October 26, 2009

The Improbable 2°C Global Warming Target

by Carlo Carraro and Emanuele Massetti

- Mitigating global warning is a pressing and daunting task for the world’s major economies. This column says that the 2°C target set by G8 leaders is both politically and technologically unrealistic. It argues they must adopt more realistic targets and long-term commitments to adaptation plans.

Carraro, C. and E. Massetti (2009). "The Improbable 2°C Global Warming Target." VoxEU, 3 Sept 2009.

Price Floors for Emissions Trading

by Peter John Wood and Frank Jotzo

- Price floors in greenhouse gas emissions trading schemes can have advantages for technological innovation, price volatility, and management of cost uncertainty, but implementation has pitfalls. We argue that the best mechanism for implementing a price floor is by way of firms paying an extra fee or tax. This has budgetary advantages and is more compatible with international permit trading than alternative approaches that dominate the academic and policy debate. The fee approach can also be used to implement more general hybrid approaches to emissions pricing.

Wood, P.J. and F. Jotzo (2009). "Price Floors for Emissions Trading." Crawford School of Economics and Government, Environmental Economics Research Hub, Research ReportsResearch Report No. 36, Oct 2009.

The European Commission and EUA Prices: A High-Frequency Analysis of the EC's Decisions on Second NAPs

by Waldemar Rotfuss and Christian Conrad

- This paper empirically examines price formation in the European Union Emissions Trading Scheme (EU ETS). Our analysis shows that unexpected allocations of European Union Allowances (EUAs) lead to pronounced price reactions of the expected signs. Moreover, we find evidence that the adjustment of EUA prices to the European Commission’s decisions on second National Allocation Plans (NAPs) is not instantaneous, but takes up to six hours after the decision announcement.

Rotfuss, W. and C. Conrad (2009). "The European Commission and EUA Prices: A High-Frequency Analysis of the EC's Decisions on Second NAPs." EFA ZEW - Centre for European Economic Research Discussion Paper No. 09-045, Sept 2009.

Optimal Carbon Capture and Storage Policies

by Alain Ayong Le Kama, Mouez Fodhay and Gilles Lafforguez

- We develop a very simple growth model so as to obtain analytical and tractable results and therefore exhibit the main driving forces that should determine the optimal CSS policy. We show within this stylized framework that, under some conditionson the cost of extractions, CSS may be a long-term solution for the carbon emissions problem. Besides, it is also shown that the social planner will optimally choose to decrease the rate of capture and sequestration. Besides, we also introduce the decentralization of this simple economy, by considering the individual program of the fossil resource-holder and the one of the representative consumer.

Le Kama, A.A., M. Fodhay and G. Lafforguez (2009). "Optimal Carbon Capture and Storage Policies." LERNA Working Papers 09.24.300, Oct 2009.

Unilateral Measures and Emissions Mitigation

by Shurojit Chatterji, Sayantan Ghosal, Sean Walsh and John Whalley

- We discuss global climate mitigation that builds on existing unilateral measures to cut emissions. We document and discuss the rationale for such unilateral measures argue that such measures have the potential to generate positive spillover effects both within and across countries. In a simple dynamic model of learning we show that while single countries on their own may never get to the point of switching completely to low emission activities, a learning process with positive spillovers across nations is more likely to deliver a global switch to low emissions.

Chatterji, C., S. Ghosal, S. Walsh and J. Whalley (2009). "Unilateral Measures and Emissions Mitigation." NBER Working Paper No. 15441, Oct 2009.

The Environment and Directed Technical Change

Daron Acemoglu, Philippe Aghion, Leonardo Bursztyn and David Hemous

- This paper introduces endogenous and directed technical change in a growth model with environmental constraints and limited resources. A unique final good is produced by combining inputs from two sectors. One of these sectors uses "dirty" machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare, as a function of the degree of substitutability between clean and dirty inputs, environmental and resource stocks, and cross-country technological spillovers.

Acemoglu, D., P. Aghion, L. Bursztyn and D. Hemous (2009). "The Environment and Directed Technical Change." NBER Working Paper No. 15451, Oct 2009.

