|
on Environmental Economics |
| By: | Beat Hintermann (Center for Energy Policy and Economics CEPE, Department of Managment, Technology and Economics, ETH Zurich, Switzerland) |
| Abstract: | In the first phase of the EU Emissions Trading Scheme (EU ETS), the price per ton of CO2 rose to over €30 before decreasing to zero by mid 2007. I examine to what extent this variation can be explained by marginal abatement costs by deriving a structural model of the allowance price under the assumption of efficient markets. I then gradually relax the model by allowing for delayed adjustment of price to fundamentals, as well as by introducing lagged LHS variables. The pattern of the results suggests that prices were not initially driven by marginal abatement costs, but that this inefficiency was largely corrected by the first round of emission verifications. |
| Keywords: | Emissions permit markets, air pollution, climate change, bubble, speculation, CO2, asset pricing, EU ETS |
| JEL: | D84 G12 G14 Q52 Q53 Q54 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:cee:wpcepe:09-63&r=env |
| By: | Beat Hintermann (Center for Energy Policy and Economics CEPE, Department of Managment, Technology and Economics, ETH Zurich, Switzerland) |
| Abstract: | If firms are unable to fully control their emissions, the cap in a permit market may be exceeded. Using stochastic aggregate emissions as the underlying I derive an options pricing formula that expresses the permit price as a function of the penalty for noncompliance and the probability of a binding cap. I apply my model to the EU ETS, where rapid market setup made it difficult for firms to adjust their production technology in time for phase 1. The model fits the data well, implying that the permit price was driven by firms hedging against stochastic emissions rather than marginal abatement costs. |
| Keywords: | Permit markets, air pollution, climate change, CO2, options pricing, EU ETS |
| JEL: | G12 G14 G18 Q52 Q53 Q54 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:cee:wpcepe:09-64&r=env |
| By: | Marin, Giovanni; Mazzanti, Massimiliano |
| Abstract: | This paper provides new empirical evidence on Environmental Kuznets Curves (EKC) for CO2 and air pollutants at sector level. A panel dataset based on the Italian NAMEA (National Accounting Matrix including Environmental Accounts) over 1990-2006 is analysed, focusing on both emissions efficiency (EKC model) and total emissions (IPAT model). Results show that, looking at sector evidence, both decoupling and also eventually re-coupling trends could emerge along the path of economic development. The overall performance on here CO2, is not compliant with Kyoto targets. SOx and NOx show decreasing patterns, though the shape is affected by some outlier sectors with regard to joint emission-productivity dynamics. Services tend to present stronger delinking patterns across emissions than manufacturing. Trade expansion validates the pollution haven in some cases, but also show negative signs when only EU15 trade is considered: this may due to technology spillovers and a positive ‘race to the top’ rather than the bottom among EU15 trade partners. General R&D expenditure show weak correlation with emissions efficiency. EKC and IPAT derived models provide similar conclusions overall. Finally, we used SUR estimators (Seemingly Unrelated Regressions) for EKC models on manufacturing to have more efficient panel estimates (constrained model) and to test for slope heterogeneity (unconstrained model): the empirical evidence for CO2 and SOx emissions suggests that of manufacturing the slope varies across sectors. Further research should be directed towards deeper investigation of trade relationship at sector level and increased research into and efforts to produce specific sectoral data on ‘environmental innovations’. |
| Keywords: | NAMEA; trade openness; labour productivity; STIRPAT; SURE |
| JEL: | Q55 C23 Q56 O40 |
| Date: | 2009–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17903&r=env |
| By: | Finn Roar Aune, Gang Liu, Knut Einar Rosendahl and Eirik Lund Sagen (Statistics Norway) |
| Abstract: | This paper examines how ambitious climate policies and subsidies to carbon capture may affect international energy prices and market shares in the power market. A detailed numerical model of the international energy markets is used. We first conclude that an ambitious climate policy alone will have substantial effects in the power market, with considerable growth in renewable power production and eventually use of carbon capture. Gas power production will also benefit from such a policy. Subsidising carbon capture and storage (CCS) will significantly accelerate the use of this technology. Nevertheless, total production of coal and gas power (with or without CCS) is only marginally increased, as the subsidy mainly leads to installation of CCS equipment on existing plants, reducing the efficiency from these plants. Consequently, electricity prices are almost unchanged, and the substantial growth in renewable power production is hardly affected by the subsidies to CCS. |
| Keywords: | Energy markets; Climate policy; Carbon capture |
| JEL: | H23 Q40 Q54 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:595&r=env |
| By: | de Vries, Frans; Montagnoli, Alberto |
| Abstract: | This note tests for the efficient market hypothesis (EMH) in the market for CO2 emission allowances in Phase I and Phase II of the European Union Emissions Trading Scheme (EU ETS). As usually is the case in emerging and non-competitive markets such as the EU ETS, trading often not occurs on a frequent basis. This has adverse implications for both the gains from permit trade as well as biases the EMH tests. Variance ratio tests are employed to adjust for the thin trading effect. The results indicate that Phase I - the trial and learning period - was inefficient, whereas the first period under Phase II shows signs of restoring market effic iency. |
| Keywords: | variance ratio tests; thin trading; efficient market hypothesis; carbon trading; pollution markets |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:stl:stledp:2009-22&r=env |
| By: | Beat Hintermann (Center for Energy Policy and Economics CEPE, Department of Managment, Technology and Economics, ETH Zurich, Switzerland) |
