nep-env New Economics Papers
on Environmental Economics
Issue of 2011‒06‒04
twenty-two papers chosen by
Francisco S.Ramos
Federal University of Pernambuco

  1. Producer Preference for Land-Based Biological Carbon Sequestration in Agriculture: An Economic Inquiry By Jiang, Yong; Koo, Won
  2. Dynamic CGE-model with heterogeneous forest biomass: Applications to climate policy By Furtenback, Örjan
  3. Climate Change and Agriculture In South Asia: Looking for An Optimal Trade Policy By Laborde, David
  4. Public Economic Benefits of Reducing Salinity Discharges: Evidence from Californiaâs San Joaquin Valley By Kling, David; Larson, Douglas
  5. The Local Dimension of Energy By Kelly, S.; Pollitt, M.
  6. Incorporating Climate Uncertainty into Estimates of Climate Change Impacts, with Applications to U.S. and African Agriculture By Marshall Burke; John Dykema; David Lobell; Edward Miguel; Shanker Satyanath
  7. The development of the brazilian amazon region and greenhouse gases emission: a dilemma to be faced! By Imori, Denise; Guilhoto, Joaquim José Martins; David, Leticia Scretas; Gutierre, Leopoldo Millan; Waisman, Caio
  8. The Psychological Underpinnings of the Consumer Role in Energy Demand and Carbon Abatement By McNamara, S.; Grubb, M.
  9. Modelling Correlation in Carbon and Energy Markets By Koenig, P.
  10. Transient temperature response modeling in IAMs: the effects of over simplification on the SCC By Marten, Alex L.
  11. Using Frontier Models to Mitigate Omitted Variable Bias in Hedonic Pricing Models: A Case Study for Air Quality in Bogotá, Colombia By Fernando Carriazo; Richard Ready; James Shortle
  12. Impact of Tax Cuts on the Purchasing Behavior of Low-Pollution Vehicles, Fuel-Efficient Vehicles (Japanese) By FUJIWARA Toru
  13. Distributional Impacts of Carbon Pricing: A General Equilibrium Approach with Micro-Data for Households By Sebastian Rausch; Gilbert E. Metcalf; John M. Reilly
  14. Energy Spending and Vulnerable Households By Jamasb, T.; Meier, H.
  15. The Economics of Energy (and Electricity) Demand By Platchkov, L. M.; Pollitt, M. G.
  16. Energy Efficiency in the Service Industry: An empirical analysis using establishment data (Japanese) By MORIKAWA Masayuki
  17. Economic feasibility of converting cow manure to electricity: A case study of the CVPS Cow Power program in Vermont By Wang, Qingbin; Thompson, Ethan; Parsons, Robert
  18. Electricity Distribution Networks: Investment and Regulation, and Uncertain Demand By Jamasb, T.; Marantes, C.
  19. On the Dual Nature of Weak Property Rights By Louis Hotte; Randy McFerrin; Douglas Wills
  20. The Role of Proactive Adaptation in International Climate Change Mitigation Agreements By de Bruin, Kelly Chloe; Weikard, Hans-Peter; Dellink, Rob
  21. Identifying the Effect of Weather Variation on Crop Yield in the Northern Plains By Jiang, Yong; Koo, Won
  22. Intermittency and the Value of Renewable Energy By Gautam Gowrisankaran; Stanley S. Reynolds; Mario Samano

  1. By: Jiang, Yong; Koo, Won
    Abstract: This study was intended to develop an understanding of producer preference for land-based carbon sequestration in agriculture. We conducted a mail survey to elicit producer choice to provide marketable carbon offsets by participating in different carbon credit programs characterized by varying practices. Based on a quantitative analysis, we found that: 1) the market price for carbon offsets could increase producer participation in carbon sequestration; 2) producers perceived differentially different but correlated private costs for adopting carbon sequestering practices, depending on production attributes; and 3) relatively high carbon prices would be needed to stimulate producer provision of carbon offsets by land-based carbon sequestration activities. A simulation of producer choice with agricultural census data estimated potential carbon offsets supply in the Northern Great Plains region. This study contributes to the economic understanding of agricultural potential for greenhouse gas mitigation.
