nep-ene New Economics Papers
on Energy Economics
Issue of 2017‒11‒05
thirty-two papers chosen by
Roger Fouquet
London School of Economics

  1. Abuse of Dominance and Antitrust Enforcement in the German Electricity Market By Tomaso Duso; Florian Szücs; Veit Böckers
  2. Vertical Market Power in Interconnected Natural Gas and Electricity Markets By Levi Marks; Charles F. Mason; Kristina Mohlin; Matthew Zaragoza-Watkins
  3. Electricity Market Theory Based on Continuous Time Commodity Model By Haoyong Chen; Lijia Han
  4. An 8-Zone Test System Based on ISO New England Data: Development and Application By Krishnamurthy, Dheepak; Li, Wanning; Tesfatsion, Leigh
  5. Hohe Energieeffizienz in der deutschen Industrie By Bardt, Hubertus
  6. EEG-Umlage: Verursacherprinzip geht anders! By Schaefer, Thilo
  7. A new strategy for European Union-Turkey energy cooperation By Simone Tagliapietra; Georg Zachmann
  8. Remaking Energy Policies for Global Sustainability: The Case of Flying Geese Model and Path Dependencies in East Asia By Venkatachalam Anbumozhi; Xianbin Yao
  9. Is the Discretionary Income Effect of Oil Price Shocks a Hoax? By Christiane Baumeister; Lutz Kilian; Xiaoqing Zhou
  10. Lower Oil Prices and the U.S. Economy: Is this Time Different? By Christiane Baumeister; Lutz Kilian
  11. The Effects of the Real Oil Price on Regional Wage Dispersion By Matthias Kehrig; Nicolas L. Ziebarth
  12. Revisiting the Dynamics Effects of Oil Price Shocks on Small Developing Economies By Shah, Imran H.; Carlos, Diaz Vela; Wang, Yuan
  13. A sectoral analysis of asymmetric nexus between oil and stock By Afees A. Salisu; Ibrahim D. Raheem; Umar B. Ndako
  14. Should the Global Community Welcome or Mourn New Oil Discoveries? By Weichenrieder, Alfons
  15. Oil and Civil Conflict: On and Off (Shore) By Jørgen Juel Andersen; Frode Martin Nordvik; Andrea Tesei
  16. The Geography of Natural Resources, Ethnic Inequality and Development By Christian Leßmann; Arne Steinkraus
  17. Do firms innovate if they can relocate? Evidence from te steel industry. By Francois Cohen; Giulia Valacchi
  18. More Gas, Less Coal, and Less CO2? Unilateral CO2 Reduction Policy with More than One Carbon Energy Source By Julien Xavier Daubanes; Fanny Henriet; Katheline Schubert
  19. The Porter Hypothesis Goes to China: Spatial Development, Environmental Regulation and Productivity. By Pedro Naso; Yi Huang Author Name: Tim Swanson
  20. The Nexus of CO2 Emissions, Energy Consumption, Economic Growth, and Trade-Openness in WTO Countries By Lars Sorge; Anne Neumann
  21. Using Output-Based Allocations to Manage Volatility and Leakage in Pollution Markets By Guy Meunier; Juan-Pablo Montero; Jean-Pierre Ponssard
  22. Strategic Delegation and International Permit Markets: Why Linking May Fail By Wolfgang Habla; Ralph Winkler
  23. Advantageous Leadership in Public Good Provision: The Case of an Endogenous Contribution Technology By Wolfgang Buchholz; Michael Eichenseer
  24. Climate Agreements in a Mitigation-Adaptation Game By Bayramoglu, Basak; Finus, Michael; Jaques, Jean-Francois
  25. CO2 emissions and financial development: evidence from the United Arab Emirates based on an ARDL approach By Diallo, Abdoulaye Kindy; Masih, Mansur
  26. Assessing the Effects of Climate Policy on Firms' Greenhouse Gas Emissions By Montoya Gómez, Ana Maria; Zimmer, Markus
  27. Boon or Bane? Trade Sanctions and the Stability of InternationalEnvironmental Agreements By Achim Hagen; Jan Schneider
  28. Climate Policies under Climate Model Uncertainty: Max-Min and Min-Max Regret By Armon Rezai; Rick van der Ploeg
  29. Global Demographic Change and Climate Policies By Reyer Gerlagh; Richard Jaimes; Ali Motavasseli
  30. Региональные схемы рыночных механизмов регулирования выбросов парниковых газов: опыт и перспективы By Bukvić, Rajko; Pajović, Ivan
  31. Driven up the wall? Role of environmental regulation in innovation along the automotive global value chain. By Suchita Srinivasan
  32. Sustainable Climate Treaties By Hans Gersbach; Noemi Hummel; Ralph Winkler

  1. By: Tomaso Duso; Florian Szücs; Veit Böckers
    Abstract: In 2008, the European Commission investigated E.ON, a large and vertically integrated electricity company, for the alleged abuse of a joint dominant position by strategically withholding generation capacity. The case was settled after E.ON agreed to divest 5,000 MW generation capacity as well as its extra-high voltage network. We analyze the effect of these divestitures on German wholesale electricity prices. Our identification strategy is based on the observation that energy suppliers have more market power during peak periods when demand is high. Therefore, a decrease in market power should lead to convergence between peak and off-peak prices. Using daily electricity prices for the 2006 - 2012 period and controlling for cost and demand drivers, we find economically and statistically significant convergence effects after the implementation of the Commission’s decision. Furthermore, the price reductions appear to be mostly due to the divestiture of gas and coal plants, which is consistent with merit-order considerations. Placebo regressions support a causal interpretation of our results.
