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on Energy Economics |
| By: | Yukihide Kurakawa (Kanazawa Seiryo University.); Makoto Tanaka (National Graduate Institute for Policy Studies.) |
| Abstract: | This paper shows how demand-side energy use efficiency affects demand response (DR) and total CO2 emissions. The marginal cost of DR corresponds to the marginal utility of electricity consumption. Thus, improved energy efficiency increases the marginal cost of DR and increases thermal power generation in balancing markets. We analyze a model consisting of a day-ahead and balancing market and examine CO2 emissions from each market. Improved energy efficiency decreases emissions from the day-ahead market while increasing emissions from the balancing market. The analysis reveals that improved energy efficiency could increase total emissions when the emission factor of the marginal plant in the day-ahead market is sufficiently small. Raising the carbon tax rate as energy efficiency improves will be necessary to deter such perverse effects, expanding the use of DR in the balancing market. |
| Keywords: | Day-ahead Market, Balancing Market, Carbon Tax, Incentivebased Demand Response, Demand-side Energy Efficiency |
| JEL: | D02 Q41 Q58 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:was:dpaper:2501 |
| By: | Bergman, Aaron (Resources for the Future); Rennert, Kevin (Resources for the Future) |
| Abstract: | For decades now, the heart of US federal policy support to reduce greenhouse gas (GHG) emissions has been a set of tax incentives for producing clean electricity and putting into service new clean electricity generators. These tax credits, along with state-level policies to require renewable and low-carbon electricity, are widely credited as the fundamental driver of emission reductions in the United States over the past decades. But they’ve always had some issues. They were inconsistent, being extended for short periods and at times expiring completely, leading to considerable investment uncertainty for developers. The credits themselves varied by technology and could be hard to monetize. And the rules were pretty inflexible: in order for a new technology to be eligible for the credit, it had to be named in the statute, requiring an act of Congress. The Inflation Reduction Act (IRA) sought to address many of these issues by transitioning in 2025 to a new set of technology-inclusive credits for electricity: the “clean energy production credit” (26 USC 45Y) and the “clean energy investment credit” (26 USC 48E). Instead of listing various technologies, in these new provisions, the IRA allowed technologies to qualify if they satisfy one seemingly simple condition: that their emissions are at most zero. Multiple model projections of the IRA (see here and here) have suggested that these tax credits are the single most important driver of IRA-attributable emissions reductions over the next decade, so much of the success of the IRA in reducing emissions hinges on their successful implementation by the US Department of the Treasury. Despite this significance and the looming deadline for the transition, however, there has been relatively little public discussion around their implementation, even as there are some potentially complicated issues for Treasury to work through. This situation stands in contrast to the robust conversation that’s been had over design of the 45V production tax credit for hydrogen, among others. In this issue brief, we give an overview of the tax credits and some potential challenges we see for their implementation in the hopes of stimulating timely discussion on issues Treasury will likely need to address in its forthcoming guidance. |
| Date: | 2024–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:rff:ibrief:ib-24-02 |
| By: | Nathan Engelman Lado; Richard Chen; Saurabh Amin |
| Abstract: | Time-varying electricity pricing better reflects the varying cost of electricity compared to flat-rate pricing. Variations between peak and off-peak costs are increasing due to weather variation, renewable intermittency, and increasing electrification of demand. Empirical and theoretical studies suggest that variable pricing can lower electricity supply costs and reduce grid stress. However, the distributional impacts, particularly on low-income consumers, remain understudied. This paper develops a theoretical framework to analyze how consume heterogeneity affects welfare outcomes when electricity markets transition from flat-rate to time-varying pricing, considering realistic assumptions about heterogeneous consumer demand, supply costs, and utility losses from unmet consumption. We derive sufficient conditions for identifying when consumers lose utility from pricing reforms and compare welfare effects across consumer types. Our findings reveal that consumer vulnerability depends on the interaction of consumption timing, demand flexibility capabilities, and price sensitivity levels. Consumers with high peak-period consumption and inflexible demand, characteristics often associated with low-income households, are most vulnerable to welfare losses. Critically, we demonstrate that demand flexibility provides welfare protection only when coincident with large price changes. Our equilibrium analysis reveals that aggregate flexibility patterns generate spillover effects through pricing mechanisms, with peak periods experiencing greater price changes when they have less aggregate flexibility, potentially concentrating larger price increases among vulnerable populations that have a limited ability to respond. These findings suggest that variable pricing policies should be accompanied by targeted policies ensuring equitable access to demand response capabilities and pricing benefits. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.01499 |
| By: | Bonacina, Monica; Demir, Mert; Sileo, Antonio; Zanoni, Angela |
| Abstract: | The transition to a zero-emission vehicle fleet represents a pivotal element of Europe’s decarbonization strategy, with Italy’s participation being particularly significant given the size of its automotive market. This study investigates the potential for battery electric cars (BEVs) to drive decarbonization of Italy’s passenger vehicle fleet, focusing on the feasibility of targets set in the National Integrated Plan for Energy and Climate (PNIEC). Leveraging artificial neural networks, we integrate macroeconomic indicators, market-specific variables, and policy instruments to predict fleet dynamics and identify key factors influencing BEV adoption. We forecast that while BEV registrations will continue growing through 2030, the growth rate is projected to decelerate, presenting challenges for meeting ambitious policy targets. Our feature importance analysis demonstrates that BEV adoption is driven by an interconnected set of economic, infrastructural, and behavioral factors. Specifically, our model highlights that hybrid vehicle registrations and the vehicle purchase index exert the strongest influence on BEV registrations, suggesting that policy interventions should prioritize these areas to maximize impact. By offering data-driven insights and methodological innovations, our findings contribute to more effective policy design for accelerating sustainable mobility adoption while accounting for market realities and consumer behavior. |
| Keywords: | Climate Change, Environmental Economics and Policy, Sustainability |
| Date: | 2025–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:ags:feemwp:369002 |
| By: | Robertson, Molly (Resources for the Future); Ko, Eunice; Bautista, Eddie; Krupnick, Alan (Resources for the Future); Look, Wesley (Resources for the Future) |
| Abstract: | Disadvantaged communities (DACs) in New York State bear a disproportionate burden of pollution from fossil fuel power plants. Using SNL Energy data on generators, we estimate that 65 percent of emitting power generators in New York State are within one mile of a DAC. In New York City, nearly a million people live within one mile of the dirtiest peaker power plants, and the overwhelming majority are people of color. This issue brief presents modeling results for obligating the electricity sector and adding facility-specific caps to electric power generating facilities in the context of New York State’s cap-trade-and-invest (CT&I) system. Our analysis, which builds on previous work, covers the statewide and regional effects of these policy decisions and examines the community-level impacts to assess the role of these policies in delivering benefits to DACs in New York.The work featured in this issue brief builds on prior research, including a report coauthored by Resources for the Future and the New York City Environmental Justice Alliance that examined the impacts of environmental justice guardrails on emissions and costs in a cap-trade-and-invest program in New York State (Krupnick et al. 2024). That report provided evidence that facility- and sector-specific caps could be implemented to reduce emissions near DACs at little to no cost to households.Shortly before we released that report, the state shared a CT&I pre-proposal outline and preliminary scenario analyses to evaluate the policy designs it is considering (NYSERDA & DEC 2023, 2024). In the pre-proposal outline, the state requested feedback from stakeholders on certain aspects of the program to inform the CT&I draft regulations that will be released at the end of 2024. This issue brief and Krupnick et al. (2024) directly respond to questions raised in the pre-proposal outline.NYSERDA and DEC (2023) indicated that the state may not obligate (include) the New York power sector in the economy-wide CT&I system. In practice, this would mean that emissions from the electricity sector would contribute to New York’s overall emissions targets, but generators would not be required to purchase allowances to cover their emissions in the CT&I auction. Power generators in New York would still be required to purchase allowances in the Regional Greenhouse Gas Initiative (RGGI) auction to cover their emissions.The pre-proposal provided several reasons for this exclusion:the power sector is already regulated by other policies, including RGGI, a clean energy standard, and clean generation mandates that will drive decarbonization in the sector;electricity prices could rise if the power sector is included, which could discourage the electrification needed to drive decarbonization in a variety of sectors;rising electricity prices for New York generators facing the carbon price could induce power plants in other states (which may be dirtier than those in New York State) to increase their generation and associated greenhouse gas (GHG) and copollutant emissions, a process called leakage, making the regional emissions problem worse; andpermitting and interconnection delays for clean generation may limit the sector’s ability to decarbonize in the earliest years of the program, even with a carbon price in place.The state’s preliminary scenario analyses highlighted some of these concerns, mainly noting higher costs of delivering electricity and high GHG emissions leakage rates. The analyses did not investigate the impact of excluding the power sector on DACs.The pre-proposal solicited further input on whether the electricity sector should be obligated—that is, included in the CT&I system. It also sought guidance on the impact and importance of facility-specific caps for stationary emitters like power sector facilities. Our research responds to this solicitation, further informing the development of the New York cap-trade-and-invest system.In our previous report (Krupnick et al. 2024), we discussed the emissions and cost impacts of implementing facility-specific CO2 emissions caps in the power sector under a New York