September 29, 2008

Global Trading versus Linking: Architectures for International Emissions Trading.

by Christian Flachsland, Robert Marschinski and Ottmar Edenhofer

- International emissions trading is widely seen as an indispensable policy pillar of climate change mitigation. This article analyzes five different types of trading architectures, classified into two top-down (UNFCCC driven) and three bottom-up (driven by individual countries or regions) approaches. The two types of approaches are characterized by a trade-off between environmental effectiveness and political feasibility, respectively, whereas their relative cost-effectiveness depends on implementation details.

Flachsland, C., R. Marschinski and O. Edenhofer (2008). "Global Trading versus Linking: Architectures for International Emissions Trading." Potsdam Institute for Climate Impact Research, Working Paper, Sept 2008.

Equity and Justice in Global Warming Policy.

by Snorre Kverndokk and Adam Rose

- Climate change policy has important dimensions of distributive justice, both within and across generations. In this paper the authors survey only studies on the intragenerational aspect, i.e., within a generation. They cover several domains including the international, regional, national, sectoral and inter-personal, and examine aspects such as the distribution of burdens from climate change, climate change policy negotiations in general, implementation of climate agreements using tradable emission permits, and the uncertainty of alternatives to emission reductions.

Kverndokk, S. and A. Rose (2008). "Equity and Justice in Global Warming Policy." FEEM Working Papers 80.08, Sept 2008.

Technology Transfer in the Non-traded Sector as a Means to Combat Global Warming.

by Dirk T.G. Rübbelke, Vivekananda Mukherjee and Tilak Sanyal

- The paper considers a situation where two countries -the North and the South- use a non-traded polluting input to produce the goods for final consumption. The North is more efficient in both, production and abatement processes. The study compares the effects of the transfer of abatement technology by the North to the South under autarky with the free trade situation, assuming that the North pre-commits to an international protocol to keep the global pollution under a fixed level. The conditions under which either full or partial technology is transferred in autarky are determined.

Rübbelke, D.T.G., V. Mukherjee and T. Sanyal (2008). "Technology Transfer in the Non-traded Sector as a Means to Combat Global Warming." FEEM Working Papers 78.08, Sept 2008.

Impure Public Technologies and Environmental Policy.

by Dirk T.G. Rübbelke and Anil Markandya

- Analyses of public goods regularly address the case of pure public goods. However, a large number of (international) public goods exhibit characteristics of different degrees of publicness, i.e. they are impure public goods. In this study of transfers helping to overcome the inefficient provision of such goods, the authors therefore apply the Lancastrian characteristics approach. In contrast to the existing literature, they consider the case of a continuum of impure public goods. They employ the example of international conditional transfers targeting to overcome suboptimal low climate protection efforts by influencing the abatement technology choice of countries.

Rübbelke, D.T.G. and A. Markandya (2008). "Impure Public Technologies and Environmental Policy." FEEM Working Papers 76.08, Sept 2008.

International Energy Technology Transfers for Climate Change Mitigation.

by Thomas Brewer

- The goal of the paper is to expand and refine the international technology transfer negotiating and analytic agendas and to reframe the issues. The paper presents concepts, indicators, illustrations and data that identify and measure international transfers of energy technologies that can be used to mitigate climate change. Among the questions on that agenda are how much technology transfer there has been to date, and how much will be needed in the future, especially to assist non-Annex I developing countries in their efforts to mitigate climate change.

Brewer, T. (2008). "International Energy Technology Transfers for Climate Change Mitigation - What, who, how, why, when, where, how much and the Implications for International Institutional Architecture." CESifo Working Paper No. 2408, Sept 2008.

Justice and Climate Change.

by Eric A. Posner and Cass R. Sunstein

- Climate change raises complex issues of science, economics, and politics; it also raises difficult issues of justice. Poor nations are especially vulnerable to rising temperatures, in part because they are poor. Wealthy nations have less at risk, in part because they are wealthy. It is both tempting and plausible to suggest that for either emissions reductions or adaptation, wealthy nations owe special obligations to poor ones. In this paper, the authors address this general question by focusing on a much narrower one: how should permits be allocated in a global cap-and-trade system?