Agricultural Land Tenure and Carbon Offsets

by Roger Claassen and Mitch Morehart

- If agricultural producers are allowed to participate in a national cap-and-trade system to curb greenhouse gas (GHG) emissions, the opportunity to sell carbon offsets could prompt farmers to manage their land in a way that increases the amount of carbon stored in soil organic matter and plant biomass, including residue. Farmers who own the land they farm may be in a better position to generate offsets than those who rent their land.

Claassen, R. and M. Morehart (2009). "Agricultural Land Tenure and Carbon Offsets." USDA-ERS Economic Brief No. 14, Sept 2009.

Instrument Choice is Instrument Design

by David A. Weisbach

- This paper analyzes the choice between taxes and cap and trade systems as methods of controlling greenhouse gas emissions. It argues that in the domestic context, with proper design, the two instruments are essentially the same. Commonly discussed differences in the two instruments are due to unjustified assumptions about design. In the international context, however, taxes dominate more strongly. Because climate change will require a global system for emissions, these considerations mean we should favor taxes for controlling greenhouse gas emissions.

David A. Weisbach (2009). "Instrument Choice is Instrument Design." University of Chicago - Law School, U of Chicago Law & Economics, Olin Working Paper No. 490, Oct 2009.

The House Erred: A Carbon Tax Is Better Than Cap and Trade

by Michael J. Waggoner

- Although cap and trade has political momentum, a carbon tax is preferable because: 1. A carbon tax would work better in international commerce and would more effectively encourage the developing nations to join the fight against climate change. 2. Cap and trade is not the successfully tested environmental remedy some believe. 3. Cap and trade would effectively be a sales tax that would likely slow growth and be more regressive than a carbon tax. 4. Cap and trade would present more politics as usual.

Michael J. Waggoner (2009). "The House Erred: A Carbon Tax Is Better Than Cap and Trade." University of Colorado Law School, Legal Studies Research Paper Series, Working Paper Number 09-18, Oct 2009.

U.S. Emissions Trading Markets for SO2 and NOx

by Dallas Burtraw and Sarah Jo F Szambelan

- The U.S. Clean Air Act Amendments of 1990 initiated the first large experiment in the use of market-based regulation to control environmental problems with the introduction of an emissions trading program for sulfur dioxide emissions. Later that decade the second large trading program began for control of nitrogen oxide emissions. This paper reviews the history of these programs and provides a glimpse of their future given the introduction of new regulations affecting multiple pollutants and given the expected implementation of climate policy.

Dallas Burtraw and Sarah Jo F Szambelan (2009). "U.S. Emissions Trading Markets for SO2 and NOx." RFF Discussion Paper 09-40, Oct 2009.

Europe's Twenties: A Study Using the Wiatec Model

by Claudia Kemfert, Hans Kremers and Truong Truong

- In this paper, we use a computable general equilibrium model (WIATEC) to study the potential impact of implementing Europe's 20-20-20 climate policy. The results show that the economic costs of implementing the policy are only moderate and within the range of recent empirical evidence. Furthermore, they also indicate that there is a possibility that the existing allocations to the European sectors participating in the EU Emissions Trading Scheme (EU ETS) are on the low side.

Kemfert, C., H. Kremers and T. Truong (2009). "Europe's Twenties: A Study Using the Wiatec Model." DIW Berlin Discussion Paper No. 913, Aug 2009.

On Costs and Benefits of Russias Participation in the Kyoto Protocol

by Boris Digas, Vyacheslav Maksimov and Leo Schrattenholzer

- The authors consider an application of MERGE, a large-scale non-linear optimization model, to the analysis of the development of the E3 (energy-economy-environment) system in Russia. Original MERGE-based development scenarios for Russia are described. The simulation results are presented in detail and then partially compared with the projections given by other authors. The results of a sensitivity analysis of the models outputs are presented.

Digas, B., W. Maksimov and L. Schrattenholzer (2009). "On Costs and Benefits of Russias Participation in the Kyoto Protocol." IIASA Interim Report IR-09-001, Jul 2009.

October 18, 2009

German Car Buyers' Willingness to Pay to Reduce CO2 Emissions

by Martin Achtnicht

- This paper examines whether CO2 emissions per kilometre is a relevant attribute in car choices. Based on a stated preference experiment among potential car buyers from Germany, different mixed logit specifications are estimated. In addition, distributions of willingness to pay measures for an abatement of CO2 emissions are obtained. The results suggest that the emissions performance of a car matters substantially, but its consideration varies heavily across the sampled population.

