nep-env New Economics Papers
on Environmental Economics
Issue of 2013‒08‒10
fourteen papers chosen by
Francisco S.Ramos
Federal University of Pernambuco

  1. GEM-E3 Model Documentation By P. Capros; D. Van Regemorter; L. Paroussos; P. Karkatsoulis; C. Fragkiadakis; S. Tsani; I. Charalampidis; T. Revesz
  2. Global Warming and the Green Paradox By Frederick van der Ploeg; Cees Wutgageb
  3. Environmental Regulation: Supported by Polluting Firms, but Opposed by Green Firms By Felix Munoz-Garcia; Sherzod Akhundjanov
  4. What is MENA Region Initially Needed: Grow Output or Mitigate CO2 Emissions? By Farhani, Sahbi; Shahbaz, Muhammad; Sbia, Rashid
  5. Climate Policy and Catastrophic Change: Be Prepared and Avert Risk By Frederick van der Ploeg; Aart de Zeeuw
  6. Environmental performance and quality of governance: A non-parametric analysis of the NUTS 1-regions in France, Germany and the UK By Halkos, George; Sundström, Aksel; Tzeremes, Nickolaos
  7. RED vs. REDD: Biofuel Policy vs. Forest Conservation By Dixon, Peter; van Meijl, Hans; Rimmer, Maureen; Shutes, Lindsay; Tabeau, Andrzej
  8. External cost calculator for Marco Polo freight transport project proposals - Call 2013 updated version By Martijn Brons; Panos Christidis
  9. An Evolutionary Game for the Issues of Social Investment, Environmental Compliance and Consumer Boycott By André Barreira da Silva Rocha
  10. Price It and They Will Buy: How E85 Can Break the Blend Wall By Bruce A. Babcock
  11. Renewable energy and electricity prices: indirect empirical evidence from hydro power By Ronald Huisman; Victoria Stradnic; Sjur Westgaard
  12. The Impact of Energy Prices on Green Innovation By Marius Ley; Tobias Stucki; Martin Wörter
  13. Transitions énergétiques en France: Enseignements d'exercices de prospective By Ruben Bibas; Jean-Charles Hourcade
  14. Efficiency and Equity Aspects of Energy Taxation By Vandyck, Toon

  1. By: P. Capros (National Technical University of Athens – ICCS – E3M Lab); D. Van Regemorter (Energy, Transport and Environment Centre for Economic Studies Katholieke Universiteit Leuven); L. Paroussos (National Technical University of Athens – ICCS – E3M Lab); P. Karkatsoulis (National Technical University of Athens – ICCS – E3M Lab); C. Fragkiadakis (National Technical University of Athens – ICCS – E3M Lab); S. Tsani (National Technical University of Athens – ICCS – E3M Lab); I. Charalampidis (National Technical University of Athens – ICCS – E3M Lab); T. Revesz (Corvinus University of Budapest)
    Abstract: The computable general equilibrium model GEM-E3 has been used in a large set of climate policy applications supporting Commission policy proposals during the last decade, as well as in other environmental and economic policy areas. It can be considered a multi-purpose macroeconomic model, designed to estimate the effects of sector-specific policies on the economy as a whole. The main purpose of this publication is to provide extensive documentation of the model's equations and its underlying databases, in order to offer to the broader audience an accurate description of the model characteristics.
    Keywords: Environmental economics, greenhouse gas emissions reduction, green tax reform, energy tax, energy-intensive sectors, competitiveness, multi-sectoral, computable general equilibrium model (CGE), scenario-building techniques, climate change impacts and adaptation assessment
    JEL: C68 Q54 Q43
    Date: 2013–07
  2. By: Frederick van der Ploeg; Cees Wutgageb
    Abstract: Announcing a future carbon tax or a sufficiently fast rising carbon tax encourages fossil fuel owners to extract reserves more aggressively, thus exacerbating global warming. These policies also encourage more fossil fuel to be locked in the crust of the earth which can offset adverse weak Green Paradox effects. A renewables subsidy has similar weak Green Paradox effects. Green welfare drops (strong Green Paradox) if the beneficial effects for the climate of locking up more fossil fuel outweigh the short-run weak Green Paradox effects. Neither the weak nor the strong Green Pradox occurs for the first-best Pigovian carbon tax. Within the context of a green Ramsey growth model the qualitative nature of the different phases of fossil fuel and renewables use depends crucially on the initial stocks of fossil fuel reserves and capital. We examne how climate policies are affected by growth and development, and also when not the renewable but coal is the effective backstop.