State cap-trade-and-invest program. However, our analysis did not consider what the impact of these caps would be if the state chose not to obligate the power sector in the program. We saw significant GHG and copollutant emissions benefits in the power sector relative to a business-as-usual (BAU) case without cap-trade-and-invest, but that case did not consider the possible impact of increased demand for electricity from other sectors driving emissions even higher in the power sector. We address this gap in this issue brief.For brevity, this issue brief focuses more on GHG and fine particulate matter (PM2.5) emissions than on results for NOX and SO2 emissions because these three copollutants generally move together. However, some tables and text do consider SO2 and NOx emissions separately. The next report from our team will examine the implications for DACs and other New York communities of the transformation and dispersal of these copollutant emissions into fine particulate concentrations (PM2.5 in ug/m3).Our main findings are as follows:All CT&I designs increase the demand for electricity in New York. Without obligating the electricity sector under CT&I, this rise in demand leads to an increase in GHG and PM2.5 emissions in the New York power sector.Statewide GHG emissions and average PM2.5 emissions at power sector facilities are lowest when the power sector is obligated and power generators face facility-specific caps. Statewide GHG emissions are highest when the power sector is not obligated and there are no facility-specific caps.Facility-specific CO2 emissions caps on power generators deliver copollutant emissions benefits to DACs whether the electricity sector is obligated under CT&I or not, by forcing emissions reductions at those facilities that are least responsive to CO2 emissions pricing through cap-trade-and-invest.About 43 percent of emissions reductions achieved by obligating the electricity sector are offset by out-of-state increases in power sector emissions.Obligating the electricity sector in CT&I or including facility-specific caps has almost no impact on electricity prices in our modeling.Overall, we find that obligating the electricity sector under New York’s CT&I program while also capping CO2 emissions at each facility offers the greatest power sector GHG and copollutant emissions improvements statewide and for areas surrounding DACs, compared with a BAU scenario. If the state ultimately decides not to obligate the electricity sector, facility-specific caps are even more important for delivering PM2.5 (and other copollutant) emissions reductions. Obligating the electricity sector under CT&I leads to some emissions leakage but still has a net negative impact on regional power sector emissions. Neither of the policy options we explored has a significant impact on retail electricity prices in our model. |
| Date: | 2024–06–17 |
| URL: | https://d.repec.org/n?u=RePEc:rff:ibrief:ib-24-04 |
| By: | Matthias Derez; Alexander Hoogsteyn; Erik Delarue |
| Abstract: | Integrating external heat into electrolysers can reduce the electrical power demand for carbon-neutral hydrogen production. Efficient operation requires detailed models that incorporate heat availability and its effect on startup costs. This paper advances existing operational models by endogenously modelling startup costs and direct heat integration, based on a piecewise linear approximation of the electrochemical equations. We analyse the impact of low- and high-temperature heat integration on the efficiency and profitability of hydrogen production for solid oxide and proton exchange membrane electrolysis technologies. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.06796 |
| By: | Bergman, Aaron (Resources for the Future) |
| Abstract: | The central question in determining the emissions effect of new load on the electrical grid is whether the new generation is clean. In previous installments of this series, I reviewed studies that directly address this question, using optimizing models to look at the effect of the demand for electricity from electrolysis, the process of producing hydrogen by using electricity to split water. In this issue brief, I consider two studies that instead assume all the new generation built in response to the new demand from an electrolyzer is clean. The study from Energy + Environmental Economics (E3) was sponsored by the American Council on Renewable Energy, and the Boston Consulting Group (BCG) study was sponsored by NextEra Energy.As I argued in the opening blog post of this series, not assuming that new generation is clean is the more defensible approach. Nonetheless, one can still obtain valuable insight from studies that assume the contrary. In this issue brief, I will discuss the findings from these studies and how I believe they should be interpreted. |
| Date: | 2023–09–27 |
| URL: | https://d.repec.org/n?u=RePEc:rff:ibrief:ib-23-06 |
| By: | Beatrice Negro; Maria Enrica Virgillito |
| Abstract: | Hydrogen plays a central role in policies aimed at decarbonisation, energy autonomy, industrial competitiveness, and development. This study analyses hydrogen policies, revealing how their design may undermine just transition goals and instead reinforce existing spatial inequalities. Drawing on IEA data on clean hydrogen projects, investment trends are examined. A spatial analysis combining project data with environmental conflicts, sourced from the Atlas of Environmental Justice, reveals a concentration of hydrogen projects in areas affected by ecological degradation and socio-environmental disparities, raising concerns about the socio-ecological distributive effects. Hydrogen development appears largely driven by market logics and seems unlikely to meet climate targets. |
| Keywords: | energy transition, industrial policy, hydrogen policy, environmental justice |
| Date: | 2025–09–02 |
| URL: | https://d.repec.org/n?u=RePEc:ssa:lemwps:2025/28 |
| By: | Prajol Joshi (South Asia Watch on Trade, Economics and Environment); Madhu Marasini (South Asia Watch on Trade, Economics and Environment) |
| Abstract: | The accelerating climate crisis and associated socio-economic losses have intensified the global pursuit of clean energy solutions. Green hydrogen—produced via electrolysis using renewable sources like hydro, wind, or solar—has emerged as a promising alternative, enabling energy storage and decarbonization of hard-to-electrify sectors. Nepal has expanded its hydropower sector significantly, aiming to generate 28, 500 MW of electricity by 2035. Globally, initiatives like the UN’s Green Hydrogen Catapult, EU and Japan’s strategies, and national roadmaps in India, Sri Lanka, and China highlight growing momentum. Nepal has also advanced through its 2023 Green Hydrogen Policy, tax incentives, and Koshi Province’s fertilizer plant initiative. However, challenges remain, including high production costs, infrastructure gaps, regulatory shortcomings, and safety concerns. Moving forward, Nepal must strengthen its regulatory framework, offer greater technical and financial support to the private sector, and explore innovative financing to scale green hydrogen adoption. |
| Keywords: | green hydrogen, energy transition, hydrogen economy, energy security, climate change, sustainability, decarbonization |
| JEL: | Q42 Q56 L52 O13 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:saw:rpaper:rp/25/01 |
| By: | Jessica Birkholz; Susanna Bolz; Björn Jindra; Philip Kerner |
| Abstract: | Green hydrogen can play a major role in future net-zero energy systems. This paper investigates how existing technological and production capabilities can support the emergence and growth of green hydrogen value chains in Northern and Western Germany. Drawing on evolutionary economic geography, we argue that the development of the hydrogen value chain depends on the relatedness between existing knowledge bases and hydrogen technologies, and further recombinant capabilities, as well as the processes involved in acquiring capabilities. Our analysis focuses on seven NUTS 2 regions with favorable conditions for the development of hydrogen hubs, which are low cost of renewable energy production, access to hydrogen infrastructure, and political support for the hydrogen economy. We comparatively examine the regional capabilities using patent data to map technological innovation, firm-level data to identify key corporate actors, and regionalized export statistics to assess production capabilities. Based on our findings, we argue that the development of green hydrogen hubs might be facilitated by alignment between a region’s existing innovation capabilities, production capabilities, and hub specialization, with place-based policy approaches tailored towards each region’s unique profile. |
| Keywords: | Green hydrogen, Value chains, Regional capabilities |
| JEL: | O13 Q42 Q55 R11 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:atv:wpaper:2505 |
| By: | Jonathan Brandt; Astrid Bensmann; Richard Hanke-Rauschenbach |
| Abstract: | Following years of controversial discussions about the risks of market-based redispatch, the German transmission network operators finally installed regional redispatch markets by the end of 2024. Since water electrolysers are eligible market participants, the otherwise downwards redispatched renewable energy can be used for green hydrogen production in compliance with European law. To show how different price levels in regional redispatch markets affect green hydrogen production cost and thus the incentive for electrolyser market participation, we use historic redispatch time series and evaluate various power purchase scenarios. Our results show that low price levels can lead to notable production cost reductions, potentially counteracting uncertainties in redispatch power availability and thus incentivising system-beneficial electrolyser siting. In contrast, the possibility of high price levels can nullify an increase in the competitiveness of German and European green hydrogen through production cost reductions and discourage market participation. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.06500 |
| By: | Domeshek, Maya (Resources for the Future) |