    Keywords: greenhouse gas, carbon sequestration, producer stated preferences, agriculture, economics, carbon offsets, carbon markets, Agricultural and Food Policy, Environmental Economics and Policy, Farm Management, Land Economics/Use, Production Economics, Resource /Energy Economics and Policy, Q54, Q52, Q58,
    Date: 2011
  2. By: Furtenback, Örjan (CERE, Centre for Environmental and Resource Economics)
    Abstract: This study introduces a framework for modeling a renewable forest biomass stock interacting with economic sectors in a competitive economy. The equilibrium is formulated as a mixed complementary problem (which explicitly represents weak inequalities and complementary among decision variables and equilibrium conditions). The complementarity format permits detailed modeling of the growth and harvest of a biomass stock together with a second-best characterization of the overall economy. First the complementarity features of economic equilibrium and its integration with an ecological representation of the biomass are provided. Then a stylized numerical example of a dynamic computable general equilibrium model is presented. Finally, illustrative applications of the model for gauging the likely effects of environmental subsidies and taxes intended to promote increases CO2 storage in forest biomass are given, the results are discussed.
    Keywords: Dynamic CGE; Ecosystem modeling; Inter-temporal optimization; Infinite-horizon equilibrium
    JEL: C68 D58 Q26
    Date: 2011–05–27
  3. By: Laborde, David
    Abstract: This paper aims to study how alternative trade policies will help mitigate the effects of climate change in agriculture in South Asia. We use a modified version of MIRAGE CGE for long term projections and allowing modeling of climate change effects (impact on yield) at a subregional level (163 geographical units at the world level) to simulate the effects of 13 SRES scenarios in 8 different trade policy landscapes. Based on these results, we discuss the ranking of trade policy options based on expected values but also in terms of variance using the theory of decision in uncertainty. Choices between unilateral and regional strategies for the countries of the sub regions are compared. Our results confirm that South Asia will be one of the most adversely affected regions in terms of the impacts of climate change on agricultural yield. Both the overall level of economic activity and trade flows will react to this change (-0.5 percent of real income for the region in average, up to -4 percent for Pakistan). Beyond national real income, we also look at the distributional effects of climate change. Unskilled worker real wages, proxy for poor people income, are largely and generally negatively impacted by climate change. We show that trade policies weakly affect the overall economic impact of climate change but leads to more significant changes for the poor.
    Keywords: Climate Change, Trade Policy, Computable General Equilibrium, Environmental Economics and Policy, International Relations/Trade, Q54, C68, N5, N75, O24, F13, Q11, Q17,
    Date: 2011
  4. By: Kling, David; Larson, Douglas
    Keywords: Environmental Economics and Policy,
    Date: 2011–05–16
  5. By: Kelly, S.; Pollitt, M.
    Abstract: In this paper, we postulate that some of the best opportunities for reducing energy demand and carbon emissions are through stronger involvement and leadership from local government. We show that local government can and do have a significant impact on both energy production and energy consumption and are important participants for the implementation of distributed generation (DG). the progress being made by successful local governments can be narrowed to three key factors. First, they have all recognised the co-benefits of a local energy strategy: a reduction in fuel poverty, increased employment, improved quality of life and mitigation of uncertain fuel supplies and prices. Secondly, successful councils have strong political leadership and employee support to implement the structural change to bring about change. Thirdly, leading councils have gained momentum by working in partnership with utilities, private companies, NGO’s, DNO’s and government departments to raise finance and garner support. While climate change remains a global issue, some of the best strategies for mitigation are implemented at the local level.
    Date: 2011–01–31
  6. By: Marshall Burke; John Dykema; David Lobell; Edward Miguel; Shanker Satyanath
    Abstract: A growing body of economics research projects the effects of global climate change on economic outcomes. Climate scientists often criticize these articles because nearly all ignore the well-established uncertainty in future temperature and rainfall changes, and therefore appear likely to have downward biased standard errors and potentially misleading point estimates. This paper incorporates climate uncertainty into estimates of climate change impacts on U.S. agriculture. Accounting for climate uncertainty leads to a much wider range of projected impacts on agricultural profits, with the 95% confidence interval featuring drops of between 17% to 88%. An application to African agriculture yields similar results.