Martin, A. (2009). "German Car Buyers' Willingness to Pay to Reduce CO2 Emissions." ZEW Discussion Paper No. 09-058, Mannheim, Oct 2009.

Increasing Energy and Resource Efficiency Through Innovation – An Explorative Analysis Using Innovation Survey Data

by Klaus Rennings and Christian Rammer

- This paper contributes to the literature one of the very few empirical econometric studies analysing determinants and impacts of environmental innovations in the field of energy and material efficiency. Analysing German innovation data, we find statistically significant differences in the innovation activities between firms with energy and resource efficiency innovations (hereafter: EREIs) and other innovators. Interestingly, they also more often aim at and achieve an improvement in the quality of processes. This reveals that successful resource efficiency efforts also tend to change product characteristics. More efficient processes have to meet higher quality standards and thus improve product quality.

Rennings, K. and C. Rammer (2009). "Increasing Energy and Resource Efficiency Through Innovation: An Explorative Analysis Using Innovation Survey Data." ZEW Discussion Paper No. 09-056, Mannheim, Oct 2009.

An Analysis of Various Policy Instruments to Reduce Congestion, Fuel Consumption and CO2 Emissions in Beijing

by Alex Anas, Govinga R. Timilsina, and Siqi Zheng

- Using a nested multinomial logit model of car ownership and personal travel in Beijing circa 2005, this paper compares the effectiveness of different policy instruments to reduce traffic congestion and CO2 emissions. The study shows that a congestion toll is more efficient than a fuel tax in reducing traffic congestion, whereas a fuel tax is more effective as a policy instrument for reducing gasoline consumption and emissions.

Anas, A., G.R. Timilsina and S. Zheng (2009). "An Analysis of Various Policy Instruments to Reduce Congestion, Fuel Consumption and CO2 Emissions in Beijing." World Bank Policy Research Working Paper, No. WPS 5068, Oct. 2009.

Allowance Allocation in a CO2 Emissions Cap-and-Trade Program for the Electricity Sector in California

by Karen L. Palmer, Dallas Burtraw, Anthony Paul

- This research uses simulation modeling for the electricity sector to examine different approaches to allocation under a cap-and-trade program in California. The decision affects prices and other aspects of the electricity sector, as well as implications for the overall cost of climate policy. An important issue is the opportunity for emission reductions in California to be offset by emission increases in neighboring regions that supply electricity to the state. The amount of emission leakage varies with the regulatory design of the program.

Palmer, K.L., D. Burtraw and A. Paul (2009). "Allowance Allocation in a CO2 Emissions Cap-and-Trade Program for the Electricity Sector in California." RFF Discussion Paper 09-41, Oct 2009.

The São Paulo Proposal for an Agreement on Future International Climate Policy

by Erik Haites, Farhana Yamin and Niklas Höhne

- The São Paulo Proposal is designed to create a stable, long-term, universal regime based on the principles of equity and common but differentiated responsibilities and respective capabilities. Richer countries adopt binding targets that become more stringent over time. Financial and institutional provisions to enhance developing country implementation of mitigation and adaptation actions are strengthened. Over time they "graduate" to binding commitments based on their individual circumstances. Adaptation and technology are given prominent roles and significantly increased funding.

Haites, E., F. Yamin and N. Höhne (2009). "The São Paulo Proposal for an Agreement on Future International Climate Policy." Discussion Paper 09-31, Harvard Project on International Climate Agreements, Belfer Center for Science and International Affairs, Harvard Kennedy School, Oct 2009.

Investment in Energy Infrastructure and the Tax Code

by Gilbert E. Metcalf

- Federal tax policy provides a broad array of incentives for energy investment. I review those policies and construct estimates of marginal effective tax rates for different energy capital investments as of 2007. Effective tax rates vary widely across investment classes. I then consider investment in wind generation capital and regress investment against a user cost of capital measure along with other controls. I find that wind investment is strongly responsive to changes in tax policy.

Metcalf, G.E. (2009). "Investment in Energy Infrastructure and the Tax Code." NBER Working Paper No. 15429, Oct 2009.

