nep-ene New Economics Papers
on Energy Economics
Issue of 2013‒01‒26
28 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao

  1. Long Run Demand for Energy Services: the Role of Economic and Technological Development By Roger Fouquet
  2. Energy-efficiency and environmental policies & income supplements in the UK: Their evolution and distributional impact in relation to domestic energy bills By Chawla, M.; Pollitt, M.G.
  3. Budget-Neutral Financing to Unlock Energy Savings Potential: An Analysis of the ESCO Model in Barcelona By Samuel Bobbino; Héctor Galván; Mikel González-Eguino
  4. Consumer's Environmental Awareness and the Role of (Green) Entrepreneurship: Lessons from Environmental Quality Competition and R&D Activities for Environmental Policy By Torben Klarl
  5. Environmental Policies, Product Market Regulation and Innovation in Renewable Energy By Lionel Nesta; Francesco Vona; Francesco Nicolli
  6. Chinese Renewable Energy Technology Exports: The Role of Policy, Innovation and Markets By Jing Cao; Felix Groba
  7. The Importance of Time Zone Assignment: Evidence from Residential Electricity Consumption By Felix Weinhardt
  8. Going Electric: Expert Survey on the Future of Battery Technologies for Electric Vehicles By Michela Catenacci; Elena Verdolini; Valentina Bosetti; Giulia Fiorese; Nadia Ameli
  9. Unobserved heterogeneous effects in the cost efficiency analysis of electricity distribution systems By Per J. Agrell; Mehdi Farsi; Massimo Filippini; Martin Koller
  10. Impact of the Fukushima nuclear accident on the body mass index of students in Japan By Yamamura, Eiji
  11. An�lisis de la productividad en las plantas de generaci�n de Energ�a conectadas al sistema Interconectado Nacional: un nuevo Caso de Bio Econom�a en Nicaragua By Blanco Orozco, Napoleon Vicente; Zuniga Gonzalez, Carlos Alberto
  12. Oil Price Uncertainty and Industrial Production By Karl Pinno; Apostolos Serletis
  13. A Barrier Options Approach to Modeling Project Failure: The Case of Hydrogen Fuel Infrastructure By Ye Li; Peter Jan Engelen; Clemens Kool
  14. India’s urban environment: air and water pollution and pollution abatement By Sridhar, Kala S.; Kumar, Surender
  15. A dynamic approach to measuring ecological-economic performance with directional distance functions: greenhouse gas emissions in the European Union By Andrés J. Picazo-Tadeo; Juana Castillo; Mercedes Beltrán-Esteve
  16. Sustainable Economic Growth: Structural Transformation with Consumption Flexibility By López, Ramón; Yoon, Sang Won
  17. ETS and Technological Innovation: A Random Matching Model By Angelo Antoci; Simone Borghesi; Mauro Sodini
  18. The impact of air pollution on Hospital admissions: evidence from Italy By Raffaele Lagravinese; Lee Habin; Francesco Moscone; Eliza Tosetti
  19. Nonlinearity in cap-and-trade systems: The EUA price and its fundamentals By Lutz, Benjamin Johannes; Pigorsch, Uta; Rotfuß, Waldemar
  20. Optimal pollution control with distributed delays By Emmanuelle AUGERAUD-VERON; Marc LEANDRI
  21. Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation By Paul Eckerstorfer; Ronald Wendner
