nep-env New Economics Papers
on Environmental Economics
Issue of 2008‒03‒08
fourteen papers chosen by
Francisco S.Ramos
Federal University of Pernambuco

  1. Can Climate Change Mitigation Policy Benefit the Israeli Economy? A Computable General Equilibrium Analysis By Ruslana Palatnik; Mordechai Shechter
  2. Climate Change Impacts and Adaptation Strategies In Italy. An Economic Assessment By Alessandra Sgobbi; Carlo Carraro
  3. Technology Spillovers and Stability of International Climate Coalitions By Miyuki Nagashima; Rob Dellink
  4. Pollution, Health and Life Expectancy: How Environmental Policy Can Promote Growth By Xavier Pautrel
  5. Banking Permits: Economic Efficiency and Distributional Effects By Valentina Bosetti; Carlo Carraro; Emanuele Massetti
  6. Institutions, Motivations and Public Goods: Theory, Evidence and Implications for Environmental Policy By Andrew Reeson
  7. The Clean Development Mechanism and the International Diffusion of Technologies: An Empirical Study By Matthieu Glachant; Antoine Dechezleprêtre; Yann Ménière
  8. On the Sequential Choice of Tradable Permit Allocations By Ian A. MacKenzie,
  9. A Permit Allocation Contest for a Tradable Pollution Permit Market By Ian A. MacKenzie,; Nick Hanley; Tatiana Kornienko
  10. Uncertainty and the Double Dividend Hypothesis By Eftichios Sartzetakis; Panagiotis D. Tsigaris
  11. Environmentally-Oriented Innovative Strategies and Firm Performances in Services. Micro-Evidence from Italy By Massimiliano Mazzanti; Giulio Cainelli; Roberto Zoboli
  12. The risk rhetoric of environmental impact assessments (EIA): The case of off-shore wind farms in Sweden By Corvellec, Hervé; Boholm, Åsa
  13. Competition and Cooperation in a dynamical model of natural resources By Marta Biancardi
  14. An Economic Model for Bioprospecting Contracts By Paulo A.L.D. Nunes; Helen Ding; Laura Onofri

  1. By: Ruslana Palatnik (Fondazione Eni Enrico Mattei); Mordechai Shechter (Natural Resource & Environmental Research Center)
    Abstract: The growing attention to global warming due to greenhouse gas (GHG) emissions in the process of fossil fuel--based energy production is expressed in the Kyoto Protocol, which prescribes, on average, a 7 percent reduction in GHG emissions for developed countries. Although Israel was not included in the list of the obligated countries ("Annex A"), it should consider the economic implications of participating in the emission reduction effort, as such a commitment becomes highly feasible following the Bali roadmap which oblige a successor to the Kyoto Protocol to launch negotiations including all parties to the UNFCCC on a future framework, stressing the role of cooperative action and of common though differentiated responsibility. This study aimed to quantify the economy-wide consequences for Israel of meeting the targets of the Kyoto Protocol, employing a Computable General Equilibrium (CGE) model of the Israeli economy. Initially, to this end, we constructed a social accounting matrix (SAM) to serve as a benchmark by combining physical energy and emission data and economic data from various sources. The efficacy of decentralized economic incentives for CO2 emission reduction, such as carbon taxes on emissions and auctioned emission permits, was assessed in terms of their impact on economic welfare. In addition, we tested for the ensuing so-called double dividend. Two distinct cases were analyzed. In the first one, we tested a revenue-neutral environmental policy which proportionally cut pre-existing taxes. Labour supply was assumed to be exogenously fixed. The results showed that, although significant CO2 emission reduction can be achieved, followed by modest economic cost, no double dividend could be discerned. Next, in order to check for the employment double dividend (lower CO2 emissions and lower unemployment), we introduced labor market imperfections, with the aim of cutting income tax. The results of this case indicate that an employment double dividend is possible under a rather standard set of assumptions. Moreover, for higher substitutability between the energy composite input and the labor-capital one, an even “strong” form of double dividend can be obtained. We performed several sensitivity analyses with respect to the modeled production function, which re-confirmed the finding that higher substitution possibilities lead to lower welfare costs 3 associated with a given emission reduction target. We qualify this general result by also showing that the opposite holds when the emission tax rate is held constant, rather than reduced. It may be concluded on the basis of this analysis that a double dividend may be an achievable goal under a GHG emission reduction policy in the case of economies such as Israel. The CGE approach applied in this research is adopted for the first time to the Israeli economy and should contribute to better informed debate on environmental policy in Israel.