    Keywords: electricity, wholesale prices, EU Commission, abuse of dominance, ex post evaluation, E.ON
    JEL: K21 L41 L94
    Date: 2017
  2. By: Levi Marks; Charles F. Mason; Kristina Mohlin; Matthew Zaragoza-Watkins
    Abstract: New England is at the leading edge of an energy transition in which natural gas is playing an increasingly important role in the US electricity generation mix. In recent years, the region’s wholesale natural gas and electricity markets have experienced severe, simultaneous price spikes. While frequently attributed to limited pipeline capacity serving the region, we demonstrate that such price spikes have been exacerbated by some gas distribution firms scheduling deliveries without actually owing gas. This behavior blocks other firms from utilizing pipeline capacity, which artificially limits gas supply to the region and drives up gas and electricity prices. The firms observed to withhold pipeline capacity also own non-gas electricity generation assets in New England that benefit from their gas-fired competitors paying higher fuel input costs. We estimate that capacity withholding increased average gas and electricity prices by 38% and 20%, respectively, over the three-year period we study. As a result, customers paid $3.6 billion more for electricity. While the studied behavior may have been within the firms’ contractual rights, the significant impacts in both the gas and electricity markets show the need to consider improvements to market design and regulation as these two energy markets become increasingly interlinked.
    Keywords: vertical relations, pipelines, electricity markets
    JEL: D04 D40
    Date: 2017
  3. By: Haoyong Chen; Lijia Han
    Abstract: The recent research report of U.S. Department of Energy prompts us to re-examine the pricing theories applied in electricity market design. The theory of spot pricing is the basis of electricity market design in many countries, but it has two major drawbacks: one is that it is still based on the traditional hourly scheduling/dispatch model, ignores the crucial time continuity in electric power production and consumption and does not treat the inter-temporal constraints seriously; the second is that it assumes that the electricity products are homogeneous in the same dispatch period and cannot distinguish the base, intermediate and peak power with obviously different technical and economic characteristics. To overcome the shortcomings, this paper presents a continuous time commodity model of electricity, including spot pricing model and load duration model. The market optimization models under the two pricing mechanisms are established with the Riemann and Lebesgue integrals respectively and the functional optimization problem are solved by the Euler-Lagrange equation to obtain the market equilibria. The feasibility of pricing according to load duration is proved by strict mathematical derivation. Simulation results show that load duration pricing can correctly identify and value different attributes of generators, reduce the total electricity purchasing cost, and distribute profits among the power plants more equitably. The theory and methods proposed in this paper will provide new ideas and theoretical foundation for the development of electric power markets.
    Date: 2017–10
  4. By: Krishnamurthy, Dheepak; Li, Wanning; Tesfatsion, Leigh
    Abstract: This study develops an open-source 8-zone test system for teaching, training, and research purposes that is based on ISO New England structural attributes and data. The test system models an ISO-managed wholesale power market populated by a mix of generating companies and load-serving entities that operates through time over an 8-zone AC transmission grid. The modular extensible architecture of the test system permits a wide range of sensitivity studies to be conducted. To illustrate the capabilities of the test system, we report energy cost-savings outcomes for a comparative study of stochastic versus deterministic DAM security constrained unit commitment (SCUC) formulations under systematically varied reserve requirement levels for the deterministic formulation.
