nep-env New Economics Papers
on Environmental Economics
Issue of 2011‒09‒16
twenty-one papers chosen by
Francisco S.Ramos
Federal University of Pernambuco

  1. Environmental Pricing for Energy Generation Sources: Evidence from a Contingent Valuation Study in Chile By Claudia D. Aravena
  2. Forest Conservation and CO2 Emissions : A Viable Approach. By Domenech, Pablo Andres; Saint-Pierre, Patrick; Zaccour, Georges
  3. Cost effectiveness of bio-ethanol to reduce carbon dioxide emissions in Greece By Md. I. Haque; Stelios Rozakis; A. Natsis; M. Walker; K. Mizak
  4. Cleaning the Bathwater with the Baby: The Health Co-Benefits of Carbon Pricing in Transportation By Christopher R. Knittel; Ryan Sandler
  5. Income inequality and carbon emissions By Nicole Grunewald; Stephan Klasen; Inmaculada Martínez-Zarzoso; Chris Muris
  6. Climate Policy Under Fat-Tailed Risk: An Application of Dice By Hwang, In Chang; Reynès, Frédéric; Tol, Richard S. J.
  7. The Private Provision of International Impure Public Goods: the Case of Climate Policy By Martin Altemeyer-Bartscher; Anil Markandya; Dirk T.G. Rübbelke
  8. Is « Pollution Haven » Hypothesis valid for China’s manufacture sectors? An empirical analysis based on carbon embodied in trade By Jie He; Jingyan Fu
  9. Dark Clouds or Silver Linings? Knightian Uncertainty and Climate Change By Yu-Fu Chen; Michael Funke; Nicole Glanemann
  10. Environment and economic development: determinants of an EKC hypothesis By Halkos, George
  11. Regional versus Multilateral Trade Liberalization, Environmental Taxation and Welfare By Soham Baksi
  12. The Political Economy of International Environmental Agreements: A Survey By Leo Wangler; JJuan-Carlos Altamirano-Cabrera; Hans-Peter Weikard
  13. Evaluating the Long-Term Effects of Global Climate Change on the Brazilian Agriculture according to farm size By Juliana Speranza
  14. Expectation-Driven Climate Treaties with Breakthrough Technologies By Daiju Narita; Ulrich J. Wagner
  15. Price and welfare effects of emission quota allocation By Rolf Golombek, Sverre A.C. Kittelsen and Knut Einar Rosendahl
  16. Carbon border adjustement, trade and climate governance : issues for OPEC economies By Mehdi Abbas
  17. Some Inconvenient Truths About Climate Change Policy: The Distributional Impacts of Transportation Policies By Stephen P. Holland; Jonathan E. Hughes; Christopher R. Knittel; Nathan C. Parker
  18. Implications of inequality aversion for international climate policy By Vogt, Carsten; Sturm, Bodo
  19. Financing the Clean Development Mechanism through debt-for-efficiency swaps? Case study evidence from a Uruguayan wind farm project By Cassimon, Danny; Prowse, Martin; Essers, Dennis
  20. Smart grids : Another step towards competition, energy security and climate change objectives By Cédric Clastres
  21. The political economy of the clean development mechanism (CDM) governance system. By Nedergaard, Peter

  1. By: Claudia D. Aravena (Queens University Belfast , UK)
    Abstract: The rapid increase in energy demand in Chile requires a choice for additional production between different kinds of energy sources currently available to the country. Current projects to develop large dams for hydropower in Chilean Patagonia impose an environmental price by damaging the natural environment. The increased use of fossil fuels on the other hand entails an environmental price related to emissions and global warming. This paper studies the debate on the future energy supply in Chile by investigating the preferences of households for different energy sources (fossil fuels, large hydropower in Chilean Patagonia and renewable energy). The paper also aims to value the externalities associated to these traditional methods of energy generation. Using the Contingent Valuation method, the willingness to pay for renewable energy sources over the other alternatives is elicited. Results suggest a strong preference for renewable sources with almost equally large environmental prices imposed by consumers on electricity from large dams and thermoelectric sources. Results also suggest possibility of introduction and promotion of incentives for renewable energy developments supported by consumers through green tariffs or environmental premiums. Key words: contingent valuation, willingness to pay, renewable energy, fossil fuels, hydropower
    Date: 2010–10
  2. By: Domenech, Pablo Andres; Saint-Pierre, Patrick; Zaccour, Georges
    Abstract: We adopt viability theory to assess the sustainability of the world’s forests while taking into account some of the competing economic, social, and environmental uses of these forests, namely, timber production, poverty alleviation through agriculture, and air quality as well as the negative externalities that these uses create. We provide insights on the different trade-offs faced to achieve sustainability and draw some policy implications as to what is the path leading to sustainability in the long run.