    Keywords: fossil fuel, renewables, coal, economic growth, global warming, carbon tax, Green Paradox
    JEL: D81 H20 Q31 Q38
    Date: 2013
  3. By: Felix Munoz-Garcia; Sherzod Akhundjanov (School of Economic Sciences, Washington State University)
    Abstract: This paper investigates the production decisions of polluting and green fi?rms, and how their profi?ts are affected by environmental regulation. We demonstrate that emission fees entail a negative effect on fi?rms? profi?ts, since they increase unit production costs. However, fees can also produce a positive effect for a relatively inefficient ?firm, given that environmental regulation ameliorates its cost disadvantage. If such a disadvantage is sufficiently large, we show that the positive effect dominates, thus leading this ?firm to actually favor the introduction of environmental policy, while relatively efficient fi?rms oppose regulation. Furthermore, we show that such support can not only originate from green firms but, more surprisingly, also from polluting companies.
    Keywords: Cost asymmetries; Cost disadvantage; Emission fees; Green firms
    JEL: L13 D62 H23 Q20
  4. By: Farhani, Sahbi; Shahbaz, Muhammad; Sbia, Rashid
    Abstract: This paper examines the question: ‘What is Middle East and North Africa (MENA) region initially needed: grow output or mitigate CO2 emissions? This question is a focus on the issue of both production function and environmental function based on the environmental Kuznets curve (EKC) approach. Adopting a new analytical framework, the empirical study parallels two approaches: i) First one follows the studies of Lean and Smyth (2010a) and Sadorsky (2012) which examine the dynamic interaction of energy consumption and trade openness using production function; ii) Second one extends the recent works of Halicioglu (2009), and Jayanthakumaran et al. (2012) which attempt to introduce energy consumption and trade openness in the environmental function as a mean to circumvent omitted variable bias. For nine MENA countries over the period 1990-2011, the empirical results appear to be relevant in light of the growing literature on the cointegration and causal relationships. Policy implications for a better environment indicate that MENA countries should adopt policies to control the increase of pollution as well as to stabilize the productivity growth. One of these policies consists to facilitate the role of energy use by increasing the share of renewable energy relative to non-renewable energy sources.
    Keywords: Growth, Energy, CO2 Emissions, MENA
    JEL: O1
    Date: 2013–08–04
  5. By: Frederick van der Ploeg; Aart de Zeeuw
    Abstract: The essence of climate policy is how to prepare for catastrophic change and how to reduce the risk of such events occurring. We show within the context of the Ramsey growth model that the optimal reaction to a pending climate catastrophe is, on the one hand, to accumulate capital to be better prepared for when the disaster hits the global economy, and, on the other hand, a carbon tax to reduce the risk of the hazard occurring by curbing demand for fossil fuel and carbon emissions and reversing the increase in global warming in the business-as-usual scenario. The optimal carbon tax consists of the conventional Pigouvian present value of marginal damages, the non-marginal expected change in welfare caused by a marginal higher risk of catastrophe resulting from burning an additional unit of fossil fuel, and the expected loss in after-catastrophe welfare. The last two terms offset the precautionary increase in capital. The results are illustrated with an integrated assessment model of the global economy. A linear hazard function calibrated to a 6.8% chance of a 30% drop in global GDP at 2324 GtC implies an eventual precautionary return (if necessary realized by a capital subsidy) of 1.6% and a global carbon tax of 136 US $/tC. A higher elasticity of intertemporal substitution lowers precautionary capital accumulation and thus lessens the need for a high carbon tax, but also implies less intergenerational inequality aversion which pushes up the carbon tax.
    Keywords: non-marginal climate damages, tipping points, risk avoidance, economic growth, social cost of carbon, capital subsidy, adaptation capital, carbon tax, renewables
    JEL: D81 H20 O40 Q31 Q38
    Date: 2013
  6. By: Halkos, George; Sundström, Aksel; Tzeremes, Nickolaos
    Abstract: This paper applies nonparametric estimators to examine the effect of regional quality of government on the environmental performance in the NUTS 1-regions in France, Germany and the UK. The most comprehensive existing regional measure on governance is used, gauging the partiality, corruption and effectiveness of government services in each region. By utilizing regional level measures of three pollutants (CO2, CH4 and N2O) the effect of governance on environmental efficiency is analyzed. The empirical analysis suggests that there is a nonlinear relationship between regions’ governance quality levels and their environmental performance. It appears that the effect of regional quality of governance is positive up to a certain level, then turning slightly negative. This suggests that higher governance quality will not always result in increased environmental efficiency.