  22. Can Uncertainty Justify Overlapping Policy Instruments to Mitigate Emissions? By Oskar Lecuyer; Philippe Quirion
  23. A 4-DICE: quantitatively addressing uncertainty effects in climate change By Traeger, Christian
  24. The Social Cost of Stochastic and Irreversible Climate Change By Yongyang Cai; Kenneth L. Judd; Thomas S. Lontzek
  25. Rural households in a changing climate By Baez, Javier E.; Kronick, Dorothy; Mason, Andrew D.
  26. A Ricardian Analysis of the Impact of Climate Change on European Agriculture By Steven Van Passel; Emanuele Massetti; Robert Mendelsohn
  27. Domestic Politics and the Formation of International Environmental Agreements By Simon Dietz; Carmen Marchiori; Alessandro Tavoni
  28. Redistribution Effects of Energy and Climate Policy: The Electricity Market By Lion Hirth; Falko Ueckerdt

  1. By: Roger Fouquet
    Abstract: This paper investigates how the demand for energy services has changed since the Industrial Revolution. It presents evidence on the income and price elasticities of demand for domestic heating, passenger transport and lighting in the United Kingdom over the last two hundred years. It finds that the general trend in income elasticity followed an inverse U-shape curve and in price elasticity was a U-shape curve, as the economy developed and energy service prices fell. However, these general trends were disrupted by energy and technological transitions, which boosted demand (either by encouraging poorer consumers to fully enter the market or by offering new attributes of value to wealthier consumers). This evidence suggests that energy service consumption in developing economies is likely to continue rising rapidly and in industrialised countries is not likely to decline. Thus, in the absence of a full transition to low carbon energy sources and technologies, this implies long run increases in global carbon dioxide emissions.
    Keywords: Long Run Demand, Elasticities. Economic Development
    Date: 2013–01
  2. By: Chawla, M.; Pollitt, M.G.
    Abstract: The paper examines the financial costs of energy-efficiency and environmental policies that directly affect domestic electricity and gas bills in the UK over time. It also attempts for the first time to work out the current distributional impacts of these policies and others that act as income supplements thereby presenting a consistent picture across time and income deciles. Figures suggest that during 2000-11, the percentage share of policy costs in typical domestic electricity and gas bills rose by 14% and 4%, respectively. This reflects a growing share of policy costs in bills which is relatively small for gas customers but significant for electricity customers. Moreover, distributional impacts of the energy-policy mix highlight the issue of imperfect targeting of low-income households during 2009-10. The study also indicates that during 2010-11, 76% of the funds for energy-efficiency schemes were handled by the private sector. Given that a long-term solution to fuel poverty lies in improving thermal efficiency of houses; this research draws attention towards the need for definitive evidence on the ways in which energy suppliers charge policy costs from their domestic customers. This would facilitate in making the future policies more empirically grounded. In time, a clearer understanding of official statistics on energy bills will go a long way in restoring consumers’ trust in the pricing mechanism of the energy market.
    Keywords: Energy-efficiency and environmental policy; income supplements; distributional impact; policy costs; targeting
    JEL: Q48
    Date: 2012–12–19
  3. By: Samuel Bobbino; Héctor Galván; Mikel González-Eguino
    Abstract: The objective of this article is to introduce an increasingly popular business model known as the Energy Service Company (ESCO) model and bring to light the principal barriers to its widespread implementation both from the public and private perspectives. The ESCO model is essentially a “budget neutral†method of financing the purchase, installation and maintenance of energy efficient technologies. This concept, which incorporates notions of “third-party financing†and “energy performance contractingâ€, has been used successfully for quite some time in countries like the US, the UK and Germany. In this article we will analyze the possibilities and limitations in the implementation of the ESCO model in a specific case study: the Barcelona municipal area in Spain.
    Keywords: Energy Conservation and Efficiency, ESCO, Spain
    Date: 2013–01
  4. By: Torben Klarl (University of Augsburg, Department of Economics)
    Abstract: In the recent last years, in particular in the aftermath of the global financial and economic crisis, many countries initiated economic recovery plans with a major focus on stimulating green entrepreneurial activities to revive economic growth. Further, the recovery plans intend to improve a country's awareness for a direct orientation towards (strong) sustainability and green growth. Before discussing strategies towards green growth, in this paper we propose a novel framework to increase our understanding of the interplay of process R&D activities, the strategic price and environmental quality setting of heterogeneous entrepreneurs in a market where consumers feel up to paying for environmental quality improvement of a vertically differentiated good. In the paper we decompose an entrepreneur's incentive conducting process R&D in four parts. In particular we show that an entrepreneur's incentive of conducting own process R&D is reduced due to the existence of knowledge-spillovers. Moreover, due to the strategic complementarities, both in prices as well as in environmental quality, a strategic effect reinforces the negative consequences of the spillover-effect. We show that the externalities in the model require corrections based upon a mixture of fiscal policies and a process R&D subvention scheme establishing a first-best solution. We further thoroughly discuss the implementation of a second-best solution and derive environmental policy implications.
