nep-res New Economics Papers
on Resource Economics
Issue of 2013‒06‒30
eleven papers chosen by
Maximo Rossi
Universidad de la Republica

  1. Making Growth Green and Inclusive: The Case of Ethiopia By Steve Bass; Shannon Siyao Wang; Tadele Ferede; Daniel Fikreyesus
  2. On the Spatial Economic Impact of Global Warming By Klaus DESMET; Esteban ROSSI-HANSBERG
  3. Energy Intensive Infrastructure Investments with Retrofits in Continuous Time: Effects of Uncertainty on Energy Use and Carbon Emissions By Framstad, Nils Chr.; Strand, Jon
  4. Multinational enterprises and climate change strategies By Ans Kolk; Jonatan Pinkse
  5. Uncertainty in optimal pollution levels: Modeling the benefit area By Halkos, George
  6. When can environmental profile and emissions reductions be optimized independently of the pollutant level? By Framstad, Nils Chr.
  7. Climate Change and Economic Growth: An Intertemporal General Equilibrium Analysis for Egypt By Elshennawy, Abeer; Robinson, Sherman; Willenbockel, Dirk
  8. Analysis of institutional adaptability to redress electricity infrastructure vulnerability due to climate change By Foster, John; Bell, William Paul; Wild, Phillip; Sharma, Deepak; Sandu, Suwin; Froome, Craig; Wagner, Liam; Misra, Suchi; Bagia, Ravindra
  9. Modelling Complex Emissions Intensity Targets with a Simple Simulation Algorithm By Yiyong Cai; Yingying Lu; David Newth; Alison Stegman
  10. Local Natural Resource Curse? By Lars-Erik Borge; Pernille Parmer; Ragnar Torvik
  11. Threshold Preferences and the Environment By Benteng Zou; Ingmar Schumacher

  1. By: Steve Bass; Shannon Siyao Wang; Tadele Ferede; Daniel Fikreyesus
    Abstract: Ethiopian society, economy and environment are so intimately interlinked that systematic attention is essential if clashes are to be resolved and synergies realised. For example, the majority of poor people are principally dependent on agriculture but, in turn, society is dependent on farmers managing land well to sustain water supplies, biodiversity and other environmental services. Such relationships are dynamic and increasingly intense: climate change, rising population, resource scarcities and price volatilities put them all under pressure. An integrated perspective that works operationally is needed – one that makes economic, social and environmental sense and that inspires stakeholders. The holistic approach that the Ethiopian Government has recently developed aims to tackle the problems inherent in growth paths that produce environmental problems, and to realise potentials from investing in Ethiopia’s natural assets. For example, the country’s agricultural products and potential for green hydroelectric power are unique attributes that could drive development in ways that are environmentally sound and provide new jobs and satisfying livelihoods...
    Date: 2013–06–05
  2. By: Klaus DESMET; Esteban ROSSI-HANSBERG
    Abstract: We propose a dynamic spatial theory to analyze the geographic impact of climate change. Agricultural and manufacturing firms locate on a hemisphere. Trade across locations is costly; firms innovate; and technology diffuses over space. Energy used in production leads to emissions that contribute to the global stock of carbon in the atmosphere, which affects temperature.<br />The rise in temperature differs across latitudes, and its effect on productivity also varies across sectors. We calibrate the model to analyze how climate change affects the spatial distribution of economic activity, trade, migration, growth, and welfare. We assess quantitatively the impact of migration and trade restrictions, energy taxes, and innovation subsidies.
    Date: 2013–06
  3. By: Framstad, Nils Chr. (Dept. of Economics, University of Oslo); Strand, Jon (Dept. of Economics, University of Oslo)
    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 decisions to invest in such infrastructure, and retrofit it later, given that 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 would be inefficient when they are lower, as typical in practice. 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: Greenhouse gas emissions; long-term investments; retrofits; uncertainty; option value of waiting
    JEL: C61 Q54 R42
    Date: 2013–05–16
  4. By: Ans Kolk (Amsterdam Business School - University of Amsterdam); Jonatan Pinkse (MTS - Management Technologique et Strategique - Grenoble École de Management (GEM))
    Abstract: Climate change is often perceived as the most pressing environmental problem of our time, as reflected in the large public, policy, and corporate attention it has received, and the concerns expressed about the (potential) consequences. Particularly due to temperature increases, climate change affects physical and biological systems by changing ecosystems and causing extinction of species, and is expected to have a negative social impact and adversely affect human health (IPCC, 2007). Moreover, as a result of the economic costs and risks of extreme weather, climate change could have a severe impact on economic growth and development as well, if no action is taken to reduce emissions (Stern, 2006). This means that it can affect multinational enterprises (MNEs) active in a wide variety of sectors and countries. Climate change is not a 'purely' environmental issue because it is closely linked to concerns about energy security due to dependence on fossil fuels and oil in particular, and to energy efficiency and management more generally. Controversy about the climate change issue has led to a broadening of the agenda in some cases, with policy-makers targeting energy to avoid commotion about the science and politics of climate change, and firms likewise, also because addressing climate change in practice usually boils down to an adjustment in the energy base of business models.
