nep-env New Economics Papers
on Environmental Economics
Issue of 2007‒04‒14
twelve papers chosen by
Francisco S.Ramos
Federal University of Pernambuco

  1. Too Good to Be True? Three Economic Assessments of California Climate Change Policy By Stavins, Robert N.; Jaffe, Judson; Schatzki, Todd
  2. Voluntary Environmental Regulation in Developing Countries: Fad or Fix? By Blackman, Allen
  3. Hedging global environment risks: An option based portfolio insurance By André de Palma; Jean-Luc Prigent
  4. Environmentally oriented energy policy and stock returns : an empirical analysis By Oberndorfer, Ulrich; Ziegler, Andreas
  5. Endogenizing Technological Change: Matching Empirical Evidence to Modeling Needs By Pizer, William A.; Popp, David
  6. Social responsibility standards and global environmental accountability : a developing country perspective By Bhanu Murthy, K.V.
  8. Emissions Trading and Profit-Neutral Grandfathering By Cameron Hepburn; John K.-H. Quah; Robert A. Ritz
  9. Measuring the immeasurable : a survey of substainability indices By Böhringer, Christoph; Jochem, Patrick
  10. Economic Valuation Of Non-Timber Forest Products (NTFPs) By Adepoju, Adenike Adebusola; Salau, Adekunle Sheu
  11. Monétarisation des externalités de transport : un état de l'art By André de Palma; Néjia Zaouali
  12. An Econometric Model of Wildfire Suppression Productivity By Mariam Lankoande; Jonathan Yoder

  1. By: Stavins, Robert N.; Jaffe, Judson; Schatzki, Todd
    Abstract: California’s Global Warming Solutions Act of 2006 limits California’s greenhouse gas (GHG) emissions in 2020 to their 1990 level. Global climate change is a pressing environmental problem, and the best possible public policies will be required to address it. Therefore, analyses of prospective policies must themselves be of high quality, so that policymakers can reasonably rely on them when making the critical decisions they inevitably will face. In 2006, three studies were released indicating that California can meet its 2020 target at no net economic cost — raising questions about whether opportunities truly exist to substantially reduce emissions at no cost, or whether studies reaching such conclusions may simply severely underestimate costs. This paper provides an evaluation of these three California studies. We find that although opportunities may exist for some no-cost emission reductions, these California studies substantially underestimate the cost of meeting California’s 2020 target. The studies underestimate costs by omitting important components of the costs of emission reduction efforts, and by overestimating offsetting savings that some of those efforts yield through improved energy efficiency. In some cases, the studies focus on the costs of particular actions to reduce emissions, but fail to consider the effectiveness and costs of policies that would be necessary to bring about such actions. While quantifying the full extent of the resulting cost underestimation is beyond the scope of our study, the underestimation is clearly economically significant. A few of the identified flaws individually lead to underestimation of annual costs on the order of billions of dollars. Hence, these studies do not offer reliable estimates of the cost of meeting California’s 2020 target. Better analyses are needed to inform policymakers. While the Global Warming Solutions Act of 2006 sets a 2020 emissions target, critical policy design decisions remain to be made that will fundamentally affect the cost of California’s climate policy. For example, policymakers must determine emission targets for the years before and after 2020, the emission sources that will be regulated to meet those targets, and the policy instruments that will be employed. The California studies do not directly address the cost implications of these and other policy design decisions, and their overly optimistic findings may leave policymakers with an inadequate appreciation of the stakes associated with decisions that lie ahead. As such, California would benefit from studies that specifically assess the cost implications of alternative policy designs.Nonetheless, a careful evaluation of the California studies highlights some important policy design lessons that apply regardless of the extent to which no-cost emission reduction opportunities actually exist. In particular, policies should be designed to account for uncertainty regarding emission reduction costs, much of which will not be resolved before policies must be enacted. Also, consideration of the different market failures that lead to excessive GHG emissions makes clear that to reduce emissions cost-effectively, policymakers should adopt a market-based policy (such as a cap-and-trade system) as the core policy instrument. The presence of specific market failures that may lead to some no-cost emission reduction opportunities suggests the potential value of additional policies that act as complements, rather than alternatives, to a market-based policy. However, to develop complementary policies that efficiently target such no-cost opportunities, policymakers need better information than currently exists regarding the specific market failures that bring about those opportunities.
    Date: 2007–03–23
  2. By: Blackman, Allen (Resources for the Future)
    Abstract: Hamstrung by weak institutions that undermine conventional environmental regulatory tools, policymakers in developing countries are increasingly turning to voluntary approaches. Yet the evaluative literature on the topic is thin. To help fill this gap, we review arguments for and against the use of voluntary regulation in developing countries and present three case studies: a series of agreements negotiated between regulators and leather tanners in Guanajuato, Mexico; a national environmental audit program in Mexico; and a national public disclosure program in Indonesia. Admittedly few in number, these case studies nevertheless suggest that although voluntary environmental regulation in developing countries is a risky endeavor, it is by no means doomed to failure. The risks can be minimized by emphasizing the dissemination of information about pollution and pollution abatement options and by avoiding voluntary tools in situations where regulatory and nonregulatory pressures for improved environmental performance are weak and where polluters can block quantified targets, individual sanctions for noncompliance, and other widely accepted prerequisites of effective initiatives.
