June 28, 2009

International Cooperation on Climate-Friendly Technologies

by Rolf Golombek and Michael Hoel

- We examine international cooperation on technological development as a supplement to, or an alternative to, international cooperation on emission reductions. R&D should be increased beyond the non-cooperative level if (i) the technology level in one country is positively affected by R&D in other countries, (ii) the domestic carbon tax is lower than the Pigovian level, or (iii) the domestic carbon tax is set directly through an international tax agreement.

Rolf Golombek and Michael Hoel (2009). "International Cooperation on Climate-Friendly Technologies." CesIfo Workikng Paper 2677, June 2009.

Evaluating Emission Trading as a Policy Tool: Evidence from Conditional Jump Models

by Marc Gronwald and Janina Ketterer

- This paper, first, empirically investigates European emission allowance (EUA) prices and, second, evaluates emission trading as a policy measure. Applying combined jump GARCH models yields strong evidence of conditional jump behavior. This implies that EUA prices are subject to unexpected movements and that a considerable degree of uncertainty is present. According to the real option literature, uncertainty has adverse effects on investment decisions. Thus, investments in abatement technologies are likely to be postponed due to the peculiar characteristics of emission allowance prices.

Gronwald, M. and J. Ketterer (2009). "Evaluating Emission Trading as a Policy Tool: Evidence from Conditional Jump Models." CesIfo Working Paper 2682, June 2009.

The Role of Information Provision as a Policy Instrument to Supplement Environmental Taxes: Empowering Consumers to Choose Optimally

by Eftichios S. Sartzetakis, Anastasios Xepapadeas and Emmanuel Petrakis

- The present paper examines, within a dynamic framework, the use of information provision as a policy instrument to supplement environmental taxation. We assume that at least a fraction of consumers do not posses the required information to make the optimal choices, and that their behavior at each time period depends on the accumulated stock of information. We show that, as the accumulated stock of information provision increases, both the optimal level of information provided at each period of time and the optimal tax rate decline over time.

Sartzetakis, E.S., A. Xepapadeas and E. Petrakis (2009). "The Role of Information Provision as a Policy Instrument to Supplement Environmental Taxes: Empowering Consumers to Choose Optimally." FEEM Working Paper, 46.09, June 2009.

The Incidence of U.S. Climate Policy: Alternative Uses of Revenues from a Cap-and-Trade Auction

by Dallas Burtraw, Richard Sweeney and Margaret A. Walls

- Federal policies intended to slow global warming would impose potentially significant costs on households, and the costs would vary depending on the policy approach used. This paper evaluates the effects of a carbon dioxide (CO2) cap-and-trade program on households in each of 11 regions of the country and sorted into annual income deciles.

Dallas Burtraw, Richard Sweeney, Margaret A. Walls (2009). "The Incidence of U.S. Climate Policy: Alternative Uses of Revenues from a Cap-and-Trade Auction." RFF Discussion Paper 09-17-REV, June 2009.

Taxes, Permits and the Adoption of Abatement Technology under Imperfect Compliance

by Clara Villegas

- This paper analyzes the effects of the choice between price-based and quantity-based emission regulations on compliance incentives and social welfare in the presence of incomplete enforcement and technology adoption. We show that in contrast to taxes, the extent of violations under tradable emission permits (TEPs) decreases with the rate of technology adoption.

Villegas, C. (2009). "Taxes, Permits and the Adoption of Abatement Technology under Imperfect Compliance." Göteborgs Universitet School of Business, Economics and Law, Working Papers in Economics No 368, June 2009.

The Impact of the EU Emissions Trading System on CO2 Intensity in Electricity Generation

by Anna Widerberg and Markus Wråke

- Prior to the launch of the EU Emissions Trading System (EU ETS) in 2005, the electricity sector was widely proclaimed to have more low-cost emission abatement opportunities than other sectors. If this were true, effects of the EU ETS on carbon dioxide (CO2) emissions would likely be visible in the electricity sector. Our results do not indicate any link between the price of EUA and the CO2 emissions of Swedish electricity production.

Widerberg, A. and M. Wråke (2009). "The Impact of the EU Emissions Trading System on CO2 Intensity in Electricity Generation." Göteborgs Universitet School of Business, Economics and Law, Working Papers in Economics No 361, June 2009.