    Keywords: Computable General Equilibrium, Climate Change, Environmental Policy, Double Dividend, Israel
    JEL: D58 H23 Q43 Q48 Q52
    Date: 2008–01
  2. By: Alessandra Sgobbi (Fondazione Eni Enrico Mattei); Carlo Carraro (University of Venice, Fondazione Eni Enrico Mattei, CEPR, CEPS, CMCC and CESifo)
    Abstract: In this paper, the economic value of the impacts of climate change is assessed for different Italian economic sectors and regions. Sectoral and regional impacts are then aggregated to provide a macroeconomic estimate of variations in GDP induced by climate change in the next decades. Autonomous adaptation induced by changes in relative prices and in stocks of natural and economic resources is fully taken into account. The model also considers international trade effects. Results show that in Italy aggregate GDP losses induced by climate change are likely to be small. However, some economic sectors (e.g. tourism) and the alpine regions will suffer significant economic damages.
    Keywords: Impacts, Climate Change, Adaptation, GDP Losses, Tourism
    JEL: O13 Q43 Q5 R13
    Date: 2008–01
  3. By: Miyuki Nagashima (Wageningen University); Rob Dellink (Wageningen University and Institute for Environmental Studies, VU University of Amsterdam)
    Abstract: Cooperation in international environmental agreements appears difficult to attain because of strong free-riding incentives. This paper explores how different technology spillover mechanisms among regions can influence the incentive structures to join and stabilise an international agreement. We use an applied modelling framework (STACO) that enables us to investigate stability of partial climate coalitions. Technology spillovers to coalition members increase their incentives to stay in the coalition and reduce abatement costs, which leads to larger global payoffs and a lower global CO2 stock. Several theories on the impact of technology spillovers are evaluated by simulating a range of alternative specifications. We find that while spillovers are a good instrument to improve stability of bilateral agreements, they cannot overcome the strong free rider incentives that are present in larger coalitions. This conclusion is robust against the specification of technology spillovers.
    Keywords: Climate Change Modelling, International Environmental Agreements, Non-cooperative Game Theory, Technology Spillovers
    JEL: C72 O33 Q54
    Date: 2007–11
  4. By: Xavier Pautrel (Université de Nantes)
    Abstract: This article investigates the influence of environmental policy on growth assuming that the channel of transmission relies on the link between pollution, health and the survival probability, in an overlapping generations model à la Blanchard (1985) where growth is driven by a mechanism à la Romer (1986). We demonstrate that environmental policy has an ambiguous effect on growth in the steady-state when the detrimental impact of pollution on health and lifetime is taken into account: for low levels of taxation, environmental policy promotes growth while it is harmful to growth for high levels. Furthermore, we show that the environmental policy is more likely to promote growth (i.e. it stimulates growth for a wider range of environmental taxes) when public expenditures in health and/or the impact of pollution on health are important. Finally, using numerical simulations, we find that for the value of parameters chosen the environmental policy will be more likely to harm growth when agents smooth consumption over time.
