nep-ene New Economics Papers
on Energy Economics
Issue of 2014‒01‒10
twenty papers chosen by
Roger Fouquet
London School of Economics

  2. Investment, security of supply and sustainability in the aftermath of three decades of power sector reform By Erdogdu, Erkan
  3. Computing electricity spot price prediction intervals using quantile regression and forecast averaging By Jakub Nowotarski; Rafal Weron
  4. Forecasting of daily electricity prices with factor models: Utilizing intra-day and inter-zone relationships By Katarzyna Maciejowska; Rafal Weron
  5. Challenges in Soft-Linking: The Case of EMEC and TIMES-Sweden By Riekkola, Anna Krook; Berg, Charlotte; Ahlgren, Erik O.; Söderholm, Patrik
  6. On the causal dynamics between economic growth, renewable energy consumption, CO2 emissions and trade openness: Fresh evidence from BRICS countries By Sebri, Maamar; Ben Salha, Ousama
  7. A multivariate analysis of the causal flow between renewable energy consumption and GDP in Tunisia By Ben Salha, Ousama; Sebri , Maamar
  8. Renewable Energy for Newfoundland and Labrador: Policy Formulation and Decision Making By Boksh, F. I. M. Muktadir
  9. Multi-Criteria Decision Making on the Energy Supply Configuration of Autonomous Desalination Units By Dimitris Georgiou; Essam Sh. Mohammed; Stelios Rozakis
  10. Biased Technological Change and the Relative Abundance of Natural Resources By John Boyce
  11. The impact of Oil Price and Oil Price Fluctuation on Growth Exports and Inflation in Pakistan By Hasanat Shah, Syed; Li, Jun Jiang; Hasanat, Hafsa
  12. Do Oil Price Increases Cause Higher Food Prices? By Christiane Baumeister; Lutz Kilian
  13. Cross-border loss offset can fuel tax competition By Andreas Hau fler; Mohammed Mardan
  14. Feasibility and Cost of Increasing US Ethanol Consumption Beyond E10 By Bruce A. Babcock; Sebastien Pouliot
  15. An Economic Evaluation of Peru's LNG Export Policy By Leonard Leung; Glenn Jenkins
  16. Marginal abatement cost curves and the optimal timing of mitigation measures By Adrien Vogt-Schilb; Stéphane Hallegatte
  17. Clean-Development Investments: An Incentive-Compatible CGE Modelling Framework By Christoph Böhringer; Thomas F. Rutherford; Marco Springmann
  18. Trade Openness, Financial Development Energy Use and Economic Growth in Australia:Evidence on Long Run Relation with Structural Breaks By Islam, Faridul; Shahbaz, Muhammad; Rahman, Mohammad Mafizur
  19. Optimal Trading Ratios for Pollution Permit Markets By Stephen Holland; Andrew J. Yates
  20. IIGHGINT: A generalization to the modified GHG intensity universal indicator toward a production/consumption insensitive border carbon tax By Reza Farrahi Moghaddam; Fereydoun Farrahi Moghaddam; Mohamed Cheriet

  1. By: Aygul Ozbafli (JDINT'L Department of Economics Queen's University, Canada); Glenn Jenkins (Department of Economics, Queen's University, Canada, Eastern Mediterranean University, Mersin 10, TURKEY)
    Abstract: This research examines households’ willingness to pay (WTP) for an improved electricity service. Households’ stated WTP is estimated using the choice experiment method (CE). The data used in the estimations came from 350 in-person interviews conducted during the period 5–22 August 2008 in North Cyprus. Compensating variation (CV) estimates for a zero-outage scenario are calculated using the parameter estimates from the mixed logit (ML) model; these are 6.65 YTL (Turkish lira) per month (5.66 USD) for summer and 25.83 YTL per month (21.97 USD) for winter. In order to avoid the cost of outages, households are willing to incur a 3.6% and a 13.9% increase in their monthly electricity bill for summer and winter, respectively. The WTP per hour unserved is 0.28 YTL (0.24 USD) for summer, and 1.08 YTL (0.92 USD) for winter. A preliminary cost–benefit analysis indicates that the annualized economic benefits are approximately 16.3 million USD for the residential sector, and justify an investment in additional generation capacity of approximately 120 MW.