Suggestions for the Road to Copenhagen

by Larry Karp and Jinhua Zhao

- We provide a unified discussion of the issues that confront negotiators of the next international climate agreement. We offer a novel proposal that entitles countries to discharge their treaty obligations by paying a "fine". This escape clause provides cost insurance, simplifies the problem of enforcing compliance, and increases incentives to participate in the agreement. We explain why developed country obligations should rely on a cap and trade commitment rather than carbon taxes. A Central Bank maintains stability of carbon prices by defending a price ceiling and floor.

Karp, L. and J. Zhao (2009). http://repositories.cdlib.org/are_ucb/1085
"Suggestions for the Road to Copenhagen." Department of Agricultural & Resource Economics, UCB. CUDARE Working Paper 1085, June 2009.

Sacrifice, Discounting and Climate Policy: Five Questions

by Larry Karp

- I provide a selective review of discounting and climate policy. After reviewing evidence on the importance of the discount rate in setting policy, I ask whether standard models tend to exaggerate the sacrifices that the current generation needs to undertake in order to internalize climate damages. I then consider whether the risk of catastrophic damage really overwhelms discounting, in the determination of optimal policy. I revisit the question of how we actually think about the distant future.

Karp, L. (2009). "Sacrifice, Discounting and Climate Policy: Five Questions." Department of Agricultural & Resource Economics, UCB. CUDARE Working Paper 1086, June 2009.

International Environmental Agreements: Emissions Trade, Safety Valves and Escape Clauses

by Larry Karp and Jinhua Zhao

- We explain how the structure of multi-national or multi-regional environmental agreements affect their chance of success. Trade in emissions permits has ambiguous and in some cases surprising effects on both the equilibrium level of abatement, and on the ability to persuade nations or regions to participate in environmental agreements. An escape clause policy and a safety valve policy have essentially the same properties when membership in environmental agreement is pre-determined, but they create markedly different effects on the incentives to join such an agreement.

Karp, L. and J. Zhao (2009). "International Environmental Agreements: Emissions Trade, Safety Valves and Escape Clauses." Department of Agricultural & Resource Economics, UCB. CUDARE Working Paper 1084, May 2009.

An Economic and Environmental Assessment of Carbon Capture and Storage (CCS) Power Plants: A Case Study for the City of Kiel

by Sören Lindner, Sonja Peterson and Wilhelm Windhorst

- In the next years several power plants throughout Europe have to be replaced and the questions is whether to build coal fired power plants with carbon capture and storage (CCS). In a study for the city of Kiel in northern Germany only a 800 MW coal power plant reaches a required minimum rentability. We use the study for an additional economic and environmental evaluation of a coal plant with CCS.

Lindner, S., S. Peterson and W. Windhorst (2009). "An Economic and Environmental Assessment of Carbon Capture and Storage (CCS) Power Plants: A Case Study for the City of Kiel." Kiel Working Paper No. 1527, June 2009.

June 21, 2009

Who Pays for a Price on Carbon?

by Corbett A. Grainger and Charles D. Kolstad

- We use the 2003 Consumer Expenditure Survey and emissions estimates from an input-output model to estimate the incidence of a price on carbon induced by a cap-and-trade program or carbon tax in the US context. We illustrate the main determinant of the regressivity: consumption patterns for energy-intensive goods. We find that a policy targeting CO2 from energy consumption is more regressive than a price on all emissions. Furthermore, on a per-capita basis a carbon price is much more regressive than calculations at the household level.

Grainger, C.A. and C.D. Kolstad (2009). "Who Pays a Price on Carbon?" NBER Working Paper No. 15239, August 2009.

A Free Lunch in the Commons

by Matthew J. Kotchen and Stephen W. Salant

- We derive conditions under which cost-increasing measures - consistent with either regulatory constraints or fully expropriated taxes - can increase the profits of all agents active within a common-pool resource. This somewhat counterintuitive result is possible regardless of whether price is exogenously fixed or endogenously determined. Consumers are made no worse-off and, in the case of an endogenous price, can be made strictly better-off. The results simply require that total revenue be decreasing and convex in aggregate effort.

Kotchen, M.J. and S.W. Salant (2009). "A Free Lunch in the Commons." NBER Working Paper No. 15086, June 2009.

Assessing the Macroeconomic Impacts of Natural Disasters: Are There Any?

by Stefan Hochrainer

- This paper aims to assess whether and by what mechanisms disasters have the potential to cause significant GDP impacts. The analysis first studies the counterfactual versus the observed gross domestic product. Second, the analysis assesses disaster impacts as a function of hazard, exposure of assets, and, importantly, vulnerability. In a medium-term analysis (up to 5 years after the disaster event), comparing counterfactual with observed gross domestic product, the authors find that natural disasters on average can lead to negative consequences.