    Keywords: Viability theory; Sustainability; Forest; Emissions;
    JEL: Q01 Q34 Q32 Q54
    Date: 2011
  3. By: Md. I. Haque (Agricultural Economics and Rural Development Department, Agricultural University of Athens); Stelios Rozakis (Agricultural Economics and Rural Development Department, Agricultural University of Athens); A. Natsis ("Department of Natural Resources Management and Agricultural Engineering Agricultural University of Athens, Greece"); M. Walker; K. Mizak
    Abstract: "The purpose of this study is to evaluate ethanol cost- effectiveness with regards to carbon dioxide emissions. Actually, bio-fuel production is only viable thanks to the tax credit policy resulting in economic ‘deadweight’ loss. The environmental performance is assessed under the Life Cycle Assessment (LCA) framework. Economic burden to society to support the activity divided by avoided CO2 equivalent emissions indicates the bio-ethanol cost effectiveness. Agricultural feedstock supply that comprises of sugarbeets, grains and industrial processing sub-models are articulated in a regional sector model. The maximization of total welfare determines optimal crop mix for farmers and the best configurations for industry. This is illustrated for bio-ethanol produced by the ex-sugar industry in Thessaly, Greece. Life cycle activity analysis showed that, at the optimum, CO2 emission is reduced between 1 and 1.5 t of carbon dioxide equivalent per ton of ethanol. The unitary cost falls in the range of 100 to 250 euro per ton of CO2 and it is remarkably dependent on the agricultural policy scenario. "
    Keywords: Cost effectiveness, ethanol, mathematical programming, life cycle assessment, greenhouse gases
    Date: 2011
  4. By: Christopher R. Knittel; Ryan Sandler
    Abstract: Efforts to reduce greenhouse gas emissions in the US have relied on Corporate Average Fuel Economy (CAFE) Standards and Renewable Fuel Standards (RFS). Economists often argue that these policies are inefficient relative to carbon pricing because they ignore existing vehicles and do not adequately reduce the incentive to drive. This paper presents evidence that the net social costs of carbon pricing are significantly less than previous thought. The bias arises from the fact that the demand elasticity for miles travelled varies systematically with vehicle emissions; dirtier vehicles are more responsive to changes in gasoline prices. This is true for all four emissions for which we have data—nitrogen oxides, carbon monoxide, hydrocarbon, and greenhouse gases—as well as weight. This reduces the net social costs associated with carbon pricing through increasing the co-benefits. Accounting for this heterogeneity implies that the welfare losses from $1.00 gas tax, or a $110 per ton of CO2 tax, are negative over the period of 1998 to 2008 even when we ignore the climate change benefits from the tax. Co-benefits increase by over 60 percent relative to ignoring the heterogeneity that we document. In addition, accounting for this heterogeneity raises the optimal gas tax associated with local pollution, as calculated by Parry and Small (2005), by as much as 57 percent. While our empirical setting is California, we present evidence that the effects may be larger for the rest of the US.
