January 25, 2010

Long Live the Kyoto Protocol

by Richard S.J. Tol

- Most feel the Copenhagen summit on climate change failed. This column argues for a “plan B” – to go back to Kyoto. The Kyoto Protocol has the tools needed for international policy. Future negotiations should focus on refining existing agreements instead of trying to impress voters at home.

Tol, R.S.J. (2009). "Long Live the Kyoto Protocol." Voxeu, www.voxeu.org, 23 January 2010.

Copenhagen: Good News and Bad News

by Carlo Carraro and Emanuele Massetti

- This short article presents estimates of GHG emissions at 2020, including the emissions reductions targets to which major economies informally committed at COP15. The expected impact on global emissions is not negligible if measured with respect to BaU, but it is still insufficient to curb emissions below 2005 levels by 2020, a necessary condition to contain global warming within safe levels. However, if all the Copenhagen Green Climate Fund is used to finance cheap, additional, mitigation actions in developing countries, this would make global emissions peak before 2020.

Carraro, C. and E. Massetti (2010). "Copenhagen: Bad News and Good News." Voxeu, 15 January 2010.

Heterogeneous Harm vs. Spatial Spillovers: Environmental Federalism and US Air Pollution

by H. Spencer Banzhaf and B. Andrew Chupp

- The economics of environmental federalism identifies two book-end departures from the first-best, which equates marginal costs and benefits in all local jurisdictions. Local governments may respond to local conditions, but ignore inter-jurisdictional spillovers. Alternatively, central governments may internalize spillovers, but impose uniform regulations ignoring local hetero-geneity. We provide a simple model that demonstrates that the choice of policy depends crucially on the shape of marginal abatement costs.

Banzhaf, H.S. and B.A. Chupp (2010). "Heterogeneous Harm vs. Spatial Spillovers: Environmental Federalism and US Air Pollution." NBER Working Paper No. 15666, Jan 2010.

Did Frederick Brodie Discover the World's First Environmental Kuznets Curve? Coal Smoke and the Rise and Fall of the London Fog

by Karen Clay and Werner Troesken

- In a paper presented to the Royal Meteorological Society, Brodie (1905) presented a data series that presaged the modern Environmental Kuznets Curve: in the decades leading up to 1890, the number of foggy days in London rose steadily, but after 1891, the fogs began to subside. Brodie attributed the rise and fall of the London fog to variation in emissions of coal smoke, arguing that before 1890 Londoners burned excessive amounts of soft coal, while in the years following, a series of legal, demographic, and technological changes mitigated the production of coal smoke.

Clay, K. and W. Troesken (2010). "Did Frederick Brodie Discover the World's First Environmental Kuznets Curve? Coal Smoke and the Rise and Fall of the London Fog." NBER Working Paper No. 15669, Jan 2010.

A Note on the Economic Cost of Climate Change and the Rationale to Limit it Below 2°C

by Stephane Hallegatte, Patrice Dumas and Jean-Charles Hourcade

- This note highlights a major reason to limit climate change to the lowest possible levels. This reason follows from the large increase in uncertainty associated with high levels of warming. This uncertainty arises from three sources: the change in climate itself, the change of impacts at the sector level, and their macroeconomic costs.

Hallegatte, S., P. Dumas and J-C Hourcade (2010). "A Note on the Economic Cost of Climate Change and the Rationale to Limit it Below 2°C." World Bank Policy Research Working Paper, no. WPS 5179, Jan 2010.

Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels

by Jon Strand

- This paper develops a global model of climate policy, focusing on the choice between tax and cap-and-trade solutions. The analysis assumes that the world can be split into two regions, with two fuels that both lead to carbon emissions. A fuel-consuming and importing region that determines a climate policy will typically prefer to set a carbon tax, instead of setting a carbon emissions cap. The main reason is that a tax is more efficient than a cap at extracting rent from fuel (oil) exporters.

