December 27, 2009

Risk-Adjusted Gamma Discounting

by Martin L. Weitzman

- It is widely recognized that the economics of distant-future events, like climate change, is critically dependent upon the choice of a discount rate. Unfortunately, it is unclear how to discount distant-future events when the future discount rate itself is unknown. In previous work, an approach called "gamma discounting" was proposed. This paper extends the previous gamma approach by using a Ramsey optimal growth model, combined with uncertainty about future productivity, in order to "risk adjust" all probabilities by marginal utility weights.

Weitzman, M.L. (2009). "Risk-Adjusted Gamma Discounting." Harvard University, mimeo, Dec 2009.

How Should the Distant Future be Discounted When Discount Rates are Uncertain?

by Christian Gollier and Martin L. Weitzman

- It is not immediately clear how to discount distant-future events, like climate change, when the distant-future discount rate itself is uncertain. The so-called "Weitzman-Gollier puzzle" is the fact that two seemingly symmetric and equally plausible ways of dealing with uncertain future discount rates appear to give diametrically opposed results with the opposite policy implications. We explain how the "Weitzman-Gollier puzzle" is resolved.

Gollier, C. and M.L. Weitzman (2009). "How Should the Distant Future be Discounted When Discount Rates are Uncertain?" Harvard University, mimeo, Nov 2009.

The Extreme Uncertainty of Extreme Climate Change: An Overview and Some Implications

by Martin L. Weitzman

- The possibility of catastrophic climate change is characterized by deep structural uncertainties in the science coupled with an economic inability to evaluate meaningfully the welfare losses from high temperatures. The probability of a disastrous collapse of planetary welfare from global warming seems non-negligible, even if this low probability is very difficult to quantify. Through informal reasoning, elementary examples, and simple numerical exercises, this paper attempts to convey an overview of some of the background uncertainties behind extreme climate change.

Weitzman, M.L. (2009). "The Extreme Uncertainty of Extreme Climate Change: An Overview and Some Implications." Harvard University, mimeo, Oct 2009.

What is the "Damages Function" for Global Warming and What Difference Might It Make?

by Martin L. Weitzman

- This paper gives two plausible risk aversion axioms that a reduced form utility function of temperature change and the capacity to produce consumption might reasonably be required to satisfy. These axioms indicate that the standard practice multiplicative specification of disutility damages from global warming, as well as its additive analogue, are special cases of this paper's theoretically-derived utility function. Empirically, the paper gives some numerical examples demonstrating the surprisingly strong implications for economic policy of the distinction between additive and multiplicative disutility damages.

Weitzman, M.L. (2009). "What is the "Damages Function" for Global Warming and What Difference Might It Make?" Harvard University, mimeo, July 2009.

Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting

by Martin L. Weitzman

- This paper in applied theory argues that there is a loose chain of reasoning connecting the following three basic links in the economics of climate change: 1) additive disutility damages may be appropriate for analyzing some impacts of global warming; 2) an uncertain feedback-forcing coe¢ cient, which might be near one with infinitesimal probability, can cause the distribution of the future time trajectory of global temperatures to have fat tails and a high variance; 3) when high-variance additive damages are discounted at an uncertain rate of pure time preference, which might be near zero with infinitesimal probability, it can make expected present discounted disutility very large. Some possible implications for welfare analysis and climate-change policy are briefly noted.

Weitzman, M.L. (2009). "Additive Damages, Fat-Tailed Climate Dynamics, and Uncertain Discounting." Harvard University, Mimeo, Revised second draft, Aug 2009.

Economic Impacts from the Promotion of Renewable Energy Technologies: The German Experience

by Manuel Frondel, Nolan Ritter, Christoph M. Schmidt and Colin Vance

- Germany’s experience with renewable energy promotion is often cited as a model to be replicated elsewhere. This paper critically reviews the current centerpiece of this effort, the Renewable Energy Sources Act (EEG). We argue that German renewable energy policy, and in particular the adopted feed-in tariff scheme, has failed to harness the market incentives needed to ensure a viable and cost-effective introduction of renewable energies into the country’s energy portfolio.

Frondel, M., N. Ritter, C.M. Schmidt and C. Vance (2009). "Economic Impacts from the Promotion of Renewable Energy Technologies: The German Experience." Ruhr Economic Papers #156, Dec 2009.

