nep-env New Economics Papers
on Environmental Economics
Issue of 2009‒03‒07
fourteen papers chosen by
Francisco S.Ramos
Federal University of Pernambuco

  1. Corporate Responses to Climate Change and Financial Performance: The Impact of Climate Policy By Andreas Ziegler; Timo Busch; Volker H. Hoffmann
  2. Land Use Change, Benefit Transfer and Ecosystem Valuation in North Georgia By Ngugi, Daniel; Mullen, Jeff; Bergstrom, John
  3. Indeterminacy, bifurcations and chaos in an overlapping generations model with negative environmental externalities By Antoci, Angelo; Sodini, Mauro
  4. Identifying Environmental Consequences of Conversion Plants: Options for Managing Tradeoffs By Sharp, Annette
  5. Can payments for watershed services help save biodiversity? A spatial analysis of highland Guatemala By Pagiola, Stefano; Zhang, Wei; Colom, Ale
  6. The EU's Emissions Trading Scheme: A Proto-Type Global System? By Denny Ellerman
  7. Estimating the costs of REDD at the country level By Pagiola, Stefano; Bosquet, Benoit
  8. Climate Change and Risk Management: Challenges for Insurance, Adaptation, and Loss Estimation By Kousky, Carolyn; Cooke, Roger M.
  9. Modelling the Costs of Climate Change and its Costs of Mitigation: A Scientific Approach By Douglas, Niall Edward
  10. Poor household participation in payments for environmental services in Nicaragua and Colombia By Rios, Ana R.; Pagiola, Stefano
  11. New results on the influence of climate on the distribution of population and economic activity By Füssel, Hans-Martin
  12. Endogenous Growth, Backstop Technology Adoption and Optimal Jumps By Simone Valente
  13. Cost Analysis of Alternative Harvest, Storage and Transportation Methods for Delivering Switchgrass to a Biorefinery from the Farmers’ perspective By Wang, Chegnuang; Larson, James A.; English, Burton C.; Jensen, Kim
  14. The effect of restrictive policy instruments on Belgian fishing fleet dynamics By H. STOUTEN; A. HEENE; X. GELLYNCK; H. POLET

  1. By: Andreas Ziegler (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland); Timo Busch (Nachhaltigkeit und Technologie, ETH Zurich, Switzerland); Volker H. Hoffmann (Nachhaltigkeit und Technologie, ETH Zurich, Switzerland)
    Abstract: This paper examines the relationship between corporate activities to address climate change and stock performance. By separately analyzing the US and European stock markets for different sub-periods, we highlight the impact of the underlying climate policy regime. Methodologically, we compare risk-adjusted returns of stock portfolios comprising corporations that differ in their responses to climate change. In this respect, we apply the flexible Carhart fourfactor model besides the restricted one-factor model based on the Capital Asset Pricing Model (CAPM). While our portfolio analysis shows negative relationships over the entire observation period from 2001 to 2006, we find that a trading strategy, which bought stocks of corporations with a higher level of responses to climate change and sold stocks of corporations with a lower level, led to negative abnormal returns in regions and periods with less ambitious climate policy, but to positive abnormal returns in regions and periods with stringent climate policy.
    Keywords: Climate change, Climate policy, Corporate environmental performance, Financial performance, Portfolio analysis, Asset pricing models
    JEL: Q54 Q48 M14 G11 G12
    Date: 2009–02
  2. By: Ngugi, Daniel; Mullen, Jeff; Bergstrom, John
    Abstract: This study seeks to forecast land use change in a North Georgia ecosystem, and estimate the economic value of the ecosystem using benefit transfer techniques. We forecast land use change based on a structural time series model and a simple growth rate model. The study suggests a lower bound willingness to pay value of about USD 16,000 per year to ensure compliance with fishing and drinking water quality standards with regard to fecal coliform bacteria and dissolved oxygen. Conservation efforts are likely to cost less than the cost of defensive behavior or ecosystem restoration.
