August 31, 2008

EU-ETS and Nordic Electricity: A CVAR Analysis.

by Harrison Fell

- A cointegrated vector autoregressive (CVAR) model is estimated to determine the dynamic relationship between Nordic wholesale electricity prices and EU emissions trading scheme (EU-ETS) CO2 allowance prices. An impulse response analysis reveals that electricity prices have large short-term responses to CO2 price shocks, but that this response dampens over time.

Fell, H. (2008). "EU-ETS and Nordic Electricity: A CVAR Analysis." RFF Discussion Paper 08-31, Aug 2008.

Effects of Unilateral Climate Policy on Terms of Trade, Capital Accumulation, and Welfare in a World Economy.

by Karl Famer, Birgit Friedl and Andreas Rainer

- The paper presents a two-good, two-country overlapping generations model where emissions arise from production and each country has a domestic emission permit system. When one country unilaterally reduces her cap on emissions, her output available for domestic and foreign consumption diminishes more than in the other country. With unchanged consumption expenditure shares for both goods the terms of trade improve, while capital stocks decline in the reducing and less strongly in the non-reducing country.

Karl Famer, Birgit Friedl and Andreas Rainer (2008). "Effects of Unilateral Climate Policy on Terms of Trade, Capital Accumulation, and Welfare in a World Economy." CESifo Working Paper No. 2375

EU Emission Allowances and the Stock Market: Evidence from the Electricity Industry.

by Ulrich Oberndorfer

- This paper contains an econometric analysis on stock market effects of the EU Emission Trading Scheme (EU ETS). Results suggest that EU Emission Allowance (EUA) price developments matter to the stock performance of electricity firms: EUA price changes and stock returns of the most important European electricity corporations are shown to be positively related. This effect does not work asymmetrically. The carbon market effect is shown to be both time- and countryspecific.

Oberndorfer, U. (2008). "EU Emission Allowances and the Stock Market: Evidence from the Electricity Industry." ZEW Discussion Paper No. 08-059, Aug 2008.

Greenhouse Gas Emissions in the Netherlands 1990-2006.

by the Netherlands Environmental Assessment Agency

- This report presents trends in greenhouse gas emmisions, activity data and (implied) emission factors for the periode 1990-2006 and sets out the methodology used, data sources and emisson factors. The report documents the Netherlands annual submission of the greenhouse gas emission inventory commissioned by the Netherlands Ministery of Housing, Spatial Planning and the Environment to comply to the reporting obligations in accordance with the United Nation's Framework Convention on Climate Change (UNFCCC) and the European Union's Greenhouse Gas Monitoring Mechanism.

Maas C.W.M et al. (2008). "Greenhouse Gas Emissions in the Netherlands 1990-2006." MNP Report no. 500080009, Aug 2008. [5.7 MB]

Night of the Living Dead" or "Back to the Future"? Electric Utility Decoupling, Reviving Rate-of-Return Regulation, and Energy Efficiency.

by Timothy J. Brennan

- Conservation advocates have promoted the adoption of policies that "decouple" electric distribution company revenues or profits from how much electricity goes through the lines. Their motivation is that usage-based pricing leads utilities to encourage use and discourages conservation. Because decoupling divorces profits from conduct, it runs against the dominant finding in regulatory economics in the last twenty years that incentive-based regulation outperforms rate-of-return.

Brennan, T.J. (2008). "Night of the Living Dead" or "Back to the Future"? Electric Utility Decoupling, Reviving Rate-of-Return Regulation, and Energy Efficiency." RFF Discussion Paper 08-27, Aug 2008.

August 24, 2008

Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade.

by Brian C. Murray, Richard G. Newell and William A. Pizer

- On efficiency grounds, the economics community has to date tended to emphasize price-based policies to address climate change while environmental advocates have sought a more clear quantitative limit on emissions. This paper presents a simple modification to the idea of a safety valve: a quantitative limit that we call the allowance reserve. Importantly, this idea may bridge the gap between competing interests and potentially improve efficiency relative to tax or other price-based policies.