Posner, E.A. and C.R. Sunstein (2008). "Justice and Climate Change." Harvard Project on International Climate Agreements Discussion Paper 08-04, Sept 2008.

Long-Term Risks and Short-Term Regulations: Modeling the Transition from Enhanced Oil Recovery to Geologic Carbon Sequestration.

by Alexander Bandza, Shalini Vajjhala

- In this paper, the authors develop a basic engineering-economic model of four strategies associated with key deployment pathways in the portfolio of enhanced oil recovery (EOR) and geologic carbon sequestration (GS) projects: (a) an indifferent strategy, where EOR is the priority without any consideration for long-term sequestration, (b) an afterthought strategy, where EOR is the primary goal, and a site is later secured for sequestration, (c) a planned strategy, where oil extraction and CO2 injection are co-optimized from the start, and (d) a dedicated strategy, where GS is the sole priority. These strategies are evaluated based on scenarios of oil and CO2 prices; leakage estimates; and transportation, injection, and monitoring costs from the literature and practice.

Bandza, A. and S. Vajjhala (2008). "Long-Term Risks and Short-Term Regulations: Modeling the Transition from Enhanced Oil Recovery to Geologic Carbon Sequestration." RFF Discussion Paper DP 08-29, Sept 2008.

The Economic Impact of Climate Change.

by Richard S.J. Tol

- This paper reviews the literature on the economic impacts of climate change. Only 14 estimates of the total damage cost of climate change have been published. These estimates show that climate change initially improves economic welfare. However, these benefits are sunk. Impacts would be predominantly negative later in the century. Global average impacts would be comparable to the welfare loss of a few percent of income, but substantially higher in poor countries. Current estimates of the damage costs of climate change are incomplete, with positive and negative biases. Most important among the missing impacts are the indirect effects of climate change on economic development, large scale biodiversity loss, low probability-high impact scenarios, the impact of climate change on violent conflict, and the impacts of climate change beyond 2100.

Tol, R.S.J. (2008). "The Economic Impact of Climate Change." ESRI Working Paper 255, Sept 2008.

Intra-Union Flexibility of Non-ETS Emission Reduction Obligations in the European Union.

by Richard S.J. Tol

- The current EU proposal on greenhouse gas emission reduction has 28 targets for 2020: an EU-wide one for carbon dioxide emissions covered by the European Trading System, and one target for non-ETS emission per Member State. Implementation is necessarily more expensive than needed. This paper considers three alternative proposals to reduce costs. In the Irish proposal, Member States can purchase ETS permits to offset excess non-ETS emissions. In the Polish proposal, Member States can sell excess non-ETS emissions in the ETS. In the Swedish proposal, Member States can trade their non-ETS allocations.

Tol, R.S.J. (2008). "Intra-Union Flexibility of Non-ETS Emission Reduction Obligations in the European Union." ESRI Working Paper 256, Sept 2008.

Metrics for Aggregating the Climate Effect of Different Emissions: A Unifying Framework.

Richard S.J. Tol, Terje K. Berntsen, Brian C. O'Neill, Jan S. Fuglestvedt, Keith P. Shine, Yves Balkanski and Laszlo Makra

- Multi-gas approaches to climate change policies require a metric establishing "equivalences" among emissions of various species. Climate scientists and economists have proposed four classes of such metrics and debated their relative merits. This paper presents a unifying framework that clarifies the relationships among them.

Tol, R.S.J., K.T. Berntsen, B.C. O'Neill, J.S. Fuglestvedt, K.P. Shine, Y. Balkanski and L. Makra (2008). "Metrics for Aggregating the Climate Effect of Different Emissions: A Unifying Framework." ESRI Working Paper 257, Sept 2008.

Lessons from Conditionality Provisions for Southnorth Cooperation on Climate Change.

by Maike Sippel and Karsten Neuhoff

- This article examines what may be taken into account, when designing a mechanism of international public finance to support south-north cooperation on domestic climate policies in developing countries. Lessons are derived from existing mechanisms of conditional transfers. Experience with conditionality provisions that the World Bank, the IMF, and bilateral donors apply to development assistance is varied. Conditionality provisions applied during the EU enlargement process are generally evaluated more positively, as the shared objective is increased credibility and participation. Clearly defining global emissions reductions as a shared objective could offer similar opportunities for cooperation.