| Abstract: | Although market power in permit markets has been examined in some detail following the seminal work of Hahn (1984), the effect of free allocation on price manipulation with market power in both output and permit market has not specifically been addressed. I show that in this case, the threshold for free allocation above which dominant firms will increase the permit price is below their emissions. In addition to being of general economic interest, this issue is relevant in the context of the EUETS. I find that European power generators received free allowances in excess of the derived threshold. |
| Keywords: | Market power, emissions permit markets, air pollution, EU ETS, CO2, electricity generation, permit allocation, windfall profits, cost pass-through |
| JEL: | H23 L11 L12 L13 L94 L98 Q48 Q52 Q53 Q54 Q58 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:cee:wpcepe:09-62&r=env |
| By: | Pedro, de Mendonça |
| Abstract: | Based on recent proposals on non cooperative dynamic games for analysing climate negotiation outcomes, such as Dutta and Radner (2004, 2006a), we generalize a specific framework for modelling differential games of this type and describe the set of conditions for the existence of closed loop dynamics and its relation to adaptive evolutionary dynamics. We then show that the Dutta and Radner (2004, 2006a) discrete time dynamic setup is a specific case of that generalization and describe the dynamics both analytically and numerically for closed loop feedback and perfect state patterns. Our discussion is completed with the introduction of a cooperative differential framework for welfare analysis purposes, within our non cooperative proposal for climate negotiations. |
| Keywords: | Differential Game Theory; Environmental Economics; Evolutionary Dynamics; Climate Change Treaties |
| JEL: | Q56 C61 C73 C72 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17889&r=env |
| By: | Carlos Ordás Criado (Center for Energy Policy and Economics CEPE, Department of Managment, Technology and Economics, ETH Zurich, Switzerland); Simone Valente (Center of Economic Research CER, Department of Managment, Technology and Economics, ETH Zurich, Switzerland); Thanasis Stengos (Department of Economics, University of Guelph, Guelph, ON, Canada) |
| Abstract: | The pollution-convergence hypothesis is formalized in a neoclassical growth model with optimal emissions reduction: pollution growth rates are positively correlated with output growth (scale effect) but negatively correlated with emission levels (defensive effect). This dynamic law is empirically tested for two major and regulated air pollutants - nitrogen oxides (NOX) and sulfur oxides (SOX) - with a panel of 25 European countries spanning over years 1980-2005. Traditional parametric models are rejected by the data. However, more flexible regression techniques - semiparametric additive specifications and fully nonparametric regressions with discrete and continuous factors - confirm the existence of the predicted positive and defensive effects. By analyzing the spatial distributions of per capita emissions, we also show that cross-country pollution gaps have decreased over the period for both pollutants and within the Eastern as well as the Western European areas. A Markov modeling approach predicts further cross-country absolute convergence, in particular for SOX. The latter results hold in the presence of spatial non-convergence in per capita income levels within both regions. |
| Keywords: | Air pollution, convergence, economic growth, mixed nonparametric regressions, distribution dynamics |
| JEL: | C14 C23 Q53 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:cee:wpcepe:09-66&r=env |
| By: | Ana Espinola-Arredondo; Felix Munoz-Garcia (School of Economic Sciences, Washington State University) |
| Abstract: | This paper examines countries’ free-riding incentives in international environmental agreements (IEAs) when, first, the treaty is non-enforceable, and second, countries do not have complete information about other countries’ noncompliance cost. We analyze a signaling model whereby the country leading the negotiations of the international agreement can reveal its own noncompliance costs through the commitment level it signs in the IEA. Our results show that countries’ probability to join the IEA is increasing in the free-riding benefits they can obtain from other countries’ compliance, and decreasing in their own noncompliance costs. This paper shows that, when free-riding incentives are strong enough, there is no equilibrium in which all types of countries join the IEA. Despite not joining the IEA, countries invest in clean technologies. Finally, we relate our results with some common observations in international negotiations. |
| Keywords: | Signaling games, environmental agreements, nonbinding negotiations, noncom- pliance cost. |
| JEL: | C72 D62 Q28 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:espinola-5&r=env |
| By: | Dannenberg, Astrid; Mennel, Tim; Osberghaus, Daniel; Sturm, Bodo |
| Abstract: | Given the ubiquitous scarcity of resources an economic approach is necessary in order to determine an optimal strategy of adaptation to climate change. In this paper we develop an economic framework for the study of adaptation which allows us to distinguish between decentralized adaptation by private agents on the one hand and centralized adaptation measures by public authorities on the other. The approach is based on the paradigm of market failure and is complemented by two further grounds of government action, equity concerns and security of supply. We identify open research questions in the nascent field of adaptation to climate change requiring further empirical investigation. The economic framework is applied to adaptation in Germany by analyzing impacts and adaptation options for climate-sensitive fields such as agriculture, energy, water, and public health. |
| Keywords: | Climate change,adaptation,market failure,insurance |
| JEL: | Q54 Q58 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:09057&r=env |
| By: | Alain Ayong Le Kama; Mouez Fodha; LAFFORGUE Gilles |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:ler:wpaper:09.24.300&r=env |
