nep-res New Economics Papers
on Resource Economics
Issue of 2013‒05‒11
sixteen papers chosen by
Maximo Rossi
Universidad de la Republica

  1. The Economics of Climate Change and Science of Global Warming Debate:African Perspectives By Nwaobi, Godwin
  2. Carbon Markets: Past, Present, and Future By Newell, Richard G.; Pizer, William A.; Raimi, Daniel
  3. Designing Renewable Electricity Policies to Reduce Emissions By Fell, Harrison; Linn, Joshua; Munnings, Clayton
  4. Regulating Greenhouse Gases from Coal Power Plants under the Clean Air Act By Linn, Joshua; Mastrangelo, Erin; Burtraw, Dallas
  5. Modeling the Electricity Sector: A Summary of Recent Analyses of New EPA Regulations By Beasley, Blair; Morris, Daniel
  6. Energy intensive infrastructure investments with retrofits in continuous time : effects of uncertainty on energy use and carbon emissions By Framstad, Nils Christian; Strand, Jon
  7. Mercury and Air Toxics Standards Analysis Deconstructed: Changing Assumptions, Changing Results By Beasley, Blair; Woerman, Matt; Paul, Anthony; Burtraw, Dallas; Palmer, Karen
  8. Economic Ideas for a Complex Climate Policy Regime By Burtraw, Dallas; Woerman, Matt
  9. Linking by Degrees: Incremental Alignment of Cap-and-Trade Markets By Burtraw, Dallas; Palmer, Karen; Munnings, Clayton; Weber, Paige; Woerman, Matt
  10. Reforms for a Cleaner, Healthier Environment in China By Sam Hill
  11. Environmental taxes in the long run By Vetter, Henrik
  12. How Should Benefits and Costs Be Discounted in an Intergenerational Context? The Views of an Expert Panel By Arrow, Kenneth J.; Cropper, Maureen L.; Gollier, Christian; Groom, Ben; Heal, Geoffrey M.; Newell, Richard G.; Nordhaus, William D.; Pindyck, Robert S.; Pizer, William A.; Portney, Paul R.; Sterner, Thomas; Tol, Richard S. J.; Weitzman, Martin L.
  13. On Social Sanctions and Beliefs: A Pollution Norm Example By Garcia, Jorge H.; Wei, Jiegen
  14. The Value of Climate Amenities: Evidence from US Migration Decisions By Sinha, Paramita; Cropper, Maureen L.
  15. Cooperation and Climate Change: Can Communication Facilitate the Provision of Public Goods in Heterogeneous Settings? By Brick, Kerri; Van der Hoven, Zoe; Visser, Martine
  16. The Valuation of Biodiversity Conservation by the South African Khomani San “Bushmen” Community By Dikgang, Johane; Muchapondwa, Edwin

  1. By: Nwaobi, Godwin
    Abstract: As at today, it is an indisputable fact that the climate is changing and there is a scientific consensus that the world is becoming a warmer place principally attributable to human activities. Regrettably, the physical impacts of future climate change on humans and the environment will include increasing stresses on and even collapses of ecosystems, biodiversity loss, changing timing of growing seasons, coastal erosion, and ocean acidification as well as shifting ranges for pests and diseases. Consequently, development goals are threatened by climate change with heaviest impacts on poor countries and poor people. In particular, African countries will bear the brunt of effects of climate change, even as they strive to overcome poverty and advance economic growth. For these countries, climate change threatens to deepen vulnerabilities, erode hard-won gains and seriously undermine prospects for development. Using environmental impact and sustainability applied general equilibrium model, this paper argues that climate change will negatively affect agricultural productivity in Africa. Although the obligations to mitigate and adapt to climate change (and to go green) may be costly, it can actually represent an opportunity for African economies. As latecomers, Africa has indeed an opportunity to be at the forefront of the green revolution by implementing green development strategies based on low energy –intensity, low-carbon emissions and clean technologies.