Sippel, M. and K. Neuhoff (2008). "Lessons from Conditionality Provisions for Southnorth Cooperation on Climate Change." Electricity Policy Research Group, Cambridge University, Working Paper EPRG0825, Sept 2008.

Urban Water Management: Optimal Price and Investment Policy under Climate Variability.

by Neal Hughes, Ahmed Hafi, Tim Goesch and Nathan Brownlowe

- Continual demand growth, increasing supply augmentation costs and potential climate change impacts are driving a long-term trend toward increased urban water scarcity in Australia. Scarcity pricing is an alternative to water restrictions which could potentially avoid many of the costs of water restrictions. This report provides a detailed qualitative discussion of the various benefits and costs of adopting scarcity pricing.

Neal Hughes, Ahmed Hafi, Tim Goesch and Nathan Brownlowe (2008). "Urban Water Management: Optimal Price and Investment Policy under Climate Variability." ABARE Research Report 08.7, Aug 2008.

Climate Change: Opportunities and Challenges in Australian Agriculture.

by Don Gunasekera, Catherine Tulloh, Melanie Ford and Edwina Heyhoe

- In the past the Australian agriculture sector has been able to adjust and adapt successfully to external drivers, such as changes in the natural resource base and climate variability. Continuing improvement in agricultural productivity and international competitiveness in Australian agriculture will be integral as Australia potentially faces more extreme impacts of climate change than its competitors.

Gunasekera, D., C. Tulloh, M. Fors and E. Heyhoe (2008). "Climate Change: Opportunities and Challenges in Australian Agriculture."
ABARE, Jul 2008.

September 14, 2008

Delayed Participation of Developing Countries to Climate Agreements: Should Action in the EU and US be Postponed?

by Valentina Bosetti, Carlo Carraro and Massimo Tavoni

- This paper analyses the cost implications for climate policy in developed countries if developing countries are unwilling to adopt measures to reduce their own GHG emissions. Delayed participation of NA1 countries has a negative impact on climate policy costs. Economic inefficiencies can be as large as 10-25 TlnUSD. However, this additional cost wanes when developing countries are allowed to trade emission reductions from their baseline emission paths during the 30-year delay period.

Bosetti, V., C. Carraro and M. Tavoni (2008). "Delayed Participation of Developing Countries to Climate Agreements: Should Action in the EU and US be Postponed?" Feem Working Paper 70.08, Sept 2008.

How will Climate Change Shift Agro-ecological Zones and Impact African Agriculture?

by Pradeep Kurukulasuriya and Robert Mendelsohn

- The study develops a new method to measure the impacts of climate change on agriculture called the Agro-Ecological Zone (AEZ) Model. A multinomial logit is estimated to predict the probability of each AEZ in each district. The average percentage of cropland and average crop net revenue are calculated for each AEZ. Then an estimate of the amount of cropland in Africa and where it is located is provided. Using current conditions, the model calculates baseline values of cropland and crop net revenue, and estimates the future impact of climate change using two scenarios.

Kurukulasuriya, P., R. Mendelsohn (2008). "How will Climate Change Shift Agro-ecological Zones and Impact African Agriculture?" World Bank Policy Research Working Paper WPS 4717, Sept 2008.

Sensitivity Analysis in Economic Simulations - A Systematic Approach.

by Claudia Hermeling and Tim Mennel

- This paper formalizes deterministic and stochastic methods used for sensitivity analysis. Moreover, it presents the numerical algorithms to apply the methods, in particular, an improved version of a Gauss-Quadrature algorithm, applicable to one as well as multidimensional sensitivity analysis. The advantages and disadvantages of different methods and algorithms are discussed as well as their applicability.

Hermeling, C. and T. Mennel (2008). "Sensitivity Analysis in Economic Simulations - A Systematic Approach." ZEW Discussion Paper No. 08-068, Sept 2008.

Lessons from Global Environmental Assessments.

by the Netherlands Environmental Assessment Agency

- Analyses in IPCC Climate Change 2007, UNEP Global Environment Outlook 4, OECD Environmental Outlook to 2030 and the IAASTD Agriculture Assessment all show that swift action is needed, worldwide, to achieve the internationally set targets. Land use emerges as a new theme for international policy, as the competition over land is growing. The assessments infer that many of the solutions are already known and that possible measures are theoretically affordable. This report focuses on two areas that warrant global attention: ‘agriculture, food and biodiversity’ and ‘energy, climate and air pollution’.