    Keywords: Willingness to pay; choice experiment; electricity; outages; reliability
    JEL: D12 D61 L94 L98 Q41
    Date: 2013–11
  2. By: Erdogdu, Erkan
    Abstract: The last three decades have witnessed many electricity industry reform processes in more than half of the countries in the world. The reforms have aimed, inter alia, at encouraging private investments in electricity infrastructure, enhancing security of electricity supply and making power industry operate in line with the requirements of the sustainable development. Using an original panel dataset from 55 developed and developing countries covering the period from 1975 to 2010, this study aims at finding out to what extent these objectives have been materialized so far. Econometric models are used to identify the effects of electricity market liberalization on these variables. The research findings suggest that the progress toward the electricity market reform is associated with a decline in private investments in the electricity industries of developing countries, higher levels of self-sufficiency in electricity supply and lower CO2 emissions from electricity generation.
    Keywords: Econometric modeling; institutions and the macroeconomy; electric utilities, market design
    JEL: C51 E02 F0 L94
    Date: 2014–03
  3. By: Jakub Nowotarski; Rafal Weron
    Abstract: We examine possible accuracy gains from forecast averaging in the context of interval forecasts of electricity spot prices. First, we test whether constructing empirical prediction intervals (PI) from combined electricity spot price forecasts leads to better forecasts than those obtained from individual methods. Next, we propose a new method for constructing PI, which utilizes the concept of quantile regression (QR) and a pool of point forecasts of individual (i.e. not combined) time series models. While the empirical PI from combined forecasts do not provide significant gains, the QR based PI are found to be more accurate than those of the best individual model - the smoothed nonparametric autoregressive model.
    Keywords: Prediction interval; Quantile regression; Forecasts combination; Electricity spot price
    JEL: C22 C24 C53 Q47
    Date: 2013–12–31
  4. By: Katarzyna Maciejowska; Rafal Weron
    Abstract: We show that incorporating the intra-day and inter-zone relationships of electricity prices in the Pennsylvania--New Jersey--Maryland (PJM) Interconnection improves the accuracy of short- and medium-term forecasts of average daily prices for a major PJM market hub -- the Dominion Hub in Virginia, U.S. The forecasting performance of four multivariate models calibrated to hourly and/or zonal day-ahead prices is evaluated and compared with that of a univariate model, which uses only average daily data for the Dominion Hub. The multivariate competitors include a restricted vector autoregressive model and three factor models with the common and idiosyncratic components estimated using principal components in a semiparametric setup. The results indicate that there are forecast improvements from incorporating the additional information, essentially for all considered forecast horizons ranging from one day to two months, but only when the correlation structure of prices across locations and hours is modeled using factor models.
    Keywords: Wholesale electricity price; Forecasting; Vector autoregression; Factor model; Principal components; PJM market
    JEL: C32 C38 C53 Q47
    Date: 2013–12–30
  5. By: Riekkola, Anna Krook (Luleå University of Technology); Berg, Charlotte (National Institute of Economic Research); Ahlgren, Erik O. (Chalmers University of Technology); Söderholm, Patrik (Luleå University of Technology)
    Abstract: The aim of this study is to develop a method for how to soft-link a Computable General Equilibrium (CGE) model with a energy system model. The central research question is how the interaction between modellers and models can, both qualitatively and quantitatively, enable and facilitate a transparent energy and climate policy decision-making process at the national level. The paper describes this development in detail, and presents and discusses the results of the soft-linking methodology applied to a climate scenario. Important similarities and differences between two Swedish models, i.e. EMEC (a CGE model) and TIMES-Sweden (an energy system model), are identified. These findings are used to develop a robust and transparent method to translate simulation results between the two models, resulting in intermediate ‘translation models’ between EMEC and TIMES-Sweden. EMEC provides demand input to TIMES, while TIMES provides feedback on the energy efficiency parameters, the energy mix, and the prices of electricity and heat. These ‘translations’ can also be used stand-alone to feed into other energy system models. The presented soft-linking process demonstrates the importance of linking an energy system model with a macroeconomic model when studying energy and climate policy. With the same exogenous parameters, the soft-linking between the models results in a new picture of the economy and the energy system in 2035 compared with the corresponding model results in the absence of soft-linking. The study also leads to a better understanding of how the models can interact while preserving the respective models' strengths, to give an improved picture of both the flows in the economy and the impact of energy policy instruments.