    JEL: O13 Q11 Q54
    Date: 2011–05
  7. By: Imori, Denise; Guilhoto, Joaquim José Martins; David, Leticia Scretas; Gutierre, Leopoldo Millan; Waisman, Caio
    Abstract: The purpose of this work is to verify the existence of possible tradeoffs between policies direct to reduce the emissions of greenhouse gases (GHGs) with the ones direct to foster the development of the Brazilian Amazon Region, which is one of the poorest in the country. In order to achieve this goal, this paper uses an interregional input-output (I-O) model, estimated for the Brazilian economy for the year of 2004. The I-O model is used to make a comparison between the economical and the environmental relevance of each sector in the economies of the Amazon region and the rest of Brazil. This study considers the greenhouse gases emissions not only from the economic activities by itself, but, also for the more important factor of the land-use changes. This is a fact of most importance, given that in 2005, about 60% of the Brazilian GHGs emissions were due to the land-use change in its different biomes. Moreover, in the Brazilian Amazon region, especially in the last decades, the deforestation was linked mainly to economic factors than to policies conducted by the government. The results show that the sectors with the greatest importance in terms of emissions are cattle and soybean production. Also, they are also the most prominent for the region's economic development. This poses a dilemma that needs to be faced not only by Brazil, but also by the developed nations, as the burden of the reduction in the greenhouse gases emission in the Brazilian Amazon region cannot be only put on the poor population of the region!
    Keywords: Amazon Region; Greenhouse Gases; Brazil; Input-Output; Economic Development; Productive Structure; Deforestation
    JEL: O1 R1 D57 Q5
    Date: 2011
  8. By: McNamara, S.; Grubb, M.
    Abstract: While policy targeting carbon mitigation has become a priority, the consumer has been sidelined. Within the EU standards and a carbon is price at the industrial level dominate mitigation efforts. There is little room for consumer preferences. Labels on some products do draw a demand for efficient goods, though the messages relayed vary, and the role of embedded emissions often ignored. Once purchased, the energy requirements of various goods and their energy settings are poorly understood by many. In this paper we suggest with appropriately structured policy, providing information and a nudge, that consumers have a willingness and potential to significantly reduce carbon emissions.
    Date: 2011–02–24
  9. By: Koenig, P.
    Abstract: The paper examines correlations between daily returns of month-ahead baseload electricity, fuel input and carbon emission allowance (EU-ETS) prices for Great Britain. The perspective of a CCGT plant operator is assumed, producing baseload electricity with natural gas and emission allowances and selling output forward in the month-ahead market. Price correlation between power, natural gas and emission allowances as well as their dynamic behaviour is essential for the extent to which cashflows from CCGT plants are self-hedged. Switching between input fuels with different carbon intensities is taken as the fundamental driver of this correlation. Relative marginal power generation costs are used to construct carbon price regimes during which no switching takes place. The regimes are then used as explanatory variables in a dynamic conditional correlation model. Using daily observations of month-ahead prices from April 2005 to August 2010, the results suggest that extreme weather, high commodity market volatility and seasons have no effect on correlation. However, there is evidence of significant price decoupling during periods of extreme relative carbon, coal and natural gas prices.
