December 14, 2008

Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy

by Nathan H. Miller and Ashley Langer

- The relationship between gasoline prices and the demand for vehicle fuel efficiency is important for environmental policy but poorly understood in the academic literature. This study provides empirical evidence that automobile manufacturers price as if consumers respond to gasoline prices. Vehicle prices generally decline in the gasoline price. The decline is larger for inefficient vehicles, and the prices of particularly efficient vehicles actually rise. Structural estimation that ignores these effects underestimates consumer preferences for fuel efficiency.

Miller, N.H. and A. Langer (2008). "Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy." Economic Analysis Group Discussion Paper No. EAG 08-11, Dec 2008.

Emissions Trading: Impact on Electricity Prices and Energy-Intensive Industries

by Manuel Frondel, Christoph M. Schmidt and Colin Vance

- This paper demonstrates cost-free allocation of carbon allowances, commonly called grandfathering, implies an increase in electricity prices even when strong competition prevails on electricity markets. Estimations for Germany's power sector show that these price increases result in substantial windfall profits, giving rise to public skepticism and calls for an auctioning of certificates in the future.

Frondel, M., C.M. Schmidt and C. Vance (2008). "Emissions Trading: Impact on Electricity Prices and Energy-Intensive Industries." Ruhr Economic Papers #81, Dec 2008.

Desert Power: The Economics of Solar Thermal Electricity for Europe, North Africa, and the Middle East

by Kevin Ummel and David Wheeler

In this CGD working paper, Kevin Ummel and senior fellow David Wheeler focus on solar thermal or concentrating solar power (CSP). Solar thermal power production in North Africa and the Middle East could provide enough power to Europe to meet the needs of 35 million people by 2020. Ummel and Wheeler compute the subsidies needed to bring CSP to financial parity with fossil-fuel alternatives. They conclude that large-scale deployment of CSP is attainable with subsidy levels that are modest, given the planetary stakes. By the end of the program, unsubsidized CSP projects are likely to be competitive with coal- and gas-based power production in Europe.

Ummel, K. and D. Wheeler (2008). "Desert Power: The Economics of Solar Thermal Electricity for Europe, North Africa, and the Middle East." Center for Global Development Working Paper 156, Dec 2008.

Peak Energy and the Limits to China’s Economic Growth: Prospect of Energy Supply and Economic Growth from Now to 2050

by Minqi Li

- This working paper evaluates the prospects for China’s energy supply and its impact on economic growth between 2008 and 2050. After considering China’s domestic potential of coal, oil, and gas production, the potential of energy imports from the rest of the world, as well as potential developments of renewable and nuclear energy, the author finds that China is likely to face an insurmountable energy crisis beyond 2020.

Li, M. (2008). "Peak Energy and the Limits to China’s Economic Growth: Prospect of Energy Supply and Economic Growth from Now to 2050." Political Economy Research Group Working Paper 189, Dec 2008.

Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions

by Corrado Di Maria, Sjak Smulders and Edwin van derWerf

- This paper studies the effectiveness of climate change policy in a model with multiple non-renewable resources that differ in their carbon content. When allowing some time between announcement and implementation of a cap on carbon dioxide emissions, emissions from non-renewable energy sources increase at the time of announcement. There are two channels behind this effect. First, since a binding constraint on emissions restricts energy use during some period of time, more must be extracted during other periods. Second, since low carbon energy sources are relatively more valuable when the policy is implemented, it is optimal to conserve them ahead of enforcement. This might induce a switch to high-carbon resources before the policy is implemented.

Di Maria, C., S. Smulders and E. van derWerf (2008). "Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions." FEEM Nota di Lavoro 92.08, Nov 2008.

Effects of the CDM on Poverty Eradication and Global Climate Protection

by Dirk T.G. Rübbelke and Nathan Rive

- In an impure public good model the authors analyze the effects of CDM transfers on poverty as well as on the global climate protection level. They construct an analytical model of a developing and an industrialized region and based on analytical findings, they develop two sets of simulations for China in which they vary the rate of the CDM transfer.

Rübbelke, D.T.G. and N. Rive (2008). "Effects of the CDM on Poverty Eradication and Global Climate Protection." FEEM Nota di Lavoro 93.08, Nov 2008.

December 9, 2008

The CLEAR Path: Rewarding Early Actions by Emerging Economies to Limit Carbon

by Gernot Wagner, James Wang, Dan Dudek, Jennifer Haverkamp, Nat Keohane and Annie Petsonk

- Even if emissions from industrialized countries and deforestation were reduced to zero by 2050, the climate goal cannot be met unless emerging economies also reduce their emissions. Nations will need to forge new mechanisms to help emerging economies participate in carbon trading markets without stifling growth or innovation. This paper sets forth the conceptual structure and dynamics of a powerful mechanism that would accomplish this goal, which the authors call CLEAR: Carbon Limits + Early Actions = Rewards.