| Abstract: | As Missouri is a state with no formal climate goals and an electricity sector that is three-quarters coal generation (Figure 1a), the decarbonization of its electricity grid will depend in large part on decisions by utilities to retire or retrofit coal capacity (Figure 1b; Table 1). Utilities covering a majority of electricity sales in Missouri have net-zero targets—Empire District, 2050; Ameren, 2045; Evergy, 2045; and City Utilities of Springfield, 2050—accounting for 71 percent of sales (Figure 1d). Most of the remaining electricity sales are covered by cooperatives (co-ops), none of which have climate targets. But these private net-zero targets are not enforceable, and they may not have direct impacts on coal generation in Missouri, given that the utilities serve customers in multiple states. On the other hand, the US Environmental Protection Agency’s (EPA’s) recent proposed regulation of existing fossil generators under section 111(d) of the Clean Air Act sets firm dates before which coal plants must either retire or retrofit in a way that reduces their greenhouse gas emissions. “New Source Performance Standards for GHG Emissions from New and Reconstructed EGUs; Emission Guidelines for GHG Emissions from Existing EGUs; and Repeal of the Affordable Clean Energy Rule, ” Item No. 1, Docket ID EPA-HQ-OAR-2023-0072. https://www.regulations.gov/document/EPA-HQ-OAR-2023-0072-0001. In addition, advocacy groups within Missouri—most notably the Sierra Club, through its Beyond Coal Campaign—have been pushing for coal plant retirements through litigation and rate cases because of the climate and public health harms.So what plans have Missouri utilities made for their coal plants, and are they following through on those plans? A brief accounting indicates that Missouri utilities plan to retire 6.0 gigawatts (GW) of coal capacity between now and 2050, leaving 4.3 GW still online after that date and making no plans for carbon capture and storage (CCS) retrofits (Figure 2). Moreover, there have been noticeable shifts in successive integrated resource plans (IRPs) about which plants are to be retired and when. This issue brief explores three factors influencing whether Missouri coal plants retire as planned: (1) whether the plants are in conflict with environmental regulation and would require expensive upgrades to continue operating, (2) whether financial barriers to retirement exist, and (3) whether generators are available to replace the coal plants.The main (enforceable) driver of coal retirements is environmental regulation. For example, when the Department of Justice sued Ameren’s Rush Island plant for violating the Clean Air Act’s New Source Review requirements, the plant was ordered to install flue gas desulfurization (Sierra Club 2021). Rather than do so, Ameren elected to move the plant’s retirement date from 2039 to 2024 (Skipworth 2022). The recent coal combustion residual rule required that wet coal ash be stored in lined ponds. After making investments to close the final ash ponds at its Meramec plant, Ameren made plans to close the plant in 2022 (Ameren Missouri 2021). Perhaps most impactfully, the EPA’s proposed 111(d) regulation will require coal plants that want to exist beyond 2035 but retire by 2040 to retrofit to cofire with fossil gas by 2030 and plants that want to exist after 2040 to retrofit with 90 percent carbon capture by 2030. Several plants have retirement dates just one or two years after one of these deadlines (Labadie 1&2 in 2036, Labadie 3&4 in 2042), so they may choose to retire earlier than planned rather than retrofit to run for only a short while longer. Others with no retirement date (Thomas Hill, Sikeston, New Madrid, Iatan, Hawthorne) will have to install CCS by 2030 or declare retirement dates before 2040 (Table 1).Many coal plants cost more to operate than the expense of building and operating a new renewable resource, but remaining debt on the coal facilities deters utilities from retiring them (Bodnar et al. 2020). When a regulated utility retires a plant without recovering its costs, the utility’s shareholders lose money, and in some cases the utility’s credit rating falls, affecting its ability to borrow money in the future. This makes utilities reluctant to retire plants early, even when doing so would save ratepayers money. In 2021 Missouri passed a securitization law designed to address this problem (Kite 2021). Under the law, the utility establishes a special-purpose entity that issues ratepayer-backed bonds to pay off the remaining debt. The bonds are then paid off over a long period through a charge on electric bills. Because the ratepayer-backed bonds have a lower rate of interest than the utility’s rate of return, ratepayers save money on both operating expenses for the coal plant (since it’s no longer running) and the interest rate they would have paid on the utility’s coal plant debt. At the same time, the utility avoids an unpaid debt, and having cash on hand allows it to invest in new clean generation (Varadarajan 2018). Empire District Electric Company (Algonquin) used securitization when it closed its last coal unit, the Ashbury plant, in 2020 (Uhlenhuth 2019; Howland 2022c). And Ameren intends to use it to recover some of the costs associated with the Meramec and Rush Island plants (Ameren Missouri 2022b).While Missouri’s securitization law is aimed primarily at regulated utilities, the Inflation Reduction Act (IRA) contains two provisions that may address financial barriers faced by co-op–owned coal plants. The US Department of Energy Loan Program Office’s Energy Infrastructure Reinvestment program (funded at $5 billion) will provide low-interest loans to refinance and replace or reduce emissions at existing fossil generators (DOE n.d.). These funds are available to all power plants. The US Department of Agriculture’s Empowering Rural America program (funded at $9.7 billion) is limited to co-ops and is designed to help them replace existing fossil plants with low-interest, forgivable loans (USDA 2023). Given that 2.7 of the 4.3 GW of coal units left after 2050 are from co-ops or municipal utilities (munis) (Figure 2), these programs will do important work to ease the retirement of coal in Missouri.Despite new environmental regulations and policies to overcome financial barriers to retirement, the utilities have repeatedly delayed coal retirements as the dates approach. And each time, the stated reason was a lack of adequate replacement capacity. For example, Ameren, which has retirement dates for all its remaining coal units, is planning to replace this coal mostly with fossil gas plants that have the ability to burn hydrogen or with unnamed “clean firm” facilities. The utility has already delayed two of these coal retirements. The Rush Island plant, which will be retiring with securitization in lieu of retrofitting with coal gas desulfurization, delayed its retirement beyond 2024 after the Midcontinent Independent System Operator (MISO) asked the Federal Energy Regulatory Commission to keep it online as a System Support Resource through 2025 (Howland 2022a). The Sioux Energy Center has pushed its retirement date from 2028 in the 2020 IRP to 2030 in the 2022 Change in Preferred Plan (Ameren Missouri 2022a), while Ameren waits for a fossil gas unit to come online in 2031. Evergy has repeatedly modified and delayed the quantity of renewables they planned to build in their 2020 IRP (Evergy 2021, 2022), before suggesting a significant fossil gas build-out in 2027 and 2028 (Evergy 2023). See also “In the Matter of Evergy Missouri West, Inc. d/b/a Evergy Missouri West’s 2023 Integrated Resource Plan Annual Update Filing, ” Item No. 9, Docket Sheet EO-2023-0212; “In the Matter of Evergy Metro, Inc. d/b/a Evergy Missouri Metro’s 2023 Integrated Resource Plan Annual Update Filing, ” Item No. 16, EO-2023-0213. Similarly, City Utilities of Springfield has delayed the retirement of the first unit at the John Twitty Energy Center from 2027 to 2030 in response to slower-than-anticipated renewable builds and new reliability rules from the Southwest Power Pool (SPP) (CU 2022). These examples suggest that even when utilities are planning to replace their coal plants, construction delays and reliability rules from Independent System Operators are keeping coal plants online longer. Additionally, current ways of measuring reliability may be pushing utilities to replace coal plants with fossil gas and hydrogen-enabled fossil gas rather than with renewables.In summary, Missouri has a lot of coal generators and some unenforceable commitments from utilities to reach net-zero emissions. If the commitments are to be met, all these coal generators must be retired or retrofitted with CCS. An examination of IRPs reveals that as of now, utilities do not plan to do so, leaving 4.3 GW of coal with uncontrolled carbon emissions after 2050 (Figure 2). Regulations, specifically the coal combustion residuals and the 111(d) rule, may play an important role in pushing coal plants to retire or retrofit. Financial barriers to retirement related to paying off the debt on coal plants are surmountable for regulated utilities, given the state’s securitization law, and for co-ops, given the federal government’s new programs under the IRA. Nonetheless, planned coal plant retirements have been delayed because of slower-than-expected build-out of replacements and reliability concerns from grid operators. |
| Date: | 2023–10–11 |
| URL: | https://d.repec.org/n?u=RePEc:rff:ibrief:ib-23-07 |
| By: | Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Kataria, Mitesh (Department of Economics, School of Business, Economics and Law, Göteborg University); Lampi, Elina (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | We investigate how politicization and the financial cost of climate policies influence public trust in scientific information about climate change. We find that citizens' trust in science-based information on climate is influenced by its political context. When climate policy is associated with a political affiliation, trust in the scientific information decreases, independent of the political party supporting the policy. However, there is no effect on policy support on political endorsement. Varying the financial cost of the policy to induce cognitive dissonance had no significant effect on trust in the scientific information; instead, as expected, higher cost substantially reduced policy support. |
| Keywords: | Experiment; climate change; scientific information; political parties; motivated beliefs |
| JEL: | D91 Q54 Q58 |
| Date: | 2025–08–26 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:gunwpe:0856 |
| By: | In Chang Hwang; Richard S. J. Tol |
| Abstract: | This paper presents a refined country-level integrated assessment model, FUND 3.9n, that extends the regional FUND 3.9 framework by incorporating sector-specific climate impact functions and parametric uncertainty analysis for 198 individual countries. The model enables estimation of the national social cost of carbon (NSCC), capturing heterogeneity across nations from economic structure, climate sensitivity, and population exposure. Our results demonstrate that both the NSCC and the global sum estimates are highly sensitive to damage specifications and preference parameters, including the pure rate of time preference and relative risk aversion. Compared to aggregated single-sector approaches, the disaggregated model with uncertainty yields higher values of the NSCC for low- and middle-income countries. The paper contributes to the literature by quantifying how sector-specific vulnerabilities and stochastic variability amplify climate damages and reshape global equity in the distribution of the NSCC. The NSCCs derived from our model offer policy-relevant metrics for adaptation planning, mitigation target setting, and equitable burden-sharing in international climate negotiations. This approach bridges the gap between globally harmonized carbon pricing and nationally differentiated climate impacts, providing a theoretically grounded and empirically rich framework for future climate policy design. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.03926 |
| By: | Burtraw, Dallas (Resources for the Future); Roy, Nicholas (Resources for the Future) |