    JEL: Q41 G10
    Date: 2011–02–10
  10. By: Marten, Alex L.
    Abstract: Integrated Assessment Models (IAMs) couple representations of the natural climate system with models of the global economy to capture interactions that are important for the evaluation of potential climate and energy policies. The U.S. federal government currently uses such models to derive the benefits of carbon mitigation policies through estimates of the social cost of carbon (SCC). To remain tractable these models often utilize highly simplified representations of complex natural, social, and economic systems. This makes IAMs susceptible to oversimplification by failing to capture key features of the underlying system that are important for policy analysis. In this paper we focus on one area in which these models appear to have fallen into such a trap. We consider three prominent IAMs, DICE, FUND, and PAGE, and examine the way in which these models represent the transient temperature response to increases in radiative forcing. We compare the highly simplified temperature response models in these IAMs to two upwelling diffusion energy balance models that better reflect the progressive uptake of heat by the deep ocean. We find that all three IAMs are unable to fully capture important characteristics in the temporal dynamics of temperature response, especially in the case of high equilibrium climate sensitivity. This has serious implications given that these models are often run with distributions for the equilibrium climate sensitivity that contain a positive probability for such states of the world. We find that all else equal the temperature response function utilized in the FUND model results in estimates of the expected SCC that are up to 25% lower than those derived with the more realistic climate models, while the functions used in DICE and PAGE lead to expected SCC estimates up to 40% and 50% higher, respectively. --
    Keywords: social cost of carbon,integrated assessment,transient temperature response
    JEL: Q54 Q58
    Date: 2011
  11. By: Fernando Carriazo; Richard Ready; James Shortle
    Abstract: Hedonic pricing models use property value differentials to value changes in environmental quality. If unmeasured quality attributes of residential properties are correlated with an environmental quality measure of interest, conventional methods for estimating implicit prices will be biased. Because many unmeasured quality measures tend to be asymmetrically distributed across properties, it may be possible to mitigate this bias by estimating a heteroskedastic frontier regression model. This approach is demonstrated for a hedonic price function that values air quality in Bogotá, Colombia.
    Date: 2011–03–20
  12. By: FUJIWARA Toru
    Abstract: This paper focuses on anti-warming measures in the passenger vehicle sector and estimates the impacts of three policies in the green car taxation plan on consumer behavior with respect to car purchases. The three policies refer specifically to, first, preferential taxation for green vehicles; second, special treatment of the vehicle acquisition tax when acquiring fuel-efficient vehicles; and third, special treatment of the vehicle acquisition tax when acquiring low-pollution vehicles. Our estimates are based on fiscal 2004 data, following the introduction of these policies.<br /><br />According to our findings, as far as the effect of the change in pricing structure alone is concerned, the policies contributed slightly to the objective of promoting motor vehicles with less harmful impact on the environment. However, the tax cuts lower the purchase cost and thus create incentives for consumers who otherwise might not purchase these vehicles without such tax cuts. Accordingly, such policies could be contributing to carbon dioxide emissions. Even so, our study has also revealed that the impacts themselves are limited, given that the ratio of tax abatements to total vehicle cost is limited.<br /><br />As a hypothetical policy, our study simulates a package in which the tax cut rate for hybrid vehicles is expanded considerably and the reduction in vehicle acquisition tax on gasoline-powered vehicles is abolished, to reduce the price disparity between the two types of vehicles. This suggests that to ensure that tax cuts have an effect, it is necessary to, first, make a very substantial tax cut for hybrid vehicles and to, second, terminate tax cuts for gasoline powered vehicles, for the purposes of ensuring that the cuts do not motivate consumers who would otherwise not buy a car to purchase a vehicle and narrowing the price gap between gasoline powered and hybrid vehicles.
    Date: 2011–01
  13. By: Sebastian Rausch; Gilbert E. Metcalf; John M. Reilly
    Abstract: Many policies to limit greenhouse gas emissions have at their core efforts to put a price on carbon emissions. Carbon pricing impacts households both by raising the cost of carbon intensive products and by changing factor prices. A complete analysis requires taking both effects into account. The impact of carbon pricing is determined by heterogeneity in household spending patterns across income groups as well as heterogeneity in factor income patterns across income groups. It is also affected by precise formulation of the policy (how is the revenue from carbon pricing distributed) as well as the treatment of other government policies (e.g. the treatment of transfer payments). What is often neglected in analyses of policy is the heterogeneity of impacts across households even within income or regional groups. In this paper, we incorporate 15,588 households from the U.S. Consumer and Expenditure Survey data as individual agents in a comparative-static general equilibrium framework. These households are represented within the MIT USREP model, a detailed general equilibrium model of the U.S. economy. In particular, we categorize households by full household income (factor income as well as transfer income) and apply various measures of lifetime income to distinguish households that are temporarily low-income (e.g., retired households drawing down their financial assets) from permanently low-income households. We also provide detailed within-group distributional measures of burden impacts from various policy scenarios.