    Keywords: Growth, Environment, Overlapping generations
    Date: 2007–10
  5. By: Valentina Bosetti (Fondazione Eni Enrico Mattei); Carlo Carraro (Fondazione Eni Enrico Mattei, University of Venice, CEPR, CESifo and CEPS); Emanuele Massetti (Fondazione Eni Enrico Mattei and Catholic University)
    Abstract: Most analyses of the Kyoto flexibility mechanisms focus on the cost effectiveness of “where” flexibility (e.g. by showing that mitigation costs are lower in a global permit market than in regional markets or in permit markets confined to Annex 1 countries). Less attention has been devoted to “when” flexibility, i.e. to the benefits of allowing emission permit traders to bank their permits for future use. In the model presented in this paper, banking of carbon allowances in a global permit market is fully endogenised, i.e. agents may decide to bank permits by taking into account their present and future needs and the present and future decisions of all the other agents. It is therefore possible to identify under what conditions traders find it optimal to bank permits, when banking is socially optimal, and what are the implications for present and future permit prices. We can also explain why the equilibrium rate of growth of permit prices is likely to be larger than the equilibrium interest rate. Most importantly, this paper analyses the efficiency and distributional consequences of allowing markets to optimally allocate emission permits across regions and over time. The welfare and distributional effects of an optimal intertemporal emission trading scheme are assessed for different initial allocation rules. Finally, the impact of banking on carbon emissions, technological progress, and optimal investment decisions is quantified and the incentives that banking provides to accelerate technological innovation and diffusion are also discussed. Among the many results, we show that not only does banking reduce abatement costs, but it also increases the amount of GHG emissions abated in the short-term. It should therefore belong to all emission trading schemes under construction.
    Keywords: Emission Trading, Banking
    JEL: C72 H23 Q25 Q28
    Date: 2008–01
  6. By: Andrew Reeson (CSIRO Sustainable Ecosystems, Australia)
    Abstract: In economic terms, the environment is largely a public good. Contributing to a public good is costly to an individual, while the benefits are enjoyed by all. Despite this, many people voluntarily contribute to public goods, both in laboratory economic experiments and through day-to-day environmental decisions. These voluntary contributions are largely motivated intrinsically, that is satisfaction comes from the act itself rather than external rewards. Policy interventions are often required to increase the provision of public goods to the socially optimal level, which usually take the form of extrinsic incentives such as payments or regulations. Theoretical and empirical evidence from psychology and economics suggests that such extrinsic incentives can crowd out the intrinsic motivations which underlie voluntary contributions. As a result, a policy may have less than the anticipated impact. It is even possible for a costly policy intervention to lead to a decrease in overall public good provision, as individuals cease to contribute voluntarily. This paper argues that environmental policy design should proceed with caution in the presence of intrinsic motivations. Weak regulations and small, competitive financial incentives have the greatest potential for negative effects. Recognising and supporting existing efforts can crowd in, rather than crowd out, voluntary contributions. With careful design and implementation, there is the potential to maintain and support intrinsic motivations while also providing robust extrinsic incentives.
    Keywords: public goods; environmental policy; intrinsic motivation; crowding out
    JEL: H4 Q0
    Date: 2008–01
  7. By: Matthieu Glachant (CERNA École des mines de Paris); Antoine Dechezleprêtre (CERNA École des mines de Paris); Yann Ménière (CERNA École des mines de Paris)
    Abstract: The Clean Development Mechanism (CDM) is expected to stimulate the North-South transfer of climate-friendly technologies. This paper provides an assessment of the technology transfers that take place through the CDM using a unique data set of 644 registered projects. It provides a detailed description of the transfers (frequency, type, by sector, by host country, etc.). It also includes an econometric analysis of their drivers. We show that transfer likeliness increases with the size of the projects. The transfer probability is 50% higher in projects implemented in a subsidiary of Annex 1 companies while the presence of an official credit buyer has a lower – albeit positive – impact. The analysis also yields interesting results on how technological capabilities of the host country influence technology diffusion in the CDM.
    Keywords: Kyoto Protocol, Clean Development Mechanism, International Technology Transfer
    JEL: Q5 Q55
    Date: 2007–12
  8. By: Ian A. MacKenzie, (CER-ETH Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: This paper investigates the sequential announcement of domestic emissions caps by regulators in a federal or international-based tradable pollution permit market for a transboundary pollutant. A leader-follower framework is used to analyse the consequences of regulators sequentially announcing domestic allocation caps. We find the sequential choice of domestic allocation caps is sub-optimal and depends on the follower's reaction to the leader's choice. Furthermore, the marginal damage and the degree to which allocations are substitutes or complements affects whether the leader changes from being a net permit buyer (seller) of permits to a seller (buyer).