    Keywords: Soft-linking; Computable General equilibrium; TIMES/MARKAL; Climate policy; Energy policy
    JEL: C68 D58 Q43
    Date: 2013–12–20
  6. By: Sebri, Maamar; Ben Salha, Ousama
    Abstract: The current study investigates the causal relationship between economic growth and renewable energy consumption in the BRICS countries over the period 1971-2010 within a multivariate framework. The ARDL bounds testing approach to cointegration and vector error correction model (VECM) are used to examine the long-run and causal relationships between economic growth, renewable energy consumption, trade openness and carbon dioxide emissions. Empirical evidence shows that, based on the ARDL estimates, there exist long-run equilibrium relationships among the competing variables. Regarding the VECM results, bi-directional Granger causality exists between economic growth and renewable energy consumption, suggesting the feedback hypothesis, which can explain the role of renewable energy in stimulating economic growth in BRICS countries.
    Keywords: ARDL; BRICS; Granger causality; Economic growth; Renewable energy.
    JEL: C32 Q2 Q3 Q4
    Date: 2013–12–25
  7. By: Ben Salha, Ousama; Sebri , Maamar
    Abstract: This paper examines the causality linkages between economic growth, renewable energy consumption, CO2 emissions and domestic investment in Tunisia between 1971 and 2010. Using the ARDL bounds testing approach to cointegration, long-run relationships between the variables are identified. The Granger causality analysis, on the other hand, indicates that there is bi-directional causality between renewable energy consumption and economic growth, which supports the feedback hypothesis in Tunisia. In addition, the quantity of CO2 emissions collapses as a reaction to an increase in renewable energy consumption. These findings remain robust even when controlling for the presence of structural break. We conclude that more efforts should be undertaken to further develop a suitable infrastructure to the renewable energy sector, given its enhancing-effects on economic growth and reducing-effects on CO2 emissions.
    Keywords: ARDL, Economic growth, Granger causality, Renewable energy consumption, Structural break, Tunisia.
    JEL: C3 Q4
    Date: 2013–12–29
  8. By: Boksh, F. I. M. Muktadir
    Abstract: Newfoundland and Labrador province is blessed with many natural resources. The province heavily depends on nonrenewable petroleum products for its domestic need and export. Considering the limited nature of this nonrenewable resources, the provincial government has taken many policy initiatives to develop its renewable energy sector. It has been found that the concentration was mainly on hydroelectric generation where the government is now implementing the formulated policies. But, policymakers are in policy formulation stage for wind energy development. Overall, the province has set its long term vision of sustainable energy supply and moving towards development of clean and environment friendly energy.
    Keywords: Newfoundland and Labrador, renewable energy, policy formulation
    JEL: Q4 Q48
    Date: 2013
  9. By: Dimitris Georgiou ("Postgraduate program in Agribusiness Management Agricultural University of Athens"); Essam Sh. Mohammed (Department of Natural Resources Management and Agricultural Engineering, Agricultural University of Athens); Stelios Rozakis ("Department of Agricultural Economics and Rural Development Agricultural University of Athens")
    Abstract: The important energy requirements for the desalination process impose especially in remote plants supply by Renewable Energy Sources (RES). In this paper five alternative energy generation topologies of Reverse Osmosis desalination process are evaluated. Proposed topologies assessed in terms of economic, environmental, technological and societal indices are compared using multi-criteria analysis, namely the Analytic Hierarchy Process (AHP) and PROMETHEE. Ranking of topologies resulted in the selection of direct connection and hybrid configuration. In case of economic priorities prevail diesel generation should also be considered.
    Keywords: desalination, reverse osmosis, topologies, multi-criteria analysis, renewable energy sources.