    JEL: D62 H2 H3 I18 L0 L9 Q5 R2 R4
    Date: 2011–09
  5. By: Nicole Grunewald (Georg-August-University Göttingen); Stephan Klasen (Georg-August-University Göttingen); Inmaculada Martínez-Zarzoso (Georg-August-University Göttingen); Chris Muris (Georg-August-University Göttingen)
    Abstract: We document a U-shaped relationship between income inequality and carbon dioxide emissions per capita, using a newly available panel data set on income inequality (GINI) with observations for 138 countries over the period 1960–2008. Our findings suggest that, for high-income countries with high income inequality, pro-poor growth and reduced per capita emissions levels go hand in hand.
    Keywords: environmental quality; income inequality; panel data
    JEL: I3 O1 Q3
    Date: 2011–09–01
  6. By: Hwang, In Chang; Reynès, Frédéric; Tol, Richard S. J.
    Abstract: Uncertainty plays a significant role in evaluating climate policy, and fat-tailed uncertainty may dominate policy advice. Should we make our utmost effort to prevent the arbitrarily large impacts of climate change under deep uncertainty? In order to answer to this question we propose an new way of investigating the impact of (fat-tailed) uncertainty on optimal climate policy: the curvature of carbon tax against the uncertainty. We find that the optimal carbon tax increases as the uncertainty about climate sensitivity increases, but it does not accelerate as implied by Weitzman's Dismal Theorem. We find the same result in a wide variety of sensitivity analyses. These results emphasize the importance of balancing of the costs and the benefits of climate policy, also under deep uncertainty.
    Keywords: Climate policy/Policy/risk/uncertainty/impacts/Impacts of climate change/Climate change/taxes/cost
    Date: 2011–08
  7. By: Martin Altemeyer-Bartscher; Anil Markandya; Dirk T.G. Rübbelke
    Abstract: We discuss a tax-transfer scheme that aims at addressing the under-provision problem associated with the private supply of international public goods and at bringing about Pareto optimal allocations internationally. In particular, we consider the example of the global public good ‘climate stabilisation’, both in an analytical and a numerical simulation model. The proposed scheme levies Pigouvian taxes globally, while international sidepayments are employed in order to provide incentives to individual countries for not taking a free-ride from the international Pigouvian tax scheme. The side-payments, in turn, are financed via the environmental taxes. As a distinctive feature we take into account ancillary benefits that may be associated with local public characteristics of climate policy. We determine the positive impact that ancillary effects may exert on the scope for financing side-payments via environmental taxation. A particular attractive feature of ancillary benefits is that they arise shortly after the implementation of climate policies and therefore yield an almost immediate payback of investments in abatement efforts. Especially in times of high public debt levels, long periods of amortisation would tend to reduce political support for investments in climate policy.
    Date: 2011–09
  8. By: Jie He (University of Sherbrooke, GREDI); Jingyan Fu (Department of International Trade and Economics, Jinan University)
    Abstract: Based on single-country linked Input-Output model, this paper first calculated the balance of emission embodied in trade (BEET) and pollution trade terms (PTT) for China’s international trade during 1996-2004. Our results confirm China as a net emission exporter but also find China’s exports to be less-polluting than China’s import. Our estimation results confirm the findings of IO analysis and reveals that China has comparative advantages in less polluting labour-intensive sector. The reason China which exports principally in less-polluting sectors to have a positive BEET is because China has higher emission intensity in almost all sectors than its trade partners. Our conclusion also reveals international production division is organised without consideration of environmental performance of producers of different countries, this is the principal reason for the carbon leakage phenomenon related to international trade, while the pollution haven hypothesis plays actually a marginal role.
    Keywords: Single-country linked Input-Output model, Pollution Haven Hypothesis, Carbon leakage, Comparative advantage, BEET, Pollution terms of trade, China
    Date: 2011–08
  9. By: Yu-Fu Chen; Michael Funke; Nicole Glanemann
    Abstract: This paper examines the impact of Knightian uncertainty upon optimal climate policy through the prism of a continuous-time real option modelling framework. We analytically determine optimal intertemporal climate policies under ambiguous assessments of climate damages. Additionally, numerical simulations are provided to illustrate the properties of the model. The results indicate that increasing Knightian uncertainty accelerates climate policy, i.e. policy makers become more reluctant to postpone the timing of climate policies into the future.