    JEL: H22 Q54 Q58
    Date: 2011–05
  14. By: Jamasb, T.; Meier, H.
    Abstract: A sustainable energy policy needs to balance between the reduction of carbon emissions and protection of vulnerable households and avoid a widening of the existing "energy gap" among the consumers. This study investigates energy spending for different consumer groups, in particular focussing on vulnerable households. Vulnerable households are more likely to be affected by fuel poverty and have difficulties in warming their homes adequately. In this context we explore energy spending among households on very low incomes, including pensioners, female single parent, and benefit recipients. We describe how energy spending of these households has changed over time using a household panel dataset covering a period of 17 years, starting in 1991. We discuss the reasons that these households have higher than average energy bills and the current policy context and approaches such as the implementation of smart metres are addressed.
    Keywords: Fuel poverty, energy equity, energy spending
    JEL: D1 Q41
    Date: 2011–01–26
  15. By: Platchkov, L. M.; Pollitt, M. G.
    Abstract: Economic drivers, technologies and demand side management are keys in understanding the long-term trends of both energy and more specifically electricity consumption. This paper discusses some of the important economics foundations of energy demand in general, and electricity in particular. First, we look at the macro-economic context of energy. This reveals how energy and electricity consumption are subject to the same drivers - income and price - over long periods. However, energy demand (and carbon emissions) falls and energy prices rises in one country may have little effect at the world level. Next, we examine the features of energy service expenditures. Despite similarities over time, specific sectors are distinct from one another in terms of consumption profiles, and new sources of electricity demand may substantially change total demand and the way it is consumed. This leads us to a closer look at the micro-economic context of energy demand, and the tension between technically possible energy savings one one side, and the economics and behavioural dimensions on the other side. We conclude by highlighting the various unknowns and uncertainties that characterise the future of energy demand.
    JEL: Q40 Q43 D19
    Date: 2011–04–13
  16. By: MORIKAWA Masayuki
    Abstract: To achieve both sustainable economic growth and a reduction of CO2 emissions has been an important policy agenda in recent years. Although efficiency in energy consumption in the manufacturing sector has been significantly improving, energy consumption in the service and household sectors continues to increase steadily. Currently, the service industry accounts for about 20% of final energy use in Japan. This paper, by using establishment-level micro-data from the <i>Energy Consumption Survey</i>, empirically analyzes the effect of urban density on energy intensity in the service sector. According to the analysis, the efficiency of energy consumption in service establishments is higher for densely populated cities. Quantitatively, after controlling for differences among industries, energy efficiency increases by about 12% when the density in municipality populations doubles. The result suggests that, under the trend towards the service economy, deregulation of excessive restrictions hindering urban agglomeration, investment in infrastructures in the city centers, and expansion of clean energy supply in the rural areas would contribute to environmentally friendly economic growth.
    Date: 2011–04
  17. By: Wang, Qingbin; Thompson, Ethan; Parsons, Robert
    Abstract: A case study of the Central Vermont Public Service Corporation (CVPS) Cow Power program examines the economic feasibility for dairy farms to convert cow manure into electricity via anaerobic methane digestion. The study confirms that it is technically feasible to convert cow manure to electricity on dairy farms but the economic returns highly depend on the base electricity price paid by CVPS, premium rate paid by CVPS customers, financial supports from government agencies and other organizations, and sales of the by-products of methane generation. Lessons learned from this program will be useful to other dairy farms and communities interested in converting cow manure into electricity.
    Keywords: anaerobic digestion, dairy farms, renewable energy, economic feasibility, Vermont., Agricultural Finance, Consumer/Household Economics, Demand and Price Analysis, Environmental Economics and Policy, Farm Management, Research and Development/Tech Change/Emerging Technologies,
    Date: 2011
  18. By: Jamasb, T.; Marantes, C.
    Abstract: Electricity distribution networks are capital intensive systems and timely investments are crucial for long-term reliability of their service. In coming years, in the UK, and elsewhere in Europe, many networks are in need of extensive investments in their aging assets. Also, aspects of energy policy concerning climate change, renewable energy, energy efficiency, demand side management (DSM), network energy loss reduction, quality of service standards, and security of supply require active, flexible, and smart networks that can be achieved through investments. This paper is a chapter in the forthcoming book "Jamasb T. and Pollitt, M. G. (2011) Eds., The Future of Electricity Demand: Customers, Citizens and Loads, Cambridge University Press: Cambridge" and describes a network investment assessment model developed as a tool to identify and assess the investment requirements of distribution networks. A broadening of the scope of network investments to include demand-related measures that can reduce the need for investments.