    Keywords: Quality of governance; Environmental performance; Regions; Nonparametric analysis.
    JEL: C14 H23 Q50 Q58 R11
    Date: 2013–08–06
  7. By: Dixon, Peter; van Meijl, Hans; Rimmer, Maureen; Shutes, Lindsay; Tabeau, Andrzej
    Abstract: This paper assesses the complex interplay between global Renewable Energy Directives (RED) and the United Nations programme to Reduce Emissions from Deforestation and forest Degradation (REDD). We examine the interaction of the two policies using a scenario approach with a recursive-dynamic global Computable General Equilibrium model. The consequences of a global biofuel directive on worldwide land use, agricultural production, international trade flows, food prices and food security out to 2030 are evaluated with and without a strict global REDD policy. We address a key methodological challenge of how to model the supply of land in the face of restrictions over its availability, as arises under the REDD policy. The paper introduces a flexible land supply function, which allows for large changes in the total potential land availability for agriculture. Our results show that whilst both RED and REDD are designed to reduce emissions, they have opposing impacts on land use. RED policies are found to extend land use whereas the REDD policy leads to an overall reduction in land use and intensification of agriculture. Strict REDD policies to protect forest and woodland lead to higher land prices in all regions. World food prices are slightly higher overall with some significant regional increases, notably in Southern Africa and Indonesia, leading to reductions in food security in these countries. This said, real food prices in 2030 are still lower than the 2010 level, even with the RED and REDD policies in place. Overall this suggests that RED and REDD are feasible from a worldwide perspective, although the results show that there are some regional problems that need to be resolved. The results show that countries directly affected by forest and woodland protection would be the most economically vulnerable when the REDD policy is implemented. The introduction of REDD policies reduces global trade in agricultural products and moves some developing countries to a net importing position for agricultural products. This suggests that the protection of forests and woodlands in these regions reverses their comparative advantage as they move from being land-abundant to land-scarce regions. The full REDD policy setting, however, foresees providing compensation to these countries to cover their economic losses.
    Date: 2013–05
  8. By: Martijn Brons (European Commission – JRC - IPTS); Panos Christidis (European Commission – JRC - IPTS)
    Abstract: The Marco Polo programme of the European Commission aims to shift or avoid freight transport off the roads to other more environmentally friendly transport modes. The programme is implemented through yearly calls for proposals. The proposals received to each call are selected for financial support inter alia on the basis of their merits in terms of environmental and social benefits. The evaluation of each proposal's merits in terms of environmental and social benefits is based on the external costs for each transport mode. On the Commission’s request the Joint Research Centre, Institute for Prospective Technological Studies (JRC-IPTS) modified and updated the methodology underlying the calculation of external costs and the software application that automates the estimation of the impact on external costs for specific projects. The work was based on a combination of data and model results that allow the estimation of transport volumes, fleet mixes, levels of utilisation and resulting externalities with up-to-date methodologies for the economic valuation of these externalities. The new external cost methodology and calculator covers road, rail, inland waterways and short sea shipping. External cost coefficients are provided for environmental impacts (air quality, noise, climate change) and socio-economic impacts (accidents, congestion). The methodology permits the estimation of external cost coefficients for specific mode subcategories based on fuel technology, cruising speed, vehicle size, and cargo type. The present methodological note describes the methodology and calculator used to evaluate proposals submitted for the 2013 Marco Polo call for projects. The note is an updated version of a report entitled "External cost calculator for Marco Polo freight transport project proposals - Call 2013 version", published in April 2013 by the European Union under ISSN 1831-9424.
    Keywords: freight transport, external costs of transport, sustainable transport, transport technology
    JEL: F18 Q51 Q53 Q54 Q55 Q56 R41
    Date: 2013–06
  9. By: André Barreira da Silva Rocha
    Abstract: I propose an evolutionary game model to study competition among a large number of firms, in which I take into account the issues of social responsibility, government monitoring of environmental compliance and consumer boycott. A large number of firms sell their homogeneous good in an almost perfect competitive market, where consumers have preferences for socially responsible firms. Firms may incur additional costs and carry out social investment and/or environmental investment. Each time interval, a firm may be called to play a competition-stage game, in which it tries to sell its good, or an audit-stage game, in which inspectors audit its degree of environmental compliance.
    Keywords: Replicator dynamics, social responsibility, boycott, investment, regulation.