    Keywords: Technological change, Process R&D, Green consumerism, Vertical differentiation, Emission tax, Environmental quality, Environmental policy
    JEL: Q55 Q58 O31 O33 D43 L13 L15
    Date: 2013–01
  5. By: Lionel Nesta (SciencesPo, OFCE-DRIC); Francesco Vona (SciencesPo, OFCE-DRIC); Francesco Nicolli (University of Ferrara)
    Abstract: We investigate the effectiveness of policies in favor of innovation in renewable energy under different levels of competition. Using information regarding renewable energy policies, product market regulation and high-quality green patents for OECD countries since the late 1970s, we develop a pre-sample mean count-data econometric specification that also accounts for the endogeneity of policies. We find that renewable energy policies are significantly more effective in fostering green innovation in countries with deregulated energy markets. We also find that public support for renewable energy is crucial only in the generation of high-quality green patents, whereas competition enhances the generation of green patents irrespective of their quality.
    Keywords: Renewable Energy Technology, Patents, Environmental Policies, Product Market Regulation, Policy Complementarity
    JEL: Q55 Q58 Q42 Q48 O34
    Date: 2012–11
  6. By: Jing Cao; Felix Groba
    Abstract: Chinese companies have become major technology producers, with the largest share of their output exported. This paper examines the development of solar PV and wind energy technology component (WETC) exports from China and the competitive position of the country`s renewable energy industry. We also describe the government's renewable energy policy and its success in renewable electricity generation as well as increasing renewable energy innovation and foreign knowledge accumulation, which may drive export performance. We aim at empirically identifying determinants of Chinese solar PV and WETC exports. We estimate an augmented gravity trade model using maximum likelihood estimation. Besides controlling for standard variables derived from the gravity literature, we consider additional explanatory factors by accounting for market, policy and innovation effects steaming from both importing countries and China. We use a panel dataset representing annual bilateral trade flows of 43 countries from the developed and developing world that imported solar PV and WETCs from China between 1996 and 2008. The analysis shows that while the national market remained small for solar PV, the industry successfully entered foreign markets. The export performance of firms producing WETC increased but remained relatively small while the country developed a large home market. Empirical results indicate that high income countries, with a large renewable energy market and demand side policy support scheme, in terms of incentive tariffs, are increasingly importing solar PV components from China. We show that trade costs have a negative impact on exports of solar PV components but not WETC. Additionally, we find a positive impact of research and development (R&D) appropriation growth, especially from provincial governments in China, but no evidence that bilateral knowledge transfer and indigenous innovation affect exports.
    Keywords: China, Gravity model, Trade, Innovation, Policy, Renewable Energy Technologies
    JEL: C32 F14 O30 Q42 Q48 Q56
    Date: 2013
  7. By: Felix Weinhardt
    Abstract: This paper presents the first nationwide empirical assessment of residential electricity use in response to the timing of daylight. Employing Geographical Information Systems (GIS) solar times of sunrise and sunset are calculated for all geographical locations in mainland USA. This is used to uncover the non-standard variation in sunrise times in standard local time over space, depending on time zone, daylight saving time, and geographical position within time zone. This variation is subsequently used to uncover county-level responses in residential electricity consumption to changes in sunlight. I find no robust overall effect of sunrise times, but early sunrise is associated with lower residential electricity use in the North, but higher consumption in the South. These results would suggest that additionally splitting the USA into time-zones horizontally could reduce the total annual residential electricity bill, but further research is needed to examine the behavioral channels that could give rise to these effects.
    Keywords: time-use, time zones, daylight saving, energy consumption, GIS
    JEL: H4 Q4
    Date: 2013–01
  8. By: Michela Catenacci (Fondazione Eni Enrico Mattei); Elena Verdolini (Fondazione Eni Enrico Mattei and Centro Euro-Mediterraneo per i Cambiamenti Climatici); Valentina Bosetti (Fondazione Eni Enrico Mattei and Centro Euro-Mediterraneo per i Cambiamenti Climatici); Giulia Fiorese (Fondazione Eni Enrico Mattei and Dipartimento di Elettronica e Informazione, Politecnico di Milano); Nadia Ameli
    Abstract: The paper describes the results of a survey, carried out with leading EU experts, on the capacity of both fully electric and plug-in hybrid vehicles to reach commercial success in the next twenty years. The success of electric transport is hampered by a combination of low range, scarce efficiency and high costs of batteries. Costs are expected to decrease in response to increasing sales volume and technical improvements, and advances would result from adequate investments in research, development and demonstration (RD&D). Experts’ judgements are collected to shed light on the inherently uncertain relationship between RD&D efforts and consequent technical progress, and to assess the complex dynamics that will hinder or support the widespread diffusion of electric vehicles. The analysis of the experts’ data results in a number of important policy recommendations to guide future RD&D choices and target commitments both for the EU and its member states.