Murray, B.C., R.G. Newell and W.A. Pizer (2008). "Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade." NBER Working Paper No. 14258, Aug 2008.

When to Pollute, When to Abate? Intertemporal Permit Use in the Los Angeles NOx Market.

by Stephen P. Holland and Michael Moore

- This paper studies intertemporal trading of nitrogen oxides permits in the RECLAIM program in Southern California. A theoretical model captures the program's key intertemporal features: two overlapping permit cycles, two compliance cycles for facilities, and tradable permits. The authors also empirically investigate intertemporal trading of permits using panel data on RECLAIM facilities for 1994-2006.

Holland, S.P. and M. Moore (2008). "When to Pollute, When to Abate? Intertemporal Permit Use in the Los Angeles NOx Market." NBER Working Paper No. 14254, Aug 2008.

A Dynamic Analysis of Human Welfare in a Warming Planet.

by Humberto Llavador, John E. Roemer and Joaquim Silvestre

- Is a path of low emissions compatible with steady growth in human quality of life? This paper specifies and calibrate a dynamic model with four intertemporal links: education, physical capital, knowledge and the environment.

Llavador, H., J.E. Roemer and J. Silvestre (2008). "A Dynamic Analysis of Human Welfare in a Warming Planet." Cowles Foundation Discussion Paper No. 1673, Aug 2008.

The EU Emission Trading Scheme: Prototype of a Global System?

by Danny Ellerman

- The more serious problems that emerge from the brief experience of the EU ETS are those of (1) developing a central coordinating organization, (2) devising side benefits to encourage participation, and (3) dealing with the interrelated issues of harmonization, differentiation, and stringency. The European experience suggests that over-arching agreements may not be enough for creating an effective limit on emissions and an accompanying trading system. A central institution that educates, coordinates, and facilitates would appear to be essential, and the commitment of at least some nations may need to be reinforced by some side benefit.

Ellerman, D. (2008). "The EU Emission Trading Scheme: Prototype of a Global System?" Discussion Paper 2008-02, Harvard Project on International Climate Agreements, Aug 2008.

Climate, Energy Security and Innvovation.

by the Netherland Environemtnal Assessment Agency

- This report unravels the synergies and trade-offs between climate change, energy security and technological innovation. It is concluded firstly that the synergy between climate change mitigation, energy security and competitiveness suggested by the three-fold objective of EU energy policies is not straightforward. Secondly, current EU energy policies to stimulate (nearly) commercial and immature technologies are most likely insufficient to mitigate climate change and secure energy supply up to and beyond 2050.

Groenenberg, H., F. Feriolo, S.T.A. van den Heuvel, M.T.J. Kok, A.J.G. Manders, S. Slingerland S and B.J.H.W. Wetzelaer (2008). "Climate, Energy Security and Innvovation." Netherland Environmental Assessment Agency, Report no. 500102015, Apr 2008.

August 17, 2008

The Most Expensive Thing We Can Do is Nothing: An Open Letter from California Economists.

- California economists with expertise in energy and environment policy write to Governor Schwarzenegger and California Legislators to praise quick action to control global warming gases in California. California’s economy is vulnerable to climate impacts. Action to reduce emissions will lower the costs of adjusting to climate-related disruptions and serve as public insurance against more dramatic damages that can be expected when opportunities to adapt are limited.

"The Most Expensive Thing We Can Do is Nothing: An Open Letter from California Economists." Aug 2008.

Economic Growth and Greenhouse Gas Mitigation in California.

by David Roland-Holst

- This research note offers preliminary results on the link between greenhouse gas (GHG) abatement strategies and economic growth from on-going research with a forecasting model of the California economy. In the analysis presented here, eight targeted GHG emission policies are combined with an overall cap to meet the state’s targets for 2020.

Roland-Holst, D. (2008). "Economic Growth and Greenhouse Gas Mitigation in California." California Climate Change Center, University of California at Berkeley, Aug 2008.