    JEL: Q25 Q42 C44
    Date: 2013
  10. By: John Boyce (University of Calgary)
    Abstract: This paper documents that natural resources that are more abundant have higher production, lower prices, higher primary industry revenues, and higher R&D. These empirical facts are explained by a model of biased technological change in which relatively more abundant resources attract greater R&D because the return from obtaining a patent is higher in larger markets. Resource specific R&D may be targeted either towards upstream extraction technologies or towards downstream production technologies, and R&D is subject to diminishing knowledge spillovers and diminishing productivity of labor. The estimated elasticity of substitution between natural resources is greater than one, implying that natural resources are substitutes in production. Declining real resource prices in the face of rising resource production are explained by the increasing productivity of labor as knowledge stocks grow.
    Date: 2013–01–21
  11. By: Hasanat Shah, Syed; Li, Jun Jiang; Hasanat, Hafsa
    Abstract: In this study we employed the ARDL bound test in order to detect cointegration relation of oil price and oil price fluctuation with GDP, exports and inflation in Pakistan. Our results confirmed cointegration among the variables when GDP was considered as dependent variable, while in case of inflation as responding variable, the long run relation among the variables are confirm only when oil price was replaced with oil price fluctuations as an explanatory variable. Applying VECM technique, we confirmed that causal link is running from oil price and oil price fluctuation to GDP and inflation. We could not detect causality running from oil prices and oil price fluctuation to exports or vice versa. Finally the augmented granger causality verified our findings of causal relation running from oil price and oil price fluctuation to GDP and Inflation both in combination with other variables as well as individually. We found that oil price fluctuation compared to oil prices drastically and asymmetrically affect the macro-economy of Pakistan.
    Keywords: Oil Price, Cointegration, Growth, Exports, Inflation, Granger Causality
    JEL: Q43
    Date: 2013–11–03
  12. By: Christiane Baumeister; Lutz Kilian
    Abstract: U.S. retail food price increases in recent years may seem large in nominal terms, but after adjusting for inflation have been quite modest even after the change in U.S. biofuel policies in 2006. In contrast, increases in the real prices of corn, soybeans, wheat and rice received by U.S. farmers have been more substantial and can be linked in part to increases in the real price of oil. That link, however, appears largely driven by common macroeconomic determinants of the prices of oil and agricultural commodities, rather than the pass-through from higher oil prices. We show that there is no evidence that corn ethanol mandates have created a tight link between oil and agricultural markets. Rather, increases in food commodity prices not associated with changes in global real activity appear to reflect a wide range of idiosyncratic shocks ranging from changes in biofuel policies to poor harvests. Increases in agricultural commodity prices, in turn, contribute little to U.S. retail food price increases, because of the small cost share of agricultural products in food prices. There is no evidence that oil price shocks have caused more than a negligible increase in retail food prices in recent years. Nor is there evidence for the prevailing wisdom that oil-price-driven increases in the cost of food processing, packaging, transportation and distribution are responsible for higher retail food prices. Finally, there is no evidence that oil-market-specific events or, for that matter, U.S. biofuel policies help explain the evolution of the real price of rice, which is perhaps the single most important food commodity for many developing countries.
    Keywords: Inflation and prices; International topics
    JEL: Q42 Q11 Q43 E31
    Date: 2013
  13. By: Andreas Hau fler (University of Munich and CESifo); Mohammed Mardan (University of Munich)
    Abstract: Following recent court rulings, cross-border loss compensation for multinational firms has become a major policy issue in Europe. This paper analyzes the effects of introducing a coordinated cross-border tax relief in a setting where multinational firms choose the size of a risky investment and host countries noncooperatively choose tax rates. We show that coordinated cross-border loss compensation may intensify tax competition when, following current international practice, the parent firm's home country bases the tax rebate for a loss-making subsidiary on its own tax rate. In equilibrium, tax revenue losses may thus be even higher than is implied by the direct effect of the reform. In contrast, tax competition is mitigated when the home country bases its loss relief on the tax rate in the subsidiary's host country.
