nep-res New Economics Papers
on Resource Economics
Issue of 2018‒08‒27
five papers chosen by
Maximo Rossi
Universidad de la República

  1. Strategic interactions and uncertainty in decisions to curb greenhouse gas emissions By Margaret Insley; Tracy Snoddon; Peter A. Forsyth
  2. Linking Heterogeneous Climate Policies (Consistent with the Paris Agreement) By Mehling, Michael A.; Metcalf, Gilbert E.; Stavins, Robert N.
  3. Optimal timing of harzardous waste clean-up under an environmental bond an a strict liability rule By Sara Aghakazemjourabbaf; Margaret Insley
  4. Recalculating the Social Cost of Carbon By Shayegh, Soheil; Bosetti, Valentina; Dietz, Simon; Emmerling, Johannes; Hambel, Christoph; Jensen, Svenn; Kraft, Holger; Tavoni, Massimo; Traeger, Christian; Van der Ploeg, Rick
  5. Directed Technical Change in Clean Energy: Evidence from the Solar Industry By Lööf, Hans; Perez, Luis; Baum, Christopher F

  1. By: Margaret Insley (Department of Economics, University of Waterloo); Tracy Snoddon (Department of Economics, Wilfrid Laurier University); Peter A. Forsyth (Cheriton School of Computer Science, University of Waterloo)
    Abstract: This paper examines the strategic interactions of two large regions making choices about greenhouse gas emissions in the face of rising global temperatures. Optimal decisions are modelled in a fully dynamic, closed loop Stackelberg pollution game. Global average temperature is modelled as a mean reverting stochastic process. A numerical solution of a coupled system of HJB equations is implemented. We explore the impact of temperature volatility and regional asymmetries on emissions, contrasting the outcomes from the Stackelberg game with the choices made by a social planner. When players are identical, a classic tragedy of the commons is demonstrated in which players in the game choose higher carbon emissions and have lower utility as compared to the outcome with a social planner. Over certain values of state variables, the tragedy of the commons is shown to be exacerbated by increased temperature volatility and regional asymmetries in climate damages. Asymmetries in environmental preferences can, under certain conditions, result in a green paradox whereby green sentiments in one region cause the other region to increase emissions. Interestingly, we also found that a contrary "green bandwagon" effect is possible. At high levels of the carbon stock, green preferences in one region can cause the other region to reduce emissions.
    JEL: C73 Q52 Q54 Q58
    Date: 2018–01–06
  2. By: Mehling, Michael A.; Metcalf, Gilbert E.; Stavins, Robert N.
    Abstract: The Paris Agreement has achieved one of two key necessary conditions for ultimate success – a broad base of participation among the countries of the world. But another key necessary condition has yet to be achieved – adequate collective ambition of the individual nationally determined contributions. How can the climate negotiators provide a structure that will include incentives to increase ambition over time? An important part of the answer can be international linkage of regional, national, and subnational policies, that is, formal recognition of emission reductions undertaken in another jurisdiction for the purpose of meeting a Party’s own mitigation objectives. A central challenge is how to facilitate such linkage in the context of the very great heterogeneity that characterizes climate policies along five dimensions – type of policy instrument; level of government jurisdiction; status of that jurisdiction under the Paris Agreement; nature of the policy instrument’s target; and the nature along several dimensions of each Party’s Nationally Determined Contribution. We consider such heterogeneity among policies, and identify which linkages of various combinations of characteristics are feasible; of these, which are most promising; and what accounting mechanisms would make the operation of respective linkages consistent with the Paris Agreement.
    Keywords: Environmental Economics and Policy
    Date: 2017–12–21
  3. By: Sara Aghakazemjourabbaf (Department of Economics, University of Waterloo); Margaret Insley (Economics Department, University of Waterloo)
    Abstract: Inadequate site clean-up and restoration by resource extraction firms leave a toxic legacy which must be dealt with by governments. This study compares the impacts of an environmental bond and a strict liability rule on a firm's incentives for cleaning up hazardous waste during resource extraction and upon termination. The firm's problem is modelled as a stochastic optimal control problem that results in a system of Hamilton Jacobi Bellman equations. The model is applied to a typical copper mine in Canada. The resource price is modelled as a stochastic differential equation, which is calibrated to copper futures prices using a Kalman filtering approach. A numerical solution is implemented to determine the optimal abatement and extraction rates as well as the critical levels of copper prices that would motivate a firm to clean up the accumulated waste under each policy. The paper demonstrates that an environmental bond provides stronger waste abatement incentives, implying that the waste is more likely to be cleaned up under the bond than the liability. The strict liability rule imposes sunk costs on a firm upon termination which would motivate it to remain inactive as a way to escape clean-up costs. However, the environmental bond raises funds ex ante for future clean-up costs and thus encourages site restoration.
    JEL: C61 D81 K32 Q52 Q58
    Date: 2018–01–06
  4. By: Shayegh, Soheil; Bosetti, Valentina; Dietz, Simon; Emmerling, Johannes; Hambel, Christoph; Jensen, Svenn; Kraft, Holger; Tavoni, Massimo; Traeger, Christian; Van der Ploeg, Rick
    Abstract: Over the last few decades, integrated assessment models (IAM) have provided insight into the relationship between climate change, economy, and climate policies. The limitations of these models in capturing uncertainty in climate parameters, heterogeneity in damages and policies, have given rise to skepticism about the relevance of these models for policy making. IAM community needs to respond to these critics and to the new challenges posed by developments in the policy arena. New climate targets emerging from the Paris Agreement and the uncertainty about the signatories’ commitment to Nationally Determined Contributions (NDCs) are prime examples of challenges that need to be addressed in the next generation of IAMs. Given these challenges, calculating the social cost of carbon requires a new framework. This can be done by computing marginal abatement cost in cost-effective settings which provides different results than those calculated using constrained cost-benefit analysis. Here we focus on the areas where IAMs can be deployed to asses uncertainty and risk management, learning, and regional heterogeneity in climate change impacts.
    Keywords: Environmental Economics and Policy
    Date: 2018–06–07
  5. By: Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Perez, Luis (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Baum, Christopher F (Department of Economics, Boston College and Department of Macroeconomics)
    Abstract: This paper studies directed technical change and innovation in renewable energy. We construct panel data with micro- and macro observations from nearly 200 countries over a 20-year period and estimate how energy prices, government subsidies, financial markets, spillovers, and path dependence affect patenting in solar thermal and solar cells. Carbon taxes, R&D subsidies to solar technology and own-knowledge stocks have strong, significant positive effects on solar innovations. Subsidies to fossil energy have the adverse effect. We find no compelling evidence that the quality of financial markets and institutions has any consistent impact on the patenting activities of innovators in solar energy.
    Keywords: Directed Technical Change; Climate Change; Innovation; Patents; Solar Energy.
    JEL: O13 O30 P28 P47
    Date: 2018–08–15

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