    Keywords: Climate change, Knightian uncertainty, kappa-ambiguity, real options
    JEL: C61 D81 Q54
    Date: 2011–08
  10. By: Halkos, George
    Abstract: In this paper we examine the concept of an Environmental Kuznets Curve (EKC) hypothesis in a critical way aiming to justify its existence as well as to propose policies compatible with sustainable development. For this reason, we make use of a data set on CO2 emissions for 32 countries over a 36 year time period. For this balanced panel database, we apply a number of econometric methods to estimate the income-environment relationship. Our results indicate the existence of N-shaped relationship between economic development and pollution. However we show that the turning points calculated by panel data analysis may not reveal the actual turning points valid for individual countries. In our case and using different countries from different geographical regions we found a mixture of monotonic or inverted U-shape or N-shape behaviour. Countries are heterogeneous with different stochastic regression coefficients. This implies that the use of the total N-shape income-environment relationship by policy makers may be misleading with serious policy ineffectiveness implications.
    Keywords: Environmental Kuznets Curve; Panel Data; CO2 emissions
    JEL: Q56 C23 O20
    Date: 2011
  11. By: Soham Baksi
    Abstract: We consider strategic trade among identical countries and compare the impacts of multilateral versus regional tariff reduction on equilibrium pollution tax and social welfare. While both forms of trade liberalization increase production and consumption in the tariff-reducing countries, regional trade liberalization also reduces production in a non-participating country and may decrease its consumption. When pollution is local, regional and multilateral trade liberalization have similar impacts in the tariff-reducing countries. In contrast, when pollution is perfectly transboundary, regional (multilateral) trade liberalization (i) weakens (may strengthen) environmental protection in the tariff-reducing countries, and (ii) in the neighbourhood of free trade, may increase (decreases) welfare of the tariff-reducing countries.
    JEL: Q58 F18 H23
    Date: 2011–07
  12. By: Leo Wangler (School of Economics and Business Administration, Friedrich-Schiller-University Jena); JJuan-Carlos Altamirano-Cabrera (Universidad Autonoma Metropolitana-Azcapotzalco, Department of Economics, Growth and Environment Group, Mexico City, Mexico); Hans-Peter Weikard (Environmental Economics and Natural Resources Group, Wageningen University, The Netherlands.)
    Abstract: This paper surveys the recent literature on the political economy of the formation of international environmental agreements. The survey covers theoretical modelling approaches and empirical studies including experimental work. Central to our survey is the question how the political process impacts different stages of agreement formation and stability. Relevant are the rules defined during pre-negotiations that govern negotiations, ratification and implementation. Strategic delegation and lobbying are directly relevant during the negotiation and ratification phases. Implementation, the choice of policy instruments at the national level, will also be impacted by lobbying and indirectly influence negotiations.
    Keywords: international environmental agreements, coalition formation, coalition stability, environmental policy-making, strategic delegation, interest groups, free-rider incentives, determinants of international environmental cooperation, public goods experiments
    JEL: D72 D62 C72 H41
    Date: 2011–09–05
  13. By: Juliana Speranza (Instituto de PesquIsa Económica Aplicada)
    Abstract: This paper aims to assess the long-term effects of global climate change on Brazilian agriculture. In particular, it will address the following questions: (i) What are the long-term effects of global climate change in terms of land values in the distinct Brazilian biomes?; and (ii) do these effects differ according to farm size? In order to answer these questions, the hedonic approach proposed by Mendelsohn et al. (1994) is estimated for Brazilian municipalities. Since the intention is to assess socio-economic issues regarding global climate change, the paper also conducts a disaggregated analysis of the effects according to farm size, so as to evaluate whether large and small Brazilian farms would be distinctly affected by climate change. The simulations of the effects of global climate change on Brazilian agriculture refer to 2020, 2050 and 2080 time slices. The climate projections are from ten General Circulation Models of the Fourth Assessment Report of the IPCC (2007) according to A2 and A1B scenarios. The results show that the expected effects of global climate change on Brazilian agriculture vary spatially and by farm size categories. In the Pampa region, for example, the effects on land values are quite different depending on the farm size category. We believe that the outcomes of this research will be of great importance for supporting the formulation of risk mitigation and adaptation strategies, poverty and welfare policies in Brazil’s future, especially because the breakdown of farms by size and biomes is a pioneering application in Brazilian scientific literature.