| Abstract: | States can lead on climate policy while shielding households from the affordability impacts of rising policy uncertainties.Energy affordability is a concern to households across the country. Buchsbaum and Kahn-Lang (2025) summarize data from the US Energy Information Administration to illustrate that national average real electricity prices have risen over the past four years after nearly two decades of flat or decreasing real prices. Inflationary pressure in the electricity sector is especially salient with the rapid expansion of data centers and an anticipated increase in electricity demand resulting from electrification of other sectors (Robertson and Palmer 2025). The concern about energy affordability has been turbocharged in light of changes in federal regulations withdrawing support for clean energy investments.This issue brief considers an opportunity for state governments to respond to this challenge by enhancing electricity affordability for households and concurrently boosting environmental outcomes. Investments in renewable energy and energy efficiency would reduce electricity costs. With the loss of federal support for these investments, we explore the potential introduction of a price on carbon dioxide (CO2) emissions in the electricity sector at the state level, via a cap or limit on power sector emissions sources, and coupling that price with a policy to direct program revenues to reduce residential electricity rates (Meng and Prasad 2025). An example of this approach is embodied in recently proposed legislation in Pennsylvania (House Bill 503), which would introduce an electricity-sector carbon market and direct 70 percent of the auction proceeds to paying rebates to electric ratepayers, calculated on a per-kilowatt-hour basis. In California, under the state’s existing carbon market, residential electricity and natural gas customers receive an equal per-customer-account payment every six months. Recent research considers revising this program to direct proceeds to reduce volumetric electricity prices (Meng and Prasad 2025). The scenario examines the implementation of the policy in eight leadership states that have previously pursued clean energy policies such as renewable portfolio standards but do not currently have carbon pricing in place. Electricity-sector emissions are already subject to carbon pricing in the 10 currently participating Northeast and mid-Atlantic states Regional Greenhouse Gas Initiative (with two other observer states) and in California and Washington. Oregon has a regulatory cap on emissions. We model an electricity-sector carbon price implemented through an emissions cap in Arizona, Colorado, New Mexico, Illinois, Michigan, Minnesota, Wisconsin, and North Carolina. |
| Date: | 2025–08–27 |
| URL: | https://d.repec.org/n?u=RePEc:rff:ibrief:ib-25-11 |
| By: | Lavy, Victor (University of Warwick, Hebrew University, and NBER); Rachkovski, Genia (Tel Aviv University); Yoresh, Omry (London School of Economics) |
| Abstract: | Literature has shown that air pollution can have short- and long-term adverse effects on physiological and cognitive performance. In this study, we estimate the effect of increased pollution levels on the likelihood of accidents in construction sites, a significant factor related to productivity losses in the labor market. Using data from all construction sites and pollution monitoring stations in Israel, we find a strong and significant causal effect of nitrogen dioxide (NO2), one of the primary air pollutants, on construction site accidents. We find that a 10-ppb increase in NO2 levels increases the likelihood of an accident by as much as 25 percent. Importantly, our findings suggest that these effects are non-linear. While moderate pollution levels, according to EPA standards, compared to clean air levels, increase the likelihood of accidents by 138 percent, unhealthy levels increase it by 377 percent. We present a mechanism where the effect of pollution is exacerbated in conditions with high cognitive strain or reduced awareness. Finally, we perform a cost-benefit analysis, supported by a nonparametric estimation calculating the implied number of accidents due to NO2 exposure, and examining a potential welfare-improving policy to subsidize the closure of construction sites on highly polluted days. |
| Keywords: | Workplace Accidents, Labor Productivity, Air Pollution, Government Policy JEL Classification: |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:cge:wacage:770 |
| By: | Richard S. J. Tol |
| Abstract: | There are many published estimates of the social cost of carbon. Some are clear outliers, the result of poorly constrained models. Percentile winsorizing is an option, but I here propose conceptual winsorizing: The social cost of carbon is either a willingness to pay, which cannot exceed the ability to pay, or a proposed carbon tax, which cannot raise more revenue than all other taxes combined. Conceptual winsorizing successfully removes high outliers. It slackens as economies decarbonize, slowly without climate policy, faster with. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.07384 |
| By: | Felbermayr, Gabriel; Peterson, Sonja; Wanner, Joschka |
| Abstract: | While international trade can offer gains from specialization and access to a wider range of products, it is also closely interlinked with global environmental problems, above all, anthropogenic climate change. This survey provides a structured overview of the economic literature on the interaction between environmental outcomes, trade, environmental policy and trade policy. In this endeavor, it covers approaches reaching from descriptive data analysis based on input‐output tables, over quantitative trade models and econometric studies to game‐theoretic analyses. Addressed issues are in particular the emission content of trade and emissions along value chains, the relocation of dirty firms and environmental impacts abroad, impacts of specific trade policies (such as trade agreements or tariffs) or environmental policies (such as border carbon adjustment), transportation emissions, as well as the role of firms. Across the different topics covered, the paper also tries to identify avenues for future research, with a particular focus on extending quantitative trade and environment models. |
| Keywords: | carbon border adjustment, carbon leakage, climate change, trade, trade policy |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkie:323983 |
| By: | Bollino, Carlo Andrea; Galeotti, Marzio |
| Abstract: | While population growth is a known driver of CO2 emissions, prevailing models often treat “population” as a homogeneous factor. This study addresses a critical gap, providing the first comprehensive empirical analysis to disaggregate the contributions of native-born and migrant populations to domestic CO2 emissions. Using an extended STIRPAT model for 172 countries (1990-2022), separated by OECD and non-OECD blocs, we uncover two novel insights. First, native-born populations consistently exhibit a substantially higher emissions elasticity than migrants in both country groups. Second, a dynamic shift occurred in OECD countries: migrants’ initially higher per capita emissions impact steadily declined over time, becoming lower than native-born individuals after 2003-2004. This refutes simplistic notions that migration inherently increases emissions. Our findings underscore the urgent need for differentiated, equitable climate policies that acknowledge the heterogeneous and evolving consumption patterns of diverse demographic groups, enabling more efficient mitigation strategies. |
| Keywords: | Climate Change |
| Date: | 2025–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:ags:feemwp:369003 |
| By: | Léa Tardieu (UMR TETIS - Territoires, Environnement, Télédétection et Information Spatiale - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - AgroParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris); Chloé Beaudet (UMR PSAE - Paris-Saclay Applied Economics - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Sarah Potin (LA TELESCOP); Julie Chaurand (LA TELESCOP); Léa Mariton (CESCO - Centre d'Ecologie et des Sciences de la COnservation - MNHN - Muséum national d'Histoire naturelle - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique); Vincent Delbar (LA TELESCOP); Maia David (UMR PSAE - Paris-Saclay Applied Economics - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | Urban planners continuously face the challenge of reducing artificial lighting to protect biodiversity while ensuring urban residents comfort and safety at night. Striking this balance is crucial for supporting urban residents broadly, yet it remains insufficiently explored in current research. Here, we integrate remote sensing and ecological modelling to assess species' requirements around light pollution reduction with socio-economic modelling to evaluate human residents' acceptance of various street-lighting adjustments, aiming to identify the optimal lighting compromises for Montpellier, France, a mid-sized European city. We show that, depending on the spatial context, both trade-offs and synergies can emerge when implementing light pollution mitigation measures. By integrating results into an RShiny application, we enabled urban planners to prioritize actions for each streetlight. Our findings underscore the importance of tailoring lighting policies to the specific environmental and social context rather than adopting a universal 'one-size-fits-all' approach. |
| Abstract: | Les urbanistes sont constamment confrontés au défi de réduire l'éclairage artificiel afin de protéger la biodiversité tout en garantissant le confort et la sécurité des citadins pendant la nuit. Il est essentiel de trouver cet équilibre pour soutenir les citadins dans leur ensemble, mais ce sujet reste insuffisamment exploré dans les recherches actuelles. Ici, nous combinons la télédétection et la modélisation écologique pour évaluer les besoins des espèces en matière de réduction de la pollution lumineuse avec la modélisation socio-économique afin d'évaluer l'acceptation par les habitants de divers ajustements de l'éclairage public, dans le but d'identifier les compromis optimaux en matière d'éclairage pour Montpellier, une ville européenne de taille moyenne. Nous montrons que, selon le contexte spatial, des compromis et des synergies peuvent émerger lors de la mise en œuvre de mesures d'atténuation de la pollution lumineuse. En intégrant les résultats dans une application RShiny, nous avons permis aux urbanistes de hiérarchiser les actions pour chaque lampadaire. Nos conclusions soulignent l'importance d'adapter les politiques d'éclairage au contexte environnemental et social spécifique plutôt que d'adopter une approche universelle « unique ». |
| Keywords: | Light pollution, socio-economic modelling, remote sensing, ecological modelling, ALAN, sustainable lighting |
| Date: | 2025–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05138150 |
| By: | Wingenroth, Jordan (Resources for the Future); Prest, Brian C. (Resources for the Future); Rennert, Kevin (Resources for the Future) |
| Abstract: | The 2023 Global Stocktake (GST) that is scheduled to conclude at COP28 offers an opportunity to not only look back and measure progress toward the Paris Agreement goals but also look ahead and consider the benefits of achieving them. Estimating the economic benefits of reducing climate change requires a model that incorporates both socioeconomic and climatological elements, accounting for both the long-lived repercussions of near-term emissions and uncertainty in future emissions and temperature trajectories.In this issue brief, we use the Greenhouse Gas Impact Value Estimator (GIVE) model (Rennert et al. 2022) to estimate the global economic benefits of limiting temperature rise to the Paris Agreement targets of 1.5°C and “well below” 2°C above preindustrial levels. We construct modified versions of the GIVE model that are calibrated to meet these targets, and we compare them to the baseline model, which combines estimates made by a panel of experts about future population, GDP, and emissions trajectories with a robust climate model to arrive at a central outcome of 2.5°C above preindustrial levels in 2100. This baseline reflects an estimate of anticipated future emissions pathways as of the date of the elicitation, which was conducted in 2021. This sets it apart from business-as-usual scenarios because it captures the benefits that experts estimated would be achieved with the knowledge that they possessed at the time.We find that mitigation efforts that reduce expected warming from that scenario with a 2.5°C central temperature outcome to instead remain well below 2°C would generate cumulative expected economic benefits of $467 trillion in present value through 2300, equivalent to 1.5 percent of the cumulative expected present value of global GDP over the same time frame. In equivalent annual terms, this $467 trillion figure corresponds to $5.2 trillion in annual benefits. Holding the temperature increase to below 1.5°C would generate an additional $138 trillion, bringing the total benefits to $605 trillion or 2 percent of cumulative GDP. $605 trillion amounts to $6.8 trillion in equivalent annual terms.These estimated benefits incorporate the societal impacts of climate change that research suggests are most significant, but many other impacts have yet to be accounted for. Furthermore, our estimates represent incremental benefits from increasingly ambitious scenarios, but even the baseline scenario reflects some of the progress made since the Paris Agreement was signed and how such progress influenced our expert panel’s expectations for the future. For both of these reasons, our results should be understood as conservative estimates of the total benefits of achieving the agreement’s goals. |