    Keywords: cross-border loss relief, tax competition, multinational rms
    JEL: H25 H32 F23
    Date: 2013
  14. By: Bruce A. Babcock (Center for Agricultural and Rural Development (CARD)); Sebastien Pouliot (Center for Agricultural and Rural Development (CARD))
    Abstract: The proposed decision by the Environmental Protection Agency (EPA) to reduce biofuel mandates that can be met by ethanol to about 13 billion gallons is predicated in part on a finding that consumption of ethanol is largely limited to the amount that can be consumed in E10, a blended fuel containing 10 percent ethanol. One way to increase ethanol consumption beyond E10 levels is with E85, which contains up to 83 percent ethanol. Historical consumption of E85 provides a poor predictor of the level of possible consumption because the price of E85 has never been low enough to save owners of flex vehicles money. We use a new model of E85 demand to estimate the feasibility and cost of meeting higher ethanol mandate levels than those proposed by EPA. Our model shows that if existing E85 stations could sell as much E85 as demanded by consumers, and if E85 were priced at fuel-cost parity with E10, then ethanol consumption in E85 would be 1.65 billion gallons. If E85 were priced to generate a 20 percent reduction in fuel costs to consumers, then ethanol consumption would increase by 3.6 billion gallons per year. These calculations assume no growth in the number of flex vehicles above the level that existed on January 1, 2013. However, it is not realistic to assume that existing E85 stations could sell unlimited amounts of the fuel. Imposing an upper limit on monthly E85 sales of 45,000 gallons per station reduces ethanol-in-E85 consumption levels to 700 million gallons per year at parity prices, and 900 million gallons per year at a price that results in a 20 percent reduction in fuel costs. The large gap between how much E85 would be demanded by consumers and what can realistically be sold by existing stations shows that both price and the number of gasoline stations selling E85 constrain consumption. We show the impact of adding E85 sales outlets in urban areas where flex vehicles are concentrated by calculating the different combinations of new sales outlets and E85 retail prices needed to achieve a ethanol consumption targets beyond E10. An additional ethanol consumption target of 800 million gallons could be achieved with an E85 retail price of $2.32 per gallon and no new stations. If 500 new stations were added, then the required retail price increases to $2.71 per gallon. These results demonstrate that meeting a 14.4 billion gallon ethanol mandate is feasible in 2014 with no new stations, modestly lower E85 prices, and judicious use of available carryover RINs (Renewable Identification Numbers). Meeting a two billion gallon increase in consumption would require installing at least 3,000 new stations. At a cost of $130,000 per station, this would require a one-time investment of $390 million, or about 20 cents per gallon of increased ethanol consumption in one year. With 3,000 additional stations, the retail price of E85 would have to be discounted to $2.10 per gallon to generate two billion gallons of additional ethanol consumption. With a total of 3,500 new stations, the required E85 retail price increases to $2.60 per gallon. The large impact that adding new stations has on the retail price of E85 given a level of E85 sales gives EPA a powerful tool to incentivize investment in new stations that can facilitate meeting expanded ethanol consumption targets. Any gap that arises between the wholesale price of ethanol needed to support a lower retail E85 price and the cost of producing and transporting ethanol would be closed by the price of RINs. RIN prices also indicate the cost that owners of oil refineries bear to meet biofuel mandates. Thus, there exists an inverse relationship between the cost of compliance with mandates and the number of new E85 stations. This means that owners of oil refineries who bear the costs of complying with mandates can reduce their compliance costs by investing in new E85 stations. If EPA were to set the 2014 ethanol mandate at 14.4 billion gallons and the mandate was met by 13 billion gallons of ethanol in E10, 800 million gallons of ethanol in E85, and 600 million banked RINs, then the RIN price that would cover the gap between the required $2.32 per gallon price of E85 and the cost of producing and transporting ethanol would be 69 cents per RIN. With 500 additional stations, the RIN price would drop to 18 cents. This drop in RIN price represents more than a $7 billion drop in the total value of RINs that would be used for compliance in 2014. In this scenario, the cost of adding the additional stations would be $65 million. This dramatic decrease in the total cost of RINs from adding new E85 stations is what gives EPA the tool they need to incentivize the investments that would facilitate expanded ethanol mandates. EPA’s proposed rule would reduce mandated volumes of biofuels in part, because of “supply concerns associated with the blendwall.