Where Does Energy R&D Come From? Examining Crowding Out from Environmentally-Friendly R&D

by David Popp and Richard G. Newell

- This paper considers both the private and social opportunity costs of climate R&D. Addressing private costs, we ask whether an increase in climate R&D represents new R&D spending, or whether some (or all) of the additional climate R&D comes at the expense of other R&D. Addressing social costs, we use patent citations to compare the social value of alternative energy research to other types of R&D that may be crowded out. Beginning at the industry level, we find some evidence of crowding out in sectors active in energy R&D, but not in sectors that do not perform energy R&D. This suggests that funds for energy R&D do not come from other sectors, but may come from a redistribution of research funds in sectors that are likely to perform energy R&D.

Popp, D. and R.G. Newell (2009). "Where Does Energy R&D Come From? Examining Crowding Out from Environmentally-Friendly R&D." NBER Working Paper No. 15423, Oct 2009.

Invention and Transfer of Climate Change Mitigation Technologies on a Global Scale: A Study Drawing on Patent Data

by Matthieu Glachant, Antoine Dechezleprêtre, Ivan Hascic and Nick Johnstone

- The purpose of this study is to provide an in-depth analysis of the geographic distribution of climate mitigation inventions since 1978 and their international diffusion on a global scale. We use the EPO/OECD World Patent Statistical Database (PATSTAT) which includes patents from 81 national and international patent offices. The geographical scope of the study is limited to industrialized countries and emerging economies. In this study, patent counts are used to measure the output of innovation but also the transfer of inventions across borders.

Glachant, M., A. Dechezleprêtre, I. Hascic and N. Johnstone (2009). "Invention and Transfer of Climate Change Mitigation Technologies on a Global Scale: A Study Drawing on Patent Data." FEEM Working Paper No. 82.09, Oct 2009.

The 2008 WITCH Model: New Model Features and Baseline

Valentina Bosetti, Enrica De Cian, Alessandra Sgobbi and Massimo Tavoni

- WITCH is a hybrid top-down economic model with a representation of the energy sector of medium complexity. This paper describes the updating of the base year data to 2005 and some new features: the inclusion of non-CO2 greenhouse gases and abatement options, the new specification of low carbon technologies and the inclusion of reducing emissions from deforestation and degradation.

Bosetti, V., E. De Cian, A. Sgobbi and M. Tavoni (2009). "The 2008 WITCH Model: New Model Features and Baseline." FEEM Working Paper No. 95.09, Oct 2009.

Externality-correcting Taxes and Regulation

by Vidar Christiansen and Stephen Smith

- Much of the literature on externalities has considered taxes and direct regulation as alternative policy instruments. Both instruments may in practice be imperfect, reflecting informational deficiencies and other limitations. We analyse the use of taxes and regulation in combination, to control externalities arising from individual consumption behaviour.

Christiansen, V. and S. Smith (2009). "Externality-correcting Taxes and Regulation." CESIfo Working Paper No. 2793, Sept 2009.

The Economics of Adaptation to Climate Change: The Case of Germany

by Astrid Dannenberg, Tim Mennel, Daniel Osberghaus and Bodo Sturma

- This paper aims at developing a broad economic framework for adaptation which can provide a foundation and a starting point for future economic research. The economic analysis allows us to distinguish between autonomous adaptation by private agents on the one hand and collective adaptation measures by government entities on the other. Our theoretical economic approach follows the basic economic paradigm of efficient competitive markets where government intervention is justified by market failure only.The approach developed in the theory part is then applied to the case of Germany.

Dannenberg, A., T. Mennel, D. Osberghaus and B, Sturm (2009). "The Economics of Adaptation to Climate Change: The Case of Germany." ZEW Discussion Paper No. 09-057, Sept 2009.

Global Climate Policy Architecture and Political Feasibility: Specific Formulas and Emission Targets to Attain 460 PPM CO2 Concentrations

by Valentina Bosetti and Jeffrey Frankel

- This paper offers a framework of formulas that produce precise numerical targets for emissions of carbon dioxide (CO2) in all regions of the world in all decades of this century. The formulas are based on pragmatic judgments about what is possible politically. The reason for this approach is the authors' belief that many of the usual science-based, ethics-based, and economics-based paths are not politically viable. It is not credible that successor governments will be able to abide by the commitments that today’s leaders make, if those commitments would be costly.