Ethanol Plant Investment using Net Present Value and Real Options Analyses.

by Todd M. Schmit, Jianchuan Luo and Loren W. Tauer

- A real option analysis of dry-grind corn ethanol plants compared to a standard net present value analysis (NPV) shows that the option values increase entry prices and lower exit prices of investment and disinvestment considerably. Growth in the variability of ethanol margins will delay new plant investments, as well as exits of currently operating facilities.

Schmit, T.M., L. Jianchuan and L.W. Tauer (2008). "Ethanol Plant Investment using Net Present Value and Real Options Analyses." Working Paper Department of Applied Economics and Management, Cornell University, Aug 2008.

Distributional Effects of Environmental and Energy Policy: An Introduction.

by Don Fullerton

- This chapter reviews literature on the distributional effects of environmental and energy policy. In particular, many effects of such policy are likely regressive. This paper discusses whether these fears are valid, and whether anything can be done about them.

Fullerton, D. (2008). "Distributional Effects of Environmental and Energy Policy: An Introduction." NBER Working Paper No. 14241, Aug, 2008.

The Greenness of Cities: Carbon Dioxide Emissions and Urban Development.

by Edward L. Glaeser and Matthew E. Kahn

- This paper quantifies the carbon dioxide emissions associated with new construction in different locations across the country. The authors look at emissions from driving, public transit, home heating, and household electricity usage. The lowest emissions areas are generally in California and the highest emissions areas are in Texas and Oklahoma. There is a strong negative association between emissions and land use regulations.

Glaeser, E.L. and M.E. Kahn (2008). "The Greenness of Cities: Carbon Dioxide Emissions and Urban Development." NBER Working Paper No. 14238 and free download at SSRN, Aug 2008.

Climate Change and Discounting the Future: A Guide for the Perplexed.

by David A. Weisbach and Cass R. Sunstein

- Some of the most important disagreements about how aggressively to respond to the threat of climate change turn on the choice of the discount rate. A high discount rate implies relatively modest and slow reductions; a low discount rate implies immediate and dramatic action. The debate between the two sides reflects a disagreement between the positivists, who argue for a market rate, and the ethicists, who urge that the positivist approach violates the duty of the present to the future. The authors argue that the positivists are largely right, and that the question of discounting should be separated from the question of the ethical duties of the present.

Weisbach, D.A. and C.R. Sunstein (2008). "Climate Change and Discounting the Future: A Guide for the Perplexed." Available at SSRN, Aug 2008.

Beyond Technology-Push and Demand-Pull: Lessons from California's Solar Policy.

by Margaret R. Taylor

- The paper reviews the origins, strengths, and weaknesses of the dominant policy typology of technology-push versus demand-pull instruments. Its primary contribution, however, is to assemble a comprehensive chronology of solar policy in California and its impacts on innovation, where known, and then use this as a basis for building a new policy categorization that takes advantage of the intuitive resonance of the dominant typology, while encompassing the broader range of policy instruments that are employed in practice in order to stimulate environmental innovation.

Taylor, M.R. (2008). "Beyond Technology-Push and Demand-Pull: Lessons from California's Solar Policy." Goldman School of Public Policy Working Paper No. GSPP08-002, Jul 2008.

Agricultural Systems in South America under Climate Change: A Microeconometric Analysis.

by S. Niggol Seo

- This paper examines the effects of climate change on different agricultural systems in South America using a microeconometric approach. This approach is different from earlier studies in three ways. First, it models adaptation choices explicitly. Second, it offers a way to measure differential effects of climate change on different agricultural systems. Thirdly, it provides quantitative measures of climate change impacts with and without adaptations.

Seo, S.N. (2008). "Agricultural Systems in South America under Climate Change: A Microeconometric Analysis." Available at SSRN, Jul 2008.

Auction Design, Implementation and Results of the European Union Emissions Trading Scheme.

by Dóra Fazekas

- This paper assesses the trial phase of the European Union Emissions Trading Scheme (EU ETS) from the point of view of the auctions implemented; and focuses on the design of auctions, the commonalities and differences, the main features of the implementation and the timing of these auctions, and also on the results.

Fazekas, D. (2008). "Auction Design, Implementation and Results of the European Union Emissions Trading Scheme." Jul 2008.