Hochrainer, S. (2009). "Assessing the Macroeconomic Impacts of Natural Disasters: Are There Any?" World Bank Policy Research Working Paper no. WPS 4968, June 2009.

June 15, 2009

The Economics of Climate Change Mitigation: How to Build the Necessary Global Action in a Cost-effective Manner

By Jean-Marc Burniaux, Jean Chateau, Rob Dellink, Romain Duval and Stéphanie Jamet

- This paper outlines key steps towards the development of a single international carbon price -- including phasing out fossil fuel subsidies, and expanding and linking regional carbon markets through direct linking of existing emission trading systems, scaled-up CDM, use of sectoral crediting mechanisms, and incorporation of the forest sector. It examines the incentives for action, including possible financing flows to support action in developing countries.

Burniaux, J.M, J. Chateau, R. Dellink, R. Duval and S. Jamet (2009). "The Economics of Climate Change Mitigation: How to Build the Necessary Global Action in a Cost-effective Manner." OECD Working Paper, June 2009.

The Economics of Renewable Energy

by Geoffrey Heal

- Greater use of renewable energy is seen as a key component of any move to combat climate change, and is being aggressively promoted as such by the new U.S. administration and by other governments. Yet there is little economic analysis of renewable energy. This paper surveys what is written and adds to it. The conclusion is that the main renewables face a major problem because of their intermittency (the wind doesn’t always blow nor the sun always shine) and that this has not been adequately factored into discussions of their potential.

Heal, G. (2009). "The Economics of Renewable Energy." NBER Working Paper No. 15081, June 2009.

Global and Regional Impacts of the Clean Development Mechanism

by Shunli Wang, Henri L.F. de Groot, Peter Nijkamp, and Erik T. Verhoef

- By using and modifying the GTAP-E modelling system, this paper sets out to trace the combined economic and environmental impacts of CDM policies. Particular emphasis is placed on technology transfer induced by alternative CDM policies. Specific attention is devoted to the possible negative consequences of non-participation of the USA in the global coalition, and the associated distributional impacts world-wide.

Wang, S., H.L.F. de Groot, P. Nijkamp and E.T. Verhoef (2009). "Global and Regional Impacts of the Clean Development Mechanism." Tinbergen Institute Discussion Paper 09-045/3, June 2009.

What Do Emissions Markets Deliver and to Whom? Evidence from Southern California's NOx Trading Program

by Meredith Fowlie, Stephen P. Holland, Erin T. Mansur

- A perceived advantage of cap-and-trade programs over more prescriptive environmental regulation is that enhanced compliance flexibility and cost effectiveness can make more stringent emissions reductions politically feasible. However, increased compliance flexibility can also result in an inequitable distribution of pollution. We investigate these issues in the context of Southern California's RECLAIM program.

Fowlie, M., S.P. Holland and E.T. Mansur (2009). "What Do Emissions Markets Deliver and to Whom? Evidence from Southern California's NOx Trading Program." NBER Working Paper No. 15082, June 2009.

The Impact of Climate Change on Catastrophe Risk Models: Implications for Catastrophe Risk Markets in Developing Countries

by John Seo and Olivier Mahul

- Recently observed hurricane activity, particularly in the 2004 and 2005 hurricane seasons, in conjunction with recently published scientific literature has led risk modelers to revisit their hurricane models and develop climate conditioned hurricane models. This paper discusses these climate conditioned hurricane models and compares their risk estimates to those of base normal hurricane models.

Seo, J. and O. Mahul (2009). "The Impact of Climate Change on Catastrophe Risk Models: Implications for Catastrophe Risk Markets in Developing Countries." World Bank Policy Research Working Paper no. WPS 4959, June 2009.

A Performance Standards Approach to Reducing CO2 Emissions from Electric Power Plants

by Edward S. Rubin

- The CO2 emission performance standard policies outlined in this paper could complement a cap-and-trade program that puts a price on carbon and serve to significantly reduce the CO2 emissions from coal use for electricity generation. Emission performance standards have a long history in the United States and have been successfully used to control emissions of various air pollutants from electric generators. This paper explores the rationale for using emission performance standards and describes the various types of performance standard policies. Emission performance standards that address CO2 emissions could promote the deployment of carbon capture and storage technology coupled with new and existing coal-fueled electric power plants.