†We demonstrate in this paper that the important supply concern associated with the E10 blendwall pertains to the supply of stations that sell E85, not the supply of the biofuel. The lack of stations that sell the fuel results in a lack of demand for ethanol, not a lack of supply. EPA’s justification for reducing ethanol mandates means that mandates will not be increased beyond E10 levels until the number of stations that sell E85 increases sufficiently. Our results demonstrate that the number of stations that sell E85 will not increase until EPA sets ethanol mandates beyond E10 levels. If increased mandates wait for the stations to be built, mandates will never increase. Our results showing that 800 million gallons of ethanol can be consumed as E85 in 2014, even with no additional investment in E85 stations can provide one way out of this policy dilemma. Combining this additional consumption of ethanol in E85 with consumption of ethanol in E10 and available banked RINs would facilitate meeting a 14.4 billion gallon mandate in 2014. Adopting a 14.4 billion gallon ethanol mandate would send a clear signal that EPA is not locked into keeping ethanol mandates below E10 levels. It would also increase RIN prices enough to incentivize investments in new E85 stations, which would give EPA the freedom to move the ethanol mandate to 15 billion gallons in 2015. Our results show that it will take at least 3,000 additional stations selling E85 to achieve a 15 billion gallon mandate without use of carryover RINs. If all 3,000 stations needed an additional tank for E85, then it will involve a one-time investment cost of approximately $390 million, or about 20 cents for each gallon of ethanol sold in E85. Because this investment cost is far below what compliance costs would be without the investment, owners of oil refineries would have a strong incentive to make the investment.
    Date: 2014–01
  15. By: Leonard Leung (Department of Economics, Queen's University, Canada); Glenn Jenkins (Department of Economics, Queen's University, Canada, Eastern Mediterranean University, Mersin 10, Turkey)
    Abstract: Peru's Camisea gas fields hold nearly ninety percent of the country's natural gas reserves. In the 1990s, the government insisted on prioritizing Camisea gas for domestic consumption. The revocation of this policy in the 2000s allowed the private developers to export forty percent of Camisea's proven gas reserves, equivalent to Peru's one third of the total. This USD 3.9 billion LNG export project boasts the largest single foreign direct investment in Peru's history. A major component of the financing was granted by international financial institutions on economic grounds. While the project was expected to yield a substantial return to the private investors, it is clear that the exportation of one-third of Peru's total proven natural gas reserves is not aligned with its long term interests. In this paper, a cost-benefit analysis is undertaken under a series of scenarios starting with the situation during the projects formative stage in mid-2000s and again in 2012, two years after its commercial operation. In all cases, Peru does not have sufficient reserves to warrant export, and the economic costs far exceed the benefits. This project should not have been approved by the government, nor should have the loans been granted by the international financial institutions.
    Keywords: Peru, Camisea gas fields, LNG export, cost-benefit analysis, energy trade
    JEL: Q38 D61
    Date: 2013–12
  16. By: Adrien Vogt-Schilb (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - AgroParisTech); Stéphane Hallegatte (SDN - Sustainable Development Network - The World Bank)
    Abstract: Decision makers facing abatement targets need to decide which abatement measures to implement, and in which order. Measure-explicit marginal abatement cost curves depict the cost and abating potential of available mitigation options. Using a simple intertemporal optimization model, we demonstrate why this information is not sufficient to design emission reduction strategies. Because the measures required to achieve ambitious emission reductions cannot be implemented overnight, the optimal strategy to reach a short-term target depends on longer-term targets. For instance, the best strategy to achieve European's -20% by 2020 target may be to implement some expensive, high-potential, and long-to-implement options required to meet the -75% by 2050 target. Using just the cheapest abatement options to reach the 2020 target can create a carbon-intensive lock-in and make the 2050 target too expensive to reach. Designing mitigation policies requires information on the speed at which various measures to curb greenhouse gas emissions can be implemented, in addition to the information on the costs and potential of such measures provided by marginal abatement cost curves.
