February 15, 2009

The Role of R&D and Technology Diffusion in Climate Change Mitigation: New Perspectives using the WITCH Model

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

- This paper uses the WITCH model to explore the impact of various climate policies on energy technology choices and the costs of stabilising greenhouse gas concentrations. Current and future expected carbon prices appear to have powerful effects on R&D spending and clean technology diffusion. Their impact on stabilisation costs depends on the nature of R&D: R&D targeted at incremental energy efficiency improvements has only limited effects, but R&D focused on the emergence of major new low-carbon technologies could lower costs drastically if successful especially in the non-electricity sector.

Bosetti, V., C. Carraro, R. Duval, A. Sgobbi and M. Tavoni (2009). "The Role of R&D and Technology Diffusion in Climate Change Mitigation: New Perspectives using the WITCH Model." OECD Working Paper No. 664, February.

Carbon Leakage, the Green Paradox and Perfect Future Markets

by Thomas Eichner

- Policies of lowering carbon demand may aggravate rather than alleviate climate change (green paradox). In a two-period three-country general equilibrium model with finite endowment of fossil fuel one country enforces an emissions cap in the first or second period. When that cap is tightened the extent of carbon leakage depends on the interaction of various parameters and elasticities. Conditions for the green paradox are specified. All determinants of carbon leakage resulting from tightening the first-period cap work in opposite direction when the second-period cap is tightened. Tightening the second-period cap does not necessarily lead to the green paradox.

Eichner, T. (2009). "Carbon Leakage, the Green Paradox and Perfect Future Markets." CESifo Working Paper No. 2542, February.

Assessing the Environmental Externalities from Biofuels in Australia

by Clara Cuevas-Cubria

- In this paper, estimates of GHG and air pollutant emissions arising from biofuels and petroleum fuels production and use are employed to calculate the change in environmental externalities when substituting biofuels for petroleum fuels in Australia. These estimates of externalities highlight the need to better understand the environmental implications of biofuel production and use.

Cuevas-Cubria, C. (2009). "Assessing the Environmental Externalities from Biofuels in Australia." ABARE conference paper 09.1, February.

Unintended Environmental Consequences of a Global Biofuels Program

by J.M. Melillo, A.C. Gurgel, D.W. Kicklighter, J.M. Reilly, T.W. Cronin, B.S. Felzer, S. Paltsev, C.A. Schlosser, A.P. Sokolov and X. Wang

- With simulation modeling, two scenarios for cellulosic biofuels production are explored. Results show that both could contribute substantially to future global-scale energy needs, but with significant unintended environmental consequences.

by Melillo, J.M., A.C. Gurgel, D.W. Kicklighter, J.M. Reilly, T.W. Cronin, B.S. Felzer, S. Paltsev, C.A. Schlosser, A.P. Sokolov and X. Wang (2009). "Unintended Environmental Consequences of a Global Biofuels Program." MIT Global Change Program Report No. 16, January.

International Trade and the Negotiability of Global Climate Change Agreements

by John Whalley, Yuezhou Cai and Raymond Riezman

- The authors build on the work of Shapley and Shubik (1969) which suggests that the core of a global warming game without transferable utility may be empty and use numerical simulation methods to analyse country incentives to participate in carbon emission limitation negotiations using a micro global warming structure related to that used by Uzawa(2003).

Whalley, J., Y. Cai and R. Riezman (2009). "International Trade and the Negotiability of Global Climate Change Agreements." NBER Working Paper No. 14711, Feb 2009.

Contributions to Climate Change Mitigation and the Environment: Land use Dynamics and Sugarcane Production

by Günther Fischer, Edmar Teixeira, Eva Tothne Hizsnyik and Harrij van Velthuizen

- This study assesses land use implications of sugarcane production for ethanol.

Fischer, G., E. Teixeira, E.T. Hizsnyik and H. van Velthuizen (2009). "Contributions to Climate Change Mitigation and the Environment: Land use Dynamics and Sugarcane Production." IIASA RP-09-001, February.

Positioning the Indian Coal-Power Sector for Carbon Mitigation: Key Policy Options

by Ananth P. Chikkatur and Ambuj D. Sagar

- The domestic and international steps outlined in this paper could greatly advance the development and implementation of a GHG-mitigation strategy in the Indian coal-power sector, while allowing the sector to contribute suitably to the country’s energy needs. The key to success will be adopting a deliberate approach, with short- and long-term perspectives in mind, that allows for the development of an integrated energy and climate policy.

Chikkatur, A.P. and A.D. Sagar (2009). "Positioning the Indian Coal-Power Sector for Carbon Mitigation: Key Policy Options." White Paper, The Pew Center on Global Climate Change, January.

