nep-res New Economics Papers
on Resource Economics
Issue of 2014‒03‒22
four papers chosen by
Maximo Rossi
Universidad de la Republica

  1. Modeling of environmental adaptation versus pollution mitigation By YATSENKO, Yuri; HRITONENKO, Natali; BRECHET, Thierry
  2. Optimal environmental border adjustments under the General Agreement on Tariffs and Trade By Edward J. Balistreri; Daniel T. Kaffine; Hidemichi Yonezawa
  3. How to Make Environmental Targets Affordable in Estuarine Waters: Extending the Polluter Pays Principle? By Mateo Cordier; Walter Hecq; Rima Hawi; José A. Pérez Agúndez
  4. Assessing the Income and Employment Effects of Shale Gas Extraction Windfalls: Evidence from the Marcellus Region By Dusan Paredes Araya; Timothy Komarek; Scott Loveridge

  1. By: YATSENKO, Yuri (School of Business, Houston Baptist University); HRITONENKO, Natali (Department of Mathematics, Prairie View A&M University); BRECHET, Thierry (Université catholique de Louvain, CORE and Louvain School of Management, Belgium)
    Abstract: The paper combines analytic and numeric tools to investigate a nonlinear optimal control problem relevant to the economics of climate change. The problem describes optimal investments into pollution mitigation and environmental adaptation at a macroeconomic level. The steady-state analysis of this problem focuses on the optimal ratio between adaptation and mitigation. In particular, we analytically prove that the long- term investments into adaptation are profitable only for economies above certain efficiency threshold. Numerical simulation is provided to estimate how the economic efficiency and capital deterioration affect the optimal policy.
    Keywords: climate change, environmental adaptation, mitigation, optimal control, steady state analysis
    Date: 2014–03–12
  2. By: Edward J. Balistreri (Division of Economics and Business, Colorado School of Mines); Daniel T. Kaffine (Department of Economics, University of Colorado, at Boulder); Hidemichi Yonezawa (Institute of the Environment, University of Ottawa)
    Abstract: We consider the legal and economic context for border adjustments that might be used to augment subglobal carbon abatement. Following Markusen (1975) we establish optimal border policy in the presence of cross-border environmental damages. The optimal border policy includes a strategic component that is inconsistent with legal commitments under the General Agreement on Tariffs and Trade (GATT). Incorporating GATT compliance into the theory indicates an optimal border adjustment that taxes the carbon content of trade below the domestic carbon price. This theoretic finding is in contrast to the standard advice to impose the domestic carbon price on the carbon content of trade. The wedge between the domestic carbon price and the optimal environmental border adjustment occurs in general equilibrium because border adjustments inadvertently drive up consumption of emissions intensive goods in unregulated regions. We conclude our analysis with numeric simulations of Annex-I carbon policy. We find an optimal import tariff on the carbon content of aluminum that is on the order of 50\% of the domestic carbon price. Countries that impose border carbon adjustments at the domestic carbon price will be extracting rents from unregulated regions at the expense of efficient environmental policy and consistency with international law.
    Keywords: climate policy, border tax adjustments, carbon leakage, trade and carbon taxes
    JEL: F18 Q54 Q40 K33
    Date: 2014–02
  3. By: Mateo Cordier; Walter Hecq; Rima Hawi; José A. Pérez Agúndez
    Abstract: In European environmental water legislation, costs are deemed disproportionate when the total cost of a supplementary environmental measure appreciably exceeds the total benefit generated by the measure (cost-benefit concept). Moreover when costs are lower than benefits, they are deemed disproportionate if polluters cannot afford them (affordability concept). The implication of both disproportionality concepts for ecosystem protection is important given that they condition the possibility for environmental targets to be postponed or made less stringent. But what if this twofold concept of disproportionate cost were replaced by the affordability concept alone? A first argument supporting our suggestion is that cost-benefit analysis encounters difficulties in taking into account the important ecological functions provided by biological structures and processes from which ecosystem services stem. A second argument is that there is no reason for not implementing an environmental legislation democratically decided by representatives if polluters can bear the costs. The problem is that the affordability concept strongly depends on the range of the “Polluter Pays Principle” considered. In order to improve environmental equity and reduce the number of cases where environmental targets are postponed or made less stringent, we develop two extensions of the “Polluter Pays Principle”. The extension method is based on an ecological-economic input-output model and tested on the case of natural marine habitat destroyed by harbour extension in the Seine estuary. The results suggest that disproportionate costs can be transformed into affordable ones when the “Polluter Pays Principle” is extended to economic sectors with indirect responsibilities of second order (“User Pays Principle”) and third order (“User of User Pays Principle”). To ensure that such extension is fair to the ecosystem and to economic sectors, equity issues are considered. Our results suggest that if the method developed in this paper were applied, economic feasibility would no longer be an argument to impede the implementation of policies with ambitious environmental targets offering significant improvements to ecosystem quality.
    Keywords: polluter pays principle; ecological-economic model; water legislation; disproportionate cost; cost-benefit analysis; equity
    Date: 2014–01–06
  4. By: Dusan Paredes Araya (IDEAR - Department of Economics, Universidad Católica del Norte - Chile); Timothy Komarek; Scott Loveridge
    Abstract: New technologies combining hydraulic fracturing and horizontal drilling in oil and gas extraction are creating a sudden expansion of production. Residents of places where deep underground oil and gas deposits are found want to know about the broader economic, social, and environmental impacts of these activities that generate windfall income for some residents. We first review the literature on windfall spending patterns. Then, using the Marcellus region, the earliest area to be tapped using the new techniques, we estimate county-level employment and income effects. For robustness, we employ two methods. Using a propensity score matching approach we find no effect of fracking on income or employment. A panel-fixed effects regression approach suggests statistically significant employment effects in six out of seven alternative specifications, but significant income effects in only one out of seven specifications. In short, the income spillover effects in the Marcellus region appear to be minimal, meaning there’s little incentive at the county level to incur current or potential future costs that may be associated with this activity. We conclude with some ideas on how localities might employ policies that would allow natural gas extraction to move forward, benefitting landowners, while establishing some financial safeguards for the broader community.
    Keywords: : Economic growth, Marcellus shale gas, resource extraction, propensity score matching, panel data, windfall.
    JEL: R11 Q33 Q32
    Date: 2014–03

This nep-res issue is ©2014 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.
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.