Rubin, E.S. (2009). "A Performance Standards Approach to Reducing CO2 Emissions from Electric Power Plants." Prepared for the Pew Center on Global Climate Change, June 2009.

On General Versus Emission Saving R&D Support

by Brita Bye and Karl Jacobsen

- We analyse welfare effects of supporting general versus emission saving technological development when carbon emissions are regulated by a carbon tax. We use a computable general equilibrium model with induced technological change (ITC). ITC is driven by two separate, economically motivated research and development (R&D) activities, one general and one emission saving specified as carbon capture and storage. We study public revenue neutral policy alternatives targeted towards general R&D and emission saving R&D. Support to general R&D is the welfare superior, independent of the level of international carbon price. However, the welfare gap between the two R&D policy alternatives is reduced if the carbon price increases.

Bye, B. and K. Jacosen (2009). "On General Versus Emission Saving R&D Support." June 2009.

Argentinean Soy Based Biodiesel: an Introduction to Production and Impacts

by Julia Tomei and Paul Upham

- This working paper explores the economic, social and environmental context, drivers and impacts of increased demand for Argentine soy-based biodiesel. It is based on extensive stakeholder interviews in Argentina, including those in government, academia and the third sector; participant observation with communities in soy cultivation areas; and review of relevant academic and grey literature. Given Argentina’s history of political instability and corruption, plus the adverse GHG implications of clearing native habitats for soy for biodiesel, we are sceptical of the likely effectiveness of biofuel sustainability certification as applied to Argentine soy.

Tomei, J. and P. Upham (2009). "Argentinean Soy Based Biodiesel: an Introduction to Production and Impacts." Tyndall Centre Working Paper 133, May 2009.

A Framework for a Sectoral Crediting Mechanism in a Post-2012 Climate Regime

by Lambert Schneider and Martin Cames

- This report explores a sectoral crediting mechanism (SCM) for developing countries in a post-2012 UNFCCC climate regime. The report explores how a SCM could be implemented in practice. Different options for designing a SCM are identified and their advantages and disadvantages are discussed. Based on this analysis of options, a consistent policy framework for the introduction of a SCM under UNFCCC is proposed. The report focuses on a bottom-up approach where developing countries make proposals for implementing a SCM which are subsequently reviewed and agreed internationally. The report aims at facilitating the negotiation of such a mechanism under the UNFCC.

Schneider, L. and M. Cames (2009). "A Framework for a Sectoral Crediting Mechanism in a Post-2012 Climate Regime." Report for the Global Wind Energy Council Berlin, May 2009.

June 10, 2009

Co-optimization of Enhanced Oil Recovery and Carbon Sequestration

by Andrew Leach, Charles F. Mason and Klaas van't Veld

- In this paper, we present what is to our knowledge the first theoretical economic analysis of CO2- enhanced oil recovery (EOR). This technique, which has been used successfully in a number of oil plays (notably in West Texas, Wyoming, and Saskatchewan), entails injection of CO2 into mature oil fields in a manner that reduces the oil's viscosity, thereby enhancing the rate of extraction. As part of this process, significant quantities of CO2 remain sequestered in the reservoir. We develop a theoretical framework that analyzes the dynamic co-optimization of oil extraction and CO2 sequestration, through the producer's choice at each point in time of an optimal CO2 fraction in the injection stream (the control variable).

Leach, A., C.F. Mason and K. van't Veld (2009). "Co-optimization of Enhanced Oil Recovery and Carbon Sequestration." NBER Working Paper No. 15035, June 2009.

Can a Focus on Breakthrough Technologies Improve the Performance of International Environmental Agreements?

by Michael Hoel and Aart de Zeeuw

- In a recent paper, Barrett (2006) reaches the conclusion that in general the answer to the question in the title is no. We show in this paper that a focus on the R&D phase in the development of breakthrough technologies changes the picture. The stability of international treaties improves and thus the possibility of realizing benefits of cooperation.

Hoel, M. and A. de Zeeuw (2009). "Can a Focus on Breakthrough Technologies Improve the Performance of International Environmental Agreements?" NBER Working Paper No. 15043, June 2009.

Tax Policies for Low-Carbon Technologies

by Gilbert E. Metcalf

- The U.S. tax code provides a number of subsidies for low-carbon technologies. I discuss the difficulties of achieving key policy goals with subsidies as opposed to using taxes to raise the price of pollution-related activities. I conclude with some observations on the use of price-based instruments. In particular I discuss how a carbon tax could be designed to achieve environmental goals of emission caps over a control period.