    Keywords: Climate Change, Global Warming, Sustainable Development, Carbon Dioxide, Emissions, Methane, Nitrox Oxide, Simulations, Africa, Climate Finance, Abatement, Mitigation, Policies, Green Growth, Green Economy, Environment, Strategies, Perspectives, Challenges, Development Models, Temperature, Agriculture, Productivity, Poverty, Global Partnership, Ocean, Earth, Greenhouse Gases, Envisage, Cge Model, Energy Climate Change, Global Warming, Sustainable Development, Carbon Dioxide, Emissions, Methane, Nitrox Oxide, Simulations, Africa, Climate Finance, Abatement, Mitigation, Policies, Green Growth, Green Economy, Environment, Strategies, Perspectives, Challenges, Development Models, Temperature, Agriculture, Productivity, Poverty, Global Partnership, Ocean, Earth, Greenhouse Gases, Envisage, Cge Model, Energy
    JEL: D5 D62 H2 I3 L50 O1 O13 O14 O19 O2 O21 O3 O30 O33 O4 Q0 Q2 Q3 Q4 R0
    Date: 2013–05–07
  2. By: Newell, Richard G.; Pizer, William A.; Raimi, Daniel
    Abstract: Carbon markets are substantial and they are expanding. There are many lessons from experiences over the past eight years -- fewer free allowances, better management of market-sensitive information, and a recognition that trading systems require adjustments that have consequences for market participants and market confidence. Moreover, the emerging international architecture features separate emissions trading systems serving distinct jurisdictions. These programs are complemented by a variety of other types of policies alongside the carbon markets. This sits in sharp contrast to the integrated global trading architecture envisioned 15 years ago by the designers of the Kyoto Protocol and raises a suite of new questions. In this new architecture, jurisdictions with emissions trading have to decide how, whether, and when to link with one another, and policymakers overseeing carbon markets must confront how to measure the comparability of efforts among markets and relative to a variety of other policy approaches.
    Keywords: carbon market, tradable permit, allowance, climate change, greenhouse gas
    JEL: Q54 Q52 Q58 F53 D04
    Date: 2012–12–07
  3. By: Fell, Harrison; Linn, Joshua (Resources for the Future); Munnings, Clayton (Resources for the Future)
    Abstract: A variety of renewable electricity policies to promote investment in wind, solar, and other types of renewable generators exist across the United States. The federal renewable energy investment tax credit, the federal renewable energy production tax credit, and state renewable portfolio standards are among the most notable. Whether the benefits of promoting new technology and reducing pollution emissions from the power sector justify these policies’ costs has been the subject of considerable debate. We argue in this paper that the debate is misguided because it does not consider two important interactions between renewable electricity generators and the rest of the power system. First, the value of electricity from a renewable generators depends on the generation and investment it displaces. Second, a large increase in renewable generation can reduce electricity prices, increasing consumption and emissions from fossil generators, and offsetting some of the environmental benefits of the policies. Two policy conclusions follow. First, existing renewable electricity policies can be redesigned to promote investment in the highest-value generators, which can greatly reduce the cost of achieving a given emissions reduction. Second, subsidies financed out of general tax revenue reduce emissions less than subsidies financed by charges to electricity consumers.
    Keywords: renewable portfolio standard, production tax credit, investment tax credit, feed-in tariff, clean energy standard, cost-effectiveness, intermittency, wind energy, solar energy
    JEL: Q40 Q54 L94
    Date: 2012–12–12
  4. By: Linn, Joshua (Resources for the Future); Mastrangelo, Erin; Burtraw, Dallas (Resources for the Future)
    Abstract: The Clean Air Act has assumed the central role in US climate policy, directing the development of regulations governing greenhouse gas emissions from existing coal-fired power plants. This paper examines the operation of coal-fired generating units over 25 years to estimate the marginal costs and potential magnitude of emissions reductions from improving their efficiency. We find that a 10 percent increase in coal prices causes a 0.2 to 0.5 percent heat rate reduction, broadly consistent with engineering assessments. We also find that coal prices have a significant effect on utilization. The results are used to compare cost-effectiveness of alternative policies.