    Keywords: Expert Elicitation, Battery Technologies, Electric Vehicles
    JEL: Q5 Q55
    Date: 2012–12
  9. By: Per J. Agrell (Université Catholique de Louvain and Louvain School of Management); Mehdi Farsi (University of Neuchâtel); Massimo Filippini (ETH Zurich, Switzerland); Martin Koller (ETH Zurich, Switzerland)
    Abstract: The purpose of this study is to analyze the cost efficiency of electricity distribution systems in order to enable regulatory authorities to establish price- or revenue cap regulation regimes. The increasing use of efficiency analysis in the last decades has raised serious concerns among regulators and companies regarding the reliability of efficiency estimates. One important dimension affecting the reliability is the presence of unobserved factors. Since these factors are treated differently in various models, the resulting estimates can vary across methods. Therefore, we decompose the benchmarking process into two steps. In the first step, we identify classes of similar companies with comparable network and structural characteristics using a latent class cost model. We obtain cost best practice within each class in the second step, based on deterministic and stochastic cost frontier models. The results of this analysis show that the decomposition of the benchmarking process into two steps has reduced unobserved heterogeneity within classes and, hence, reduced the unexplained variance previously claimed as inefficiency.
    Keywords: Efficiency analysis; cost function; electricity sector; incentive regulation
    JEL: L92 L50 L25
    Date: 2013–01
  10. By: Yamamura, Eiji
    Abstract: Based on prefecture-level panel data from Japan for 2010 and 2012, this paper investigates how the 2011 Fukushima nuclear accident influenced the body mass index (BMI) of students aged between 5 and 17 years old. A differences-in-differences approach was used to show that (1) students’ BMIs reduced across Japan from 2010 to 2012 and (2) compared with other prefectures there was an increase in the BMIs of primary school students aged 5–11 years old in Fukushima as a result of the Fukushima accident. These findings suggest that restrictions placed on outdoor exercise as a result of the nuclear accident in Fukushima prevented primary school children from burning calories consumed; in other areas a reduction in the use of air-conditioning increased the burning of calories.
    Keywords: Fukushima; Nuclear accident; Body mass index
    JEL: H19 I18
    Date: 2013–01–20
  11. By: Blanco Orozco, Napoleon Vicente; Zuniga Gonzalez, Carlos Alberto
    Abstract: Scientific paper for dissertation in the Ph.D. program in Natural Sciences for Development Emphasis: Environmental and Culture Management
    Keywords: Productivity, Malmquist index, Biomass, Bio Economy, Oil fuel, Energy, Environmental Economics and Policy, Productivity Analysis, O14, Q43,
    Date: 2013–01–09
  12. By: Karl Pinno (University of Calgary); Apostolos Serletis (University of Calgary)
    Abstract: We estimate a bivariate GARCH-in-Mean VAR with a BEKK variance speciÂ…fication, to investigate whether oil price volatility affects real economic activity. We use the same data set of thirty seven, aggregate and disaggregate, industrial production indices used by Herrera et al. (2011) as a proxy for real output and a post-1973 data sample. We check the robustness of our results by using two proxies for the price of oil, the West Texas Intermediate (WTI) oil price and the RefiÂ…ners' Â’Acquisition Cost (RAC) of crude oil, and by testing for both nominal and real effects. We fiÂ…nd significant evidence of nonlinearities for both aggregate and disaggregate indices. Our research highlights the importance of nominal prices and extreme events such as the Great Recession in the transmission of nonlinearities. Our results show that nonlinear impacts of the price of oil on the aggregate economy vary according to time period even within the post-1974 data. Since 2000, oil price volatility is up markedly, but the number of industries it impacts is down when compared with the full sample. This is in keeping with what one would expect, based on trend improvements in GDP per unit of energy use. However, for those series, where oil price volatility is signifiÂ…cant, the impact of oil volatility is substantially higher than in the full sample; this runs contrary to what one might expect from the observed GDP per unit of energy use improvements.