Strand, J. (2010). "Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels." World Bank Policy Research Working Paper no. WPS 5171, Jan 2010.

The Inter-Linkages Between Rapid Growth in Livestock Production, Climate Change, and the Impacts on Water Resources, Land Use, and Deforestation

by Philip K. Thornton and Mario Herrero

- Livestock systems globally are changing rapidly in response to human population growth, urbanization, and growing incomes. This paper discusses the linkages between burgeoning demand for livestock products, growth in livestock production, and the impacts this may have on natural resources, and how these may both affect and be affected by climate change in the coming decades.

Thornton, P.K. and M. Herrero (2010). "The Inter-Linkages Between Rapid Growth in Livestock Production, Climate Change, and the Impacts on Water Resources, Land Use, and Deforestation." World Bank Policy Research Working Paper no. WPS 5178, Jan 2010.

Social Impacts of Climate Change in Chile

by Lykke E. Andersen and Dorte Verner

- This paper uses municipality level data to estimate the general relationship between climate, income, and life expectancy in Chile. The analysis finds that incomes are negatively related to temperature, while life expectancy is not significantly related to average temperatures. Both incomes and life expectancy are greater in areas with either very little rain or a lot of rain. The authors use the estimated relationships to simulate the effects of both past (1958-08) and future (2008-58) climate change.

Andersen, L.E. and D. Verner (2010). "Social Impacts of Climate Change in Chile: a Municipal Level Analysis of the Effects of Recent and Future Climate Change on Human Development and Inequality." World Bank Policy Research Working Paper: no. WPS 5170.

National Drought Insurance for Malawi

by Joanna Syroka and Antonio Nucifora

- Malawi has experienced several catastrophic droughts over the past few decades. The impact of these shocks has been far reaching, and the resulting macroeconomic instability has been a major constraint to growth and poverty reduction in Malawi. This paper describes a weather risk management tool that has been developed to help the government manage the financial impact of drought-related national maize production shortfalls. The instrument is an index-based weather derivative contract designed to transfer the financial risk of severe and catastrophic national drought that adversely impacts the government's budget to the international risk markets.

Syroka, J. and A. Nucifora (2010). "National Drought Insurance for Malawi." Workd Bank Policy Research Working Paper no. WPS 5169, Jan 2010.

Climate Policy Design with Correlated Uncertainties in Offset Supply and Abatement Cost

by Harrison Fell, Dallas Burtraw, Richard D. Morgenstern and Karen L. Palmer

- Current and proposed greenhouse gas cap-and-trade systems allow regulated entities to offset abatement requirements by paying unregulated entities to abate. These offsets from unregulated entities are believed to contain system costs and stabilize allowance prices. However, the supply of offsets is highly uncertain. Furthermore, the offset supply uncertainty may be correlated with other sources of uncertainty in emissions trading systems. This paper presents a model that incorporates both uncertainties in the supply of offsets and in abatement costs.

Fell, H., D. Burtraw, R.D. Morgenstern and K.L. Palmer (2010). "Climate Policy Design with Correlated Uncertainties in Offset Supply and Abatement Cost." RFF Discussion Paper 10-01, Jan 2010.

January 10, 2010

Estimating the Cobenefits of the Clean Development Mechanism

by Junjie Zhang and Can Wang

- This paper investigates how the Clean Development Mechanism (CDM) affects local sulfur dioxide emissions. We use an engineering model to establish the link between carbon dioxide and sulfur dioxide emission reductions. Exploiting this relationship, we propose a semiparametric approach to evaluate whether the CDM activities lead to lower sulfur dioxide emissions. Using China's municipal emission as an empirical case, it is found that this hypothesis can not be confirmed. This result may suggest that these CDM activities would have happened otherwise.

Zhang, J. and C. Wang (2010). "Estimating the Cobenefits of the Clean Development Mechanism." Available at SSRN, Jan 2010.