    Keywords: efficiency, regulation, greenhouse gas, carbon dioxide, coal, performance standards
    JEL: L94 Q54
    Date: 2013–02–19
  5. By: Beasley, Blair (Resources for the Future); Morris, Daniel (Resources for the Future)
    Abstract: Several different economic models have been applied to try to understand how new regulations by the U.S. Environmental Protection Agency (EPA) could impact coal-fired generation in the United States as well as the electricity system as a whole. This paper provides an overview of many of the key studies and the models used to analyze the potential impacts of EPA’s rules. The regulations surveyed include the Cross-State Air Pollution Rule (CSAPR), the Mercury and Air Toxics Standards (MATS), the proposed Clean Water Act (CWA) Section 316(b) rule, and the proposed Coal Combustion Residuals (CCR) rule. The models generally agree that these regulations will result in coal plant retirements, though there is far less agreement on how much generation may retire. Assumptions about the price of natural gas and the expected stringency of regulations play a key role in determining modeling results. The models provide useful guidance for policymakers when considering the potential impact of EPA regulation.
    Keywords: Clean Air Act, electricity, EPA regulation, modeling, power plant retirement
    JEL: C69 L51 Q47 Q48 Q52
    Date: 2012–11–16
  6. By: Framstad, Nils Christian; Strand, Jon
    Abstract: Energy-intensive infrastructure may tie up fossil energy use and carbon emissions for a long time after investments, making the structure of such investments crucial for society. Much or most of the resulting carbon emissions can often be eliminated later, through a costly retrofit. This paper studies the simultaneous decision to invest in such infrastructure, and retrofit it later, in a model where future climate damages are uncertain and follow a geometric Brownian motion process with positive drift. It shows that greater uncertainty about climate cost (for given unconditional expected costs) then delays the retrofit decision by increasing the option value of waiting to invest. Higher energy intensity is also chosen for the initial infrastructure when uncertainty is greater. These decisions are efficient given that energy and carbon prices facing the decision maker are (globally) correct, but inefficient when they are lower, which is more typical. Greater uncertainty about future climate costs will then further increase lifetime carbon emissions from the infrastructure, related both to initial investments, and to too infrequent retrofits when this emissions level is already too high. An initially excessive climate gas emissions level is then likely to be worsened when volatility increases.
    Keywords: Climate Change Mitigation and Green House Gases,Climate Change Economics,Transport Economics Policy&Planning,Energy Production and Transportation,Environmental Economics&Policies
    Date: 2013–04–01
  7. By: Beasley, Blair (Resources for the Future); Woerman, Matt (Resources for the Future); Paul, Anthony (Resources for the Future); Burtraw, Dallas (Resources for the Future); Palmer, Karen (Resources for the Future)
    Abstract: Several recent studies have used simulation models to quantify the potential effects of recent environmental regulations on power plants, including the Mercury and Air Toxics Standards (MATS), one of the US Environmental Protection Agency’s most expensive regulations. These studies have produced inconsistent results about the effects on the industry, making general conclusions difficult. We attempt to reconcile these differences by representing the variety of assumptions in these studies within a common modeling platform. We find that the assumptions, and their differences from the way MATS will be implemented, make a substantial impact on projected retirement of coal-fired capacity and generation, investments that are required, and emissions reductions. Almost uniformly, the actual regulation, when examined in its final form and in isolation, provides more flexibility than is represented in most models. We find this leads to a smaller impact on the composition of the electricity generating fleet than most studies have predicted.