Kok, M.T.J., J.A., Bakkes, B. Eickhout, A.J.G. Manders, M.M.P. van Oorschot, D.P. van Vuuren, M. van Wees, H.J. Westhoek (2008). "Lessons from Global Environmental Assessments." Netherlands Environmental Assessment Agency, Report no. 500135002, Sept 2008.

A Lindahl Solution to International Emissions Trading.

by Yukihiro Nishimura

- This paper considers international negotiations on the level of global pollution, and examines the Lindahl solution which determines the distribution of the pollution permits with unanimous agreement. The Lindahl solution may result in an unfair allocation, and it does not belong to the core as in other solutions based on emissions trading. The paper provides mechanisms that implement the Lindahl solution as the subgame-perfect equilibrium. It also considers the market with region-specific prices as a device to induce second-best Pareto efficient allocations.

Nishimura, Y. (2008). "A Lindahl Solution to International Emissions Trading." Queen’s Economics Department Working Paper No. 1177, Aug 2008.

Liquidity and Price Discovery in the European CO2 Futures Market: An Intraday Analysis.

by Eva A. Benz and Jördis Klar

- European Union CO2 allowances (EUAs) are traded on several markets with increasing intensity. This paper provides an intraday data analysis of the EUA futures market for the complete first trading period 2005-2007. The ECX and Nord Pool trade platforms are compared with respect to price discovery and liquidity. Overall, results indicate that from 2005 to 2007 liquidity in the European CO2 futures market has markedly increased and according to microstructural criteria the trading process has flowed smoothly.

Benz, E.A., K., Jördis (2008). "Liquidity and Price Discovery in the European CO2 Futures Market: An Intraday Analysis." Available at SSRN, Jul 2008.

Ecological Macroeconomics: Consumption, Investment, and Climate Change.

by Jonathan M. Harris

- A reclassification of macroeconomic aggregates is proposed to distinguish between those categories of goods and services that can expand over time, and those that must be limited to reduce carbon emissions. This reformulation makes it clear that there are many possibilities for environmentally beneficial economic expansion. New forms of Keynesian policy oriented towards ecological sustainability, provision of basic social needs such as education and health care, and distributional equity can provide a basis for a rapid reduction in carbon emissions while promoting investment in human and natural capital.

Harris, J.M. (2008). "Ecological Macroeconomics: Consumption, Investment, and Climate Change." Global Development and Environment Institute, Working Paper No 08-02, Jul 2008.

Policies for Funding a Response to Climate Change.

by Brian Roach

- This paper asserts that a significant increase in public funding for climate change research and development (R&D) is needed in the United States. Different possibilities for generating additional public revenues for R&D funding are considered. The analysis demonstrates that quite modest taxes on carbon emissions or gasoline could fund a significant increase in public R&D funding for clean energy. As an alternative to tax instruments, the paper also considers a program of voluntary retirement contributions to a clean energy fund.

Roach, B. (2008). "Policies for Funding a Response to Climate Change." Global Development and Environment Institute, Working Paper No 08-03, Jul 2008.

September 7, 2008

Risk Aversion, Time Preference, and the Social Cost of Carbon.

by David Anthoff, Richard S.J. Tol and Gary W. Yohe

- The Stern Review reported a social cost of carbon of over $300/tC, calling for ambitious climate policy. This paper conducts a systematic sensitivity analysis of this result on two crucial parameters: the rate of pure time preference, and the rate of risk aversion. The authors find that the social cost of carbon lies anywhere in between 0 and $120,000/tC. However, if parameters are matched to observed behavior, an expected social cost of carbon of $60/tC results. By correcting for income differences across the world, the social cost of carbon rises to over $200/tC.

Anthoff, D., R.S.J. Tol and G.W. Yohe (2008). "Risk Aversion, Time Preference, and the Social Cost of Carbon." ESRI Working Paper 252, Sep 2008.

Carbon Emissions Scenarios for China to 2100.

by Tao Wang and Jim Watson

- This working paper summarises a new set of cumulative carbon emissions scenarios for China to 2050 and 2100 and explains the methodology that has been used.