| Date: | 2023–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:rff:ibrief:ib-23-08 |
| By: | Owen Kay |
| Abstract: | In open economies, the effectiveness of carbon taxes is diminished by “pollution leakage, ” where some polluting activity shifts abroad because of the tax. This paper shows that the same conditions that lead to pollution leakage enhance the efficacy of clean subsidies. As a result, the optimal policy in an open economy combines a pollution tax and a clean subsidy, the balance of which depends on the leakage rate. Furthermore, efficient policy sets the sum of the tax and subsidy rates, a measure of policy ambition, equal to the marginal damages from pollution, and does not depend on the leakage rate. |
| Keywords: | energy taxes; energy subsidies; clean subsidies; pollution leakage; optimal policy; open economy |
| JEL: | H23 H21 Q41 Q42 Q48 F18 |
| Date: | 2025–08–18 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:101526 |
| By: | Lea Fricke; Clemens Fuest; Dominik Sachs |
| Abstract: | We study optimal redistribution and carbon taxation in a Mirrlees framework. Households differ in their carbon footprint due to both (i) the overall level of spending and (ii) the composition of spending. Introducing a cap on carbon emissions reduces the social value of output, which lowers the efficiency costs of taxation and thereby strengthens the scope for redistribution. However, the optimal increase in redistribution is weaker than suggested by popular proposals for a carbon dividend. While the optimal rebate schedule overcompensates low-income households and undercompensates high-income households for their carbon tax burden, the rebate nevertheless rises with income. Quantifying the model for Germany, we find that the optimal rebate for the 90th income percentile is nearly three times that for the 10th percentile, whereas carbon tax payments are about seven times higher. This results in higher effective average tax rates at the top and lower ones at the bottom of the income distribution. |
| Keywords: | carbon tax, optimal taxation, carbon dividend |
| JEL: | H21 H23 Q58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12085 |
| By: | Labrousse, Charles; Perdereau, Yann |
| Abstract: | The distributive effects of carbon taxation are critical for its political acceptability and depend on both income and geographic factors. Using French administrative data, household surveys, and matched employer-employee records, we document that rural households spend 2.8 times more on fossil fuels than urban households and are employed in firms that emit 2.7 times more greenhouse gases. We incorporate these insights into a spatial heterogeneous-agent model with endogenous migration and wealth accumulation, linking spatial and macroeconomic approaches. After an increase in carbon taxes, we quantify that rural households face 20% higher welfare losses than urban households. In an optimal revenue-recycling exercise, we compare transfers targeting income and geography, and show that neglecting for geography reduces welfare gains by 7%. We conclude that carbon policies should account for spatial differences to improve political feasibility. JEL Classification: C61, E62, H23, Q43, Q58, R13 |
| Keywords: | carbon tax, inequalities, migration, revenue recycling, spatial and macroeconomic models |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253104 |
| By: | Saon Ray (Indian Council for Research on International Economic Relations (ICRIER)); Vasundhara Thakur |
| Abstract: | The urgent need to address climate change has placed environmental degradation and sustainable development at the centre of policy discussions. This highlights the importance of examining how the financial system directs funds toward green investments or emission-intensive industries. Expanding financial inclusion integrates more individuals into the formal financial system, influencing capital allocation. India has introduced several initiatives in recent years to enhance financial inclusion. In this context, this study explores the impact of financial inclusion on carbon emissions in India from 1990 to 2018. It also examines the interplay of financial inclusion and financial development on carbon emissions in India. The study uses the ARDL bounds testing approach to find a long-run relationship between financial inclusion and carbon emissions. However, the interaction between financial inclusion and financial development does not significantly impact emissions in the long run. These findings contribute to understanding the role of financial inclusion in shaping India's environmental trajectory. |
| Keywords: | financial inclusion, carbon emissions, financial development, banking, green finance, icrier |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:bdc:wpaper:427 |
| By: | Megan Yeo; Sebastian Nosenzo; Daniel S. Palmer; Alexei K. Varah; Lucas Woodley; Ashley Nunes |
| Abstract: | Premium air travel is often associated with a disproportionately large carbon emissions footprint. This association reflects the increased space and amenities typically found in premium cabins that existing discourse suggests makes their carriage more fuel, and consequently carbon, intensive. One increasingly popular solution is disincentivizing the use of premium cabins in favor of all-economy cabins. How effective might such a policy be. To what extent. And how may the revenue impact affect travelers. We address these questions by leveraging an empirical model that integrates cabin configuration data, fuel burn profiles across various aircraft types, and multi-month airfare datasets. Our findings are threefold. First, we find that favoring entirely foregoing premium travel classes can reduce per-passenger emissions by between 8.1 and 21.5 percent, the precise figure varying based on the type of aircraft and aircraft stage length involved. Second, we observe that these emissions reductions are far less assured on a per-flight and a lifespan basis. Here, an all-economy configuration can reduce emissions by 0.45 percent or increase emissions by as much as 1.43 percent. Third, we enumerate pronounced revenue consequences associated with an all-economy configuration. This configuration produces aggregate revenue declines of between 4.92 and 23.1 percent, necessitating airfare increases of between 6 and 30 percent to maintain baseline revenue. This increase risks imposing a profound and regressive economic burden on working-class travelers who exhibit markedly higher price elasticities of demand compared to their wealthier counterparts and highlights the cross-subsidization airlines leverage to ensure the accessibility of air travel. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.12507 |
| By: | Pablo Acevedo; Elías Albagli; Gonzalo García-Trujillo; María Antonia Yung |
| Abstract: | This project uses unique Chilean administrative data to shed light on how production networks might play a key role in shaping the macroeconomic impacts of green transition policies. First, using customs and firm-to-firm transaction data that covers the universe of firms in Chile, we build the fossil fuel consumption and the direct CO2 emissions at the firm, sectoral, and aggregate levels. In line with the official national sources, the electricity generation sector is the most important contributor to aggregate CO2 emissions, followed by the manufacturing, transport, and mining sectors. Then, we study the role of input-output linkages in propagating CO2 emissions to the rest of the economy. To do so, we construct the production network and the carbon footprint at the firm level using firm-to-firm transaction data from the Chilean IRS, and we validate our results with the input-output tables approach used in the literature. The results show that the electricity generation sector is central in the network, with potentially important downstream spillover effects, while the mining sector is located in the outer part of the network with rich upstream connections. Also, we show that the copper mining industry is the most exposed one to a carbon tax scheme implemented on all the firms in the economy and also to one that only targets the electricity generation sector. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1047 |
| By: | Elkerbout, Milan (Resources for the Future) |
| Abstract: | The concept of leakage plays an important role in climate policy discussions and design. Leakage generally is shorthand for carbon leakage, which, even if intuitively understood as referring to greenhouse gas (GHG) emissions, can be defined in several ways. Leakage can also refer to production or investment, in which case industrial competitiveness is the more salient concern. The two concepts are often treated as overlapping, as this allows for environmental justification of policy measures that aim to protect competitiveness.Different types of leakage have different impacts and implications for policymaking. They require (and deserve) different policy responses to mitigate their adverse effects. This issue brief discusses how the concept of leakage affects climate policymaking and policy design and suggests distinguishing among types of leakage.As countries decarbonize their industries at different speeds, and as new close-to-carbon-neutral (or net-zero-compatible) industrial goods enter the market, the range of carbon intensities in traded industrial goods will be wider than ever, and the prospect of leakage may increase as well. Net-zero-compatible goods can be generally understood as technologies and activities that can continue well beyond the point where a jurisdiction has achieved net-zero emissions—or indefinitely—either by no longer emitting at all or by emitting in sufficiently limited quantities such that the residual emissions can be offset by carbon removal. The latter inevitably depends on political choices and constraints. It is helpful to distinguish among different types of leakage that may potentially arise so that any mitigating policy measures are effectively designed. Four types of leakage are discussed in Section 2.The intuition behind carbon leakage is that by enacting climate policy through pricing or regulation in one country, and thereby raising the costs of emitting GHGs, producers will move at least some of their production elsewhere to a region with lower carbon constraints, thereby offsetting the environmental gain while also undermining economic performance—a potential lose-lose outcome. A closer look at the various elements of potential leakage can be instructive.The worst case of carbon leakage involves a scenario in which emissions elsewhere increase by more than they are reduced in the region increasing its carbon constraints. However, a scenario in which emissions decrease by 100 metric tons in country A, only to rise by 95 tons in country B, is