–01
  27. By: Lan-Fen Chu (National Science and Technology Center for Disaster, Taiwan); Michael McAleer (Erasmus University Rotterdam, Kyoto University, Complutense University of Madrid); Chi-Chung Chen (National Chung Hsing University, Taiwan)
    Abstract: This paper analyzes two indexes in order to capture the volatility inherent in El Niños Southern Oscillations (ENSO), develops the relationship between the strength of ENSO and greenhouse gas emissions, which increase as the economy grows, with carbon dioxide being the major greenhouse gas, and examines how these gases affect the frequency and strength of El Niño on the global economy. The empirical results show that both the ARMA(1,1)-GARCH(1,1) and ARMA(3,2)-GJR(1,1) models are suitable for modelling ENSO volatility accurately, and that 1998 is a turning point, which indicates that the ENSO strength has increased since 1998. Moreover, the increasing ENSO strength is due to the increase in greenhouse gas emissions. The ENSO strengths for Sea Surface Temperature (SST) are predicted for the year 2030 to increase from 29.62% to 81.5% if global CO2 emissions increase by 40% to 110%, respectively. This indicates that we will be faced with even stronger El Nino or La Nina effects in the future if global greenhouse gas emissions continue to increase unabated.
    Keywords: El Niños Southern Oscillations (ENSO); Greenhouse Gas Emissions; Global Economy; Southern Oscillation Index (SOI); Sea Surface Temperature (SST); Volatility.
    JEL: Q51 Q52 Q53 Q54
    Date: 2013–01–08
  28. By: Wolfgang Buchholz (Department of Economics, University of Regensburg); Alexander Haupt (School of Management (Plymouth Business School)); Wolfgang Peters (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder))
    Abstract: In this paper, we analyse how the prospect of international negotiations over transboundary pollution shapes intra-country transfer schemes when the governments of the countries' polluting regions are in charge of environmental policy and negotiations. Federal governments can implement compensation payments between domestic regions and matching grants prior to the international negotiations between the polluting regions. The subgame-perfect transfer schemes fail to fully internalise the environmental externality, leading to an inefficient international environmental agreement. As the international spillover increases, the intra-country compensation rates increase, while the matching rates decline, distorting the incentives for the regional governments in opposing directions. We also show that decentralisation of environmental decision making can arise endogenously.
    Keywords: Fiscal federalism, transboundary pollution, international environmental agreement, constitutional design, matching grants
    JEL: H77 F51 Q58 H41
    Date: 2012–03
  29. By: Wolfgang Buchholz (Department of Economics, University of Regensburg); Richard Cornes; Dirk Rübbelke
    Abstract: Recent international climate negotiations suggest that complete agreements are unlikely to materialize. Instead, partial cooperation between like-minded countries appears a more likely outcome. In this paper we analyze the effects of such partial cooperation between like-minded countries. In doing so, we link the literature on partial cooperation with so-called matching approaches. Matching schemes are regarded as providing a promising approach to overcome undersupply of public goods like climate protection. The functioning of matching mechanisms in a setting with an incomplete agreement, i.e. a contract where only a subset of the players participates, has however not been investigated yet. This paper fills this research gap by analyzing incomplete matching agreements in the context of international climate protection. We analyse their effect on both welfare and the global climate protection level. We show that matching coalitions may bring about a decline in global public good provision and a reduction in the welfare of outsiders.
    Keywords: Coalition formation, public goods, matching, Pareto optimality, partial cooperation
    JEL: C78 H41 Q54
    Date: 2012–07
  30. By: Gollier, Christian (TSE(LERNA, University of Toulouse))
    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
  31. By: Paula Bennati (Climate Change Senior Advisor in the Environment and Sustainability Department of the Confederação Nacional da Indústria (CNI? Brazilian Confederation of Industry))
    Abstract: The negotiations within the United Nations Framework Convention on Climate Change (UNFCCC) have had an increasing impact on domestic policies in developing countries, especially the largest emitters among them, such as India, China, South Africa and Brazil (member countries of the so-called BASIC group). (?)