Adaptation to Climate Change in Marine Capture Fisheries

by R. Quentin Grafton

- This paper responds to the challenge of how and when to adapt marine capture fisheries to climate change by: (1) providing a set of fisheries policy options to climate change; (2) developing a risk and vulnerability assessment and management decision-making framework for adaptation; and (3) describing the possible strategies and tactics for ex ante and ex post climate adaptation in the marine environment.

Grafton, Q. (2009). "Adaptation to Climate Change in Marine Capture Fisheries." EERH Research Report No.37, Nov 2009.

The Integration of Wind Generation within the South Australian Region of the Australia National Electricity Market

by Nicholas Cutler, Iain MacGill and Hugh Outhred

- This working paper aims to improve our understanding of wind integration issues for the National Electricity Market (NEM) in the South Australian context by assessing the interaction of wind generation, electrical demand and regional spot prices over the most recent year of market data. It is hoped that this analysis will provide insights into the potential implications of greatly expanded wind generation in the NEM across regions including South Australia of course, but also Victoria, Tasmania and NSW.

Cutler, N., I. MacGill and H. Outhred (2009). "The Integration of Wind Generation within the South Australian Region of the Australia National Electricity Market." EERH Research Report No.38, Nov 2009.

Modelling the Costs of Energy Crops: A Case Study of U.S. Corn and Brazilian Sugar Cane

by A. Méjean and C. Hope

- High crude oil prices, uncertainties about the consequences of climate change and the eventual decline of conventional oil production raise the prospects of alternative fuels, such as biofuels. This paper describes a simple probabilistic model of the costs of energy crops, drawing on the user’s degree of belief about a series of parameters as an input. This forward-looking analysis quantifies the effects of production constraints and experience on the costs of corn and sugar cane, which can then be converted to bioethanol.

A. Méjean and C. Hope (2009). "Modelling the Costs of Energy Crops: A Case Study of U.S. Corn and Brazilian Sugar Cane." Electricity Policy Research Group, Working Paper EPRG0924, Oct 2009.

Saving the World but Saving Too Much? Pure Time Preference and Saving Rates in Integrated Assessment Modelling

by Kathryn Smith

- Dasgupta and Weitzman have shown that the saving rates implied by the Stern Review’s values for the rate of pure time preference and the elasticity of the marginal utility of consumption are too high from either a normative (Dasgupta) or descriptive (Weitzman) perspective. This paper provides the first detailed investigation of the implications of Stern’s parameter choices for saving, firstly in standard neoclassical growth theory and then in a widely used climate policy model based on that theory, Nordhaus’s Dynamic Integrated model of Climate and the Economy (DICE).

Smith, K. (2009). "Saving the World but Saving Too Much? Pure Time Preference and Saving Rates in Integrated Assessment Modelling." Crawford School of Economics and Government, The Australian National University, Research Report No. 39, Oct 2009.

Interfuel Substitution: A Meta-Analysis

by David I Stern

- Interfuel substitutability has been of longstanding interest to the energy economics and policy community. However, no quantitative meta-analysis has yet been carried out of this literature. This paper fills this gap by analyzing a broad sample of studies of interfuel substitution in the industrial sector, manufacturing industry or subindustries, or macro-economy of a variety of developed and developing economies.

Stern, D.I. (2009). "Interfuel Substitution: A Meta-Analysis." EERH Research Report No. 33, Jun 2009.

December 18, 2009

International Climate Policy and Regional Welfare Weights

by Daiju Narita, Richard S.J. Tol and David Anthoff

- We impute a global social welfare function that is consistent with the burden sharing in the Kyoto Protocol and in two proposals for a post-Kyoto treaty. The Kyoto Protocol favored the EU. The Frankel proposal for a post-Kyoto treaty continues the favorable treatment of the EU, while the EU proposal puts more weight on the wellbeing of other OECD countries at the expense of its own residents. Ignoring income differences, the EU proposal for a post-Kyoto treaty favors developing countries. However, if income differences are taken into account, the EU proposal is not at all generous to developing countries.

Narita, D., R.S.J. Tol and D. Anthoff (2009). "International Climate Policy and Regional Welfare Weights." ESRI Working Paper 332, Dec 2009.

Aviation and the EU ETS - Lessons Learned From Previous Emissions Trading Schemes

by Fredrik Kopsch

- Designing an emissions trading scheme requires in-depth knowledge about several aspects. This paper attempts to clarify some important design points of the forthcoming emissions trading scheme for aviation under the EU ETS. Five general key points of system design are acknowledged and comparisons are made to previous and current emission trading schemes.