Wagner, G., J. Wang, D. Dudek, J. Haverkamp, N. Keohane and A. Petsonk (2008). "The CLEAR Path: Rewarding Early Actions by Emerging Economies to Limit Carbon." Environmental Defense Fund, Working Draft, Dec 2008.

Bush Meets Hotelling: Effects of Improved Renewable Energy Technology on Greenhouse Gas Emissions

by Michael Hoel

- Fossil fuels are non-renewable carbon resources, and the extraction path of these resources depends both on present and future demand. When this "Hotelling feature" is taken into consideration, the whole price path of carbon fuel will shift downwards as a response to the reduced cost of the renewable substitute. An implication of this is that greenhouse gas emissions in the near future may increase as a response to the reduced cost of the renewable substitute. If this is the case, increased climate costs may outweigh the benefits of reduced costs of a substitute, thus reducing overall social welfare.

Hoel, M. (2008). "Bush Meets Hotelling: Effects of Improved Renewable Energy Technology on Greenhouse Gas Emissions." CESifo Working Paper No. 2492, Dec 2008.

Adaptation to Climate Change in International River Basins in Africa: a Review

by Marisa Goulden, Declan Conway and Aurelie Persechino

- This paper reviews current knowledge of the potential impacts of climate change on water resources in Africa and the possible limits, barriers or opportunities for adaptation to climate change in internationally shared river basins. River basins and the riparian states that share them differ in their capacities to adapt. Without appropriate cooperation adaptation may be limited and uneven. Further research to examine the factors and processes that are important for cooperation to lead to positive adaptation outcomes and the increased adaptive capacity of water management institutions is suggested.


Goulden, M., D. Conway and A. Persechino (2008). "Adaptation to Climate Change in International River Basins in Africa: a Review." Tyndall Centre Working Paper 127, Dec 2008.

Factors Affecting Levels of International Cooperation in Carbon Abatement Projects

by Ariel Dinar, Shaikh Mahfuzur, Donald Larson and Philippe Ambrosi

- This paper analyzes the Clean Development Mechanism market, emphasizing the cooperation aspects between host and investor countries. The analysis uses a dichotomous (yes/no) variable and three continuous variants to measure the level of cooperation, namely the number of joint projects, the volume of carbon dioxide abatement, and the volume of investment in the projects. The results suggest that economic development, institutional development, the energy structure of the economies, the level of country vulnerability to various climate change effects, and the state of international relations between the host and investor countries are good predictors of the level of cooperation in Clean Development Mechanism projects.

Dinar, A., S. Mahfuzur, D. Larson and P. Ambrosi (2008). "Factors Affecting Levels of International Cooperation in Carbon Abatement Projects." World Bank Policy Research Working Paper, WPS 4786, Nov 2008.

Carbon Markets in North America

by Olga Nartova

- This paper outlines some of the highlights and issues surrounding carbon markets in North America. The issues covered include US Federal and State carbon policy, climate change legislation and trading systems. A particular focus will be on the Regional Greenhouse-Gas Initiative, the first mandatory cap-and-trade scheme to be set up in the US, as well as other similar initiatives in the US.

Nartova, O. (2008). "Carbon Markets in North America." NCCR Trade Working Paper No 2008/21, Nov 2008.

Transboundary Pollution, Trade Liberalization, and Environmental Taxes

by Soham Baksi and Amrita Ray Chaudhuri

- In a bilateral trade framework, this paper examines the impact of tariff reduction on the optimal pollution tax and social welfare when pollution is transboundary. Strategic considerations lead countries to distort their pollution tax in the non-cooperative equilibrium. Trade liberalization changes the distortion, and consequently the pollution tax and welfare, in ways that depend on the extent to which pollution is transboundary. With pollution being transboundary, the impact of trade liberalization on welfare is non-monotonic and concave. The greater the extent to which pollution crosses borders, the more likely is trade liberalization to reduce welfare.

Baksi, S. and A. Ray Chaudhuri (2008). "Transboundary Pollution, Trade Liberalization, and Environmental Taxes." CentER Discussion Paper, 2008-78, Aug 2008.

December 1, 2008

Sharing the Burden of GHG Reductions

by Henry D. Jacoby, Mustafa H. Babiker, Sergey Paltsev and John M. Reilly

- This paper develops a technique for endogenously estimating the allowance allocations and associated financial transfers necessary to achieve predetermined distributional outcomes and apply it in the MIT Emissions Prediction and Policy Analysis (EPPA) model. Possible burden sharing agreements are represented by different allowance allocations (and resulting financial flows) in a global cap-and-trade system. Cases studied include agreements that allocate the burden based on simple allocation rules found in current national proposals and alternatives that specify national equity goals for both developing and developed countries. The choice of allocation rule is shown to affect the magnitude of the task and required emissions price because of income effects.