    Date: 2016–01–01
  5. By: Bardt, Hubertus
    Abstract: Aus wirtschaftlichen und aus ökologischen Gründen sollte effizient mit Energie umgegangen werden, weshalb die Steigerung der Energieeffizienz in der internationalen Klima- und Energiepolitik eine wichtige Rolle spielt (IEA, 2017). Auf der einen Seite können so unnötige Kosten vermieden werden. Auf der anderen Seite geht eine Reduktion von überflüssigem Energieverbrauch typischerweise mit sinkenden Treibhausgasemissionen einher (Rebound-Effekte und andere gegenläufige Wirkungen können aber auch den umgekehrten Effekt bewirken). Auch rechtlich ist die Entwicklung der Energieeffizienz für die Industrie relevant, da hieran der Spitzenausgleich der Stromund Energiesteuer gekoppelt ist (RWI, 2016).
    Date: 2017
  6. By: Schaefer, Thilo
    Abstract: Die EEG-Umlage wird voraussichtlich im kommenden Jahr nicht nennenswert steigen, sondern auf ihrem hohen Niveau von knapp 7 Cent pro Kilowattstunde verharren und die Stromverbraucher unverändert stark belasten. Wenn in Zukunft durch Elektromobilität und Wärmeerzeugung aus grünem Strom aus der bisherigen Stromerzeugungswende eine echte Energiewende werden soll, muss der Ausbau von Windkraftanlagen und Photovoltaik weiter vorangehen. Doch bleibt es bei der Finanzierung durch die EEG-Umlage, bleibt Strom teurer und damit im Vergleich zu fossilen Energieträgern unattraktiv. Das passt nicht zusammen.
    Date: 2017
  7. By: Simone Tagliapietra; Georg Zachmann
    Abstract: This paper was produced within the framework of the European Neighbourhood Energy and Climate Dialogues, with the kind support of Stiftung Mercator In a period of stress in the relationship between the European Union and Turkey, cooperation over energy could be a bright spot, because of strong mutual interests. However, EU-Turkey cooperation over energy requires a rethink. Up to now, gas and electricity have represented the main components of cooperation. Though highly visible, cooperation in these fields appears to be limited in practise. By contrast, cooperation in other fields – such as renewables, energy efficiency, nuclear energy and emissions trading – could make a real impact on long-term energy, climate and environmental sustainability, and on overall macroeconomic and geopolitical stability. On renewables and energy efficiency, the EU could support Turkey by scaling-up the financial support it currently provides within the framework of its climate finance commitments. This would reinforce the case for renewables and efficiency projects in Turkey, particularly as the cost of capital continues to represent a major barrier for these investments. On nuclear energy, the EU can make a sensible contribution to the establishment of a nuclear energy sector in Turkey. This can notably be accomplished by integrating Turkey into the framework of Euratom. On carbon markets, the EU can offer institutional support to Turkey, as is already being done with other countries such as China. Refocusing bilateral cooperation on renewable energy, energy efficiency, nuclear energy and carbon markets would be more effective and strategic for both the EU and Turkey. For the EU, it would provide an opportunity to put its sustainable energy leadership aspirations into practice, while opening up new commercial opportunities. For Turkey, it would enhance both climate and environmental performance, while reducing the energy import bill and energy dependency on Russia. This change in priorities would also be important to head off Turkey’s rush into coal. Turkey currently has the third largest coal power plant development programme in the world, after India and China.
    Date: 2017–10
  8. By: Venkatachalam Anbumozhi (Economic Research Institute for ASEAN and East Asia (ERIA)); Xianbin Yao
    Abstract: In East Asia, the path of economic integration that started at the end of World War II, through catch-up industrialization, took a distinguished path. Started in Japan and supported by diffusion of technologies through learning and easier relocation of industries within the region, energy intensive industrialization expanded into countries with fewer development operations. Aided by official development assistance and foreign direct investment, the emergence of production networks across Southeast and East Asia permitted second- and third-tier economies to catch up with advanced economies in technology, technical skill development, and narrow the development gaps. The pattern of East Asia's catch-up has been extensively studied, with the 'Flying Geese' model being the well-known paradigm. This process of catch-up also leads to increased emissions and air, water, and soil pollutions, and to movement of emission intensity and pollutions to second- and third-tier economies. From the perspective of the energy-development nexus, does it mean that East Asia's growth pattern still could not break away from the historical path dependency in energy-intensive industrialization observed elsewhere? This and the following questions are pursued in the paper: What factors lead to the emergency and subsequent dispersal of the 'flying geese'? What were the main characteristics of integrated environmental and energy policy formulation during the dispersal, and what lessons could be learned from those experiences for sustainable future? To our knowledge, this paper is the first such direct attempt to understand the link between the Flying Geese model and energy policies in East Asian economic development. Using the historical data on trade and energy consumption, we demonstrate that East Asian governments have proactively addressed energy intensity concerns, and have further intensified the policy. We also draw lessons learned from the model for its potential application in solving global sustainability challenges.