A Roadmap for U.S.-China Cooperation on Energy and Climate Change

- This report presents a vision and a concrete roadmap for U.S.-China collaboration focused on reducing greenhouse gas emissions to mitigate the effects of climate change. The report was produced in partnership between the Pew Center on Global Climate Change and the Asia Society’s Center on U.S.-China Relations, in collaboration with The Brookings Institution, Council on Foreign Relations, National Committee on U.S.-China Relations, and Environmental Defense Fund.

Pew Center on Climate Change and Asia Society Center on U.S. China Relations (2009). "Common Challenge, Collaborative Response: A Roadmap for U.S.-China Cooperation on Energy and Climate Change." February.

Does the Clean Development Mechanism have a Viable Future?

by Cathrine Hagem and Bjart Holtsmark

- We argue that the CDM is not an efficient tool for achieving deep cuts in global emissions and conclude that maintaining the CDM as an option for developing countries may in itself be a serious obstacle to more binding participation by these countries.

Hagem, C. and B. Holtsmark (2009). "Does the Clean Development Mechanism have a viable future?" Statistics Norway, Research Department, Discussion Papers No. 577, February.

Revenue-Neutral Tax-Subsidy Policy for Carbon Emission Reduction

by Gregmar I. Galinato and Hulbert Hall

- In light of the political unpopularity of carbon taxes in the United States, we develop a model for a revenue neutral price instrument that maximizes social welfare subject to an exogenously determined net tax revenue target. This approach may be more palatable because it has the potential to change the relative price of the low-carbon and highcarbon components of blended fuel while limiting increases in taxes and motor fuel prices.

Galinato, G.I. and H. Hall (2009). "Revenue-Neutral Tax-Subsidy Policy for Carbon Emission Reduction." Washington State University, School of Economic Sciences, WP 2008-22, February.

Sensitivity Analysis of Simulation Models

by J.P.C. Kleijnen

- This contribution presents an overview of sensitivity analysis of simulation models, including the estimation of gradients. It covers classic designs and their corresponding (meta)models. It also reviews factor screening for simulation models with very many factors, focusing on the so-called "sequential bifurcation" method. Furthermore, it reviews Kriging metamodels and their designs. It mentions that sensitivity analysis may also aim at the optimization of the simulated system, allowing multiple random simulation outputs.

Kleijnen, J.P.C. (2009). "Sensitivity Analysis of Simulation Models." CentER Discussion Paper, Number 2009-11, February.

The Impact of Climate Change on the Irrigated Agricultural Industries in the Murray-Darling Basin

by Ahmed Hafi, Sally Thorpe and Adam Foster

- This paper details a bio-physical economic model of the Basin regions which has been developed to estimate the effect of reduced water availability on irrigated agriculture. In the model, regions are linked through a network of water and salt flows, while crop yields respond to irrigation and salinity. The model allows water trade to be restricted to regions or to be unrestricted across the basin.

Hafi, A., S. Thorpe and A. Foster (2009). "The Impact of Climate Change on the Irrigated Agricultural Industries in the Murray-Darling Basin." ABARE conference paper 09.3, February.

Safe Climate Policy is Affordable: 14 Reasons

by Jeroen C.J.M. van den Bergh

- There is a widespread sentiment that a sufficiently stringent climate policy, i.e. considerable reduction of greenhouse gas emissions to avoid extreme climate change, will cause very high economic costs for society. Many climate cost-benefit analyses (CBA) and climate policy cost assessments have calculated these costs, but all of these are characterized by debatable assumptions. This paper argues that safe climate policy is not excessively expensive. To this end, climate CBA and climate policy cost assessment studies are critically evaluated, and fourteen complementary perspectives on the cost of climate policy are offered.

Bergh, van den J.C.J.M. (2009). "Safe Climate Policy is Affordable: 14 Reasons." ICREA, January.

February 8, 2009

How Does Climate Policy Affect Technical Change? An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model

by Carlo Carraro, Emanuele Massetti and Lea Nicita

- This paper analyses whether and how a climate policy designed to stabilize greenhouse gases in the atmosphere is likely to change the direction and pace of technical progress. The analysis is performed using an upgraded version of WITCH, a dynamic integrated regional model of the world economy. In this version, a non-energy R&D Sector, which enhances the productivity of the capital-labor aggregate, has been added to the energy R&D sector included in the original WITCH model. We find that, as a consequence of climate policy, R&D is re-directed towards energy knowledge. Nonetheless, total R&D investments decrease, due to a more than proportional contraction of non-energy R&D.

Carraro, C., E. Massetti and L. Nicita (2009). "How Does Climate Policy Affect Technical Change? An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model." Feem Nota di Lavoro 08.2009, Feb 2009.