    Keywords: climate change mitigation; dynamic efficiency; sectoral policies
    Date: 2013–12–10
  17. By: Christoph Böhringer (University of Oldenburg - Economic Policy & ZenTra); Thomas F. Rutherford (University of Wisconsin-Madison - Agricultural & Applied Economics); Marco Springmann (University of Oldenburg - Economic Policy)
    Abstract: The Clean Development Mechanism (CDM) established under the Kyoto Protocol allows industrialized Annex I countries to offset part of their domestic emissions by investing in emissions-reduction projects in developing non-Annex I countries. We present a novel CDM modelling framework which can be used in computable general equilibrium (CGE) models to quantify the sector-specific and macroeconomic impacts of CDM investments. Compared to conventional approaches that mimic the CDM as sectoral emissions trading, our framework adopts a microeconomically consistent representation of the CDM incentive structure and its investment characteristics. In our empirical application we show that incentive compatibility implies that the sectors implementing CDM projects do not suffer, and that overall cost savings from the CDM tend to be lower than suggested by conventional modelling approaches.
    Keywords: Clean Development Mechanism, Computable General Equilibrium Modelling
    JEL: C68 Q58
    Date: 2013–12
  18. By: Islam, Faridul; Shahbaz, Muhammad; Rahman, Mohammad Mafizur
    Abstract: The paper implements the autoregressive distributed lag (ARDL) bounds testing, supplemented by the Johansen-Juselius (JJ) approaches to cointegration to explore a long run relation among energy use, economic growth, financial development, capital, and trade openness in Australia. We also apply the vector error correction model (VECM) to understand the short run dynamics. The study period, 1965 – 2009, is hallmarked by major shocks across the globe which can potentially cause structural break in the series. To recognize this possibility, we implement the Zivot-Andrews (1992) and the Clemente et al. (1998) tests. The results confirm the long run relationship among the series. The Granger causality test shows bidirectional causality between energy consumption and economic growth; financial development and energy consumption; trade openness and economic growth; economic growth and financial development; energy consumption and trade openness; and financial development and trade openness. The findings offer fresh perspectives and insight for crafting energy policy for sustained economic growth.
    Keywords: Energy, Financial Development, Trade, Structural Break, ARDL, Australia
    JEL: E00
    Date: 2013–12–19
  19. By: Stephen Holland; Andrew J. Yates
    Abstract: We analyze a novel method for improving the efficiency of pollution permit markets by optimizing the way in which emissions are exchanged through trade. Under full-information, it is optimal for emissions to exchange according to the ratio of marginal damages. However, under a canonical model with asymmetric information between the regulator and the sources of pollution, we show that these marginal damage trading ratios are generally not optimal, and we show how to modify them to improve efficiency. We calculate the optimal trading ratios for a global carbon market and for a regional nitrogen market. In these examples, the gains from using optimal trading ratios rather than marginal damage trading ratios range from substantial to trivial, which suggests the need for careful consideration of the structure of asymmetric information when designing permit markets.
    JEL: D82 H23 Q53
    Date: 2014–01
  20. By: Reza Farrahi Moghaddam; Fereydoun Farrahi Moghaddam; Mohamed Cheriet
    Abstract: A global agreement on how to reduce and cap human footprint, especially their GHG emissions, is very unlikely in near future. At the same time, bilateral agreements would be inefficient because of their neural and balanced nature. Therefore, unilateral actions would have attracted attention as a practical option. However, any unilateral action would most likely fail if it is not fair and also if it is not consistent with the world trade organization's (WTO's) rules, considering highly heterogeneity of the global economy. The modified GHG intensity (MGHGINT) indicator, hereafter called Inequality-adjusted Production-based GHGINT (IPGHGINT), was put forward to address this need in the form of a universal indicator applicable to every region regardless of its economic and social status. Nonetheless, the original MGHGINT indicator ignores hidden consumption-related emissions, and therefore it could be unfair to some production-oriented regions in the current bipolar production/consumption world. Here, we propose two generalizations, called Inequality-adjusted Consumption-based GHGINT (ICGHGINT) and Inequality-adjusted Production/Consumption-Insensitive GHGINT (IIGHGINT), to the IPGHGINT in order to combine both production and consumption emissions in a unified and balanced manner. The impact of this generalizations on the associated border carbon tax rates is evaluated in order to validate their practicality.
    Date: 2014–01

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