    Keywords: sulfur dioxide, mercury, air toxics, nitrogen oxides, carbon dioxide, electricity, technology, generation
    JEL: Q47 Q53 Q58
    Date: 2013–04–08
  8. By: Burtraw, Dallas (Resources for the Future); Woerman, Matt (Resources for the Future)
    Abstract: The parsimony of economic theory provides general insights into an otherwise complex world. However, even the most straightforward organizing principles from theory have not often taken hold in environmental policy or in the decentralized climate policy regime that is unfolding. One reason is inadequate recognition of a variety of institutions. This paper addresses three ways the standard model may inadequately anticipate the role of institutions in the actual implementation of climate policy: multilayered authority across jurisdictions, the impressionistic rather than deterministic influence of prices through subsidiary jurisdictions, and the complementary role of prices and regulation in this context. The economic approach is built on the premise that incentives affect behavior. We suggest an important pathway of influence for economic theory is to infuse incentive-based thinking into existing institutions and the conventional regulatory framework. In a complex policy regime, incentives can be shaped by shadow prices as well as market prices.
    Keywords: climate change, institutions, federalism, subsidiarity, efficiency, shadow prices, incentives, regulation
    JEL: Q54 H77 D02
    Date: 2013–03–08
  9. By: Burtraw, Dallas (Resources for the Future); Palmer, Karen (Resources for the Future); Munnings, Clayton (Resources for the Future); Weber, Paige; Woerman, Matt (Resources for the Future)
    Abstract: National and subnational economies have started implementing carbon pricing systems unilaterally, from the bottom up. Therefore, the potential linking of individual cap-and-trade programs to capture efficiency gains and other benefits is of keen interest. This paper introduces a two-tiered framework to guide policymakers, with an interest in North American policy outcomes. One tier discusses program elements that need to be aligned before trading of allowances across programs can occur. The second identifies benefits of incremental alignment of program elements even prior to trading between programs—which we call “linking by degrees.” We apply this framework to California’s cap-and-trade program and the Regional Greenhouse Gas Initiative. These programs are already linking through cooperation and sharing of information. Many aspects of the program designs are ready for the exchange of allowances within a common market; however, the difference in allowance prices remains an issue to be considered before formal linking could occur.
    Keywords: greenhouse gas, climate change, climate policy, policy coordination
    JEL: Q58 H77
    Date: 2013–04–05
  10. By: Sam Hill
    Abstract: China’s exceptional economic expansion has led to rising energy demand and pollution as well as other environmental pressures. Strong efforts by the government have moderated emissions of some types of air and water pollution from high levels but others, including greenhouse gas emissions, continue to rise. Poor air and water quality threaten human health, create other costs and reduce well-being. The 12th Five Year Plan aims at further reducing pollution and at other environmental improvements. To achieve these goals in a cost-effective manner wide-ranging reforms are needed. Reliance on command-and-control measures ought to make way gradually for well-implemented market-based approaches. Energy and water pricing need to be reformed to provide stronger incentives for end-users. So does pollution pricing. A carbon tax should be given serious consideration, especially if pilot carbon emissions trading schemes turn out to be difficult to implement. As well, stronger standards are needed, including for motor vehicles and fuels. Efforts to enhance environmental enforcement, particularly at the local level, will also be key to further progress. This Working Paper relates to the 2013 OECD Economic Survey of China (<P>Des réformes pour assainir l'environnement en Chine<BR>L’expansion économique exceptionnelle de la Chine a entraîné une demande croissante d'énergie et une hausse de la pollution ainsi que d'autres pressions environnementales. Les efforts soutenus du gouvernement ont modéré les émissions de certains types de pollution de l’air et de l’eau à des niveaux élevés, mais d'autres, y compris les émissions de gaz à effet de serre continuent d'augmenter. La mauvaise qualité de l'eau et de l’air menace la