Contrasting Future Paths for an Evolving Global Climate Regime

by Scott Barrett and Michael Toman

- This paper explores two different conceptions of how an emerging climate regime might evolve to strengthen incentives for more vigorous cooperation in mitigating global climate change. One is the paradigm that has figured most prominently in negotiations to this point: the establishment of targets and timetables for countries to limit their aggregate greenhouse gas emissions. The other approach consists of a variety of loosely coordinated smaller scale agreements, each one of which addresses a different aspect of the challenge, and is enforced in its own way. The primary conclusion is that an agreement of the first type may be more cost-effective, but that a system of agreements of the second type would likely sustain more abatement overall.

Barrett, S. and M. Toman (2010). "Contrasting Future Paths for an Evolving Global Climate Regime." World Bank Policy Research working paper no. WPS 5164, Jan 2010.

"Green Stimulus," Economic Recovery, and Long-Term Sustainable Development

by Jon Strand and Michael Toman

- This paper discusses short-run and long-run effects of "green stimulus" efforts, and compares these effects with "non-green" fiscal stimuli. A number of recently enacted national stimulus packages contain sizeable "green" components. The authors categorize effects according to their a) short-run employment effects, b) long-run growth effects, c) effects on carbon emissions, and d) "co-benefit" effects (on the environment, natural resources, and for other externalities).

Strand, J, and M. Toman (2010). ""Green Stimulus," Economic Recovery, and Long-Term Sustainable Development." World Bank Policy Research working paper no. WPS 5163, Jan 2010.

Implementing the EU Climate and Energy Package with the Economic Crisis

by Cécile Kerebel

- The reinforcement of European Union’s climate policy in the decade to come was prepared and decided in 2007-2008 via the EU Climate and Energy Package. But in the meantime, the economic conditions have radically changed. This new study released by Ifri analyzes how the economic downturn in Europe will affect the EU’s greenhouse gases emissions and its ability to reach its 20% emission reduction's target by 2020 compared to 1990.

Kerebel, C. (2009). "Implementing the EU Climate and Energy Package with the Economic Crisis." Note de l'Ifri, Dec 2009.

Government Failure and Market Failure: On the Inefficiency of Environmental and Energy Policy

by David Anthoff and Robert W. Hahn

- There are three key contributions of this paper. The first is to synthesize a large literature on energy and environmental policy in a way that can be easily digested by both non-experts and experts. The second contribution is to suggest that, if history is a guide, then we should not expect many interventions in these policy areas to come close to maximizing net economic benefits. The third is to suggest what might be needed for the development of more efficient energy and environmental policies.

Anthoff, D. and R.W. Hahn (2009). "Government Failure and Market Failure: On the Inefficiency of Environmental and Energy Policy." Smith School Working Paper Series, Working Paper No. 005, Available at SSRN. Nov 2009.

Neoclassical Growth, Environment and Technological Change: The Environmental Kuznets Curve

by S.J. Rubio, J.R. García and J.L. Hueso

- The paper investigates socially optimal patterns of economic growth and environmental quality in a neoclassical growth model with endogenous technological progress. In the model, the environmental quality affects positively not only to utility but also to production. However, cleaner technologies can be used in the economy if a part of the output is used in environmentally oriented R&D. In this framework, if the initial level of capital is low then the shadow price of a cleaner technology is low relative to the cost of developing it given by the marginal utility of consumption and it is not worth investing in R&D.

Rubio, S.J., J.R. García and J.L. Hueso (2009). "Neoclassical Growth, Environment and Technological Change: The Environmental Kuznets Curve." FEEM Working Paper 2009.125, Dec 2009.

At Home and Abroad: An Empirical Analysis of Innovation and Diffusion in Energy-Efficient Technologies

by Elena Verdolini and Marzio Galeotti

- This paper contributes to the induced innovation literature by extending the analysis of supply and demand determinants of innovation in energy-efficient technologies to account for international knowledge flows and spillovers. Our results confirm the role of demand-pull effects, as proxied by energy prices, as well as that of technological opportunity, as proxied by the knowledge stocks. In particular, this paper provides evidence that spillovers between countries have a significant positive impact on further innovation in energy-efficient technologies.