| By: | Leon Vinokur (Queen Mary, University of London) |
| Abstract: | This paper investigates the impact of banking and submission constraints, set by the EU Emission Trading Scheme, on the efficiency of the carbon permits spot market using intra-daily data. My aim is to identify whether there is a Disposition effect in the spot market. I will examine a data set that includes spot prices for the First and Second Phases of the Scheme from 24 June 2005 to 07 August 2009. I find that the Disposition effect is significantly high at the beginning of each Phase and decreases close to the first compliance event. In the light of these results I propose a lifting of the ban on banking between Phases and an increased emissions information disclosure in order to increase the efficiency of the Scheme. |
| Keywords: | Carbon market, Psychological biases, Institutional constraints |
| JEL: | G11 G18 D84 Q48 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp652&r=env |
| By: | David Popp; Richard G. Newell |
| Abstract: | Recent efforts to endogenize technological change in climate policy models demonstrate the importance of accounting for the opportunity cost of climate R&D investments. Because the social returns to R&D investments are typically higher than the social returns to other types of investment, any new climate mitigation R&D that comes at the expense of other R&D investment may dampen the overall gains from induced technological change. Unfortunately, there has been little empirical work to guide modelers as to the potential magnitude of such crowding out effects. This paper considers both the private and social opportunity costs of climate R&D. Addressing private costs, we ask whether an increase in climate R&D represents new R&D spending, or whether some (or all) of the additional climate R&D comes at the expense of other R&D. Addressing social costs, we use patent citations to compare the social value of alternative energy research to other types of R&D that may be crowded out. Beginning at the industry level, we find some evidence of crowding out in sectors active in energy R&D, but not in sectors that do not perform energy R&D. This suggests that funds for energy R&D do not come from other sectors, but may come from a redistribution of research funds in sectors that are likely to perform energy R&D. Given this, we proceed with a detailed look at climate R&D in two sectors – alternative energy and automotive manufacturing. Linking patent data and financial data by firm, we ask whether an increase in alternative energy patents leads to a decrease in other types of patenting activity. We find crowding out for alternative energy firms, but no evidence of crowding out for automotive firms. Finally, we use patent citation data to compare the social value of alternative energy patents to other patents by these firms. Alternative energy patents are cited more frequently, and by a wider range of other technologies, than other patents by these firms, suggesting that their social value is higher. |
| JEL: | O33 Q4 Q42 Q55 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15423&r=env |
| By: | Rennings, Klaus; Rammer, Christian |
| Abstract: | Energy and resource efficiency innovations (EREIs) are often seen as win-win opportunities for both the economic and the environmental performance of firms. It is thus worth asking how the innovation activities and performance of firms with regard to energy and resource efficiency look like: Do EREI firms follow distinct innovation strategies? Do EREIs spur or limit innovation success? And what are the particular features of EREI firms compared to conventional innovators? Using German innovation data, we find that EREIs are determined by a larger set of technology-push and market-pull factors. On the supply side, R&D budgets, research infrastructure and networking with other firms are important factors of influence, while on the demand side increased productivity and cost reductions are decisive, as well as improved product quality. On the other hand, EREIs are complex activities which also need regulatory incentives. Although EREIs are not more successful compared to conventional innovations, they contribute substantially to the economic success of firms. |
| Keywords: | Resource efficiency,energy efficiency,environmental innovations,innovation surveys |
| JEL: | Q01 Q55 O31 O33 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:09056&r=env |
| By: | Parry, Ian W.H.; Timilsina, Govinda R. |
| Abstract: | The Mexico City Metropolitan Area has been suffering severely from transportation externalities such as accidents, air pollution, and traffic congestion. This study examines pricing instruments to reduce these externalities using an analytical and numerical model. The study shows that the optimal levels of a gasoline tax and a congestion toll on automobiles could generate social benefits, measured in terms of welfare gain, of US$132 and US$109 per capita, respectively, through the reduction of externalities. The largest component of the welfare gains comes from reduced congestion, followed by local air pollution reduction. The optimal toll and tax would, however, double the cost of driving and could be politically sensitive. Still, more than half of those welfare gains could be obtained through a more modest tax or toll, equivalent to $1 per gallon of gasoline. The welfare gains from reforming the pricing of public transportation are small relative to those from reforming the taxation of automobiles. Although the choice among travel modes depends on specific circumstances, in the absence of road travel pricing that accounts for externalities, there will be potential for higher investment in roads relative to mass transit. Given the rapidly increasing demand for transportation infrastructure in Mexico City, careful efforts should be made to include the full social costs of travel in evaluating alternative infrastructure investments. |
| Keywords: | Transport Economics Policy&Planning,Roads&Highways,Energy Production and Transportation,Transport and Environment,Transport in Urban Areas |
| Date: | 2009–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5071&r=env |