Jacoby, H.D., M.H. Babiker, S. Paltsev and J.M. Reilly (2008). "Sharing the Burden of GHG Reductions." Joint Program Report Series, Report 167, Nov 2008.

Cost-Effectiveness of Greenhouse Gas Emission Reductions from Plug-in Hybrid.

by Daniel M. Kammen, Samuel M. Arons, Derek Lemoine and Holmes Hummel

- Plug-in hybrid electric vehicles (PHEVs) could significantly reduce automotive greenhouse gas (GHG) emissions and petroleum consumption, while improving energy security and urban air quality. Widespread PHEV adoption will depend upon technological and economic advances in batteries because the initial fuel savings do not rapidly compensate consumers for the capital costs of batteries today. For PHEV purchases to become economical to consumers, battery prices must decline from $1,300 per kilowatt-hour (kWh) to about or below $500/kWh, or U.S. gasoline prices must remain at about $5 per gallon-or the federal government must institute policy innovations with equivalent effects. Any carbon price would have to exceed $100/t-CO2-eq in order to render PHEVs' reductions cost-effective, and hence a carbon price alone represents an impractical short-term means of achieving this goal.

Kammen, D.M., S.M. Arons, D. Lemoine and H. Hummel (2008). "Cost-Effectiveness of Greenhouse Gas Emission Reductions from Plug-in Hybrid Electric Vehicles." Goldman School of Public Policy Working Paper No. GSPP08-014, Nov 2008.

Linkage and Multilevel Governance

by David M. Driesen

- This paper describes the multilevel governance model employed in the Kyoto Protocol and then analyzes some of the problems this complexity creates for the project of creating an international market in environmental benefit credits to realize technology transfer benefits. This paper shows that multilevel governance creates costs that can interfere with technology transfer and free trade in credits.

Driesen, D.M. (2008). "Linkage and Multilevel Governance." Syracuse University - College of Law, Nov 2008.

Original Ownership of the Earth: A Contemporary Approach

by Mathias Risse

- This essay explores the view that the earth belongs to humankind collectively from a contemporary, secular standpoint. The goal is twofold: First of all, to offer a particular view on the ownership status of the earth; and second, to defend this inquiry into original ownership against objections. The standpoint of collective ownership could generate a fruitful research agenda, one that, among other things, allows us to discuss questions pertaining to immigration, human rights, obligations to future generations, and global climate change.

Risse, M. (2008). "Original Ownership of the Earth: A Contemporary Approach." Harvard Kennedy School Working Paper RWP08-073, Nov 2008.

Who Should Shoulder the Burden? Global Climate Change and Common Ownership of the Earth

by Mathias Risse

- A common and intuitively plausible approach to thinking about the distributional questions that arise about global climate change is that the atmosphere is a "global sink" whose use is subject to regulation in terms of an equal-per-capita principle. This view, however, is plausible only if one thinks the earth as a whole belongs in some sense to humanity as such. This essay develops that standpoint of collective ownership of the earth and applies it to the aforementioned distributional questions.

Risse, M. (2008). "Who Should Shoulder the Burden? Global Climate Change and Common Ownership of the Earth." Harvard Kennedy School Working Paper RWP08-075, Nov 2008.

Alleviating Adverse Implications of EU Climate Policy on Competitiveness: The Case for Border Tax Adjustments or the Clean Development Mechanism?

by Victoria Alexeeva-Talebi, Niels Anger and Andreas Löschel

- This paper studies the economic and environmental implications of two different measures to address these concerns in the EU Emission Trading Scheme (EU ETS): border tax adjustments (BTA) and the Clean Development Mechanism (CDM). Numerical simulations with a computable general equilibrium model of the global economy demonstrate that alternative BTA regimes are suitable to alleviate adverse competiveness implications of unilateral European climate policy on energy-intensive and export-oriented industries. The regulatory protection of these industries via subsidies for EU exporters and tariffs for non-EU importers goes, however, at the expense of sectors which are excluded from the EU ETS.

Alexeeva-Talebi, V., N. Anger and A. Löschel (2008). "Alleviating Adverse Implications of EU Climate Policy on Competitiveness: The Case for Border Tax Adjustments or the Clean Development Mechanism?" ZEW Discussion Paper No. 08-095, Mannheim.

Dealing with Uncertain Technological Risks

by Arthur C. Petersen

- Towards a more adaptive regulation of technological risks. The risks posed to society from "emerging technologies" constitute a topic of intense academic and social debate. This report addresses the appraisal and regulation of these risks from a variety of angles. The three main topics discussed are: (1) the nature of emerging technology, (2) limits of past risk regulation, and (3) successes of past risk management and improved design.