Bosetti, V. and J. Frankel (2009). "Global Climate Policy Architecture and Political Feasibility: Specific Formulas and Emission Targets to Attain 460 PPM CO2 Concentrations." The Harvard Project on International Climate Agreements Discussion Paper Series, Discussion Paper 09-30, Sept 2009.

Finance for Renewable Energy: An Empirical Analysis of Developing and Transition Economies

by Christa N. Brunnschweiler

- This paper examines the role of the financial sector in renewable energy (RE) development. The influence of financial sector development on the use of renewable energy resources is confirmed in panel data estimations on up to 119 non-OECD countries for 1980-2006. Financial intermediation, in particular commercial banking, has a significant positive effect on the amount of RE produced. There is also evidence that the adoption of the Kyoto Protocol has had a significant positive impact on the development of the RE sector.

Brunnschweiler, C.N. (2009). "Finance for Renewable Energy: An Empirical Analysis of Developing and Transition Economies." CER-ETH Center of Economic Research at ETH Zurich, Aug 2009.

October 7, 2009

Pledges and Actions: a Scenario Analysis of Mitigation Costs and Carbon Market Impacts for Developed and Developing Countries

by M.G.J. den Elzen, M.A. Mendoza-Beltran, J. van Vliet, S.J.A. Bakker and T. Bole

- The current proposals for Copenhagen by the developed countries, including those by the United States, to reduce emissions do not yet suffice to limit global warming to a rise of 2 °C. This target has been acknowledged by the G8, last July. It would require a reduction of 25 to 40% in greenhouse gas emissions in 2020, compared with 1990 levels, whereas the current proposals would lead to a reduction of 10 to 15%. Developed countries as a group would need to increase their reduction targets for 2020 by at least 6 to 10%, in order to keep the 2 °C objective within reach. The global costs would be limited to 0.2% of GDP in 2020.

Elzen, M.G.J. den, M.A. Mendoza-Beltran, J. van Vliet, S.J.A. Bakker and T. Bole (2009). "Pledges and Actions: a Scenario Analysis of Mitigation Costs and Carbon Market Impacts for Developed and Developing Countries." PBL Report no. 500102032, October 2009.

The Global Rebound Effect Versus California’s Low-Carbon Fuel Standard

by Steven E. Stoft

- Displacing gasoline with a new source of biofuel, as California’s low-carbon fuel standard proposes to do, will reduce the global demand for oil. This will reduce the world oil price, which will cause an increase in oil use outside of California - the global rebound effect.In fact, the global rebound effect is likely to be near 25 percent or greater, and biofuels will likely reduce carbon by that much less than anticipated.

Stoft, S.E. (2009). "The Global Rebound Effect Versus California’s Low-Carbon Fuel Standard." Available at SSRN, October 2009.

The Challenges of Climate for Energy Markets

by Timothy J. Brennan

- Among the many complex issues affecting the electricity sector, climate policy has become dominant. From the perspective of a nonspecialist looking at this changing dominance, a quiz illuminates some of the peculiar uses of language one can find in climate change and energy efficiency policy. Planners in the public and private sectors need to be aware of not only the economic policy challenges but also arguments that may influence the intensity of the climate policies with which they have to cope.

Brennan, T.J. (2009). "The Challenges of Climate for Energy Markets." RFF Discussion Paper 09-32, September 2009.

The CDM and Sectoral Crediting Mechanisms: Costs, Rents, and National Commitment Incentives

by Steven E. Stoft

- A Sectoral Crediting Mechanism (SCM) shows promise as a means to encourage the transition from the Clean Development Mechanism to more-efficient climate policies. But as an open ended program, an SCM would discourage financial commitment by developing countries. Hence, a second transition, from profitable SCM programs to financial commitments, needs to be negotiated before an SCM is adopted.

Stoft, S.E. (2009). "The CDM and Sectoral Crediting Mechanisms: Costs, Rents, and National Commitment Incentives." Available at SSRN, September 2009.

Options on Renewable Resources: A New Version of the Black (1976) Pricing Formula for Commodity Options

by Christian-Oliver Ewald

- We study forward prices and prices of European call options, which are written on a renewable resource. The price of this resource is assumed to follow the inverse of a geometric mean reverting process. We assume that the resource is not tradable, until the option matures at time T and study the dynamics of the forward prices of the resource. In contrast to Black (1976) we show that forward prices do not evolve according to a geometric Brownian motion, but follow a more complex process.