Wang, T. and J. Watson (2008). "Carbon Emissions Scenarios for China to 2100." Tyndall Centre Working Paper 121, Sep 2008.

The Incidence of U.S. Climate Policy: Where You Stand Depends on Where You Sit.

by Dallas Burtraw, Richard Sweeney and Margaret A. Walls

- Federal policies aimed to slow global warming would impose potentially significant costs on households that vary depending on the policy approach that is used. This paper evaluates the effects of a carbon dioxide cap-and-trade program on households in each of 11 regions of the country and sorted into annual income deciles. The authors find tremendous variation in the incidence (the distribution of cost) of the policy.

Burtraw, D., R. Sweeney and M.A. Walls (2008). "The Incidence of U.S. Climate Policy: Where You Stand Depends on Where You Sit." RFF Discussion Paper 08-28, Sep 2008.
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Delayed Action and Uncertain Targets. How Much Will Climate Policy Cost?

by Massimo Tavoni, Valentina Bosetti, Carlo Carraro and Alessandra Sgobbi

- This paper quantifies the economic implications of delayed mitigation action and computes the optimal abatement strategy in the presence of uncertainty about a global stabilisation target (which will be agreed upon in future climate negotiations). Results point to short-term inaction as the key determinant for the economic costs of ambitious climate policies. They also indicate that there is an effective hedging strategy that could minimise the cost of climate policy under uncertainty.

Tavoni, M., V. Bosetti, C. Carraro and A. Sgobbi (2008). "Delayed Action and Uncertain Targets. How Much Will Climate Policy Cost?" Feem Working Paper 69.08, Sep 2008.

The Role of Technology Policies in an International Climate Agreement.

by Joseph Aldy and Robert N. Stavins

- Transitioning away from fossil fuels as the foundation of industrialized countries and as the basis for development in emerging economies and least developed countries necessitates a suite of policies to provide the proper incentives for technological change. The critical role of developing and deploying climate-friendly technologies has drawn more attention to the impact of three categories of policies addressed in the three main sections of this paper: (1) international carbon markets; (2) technology transfer to developing countries; and (3) coordinated innovation and commercialization programs.

Aldy, J. and R.N. Stavins (2008). "The Role of Technology Policies in an International Climate Agreement." Harvard University, Belfer Center for Science and International Affairs, Sep 2008.

The Influence on Climate Change of Differing Scenarios for Future Development Analyzed Using the MIT Integrated Global System Model.

by Ronald Prinn, Sergey Paltsev, Andrei Sokolov, Marcus Sarofim, John Reilly and Henry Jacoby

- This paper presents projections of greenhouse gas (GHG) concentrations, sea level rise due to thermal expansion and glacial melt, oceanic acidity, and global mean temperature increases computed with the MIT Integrated Global Systems Model (IGSM) using scenarios for 21st century emissions developed by three different groups: intergovernmental (represented by the Intergovernmental Panel on Climate Change), government (represented by the U.S. government Climate Change Science Program) and industry (represented by Royal Dutch Shell plc).

Prinn, R., S. Paltsev, A. Sokolov, M. Sarofim, J. Reilly and H. Jacoby (2008). "The Influence on Climate Change of Differing Scenarios for Future Development Analyzed Using the MIT Integrated Global System Model." MIT Joint Program on the Science and Policy of Global Change Report No. 163, Sep 2008.

Impact of Revised CO2 Growth Projections for China on Global Stabilization Goals.

by Geoffrey J. Blanford, Richard G. Richels and Thomas F. Rutherford

- In a major US government study of future emissions released in 2007 (1), participating models appear to have substantially underestimated the near-term rate of increase in China's emissions. This paper presents a recalibration of one of those models to be consistent with both current observations and historical development patterns. The implications of the new specification for the feasibility of commonly discussed stabilization targets, particularly when considering incomplete global participation, are profound.

Blanford, G.J., R.G. Richels and T.F. Rutherford (2008). "Impact of Revised CO2 Growth Projections for China on Global Stabilization Goals." Feem Working Paper 68.08, Aug 2008.