Verdolini, E. and M. Galeotti (2009). "At Home and Abroad: An Empirical Analysis of Innovation and Diffusion in Energy-Efficient Technologies." FEEM Working Paper 2009.123, Dec 2009.

Distributional Impacts of Carbon Pricing Policies in the Electricity Sector

by Dallas Burtraw, Margaret A. Walls, Joshua Blonz

- The introduction of a price on carbon dioxide will have important effects on the U.S. economy, and especially important effects on the electricity sector, which currently accounts for about 40 percent of carbon dioxide emissions. This paper examines alternative approaches to the distribution of allowance value to the sector, including free allocation to consumers through electricity and natural gas local distribution companies (LDCs).

Burtraw, D., M.A. Walls and J. Blonz (2009). "Distributional Impacts of Carbon Pricing Policies in the Electricity Sector." RFF Discussion Paper 09-43, Dec 2009.

Climate Change Governance: Boundaries and Leakage

by Michael P. Vandenbergh and Mark A Cohen

- We demonstrate how governments and non-governmental organizations can use expanded corporate carbon reporting boundaries and product carbon disclosure to harness social norms in developed countries. This informal social license pressure, in turn, will create incentives for firms to seek emissions reductions from their domestic and global supply chains. The private market pressure conveyed through supply chains will reduce leakage from developed countries, create new incentives for developing country firms and national governments, and play a surprisingly important role in the formation and implementation of a successful post-Kyoto global policy architecture.

Vandenbergh, M.P. and M.A. Cohen (2009). "Climate Change Governance: Boundaries and Leakage." RFF Discussion Paper 09-51, Dec. 2009.

REDD in Design Assessment of Planned First-Generation Activities in Indonesia

by Erin Madeira

- Much of the guidance about potential impacts of reduce emissions from deforestation and degradation (REDD) speculates how efforts would be implemented and draws lessons from other mechanisms, such as payments for ecosystem services (PES). However, with few REDD activities underway, little evidence indicates whether REDD projects are meeting these expectations. This article examines 17 REDD interventions under development in Indonesia, reports trends in project design, and assesses the extent to which interventions follow the model of pro-poor PES schemes.

Madeira, E. (2009). "REDD in Design Assessment of Planned First-Generation Activities in Indonesia." RFF Discussion Paper 09-49, Dec 2009.

Greenhouse Gas Regulation under the Clean Air Act: Does Chevron Set the EPA Free?

by Nathan Richardson

- The EPA is likely to face a big legal problem on the path to regulating greenhouse gases under the Clean Air Act (CAA). Actions the agency is taking now will likely set it on a mandatory path to regulation of GHGs under the comprehensive "National Ambient Air Quality Standards" (NAAQS) program, a scheme that almost everyone who has studied the CAA thinks is a very poor fit for GHG regulation and which blocks use of arguably more effective schemes within the CAA.

Richardson, N. (2009). "Greenhouse Gas Regulation under the Clean Air Act: Does Chevron Set the EPA Free?" RFF Discussion Paper 09-50, Dec 2009.

Sharing the Load: A Multi-country Survey of the Willingness to Pay for Slowing Climate Change

by Alan J. Krupnick and Thomas Sterner

- A rencet survey shows that 92% of Swedes and 71% of Americans are willing to pay for climate change mitigation efforts. Average amount: $306/year in Sweden and $204/year in the United States, amounting to 2-3% of the respondents’ per-capita income.

Alan J. Krupnick and Thomas Sterner (2009). "Sharing the Load: A Multi-country Survey of the Willingness to Pay for Slowing Climate Change." Resources for the Future Issue Brief, Dec 2009.