    JEL: C73 M14 L51
    Date: 2013–07
  10. By: Bruce A. Babcock (Center for Agricultural and Rural Development (CARD))
    Abstract: Biofuel mandates in 2014 and 2015 are scheduled to push ethanol consumption beyond the E10 blend wall—the amount of ethanol that can be easily consumed in the United States in a 10 percent ethanol and 90 percent gasoline blend. Numerous interest groups and academics are calling on the Environmental Protection Agency to cut back on scheduled mandate increases because of the uncertainty of the cost and exactly how ethanol consumption can be increased beyond E10. The uncertainty centers around the position of the “beyond-E10†demand curve for ethanol, which simply measures the response of ethanol consumption to lower ethanol prices at ethanol quantities above 13 billion gallons. Some oil companies argue that there is no demand for ethanol above 13 billion gallons so that it is physically impossible for them to mandate using ethanol. Others argue that there may be a demand curve, but that possible consumption quantities are quite limited. The reason why there is uncertainty about the position of ethanol demand above 13 billion gallons is because we have no US data to observe consumption above the E10 blend wall. However, insight into the question of what the demand curve might look like can be obtained by estimating the demand for E85 by owners of flex vehicles using data from Brazilian drivers who choose between ethanol and gasoline largely based on relative costs per mile. A key difference between Brazil and the United States is that in Brazil every station sells both ethanol and gasoline, whereas US drivers must search for a station that sells E85. We account for this difference by calculating the additional distance that must be traveled by owners of US flex vehicles to a station that sells E85. The further the distance the greater the fuel savings must be from E85. The resulting demand curve for ethanol above the E10 blend wall suggests E85 consumption of about one billion gallons if E85 were priced to generate a six percent reduction in fuel costs. If the price were lowered further to generate a 15 percent reduction then about two billion gallons could be consumed, and a 30 percent reduction would be needed to induce three billion gallons of consumption. These estimates do not account for the increase in the size of the flex vehicle fleet in 2013 and 2014 or the likely increase in the number of stations that will find E85 an attractive fuel to sell. These results suggest that rather than being a physical barrier to increased ethanol consumption, the E10 blend wall is an economic barrier that can be overcome by increasing the incentive for drivers to use E85 to fuel their vehicles. Current RIN (Renewable Identification Numbers) prices are high enough to achieve modest increases in ethanol consumption above 13 billion gallons and to create incentives to increase the ability to consume lower-carbon ethanol in 2016 and beyond.
    Date: 2013–08
  11. By: Ronald Huisman (Erasmus School of Economics & IEB); Victoria Stradnic (Erasmus School of Economics); Sjur Westgaard (Norwegian University of Science and Technology)
    Abstract: Many countries have introduced policies to stimulate the production of electricity in a sustainable or renewable way. Theoretical and simulation studies provide evidence that the introduction of renewable energy promotion policies lead to lower electricity prices as sustainable energy supply as wind and solar have very low or even zero marginal costs. Empirical support for this result is relatively scarce. The motivation for this study is to provide additional empirical evidence on how the growth of low marginal costs renewable energy supply such as wind and solar influences power prices. We do so indirectly studying Nord Pool market prices where hydro power is the dominant supply source. We argue that the marginal costs of hydro production varies depending on reservoir levels that determine hydro production capacity. Hydro power producers have an option to produce or to delay production and the value of the option to delay increases when the reservoir levels decrease and the option to delay decreases in value when reservoir levels increase and producers face the risk of spillovers. Hence, an increase in reservoir levels mimics the situation of an increase of low marginal costs renewable energy in a market. Our results show that higher reservoir levels, more hydro capacity, lead to significant lower power prices. From this we conclude that an increase in low marginal costs renewable power supply reduces the power prices. The second contribution of this paper is that we develop a market clearing price model by modelling the supply curve of power that varies over time depending on fundamentals such as hydro capacity and the prices of alternative power sources and that deals with maximum prices which apply to all power markets that we know. With our result, we strengthen support for the view that an increase in wind and solar supply lowers the power price. This is good news for consumers, but it increases the costs of sustainable energy policies such as feed-in tariffs and at the same time lowers revenues and profits for power producers in case governments would abandon such policies. This effect makes the economic and policy support for renewable energy less sustainable. Policy makers have to account for this if they want to stimulate a sustainable growth of sustainable energy supply.
    Keywords: Energy policies, sustainable energy, market clearing price, supply curve model.