Ewald, C-O (2009). "Options on Renewable Resources: A New Version of the Black (1976) Pricing Formula for Commodity Options." Available at SSRN, September 2009.

Climate Change and Insurance: Integrative Principles and Regulatory Risks

by Paul R. Kleindorfer

- In medicine, an iatrogenic risk is a risk that arises from the medical treatment itself, such as side effects of surgery or drugs. The same phenomenon arises in the process of regulatory and legislative actions intended to facilitate mitigating and financing of catastrophic risks. Unanticipated regulatory or legislative fiats can have fundamental effects on insured risks. Moreover, economic disruptions in the much more densely interdependent global economy can also have systemic effects well beyond their direct locus of impact.

Kleindorfer, P.R. (2009). "Climate Change and Insurance: Integrative Principles and Regulatory Risks." INSEAD Working Paper No. 2009/43/TOM/INSEAS, Available at SSRN, August 2009.

October 5, 2009

The Effect of Risk, Ambiguity, and Coordination on Farmers’ Adaptation to Climate Change: A Framed Field Experiment

by Francisco Alpízar, Fredrik Carlsson and Maria Naranjo

- In order to truly understand adaptation patterns to changes in climatic conditions, it is important to learn more about how farmers react to different levels of risk under measurable and unmeasurable uncertainty. Moreover, the costs associated with investments in reduced vulnerability to climatic events are likely to exhibit economies of scope. We explored these issues using a framed field experiment that realistically captured the main characteristics of production and the likely weather-related loses of premium coffee farmers in Tarrazu, Costa Rica.

Alpízar, F., F. Carlsson and M. Naranjo (2009). "The Effect of Risk, Ambiguity, and Coordination on Farmers’ Adaptation to Climate Change: A Framed Field Experiment." RFF Discussion Paper EfD DP 09-18, Sept 2009.

An Experimental Study of Auctions versus Grandfathering to Assign Pollution Permits

by Jacob Goeree, Charles Holt, Karen L. Palmer, William Shobe and Dallas Burtraw

- We experimentally study auctions versus grandfathering in the initial assignment of pollution permits that can be traded in a secondary spot market. Low and high emitters compete for permits in the auction, while permits are assigned for free under grandfathering. In theory, trading in the spot market should erase inefficiencies due to initial mis-allocations. In the experiment, high emitters exercise market power in the spot market and permit holdings under grandfathering remain skewed towards high emitters.

Goeree, J., C. Holt, K.L. Palmer, W. Shobe and D. Burtraw (2009). "An Experimental Study of Auctions versus Grandfathering to Assign Pollution Permits." RFF Discussion Paper 09-39, Sept 2009.

The Wrath of God: Macroeconomic Costs of Natural Disasters

by Claudio Raddatz

- This paper uses panel time-series techniques to estimate the short and long-run impact of climatic and other disasters on a country's GDP. The results indicate that a climate related disaster reduces real GDP per capita by at least 0.6 percent. Therefore, the increased incidence of these disasters during recent decades entails important macroeconomic costs.

Raddatz, C. (2009). "The Wrath of God: Macroeconomic Costs of Natural Disasters." World Bank Policy Research Working Paper, No. WPS 5039, Sept 2009.

Climate Change and Individual Behavior: Considerations for Policy

by Andrea Liverani

- An emerging body of social-psychology scholarship has examined the barriers and drivers of individual behavior in relation to both adaptation and mitigation. This paper reviews some of its conclusions, and suggests policy areas that should be considered in devising appropriate interventions.

Liverani, A. (2009). "Climate Change and Individual Behavior: Considerations for Policy." World Bank Policy Research Working Paper, No. WPS 5058, Sept 2009.

'Revenue Management' Effects Related to Financial Flows Generated by Climate Policy

by Jon Strand

- This paper discusses possible macroeconomic implications for low-income countries of increased revenue inflows that may follow from implementing certain global greenhouse gas mitigation policies. Such revenue sources include revenue from emissions offset mechanisms, direct investments, and financial transfers that form parts of possible future mitigation treaties. The author argues that the macroeconomic implications of such flows are manageable in the short run, but the larger revenues resulting from global emissions schemes could overwhelm this capacity and lead to a number of potential macroeconomic management problems.