Correct (and Misleading) Arguments for Using Market Based Pollution Control Policies.

by Larry Karp

- Multiple investment equilibria and "regulatory uncertainty" arise when firms anticipate command and control policies. Market based policies eliminate this uncertainty. Command and control policies cause firms to imitate other firms’ investment decisions, leading to similar costs and small potential efficiency gains from trade. Market based policies induce firms to make different investment decisions, leading to different costs and large gains from trade. This paper imbeds the regulatory problem in a "global game" and show that the unique equilibrium to that game is constrained socially optimal.

Karp, L. (2008). "Correct (and Misleading) Arguments for Using Market Based Pollution Control Policies." Department of Agricultural & Resource Economics, UCB. CUDARE Working Paper 1063, Aug 2008.

CO2 Emission Reduction in Freight Transports How to Stimulate Environmental Friendly Behaviour?

by Georg Bühler and Patrick Jochem

- It is often stated, that combined transport (mainly truck-train-truck) might be a very CO2 efficient mode. In this article a Logit-Model (based on a survey of 500 German forwarders)is used to determine mode shift potentials of hauliers. The main factors of influence depending on the service provision of the transport modes are frequency of combined transport services, speed, and costs.

Bühler, G. and P. Jochem (2008). "CO2 Emission Reduction in Freight Transports How to Stimulate Environmental Friendly Behaviour?" ZEW Discussion Paper No. 08-066, Aug 2008.

Coalition Formation and the Ancillary Benefits of Climate Policy.

by Michael Finus and D.T.G. Rübbelke

- Several studies found ancillary benefits of environmental policy to be of considerable size. These additional private benefits imply not only higher cooperative but also noncooperative abatement targets. However, beyond these largely undisputed important quantitative effects, there are qualitative and strategic implications associated with ancillary benefits: climate policy is no longer a pure but an impure public good. In this paper, the authors investigate these implications in a setting of non-cooperative coalition formation.

Finus, M. and D.T.G. Rübbelke (2008). "Coalition Formation and the Ancillary Benefits of Climate Policy." Feem Working Paper 62.2008, Jul 2008.

Time Perspective and Climate Change Policy.

by Larry Karp and Yacov Tsur

- The tendency to foreshorten time units as we peer further into the future provides an explanation for hyperbolic discounting at an intergenerational time scale. This paper studies implications of hyperbolic discounting for climate change policy, when the probability of a climate-induced catastrophe depends on the stock of greenhouse gasses. A positive analysis is provided by characterizing the set of Markov perfect equilibria (MPE) of the intergenerational game amongst a succession of policymakers.

Karp, L. and Y. Tsur (2008). "Time Perspective and Climate Change Policy." Department of Agricultural & Resource Economics, UCB, CUDARE Working Paper 1062, Jul 2008.

Taxes Versus Quantities for a Stock Pollutant with Endogenous Abatement Costs and Asymmetric Information.

by Larry Karp and Jiangfeng Zhang

- This paper compares emissions taxes and quotas when the (strategic) regulator and (nonstrategic) firms have asymmetric information about abatement costs, and all agents use Markov Perfect decision rules. Emissions taxes create a secondary distortion at the investment stage, unless a particular condition holds; emissions quotas do not create a secondary distortion. A linear-quadratic model calibrated to represent the problem of controlling greenhouse gasses is solved. The endogeneity of abatement capital favors taxes, and it increases abatement.

Karp, L. and J. Zhang (2008). "Taxes Versus Quantities for a Stock Pollutant with Endogenous Abatement Costs and Asymmetric Information." Department of Agricultural & Resource Economics, UCB, CUDARE Working Paper 1064, Jul 2008.

A Proposal for the Design of the Successor to the Kyoto Protocol.

by Larry Karp and Jinhua Zhao

- The successor to the Kyoto Protocol should impose national ceilings on rich countries’ greenhouse gas emissions and promote voluntary abatement by developing countries. Our proposal gives signatories the option of exercising an escape clause that relaxes their requirement to abate. This feature helps to solve the participation and compliance problems that have weakened the Protocol.

Karp, L. and J. Zhao (2008). "A Proposal for the Design of the Successor to the Kyoto Protocol." Department of Agricultural & Resource Economics, UCB, CUDARE Working Paper 1065, Jun 2008.