    Date: 2013–01–21
  13. By: Ye Li; Peter Jan Engelen; Clemens Kool
    Abstract: In this paper, we contribute to the literature by including a knock-out barrier option in a compound real option model to take account of immediate project failure, a so- called sudden death. We apply the model to the case of hydrogen infrastructure development. In our case study, we find that even for the least conservative valuation method no profitable business case can be made for the development of hydrogen as a sustainable transportation mode. However, we do provide some suggestive scenarios that plausible tax schedules can be designed to overcome the starting problems for hydrogen infrastructure development. To the extent that sudden project failure would be predominantly caused by potential reversals in political support, a cheap way to make the development of hydrogen infrastructure - and other similar projects - more attractive would be to design credible long-term political commitments to this type of development.
    Keywords: Uncertainty, real option, barrier option, investment failure, hydrogen infrastructure investment
    JEL: G32 O32 Q42
    Date: 2012–12
  14. By: Sridhar, Kala S.; Kumar, Surender
    Abstract: This paper focuses on air and water pollution in India’s cities, provides empirical evidence to demonstrate the seriousness of the challenges, discusses the relevant policies of national and local government that are used to address the challenges, discusses relevant political economy issues related to introducing pollution taxes or other policies which are aimed at “green” cities.
    Keywords: Urbanisation; Environment; Air pollution; Water pollution; Fiscal instruments
    JEL: R0 Q53 N95
    Date: 2012–12
  15. By: Andrés J. Picazo-Tadeo (Departamento de Economía Aplicada II. Universidad de Valencia); Juana Castillo (Departamento de Economía Aplicada II. Universidad de Valencia); Mercedes Beltrán-Esteve (Departamento de Economía Aplicada II. Universidad de Valencia)
    Abstract: The impact of economic activity on the environment is a matter of growing concern for firm managers, policymakers, researchers and society as a whole. Building on previous work by Kortelainen [Kortelainen, M., 2008. Dynamic environmental performance analysis: A Malmquist index approach. Ecological Economics 64, 701-715], we contribute an approach to assessing dynamic ecological- economic performance, or simply dynamic eco-performance, and its two determinants, ecologicaleconomic efficiency change and technical change, at specific-environmental-pressure level. In doing so, we use Data Envelopment Analysis techniques, directional distance functions and Luenberger indices. Our approach is employed to assess dynamic eco-performance in the emission of greenhouse gases in the European Union-27 over the period 1990-2010. The main result is that eco-performance has been boosted by technical change rather than by increases in eco-efficiency. Accordingly, policy measures aimed at enhancing eco-efficiency are recommended to improve eco-performance in European countries regarding greenhouse gas emissions.
    Keywords: Dynamic eco-performance; directional distance functions; Data Envelopment Analysis; greenhouse gases emissions; European Union
    JEL: C61 O44 Q01 Q54
    Date: 2013–01
  16. By: López, Ramón; Yoon, Sang Won
    Abstract: The standard theoretical literature has shown that environmental sustainability and positive economic growth are not incompatible as long as environmental policies are optimal. However, in showing this result earlier studies have relied on strong assumptions that may appear to charge the dice in favor of such result. Here we show that once the role of the consumption composition effect is recognized, environmentally sustainable economic growth may exist even if some of the most questionable assumptions used by the canonical models are relaxed. In particular, we show that sustainable growth is possible even if environmental and man-made factors of production are complement rather than highly substitutable as has been invariably assumed by the literature and even if technological change is entirely pollution-augmenting.