santé humaine, crée des coûts supplémentaires et réduit le bien-être. Le 12e plan quinquennal vise à réduire la pollution et à améliorer l'environnement. Pour atteindre ces objectifs d'une manière rentable de vastes réformes sont nécessaires. La dépendance à l'égard des mesures de commandement et de contrôle devrait faire place progressivement à une bonne mise en oeuvre des approches fondées sur le marché. Les prix de l'énergie et de l'eau doivent être réformés pour fournir des incitations plus fortes pour les utilisateurs finaux. Il en va de même pour la tarification de la pollution. Une taxe carbone devrait être sérieusement prise en considération, surtout si les régimes pilotes d'échange d'émissions de carbone se révèlent difficiles à mettre en oeuvre. De plus, des normes plus strictes sont nécessaires, notamment pour les véhicules à moteur et les carburants. Les efforts visant à renforcer le respect de l'environnement, en particulier au niveau local, seront également essentiels à de nouveaux progrès. Ce Document de travail se rapporte à l'Étude économique de la Chine de l’OCDE, 2013, (
    Keywords: health, environment, energy, renewable energy, China, air pollution, emissions trading scheme, carbon tax, cities, water pollution, pollution, environmental taxation, santé, environnement, énergie renouvelable, Chine, fiscalité environnementale, pollution de l'eau, pollution, taxe carbone, pollution de l’air, systèmes d'échange d'émissions
    JEL: I18 Q00 Q25 Q28 Q4 Q5 R48
    Date: 2013–04–17
  11. By: Vetter, Henrik
    Abstract: The efficiency of the Pigouvian tax suggests that price-based regulation is the proper benchmark for efficient regulation. However, results due to Carlton and Loury (1980, 1986) question this; when harm depends on scale effects a pure Pigou tax is inefficient regulation in the long run. In this note we make precise that there is an efficient tax scheme for controlling harm as long as social optimum exists. In particular, the efficient tax scheme is based on a tax rate equal to marginal harm. Hence, price regulation is the right benchmark for regulation even in the presence of scale effects in the harm function. --
    Keywords: externalities,scale effects,Pigou-taxes
    JEL: D61 D62
    Date: 2013
  12. By: Arrow, Kenneth J.; Cropper, Maureen L. (Resources for the Future); Gollier, Christian; Groom, Ben; Heal, Geoffrey M.; Newell, Richard G.; Nordhaus, William D.; Pindyck, Robert S.; Pizer, William A.; Portney, Paul R.; Sterner, Thomas; Tol, Richard S. J.; Weitzman, Martin L.
    Abstract: In September 2011, the US Environmental Protection Agency asked 12 economists how the benefits and costs of regulations should be discounted for projects that affect future generations. This paper summarizes the views of the panel on three topics -- the use of the Ramsey formula as an organizing principle for determining discount rates over long horizons, whether the discount rate should decline over time, and how intra- and intergenerational discounting practices can be made compatible. The panel members agree that the Ramsey formula provides a useful framework for thinking about intergenerational discounting. We also agree that theory provides compelling arguments for a declining certainty-equivalent discount rate. In the Ramsey formula, uncertainty about the future rate of growth in per capita consumption can lead to a declining consumption rate of discount, assuming that shocks to consumption are positively correlated. This uncertainty in future consumption growth rates may be estimated econometrically based on historic observations, or it can be derived from subjective uncertainty about the mean rate of growth in mean consumption or its volatility. Determining the remaining parameters of the Ramsey formula is, however, challenging.
    Keywords: discount rate, uncertainty, declining discount rate, benefit-cost analysis
    JEL: D61
    Date: 2012–12–19
  13. By: Garcia, Jorge H.; Wei, Jiegen
    Abstract: A prevailing view in the literature is that social sanctions can support, in equilibrium, high levels of obedience to a costly norm. The reason is that social disapproval and stigmatization faced by the disobedient are highest when disobedience is the exception rather than the rule in society. In contrast, the (Bayesian) model introduced here shows that imperfect information causes the expected social sanction to be lowest precisely when obedience is more common. This, amongst other fi?ndings, draws a distinct line between social and moral sanctions, both of which may depend on others' ?behavior but not on action observability.