    Keywords: Economic history, energy policy, industrialization, production networks,sustainability
    JEL: F01 F14 N10
    Date: 2017–10
  9. By: Christiane Baumeister; Lutz Kilian; Xiaoqing Zhou
    Abstract: The transmission of oil price shocks has been a question of central interest in macroeconomics since the 1970s. There has been renewed interest in this question after the large and persistent fall in the real price of oil in 2014-16. In the context of this debate, Ramey (2017) makes the striking claim that the existing literature on the transmission of oil price shocks is fundamentally confused about the question of how to quantify the effect of oil price shocks. In particular, she asserts that the discretionary income effect on private consumption, which plays a central role in contemporary accounts of the transmission of oil price shocks to the U.S. economy, makes no economic sense and has no economic foundation. Ramey suggests that the literature has too often confused the terms-of-trade effect with this discretionary income effect, and she makes the case that the effects of the oil price decline of 2014-16 on private consumption are smaller for a multitude of reasons than suggested by empirical models of the discretionary income effect. We review the main arguments in Ramey (2017) and show that none of her claims hold up to scrutiny.
    Keywords: stimulus, oil price decline, discretionary income effect, expenditure share, gasoline, net oil imports
    JEL: C51 Q43
    Date: 2017
  10. By: Christiane Baumeister; Lutz Kilian
    Abstract: We explore the effect on U.S. real GDP growth of the sharp and sustained decline in the global price of crude oil and hence in the U.S. price of gasoline after June 2014. Our analysis suggests that this decline produced a cumulative stimulus of about 0.9 percentage points of real GDP growth by raising private real consumption and non-oil related business investment and an additional stimulus of 0.04 percentage points reflecting a shrinking petroleum trade deficit. This stimulating effect, however, has been largely offset by a large reduction in real investment by the oil sector. Hence, the net stimulus since June 2014 has been close to zero. We show that the response of the U.S. economy was not fundamentally different from that observed after the oil price decline of 1986. Then as now the response of the U.S. economy is consistent with standard economic models of the transmission of oil price shocks. We found no evidence of an additional role for frictions in reallocating labor across sectors or for increased uncertainty about the price of gasoline in explaining the sluggish response of U.S. real GDP growth. Nor did we find evidence of financial contagion, of spillovers from oil-related investment to non-oil related investment, of an increase in household savings, or of households deleveraging.
    Keywords: stimulus, oil price decline, uncertainty, reallocation, savings, shale oil, oil loans
    JEL: E32 Q43
    Date: 2017
  11. By: Matthias Kehrig; Nicolas L. Ziebarth
    Abstract: We find that oil supply shocks decrease average real wages, particularly skilled wages, and increase wage dispersion across regions, particularly unskilled wage dispersion. In a model with spatial energy intensity differences and nontradables, labor demand shifts, while explaining the response of average wages to oil supply shocks, have counterfactual implications for the response of wage dispersion. Only an additional response in labor supply can explain this latter fact highlighting the importance of general equilibrium effects in a spatial context. We provide additional empirical evidence of regionally directed worker reallocation and housing prices consistent with our spatial model. Finally, we show that a calibrated version of our model can quantitatively match the estimated effects of oil supply shocks.
    Keywords: wage dispersion, labor reallocation, skill heterogeneity, oil prices
    JEL: E24 J24 J31 J61
    Date: 2017
  12. By: Shah, Imran H.; Carlos, Diaz Vela; Wang, Yuan
    Abstract: This paper examines the dynamic effects of oil price, aggregate demand and aggregate supply shocks on output and inflation in four small developing economies using a structural VAR model. For all countries, despite finding the expected response of output to oil price shocks, an upward causal effect of oil price innovations on the domestic price level is established which adversely accompanies the growth stimulating effects in oil-exporting countries. This paper also finds asymmetric effects of oil price changes on macroeconomic variables in all sample countries. Finally, our empirical results find two further things: firstly, that for Malaysia, Pakistan and Thailand, nominal demand and supply shocks are the main sources of fluctuations in inflation and output respectively, whereas for Indonesia the converse holds and secondly that whilst the 1998 recession was largely induced by only supply and demand shocks the recession of 2008-09 could potentially be explained by oil price changes.