    Date: 2010–11
  14. By: Daiju Narita; Ulrich J. Wagner
    Abstract: The production of bioenergy is considered to be a promising energy source for a sustainable energy mix and it is politically promoted in many countries. With the exception of Brazilian ethanol, bioenergy not competitive to fossil energy sources, and therefore needs to be subsidised. Several types of bioenergy are based on bulky raw biomass with high per unit transport costs, importantly impacting on the plant’s production costs and profitability. In addition, considerable quantities of digestates are released, causing disposal costs. Various studies in the past aimed primarily at analysing transport costs of inputs. In this paper we focus on disposal costs of fermentation digestates from biogas production in Germany and analyse different processing techniques and their impact on profitability for three plant size in three case study areas. Our results show that especially in regions with only a small amount of agricultural land and a large heterogeneity in its agricultural area, processing of digestates increases the profitability of biogas production. The same accounts for regions with high livestock density, where the area needed for disposal is comparatively large. The cost efficiency is enforced by a high share of animal excrements on input and the biogas plant size
    Keywords: International environmental agreements (IEAs), climate policy, technology choice, expectations, multiple equilibria
    JEL: Q54 O33 H87
    Date: 2011–09
  15. By: Rolf Golombek, Sverre A.C. Kittelsen and Knut Einar Rosendahl (Statistics Norway)
    Abstract: We analyze how different ways of allocating emission quotas may influence the electricity market. Using a large-scale numerical model of the Western European energy market, we show that different allocation mechanisms can have very different effects on the electricity market, even if the total emission target is fixed. This is particularly the case if output-based allocation (OBA) of quotas is used, with gas power production substantially higher, partly at the expense of renewable and coal power, than if grandfathering and auctioning based mechanisms are used. The price of emissions is almost twice as high. Moreover, even though electricity prices are lower, the welfare costs of attaining a fixed emission target are significantly higher. The paper analyzes other allocation mechanisms as well, leading to yet more outcomes in the electricity market. The numerical results for OBA are supported by theoretical analysis, with some new general results.
    Keywords: Quota market; Electricity market; Allocation of quotas
    JEL: D61 H23 Q41 Q58
    Date: 2011–09
  16. By: Mehdi Abbas (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : FRE3389 - Université Pierre Mendès-France - Grenoble II)
    Abstract: The relation between the climate regulation and the multilateral trade regime is a rising issue in the field of international governance. This article presents the options available to OPEC economies related to this. It analyses the option of introducing a carbon tax or border adjustment measures in the core of the WTO regime. It demonstrates that this option is not sustainable for both institutional and political economy reasons. This is why the article argues that the way to build a climate-compatible trade regulation which takes into account oil exporting countries' interests is to elaborate a cross-institutional cooperation between the WTO and the UNFCCC
    Keywords: World Trade Organization ; multilateral trade regime ; climate governance
    Date: 2011–09
  17. By: Stephen P. Holland; Jonathan E. Hughes; Christopher R. Knittel; Nathan C. Parker
    Abstract: Instead of efficiently pricing greenhouse gases, policy makers have favored measures that implicitly or explicitly subsidize low carbon fuels. We simulate a transportation-sector cap & trade program (CAT) and three policies currently in use: ethanol subsidies, a renewable fuel standard (RFS), and a low carbon fuel standard (LCFS). Our simulations confirm that the alternatives to CAT are quite costly–2.5 to 4 times more expensive. We provide evidence that the persistence of these alternatives in spite of their higher costs lies in the political economy of carbon policy. The alternatives to CAT exhibit a feature that make them amenable to adoption–a right skewed distribution of gains and losses where many counties have small losses, but a smaller share of counties gain considerably–as much as $6,800 per capita, per year. We correlate our estimates of gains from CAT and the RFS with Congressional voting on the Waxman-Markey cap & trade bill, H.R. 2454. Because Waxman-Markey (WM) would weaken the RFS, House members likely viewed the two policies as competitors. Conditional on a district's CAT gains, increases in a district's RFS gains are associated with decreases in the likelihood of voting for WM. Furthermore, we show that campaign contributions are correlated with a district's gains under each policy and that these contributions are correlated with a Member's vote on WM.
