nep-res New Economics Papers
on Resource Economics
Issue of 2016‒05‒21
five papers chosen by
Maximo Rossi
Universidad de la República

  1. Climate Change Policy under Polar Amplification By W. Brock; A. Xepapadeas
  2. Environmental Protection for Sale: Strategic Green Industrial Policy and Climate Finance By Carolyn Fischer
  3. Extending the EU Commission’s Proposal for a Reform of the EU Emissions Trading System By Stefan P. Schleicher; Angela Köppl; Alexander Zeitlberger
  4. Towards a low carbon Europe: the role of technological change and environmental policies in European manufacturing sectors By Marianna Gilli
  5. The Role of the Forest in Climate Policy By Eriksson, Mathilda

  1. By: W. Brock (Economics Department, University of Wisconsin, University of Missouri and Beijer Fellow); A. Xepapadeas (Athens University of Economics and Business, Department of International and European Economic Studies and Beijer Fellow)
    Abstract: Polar amplification is an established scientific fact which has been associated with the surface albedo feedback and to heat and moisture transport from the Equator to the Poles. In this paper we unify a two-box climate model, which allows for heat and moisture transport from the southern region to the northern region, with an economic model of welfare optimization. Our main contribution is to show that by ignoring spatial heat and moisture transport and the resulting polar amplification, the regulator may overestimate or underestimate the tax on GHG emissions. The direction of bias depends on the relations between marginal damages from temperature increase in each region. We also determine the welfare cost when a regulator mistakenly ignores polar amplification. Finally we show the adjustments necessary to the market discount rate due to transport phenomena as well as how our two-box model can be extended to Ramsey-type optimal growth models. Numerical simulations confirm our theoretical results.
    Keywords: Polar Amplification, Spatial Heat and Moisture Transport, Optimal Policy, Emission Taxes, Market Discount Rate
    JEL: Q54 Q58
    Date: 2016–03
  2. By: Carolyn Fischer (Resources for the Future, Gothenburg University, FEEM, and CESifo Research Network)
    Abstract: Industrial policy has long been criticized as subject to protectionist interests; accordingly, subsidies to domestic producers face disciplines under World Trade Organization agreements, without exceptions for environmental purposes. Now green industrial policy is gaining popularity as governments search for low-carbon solutions that also provide jobs at home. The strategic trade literature has largely ignored the issue of market failures related to green goods. I consider the market for a new environmental good (like low-carbon technology) whose downstream consumption provides external benefits (like reduced emissions). Governments may have some preference for supporting domestic production, such as by interest-group lobbying, introducing a political distortion in their objective function. I examine the national incentives and global rationales for offering production (upstream) and deployment (downstream) subsidies in producer countries, allowing that some of the downstream market may lie in nonregulating third-party countries. Restraints on upstream subsidies erode global welfare when environmental externalities are large enough relative to political distortions. Climate finance is an effective alternative if political distortions are large and governments do not undervalue carbon costs. Numerical simulations of the case of renewable energy indicate that a modest social cost of carbon can imply benefits from allowing upstream subsidies.
    Keywords: Green Industrial Policy, Emissions Leakage, Externalities, International Trade, Renewable Energy, Subsidies
    JEL: F13 F18 H21 Q5
    Date: 2016–04
  3. By: Stefan P. Schleicher (Wegener Center for Climate and Global Change at the University of Graz); Angela Köppl (Austrian Institute of Economic Research); Alexander Zeitlberger (Wegener Center for Climate and Global Change at the University of Graz)
    Abstract: Pursuing an evidence based approach we summarize the key elements of the European Commission’s proposal of July 2015 for a reform of the EU Emissions Trading System and offer facts about the current state of EU ETS that underline the needs for such a reform. We supply key data for understanding the current state of EU ETS and report in particular the share of freely allocated allowances in emissions for the various sectors since the start of EU ETS in 2005. This is the most relevant parameter for evaluating the stringency and cost impacts of the EU ETS on sectors and installations. We provide propositions for enhancing the allocation procedure of both free and auctioned allowances, the fundamental element in the cap and trade design of this system. We link this procedure closely to the relevant suggestions of the Commission proposal and offer extensions that can make in particular the allocation of free allowances more targeted and effective. We indicate how the impacts of free allowances can be calculated both for sectors and installations and conclude that these reform steps could reduce the administrative burden of the system.
    Keywords: EU Emissions Trading System, Reform Options, EU Commission’s Proposal
    JEL: Q53 Q54
    Date: 2016–03
  4. By: Marianna Gilli (Department of Economics and Management, University of Ferrara, Italy.)
    Abstract: This paper aims to shed light on the role of environmental policies, technological change and their interaction, on CO2 emissions in Europe. Building on the literature, which studies the relationship between environmental performances and technological change, as well as the literature related to the effects of environmental policy, two hypothesis are framed: the first one is that both environmental policy and technological change have a negative effect on CO2 emissions level. The second one is that technological change and environmental policy are complementary determinants of a reduced CO2 level. Both a fixed effects model and IV model are applied. Results offer support to these hypothesis and highlight sectorial differences in policy and technology effects toward lower emissions levels.
    Keywords: technological change, environmental policy, pollution emissions
    JEL: L60 O33 Q53
    Date: 2016–04
  5. By: Eriksson, Mathilda (Department of Economics, Umeå University)
    Abstract: This thesis consists of an introductory part and four papers related to the optimal use of forest as a mitigation strategy. In Paper [I], I develop the FOR-DICE model to analyze optimal global forest carbon management. The FOR-DICE is a simple framework for assessing the role of the boreal, tropical, and temperate forests as both a source of renewable energy and a resource to sequester and store carbon. I find that forests play an important role in reducing global emissions, especially under ambitious climate targets. At the global level, efforts should focus on increasing the stock of forest biomass rather than increasing the use of the forest for bioenergy production. The results also highlight the important role of reducing tropical deforestation to reduce climate change. In Paper [II], I develop the FRICE to investigate the role of two key efforts to increase the stock of forest biomass, namely, afforestation and avoided deforestation. FRICE is a multi-regional integrated assessment model that captures the dynamics of forest carbon sequestration in a transparent way and allows me to investigate the allocation of these actions across space and time. I find that global climate policy can benefit considerably from afforestation and avoided deforestation in tropical regions, and in particular in Africa. Avoided deforestation is particularly effective in the short run while afforestation provides the largest emissions reductions in the medium run. This paper also highlights the importance of not solely relying on avoided deforestation as its capacity to reduce emissions is more limited than afforestation, especially under more stringent temperature targets. In Paper [III], we investigate how uncertainties linked to the forest affect the optimal climate policy. We incorporate parameter uncertainty on the intrinsic growth rate and climate effects on the forest by using the state-contingent approach. Our results show that forest uncertainty matters. We find that the importance of including forest in climate policy increases when the forest is subject to uncertainty. This occurs because optimal forest response allows us to reduce the costs associated with uncertainty. In Paper [IV], we explore the implications of asymmetries in climate policy arising from not recognizing forest carbon emissions and sequestration in the decision-making process. We show that not fully including carbon values associated with the forest will have large effects on different forest controls and lead to an increase in emissions, higher carbon prices, and lower welfare. We further find, by investigating the relative importance of forest emissions compared to sequestration, that recognizing forest emissions from bioenergy and deforestation is especially important for climate policy.
    Keywords: climate change; integrated assessment; forest carbon sequestration; forest bioenergy; avoided deforestation; afforestation; uncertainty; dynamic modeling; DICE; RICE
    JEL: C61 D81 H23 Q23 Q42 Q54 Q56
    Date: 2016–04–26

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