    Date: 2017–03–17
  13. By: Afees A. Salisu (Centre for Econometric and Allied Research, University of Ibadan); Ibrahim D. Raheem (School of Economics, University of Kent, Canterbury, UK); Umar B. Ndako (Monetary Policy Department, Central Bank of Nigeria, Nigeria.)
    Abstract: This paper revisits the stock-oil price nexus. The extant literature has shown that the nexus can be situated around the multifactor asset pricing models to accentuate the role of oil price risks in stock valuation but with mixed findings. However, attempts to improve on previous studies in this pursuit led researchers to account for nonlinearities in the relationship to assess the asymmetric response of stock prices to positive and negative oil price changes. Consequently, we fit a predictive model for stock price that accounts for asymmetry on the basis of the predictive power of oil price shocks. Innovatively, we advance arguments for considering the importance of persistence, endogeneity and conditional heteroscedasticity inherent in the relationship and the data generating process for the in-sample and out-of-sample forecasting of US sectoral stock prices. Our results emphasise the role of oil price shocks and its asymmetric impacts in the in-sample predictability model of the sectoral stock prices. This evidence is also consistent for out-of-sample forecast evaluation and robust to changes in the measure of oil prices.
    Keywords: Sectoral stock prices, Oil Prices, The U.S. Asymmetry, Persistence, endogeneity and conditional heteroscedasticity
    Date: 2017–10
  14. By: Weichenrieder, Alfons
    Abstract: Focusing on the change in pollution, consumption and extraction cost paths, we build a multi-period model that allows us to assess whether oil windfalls may be globally welfare-enhancing. The assessment depends on the quality of the discovered resource, expressed as the extraction cost. Our findings suggest that even when faced with high environmental externalities and no internalization mechanism for them, new oil finds can be conducive to welfare.
    Date: 2017
  15. By: Jørgen Juel Andersen; Frode Martin Nordvik; Andrea Tesei
    Abstract: We reconsider the relationship between oil and conflict, focusing on the location of oil resources. In a panel of 132 countries over the period 1962-2009, we show that oil windfalls increase the probability of conflict in onshore-rich countries, while they decrease this probability in offshore-rich countries. We use a simple model of conflict to illustrate how these opposite effects can be explained by a fighting capacity mechanism, whereby the government can use offshore oil income to increase its fighting capacity, while onshore oil may be looted by oppositional groups to finance a rebellion. We provide empirical evidence supporting this interpretation: we find that oil windfalls increase both the number and strength of active rebel groups in onshore-rich countries, while they strengthen the government in offshore-rich ones.
    Keywords: natural resources, conflict
    JEL: O13 D74 Q34
    Date: 2017
  16. By: Christian Leßmann; Arne Steinkraus
    Abstract: We study whether the spatial distribution of natural resources across different ethnic groups within countries impede spatial inequality, national economic performance, and the incidence of armed conflict. By providing a theoretical rent-seeking model and analysing a set of geocoded data for mines, night-time light emissions, local populations and ethnic homelands, we show that the distribution of resources is a major driving factor of ethnic income inequality and, thus, induces rent-seeking behaviour. Consequently, we extend the perspective of the resource curse to explain cross-country differences in economic performance and the onset of civil conflicts. We show that the inequality in the spatial distribution of resource endowments within countries drives the curse of natural resources, not the resources per se.
    Keywords: natural resources, minerals, mines, night lights, luminosity, ethnic income inequality, spatial inequality, development, civil war, conflict
    JEL: D72 D74 Q32 Q34
    Date: 2017
  17. By: Francois Cohen; Giulia Valacchi
    Abstract: We estimate the effect of coal prices on steel plant location worldwide and production preferences for BOF, a polluting technology, and EAF, a greener one. A 1% increase in national coal prices could reduce the share of BOF and EAF units of that country over total active steel-making units present in the world by around 0.61% and 0.43% respectively. We simulate the implementation of a stringent European carbon market and find a non-negligible shift in steel production outside Europe, with limited impact on the technologies employed to produce steel. If applied worldwide, the same policy would strongly affect production in Asia, which relies on BOF and currently benefits from lower coal prices.