Sharing the Reduction Effort to Limit Global Warming to 2°C

by Michel den Elzen and Niklas Höhne

- In order to stabilise long-term greenhouse gas concentrations at 450 ppm CO2 eq or less, developed countries as a group should reduce emissions by 25 to 40% below 1990 levels, by 2020, while developing countries need to reduce by around 15 to 30%, relative to their baseline levels, according to the IPCC and our earlier work. These studies concerned different allocation approaches, according to equity principles.

Michel den Elzen and Niklas Höhne (2009). "Sharing the Reduction Effort to Limit Global Warming to 2°C." Dec, 2009.

Meeting the 2 Degree Target. From Climate Objective to Emission Reduction Measures

by D.P. van Vuuren, A.F. Hof and M.G.J. den Elzen

- This PBL report gives an overview of the implications of the 2°C target, by systematically presenting information along the causal chain of climate change. One element is that the increase in global greenhouse gas emissions will need to be halted and turned into a decrease by around 2020. In 2050, global emissions would need to be reduced by 35-55% compared to 1990.

Vuuren, D.P. van, A.F. Hof and M.G.J. den Elzen (2009). "Meeting the 2 Degree Target. From Climate Objective to Emission Reduction Measures." PBL Report No. 500114012, Dec 2009.

Too Hot to Handle? The Emission Surplus in the Copenhagen Negotiations

by M.G.J. den Elzen, M. Roelfsema and S. Slingerland

- This report analyses the effects of various strategies of dealing with surplus emission allowances or assigned amount units (AAUs), often known as 'hot air', in the Copenhagen negotiations. The environmental, financial and negotiation consequences of 'hot air' are analyzed. This high-profile topic in the Copenhagen negotiations is relevant, in particular, with respect to the Russian negotiation position, as this country is by far the largest holder of AAUs.

Elzen, M.G.J. den, M. Roelfsema and S. Slingerland (2009). "Too Hot to Handle? The Emission Surplus in the Copenhagen Negotiations." PBL Report no. 500114016, Dec 2009.

Sharing Developed Countries' Post-2012 Greenhouse Gas Emission Reductions Based on Comparable Efforts

by M.G.J. den Elzen, N. Hohne, M. Hagemann and J. van Vliet

- This study analyses comparable reduction efforts according to fundamentally different effort-sharing approaches for the individual industrialised (Annex I) countries for achieving an aggregated total reduction target for Annex I of 30% below 1990 levels. For the EU and Japan, only the more ambitious pledge would be just in line with the comparable effort reduction range. For the United States, their proposed reduction target is less ambitious than the calculated reduction range.

Elzen, M.G.J. den, N. Hohne, M. Hagemann and J. van Vliet (2009). "Sharing Developed Countries' Post-2012 Greenhouse Gas Emission Reductions Based on Comparable Efforts." PBL Report no. 500114014, Dec 2009.

Calculating the Benefits of Climate Policy: Examining the Assumptions of Integrated Assessment Models

by Michael D. Mastrandrea

- Policy-relevant results of Integrated Assessment Models (IAMs) are sensitive to a number of uncertain assumptions that govern model simulation of the climate, society, and the policy response to climate change. Uncertainties remain in understanding of the rate and magnitude of climate change, the nature and severity of climate impacts, and the ability to cope with those impacts. Methods for quantifying and comparing climate damages across different regions and different time periods are fiercely debated. This paper examines assumptions that are central to model estimates of the benefits of climate policy in three well-known IAMs,

Mastrandrea, M.D. (2009). "Calculating the Benefits of Climate Policy: Examining the Assumptions of Integrated Assessment Models." Pew Climate Center, Dec 2009.

January 3, 2010

Happy New Year to all Climate ChangeS Readers!

- This is the first update of 2010! In 2009 the number of working papers on the economics of climate change has risen considerably: 425 new titles were added to the database, that now collects about 800 references.