Petersen, A.C. (2008). "Dealing with Uncertain Technological Risks." Netherlands Environmental Assessment Agency, PBL publication number: 550032012, Nov 2008.

Climate Change Mitigation Policies: Are R&D Subsidies Preferable to a Carbon Tax?

by André Grimaud and Gilles Lafforgue

- This paper considers a general equilibrium climate change model with two endogenous R&D sectors. First, the set of decentralized equilibria is characterized : to each vector of public tools - a carbon tax and a subsidy to each R&D sector - is associated a particular equilibrium. Second, the optimal tools are computed. Third, various second-best analysis are performed by imposing some constraints on one or several policy. The main results of the paper are the following: i) both a carbon tax and a green research subsidy contribute to the climate change mitigation; ii) R&D subsidies have a large impact on the consumption, and then on the social welfare, as compared with the carbon tax used alone; iii) those subsidies allow to spare the earlier generations who are, on the other hand, penalized by a carbon tax.

Grimaud, A. and G. Lafforgue (2008). "Climate Change Mitigation Policies: Are R&D Subsidies Preferable to a Carbon Tax?" LERNA Working Paper 08.31.275, Nov 2008.

Global Climate Change and the Funding of Adaptation

by Seraina Buob and Gunter Stephan

- It is expected that in a post Kyoto world industrialized countries have to engage in greenhouse gas abatement, and to support developing countries in adapting to climate change. Within the framework of a non-cooperative Nash game this paper analyzes, whether funding adaptation is incentive compatible in the sense that it stipulates mitigation. In particular it is the aim of this paper to discuss: (1) How does foreign funding of adaptation affect mitigation and regional welfare? (2) Under which conditions is it economically rational to fund adaptation in developing regions?

Buob, S. and G. Stephan (2008). "Global Climate Change and the Funding of Adaptation." Universität Bern Department of Economics Discussion Papers, 08-04, Nov 2008.

Climate Change Mitigation. What Do We Do?

by the OECD

- Climate change and its impact on our environment, our economies and our security, is the defining issue of our era. But every day of inaction makes its consequences more irreversible, so we need to act now. This publication summarises recent OECD analyses and it strengthens the main OECD message: that an ambitious and comprehensive strategy to curb greenhouse gas (GHG) emissions is economically rational. It provides arguments to help policy-makers explain why postponing decisions, using the current economic circumstances as an excuse, is a short-sighted policy.

OECD (2008). "Climate Change Mitigation. What Do We Do?" Nov 2008.

Marginal Abatement Costs and Marginal Welfare Costs for Greenhouse Gas Emissions Reductions: Results from the EPPA Model.

by Jennifer Morris, Sergey Paltsev and John Reilly

- This paper explores the basic characteristics of MAC and marginal welfare cost (MWC) curves, deriving them using the MIT Emissions Prediction and Policy Analysis (EPPA) model. The authors find that, depending on the method used to construct them, MACs are affected by policies abroad. They are also dependent on policies in place in the past and depend on whether they are CO2-only or include all GHGs. Further, ACs are, in general, not closely related to MWCs and therefore should not be used to derive estimates of welfare change.

Morris, J., S. Paltsev and J. Reilly (2008). "Marginal Abatement Costs and Marginal Welfare Costs for Greenhouse Gas Emissions Reductions: Results from the EPPA Model." Joint Program Report Series, Report 164, Nov 2008.

Reductions of Greenhouse Gas Emissions in Annex I and non-Annex I Countries for Meeting Concentration Stabilisation Targets - An Editorial Comment

by Michel den Elzen and Niklas Höhne

- The IPCC Fourth Assessment Report, Working Group III, summarises in Box 13.7 the required emission reduction ranges in Annex I and non-Annex I countries as a group, to achieve greenhouse gas concentration stabilisation levels between 450 and 650 ppm CO2-eq. The box summarises the results of the IPCC authors’ analysis of the literature on the regional allocation of the emission reductions. The box states that Annex I countries as a group would need to reduce their emissions to below 1990 levels in 2020 by 25% to 40% for 450 ppm, 10% to 30% for 550 ppm and 0% to 25% for 650 ppm CO2-eq, even if emissions in developing countries deviate substantially from baseline for the low concentration target. In this paper, the IPCC authors of Box 13.7 provide background information and analyse whether new information, obtained after completion of the IPCC report, influences these ranges. The authors concluded that there is no argument for updating the ranges in Box 13.7.

den Elzen, M. and N. Höhne (2008). "Reductions of Greenhouse Gas Emissions in Annex I and non-Annex I Countries for Meeting Concentration Stabilisation Targets - An Editorial Comment." Climatic Change 91:249-274 (open access), Sept 2008.