    Keywords: voluntary regulation, environment, developing country, Mexico, Indonesia
    JEL: Q28 O13
    Date: 2007–03–16
  3. By: André de Palma (University of Cergy-Pontoise (THEMA),and Ecole Polytechnique); Jean-Luc Prigent (University of Cergy-Pontoise (THEMA))
    Abstract: This paper introduces a financial hedging model for global environment risks. Our approach is based on portfolio insurance under hedging constraints. Investors are assumed to maximize their expected utilities defined on financial and environmental asset values. The optimal investment is determined for quite general utility functions and hedging constraints. In particular, our results suggest how to introduce derivative assets written on the environmental asset.
    Keywords: utility maximization, hedging, environmental asset, martingale theory
    JEL: C6 G11 G24 L10
    Date: 2007
  4. By: Oberndorfer, Ulrich; Ziegler, Andreas
    Abstract: This paper analyzes the effect of environmental regulation on stock returns (as a measure of economic performance) for German energy corporations. By using event study methodology, we consider the last minute victory of the acting government in the 2002 German federal elections to the Lower House of Parliament (Bundestag). The government coalition consisted of Social Democrats and the Green party and was generally associated with a paradigm shift in environmental and particularly energy policy towards the promotion of renewable energies and a phasing out of nuclear energy. In contrast, the opposing Christian Democrats and Liberal party signaled different priorities in line with traditional energy policy. Compared with other environmental event studies, we include insights from modern empirical finance and therefore also apply the Fama-French three-factor model to estimate the abnormal daily and monthly stock returns. The main estimation results of the empirical analysis imply (1) no evidence of a general negative impact of the 2002 Bundestag elections on stock returns for traditional utilities and (2) a positive albeit transitory short-run effect for the entire group of renewable energy corporations. We conclude that the 2002 Bundestag elections and therefore stringent environmental regulation had at least no general negative effect on the economic performance of energy corporations. One reason for this could be that the compliance costs of the government’s environmentally oriented energy policy were lower for traditional utilities than expected.
    Keywords: Environmental regulation, Energy policy, Nuclear energy, Renewable energies, Event study, CAPM, Market model, Three-factor model
    JEL: G12 G14 Q42 Q48
    Date: 2006
  5. By: Pizer, William A. (Resources for the Future); Popp, David
    Abstract: Technologies to reduce significantly fossil-fuel emissions currently are unavailable or only available at high cost. In light of this, the amount of research on the pace, direction, and benefits of environmentally friendly technological change has grown dramatically in recent years. This research includes empirical estimates of these effects and modeling exercises designed to simulate endogenous technological change in response to climate policy. Unfortunately, few attempts have been made to connect these two streams of research. This paper attempts to bridge that gap, reviewing both the empirical and modeling literature on technological change. Our goal is to provide an agenda for how both empirical and modeling research in these areas can move forward in a complementary fashion. In doing so, we discuss how models used for policy evaluation can better capture empirical phenomena and how empirical research can better address the needs of models used for policy evaluation.
    Keywords: endogenous technological change, climate change, CGE modeling
    JEL: Q55 Q28 O3 D58
    Date: 2007–03–31
  6. By: Bhanu Murthy, K.V.
    Abstract: This paper argues that accountability, responsibility and governance go hand in hand. Evolving standards is a part of governance. Unless such a global perspective is adopted “Social Responsibility and the implications for Developing Countries”, which is the theme for this workshop, cannot be unraveled. The purpose of this paper is to highlight how Social Responsibility Standards and their relation to environmental sustainability cannot be addressed without relating it to Global Environmental Degradation, Global Environmental Accountability and Global Environmental Management. Also that there is a need to adopt the coercive connotation of accountability. It raises several issues in this context. The emphasis is on transorganizational development and the need for measurement. The limitations of evolving standards in this context are raised. It argues in favor of having differential standards. The main problem, for implementing differential standards is, however, that this would need a system of metrics that measures social dimensionalities and parameters. For this the new developments in environmental economics need to be incorporated into the framework of evolution of International Standards.
    Keywords: Global Environmental Accountability; Corporate Social Responsibility; International Standards.