Climate ChangeS received 35,372 visits this year, from 23,715 unique visitors located in 173 countries. Rarely a visit ended without downloading a paper: in 2009 Climate ChangeS re-directed 23,074 papers downloads, an average of 63 per day.

With about 750 subscribers in Universities, International Organizations, Consulting, Finance and Governmental Agencies around the world, Climate ChangeS is one of the most effective ways to circulate recent research on the economics of climate change.

I invite all researchers to e-mail me link to their work, so that it can be quickly posted at Climate ChangeS.

I wish to all readers a Joyful 2010!

Emanuele

Can China Benefit from Adopting a Binding Emissions Target?

by Robert C. Schmidt and Robert Marschinski

- In the run-up to the Copenhagen climate summit, the USA announced an emissions reduction target of 17% by 2020 (relative to 2005), and the EU of 20% to 30% (relative to 1990). China offered a reduction target for the CO2-intensity of its economy, but rejects a legally binding commitment. We use the targets announced by the EU and the USA to analyze the potential gain for China if it were to adopt a binding emissions target and join an international emissions trading scheme.

Schmidt, R.C. and R. Marschinski (2009). "Can China Benefit from Adopting a Binding Emissions Target?" Dec 2009.

The Greenness of China: Household Carbon Dioxide Emissions and Urban Development

by Siqi Zheng, Rui Wang, Edward L. Glaeser and Matthew E. Kahn

- This paper uses micro data to rank 74 major Chinese cities with respect to their household carbon footprint. We find that the average January temperature is strongly negatively correlated with a city’s household carbon footprint, which suggests that current regional economic development policies that bolster the growth of China’s northeastern cities are likely to increase emissions. We use our city specific income elasticity estimates to predict the growth of carbon emissions in China’s cities.

Zheng, S., R. Wang, E.L. Glaeser and M.E. Kahn (2009). "The Greenness of China: Household Carbon Dioxide Emissions and Urban Development." NBER Working Paper No. 15621, Dec 2009.

How Large are the Impacts of Carbon Motivated Border Tax Adjustments

by Yan Dong and John Whalley

- This paper discusses the size of impact of carbon motivated border tax adjustments on world trade. We report numerical simulation results which suggest that impacts on welfare, trade, and emissions will likely be small. This is because proposed measures use carbon emissions in the importing country in producing goods similar to imports rather than carbon content in calculating the size of barriers.

Dong, Y. and J. Whalley (2009). "How Large are the Impacts of Carbon Motivated Border Tax Adjustments." NBER Working Paper No. 15613, Dec 2009.

Pain at the Pump: The Differential Effect of Gasoline Prices on New and Used Automobile Markets

by Meghan R. Busse, Christopher R. Knittel and Florian Zettelmeyer

- In this paper we investigate whether consumers have adjusted to gasoline price changes by altering what automobiles they purchase and what prices they pay. We investigate these effects in both new and used car markets. We find that a $1 increase in gasoline price changes the market shares of the most and least fuel-efficient quartiles of new cars by +20% and -24%, respectively. In contrast, the same gasoline price increase changes the market shares of the most and least fuel-efficient quartiles of used cars by only +3% and -7%, respectively.

Busse, M.R., C.R. Knittel and F. Zettelmeyer (2009). "Pain at the Pump: The Differential Effect of Gasoline Prices on New and Used Automobile Markets." NBER Working Paper No. 15590, Dec 2009.

Profiting from Regulation: An Event Study of the EU Carbon Market

by James B. Bushnell, Howard Chong and Erin T. Mansur

- Tradable permit regulations have recently been implemented for climate change policy in many countries. One of the first mandatory markets was the EU Emission Trading System, whose first phase ran from 2005-07. Unlike taxes, permits expose firms to volatility in regulatory costs, but are typically accompanied by property rights in the form of grandfathered permits. In this paper, we examine the effect of this type of environmental regulation on profits.

James B. Bushnell, Howard Chong and Erin T. Mansur (2009). "Profiting from Regulation: An Event Study of the EU Carbon Market." NBER Working Paper No. 15572, Dec 2009.