    Keywords: Steel industry; firm relocation; technological change; energy prices
    JEL: O14 O33 Q41 Q42
    Date: 2017–09–15
  18. By: Julien Xavier Daubanes; Fanny Henriet; Katheline Schubert
    Abstract: We examine an open economy’s strategy to reduce its carbon emissions by replacing its consumption of coal—very carbon intensive—with gas—less so. Unlike the standard analysis of carbon leakage, unilateral carbon-reduction policies with more than one carbon energy source may turn counter-productive, ultimately increasing world emissions. Thus, we establish testable conditions as to whether a governmental emission-reduction commitment warrants the exploitation of gas, and whether such a strategy increases global emissions. We also characterize the extent to which this unilateral policy makes the rest of the world’s emission commitments more difficult to meet. Finally, we apply our results to the case of the US.
    Keywords: unilateral climate policy, carbon emission reduction, shale gas, gas-coal substitution, coal exports, carbon leakage, US policy, counter-productive policy
    JEL: Q41 Q58 H73 F18
    Date: 2017
  19. By: Pedro Naso; Yi Huang Author Name: Tim Swanson
    Abstract: We examine the relationship between environmental regulation and competitiveness in China. Exploiting exogenous changes in national pollution standards for three industries—ammonia, paper and cement—we test whether environmental regulation increases industry productivity. Our results show that the strong version of the Porter hypothesis does not hold, but that regulation might reallocate productivity spatially. We show that regulated industries that are located in newly developing cities see an increase in their productivity as compared to the same industries in other cities. This means that environmental regulation is more likely to drive the spatial distribution of productivity changes than it is to drive the pace and direction of technological change.
    Keywords: Tax competition; Production Technology and Environment and Development
    JEL: H71 O13 Q56 D24
    Date: 2017–10–04
  20. By: Lars Sorge; Anne Neumann
    Abstract: This paper analyzes the dynamic relationship between CO2 emissions, energy consumption, GDP, and trade-openness from 1971 to 2013, based on the Environmental Kuznets Curve (EKC) hypothesis for 70 WTO countries. Using recently developed secondgeneration panel data methods, the empirical results support the EKC hypothesis for the high-, middle-, and lower-income panels used. Concerning the energy consumption and economic growth nexus, the causality results support the conversion hypothesis for the high-income panel, whereas the neutrality hypothesis holds for the lower- and middle-income panels. Based on the causality results, trade-openness does not positively impact CO2 emissions, GDP leads CO2 emissions, and trade-openness causes energy consumption within any income panel. The net effect of economic growth, however, could help to stabilize future CO2 emissions within any income panel.
    Keywords: Environmental Kuznets Curve, CO2 emissions, energy consumption, economic growth, trade-openness, Granger causality, second-generation panel data methods
    Date: 2017
  21. By: Guy Meunier; Juan-Pablo Montero; Jean-Pierre Ponssard
    Abstract: Output-based allocations (OBAs) are typically used in emission trading schemes to mitigate leakage in sectors at risk. Recent work has shown they may also help to stabilize prices in markets subject to supply and demand shocks. We extend previous work to simultaneously include both leakage and volatility. Motivated by discussions on how to reform carbon markets around the world, and in Europe in particular, we use our model to revisit several critical issues in the design of these markets. In particular, we look at how different OBA schemes manage permit price uctuations and what are the implications of deducting OBA permits (the majority going to trade-exposed and carbon intensive sectors) from the overall permit allocation, so as to keep the global cap on emissions fixed (as it is the case in California and in the EU).
    Keywords: pollution markets, carbon price volatility, output-based allocations
    JEL: D24 L13 H23 L74
    Date: 2017
  22. By: Wolfgang Habla; Ralph Winkler
    Abstract: We analyse a principal-agent relationship in the context of international climate policy. Principals in two countries first decide whether to merge domestic emission permit markets to an international market, then delegate the domestic permit supply to an agent. We find that principals select agents caring less for environmental damages than they do themselves in case of an international market regime, while they opt for self-representation in case of domestic markets. This strategic delegation incentive renders the linking of permit markets less attractive and constitutes a novel explanation for the reluctance to establish non-cooperative international permit markets.