Linking the Australian Emissions Trading Scheme

by Frank Jotzo and Regina Betz

- This paper evaluates the proposed Australian scheme with regard to international emissions trading and linkages. Different scenarios for the Australian permit price under unilateral linking are considered. Options for bilateral linking with the European Union and New Zealand schemes are evaluated, including regarding access to ‘hot air’ units. We argue that Australia should dismantle obstacles to linking such as the price cap, and move toward bilateral linking with suitable schemes.

Jotzo, F. and R. Betz (2009). "Linking the Australian Emissions Trading Scheme." Environmental Economics Research Hub, Crawford School, ANU, Research Report No. 14, Feb 2009.

Optimal Provision of Public Goods: A Synthesis

by Claus Thustrup Kreiner and Nicolaj Verdelin

- There currently exist two competing approaches in the literature on the optimal provision of public goods. The standard approach highlights the importance of distortionary taxation and distributional concerns. The new approach neutralizes distributional concerns by adjusting the non-linear income tax, and finds that this reinvigorates the simple Samuelson rule when preferences are separable in goods and leisure. We provide a synthesis by demonstrating that both approaches derive from the same basic formula.

Thustrup Kreiner, C. and N. Verdelin (2009). "Optimal Provision of Public Goods: A Synthesis." CESifo Working Paper No. 2538, Feb 2009.

Climate Change and Risk Management: Challenges for Insurance, Adaptation, and Loss Estimation

by Roger M. Cooke, Carolyn Kousky

- Adapting to climate change will not only require responding to the physical effects of global warming, but will also require adapting the way we conceptualize, measure, and manage risks. Climate change is creating new risks, altering the risks we already face, and also, importantly, impacting the interdependencies between these risks. In this paper we focus on three particular phenomena of climate related risks that will require a change in our thinking about risk management: global micro-correlations, fat tails, and tail dependence.

Cooke, R.M., C. Kousky (2009). "Climate Change and Risk Management: Challenges for Insurance, Adaptation, and Loss Estimation." RFF Discussion Paper 09-03, Feb 2009.

Designing a U.S. Market for CO2

by J.E. Parsons, A.D. Ellerman and S. Feilhauer

- In this paper we focus on one component of the cap-and-trade system: the markets that arise for trading allowances after they have been allocated or auctioned. The efficient functioning of the market is key to the success of cap-and-trade as a system. We review the performance of the EU CO2 market and the U.S. SO2 market and examine how the flexibility afforded by banking and borrowing, and the limitations on banking and borrowing, have impacted the evolution of price in both markets.

Parsons, J.E., A.D. Ellerman and S. Feilhauer (2009). "Designing a U.S. Market for CO2." MIT Joint Program Report Series No 171, Feb 2009.

Exploring Comparable Post-2012 Reduction Efforts for Annex I Countries

by MGJ den Elzen, N. Hohne, J. van Vliet and C. Ellermann

- This study analyses the possible approaches to greenhouse gas abatement by industrialised (Annex I) countries, to calculate their comparability. The reduction targets for Annex I countries and the abatement costs of achieving these different aggregated reduction targets show a wide range. To meet the EU climate target of 2°C, a 30% emission reduction by the EU is needed, combined with comparable reduction efforts by other Annex I countries and a 15 to 30% below-baseline emission reduction by developing countries.

Elzen den, MGJ, N. Hohne, J. van Vliet and C. Ellermann (2009). "Exploring Comparable Post-2012 Reduction Efforts for Annex I Countries." MNP Report no. 500102019, Feb 2009.

Encouraging Developing Country Involvement in a Post-2012 Climate Change Regime: Carrots, Sticks or Both?

by ZhongXiang Zhang

- While it is clear that greenhouse gas emissions targets of developed countries need to be tightened further in a post-2012 climate change regime, developing country involvement is also crucial for climate change mitigation and adaptation. This raises the issue of which approach would be most likely to stimulate developing countries to take appropriate actions in the post-2012 climate regime. Would positive or negative incentives work best, in other words, do we need carrots, sticks or both?

Zhang, ZhongXiang (2009). "Encouraging Developing Country Involvement in a Post-2012 Climate Change Regime: Carrots, Sticks or Both?" East-West Center - Research Program, Jan 2009. Available at SSRN.

What is the Top Priority on Climate Change?

by Paul Klemperer

- What should be the West's top priority for climate-change policy? This article is a revised and updated version of my talk to the Potsdam Global Sustainability Symposium (which drafted the Potsdam Declaration presented to the 2007 UN Climate Change Conference in Bali).

Klemperer, P. (2009). "What is the Top Priority on Climate Change?" CEPR Discussion Paper DP7141, Jan 2009.

February 2, 2009

Optimal Global Dynamic Carbon Taxation

by David Anthoff

- A necessary condition of an efficient global climate change mitigation policy is to equate marginal abatement costs across world regions to ensure use of the cheapest abatement options available. The welfare economic justification for such an approach rests on lump sum transfers between regions to compensate for any unwanted distributional consequences of such a policy. I contrast this efficient solution with a second best situation in which lump sum transfers between regions are impossible.