    JEL: H2 H3 K0 K2 L5 L7 L9
    Date: 2011–09
  18. By: Vogt, Carsten; Sturm, Bodo
    Abstract: In this paper, we extend the Fehr and Schmidt model of inequality aversion to a situation where the players differ with respect to their benefits and costs from contributions to a non-linear public good. A necessary condition for contributing to the public good is that the players' benefit exceeds some critical value. Using data from the impact assessment model RICE and estimates for inequality aversion from the experimental literature, we show that this condition fails to hold for major countries involved in international climate policy. --
    Keywords: Climate policy,public good game,inequality aversion,voluntary cooperation
    JEL: C72 D63 H41 Q54
    Date: 2011
  19. By: Cassimon, Danny; Prowse, Martin; Essers, Dennis
    Abstract: As one of Kyoto’s three flexibility mechanisms for reducing the cost of compliance, the Clean Development Mechanism (CDM) allows the issuance of Certified Emission Reduction (CER) credits from offset projects in non-Annex I countries. Whilst much attention has focused on the widespread use of the mechanism by China and India, the complex project cycle, and the lack of convincing baselines, little attention has been paid to the financing of CDM projects. In this paper we assess the extent to which CDM projects with public bodies should utilise debt swaps as a form of finance. The paper does this through analysing the use of a debt swap between Uruguay and Spain within a CDM wind farm project in Uruguay. The paper assesses this transaction according to a simple framework by which debt swaps can be evaluated: whether it delivers additional resources to the debtor country and/or debtor government budget; whether it delivers more resources for climate purposes; whether it has a sizeable effect on overall debt burdens (thereby creating ‘indirect’ benefits); and whether it adheres to the principles of alignment with government policy and systems (key elements within the new aid approach).
    Date: 2011–08
  20. By: Cédric Clastres (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : FRE3389 - Université Pierre Mendès-France - Grenoble II)
    Abstract: The deployment of smart grids in electricity systems has given rise to much interdisciplinary research. The new technology is seen as an additional instrument available to States to achieve targets for promoting competition, increasing the safety of electricity systems and combating climate change. But the boom in smart grids also raises many economic questions. Public policies will need to be adapted, firstly to make allowance for the potential gains from smart grids and the associated information flow, and secondly to regulate the new networks and act as an incentive for investors. The new competitive offerings and end-user pricing systems will contribute to improving allocative and productive efficiency, while minimizing the risks of market power. With real-time data on output and consumption, generators and consumers will be able to adapt to market conditions. Lastly smart grids will boost the development of renewable energy sources and new technologies, by assisting their integration and optimal use.
    Keywords: Smart grid ; Regulation ; Investments
    Date: 2011–09
  21. By: Nedergaard, Peter
    Abstract: In spite of the exponentially increasing volume of the CDM system of the Kyoto Protocol, very few have so far come up with scholarly political economy analysis of its governance system. Based on interviews with the CDM system’s main stakeholders as well as through scrutiny of CDM related documents, this paper will contribute to filling this hole. In this respect, it is assumed that the political economy analysis can be based on two analytical concepts: First, the CDM governance system has to be legitimate (the political side of the system), i.e. seen as broadly acceptable and accountable by its stakeholders as well as the broader public. Second, the CDM governance system has to be efficient (the economic side of the system), i.e. involve as few transaction costs as possible. Based on these concepts, the paper analyses the present balances of the CDM governance system.
    Keywords: CDM; climate policy; legitimacy; efficiency
    JEL: E0
    Date: 2011

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