    JEL: F01 M14 M41 Q56 F02
    Date: 2007–04–09
  7. By: Karen Mayor; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: We use a model of domestic and international tourist numbers and flows to estimate the impact of the recent and proposed changes in the Air Passenger Duty (APD) of the United Kingdom. We find that the recent doubling of the APD has the perverse effect of increasing carbon dioxide emissions, albeit only slightly, because it reduces the relative price difference between near and far holidays. Tourist arrivals in the UK would fall slightly. Tourist arrivals from the UK would fall in the countries near to the UK, and this drop would be only partly offset by displaced tourists from the UK. Tourist numbers in countries far from the UK would increase. The proposal of the Conservative Party to exempt the first 2,000 miles (for UK residents) would decrease emissions by roughly the same amount as abolishing the APD altogether – but tourist arrivals in the UK would not rise. These results are reversed if we assume that domestic holidays and foreign holidays are close substitutes. If the same revenue were raised with a carbon tax rather than a boarding tax, emissions would fall with higher taxes.
    Keywords: International tourism, carbon dioxide emissions, boarding tax, United Kingdom
    JEL: L83 L93 Q54
    Date: 2007–04
  8. By: Cameron Hepburn; John K.-H. Quah; Robert A. Ritz
    Abstract: This paper examines the amount of grandfathering needed for an emissions trading scheme (ETS) to have a neutral impact on firm profits. We provide a simple formula to calculate profit-neutral grandfathering in a Cournot model with firms of different sizes and a general demand function. Using this formula, we obtain estimates of profit-neutral grandfathering for the electricity, cement, newsprint and steel industries. Under the current EU ETS, firms obtain close to full grandfathering; we show that while this may still leave some firms worse off, others have probably benefitted substantially. We find no evidence that any industry as a whole could be worse off with full grandfathering. We also show that the common presumption that a higher rate of cost pass-through lowers profit-neutral grandfathering is unreliable
    Keywords: Emissions Trading, Emissions Permits, Grandfathering Firm Profits, Cost Pass-Through, Market Structure
    JEL: D43 H23 Q58
    Date: 2006
  9. By: Böhringer, Christoph; Jochem, Patrick
    Abstract: Sustainability indices for countries provide a one-dimensional metric to valuate country-specific information on the three dimensions of sustainable development: economic, environmental, and social conditions. At the policy level, they suggest an unambiguous yardstick against which a country’s development can be measured and even a cross-country comparison can be performed. This paper reviews the explanatory power of various sustainability indices applied in policy practice. We show that these indices fail to fulfill fundamental scientific requirements making them rather useless if not misleading with respect to policy advice.
    Keywords: Sustainability Indices, Composite Indicators, Sustainability, Indices
    JEL: C43 Q01
    Date: 2006
  10. By: Adepoju, Adenike Adebusola; Salau, Adekunle Sheu
    Abstract: The paper reviewed the methods in use for the economic valuation of Non-timber forest products. In the main, three methods are used. They are direct market price, indirect market price and non-market estimates. No method is superior to the other but appropriate method of valuation depends on the objective of the study. Also in use, is the financial valuation method. NTFPs can be classified as tradable or non tradable. The tradable NTFPs are significant in international trade. Non-timber forest products also constitute a critical component of food security; it serves as an important source of income for the poor in many developing countries. Value is not the inherent property of an entity. It is only a measure of a relationship between a subject and the object of valuation within a context (time and place or hypothetical scenario). There is a fundamental distinction to be made between a valuation exercise that sets out to explain how choices are made by individual resource users and one that seeks to maximize community. NTFPs include Edibles such as Mushroom, ferns etc. medicinal and dietary supplements, floral products and specialty wood products.
    Keywords: Non-Timber Forest Products (NTFPs); Economic Valuation; Livelihood and Food security
    JEL: Q57 Q27 Q23 Q20
    Date: 2007–04–09
  11. By: André de Palma (Université de Cergy-Pontoise et Ecole Nationale des Ponts et Chaussées.); Néjia Zaouali (Laboratoire Thema, 33 boulevard du port 95011, Cergy-Pontoise cedex, France.)
    Abstract: In this paper we suggest a literature review on valuation of transport externalities during the last ten years. In the first part, we will tackle again with the concept of externalities as well as the approaches which have been used in the economic literature so that to study them. In the second part, we will assess the studies on monetary evaluation of external costs (congestion, atmospheric pollution, noise and accidents) at the international level. Then, we will have a critique on the results that were published by various writers.
    Keywords: externalities, valuation, the State-of-the Art
    JEL: H23 Q51 R41
    Date: 2007
  12. By: Mariam Lankoande; Jonathan Yoder (School of Economic Sciences, Washington State University)
    Abstract: We estimate a model of suppression productivity for individual fires, where suppression productivity is measured in terms of the reduction in the estimated market value of wildfire losses. Estimation results show that at the margin, every dollar increase in suppression costs reduces resource damage by 12 cents, while each dollar invested in pre-suppression reduces suppression expenditures by 3.76 dollars. These results suggest that there is an over-allocation of fire management funds to suppression activities relative to prevention measures in terms of cost-effectiveness. This paper provides an empirical basis for a widely used economic model of wildfire management that seeks to minimize the sum of suppression costs and economic losses from wildfires, the cost plus net value change model of fire suppression (C+NVC).
    Keywords: wildfire suppression, productivity
    JEL: Q2
    Date: 2006–10

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