    Keywords: Climate Change Negotiations from an Industry Perspective
    Date: 2012–05
  32. By: Olga Kovalchuk (Europa-Universität Viadrina Frankfurt (Oder))
    Date: 2012–04
  33. By: Clemens Heuson; Wolfgang Peters (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder)); Reimund Schwarze; Anna-Katharina Topp (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder))
    Abstract: Funding developing countries’ climate policies after Cancun (COP16) has a dual goal: firstly, to support mitigation of developing countries in order to sustain the two-degree pathway of stabilising the global mean temperature; secondly, to empower the vulnerable countries in lowincome regions to adapt to and recover from the most adverse impacts of climate change. So far, the political and scientific discussion has mainly concentrated on the appropriate level of funding. Referring to the newly emerging climate finance architecture under the post-Kyoto framework, this paper argues that a stronger focus must be put on the question: which mode of funding to choose? This is for the reason that the currently discussed funding instruments, such as earmarking of industrialised countries’ transfer payments to developing countries for reducing loss and damages, mitigation, or adaptation costs, may cause fundamental changes in the countries’ strategic behaviour concerning mitigation and adaptation efforts. Moreover, some of the instruments fall short of a minimum requirement for the donors to voluntarily provide means, and thus cannot guarantee sustained funding. We develop our results in a non-cooperative two-country framework in which donor and recipient decide on mitigation in the first, and on adaptation in the second stage of the game.
    Keywords: adaptation, climate policy, funding, mitigation, non-cooperative behaviour
    JEL: C72 D61 F35 Q54
    Date: 2012–07
  34. By: Jorge Hargrave (IPEA); Ronaldo Seroa da Motta (IPEA); Gustavo Luedemann (IPEA)
    Abstract: The United Nations Environment Programme (UNEP) estimated that the world would need to reduce greenhouse gas (GHG) emissions by 50?60 per cent from 1990 levels by 2050, with a future downward trajectory that is even more drastic, to have a probable chance of limiting a global temperature increase to 2ºC. It was also estimated that a 2ºC warming could lead to overall global losses of about 1 per cent of the world?s gross domestic product (GDP). Models predict however that losses will be distributed in an unbalanced way. While countries in Africa and South Asia may experience losses of around 4?5 per cent of their GDP, models predict minimal short term GDP losses in rich countries (Nordhaus, 2007; Stern, 2007). (?)
    Keywords: Cost?benefit Analyses of Climate Change
    Date: 2012–05
  35. By: Ronaldo Seroa da Motta (IPEA)
    Abstract: The Durban and Copenhagen Accords are not a treaty. Thus, the national commitments reported therein to achieve the 2°C trajectory, even if sufficient, will not be mandatory or binding under the United Nations Framework Convention on Climate Change (UNFCCC). In brief, there is no new global agreement in which national mitigation efforts are recognised by the UNFCCC and that points to an effective reduction of emissions in line with what science recommends as necessary. (?)
    Keywords: Trade Barriers in Policies that Regulate Greenhouse Gases
    Date: 2012–05
  36. By: Ronaldo Seroa da Motta (IPEA); Jorge Hargrave (IPEA); Gustavo Luedemann (IPEA)
    Abstract: Adopted in 1992, the United Nations Framework Convention on Climate Change (UNFCCC)?or simply the Convention ?today has nearly universal membership, with 195 parties. However, it was only after 1997, when the Kyoto Protocol was approved, that its implementation started. Foreseeing the end of the first commitment period of the Kyoto Protocol, in 2005 the Convention agreed on a new negotiation platform, the Bali Action Plan, which should go beyond the first commitment period. (?)
    Keywords: The Targets of the Copenhagen Accord and the Cancun and Durban Agreements
    Date: 2012–05
  37. By: Spencer, Thomas; Carole-Anne , Senit; Anna, Drutschinin
    Abstract: In November 2011, Australia adopted a highly innovative, ambitious and comprehensive climate change policy, the Clean Energy Legislative Package(CELP). This outcome was not self-evident.The CELP embeds an innovative carbon pricing mechanism in a comprehensive and highly generous package of complementary measures designed to increase its public acceptability, and environmental and economic efficiency. It is combined with progressive income tax cuts, increases in government transfer payments, and measures to shield emissions and trade-intensive industry and promote investment in renewable energy, energy efficiency and R&D. In addition, the package contains innovative governance mechanisms to shield it from the vagaries of the political cycle, and increase the political and administrative costs of dismantling it. In all, these measures increase the CELP’s chances of survival and provide an example of policy innovation for other countries to follow, keeping in mind their particular national circumstances.
    Keywords: Carbon pricing; political economy of climate policy; Australian climate policy
    JEL: Q52 Q40 Q54
    Date: 2012

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