    Date: 2012
  5. By: Halkos, George
    Abstract: This paper identifies the optimal pollution level under the assumptions of linear, quadratic and exponential damage and abatement cost functions and investigates analytically the certain restrictions that the existence of this optimal level requires. The evaluation of the benefit area is discussed and the mathematical formulation provides the appropriate methods, so that to be calculated. The positive, at least from a theoretical point of view, is that both the quadratic and the exponential case obey to the same form of evaluating the benefit area. These benefit area estimations can be used as indexes between different rival policies and depending on the environmental problem the policy that produces the maximum area will be the beneficial policy.
    Keywords: Benefit area; damage cost; abatement cost; pollution.
    JEL: C02 C62 Q51 Q52 Q53
    Date: 2013–06
  6. By: Framstad, Nils Chr. (Dept. of Economics, University of Oslo)
    Abstract: Consider a model for optimal timing of emissions reduction, trading off the cost of the reduction against the time-additive aggregate of environmental damage, the disutility from the pollutant stock M(t) the infrastructure contributes to. Intuitively, the optimal timing for an infinitesimal pollution source should reasonably not depend on its historical contribution to the stock, as this is negligible. Dropping the size assumption, we show how to reduce the minimization problem to one not depending on the history of M, under linear evolution and suitable linearity or additivity conditions on the damage functional. We employ a functional analysis framework which allows for delay equations, non-Markovian driving noise, a choice between discrete and continuous time, and a menu of integral concepts covering stochastic calculi less frequently used in resource and environmental economics. Examples are given under the common (Markovian Itô) stochastic analysis framework.
    Keywords: Optmal control; optimal stopping; environmental policy; emissions reduction; linear model; Banach space; stochastic differential equations
    JEL: C61 Q52
    Date: 2013–05–16
  7. By: Elshennawy, Abeer; Robinson, Sherman; Willenbockel, Dirk
    Abstract: Due to the high concentration of economic activity along the low-lying coastal zone of the Nile delta and its dependence on Nile river streamflow, Egypt's economy is highly exposed to adverse climate change. Adaptation planning requires a forward-looking assessment of climate change impacts on economic performance at economy-wide and sectoral level and a cost-benefit assessment of conceivable adaptation investments. This study develops a multisectoral intertemporal general equilibrium model with forward-looking agents, population growth and technical progress to analyse the long-run growth prospects of Egypt in a changing climate. Based on a review of existing estimates of climate change impacts on agricultural productivity, labor productivity and the potential losses due to sea-level rise for the country, the model is used to simulate the effects of climate change on aggregate consumption, investment and welfare up to 2050. Available cost estimates for adaptation investments are employed to explore adaptation strategies. On the methodological side, the present study overcomes the limitations of existing recursive-dynamic computable general models for climate change impact analysis by incorporating forward-looking expectations. Moreover, it extends the existing family of discrete-time intertemporal computable general equilibrium models to which our model belongs by incorporating population growth and technical progress. On the empirical side, the model is calibrated to a social accounting matrix that reflects the observed current structure of the Egyptian economy, and the climate change impact and adaptation scenarios are informed by a close review of existing quantitative estimates for the size order of impacts and the costs of adaptation measures. The simulation analysis suggests that in the absence of policy-led adaptation investments, real GDP towards the middle of the century will be nearly 10 percent lower than in a hypothetical baseline without climate change. A combination of adaptation measures, that include coastal protection investments for vulnerable sections along the low-lying Nile delta, support for changes in crop management practices and investments to raise irrigation efficiency, could reduce the GDP loss in 2050 to around 4 percent.
    Keywords: Climate change adaptation, Computable general equilibrium analysis, Dynamic CGE
    JEL: C68 D9 D90 E17 O44 Q54
    Date: 2013–01
  8. By: Foster, John; Bell, William Paul; Wild, Phillip; Sharma, Deepak; Sandu, Suwin; Froome, Craig; Wagner, Liam; Misra, Suchi; Bagia, Ravindra
    Abstract: This non-technical summary presents the findings and recommendations from the project called ‘Analysis of institutional adaptability to redress electricity infrastructure vulnerability due to climate change’. The objectives of the project are to examine the adaptive capacity of existing institutional arrangements in the National Electricity Market (NEM) to existing and predicted climate change conditions. Specifically the project: identifies climate change adaptation issues in the NEM; analyses climate change impacts on reliability in the NEM under alternative climate change scenarios to 2030, particularly what adaptation strategies the power generation and supply network infrastructure will need; and assesses the robustness of the institutional arrangements that supports effective adaptation. The project finds that four factors are hindering or required for adaptation to climate change: fragmentation of the NEM, both politically and economically; accelerated deterioration of the transmission and distribution infrastructure due to climate change requiring the deployment of technology to defer investment in transmission and distribution; lacking mechanisms to develop a diversified portfolio of generation technology and energy sources to reduce supply risk; and failure to model and treat the NEM as a national node based entity rather than state based. The project’s findings are primarily to address climate change issues but if these four factors are addressed, the resilience of the NEM is improved to handle other adverse contingences. For instance, the two factors driving the largest increases in electricity prices are investment in transmission and distribution and fossil fuel prices. Peak demand drives the investment in transmission and distribution but peak demand is only for a relatively short period. Exacerbating this effect is increasing underutilisation of transmission and distribution driven by both solar photo voltaic (PV) uptake and climate change. Using demand side management (DSM) to shift demand to outside peak periods provides one method to defer investment in transmission and distribution. Recommendation 2 addresses investment deferment. The commodity boom has increased both price and price volatility of fossil fuels where the lack of diversity in generation makes electricity prices very sensitive to fossil fuel prices and disruptions in supply. A diversified portfolio of generation would ameliorate the price sensitivity and supply disruptions. Furthermore, long term electricity price rises are likely to ensue as the fossil fuels become depleted. A diversified portfolio of generation would also ready the NEM for this contingency. Recommendation 3 addresses diversified portfolios. This project makes four inter-related recommendations to address the four factors listed above. Chapter 10 discusses the justification for these recommendations in more detail.