Anthoff, D. (2009). "Optimal Global Dynamic Carbon Taxation." ESRI Working Paper 278, Feb 2009.

Temperature and Income: Reconciling New Cross-Sectional and Panel Estimates

by Melissa Dell, Benjamin F. Jones and Benjamin A. Olken

- This paper presents novel evidence and analysis of the relationship between temperature and income. First, using sub-national data from 12 countries in the Americas, we provide new evidence that the negative cross-country relationship between temperature and income also exists within countries and even within states. Second, we provide a theoretical framework for reconciling the substantial, negative association between temperature and income in the cross-section with the even stronger short-run effects of temperature estimated by panel models.

Dell, M., B.F. Jones and B.A. Olken (2009). "Temperature and Income: Reconciling New Cross-Sectional and Panel Estimates." NBER Working Paper No. 14680, Jan 2009.

Estimating the Effect of a Gasoline Tax on Carbon Emissions

by Lucas W. Davis and Lutz Kilian

- Although a large existing literature examines the sensitivity of gasoline consumption to changes in price, these estimates may not be appropriate for evaluating the effectiveness of a carbon tax. First, most of these studies fail to address the endogeneity of gasoline prices. Second, the responsiveness of gasoline consumption to a change in tax may differ from the responsiveness of consumption to an average change in price. We address these challenges using a variety of methods including traditional single-equation regression models, estimated by least squares or instrumental variables methods, and structural vector autoregressions.

Davis, L.W. and L. Kilian (2009). "Estimating the Effect of a Gasoline Tax on Carbon Emissions." NBER Working Paper No. 14685, Jan 2009.

Discounting for Climate Change

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

- The discount rate is crucially important for estimating the social cost of carbon. The Ramsey equation for the discount rate has three components: the pure rate of time preference, a measure of relative risk aversion, and the rate of growth of per capita consumption. Much of the attention on the appropriate discount rate for long-term environmental problems has focussed on the role played by the pure rate of time preference in this formulation. We show that the other two elements are numerically just as important in considerations of anthropogenic climate change.

Anthoff, D., R.S.J. Tol and G. Yohe (2009). "Discounting for Climate Change." ESRI Working Paper 276, Jan 2009.

Energy Saving Technology Diffusion via FDI and Trade: A CGE Model of China

by Michael Hübler

- This paper introduces intra- and inter-sectoral technology diffusion via FDI and imports into a recursive-dynamic CGE model for climate policy analyses. It analyzes China’s accession to a Post Kyoto emission regime that keeps global emissions from 2012 on constant. Due to ongoing energy efficiency gains, partly stemming from international technology diffusion, China will become a net seller of emission permits and steadily reduce emissions, possibly below their 2004 level until 2030. This will reduce the world CO2 price significantly.

Hübler, M. (2009). "Energy Saving Technology Diffusion via FDI and Trade: A CGE Model of China." Kiel Working Paper 1479, Jan 2009.

Benefits of Organic Agriculture as a Climate Change Adaptation and Mitigation Strategy in Developing Countries

by Adrian Muller

- Organic Agriculture (OA) as an adaptation strategy (AS) to Climate Change (CC) is a concrete and promising option for adaptation in rural communities. OA has additional potential as a mitigation strategy (MS). This text is a short review note on this topic. Adaptation and mitigation based on OA can build on well-established practice as OA is a sustainable livelihood strategy with decades of experience in several climate zones and under a wide range of specific local conditions.

Muller, A. (2009). "Benefits of Organic Agriculture as a Climate Change Adaptation and Mitigation Strategy in Developing Countries." Goteborgs Universitet, Working Papers in Economics No 343, Jan 2009.

A Case-Study on Project-Level CO2 Mitigation Costs in Industrialised Countries - The Climate Cent Foundation in Switzerland

by Laura Kunz and Adrian Muller

- We analyse CO2 emissions reduction costs based on project data from the Climate Cent Foundation (CCF). We draw four conclusions. First, for the projects investigated, the CCF on average pays Euro 63/t. Lifetime reduction costs are Euro 45/t. Second, correlation between CCF's payments and lifetime reduction costs per ton is low. Third, the wide range of project costs per ton observed casts doubts on the widely used identification of the merit order of reduction measures based on average per ton costs for technology types. Finally, the CCF covers only a fraction of additional reduction costs. Decisions to take reduction efforts thus depend on additional, non-observable and/or non-economic motives.

Kunz, L. and A. Muller (2009). "A Case-Study on Project-Level CO2 Mitigation Costs in Industrialised Countries - The Climate Cent Foundation in Switzerland." Goteborgs Universitet, Working Papers in Economics No 342, Jan 2009.