    Keywords: Initial allocation, international tradable permit market, leader-follower
    JEL: D78 L13 Q28
    Date: 2008–03
  9. By: Ian A. MacKenzie, (CER-ETH Center of Economic Research at ETH Zurich, Switzerland); Nick Hanley (Department of Economics, University of Stirling, Stirling, UK); Tatiana Kornienko (Department of Economics, University of Edinburgh, Edinburgh, UK)
    Abstract: In this paper we advocate a new initial allocation mechanism for a tradable pollution permit market. We outline a Permit Allocation Contest (PAC) that distributes permits to firms based on their rank relative to other firms. This ranking is achieved by ordering firms based on an observable 'external action' where the external action is an activity or characteristic of the firm that is independent of their choice of emissions in the tradeable permit market. We show that this mechanism efficiently allocates permits and, as a result, the tradeable permit market is cost-effective. We determine the symmetric equilibrium strategy of each firm in choosing their external action and find the choice is influenced by the firm's cost structure and the regulator's choice of permit allocation schedule (distribution of permits to the market). Furthermore, we investigate the factors that determine the regulator's choice of optimal permit allocation schedules.
    Keywords: Rank-order contests, pollution permits, initial allocation
    JEL: D44 Q25
    Date: 2008–03
  10. By: Eftichios Sartzetakis (University of Macedonia); Panagiotis D. Tsigaris (Thompson Rivers University)
    Abstract: This paper examines the double dividend hypothesis in the presence of labour income uncertainty. Empirical evidence shows that uncertainty over labour income is particularly significant in developing, while not negligible in developed countries. Under uncertainty, and assuming incomplete capital markets, the tax system plays a role in providing social insurance and a green tax reform influences its effectiveness. We show that the increase in environmental tax reduces consumption risk while the balanced budget decrease in labour income tax increases income risk. We find that the total welfare effect of a green tax reform differs substantially from the case of certainty. The critical parameters determining the existence of a second dividend are the lump sum transfers, the relative substitutability of the two goods for leisure and the initial tax rates relative to their optimal that determine also the response of labour supply to a change in the tax mix.
    Keywords: Double Dividend Hypothesis, Environmental Taxation, Labor Income Taxation, Uncertainty, Tax Incidence Analysis
    JEL: H21 H23 D62
    Date: 2007–11
  11. By: Massimiliano Mazzanti; Giulio Cainelli (University of Bari and CERIS-CNR); Roberto Zoboli (Catholic University of Milan and CERIS-CNR)
    Abstract: This paper aims at analysing the role of the environment in innovative strategies based on firm economic performance indicators such as employment, turnover, and labour productivity growth. We exploit a unique dataset of 773 Italian service firms with 20 or more employees comprising 1993-1995 CIS II data on firm innovation strategic motivations and 1995-1998 data on employment, turnover, and labour productivity from the System of the Enterprise Account (SEA). We specify a Gibrat-like empirical model in which the covariates include firm strategies (innovation and environmental), and a set of other explanatory variables and controls. Our econometric findings show a negative link between environmental motivations and growth in employment and turnover and a consequent not significant effect on labour productivity growth. The effect on employment is partly in line with past evidence and may derive from efficiency improvements (dematerialization processes) which also impact on efficiency by reducing workforce number. It is plausible that the net effect derives from the absence of low skilled employment and a creation of high skilled jobs, as a consequence of increased environmental awareness. The effect on turnover shows a negative impact from environmental innovation strategy, implying either a short-medium effect, possibly balanced in the long run by net benefits in terms of higher added value, or a real negative impact, which may be contingent on the observed period, when environmental strategies where not at the heart of strategic management policies. However, productivity-related effects (the core of performance indicators) are not significant. Mainstream hypotheses related to eventual negative impacts are thus not confirmed, although Porter-like effects and virtuous circles between environmentally strategies and performance do not seem to be present.