    JEL: C51 Q41 Q42 Q48
    Date: 2013
  12. By: Marius Ley (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Tobias Stucki (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Martin Wörter (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: Based on patent data and industry specific energy prices for 18 OECD countries over 30 years we investigate on an industry level the impact of energy prices on green innovation activities. Our econometric models show that energy prices and green innovation activities are positively related and that energy prices have a significantly positive impact on the share of green innovations in non-green innovations. More concretely, our main model shows that a 10% increase of the average energy prices of the previous five years results in a 2.7% and 4.5% increase of the number of green innovations and the share of green innovations in non-green innovations, respectively. We also find that the impact of energy prices increases with an increasing lag between energy prices and innovation activities. Robustness tests confirm the main results.
    Keywords: Innovation, environment, energy prices
    JEL: O30 O34 Q55
    Date: 2013–08
  13. By: Ruben Bibas (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - Ecole des Ponts ParisTech - AgroParisTech); Jean-Charles Hourcade (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - Ecole des Ponts ParisTech - AgroParisTech)
    Abstract: Le modèle d'équilibre général Imaclim-R France est utilisé pour examiner différentes stratégies de transition énergétique menant à une trajectoire 'Facteur 4'. Le bilan macroéconomique d'un jeu d'hypothèses sur les conditions techniques de l'offre et la demande d'énergie varie fortement selon qu'il est inséré ou non dans un ensemble de mesures qui ne ressortissent pas du seul domaine des politiques énergétiques : politiques fiscales pour éviter la propagation des surcoûts de l'énergie dans l'appareil de production, négociation sociale et salariale pour gérer le recyclage du produit d'une taxe carbone, réforme des structures de financement, politiques industrielles et de formation aux nouveaux métiers, politiques d'infrastructures et changement comportementaux. Nous montrons ensuite comment une politique de financement baissant le coefficient risque des investissements 'bas carbone' permettrait, en améliorant la crédibilité des politiques publiques, de réduire les craintes qui expliquent la frilosité des acteurs économiques et de déclencher une réorientation des investissements plus rapide vers des équipements sobres en énergie. Le bilan macroéconomique change selon les modalités de la transition mais est positif à moyen et long terme en matière de croissance et d'emploi, ceci en raison de la synergie entre trois mécanismes : baisse des importations d'énergie, économies d'énergie libérant le pouvoir d'achat des ménages en biens et services non énergétiques, baisse du coût du travail permis par une taxe carbone. L'accompagnement économique de la transition est décisif pour passer d'un bilan légèrement négatif à court terme à un bilan positif, ce afin de donner le 'grain à moudre' nécessaire pour réduire ces tensions. L'enjeu est un 'effet crédibilité' venant de la conduite cohérente de politiques de prix et de financement guidant les anticipations des acteurs dans un contexte défavorable. Quant au dossier nucléaire, nous faisons apparaître une grande différence entre un nucléaire contraint par des exigences accrues 'de précaution' et une sortie volontariste à l'horizon 2050 avec interdiction de construction de nouvelles centrales. Cette dernière hypothèse suppose, pour respecter le F4, un développement important et précoce du CCS et conduit à un retard de croissance de 4,5 ans sur 40 ans compte non tenu des coûts de reconversion, et, en sens inverse, de changements profonds des comportements et des structures économiques. Des scénarios 'nucléaire de précaution' limitent sa place autour de 40% du mix énergétique à 2050 et permettent de reculer une décision de sortie ou de nouveau déploiement qui pourra être prise plus tard " en meilleure connaissance de cause ". L'enjeu, aujourd'hui est de se mettre en position de la prendre avec un fort consensus national autour non seulement du choix technologique ultime, quel qu'il soit, mais aussi des politiques économiques et sociales cohérentes avec ce choix.
    Keywords: transition énergétique, émissions de gaz à effets de serre, équilibre général, prospective, taxe carbone, anticipations
    Date: 2013–07
  14. By: Vandyck, Toon
    Abstract: We analyse the distributional effects of increased oil excises in Belgium by combining aComputable General Equilibrium (CGE) model with the EUROMOD microsimulation frameworkthat exploits the rich detail of household-level data. The link between the CGE model and themicro level is top-down, feeding changes in commodity prices, factor returns and employment bysector into a non-behavioural microsimulation. The results suggest that policymakers face anequity-efficiency trade-off driven by the choice of revenue recycling options. Distributional effectsof the environmental tax reform appear to depend strongly on changes in factor prices and welfarepayments.
    Date: 2013–07–30

This nep-env issue is ©2013 by Francisco S.Ramos. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.