    Keywords: Ecosystem, Economic value, North Georgia, land use, water quality, structural time series, benefit transfer, forecasting, Environmental Economics and Policy, Land Economics/Use, Q51, Q53, Q57, R14,
    Date: 2009
  3. By: Antoci, Angelo; Sodini, Mauro
    Abstract: We analyze an overlapping generations model where agent’s welfare depends on three goods: leisure, environmental quality and consumption of a private good. We assume that the production process of the private good depletes the natural resource and that the consumption of the private good alleviates the damages due to environmental deterioration. In such context, we show that individuals’ reactions to environmental deterioration may lead to complex dynamics, in particular to the rise of periodic orbits and chaos.
    Keywords: Defensive environmental expenditures; overlapping generations models; indeterminacy; undesirable economic growth
    JEL: Q26 D62 C02 Q56 O13 Q20
    Date: 2009–02
  4. By: Sharp, Annette
    Date: 2008
  5. By: Pagiola, Stefano; Zhang, Wei; Colom, Ale
    Abstract: Payments for environmental services (PES) are a promising mechanism for conservation. PES could either provide additional funding for protected areas, pay land users to conserve biodiversity outside protected areas, or both. For PES to work, it requires a secure long-term source of financing. Obtaining payments directly for biodiversity conservation is difficult, however. In most cases, water users are the most likely such source, either directly or indirectly. Thus the potential for PES to help conserve biodiversity depends, in a large measure, on the degree to which areas of interest for conservation of water services overlap with areas of interest for conservation of biodiversity. This paper examines the extent of such overlap in the case of highland Guatemala. The results show that this potential varies substantially within the country, with some biodiversity conservation priority areas having very good potential for receiving payments, and others little or none. Overall, about a quarter of all biodiversity conservation priority areas have potential for receiving payments. Thus PES is far from being a silver bullet for biodiversity conservation, but it can make a meaningful contribution to this objective.
    Keywords: payments for environmental services; pes; watershed; biodiversity
    JEL: Q25 Q57
    Date: 2009–01–28
  6. By: Denny Ellerman
    Abstract: The European Union's Emission Trading Scheme (EU ETS) is the world's first multinational cap-and-trade system for greenhouse gases. As an agreement between sovereign nations with diverse historical, institutional, and economic circumstances, it can be seen as a prototype for an eventual global climate regime. Interestingly, the problems that are often seen as dooming a global trading system - international financial flows and institutional readiness - haven't appeared in the EU ETS, at least not yet. The more serious problems that emerge from the brief experience of the EU ETS are those of (1) developing a central coordinating organization, (2) devising side benefits to encourage participation, and (3) dealing with the interrelated issues of harmonization, differentiation, and stringency. The pre-existing organizational structure and membership benefits of the European Union provided convenient and almost accidental solutions to the need for a central institution and side benefits, but these solutions will not work on a global scale and there are no obvious substitutes. Furthermore, the EU ETS is only beginning to test the practicality of harmonizing allocations within the trading system, differentiating responsibilities among participants, and increasing the stringency of emissions caps. The trial period of the EU ETS punted on these problems, as was appropriate for a trial period, but they are now being addressed seriously. From a global perspective, the answers that are being worked out in Europe will say a great deal about what will be feasible on a broader, global scale.
    Keywords: European Union, emissions trading, climate change policy, global climate architecture, cap-and-trade
    Date: 2009–02–02
  7. By: Pagiola, Stefano; Bosquet, Benoit
    Abstract: Individual countries considering participating in a Reduced Emissions from Deforestation and Forest Degradation (REDD) mechanism need information on what it would cost them to reduce emissions from deforestation and forest degradation, and how to actually deliver those emissions reductions. Estimates of global average costs provide very little guidance in this regard. This paper aims to do two things. First, it tries to clarify some very important conceptual issues. What exactly are we asking when we ask what the 'cost' of REDD is? What kinds of costs should be included? Second, it tries to highlight some of the issues involved in properly estimating the costs of REDD. Such estimates would help them to assess issues such as (i) how many emission reductions they might potentially be able to 'sell' to a REDD mechanism at given prices; (ii) how much the country would benefit from such sales; (iii) how they might be able to actually reduce deforestation so as to generate these emissions reductions; (iv) how the costs and benefits of REDD would be distributed among different groups within the country; (v) what the budgetary implications would be for government agencies.