Strand, J. (2009). "'Revenue Management' Effects Related to Financial Flows Generated by Climate Policy." World Bank Policy Research Working Paper, No. WPS 5053, Sept 2009.

Climate Change and the Economics of Targeted Mitigation in Sectors with Long-Lived Capital Stock

by Zmarak Shalizi and Franck Lecocq

- In their current form, carbon markets do not provide correct incentives for mitigation investments in long-lived capital stock (LLKS) because the constraint on carbon extends only to 2012, and does not extend to many developing countries. Targeted mitigation programs in regions and sectors in which LLKS is being built at rapid rate are thus necessary to avoid getting locked into highly carbon-intensive LLKS. Even if the carbon markets were extended (geographically, sectorally, and over time), public intervention would still be required.

Shalizi, Z. and F. Lecocq (2009). "Climate Change and the Economics of Targeted Mitigation in Sectors with Long-Lived Capital Stock" World Bank Policy Research Working Paper no. WPS 5063, Sept 2009.

"Mitigation, Adaptation, Suffering": In Search of the Right Mix in the Face of Climate Change

by Henry Tulkens and Vincent van Steenberghe

- The usually assumed two categories of costs involved in climate change policy analysis, namely abatement and damage costs, hide the presence of a third category, namely adaptation costs. This dodges the determination of an appropriate level for them. Including adaptation costs explicitly in the total environmental cost function allows one to characterize the optimal (cost minimizing) balance between the three categories, in statics as well as in dynamics. Implications are derived for cost benefit analysis of adaptation expenditures.

Henry Tulkens and Vincent van Steenberghe (2009). "'Mitigation, Adaptation, Suffering': In Search of the Right Mix in the Face of Climate Change." FEEM Working Paper No. 79.09, Sept 2009.

Analysis of Climate Policy Targets under Uncertainty

by Mort Webster, Andrei P. Sokolov, John M. Reilly, Chris E. Forest, Sergey Paltsev, Adam Schlosser, Chien Wang, David Kicklighter, Marcus Sarofim, Jerry Melillo, Ronald G. Prinn, and Henry D. Jacoby

- Monte Carlo simulation, applied to the MIT Integrated Global System Model (an integrated economic and earth system model of intermediate complexity), is used to analyze the uncertain outcomes that flow from a set of century-scale emissions targets developed originally for a study by the U.S. Climate Change Science Program. Results are shown for atmospheric concentrations, radiative forcing, sea ice cover and temperature change, along with estimates of the odds of achieving particular target levels, and for the global costs of the associated mitigation policy.

Webster, M., A.P. Sokolov, J.M. Reilly, C.E. Forest, S. Paltsev, A. Schlosser, C. Wang, D. Kicklighter, M. Sarofim, J. Melillo, R.G. Prinn and H.D. Jacoby (2009). "Analysis of Climate Policy Targets under Uncertainty." MIT Joint Program on the Science and Policy of Global Change Report No. 180, Sept 2009.

Climate Policy and Development

by Hans Gersbach and Noemi Hummel

- We propose a development-compatible refunding system designed to mitigate climate change. Industrial countries pay an initial fee into a global fund. Each country chooses its national carbon tax. Part of the global fund is refunded to developing and industrial countries, in proportion to the relative emission reductions they achieve. Countries receive refunds net of tax revenues.

Hans Gersbach and Noemi Hummel (2009). "Climate Policy and Development." CesIfo Working Paper No. 2807, Energy and Climate Economics, Sept 2009.

The European Union’s Potential for Strategic Emissions Trading through Minimal Permit Sale Contracts

by Johan Eyckmans and Cathrine Hagem

- In this paper we explore how the EU could benefit from making permit trade agreements with non-EU countries. These trade agreements involve a minimum permit sales requirement complemented by a financial transfer from the EU to the other contract party. Such agreements enable the EU to act strategically in the permit market on behalf of its member states, although each member state is assumed to behave as a price taker in the permit market. Using a stylized numerical simulation model we show that an appropriately designed permit trade agreement between the EU and China can cut EU’s total compliance cost significantly.

Eyckmans, J. and C. Hagem (2009). "The European Union’s Potential for Strategic Emissions Trading through Minimal Permit Sale Contracts." CesIfo Working paper No. 2809, Energy and Climate Economics, Sept 2009.