    Keywords: Environmental Economics and Policy, International Development, O44, Q01, Q56,
    Date: 2013–01
  17. By: Angelo Antoci (University of Sassari); Simone Borghesi (University of Siena); Mauro Sodini (University of Pisa)
    Abstract: The present paper investigates the functioning of an Emission Trading System (ETS) and its impact on the diffusion of environmental-friendly technological innovation in the presence of firms’ strategic behaviours and sanctions to non-compliant firms. For this purpose, we study an evolutionary game model with random matching, namely, a context in which a population of firms interact through pairwise random matchings. We assume that each firm has to decide whether to adopt a new clean technology or keep on using the old technology that requires pollution permits to operate and that the strategy whose expected payoff is greater than the average payoff spreads within the population at the expense of the alternative strategy (the so-called replicator dynamics). We investigate the technological dynamics and the stationary states that emerge from the model. From the analysis of the model, we show that by properly modifying the penalty on non-compliant firms, it is possible to shift from one dynamic regime to another and that an increase in permits trade can promote the diffusion of innovative pollution-free technologies.
    Keywords: Emissions Trading, Technological Innovation, Random Matching, Evolutionary Game, Penalty System, Strategic Behaviour
    JEL: C62 C63 C73 C78 O33 Q55 Q58
    Date: 2012–10
  18. By: Raffaele Lagravinese; Lee Habin; Francesco Moscone; Eliza Tosetti
    Abstract: In this paper we examine the relationship between air pollution and hospital admissions for chronic obstructive pulmonary disease in Italy, at province level, over the period 2004- 2009. To this end, we use information on annual mean concentrations of carbon monoxide, nitrogen dioxide, particulate matter, and ozone measured at monitoring station level to build province-level indicators. In our model for hospital admissions, we allow pollution measures to be subject to measurement error and possibly correlated with the error term. By adopting an instrumental variables approach, we find that higher levels of particulate matter and carbon monoxide are associated with higher hospitalisation for children, while ozone has an influence on hospital admissions of the elderly. Other factors that appear to have an important role are the rainfall and the level of education.
    Keywords: airborne pollutants; hospital admission; instrumental variables.
    JEL: I12 I18 Q53
    Date: 2013–01
  19. By: Lutz, Benjamin Johannes; Pigorsch, Uta; Rotfuß, Waldemar
    Abstract: In this paper we examine the nonlinear relation between the EUA price and its fundamentals, such as energy prices, macroeconomic risk factors and weather conditions. By estimating a Markov regime-switching model, we find that the relation between the EUA price and its fundamentals varies over time. In particular, we are able to identify a low and a high volatility regime, both showing a strong impact of the fundamentals on the EUA price. The high volatility regime is predominant during the recession of 2008 and 2009 - a time period in which the actual emissions sharply decreased due to the economic crisis. --
    Keywords: EU ETS,EUA Price Fundamentals,Markov Regime-Switching
    JEL: C22 C58 G13 Q50
    Date: 2013
  20. By: Emmanuelle AUGERAUD-VERON; Marc LEANDRI
    Abstract: We present a model of optimal stock pollution control with distributed delays in the stock accumulation dynamics. Using generic functional forms and a distribution structure that covers a wide range of distributions, we solve analytically the complex dynamic system that arises from the introduction of these distributed delays. Our contribution extends the dynamic optimization literature that focused on the single discrete delay case and develops an original method to address control problems with mixed type functional differential equations. Our results show the qualitative impact of acknowledging these distributed delays on the optimal pollution paths dynamics and identify the occurrence of limit cycles and the stability conditions of such a model that can be used to design efficient environmental policies.
    Keywords: Optimal Pollution Control, Distributed Delays, Mixed Type Functional Differential Equations, Hopf Bifurcation
    JEL: C61 Q5
    Date: 2013
  21. By: Paul Eckerstorfer (University of Linz); Ronald Wendner (Karl-Franzens University of Graz)
    Abstract: We analyze the effects of a generalized class of negative consumption externalities (asymmetric and non-atmospheric) on the structure of efficient commodity tax programs. Households are not only concerned about consumption reference levels - that is, they gain utility from "keeping up with the Joneses" - they also exhibit altruism. Two sets of efficient tax regimes are compared, based, on a welfarist- and a non-welfarist optimality criterion, respectively. Altruism turns out not to be at odds with the consumption externalities. Rather, altruism implicates a bound on efficient utility allocations. A non-welfarist government tolerates less inequality than a welfarist one. In the welfarist (non-welfarist) case, first-best personalized commodity tax rates respond highly sensitively (barely) to whether or not a consumption externality is asymmetric or non-atmospheric. If personalized commodity tax rates are not available (second-best case), the tax rate on a non-positional good is typically different from zero for corrective reasons. For plausible functional forms and parameter values, numerical simulations suggest that second-best tax rates are rather insensitive with respect to both the optimality criterion and the "nature" of the consumption externality.