Kopsch, F. (2009). "Aviation and the EU ETS - Lessons Learned From Previous Emissions Trading Schemes." Swedish National Road & Transport Research Institute (VTI) Working Papers, No 2009:14, Dec 2009.
UK Retailers and Climate Change: The Role of Partnership in Climate Strategies

by Aoife Brophy Haney, Ian W.Jones and Michael G. Pollitt

- More and more companies in the UK are developing strategies to address the challenges of climate change. We focus on the UK retail sector and explore the role of partnership in shaping the climate change commitments and actions taken by retail companies. Using our best practice and partnership indices, we investigate how committed companies are to climate strategies; how partnerships have an impact on best practice; and we try to understand the distinction between companies that are more and less highly engaged in partnering.

Haney, A.B., I.W. Jones and M.G. Pollitt (2009). "UK Retailers and Climate Change: The Role of Partnership in Climate Strategies." EPRG Working Group, EPRG0928, Nov 2009.

Agricultural Adaptation, Local Knowledge and Livelihoods Diversification in North-Central Namibia

by Andrew Newsham and David Thomas

- This report looks at adaptation to climate change amongst smallholder farmers in the Omusati region of North-Central Namibia. Supplementing primary research with literature on a number of highly prevalent themes in Namibia, the report is relevant to researchers, policymakers and practitioners interested in agricultural development, climate change and adaptation

Newsham, A. and D. Thomas (2009). "Agricultural Adaptation, Local Knowledge and Livelihoods Diversification in North-Central Namibia." Tyndall Working Paper 140, Nov 2009.

Assessing Common(s) Arguments for an Equal per Capita Allocation

by Richard Starkey

- This paper therefore seeks to set out clearly the various commons arguments for the Equal per Capita Allocation (EPCA) of emissions allowances and to assess what, if any, support can be found for them within the justice literature. The conclusion of the analysis is that there is little support within the justice literature for these commons arguments for EPCA.

Starkey, R. (2009). "Assessing Common(s) Arguments for an Equal per Capita Allocation." Tyndall Working Paper 139, Nov 2009.

Local Air Quality and Climate Policy: Valuing Ancillary Benefits When the Debate is About Minimizing Costs

by Gregory F. Nemet and T. Holloway

- We present an analysis of the barriers and opportunities for incorporating air quality cobenefits into climate policy assessments. Full inclusion of these cobenefits would have pervasive implications on climate policy including: optimal policy stringency, overall costs, distributional effects, robustness to discount rates, incentives for international cooperation, and the value of adaptation, forests, and climate engineering relative to mitigation.

Nemet, G.F. and T. Holloway (2009). "Local Air Quality and Climate Policy: Valuing Ancillary Benefits When the Debate is About Minimizing Costs." La Follette School Working Paper No. 2009-024, Nov 2009.

Climate Policy and Corporate Behaviour

by Nicola Commins, Seán Lyons, Marc Schiffbauer and Richard S.J. Tol

- In this paper, we study the impact of energy taxes and the EU ETS on a large number of firms in Europe between 1996 and 2007. Using company level micro-data, we examine how firms in different sectors were affected by environmental policies. Aspects of behaviour and performance studied include total factor productivity, employment levels, investment behaviour and profitability. On the whole, energy taxes increased total factor productivity and returns to capital but decreased employment, with a mixed effect on investment, for the sectors included in our analysis.

Commins, N., S. Lyons, M. Schiffbauer and R.S.J. Tol (2009). "Climate Policy and Corporate Behaviour." ESRI Working Paper 329, Nov 2009.

International Inequity Aversion and the Social Cost of Carbon

by Richard S.J. Tol

- I define the rate of inequity aversion, distinguishing between the pure rate and the consumption rate. The social cost of carbon is very sensitive to equity weighting and assumptions about the rate of risk and inequity aversion. Estimates for the consumption rate of inequity aversion for recent data suggest that the equity-weighted social cost of carbon is less than 50% larger than the unweighted estimate.

Tol, R.S.J. (2009). "International Inequity Aversion and the Social Cost of Carbon." ESRI Working Paper FNU-178, Nov 2009.

Electric Cars and Oil Prices

by Jose Azar

- This paper studies the joint dynamics of oil prices and interest in electric cars, measured as the volume of Google searches for related phrases. The dominant view in the literature is that the main determinants of oil prices are macroeconomic conditions and supply disruptions. I show evidence that public interest in electric cars is also a significant driver of changes in oil prices. In fact, the analysis suggests that interest in electric cars is at least as important as macroeconomic developments. Changes in interest in electric cars can explain a significant part of the rise and fall of oil prices during 2008.