August 10, 2008

The Interdependencies Between Food and Biofuel Production in European Agriculture: an Application of EUFASOM.

by P. Michael Link, C. Ivie Ramos, Uwe A. Schneider, Erwin Schmid, Juraj Balkovic and Rastislav Skalsky

- This study explores the economic and technical potentials of biofuels in Europe as well as the interdependencies between these two land use options for different economic incentives for biofuels using the European Forest and Agriculture Sector Optimization Model (EUFASOM).

Link, P.M., C.I. Ramos, U.A. Schneider, E. Schmid, J. Balkovic and R. Skalsky (2008). "The Interdependencies Between Food and Biofuel Production in European Agriculture: an Application of EUFASOM." FNU Working Paper 165, Aug 2008.

Measuring Residential Energy Efficiency Improvements with DEA.

by Peter Grösche

- This paper measures energy efficiency improvements of US single-family homes between 1997 and 2001 using a two-stage procedure. In the first stage,
an indicator of energy efficiency is derived by means of Data Envelopment Analysis (DEA),and the analogy between the DEA estimator and traditional measures of energy efficiency is demonstrated. The second stage employs a bootstrapped truncated regression technique to decompose the variation in the obtained efficiency estimates into a climatic component and factors attributed to efficiency improvements.

Grösche, P. (2008). "Measuring Residential Energy Efficiency Improvements with DEA." Ruhr Economic Papers #60, Aug 2008.

The Use of CCS in Global Carbon Management: Simulation with the DICE Model.

by Daiju Narita

- This study attempts a numerical simulation of potential CCS use by using a modified version of the DICE model. The analysis assesses the economic optimality of CCS use with a range of different assumptions.

Narita, D. (2008). "The Use of CCS in Global Carbon Management: Simulation with the DICE Model." Kiel Insitute for the World Economy KWP 1437, Aug 2008.

A Tax-Based Approach to Slowing Global Climate Change.

by Joseph E. Aldy, Eduardo Ley and Ian W.H. Parry

- This paper discusses the design of carbon dioxide (CO2) taxes at the domestic and international level and the choice of taxes versus a cap-and-trade system. A strong case can be made for taxes on uncertainty, fiscal, and distributional grounds, though this critically hinges on policy specifics and how revenues are used.

Aldy, J.E., E. Ley and I.W.H. Parry (2008). "A Tax-Based Approach to Slowing Global Climate Change." RFF Discussion Paper 08-26, Jul 2008.

Carbon Emissions and Economic Growth: Homogeneous Causality in Heterogeneous Panels.

by David Maddison and Katrin Rehdanz

- This paper introduces the concept of homogeneous non-causality in heterogeneous panels. This concept is used to examine a panel of data for evidence of a causal relationship between GDP and carbon emissions. The technique is compared to the standard test for homogeneous non-causality in homogeneous panels and heterogeneous non-causality in heterogeneous panels.

David Maddison, D. and K. Rehdanz (2008). "Carbon Emissions and Economic Growth: Homogeneous Causality in Heterogeneous Panels." Kiel Insitute for the World Economy KWP 1437, Jul 2008.

The Distributional Implications of a Carbon Tax in Ireland.

by Tim Callana, Seán Lyonsa, Susan Scotta, Richard S.J. Tol and Stefano Verdee

- This paper studies the effects of carbon tax and revenue recycling across the income distribution in the Republic of Ireland. In absolute terms, a carbon tax of Euro 20/tCO2 would cost the poorest households less than Euro 3/week and the richest households more than Euro 4/week. A carbon tax is regressive, therefore. However, if the tax revenue is used to increase social benefits and tax credits, households across the income distribution can be made better off without exhausting the total carbon tax revenue.

Callana, T., S. Lyonsa, S. Scotta, R.S.J. Tol and S. Verdee (2008). "The Distributional Implications of a Carbon Tax in Ireland." ESRI WP 250, Jun 2008.