Metcalf, G.E. (2009). "Tax Policies for Low-Carbon Technologies." NBER Working Paper No. 15054, June 2009.

Climate Change Feedback on Economic Growth: Explorations with a Dynamic General Equilibrium Model

by Fabio Eboli, Ramiro Parrado and Roberto Roson

- We use a new dynamic, multi-regional Computable General Equilibrium (CGE) model of the world economy to answer the following questions: Will climate change impacts significantly affect growth and wealth distribution in the world? Should forecasts of human-induced greenhouse gases emissions be revised, once climate change impacts are taken into account? We found that, even though economic growth and emission paths do not change significantly at the global level, relevant differences exist at the regional and sectoral level. In particular, developing countries appear to suffer the most from climate change impacts.

Eboli, F., R. Parrado and R. Roson (2009). "Climate Change Feedback on Economic Growth: Explorations with a Dynamic General Equilibrium Model." Feem Working Paper 43.09, June 2009.

Europe's Onshore and Offshore Wind Energy Potential

by the European Environmental Agency

- This report provides a Europe-wide resource assessment of onshore and offshore wind potential in a geographically explicit manner. In addition to calculating raw wind resource potential, this study also introduces and quantitatively analyses the environmental and social constraints on wind sector development. Concerns addressed include the noise and visual impact of wind power, as well as the deaths of birds and bats that fly into rotor blades. The report also evaluates the future costs of wind energy production across Europe in order to gauge the potential output at competitive rates.

EEA (2009). "Europe's Onshore and Offshore Wind Energy Potential." European Environmental Agency, Technical report No 6/2009, June 2009.

Kingmakers and Leaders in Coalition Formation

by Marc Kilgour and Steven J. Brams

- Assume that players strictly rank each other as coalition partners. We propose a procedure whereby they "fall back" on their preferences, yielding internally compatible, or coherent, majority coalition(s), which we call fallback coalitions. If there is more than one fallback coalition, the players common to them, or kingmakers, determine which fallback coalition will form. The players(s) who are the first to be acceptable to all other members of a fallback coalition are the leader(s) of that coalition. The effects of different preference assumptions and of player weights on the number of coherent coalitions, their connectedness, and which players become kingmakers and leaders are investigated. The fallback procedure may be used (i) empirically to identify kingmakers and leaders or (ii) normatively to select them.

Kilgour, M. and S. J. Brams (2009). "Kingmakers and Leaders in Coalition Formation." Feem Working Paper 41.09, June 2009.

June 3, 2009

International Energy Outlook 2009

by the Energy Information Administration

- World marketed energy consumption is projected to grow by 44 percent between 2006 and 2030, driven by strong long-term economic growth in the developing nations of the world, according to the reference case projection from the "International Energy Outlook 2009" (IEO2009) released last week by the Energy Information Administration (EIA).

EIA (2009). "International Energy Outlook 2009." The Energy Information Administration, May 2009.
Additional Material

Sectoral Approaches and the Carbon Market

by Richard Baron, Barbara Buchner and Jane Ellis

- This paper considers the carbon market aspects of sectoral approaches to reduce greenhouse gas (GHG) emissions in developing countries. Three general ways to link sectoral goals with the carbon market are discussed: (1) Intensity goals, based on a GHG performance per unit of output; (2) Fixed emission goals, an absolute total quantity of GHG emissions with an ex post issuance of credits, or trading, with an ex ante allocation of allowances; (3) Technology-based sectoral objectives.

Baron, R., B. Buchner and J. Ellis (2009). "Sectoral Approaches and the Carbon Market." OECD/IEA, May 2009.

State and Trends of the Carbon Market 2009

by Karan Capoor and Philippe Ambrosi

- This paper reviews major trends in carbon markets in 2009. The implications of the 2009 economic crisis for carbon markets are widely discussed.

Capoor, K. and P. Ambrosi (2009). "State and Trends of the Carbon Market 2009." The World Bank, May 2009.

Annual European Community Greenhouse Gas Inventory 1990-2007 and Inventory Report 2009

by the European Environmental Agency

- This report is the annual submission of the greenhouse gas inventory of the European Community to the United Nations Framework Convention on Climate Change and the Kyoto Protocol. It presents greenhouse gas emissions between 1990 and 2006 for EU-27, EU-15, individual Member States and economic sector.

EEA (2009). "Annual European Community Greenhouse Gas Inventory 1990-2007 and Inventory Report 2009." Technical report No 4/2009, May 2009.
Executive Summary
Full Report [7.9 MB]