    Keywords: non-cooperative climate policy, political economy, emissions trading, linking of permit markets, strategic delegation, strategic voting
    JEL: D72 H23 H41 Q54 Q58
    Date: 2017
  23. By: Wolfgang Buchholz; Michael Eichenseer
    Abstract: From the perspective of standard public good theory the total amount of greenhouse gas mitigation (or public good supply in general) will be lower in a leader-follower game than in a simultaneous Nash game so that strategic leadership is disadvantageous for climate policy. We show that this need no longer be true when the leading country has the option to employ a technology by which it can reduce its abatement costs and thus improve the productivity of its contribution technology. Our general result is illustrated by an example with Cobb-Douglas preferences and, finally, an empirical application to global climate policy is briefly discussed.
    Keywords: public goods, leadership, choice of technology, climate policy
    JEL: C72 H41 O31 Q54 Q55
    Date: 2017
  24. By: Bayramoglu, Basak; Finus, Michael; Jaques, Jean-Francois
    Date: 2016–07–18
  25. By: Diallo, Abdoulaye Kindy; Masih, Mansur
    Abstract: This paper explores the influence of economic and financial development on carbon emissions in the United Arab Emirates. The study uses the ARDL approach in order to investigate the long run relationship between carbon emissions and a set of economic and financial variables. The long-run and short-run Granger-causal directions are captured through the Error Correction Model (ECM). In order to determine the relative contributions of economic and financial variables to the evolution of per capita carbon emissions, variance decomposition is used. The period considered for the purpose of this study is the full sample (1975–2013). To the best of our knowledge there is no study in this kind focusing only on the United Arab Emirates. Hence we are attempting an humble contribution with this regards. The findings tend to suggest that there is a decline of CO2 emissions in the long run. Also, considering the error correction model output, we can argue that the financial variables, especially the domestic credit to private sector, have an impact in CO2 emissions. This finding is in line with that of Shahbaz et al. (2013) who found out through two different studies (South Africa and Malaysia) that private sector credit had a reducing impact on CO2 emissions.
    Keywords: CO2 emissions, United Arab Emirates, Financial development, FDI, GDP, VECM ARDL
    JEL: C22 C58 Q56
    Date: 2017–06–03
  26. By: Montoya Gómez, Ana Maria; Zimmer, Markus
    Date: 2017
  27. By: Achim Hagen (Humboldt-Universität zu Berlin); Jan Schneider (Carl von Ossietzky University Oldenburg)
    Abstract: In spite of scientific agreement on the negative effects of anthropogenic climate change, efforts to find cooperative solutions on the international level have been unsatisfactory so far. Trade sanctions in the form of import tariffs are one principal measure discussed as a means to foster cooperation. Former studies have concluded that import tariffs are an effective mechanism to establish international cooperation. However, most of these studies rely on the assumption that outsiders are not able to retaliate, i.e. to implement import tariffs themselves. In this paper we use combined analytical and numerical analysis to investigate implications of retaliation. We find a threshold effect: below a certain coalition size the effect of retaliation predominates and decreases incentives to be a coalition member. In coalitions above the threshold size the effect of trade sanctions that stabilizes coalitions dominates and enables the formation of larger stable coalitions. Our analysis suggests that only after a sufficiently large climate coalition has already been formed, the threat of trade sanctions might be an effective stick to establish the grand coalition.
    Keywords: international environmental agreements; computable general equilibrium
    JEL: D58 Q54 Q58
    Date: 2017–09
  28. By: Armon Rezai; Rick van der Ploeg
    Abstract: Temperature responses and optimal climate policies depend crucially on the choice of a particular climate model. To illustrate, the temperature responses to given emission reduction paths implied by the climate modules of the well-known integrated assessments models DICE, FUND and PAGE are described and compared. A dummy temperature module based on the climate denialists’ view is added. Using a simple welfare-maximising growth model of the global economy, the sensitivity of the optimal carbon price, renewable energy subsidy and energy transition to each of these climate models is discussed. The paper then derives max-min, max-max and min-max regret policies to deal with this particular form of climate (model) uncertainty and with climate scepticism. The max-min or min-max regret climate policies rely on a non-sceptic view of global warming and lead to a substantial and moderate amount of caution, respectively. The max-max leads to no climate policies in line with the view of climate sceptics.