    Keywords: Climate change adaptation; Climate change mitigation; electricity demand; electricity generation; transmission; distribution; Australian National Electricity Market; Feed-in tariffs; FiT; solar PV; residential solar PV; reverse auction FiT; parity; Levelised cost of energy; LCOE; Diffusion of innovations; dynamic efficiency; allocative efficiency; Sustainable; Social progress; Environmental protection; Social inequity; DUOS; TUOS; smart meters; institutional adaptation;
    JEL: H1 H4 L94 Q2 Q3 Q4 Q5
    Date: 2013–06–12
  9. By: Yiyong Cai; Yingying Lu; David Newth; Alison Stegman
    Abstract: Designing, modelling and analysing global emissions policies are becoming increasingly complex undertakings. Pressure on developing economies to make quantifiable emissions reduction commitments has led to the introduction of intensity based emissions targets, where reductions in emissions are specified with reference to some measure of output, generally gross domestic product. The Copenhagen commitments of China and India are two prominent examples. From a modelling perspective, intensity targets substantially increase the complexity of analysis, with respect to both theoretical design and computational implementation. Here, a clear and practically relevant theoretical design is used to present a new algorithm that can be applied to frameworks that model the complex interaction that occurs between emissions policy instruments, emissions levels and output effects under an emissions intensity target. The coding of the algorithm has been simplified to allow for easy integration into a range of modelling frameworks. Further development of the algorithm that allows for more complex theoretical design structures is possible.
    Date: 2013–05
  10. By: Lars-Erik Borge (Department of Economics, Norwegian University of Science and Technology); Pernille Parmer (Department of Economics, Norwegian University of Science and Technology); Ragnar Torvik (Department of Economics, Norwegian University of Science and Technology)
    Abstract: The large variation in revenues among Norwegian local governments can partly be explained by revenues collected from hydropower production. This revenue variation, combined with good data availability, can be used to extend the literature on the re- source curse in two directions. First, to ensure that there is no problem of endogeneity in the analysis we obtain a purely exogenous measure of local revenue by instrumenting the variation in hydropower revenue, and thus total revenue, by topology, average pre- cipitation and meters of river in steep terrain. Second, using data for revenue derived from hydropower production in Norwegian local governments we test the 'Rentier State' hypothesis; that revenue derived from natural resources should harm efficiency more than revenue derived from other sources such as taxation. Although we do find that higher local government revenue reduces the efficiency in production of public goods, we do not find that this effect is stronger for natural resource revenue than for other revenue.
    Keywords: resource curse, rentier state, identification, local government, political economy
    JEL: D78 H11 H27 H71 H72 H75 Q2
    Date: 2013–06–19
  11. By: Benteng Zou (CREA, Université de Luxembourg); Ingmar Schumacher (IPAG Business School, Paris)
    Abstract: In this article we study the implication of thresholds in preferences. To model this we extend the basic model of John and Pecchenino (1994) by allowing the current level of environmental quality to have a discrete impact on how an agent trades off future consumption and environmental quality. In other words, we endogenize the semi-elasticity of utility based on a step function. We motivate the existence of the threshold based on research from political science, from arguments based on regulation and standards, cultural economics as well as ecological economics. Our results are that the location of the threshold determines both the potential steady states as well as the dynamics. For low (high) thresholds, environmental quality converges to a low (high) steady state. For intermediate levels it converges to a stable p-cycle, with environmental quality being asymptotically bounded below and above by the low and high steady state. We discuss implications for intergenerational equity and policy making. As policy implications we study shifts in the threshold. Our results are that, in case it is costless to shift the threshold, it is always worthwhile to do so. If it is costly to change the threshold, then it is worthwhile to change the threshold if the threshold originally was suffiently low. Lump-sum taxes may lead to a development trap and should be avoided if there are uncertainties about the threshold or the effectiveness of the policy.
    Keywords: thresholds, endogenous preferences, environmental quality, policy intervention
    JEL: Q28 Q56
    Date: 2013

This nep-res issue is ©2013 by Maximo Rossi. 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.
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