Azar, J. (2009). "Electric Cars and Oil Prices." Princeton University, Department of Economics, Sept 2009.

Governing Climate Change Post-2012: The Role of Global Cities - Melbourne

by Harriet Bulkeley and Heike Schroeder

- This working paper contributes to the research of the Tyndall Centre programme by focusing on a group of global cities and their role in climate governance. Cities are a critical source of man-made carbon dioxide emissions - accounting for as much as 78% by some accounts - and places where vulnerability to climate change may be acute. This working paper documents the experience of Melbourne.

Bulkeley, H. and H. Schroeder (2009). "Governing Climate Change Post-2012: The Role of Global Cities - Melbourne." Tyndall Working Paper 138, Sept 2009.

Kill Oil with Natural Gas and Electricity: A Carbon Strategy the World Can Afford

by Peter W. Huber

- Our fossil-fuel policy should be to continue developing gas-extraction technologies, promote their use in the United States, and by improving what we already do so well, help kick oil out of hundreds of millions of furnaces and engines worldwide. At home and abroad, the less affluent will be delighted to join the rich in swatting down oil with cheaper gas, and will reduce carbon emissions as they do.

Huber, P.W. (2009). "Kill Oil with Natural Gas and Electricity: A Carbon Strategy the World Can Afford." Center for Energy and the Environment. OpinionJournal.com, 9-17-09, Sept 2009.

December 9, 2009

Voluntary Public Goods Provision, Coalition Formation, and Uncertainty

by Nicholas E. Burger, Charles D. Kolstad

- The literature on voluntary provision of public goods includes recent theoretical work on the formation of voluntary coalitions to provide public goods. Theory is ambiguous on the equilibrium coalition size and contribution rates. We examine the emergence of coalitions, their size, and how uncertainty in public goods provision affects contribution levels and coalition size. We find that uncertainty has no effect on coalition size.

Burger, N.E. and C.D. Kolstad (2009). "Voluntary Public Goods Provision, Coalition Formation, and Uncertainty." NBER Working Paper No. 15543, Nov 2009.

Cost-Effectiveness of Electricity Energy Efficiency Programs

by Toshi Arimura, Richard G. Newell, Karen L. Palmer

- We analyze the cost-effectiveness of electric utility rate payer-funded programs to promote demand-side management (DSM) and energy efficiency investments. We develop a conceptual model that relates demand growth rates to accumulated average DSM capital per customer and changes in energy prices, income, and weather. We estimate that model using nonlinear least squares for two different utility samples.

Arimura, T., R.G. Newell, K.L. Palmer (2009). "Cost-Effectiveness of Electricity Energy Efficiency Programs." RFF Discussion Paper 09-48, Nov 2009.

Human Capital Formation and Global Warming Mitigation: Evidence from an Integrated Assessment Model

by Carlo Carraro, Enrica De Cian and Massimo Tavoni

- Based on recent empirical evidence, this paper includes human capital and knowledge in a state-of-the art integrated assessment model. Introducing human capital makes it possible to assess the interplay between innovation, human capital, climate change, and education policies.

Carraro, C. E. De Cian and M. Tavoni (2009). "Human Capital Formation and Global Warming Mitigation: Evidence from an Integrated Assessment Model." Working Papers Department of Economics, Ca’ Foscari University of Venice, No. 3 0 /WP/2009, Nov 2009.

The Role of Smart Meters in Encouraging Behavioural Change - Prospects for the UK

by Mari Martiskainena and Josie Ellisa

- This paper aims to identify which factors are most likely to contribute to the effectiveness of smart meters and real-time displays in reducing household energy consumption by analysing: a number of perspectives on behavioural change, particularly as they relate to household electricity use; the role of smart meters in the UK energy efficiency policy, including the role of ICTs in energy demand reduction more generally; and the views of a range of key stakeholders.

Martiskainena, M. and J. Ellisa (2009). "The Role of Smart Meters in Encouraging Behavioural Change - Prospects for the UK." The Sussex Energy Group, Nov 2009.

Breaking the Climate Impasse with China: A Global Solution

by Kelly Sims Gallagher

- A "deal" is proposed in this paper, whereby all major-emitting countries, including the United States and China, agree to reduce emissions through implementation of significant, mutually agreeable, domestic emission-reduction policies. To resolve the competitiveness and equity concerns, a proposed Carbon Mitigation Fund would be created. This proposed fund is contrasted with other existing and proposed mitigation funds and finance mechanisms.