    Keywords: Consumption externality, Keeping up with the Joneses, Optimal (commodity) taxation, Genuine altruism, non-welfarist government
    JEL: D62 H21 H23
    Date: 2013–01
  22. By: Oskar Lecuyer (CNRS, UMR 8568 CIRED, Nogent-sur-Marne and EDF R&D, Clamart); Philippe Quirion (CNRS, UMR 8568 CIRED, Nogent-sur-Marne, France)
    Abstract: This article constitutes a new contribution to the analysis of overlapping instruments to cover the same emission sources. Using both an analytical and a numerical model, we show that when the risk that the CO2 price drops to zero and the political unavailability of a CO2 tax (at least in the European Union) are taken into account, it can be socially optimal to implement an additional instrument encouraging the reduction of emissions, for instance a renewable energy subsidy. Our analysis has both a practical and a theoretical purpose. It aims at giving economic insight to policymakers in a context of increased uncertainty concerning the future stringency of the European Emission Trading Scheme. It also gives another rationale for the use of several instruments to cover the same emission sources, and shows the importance of accounting for corner solutions in the definition of the optimal policy mix.
    Keywords: Uncertainty, Policy Overlapping, Mitigation Policy, Energy policy, EU-ETS, Renewable Energy, Corner Solutions, Nil CO2 Price
    JEL: Q28 Q41 Q48 Q58
    Date: 2012–12
  23. By: Traeger, Christian
    Abstract: We introduce a version of the DICE-2007 model designed for uncertaintyanalysis. DICE is a wide-spread deterministic integrated assessment model of climatechange. However, climate change, long-term economic development, and theirinteractions are highly uncertain. A thorough empirical analysis of the effects ofuncertainty requires a recursive dynamic programming implementation of integratedassessment models. Such implementations are subject to the curse of dimensionality.Every increase in the dimension of the state space is paid for by a combinationof (exponentially) increasing processor time, lower quality of the value function andcontrol rules approximations, and reductions of the uncertainty domain. The paperpromotes a four stated recursive dynamic programming implementation of the DICEmodel. Our implementation solves the infinite planning horizon problem for an arbitrarytime step. Moreover, we present a closed form continuous time approximationto the exogenous (discretely and inductively defined) processes in DICE and presenta Bellman equation for DICE that disentangles risk attitude from the propensity tosmooth consumption over time.
    Keywords: Natural Resources and Conservation, climate change, uncertainty, integrated assessment, intergrated assessment, DICE, dynamic programming, risk aversion, interemporal substitution, recursive utility
    Date: 2012–12–15
  24. By: Yongyang Cai; Kenneth L. Judd; Thomas S. Lontzek
    Abstract: There is great uncertainty about the impact of anthropogenic carbon on future economic wellbeing. We use DSICE, a DSGE extension of the DICE2007 model of William Nordhaus, which incorporates beliefs about the uncertain economic impact of possible climate tipping events and uses empirically plausible parameterizations of Epstein-Zin preferences to represent attitudes towards risk. We find that the uncertainty associated with anthropogenic climate change imply carbon taxes much higher than implied by deterministic models. This analysis indicates that the absence of uncertainty in DICE2007 and similar models may result in substantial understatement of the potential benefits of policies to reduce GHG emissions.
    JEL: C63 D81 Q54
    Date: 2013–01
  25. By: Baez, Javier E.; Kronick, Dorothy; Mason, Andrew D.
    Abstract: This paper argues that climate change poses two distinct, if related, sets of challenges for poor rural households: challenges related to the increasing frequency and severity of weather shocks and challenges related to long-term shifts in temperature, rainfall patterns, water availability, and other environmental factors. Within this framework, the paper examines evidence from existing empirical literature to compose an initial picture of household-level strategies for adapting to climate change in rural settings. The authors find that although households possess numerous strategies for managing climate shocks and shifts, their adaptive capacity is insufficient for the task of maintaining -- let alone improving -- household welfare. They describe the role of public policy in fortifying the ability of rural households to adapt to a changing climate.