    Keywords: social interactions, social norms, asymmetric information
    JEL: D82 K42 L51
    Date: 2013–02–14
  14. By: Sinha, Paramita; Cropper, Maureen L. (Resources for the Future)
    Abstract: We value climate amenities by estimating a discrete location choice model for households that changed metropolitan statistical areas (MSAs) between 1995 and 2000. The utility of each MSA depends on location-specific amenities, earnings opportunities, housing costs, and the cost of moving to the MSA from the household’s 1995 location. We use the estimated trade-off between wages and climate amenities to value changes in mean winter and summer temperatures. At median temperatures for 1970 to 2000, a 1°F increase in winter temperature is worth less than a 1° decrease in summer temperature; however, the reverse is true at winter temperatures below 25°F. These results imply an average welfare loss of 2.7 percent of household income in 2020 to 2050 under the B1 (climate-friendly) scenario from the special report on emissions scenarios (Intergovernmental Panel on Climate Change 2000), although some cities in the Northeast and Midwest benefit. Under the A2 (more extreme) scenario, households in 25 of 26 cities suffer an average welfare loss equal to 5 percent of income.
    Keywords: climate amenities, discrete choice models, migration, welfare impacts of temperature changes
    JEL: Q5 Q51
    Date: 2013–01–03
  15. By: Brick, Kerri; Van der Hoven, Zoe; Visser, Martine
    Abstract: International and domestic efforts to reduce greenhouse gas emissions require a coordinated effort from heterogeneous actors. This experiment uses a public good game with a climate change framing to consider whether cooperation is possible in just such a climate change context. Specifically, we examine whether groups of heterogeneous individuals can meet a collective emissions reduction target through individual contributions. Participants represent two different sectors of society with differing marginal costs of abatement. Thus, the equity considerations that make climate change such a contentious issue are implicit in the experiment framing. Subjects are able to communicate with one another in order to coordinate contribution strategies. The results indicate that participatory processes and stakeholder engagement play an important role in promoting cooperation—even when heterogeneity is present. However, heterogeneity makes it more difficult for groups to reach consensus on how to distribute an abatement burden. Further, the non-binding nature of the agreement results in significant levels of free-riding. In addition, heterogeneity appears to provide disadvantaged player-types with a justification for free-riding. Ultimately, the results indicate that participatory processes alone are not sufficient to induce widespread compliance with a mitigation obligation.
    Keywords: public good, framing, communication, heterogeneity, emissions reduction target
    JEL: H41 Q54 Q58
    Date: 2012–11–16
  16. By: Dikgang, Johane; Muchapondwa, Edwin
    Abstract: The restitution of parkland to the Khomani San “bushmen” and Mier “agricultural” communities in May 2002 marked a significant shift in conservation in the Kgalagadi Transfrontier Park and environs in South Africa. Biodiversity conservation will benefit from this land restitution only if the Khomani San, who interact with nature more than do other groups, are good environmental stewards. To assess their attitude toward biodiversity conservation, this study used the contingent valuation method to investigate the values the communities assign to biodiversity conservation under three land tenure arrangements in the Kgalagadi area. For each community and land tenure arrangement, there are winners and losers, but the winners benefit by more than the cost that losers suffer. The net worth for biodiversity conservation under the various land tenure regimes ranged from R928 to R3,456 to R4,160 for municipal land, parkland, and communal land respectively for the Khomani San, compared to R25,600 to R57,600 to R64,000 for municipal land, parkland, and communal land respectively for the Mier. Both communities have the highest preference for the implementation of the biodiversity conservation programme on communal land. There are no significant differences in the WTP between the two communities when adjusted for annual median household income; hence, the Khomani San can be trusted to become good environmental stewards. However, in order for all members of the local communities to support biodiversity conservation unconditionally, mechanisms for fair distribution of the associated costs and benefits should be put in place.
    Keywords: biodiversity, contingent valuation, Khomani San, land restitution
    JEL: Q01 Q53 Q57
    Date: 2012–10–17

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