unlikely to be attractive to policymakers, even if there is a net environmental benefit.Things get trickier if the amount of leakage is further reduced but not zero. If emissions increase elsewhere by 20 or 30 tons in country B, the leakage effect is undermining the efficiency of the policy considerably, but the environmental impact can still be considered significant. However, if the policy discourse is squarely focused on the absolute amount of leakage, such a policy could still be rendered politically infeasible.To disentangle the political motivations in dealing with carbon leakage, it can also be instructive to look at the language of what should be done about it, such as risk, avoidance, or mitigation.Assessing whether carbon leakage has, in fact, occurred is not an easy task. Ex ante modeling usually tends to result in higher rates of leakage than empirical ex post studies reveal (Felbermayr and Peterson 2020; Caron 2022). In some cases, pass-through rates are used, with the lack of pass-through ability being considered evidence of risk of leakage. Attribution and causality add to the challenge. If climate policies—and carbon pricing, specifically—create a risk of leakage, it is usually assumed that this is linked to higher production costs and higher costs for energy inputs. However, energy prices can fluctuate for many reasons, and the final costs to (industrial) consumers depend on many factors, of which carbon and energy costs are only one. Shifts in production or investment can also occur for many reasons, some of which are orthogonal to policy, such as growing demand in other regions.Fully preventing or avoiding leakage, let alone claims of purported leakage, is therefore challenging. An element of discourse and narrative framing will remain in policy debates. Some policymakers instead talk about the risk of carbon leakage and the need to mitigate this risk. This leads to a need to define risk. Some combination of trade intensity (imports and exports divided by turnover) and emissions intensity (GHG emissions per volumetric metric ton of product) is generally used, although the ability to pass through costs is an alternative. By using the word risk, policymakers create a fair bit of latitude to act. By focusing on risk mitigation, some level of actually observed leakage might be seen as policy failure. On the other hand, focusing on risk is less precise and allows policymakers to argue that more protections, to further mitigate risk, are desirable.In these circumstances, vague assertions of leakage concerns can justify a great many policy interventions, some of which arguably go beyond legitimate climate policy effectiveness considerations. Protectionism, mercantilism, and geopolitical strife are resurgent today, with industrial policy in vogue again, while multilateral institutions such as the World Trade Organization are weakened (Elkerbout et al. 2024).With industrial competitiveness being threatened across Western countries—especially through competition with China and increasing hard security risks—policies to safeguard or boost competitiveness may become still more popular, as will the temptation to justify such measures by referring to leakage risks. Despite this new geopolitical background, increasingly ambitious climate policy is poised to continue apace. As new low-carbon producers (or production) enter the market, they will have to compete with incumbents domestically and abroad. This gives rise to a new type of competitiveness challenge. Trade and trade policy, moreover, lie at the core of any concern about leakage and competitiveness as the vehicle for carbon embedded in commercial exchange. |
| Date: | 2024–06–24 |
| URL: | https://d.repec.org/n?u=RePEc:rff:ibrief:ib-24-05 |
| By: | Mrs. Marina Conesa Martinez |
| Abstract: | This paper analyzes how central banks' communication influences corporate financial decisions and instruments. Empirically, we find that more active central bank communication is associated with a rise in firms' green bond issuance. The effect seems to be particularly strong among commercial banks, firms closely monitoring central bank climate communication, and firms with higher exposure to weather-related risks and opportunities. This likely reflects strategic responses to anticipated regulatory and market shifts. |
| Keywords: | Central banking; Communication; Climate change; Green bonds; Sustainable finance; Natural language processing |
| Date: | 2025–08–29 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/169 |
| By: | M.T. Musakwa (University of South Africa); N.M. Odhiambo (University of South Africa) |
| Abstract: | The causal relationship between urbanisation, energy consumption, and economic growth was examined for South Africa using annual data from 1990 -2021. The growing need for economies to bounce back after the COVID-19 pandemic and catch up with national economic plans and the Sustainable Development Goals (SDGs) motivated a relook at the important factors that influence economic growth. This study used two measures of energy consumption, namely electricity consumption and total energy consumption. Employing autoregressive distributed lag (ARDL) to cointegration and error correction model (ECM)- based Granger-causality test, the study found unidirectional causal flow from energy consumption to urbanisation in the short run regardless of the energy consumption measure used, and the same causal flow in the long run when total energy consumption was used. The study found a unidirectional causality from urbanisation to economic growth. A bidirectional causality between economic growth and electricity, while no causality was confirmed when total energy consumption was used. The findings from this study confirm the importance of energy consumption and urbanisation in driving economic growth. Policy recommendations are discussed. |
| Date: | 2024–12–30 |
| URL: | https://d.repec.org/n?u=RePEc:afa:wpaper:wp022024 |
| By: | Saki Bigio; Diego R. Känzig; Pablo Sánchez; Conor Walsh |
| Abstract: | Despite broad acceptance among economists, carbon taxes face persistent public resistance. We measure the sources and distribution of welfare losses from unexpected European carbon price changes by estimating their impact on consumer prices, labor income, financial wealth, and government transfers. A 1% carbon-policy-induced increase in energy prices yields an average welfare loss of about 1.5% of a year’s consumption, primarily driven by indirect labor-income effects. Younger, poorer, and less educated households, especially in Southern and Eastern Europe, bear a disproportionate burden. These findings suggest public opposition to carbon taxes stems from legitimate distributional concerns. |
| JEL: | D31 H23 Q58 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34125 |
| By: | Kuntal K. Das (University of Canterbury); Mona Yaghoubi (University of Canterbury) |
| Abstract: | This paper examines the impact of firm-specific climate change sentiment on stock liquidity using a novel dataset derived from earnings call transcripts of U.S. publicly listed firms. We find that negative sentiment related to regulatory transition risks significantly impairs stock liquidity, while sentiment related to physical risks or green opportunities has limited effects. The impact of negative sentiment is amplified in firms with higher information asymmetry and greater regulatory oversight, such as high litigation risk or substantial government funding. These findings highlight the asymmetric nature of market responses to climate risks and underscore the critical role of institutional context and informational frictions in shaping financial market reactions to climate-related developments. |
| Keywords: | Climate change sentiment, Stock liquidity, Asymmetric information, Regulatory environment |
| JEL: | G10 G40 Q54 Q58 |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:cbt:econwp:25/12 |
| By: | Elkerbout, Milan (Resources for the Future); Kopp, Raymond J. (Resources for the Future); Rennert, Kevin (Resources for the Future); Nehrkorn, Katarina (Resources for the Future) |
| Abstract: | In our 2023 report, Carbon Border Adjustments: Design Elements, Options, and Policy Decisions, we provided an overview of critical design elements in carbon border adjustment policies. We compared these design elements, such as how fees are set and the product scope, across several border adjustment mechanisms (BAMs) including the European Union’s Carbon Border Adjustment Mechanism (EU CBAM); the Clean Competition Act (CCA) proposal and the Foreign Pollution Fee Act (FPFA) proposal. In April 2025, a revised version of the FPFA was reintroduced in the Senate by Bill Cassidy (R-LA) and Lindsey Graham (R-SC). This issue brief uses the design elements introduced in our original BAM report to describe the policy reflected in the updated bill.The FPFA recognizes in its design and structure that the United States has reduced its greenhouse gas (GHG) emissions substantially over time, and that US manufacturers face costs to comply with environmental regulations that are not faced uniformly by many countries US manufacturers compete with. Though US emissions have decreased, the United States is also a significant importer of GHGs embodied in primary commodities and manufactured products from countries that have not taken comparable actions to reduce their emissions.A primary purpose of the FPFA is to level the playing field for US manufacturers vis-à-vis manufacturers in jurisdictions with higher average carbon intensities in selected sectors and thereby reduce the importation of embodied GHGs. The FPFA seeks to accomplish this goal by imposing a fee on embodied imported GHGs for a set of product categories that are highly traded and also have high GHG intensities. The proposed fees are intended to disincentivize US importation of such products from countries with poor environmental performance, incentivize increased importation from countries with high environmental performance and greater US manufacturing overall, and address concerns about international industrial competitiveness. The primary focus on leveling the playing field for US manufacturers means that the FPFA does not include provisions to require further reductions in greenhouse gases by domestic manufacturers, in contrast to other proposals such as the CCA.BAMs are complicated and technical policy instruments, and the FPFA is no exception. To describe the FPFA in this brief, we discuss it in terms of the seven design elements of BAMs we laid out in our earlier report. We have made every effort to be concise with respect to our descriptions of the policy approach taken in the legislation, but that has required us to abstract from a great deal of detail that exists within the legislative text. This issue brief is intended to provide a roadmap to understanding the approach taken by the FPFA but should not be considered a complete and comprehensive description and review. |
| Date: | 2023–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:rff:ibrief:ib-23-09 |
| By: | Christian Doh Dinga; Sander van Rijn; Laurens de Vries; Milos Cvetkovic |