    Keywords: Reduced Emissions from Deforestation and Forest Degradation; redd; deforestation; climate change
    JEL: Q23 Q57
    Date: 2009–02–24
  8. By: Kousky, Carolyn (Resources for the Future); Cooke, Roger M. (Resources for the Future)
    Abstract: Adapting to climate change will not only require responding to the physical effects of global warming, but will also require adapting the way we conceptualize, measure, and manage risks. Climate change is creating new risks, altering the risks we already face, and also, importantly, impacting the interdependencies between these risks. In this paper we focus on three particular phenomena of climate related risks that will require a change in our thinking about risk management: global micro-correlations, fat tails, and tail dependence. Consideration of these phenomena will be particularly important for natural disaster insurance, as they call into question traditional methods of securitization and diversification.
    Keywords: tail dependence, micro-correlations, fat tails, damage distributions, climate change
    JEL: Q54 G22 C02
    Date: 2009–02–04
  9. By: Douglas, Niall Edward
    Abstract: A thorough review is made of Climate Change Science, going into much greater detail than is typical of papers in Economics and specifically emphasising the hard thermodynamic limits of biological and physical processes. This theme is then continued in a historical review of theory relevant to Climate Change taken from Economics, Physics, Biology and Mathematics, clarified by extensive real-life historical time series plus calculations of fundamental thermodynamic limits – which results in a series of pointed, uncomfortable truths that our culture & society prefers to overlook. Two types of “costs of climate change” models are then placed under the microscope: (i) The Stern Report (2007) and (ii) The Limits to Growth (2004) – both chosen as the two most widely known by the greater public. Both models are evaluated according to the scientific realities outlined in the previous two chapters, including going into some detail of the specifics of the models themselves through analysis of their source code implementations. Finally, the author’s subjective opinion is given as to the quality of the models given the results of the prior chapter. I conclude that the models are primitive, but not much better than the state-of-the-art currently employed by the Intergovernmental Panel on Climate Change. The hard reality is that we do not sufficiently understand the nature nor causes of climate change, only that it is happening – and thus building a realistic model is currently outside our capability. This is changing very quickly however – the paper has tried, where possible, to include the very latest research on climate change and to show by just how much the ground is currently moving.
    Keywords: environmental economics; ecological economics; climate change; stern report; limits to growth; IPCC; thermoeconomics; modelling;
    JEL: Q5 Q51
    Date: 2008–05
  10. By: Rios, Ana R.; Pagiola, Stefano
    Abstract: We evaluate the extent to which poor households are able to participate in Payments for Environmental Services (PES) scheme using data from a PES scheme implemented at two sites in Latin America. This allows us to compare environmental and livelihood impacts of PES across regions with different agronomic and socio-economic characteristics. In particular, one of our sites is composed almost entirely of poor or extremely poor households, while the other has households ranging from extremely poor to very well off. The results show that poorer households are in fact able to participate—indeed, by some measures they participated to a greater extent than better-off households. Moreover, their participation was not limited to the simpler, least expensive options. Extremely poor households had a somewhat greater difficulty in participating, but even in their case the difference is solely a relative one. Transaction costs may be greater obstacles to the participation of poorer households than household-specific constraints.