Gallagher, K.S. (2009). "Breaking the Climate Impasse with China: A Global Solution." Discussion Paper 09-32, Harvard Project on International Climate Agreements, Belfer Center for Science and International Affairs, Harvard Kennedy School, Nov 2009.

Global Carbon Pricing: A Better Kind of Commitment

by Peter Cramton and Steven E. Stoft

- Commitment to an emission target is unacceptable to developing countries because meaningful targets would require them to commit to emission limits far below those of developed countries. Commitment to a global tax is unacceptable because it prevents countries from choosing cap and trade. The solution is to require commitment to global carbon pricing, as defined in this paper. It does not require poor countries to commit to unacceptably low emission limits and it does not discriminate against cap and trade, even when allowances are distributed for free.

Cramton, P. and S.E. Stoft (2009). "Global Carbon Pricing: A Better Kind of Commitment." Global Energy Policy Center Research Paper No. 09-06, Nov 2009.

GHG mitigation Potentials and Costs in the Transport Sector of Annex I Countries: Methodology

by Jens Borken-Kleefeld, Janusz Cofala, Peter Rafaj

- This report documents the GAINS methodology that has been developed to compare greenhouse gas mitigation potentials and costs for the transport sector in Annex I countries. The focus is on technologies for road transportation, the sub-sector with the biggest emissions. The same method could be applied in principle to the other transport modes.

Borken-Kleefeld, J., J. Cofala and P. Rafaj (2009). "GHG mitigation Potentials and Costs in the Transport Sector of Annex I Countries: Methodology." IIASA Interim Report IR-09-039, Nov 2009.

GHG Mitigation Potentials from Energy Use and Industrial Sources in Annex I Countries: Methodology

by Janusz Cofala, Pallav Purohit, Peter Rafaj, Zbigniew Klimont

This report provides a documentation of the GAINS methodology that has been developed to compare greenhouse gas mitigation potentials and costs for Annex I countries. In particular, the report specifies options available in the energy sector and explains the approach for exploring the potentials for energy efficiency improvements in the domestic and industrial sectors.

Cofala, J., P. Purohit, P. Rafaj and Z. Klimont (2009). GHG Mitigation Potentials from Energy Use and Industrial Sources in Annex I Countries: MethodologyIIASA Interim Report IR-09-040, Nov 2009.

Potentials and Costs for Greenhouse Gas Mitigation in Annex I Countries: Methodology

by Markus Amann et al

- This report provides a documentation of the GAINS methodology that has been developed to compare greenhouse gas mitigation potentials and costs for Annex I countries.

Amann, M., I. Bertok, J. Borken-Kleefeld, J. Cofala, C. Heyes, L. Hoglund, Z. Klimont, P. Purohit, P. Rafaj, W. Schöpp, G. Toth, F. Wagner and W. Winiwarter (2009). "Potentials and Costs for Greenhouse Gas Mitigation in Annex I Countries: Methodology." IIASA Interim Report IR-09-043, Nov 2009.

Potentials and Costs for Mitigation of Non-CO2 Greenhouse Gases in Annex I Countries

by Lena Höglund-Isaksson, Wilfried Winiwarter and Antti Tohka

- This report documents the approaches taken to include greenhouse gases other than CO2 (methane, nitrous oxide, and the fluorinated
gases explicitly mentioned in the Kyoto protocol) in the GAINS model as used to assess costs and potential of greenhouse gas mitigation in the "Annex I" countries to the Kyoto protocol. For each source sector and greenhouse gas considered, the methods to derive the emissions under uncontrolled and controlled conditions are presented, as well as the method to estimate the costs of control measures.

Höglund-Isaksson, L., W. Winiwarter and A. Tohka (2009). "Potentials and Costs for Mitigation of Non-CO2 Greenhouse Gases in Annex I Countries." IIASA Interim Report IR-09-044, Nov 2009.

GHG Mitigation Potential in U.S. Transportation

by Erica Bickford

- This study used GAINS Annex I transportation data for the U.S. to quantify carbon dioxide mitigation potential in the on-road transport sector for a range of aggressive fuel-efficient vehicle technology penetration scenarios focusing on 2020 and 2030. A cost-benefit sensitivity analysis was also conducted to determine each penetration scenario's "net extra cost" sensitivity to uncertainties in future fuel prices and technology investment costs.

Bickford, E. (2009). "GHG Mitigation Potential in U.S. Transportation." IIASA Interim Report IR-09-045, Oct 2009.