Climate Variability and Water Infrastructure: Historical Experience in the Western United States

by Zeynep K. Hansen, Gary D. Libecap and Scott E. Lowe

- We analyze the impact of climatic conditions and variability on agricultural production in five semi-arid western states. We assemble county-level data on dams and other major water infrastructure; agricultural crop mixes and yields; precipitation and temperature; soil quality, and topography. Using this extensive data set, we analyze the impact of water infrastructure investments on crop mix and yields in affected counties relative to similarly-endowed counties that lack such infrastructure.

Zeynep K. Hansen, Gary D. Libecap and Scott E. Lowe (2009). "Climate Variability and Water Infrastructure: Historical Experience in the Western United States." NBER Working Paper No. 15558, Nov 2009.

Density and Disasters: Economics of Urban Hazard Risk

by Somik V. Lall, Uwe Deichmann

- Today, 370 million people live in cities in earthquake prone areas and 310 million in cities with high probability of tropical cyclones. By 2050, these numbers are likely to more than double. Mortality risk therefore is highly concentrated in many of the world's cities and economic risk even more so. This paper discusses what sets hazard risk in urban areas apart, provides estimates of valuation of hazard risk, and discusses implications for individual mitigation and public policy.

Lall, S.V. and U. Deichmann (2009). "Density and Disasters: Economics of Urban Hazard Risk." World Bank Policy Research Working Paper; no. WPS 5161, Dec 2009.

An Expanded Three-Part Architecture for Post-2012 International Climate Policy

by Sheila Olmstead and R.N. Stavins

- We describe the major features of a post-2012 international global climate policy architecture with three essential elements: a means to ensure that key industrialized and developing nations are involved in differentiated but meaningful ways; an emphasis on an extended time path of targets; and inclusion of flexible market-based policy instruments to keep costs down and facilitate international equity.

Olmstead, S.M., and R.N. Stavins (2009). "An Expanded Three-Part Architecture for Post-2012 International Climate Policy." HKS Faculty Research Working Paper Series RWP09-036, Dec 2009.

The Logic of Carbon Risk from the Investor's Perspective: The Expected Carbon Payment

by Merrill Jones Barradale

- This paper introduces the idea of expected payment of carbon as a more accurate measure of carbon cost as it is perceived by industry practitioners. The expected payment of carbon is the expected price of carbon times the probability that this cost would actually be faced in the case of a particular investment. This concept helps explain both the surge of activity in 2005-2006 and the subsequent decline in interest in coal-fired power plant development.

Barradale, M.J. (2009). "The Logic of Carbon Risk from the Investor's Perspective: The Expected Carbon Payment." USAEE Working Paper No. 09-037. Available at SSRN. Dec 2009.

Cap-and-Trade, Emissions Taxes, and Innovation

by Suzanne Scotchmer

- Emissions taxes and carbon caps can both lead to efficient production of energy, in the sense of controlling carbon emissions. However, the regulatory policy has a second objective, which is to create incentives to develop lower-carbon technologies. With both objectives in mind, does one policy dominate the other? I address this question in a model of technology switching.

Scotchmer, S. (2009). "Cap-and-Trade, Emissions Taxes, and Innovation." University of California, Berkeley. Available at SSRN. Dec 2009.

Price is a Better Climate Commitment

by Peter Cramton and Steven E. Stoft

- Developing countries reject meaningful emission targets (recent intensity caps are no exception). This paper proposes a new pair of commitments: a commitment to a binding carbon-price target and to a Green Fund financed by a form of carbon pricing. The result is a price mechanism that neither requires developing countries to accept emission caps nor requires industrial countries to accept carbon taxes.

Cramton, P.C. and S.E. Stoft (2009). "Price is a Better Climate Commitment." Global Energy Policy Center Issue Brief No. 09-07. Available at SSRN. Dec 2009.