    JEL: L94
    Date: 2011–01–31
  19. By: Louis Hotte (Department of Economics, University of Ottawa, Ottawa, ON); Randy McFerrin (New Mexico State University, U.S.A.); Douglas Wills (University of Washington)
    Abstract: In the natural resource literature, convertional wisdom holds that weak property rights will cause a resource to be over-exploited. This is because weak property rights are typically perceived as a problem of input exclusion. In this paper, we first present evidence to the effect that weak property rights often take the form of contestable output- or output theft - and that this has an impact or resource use. We then propose a theoretical model of natural resource use under generally weak prperty rights - or weak state presence - when resource users face the dual problem of input exclusion output appropriation. We show that introducing the possibility that outputs can be contested acts as an output tax, with the added twist that resource users effectively determine the level of the tax. This tax has a depressive effect on input use. As a result, whether the resource is under-or over-exploited in equilibrium will depend on the relative severity of output appropriation and input exclusion problems when property rights are generally weak.
    Keywords: Natural Resources, Property Rights, Trespass, Theft, Over-Exploitation,Under-Exploitation
    JEL: K11 K42 Q2 N50 O13
    Date: 2011
  20. By: de Bruin, Kelly Chloe (CERE, Centre for Environmental and Resource Economics); Weikard, Hans-Peter (Environmental Economics and Natural Resources Group); Dellink, Rob (Environmental Economics and Natural Resources Group)
    Abstract: This paper investigates the role of proactive adaptation in international mitigation coalition formation. Adaptation is introduced into a three stage cartel game of coalition formation. We analytically derive the optimal level of mitigation and proactive adaptation for the singletons and coalition members. We introduce the AD-STACO model which is constructed based on the STACO model, which is an applied three-stage cartel formation model with 12 heterogenous regions. Simulating all possible coalitions (4084) and checking for internal and external stability, we investigate how different levels of proactive adaptation will affect the payoffs in Grand coalition and the incentives to freeride. We examine which stable coalitions are found with different levels of proactive adaptation and whether regions can gain from overadaptation in the best performing stable coalition. We find that though payoffs increase in the Grand coalition with lower adaptation, incentives to leave increase. Coalition members can increase their payoffs through overadaptation.
    Keywords: N/A
    JEL: Q54
    Date: 2011–05–27
  21. By: Jiang, Yong; Koo, Won
    Keywords: weather, production, crop yield, agriculture, economics, Crop Production/Industries, Land Economics/Use, Production Economics, Productivity Analysis, Resource /Energy Economics and Policy,
    Date: 2011
  22. By: Gautam Gowrisankaran; Stanley S. Reynolds; Mario Samano
    Abstract: This paper develops an empirical approach to estimate the equilibrium value of renewable electricity technologies, and applies it to evaluate solar energy mandates in southeastern Arizona. Solar generation and other renewables suffer from intermittency because weather varies and is only partially forecastable. Intermittency imposes costs as a planner must maintain backup capacity and allocate operating reserves in order to avoid system failure. We model an electricity system where a system operator optimizes the amount of generation capacity, operating reserves, and demand curtailment in the presence of variable and partially forecastable demand and renewable production. We use generator characteristics, solar output, demand and weather forecast data to estimate parameters. Equilibrium costs of a 20 percent mandate are $133.7 per MWh of solar generation; unforecastable intermittency accounts for only $4.1 of this. If solar generation were fully dispatchable, costs would drop by $24.3 per MWh. If CO2 reductions are valued at $25/ton then this mandate would be welfare neutral if solar capacity costs dropped from the current $5/W to $1.78/W. Our methods can be applied to examine the value of other technologies, such as wind power and storage, and electricity market changes, such as real-time pricing.
    JEL: Q2 Q4
    Date: 2011–05

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