    Keywords: Services, Firm Environmental Strategies, Firm Growth, CIS Survey, Innovation
    JEL: C23 D21 O32 Q55
    Date: 2007–12
  12. By: Corvellec, Hervé (Gothenburg Research Institute); Boholm, Åsa (Centrum för forskning om offentlig sektor (CEFOS), University of Gothenburg.)
    Abstract: Risk is a key topic in the communication between developers of infrastructure projects, permit-granting authorities, and civil society. The nature of risk communication is contested among academics, however. Whereas some scholars conceive of risk communication as a matter of effectively communicating expert knowledge on factual matters to the public, others emphasize the role of symbolic construction and rhetoric. This article analyses how wind farm developers rhetorically construct risks in relation to the environmental impact assessment (EIA) for a proposed project. In Sweden, an EIA is a legally mandatory step in the application for an environmental permit. Our analysis is inspired by the New Rhetoric, the theory of argumentation developed by Perelman and Olbrechts-Tyteca (1958). It deals with the EIA for the Kriegers Flak project, the largest wind farm project granted an environmental permit in Scandinavia to date. We suggest that the authors of the EIA adopt a dual risk communication strategy; in the EIA they associate numerous risks to the project by identifying and cataloguing them; however, these risks are immediately disconnected from the project by being described as acceptable, manageable, negligible, or nonexistent. Although we draw from a single case study, we suggest that this paradoxical risk/no-risk dualism is characteristic of risk communication in EIAs, and we discuss some implications of such rhetoric of communication.
    Keywords: Risk communication; Environmental Impact Assessment (EIA); New Rhetoric; Environmental Planning; Wind power
    Date: 2008–03–03
  13. By: Marta Biancardi
    Abstract: In this paper we propose a model describing the commercial exploitation of a common property renewable resource by a population of agents. Players can cooperate or compete; cooperators maximize the utility of their group while defectors maximize their own profit. The model provides for one utility function which can be used for every kind of player. Agents aren’t assumed to be divided into the two groups from the beginning; by solving the static game we obtained the best response function of i-th player without making other agents positions. Then, the Nash equilibria we calculated point out how different strategies - all players cooperate, all players compete or players can be divided into cooperators and defectors - can coexist. In any case the total harvest depend on renewable resource stock, and it influences agents’ positions. According to the Nash equilibria, harvested is arranged to fishing population dynamics and a complete analysis for the equilibria obtained and for their stability is proposed. The effects of the different Nash equilibria on the fish stock are compared showing the more stability in the cooperative case.
    Keywords: Nash Equilibria, Resource Exploitation, Population Dynamics.
    Date: 2007–10
  14. By: Paulo A.L.D. Nunes (University of Venice and Fondazione Eni Enrico Mattei); Helen Ding (Fondazione Eni Enrico Mattei); Laura Onofri (University of Venice)
    Abstract: This paper explores the use of a micro-economic model to analyse the provisions and parties of bioprospecting contracts. It focuses on the pharmaceutical industry as the representative biodiversity buyer, presenting an original theoretical framework that explains the main contract characteristics or stylised facts. Against this background, it considers the main contractors involved in these private contracts, i.e. biodiversity sellers and biodiversity buyers, analysing both the magnitude and distribution of the respective payoffs. Particular attention is devoted to the different, mixed impacts of bioprospecting contracts and patenting on social welfare. The positive welfare impacts delivered by bioprospecting contracts are associated with the potential discovery of a new drug product, i.e. productivity gains, non-monetary benefit-sharing or transfers and royalty revenues. The negative welfare impact results from the legal creation of a monopoly and the related well-known effect on the consumer surplus. Finally, the potential redistribution effects are limited, and a potential enforcement of this objective may jeopardise the desirability of the contracts since this action would lead to a significant increase in the transaction costs.
    Keywords: Bioprospecting Contract, Genetic Resource, Biodiversity Buyer, Biodiversity Seller, Patenting, Welfare Analysis, Benefit Sharing
    JEL: D21 D23 D61 L14 Q57
    Date: 2007–11

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