    Keywords: Rural Poverty Reduction,Climate Change Economics,Regional Economic Development,Science of Climate Change,Climate Change Mitigation and Green House Gases
    Date: 2013–01–01
  26. By: Steven Van Passel (Hasselt University, Faculty of Business Economics, Centre for Environmental Sciences, Agoralaan, Yale University, School of Forestry and Environmental Studies); Emanuele Massetti (Yale University, School of Forestry and Environmental Studies, Fondazione Eni Enrico Mattei); Robert Mendelsohn (Yale University, School of Forestry and Environmental Studies)
    Abstract: This research estimates the impact of climate on European agriculture using a continental scale Ricardian analysis. Data on climate, soil, geography and regional socio-economic characteristics were matched for 37 612 individual farms across the EU-15. Farmland values across Europe are sensitive to climate. Even with the adaptation captured by the Ricardian technique, farms in Southern Europe are predicted to suffer sizeable losses (8% -13% per degree Celsius) from warming. In contrast, agriculture in the rest of Europe is likely to see only mixed impacts. Increases (decreases) in rain will increase (decrease) average farm values by 3% per centiliter of precipitation. Aggregate impacts by 2100 vary depending on the climate model scenario from a loss of 8% in a mild scenario to a loss of 44% in a harsh scenario.
    Keywords: Ricardian Analysis, Climate Change, European Agriculture, Climate Change Economics
    JEL: Q54 Q51 Q15
    Date: 2012–11
  27. By: Simon Dietz (Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science, Department of Geography and Environment, London School of Economics and Political Science); Carmen Marchiori (Department of Geography and Environment, London School of Economics and Political Science); Alessandro Tavoni (Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science)
    Abstract: The theory of international environmental agreements overwhelmingly assumes that governments engage as unitary agents. Each government makes choices based on benefits and costs that are simple national aggregates, and similarly on a single set of national-level motivations, together drawing a strong analogy with the behaviour of an individual or firm in other strategic contexts. In reality, however, various domestic special interests shape environmental policy, including how national governments cooperate on cross-border issues. Therefore in this paper we introduce to a classic model of international environmental cooperation the phenomenon of domestic political competition, whereby lobby groups seek to influence policy by offering to fund political campaigning. We use the model to establish some general conditions for the effects of lobbying on the stringency of policy and the size of coalitions cooperating to provide an environmental good. Using specific functional forms, we obtain a range of further results, including circumstances in which the omission of lobbying results in environmental protection being underestimated.
    Keywords: Game Theory, International Environmental Agreements, Lobbying, Special-Interest Groups, Strategic Cooperation
    JEL: C7 H41 K33 Q2 Q54
    Date: 2012–10
  28. By: Lion Hirth (Potsdam-Institute for Climate Impact Research, Vattenfall GmbH); Falko Ueckerdt (Potsdam-Institute for Climate Impact Research)
    Abstract: Energy and climate policies are usually seen as measures to internalize externalities. However, as a side effect, these policies redistribute wealth between consumers and producers, and within these groups. While redistribution is seldom the focus of the academic literature in energy economics, it plays a central role in real world policy debates. This paper compares the redistribution effects of two major electricity policies: support schemes for renewable energy sources, and CO2 pricing. We find that the redistribution effects of both policies are large, and they work in opposed directions: while renewables support transfers wealth from producers to consumers, carbon pricing does the opposite. More specifically, we show that moderate amounts of wind subsidies leave consumers better off even if they bear the costs of subsidies. In the case of CO2 pricing, we find that while suppliers as a whole benefit even without free allocation of emission certificates, large amounts of producer surplus are redistributed between different types of producers. These findings are derived from an analytical model of electricity markets, and a calibrated numerical model of the Northwestern European integrated power system. Our findings imply that a society with a preference for avoiding large redistribution might prefer a mix of policies, even if CO2 pricing alone is the first best climate policy in terms of allocative efficiency.
    Keywords: Carbon Tax, Emission Trading, Redistribution, Consumer Surplus, Producer Surplus, Wind Power Generation, Electricity Market Modelling
    JEL: Q42 Q48 L94 H23 D61 D62 C61 C63
    Date: 2012–11

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