| Abstract: | Coordinating the interactions between flexibility assets in multi-carrier integrated energy systems (MIES) can lead to an efficient integration of variable renewable energy resources, and a cost-efficient energy transition. However, the proliferation of flexibility assets and their participation in active demand response increases the complexity of coordinating these interactions. This paper introduces different approaches to model the coordination of flexibility scheduling in MIES. We propose a market auction-inspired model coupling approach to address the challenges of preserving the autonomy and privacy of flexibility providers, and the issue of scalability. We benchmark our approach against co-optimization and an iterative price-response method by conducting experiments with varying problem sizes and computing infrastructure. We show that our approach scales well and is suitable for modeling flexibility in large-scale energy systems in a more realistic way. From an optimality standpoint, the flexibility dispatch schedules and electricity prices are ``near-optimal". Our methodology is implemented as a new open-source software, which offers several practical applications. For example, flexibility providers and network operators can couple their models to simulate the interaction between their systems without disclosing confidential information; policy regulators can use it to investigate new market design and regulations to optimize the utilization of flexibility in MIES. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.03126 |
| By: | Never, Babette; Stöcker, Alexander; Tsinda, Aimé; Mujanama, Erick; Mugisha, Roger |
| Abstract: | Green, circular buildings and their construction are essential for climate change mitigation and resource efficiency. However, the impact of a systematic shift towards green, circular buildings on employment in Sub-Saharan Africa remains unclear. Rwanda, particularly Kigali, is a relevant case due to its high urbanisation rate, pressing housing needs and political commitment to greening the economy. Currently, we do not know what types of green jobs exist in Kigali's construction value chain or what potential they have for economic development. This paper addresses these questions using a sequential mixed-methods approach. We conducted 33 qualitative, semi-structured interviews with local experts and stakeholders. Based on these insights, we ran a survey with 546 firms across five construction value chain segments: planners/architects, material producers, material and equipment suppliers, construction/masonry firms, and firms installing energy, water, and wastewater technologies. Our analysis reveals four key findings: (1) a significant number of green jobs exist in the construction value chain, with varying degrees of greenness based on the number of environmentally-friendly practices performed (about are 5 per cent highly green and 58 per cent are partly green); (2) diverse green and circular practices are developing through both state support and grassroots initiatives; (3) greening is positively and significantly correlated with employment growth for highly green firms; and (4) greening is positively and significantly associated with improved job quality for all firms. For policy-makers, our results suggest that supporting firms in critical transition phases - those that have initiated greening but are not fully engaged - may enhance both job quantity and quality in the short to mid-term. Expanding green and circular, bio-based building practices across the construction sector requires a mix of interventions focused on cost competitiveness, skills and attitudes. |
| Keywords: | green jobs, green economy, green buildings, value chain, Sub-Saharan Africa |
| JEL: | J21 Q56 L74 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:diedps:324633 |
| By: | Matilde Bombardini; Frederico Finan; Nicolas Longuet-Marx; Suresh Naidu; Francesco Trebbi |
| Abstract: | We study the effects of climate change and mitigation-related employment changes on U.S. politics. We combine 2000-2020 precinct-level voting information and congressional candidate positions on environmental policy with high-resolution temperature, precipitation, and census block-group level measures of “green” and “brown” employment shares. Holding politician positions fixed within a district, we find that Democratic vote shares increase with exogenous changes in local climate and green transition employment. We embed these estimates into a model of political competition, including both direct and demand-driven effects of shocks on candidate supply of climate policy positions. Incorporating these estimates into 2022-2050 projections of climate change and green employment transition, we find that voting for the Democratic Party increases, while both parties move slightly to the right on climate policy. Under worst-case climate projections and current mitigation trajectories, our estimates indicate that the probability the House passes a carbon-pricing bill is 9 percentage points higher in 2050 than in 2020. |
| JEL: | D72 D78 P0 Q5 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34120 |
| By: | Gingembre, Mathilde |
| Abstract: | This paper examines how land-based climate mitigation strategies under the European Green Deal raise crucial questions about the distribution and democratic control of land resources. The research analyses the intersection of carbon neutrality-driven land-use changes with existing patterns of land grabbing and concentration, revealing significant limitations in current just-transition approaches. Through a critical analysis of European climate policy frameworks and land governance mechanisms, the study demonstrates that the land dimension represents a notable blind spot in just-transition approaches. The findings indicate that existing frameworks, primarily focused on industrial restructuring and labor market adaptation, cannot adequately address the challenges of ensuring democratic access to and control over land resources. The paper proposes the concept of a "land-just transition" as a necessary evolution, advocating for the explicit integration of land justice considerations into climate transition frameworks. This approach would expand beyond compensation and adaptation to address fundamental questions of land governance and democratic control. The research concludes by identifying key areas requiring further investigation, including empirical analysis of land control patterns, development of policy instruments for ensuring land justice, and theoretical elaboration of land justice within just transition frameworks. |
| Date: | 2025–09–04 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:u4j9z_v1 |
| By: | liu, kerry |
| Abstract: | The rapid development of Chinese automotive, particularly in the new energy vehicle sector, have garnered global attention. This study focuses on a niche area that has yet to be thoroughly examined: automotive finance. First, it explores the evolution of automotive finance in China within the context of the broader automotive market. Second, it reviews key policy initiatives from Chinese authorities related to the automotive industry, automotive finance companies, and automotive consumption. Third, it analyzes recent regulations on automotive finance companies, concluding that these measures are designed to mitigate systemic risks within China's financial system while supporting the new energy vehicle sector. |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:py648_v1 |
| By: | Yixiao Tan; Dimitrios P. Tsomocos; Xuan Wang |
| Abstract: | Climate change affects the effectiveness of monetary policy, particularly in maintaining price stability. In a two-period theoretical model with heterogeneous agents, monetary policy and climate externalities, we establish that a trade-off exists between climate change and inflation. In addition, lower interest rates for green investments enhance economic growth and aggregate social welfare when carbon tax is not at the optimal level. Our analysis suggests that green monetary policy and carbon emission taxes are complementary rather than substitutes. Our findings provide policy implications for balancing climate change mitigation and economic stability for the South African Reserve Bank. |
| Date: | 2025–08–28 |
| URL: | https://d.repec.org/n?u=RePEc:rbz:wpaper:11089 |
| By: | Gunther Capelle-Blancard (Université Paris 1 Panthéon-Sorbonne, Centre d'Econonomie de la Sorbonne & Paris School of Business) |
| Abstract: | The aim of this note is to assess whether and how the Financial Transaction Tax (FTT) could be "greened" - that is, adapted or utilized to support environmental objectives and the financing of the transition to a more sustainable economy. While traditionally conceived as a regulatory tool, the FTT also holds unexploited potential as an instrument for climate finance and broader environmental alignement. This paper outlines five complementary arguments in favor of a green FTT: (1) its capacity to mobilize stable, international funding for global public goods; (2) its symbolic relevance in light of the financial sector's contribution to social and environmental disruption; (3) its ability to modestly lengthen investment horizons and counteract excessive short-termism; (4) its potential to enhance public trust in finance by matching rhetoric about sustainable finance with contributions; and (5) its propective use as a differentiated tool to reward environmentally responsible issuers. The paper also includes a first quantitative assessment of potential revenues from a tiered green FTT, illustrating how such a mechanism could operationalize the principle of common but differentiated responsibilities and respective capabilities in climate finance. While recognizing practical limitations (in terms of governance, data reliability, ans risk of complexity) the paper concludes that a well-calibrated green FTT could be a simple yet effective lever in aligning financial markets with the ecological transition |
| Keywords: | Financial transaction tax; Securities Transaction Tax; Tobin tax; Innovative Financing; Climate Finance |
| JEL: | G1 H2 Q5 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:mse:cesdoc:25012 |
| By: | Wang, Maria; Kässi, Otto; Kuusi, Tero |
| Abstract: | Abstract This brief examines environmental and energy-related business subsidies in Finland and compares them with those in other EU countries. In Finland, subsidies are concentrated on tax concessions and preservation-oriented support for which there is limited amount of research, and the existing studies show limited effectiveness. By contrast, investment and innovation subsidies, which potentially have a greater potential to accelerate the green transition, make up a smaller share of the overall support. Internationally, Finland stands out with a high level of subsidies, but structurally it differs from, for example, Germany, where the emphasis is on direct investment support. The analysis suggests that redirecting subsidies from tax concessions towards conditional, impact-oriented instruments could better support permanent emission reductions, technological development and economic renewal. |
| Keywords: | Green transition subsidies, State subsidies, Environmental policy funding, Industrial policy |
| JEL: | H23 H25 H81 Q58 O38 |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:rif:briefs:163 |
| By: | Pyddoke, Roger (Swedish National Road and Transport Research Institute (VTI)); From, Emma (Swedish National Road and Transport Research Institute (VTI)); Fukushima, Nanna (Swedish National Road and Transport Research Institute (VTI)) |
| Abstract: | This paper aims to describe the distribution of private car ownership, car use, and fuel consumption in Sweden, and to assess how increased fuel prices resulting from climate policy impact the distribution of fuel expenditure and disposable income. We also estimate the potential need for compensating low-income car owners in rural areas in the event of higher climate taxes on fuels. The analysis is based on detailed administrative data for all adults in Sweden in 2022, including information on private car ownership and car use. The main finding is that individual fuel consumption was highly skewed: approximately 15 percent of car owners account for 50 percent of all fuel consumed by privately owned cars, while the remaining 85 percent account for the other half. Most of these high consumers are found among high-income earners, many of whom reside in rural rather than urban areas. Most high-income earners, however, tend to spend a modest share of their disposable income on fuel, with a median of about 4 percent and a 75th percentile of about 7 percent. Similar expenditure shares are found in most low-income earners, with the striking exception of the lowest income octile. A yearly compensation is calculated as the difference in median fuel costs for owners of fossil-fueled cars residing in rural areas with disposable incomes below the median and the corresponding car owners in large cities. In 2022, the estimated compensation for a tax increase equivalent to EUR 0, 5 per liter of fuel ranged from 0 to EUR 80 per year. |