    Keywords: Payments for environmental services; PES; poverty; silvopastoral
    JEL: I39 Q57
    Date: 2009–02–12
  11. By: Füssel, Hans-Martin
    Abstract: This paper applies G-Econ+, an updated version of the G-Econ database by Nordhaus, to analyze the influence of climatic and geographic factors on the geographic distribution of population and economic activity. I discuss options for improved treatment of several statistical problems associated with G-Econ, which are not addressed adequately in the original G-Econ analysis. Reanalysis of key results from the original G-Econ analysis corrects some surprising results therein. Extensive sensitivity analysis determines the robustness of the relationship between climatic factors and economic activity across alternative central estimators. Further analysis assesses revealed climatic preferences of population, the effects of climate parameters on different quantiles of economic variables, and synergies between temperature and precipitation. I find that population density has a much stronger influence on output density than output per capita. Furthermore, least developed countries are located in a climatic zone where all indicators of economic activity decline with increasing temperature.
    Keywords: Climate; macroeconomics; population; cross-sectional analysis; G-Econ
    JEL: C82 Q54 C21
    Date: 2009–03–04
  12. By: Simone Valente (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: We study a two-phase endogenous growth model in which the adoption of a backstop technology (e.g. solar) yields a sustained supply of essential energy inputs previously obtained from exhaustible resources (e.g. oil). Growth is knowledge-driven and the optimal timing of technology switching is determined by welfare maximization. The optimal path exhibits discrete jumps in endogenous variables: technology switching implies sudden reductions in consumption and output, an increase in the growth rate, and instantaneous adjustments in saving rates. Due to the positive growth e¤ect, it is optimal to implement the new technology when its current consumption bene.ts are substantially lower than those generated by old technologies.
    Keywords: Backstop technology, Discrete jumps, Endogenous growth, Exhaustible resources, Optimal Control
    JEL: O33 Q32 Q43
    Date: 2009–02
  13. By: Wang, Chegnuang; Larson, James A.; English, Burton C.; Jensen, Kim
    Abstract: Switchgrass for bioenergy production will require substantial storage. This study evaluated costs of alternative baling and on-farm storage systems. Rectangular bales minimize cost if switchgrass is processed immediately after harvest. However, round bales minimize cost if switchgrass is stored under cover for 200 days before transporting to the biorefinery
    Keywords: switchgrass, baling, storage, transport, costs, farm, biorefinery, Agricultural Finance, Farm Management, Production Economics, Resource /Energy Economics and Policy,
    Date: 2009
    Abstract: Even with the rapid changes in the level of complexity and the uncertainty of the environment in which Belgian sea fisheries operate, fisheries management in Belgium is still mainly based on restrictive policy instruments founded in the biological approach of fisheries management science. Since they will continue to play an important role, this paper evaluated changes in three restrictive policy instruments and their effect on future fleet performance and dynamics, i.e. maximum fishing days, total quota-restrictions and licences.<br><br>These effects are tested through scenarios in a microeconomic simulation model, including sensitivity analysis. This study opts for a dynamic simulation model based on a microeconomic approach of fleet dynamics using system dynamics as a modelling technique (operational base: Vensim®DSS).<br><br>The results indicated that changes in maximum fishing days and total quota resulted in higher fluctuations in fleet performance and dynamics compared to changes in licences. Furthermore, changes in maximum fishing days and total quota had a direct impact on fleet performance, though not always as expected, whereas licences only affected fleet performance indirectly since they only limit the entry of new vessels to the fleet and they can block the growth of successful sub fleets.<br><br>The outcomes of this study are translated into practical recommendations for improving fisheries management. Firstly, policy makers need to be more aware of misperceptions of feedback. Secondly, the results proved that altering only one type of restrictive policy instrument at a time often fails to meet desired outcomes. Therefore, policy makers need to find a balance in combining policy instruments. Finally, this paper opens the discussion on the future value of restrictive policy instruments in the rapidly changing, complex and uncertain fisheries environment. It suggests rethinking their use from “preserving a status quo and social peace” toward a driving factor in “stimulating fleet dynamics.”
    Keywords: Fisheries management, restrictive policy instruments, sensitivity simulation, system dynamics, fleet performance, fleet dynamics.
    Date: 2008–11

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