Issues in Designing U.S. Climate Change Policy.

by Joseph E. Aldy and William A. Pizer

- Over the coming decades, the cost of U.S. climate change policy likely will be comparable to the total cost of all existing environmental regulation, perhaps 1/2 percent of national income. The authors present six key policy design issues that will determine the costs, cost-effectiveness, and distributional impacts of domestic climate policy: program scope, cost containment, offsets, revenues and allowance allocation, competitiveness, and R&D policy.

Aldy, J.A. and W.A. Pizer (2008). "Issues in Designing U.S. Climate Change Policy." RFF Discussion Paper 08-20, Jun 2008.

Marginal Abatement Costs of Carbon-Dioxide Emissions: A Meta-Analysis.

by Onno Kuik, Luke Brander and Richard S. J. Tol

- This paper carries out a meta-analysis of recent studies into the costs of greenhouse gas mitigation policies that aim at the long-term stabilization of these gases in the atmosphere. The cost estimates of the studies are found to be sensitive to the level of the stabilization target, the assumed emissions baseline, intertemporal optimisation, the choice of control variable (CO2 only versus multigas), assumptions on future technological options (backstop and carbon capture and storage), and, to a lesser degree, the scientific "forum" in which the study was developed.

Onno Kuik, Luke Brander and Richard S. J. Tol (2008). "Marginal Abatement Costs of Carbon-Dioxide Emissions: A Meta-Analysis." ESRI WP 248, Jun 2008

August 3, 2008

Biofuels and Sustainable Development.

by Henry Lee, William C. Clark, Charan Devereaux

- Despite pressure from biofuel critics, governments should avoid simplistic and precipitous changes in course such as rollback or moratoria on existing biofuels mandates or incentives. Instead, the report urges governments to initiate an orderly, innovation-enhancing transition towards incentives targeted on multi-dimensional goals for biofuels development. These goals should include poverty alleviation, reducing net greenhouse gas emissions, increasing use of non-food feedstocks, attaining sustainable biofuel production targets and conserving biodiversity.

Lee, H. W.C. Clark and C. Devereaux (2008). "Biofuels and Sustainable Development." Belfer Center for Science and International Affairs, Jul 2008.

The Economic and Environmental Effects of Border Tax Adjustments for Climate Policy.

by Warwick J. McKibbin and Peter J. Wilcoxen

- For the foreseeable future, climate change policy will be considerably more stringent in some countries than in others. Differences in climate policy will lead to differences in energy costs, and to concerns about competitive advantage. In high-cost countries, there will be political pressure to impose border adjustments on imports from countries with little or no climate policy and low energy costs. In this paper, authors estimate how large such tariffs would be in practice, and then examine their economic and environmental effects using G-Cubed, a detailed multi-sector, multi-country model of the world economy. Findings show that taxes would be small on most traded goods, would reduce leakage of emissions reduction very modestly, and would do little to protect import-competing industries. The benefits produced by border adjustments would be too small to justify their administrative complexity or their deleterious effects on international trade.

McKibbin, W.J. and P.J. Wilcoxen (2008). "The Economic and Environmental Effects of Border Tax Adjustments for Climate Policy." Jun 2008.

Potential Impacts of Climate Change on Crop Yields and Land Values in U.S. Agriculture: Negative, Significant, and Robust.

by Anthony Fisher, Michael Hanemann, Michael Roberts and Wolfram Schlenker

- Several recent studies have found that the impact of climate change on U.S. agriculture is likely to be adverse overall, though a northern tier of states will benefit. This finding is challenged by Deschenes and Greenstone (2007), who link annual fluctuations in weather to reported profits and yields in the same year and conclude that the impact of global warming on U.S. agriculture is likely to be either insignificant or mildly beneficial overall. In this paper the authors present tests which show that Deschenes and Greenstone's methods bias their coefficients towards finding zero weather effects in the profit regression. Moreover, their data show internal inconsistencies and implausible average temperatures in many places.

Fisher, A., M. Hanemann, M. Roberts and W. Schlenker (2007). "Potential Impacts of Climate Change on Crop Yields and Land Values in U.S. Agriculture: Negative, Significant, and Robust." Nov 2007. Dataset and Stata Code.