| Keywords: | Climate policy; fuel tax; car ownership; fuel consumption; income distribution; spatial distribution; compensation |
| JEL: | D31 H23 Q52 R12 R48 |
| Date: | 2025–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:vtiwps:2025_004 |
| By: | C.O. Olaniyi (University of South Africa); N.M. Odhiambo (University of South Africa) |
| Abstract: | Transitioning to a carbon-neutral renewable energy (REN) option to decarbonize ecosystems and mitigate carbon dioxide (CO2) emissions and the negative impacts of climate change is consistent with United Nations Sustainable Development Goals 7 and 13. Scholars have identified natural resource wealth and institutions as critical factors in the REN transition in resource-rich countries. Financial barriers are arguably the most significant impediments to transitioning to REN, as REN is more capital-intensive and costly to produce, invest in, and use than traditional fossil fuel-based energy. Meanwhile, weak institutions and corruption in most resource-rich countries culminate in the resource curse phenomenon and the mismanagement of natural resource wealth. It implies that institutions (weak or strong) modify the natural resource rent contribution to the REN transition. Previous research has paid little attention to the impact of the interplay between natural resources and institutional quality on the REN transition in resource-rich African countries. This study examines how institutions moderate the contribution of natural resource wealth to accelerating or inhibiting the REN switch in resource-rich African countries for the period 2000–2021, using fully modified ordinary least squares, a Driscoll-Kraay nonparametric covariance matrix, and moments-based quantile regression estimators. This study departs from earlier studies by determining the institutional quality threshold above which institutions significantly stimulate natural resource rents to accelerate Africa's REN transition. The findings indicate that institutions in resource-rich African countries breed inefficient bureaucracies and corruption in natural resource rent administration. These undermine the ability of natural resource incomes to facilitate a shift to renewable energy sources. The threshold analyses indicate that most resource-rich African countries operate below the institutional quality threshold. This finding corroborates that inefficient institutions abet natural resource rent mismanagement and hinder the channeling of resource income towards the REN transition. The findings' policy implications are robustly articulated and outlined. |
| Date: | 2024–12–30 |
| URL: | https://d.repec.org/n?u=RePEc:afa:wpaper:wp032024 |
| By: | Joiner, Emily (Resources for the Future); Toman, Michael A. (Resources for the Future); Russo, Suzanne (Resources for the Future) |
| Abstract: | Agricultural (ag) bioenergy has received financial and technical support from the Energy Title of the Farm Bill, first established in 2002. At present, however, the primary drivers of ag bioenergy are incentives in federal energy legislation (the Renewable Fuel Standard or RFS) and California legislation to reduce the greenhouse gas intensity of transportation fuels (the Low Carbon Fuel Standard or LCFS), along with policies administered by the US Environmental Protection Agency.The RFS creates requirements for incorporating various categories of renewable sources, including ag biofuels, into liquid transportation fuels. A complex credit program based on sales of qualifying renewable sources facilitates the achievement of those requirements. The thresholds for qualifying (20, 50, or 60 percent lower estimated lifecycle greenhouse gas intensity) are coarse-grained and thus coarsely targeted for providing incentives to reduce greenhouse gas intensity.The LCFS also uses a credit system to achieve targeted reductions in lifecycle greenhouse gas intensity over time. However, the emissions intensities of qualifying renewable sources are based on technology pathways, with careful assessments of actual emissions that provide incentives for reducing actual emissions intensity. Nevertheless, the measurement of reductions in emissions intensity is only as good as the baseline used for comparison—a concern that has been expressed over the calculation of negative emissions intensity for manure-derived biogas.There is vigorous debate about the overall reduction in greenhouse gases achieved with conventional bioethanol made from corn. Lower-carbon technologies remain costly to use at scale. Adverse environmental impacts also can arise from producing biofuels, some of which raise environmental justice concerns. |
| Date: | 2024–05–09 |
| URL: | https://d.repec.org/n?u=RePEc:rff:ibrief:ib-24-03 |
| By: | Thiele, Rainer; Necker, Tomke; Spitzer, Cara |
| Abstract: | Multiple geopolitical disruptions have highlighted the need for firms to diversify their supply chains. For Germany and the EU, this might imply an increased reliance on Africa, the neighboring continent, for example when it comes to sourcing critical raw materials for the energy transition towards renewables. In this paper, we critically assess whether Africa can indeed play a significant role in Europe's strategy of diversifying supply chains and reducing its dependence on China in particular. |
| Abstract: | Eine Vielzahl geopolitischer Verwerfungen haben für Unternehmen die Notwendigkeit deutlich gemacht, Lieferketten stärker zu diversifizieren. Für Deutschland und die EU könnte dies zu einer stärkeren Hinwendung zum Nachbarkontinent Afrika führen, etwa wenn es darum geht, die Versorgung mit kritischen Rohstoffen für die Energiewende sicherzustellen. In diesem Artikel wird kritisch diskutiert, ob Afrika eine nennenswerte Rolle dabei spielen kann, Europas Lieferketten zu diversifizieren und insbesondere die Abhängigkeit von China zu reduzieren. |
| Keywords: | supply chains, critical raw materials, textiles and clothing, China, Africa |
| JEL: | F15 L67 L72 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkie:317904 |
| By: | Tim Leung; Kevin Lu |
| Abstract: | We consider the pricing of energy spread options for spot prices following an exponential Ornstein-Uhlenbeck process driven by a sum of independent multivariate variance gamma processes. Within this class of mean-reverting, infinite activity price processes, the Esscher transform is used to obtain an equivalent martingale measure. We focus on the weak variance alpha-gamma process and show that it is not closed under the Esscher transform. By deriving an analytic expression for the cumulant generating function of the innovation term, we then obtain a pricing formula for forwards and apply the FFT method of Hurd and Zhou to price spread options. Lastly, we demonstrate how the model should be both estimated on energy prices under the real world measure and calibrated on forward or call prices, and provide numerical results for the pricing of spread options. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.11480 |
| By: | Boyd, James (Resources for the Future); Krupnick, Alan (Resources for the Future); Joiner, Emily (Resources for the Future); Toman, Michael A. (Resources for the Future) |
| Abstract: | Carbon dioxide removal (CDR) involves the application of chemical or biological processes by which carbon dioxide (CO2) can be removed from the atmosphere and stored in different reservoirs. Those reservoirs include soils, oceans, underground (geologic) storage sites, long-lived wood products, and living biomass like forests.The 2015 Paris Agreement under the auspices of the 1992 United Nations Framework Convention on Climate Change established the aim of limiting the global average temperature increase from global emissions of greenhouse gases (GHGs) to less than 2.0°C, and as close to 1.5°C as possible, to limit dangerous impacts from climate change. Achieving that aim requires a concerted international effort to reduce GHGs to zero by mid-century. Many analysts have concluded that achieving the Paris temperature limits is infeasible without major increases in CDR, even with aggressive measures to limit GHGs (which have not yet been achieved). Smith et al. (2023); Coalition for Negative Emissions (2021); Environmental Defense Fund (2021); Committee on Developing a Research Agenda for Carbon Dioxide Removal and Reliable Sequestration et al. (2019); IPCC (2018). These sources also provide background on the temperature goals; in addition, see IPCC (2018). Furthermore, net negative emissions removal (above and beyond what is achieved by a net-zero economy) will be necessary to reduce the stock of atmospheric CO2 if, as is currently feared, emissions “overshoot” the trajectory for achieving the temperature limits.Smith et al. (2023) describe the lack of national goals for CDR around the world, and the lack of adequate policies to engender rapid and significant advances in CDR capability followed by large-scale installation of CDR. In what follows we summarize what we believe are needed innovations in US CDR policy to achieve these goals. These findings are based on research contained in a recent RFF report (Boyd et al. 2024). A few basic principles underlie the policy suggestions. Public sector support for CDR research, development, and demonstration is needed. However, as technologies mature, public sector support should be scaled back in favor of policies relying on private sector incentives to finance the major buildup in CDR capacity needed. Policy should be based on technology performance and cost of CO2 removal across a portfolio of approaches. However, negative side effects also must be identified and addressed in a timely way. Finally, CDR policy should be designed to take advantage of benefits from coordination with GHG mitigation measures. |
| Date: | 2024–04–25 |
| URL: | https://d.repec.org/n?u=RePEc:rff:ibrief:ib-24-01 |
| By: | Achim Hagen; Gilbert Kollenbach |
| Abstract: | We study the interaction of climate policies and investments into fossil and renewable energy generation capacity under political uncertainty caused by democratic elections. We develop an overlapping generations model, where elected governments determine carbon taxation and green investment subsidies, and individuals make investments into fossil and renewable capacity. We find that some fossil investments become stranded assets if the party offering the higher carbon tax is unexpectedly elected. Green investment subsidies can be used by governments to bind the hands of their successor. By using the subsidy, the party in power can influence the capital stocks and, therefore, the climate policy of the following period to reduce or even avoid potentially stranded assets. With endogenous reelection probability, the impact on the capital stocks can also be used strategically to manipulate the reelection probabilities in favor of the party in power. |
| Keywords: | stranded assets, elections, fossil fuel, renewable energy, carbon tax, investment subsidy |
| JEL: | D72 H23 Q54 Q58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12063 |