    Keywords: carbon price, renewable energy subsidy, temperature modules, climate model uncertainty, climate sceptics, max-min, max-max, min-max regret
    JEL: H21 Q51 Q54
    Date: 2017
  29. By: Reyer Gerlagh; Richard Jaimes; Ali Motavasseli
    Abstract: Between 1950 and 2017, world average life expectancy increased from below-50 to above-70, while the fertility rate dropped from 5 to about 2.5. We develop and calibrate an analytic climate-economy model with overlapping generations to study the effect of such demographic change on capital markets and optimal climate policies. Our model replicates findings from the OLG-demography literature, such as a rise in households’ savings, and a declining rate of return to capital. We also find that demographic change raises the social cost of carbon, at 2020, from 28 euro/tCO2 in a model that abstracts from demography, to 94 euro/tCO2 in our calibrated model.
    Keywords: climate change, social cost of carbon, environmental policy, demographic trends
    JEL: H23 J11 Q54 Q58
    Date: 2017
  30. By: Bukvić, Rajko; Pajović, Ivan
    Abstract: English. The article considers the problem of pollution and destruction of environment, especially the pollution of atmosphere. Within these, problems of the carbon concentration, i.e. greenhouse gases, are considered as one of the main results of the anthropogenic activities, and consequently one of the main causes of the global climate change. In the second half of the XX century many schemes for involving market mechanism in solving these problems were proposed. These efforts especially increased in the last decade of XX century and finally the Kyoto Protocol supported many flexible mechanisms, as a solution for these problems. In spite of all these efforts, during the first period of its implementation (2008–2012) the emissions of carbon were increased. Experiences with market, not only in this sector, leave the problem unresolved: is the market universal solution. Russian. В статье рассматриваются проблемы загрязнения и разрушения природной среды, особенно атмосферы. Следовательно, проблемы концентрации углерода, т.е. парниковых газов рассматриваются как одно из основных последствий антропогенной деятельности, а также одной из основных причин глобального изменения климата. Во второй половине 20-го века было предложено применение многих схем создания рыночних механизмов решения этих проблем. Несмотря на все эти усилия, в течение первого периода их осуществления (2008-2012 годы) выброс углерода вырос. Прошлый опыт, не только в этой области, оставляет открытым вопрос: является ли рынок универсальним решением.
    Keywords: greenhouse gases (GHG), the Kyoto Protocol, carbon markets, flexible mechanisms, regional schemes парниковые газы, Киотский протокол, рынки углерода, гибкие механизмы, региональные схемы
    JEL: H23 K32 L50 L51 Q53 Q56 R11
    Date: 2017
  31. By: Suchita Srinivasan
    Abstract: Are environmental regulations imposed on downstream firms effective in spurring innovation in clean technologies by upstream firms? We use a novel firm-level dataset of global scope to study whether environmental regulations have percolated up the automotive global value chain, and led to innovation (measured by patenting in abatement technologies) by suppliers at different levels of the chain. Using a Poisson estimation methodology, we find that suppliers worldwide have responded to increasingly stringent emission standards imposed on automobile manufacturers (also known as original equipment manufacturers, or OEMs) by undertaking more innovation in clean abatement technologies; additionally, we find that the smaller the gap between the average environmental regulation suppliers face from the OEMs,and that in the country where the firm is located, the more the firm innovates. In addition, we provide evidence of a spread of these positive effects of regulation on innovation, with suppliers at different upstream levels responding positively to the downstream standards. This paper has important policy implications for the design of environmental policy instruments to induce innovation in clean technologies by firms along the value chain.
    Keywords: Environmental Regulation; Global Value Chains; Patents; Automotive Industry
    JEL: Q55 O31 Q58 F23
    Date: 2017–06–14
  32. By: Hans Gersbach; Noemi Hummel; Ralph Winkler
    Abstract: We examine long-run treaties for mitigating climate change. Countries pay an initial fee into a global fund that is invested in long-run assets. In each period, part of the fund is distributed among the participating countries in relation to the emission reductions they have achieved in this period suitably rescaled by a weighting factor. We show that a suitably selected refunding scheme implements the globally optimal reductions of greenhouse gases in all periods as a unique subgame perfect equilibrium. The country-specific initial fees can be chosen to engineer a Pareto improvement and to ease participation. We also show that any planned abatement path as e.g. the one envisioned by the Paris Agreement in 2015 can be implemented by an appropriately chosen refunding scheme. Finally, we suggest ways for countries to raise money for the payment of initial fees that are neutral to tax payers and international capital markets.
    Keywords: climate change mitigation, refunding scheme, international agreements, sustainable treaty
    JEL: Q54 H23 H41
    Date: 2017

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