February 28, 2010

Investments and Financial Flows Induced by Climate Mitigation Policies

by Andrea Bastianin, Alice Favero and Emanuele Massetti

- In this paper we use the hybrid integrated model WITCH to quantify and analyze the investments and financial flows stimulated by a climate policy to stabilize Greenhouse Gases concentrations at 550ppm CO2-eq at the end of the century. We focus on investments to decarbonize the power sector and on investments in knowledge creation. We examine the financial flows associated with the carbon market and the implications for the international trade of oil.

Bastianin, A., A. Favero and E. Massetti (2010). "Investments and Financial Flows Induced by Climate Mitigation Policies." FEEM Note di Lavoro 2010.013, Feb 2010.

Fairness, Credibility and Effectiveness in the Copenhagen Accord: An Economic Assessment

by Enrica De Cian and Alice Favero

- State-of-the-art literature on climate change policies has proposed numerous approaches for the Post-Kyoto agreement. However, in analysing the outcome of negotiations, the feeling is that a huge gap exists between policy makers and scientists. This paper tries to bridge this gap by providing a critical and comparative analysis of the Copenhagen Accord provisions, linking them to a part of the climate-economy literature. It assesses Copenhagen outcome in terms of economic efficiency, environmental effectiveness and political credibility.

De Cian, E. and A. Favero (2010). "Fairness, Credibility and Effectiveness in the Copenhagen Accord: An Economic Assessment." FEEM Note di Lavoro 2010.021, Feb 2010.

Second-Best Optimal Taxation of Oil and Capital in a Small Open Economy

by Alberto Petrucci

- This paper analyzes the efficient taxation of oil and capital income in an oil-dependent infinite-lived economy facing perfect capital mobility. Two cases are examined: one with product market imperfections and free tax choice, one with perfect competition and tax restrictions. The optimal tax rates on oil and capital strictly depend on the international tax system implemented; however, they are also affected by the degree of market power and the extent to which monopoly profits are taxed, the type of tax restrictions and the use of oil (as an input or a consumer good). Under the residence-based system, capital income should always be exempted from taxation, while the optimal tax on productive oil may differ from zero. Under the source-based system, second-best taxes on capital and oil are non-zero.

Petrucci, A. (2010). "Second-Best Optimal Taxation of Oil and Capital in a Small Open Economy." FEEM Note di Lavoro 2010.020, Feb 2010.

Capital Malleability and the Macroeconomic Costs of Climate Policy

by Elisa Lanzi and Ian Sue Wing

- This paper argues for introducing the role of capital malleability into the analysis of environmental policies. The issue is explored by means of a theoretical model, a numerical analysis and a computable general equilibrium (CGE) model. Considering the three approaches together is fundamental in obtaining theory-compatible policy-relevant results. The model outcomes reveal differences between results under separate assumptions regarding the malleability of capital.

Lanzi, E. and I. Sue Wing (2010). "Capital Malleability and the Macroeconomic Costs of Climate Policy." FEEM Note di Lavoro 2010.019, Feb 2010.

Climate Change Meets Trade in Promoting Green Growth: Potential Conflicts and Synergies

by ZhongXiang Zhang

- To date, border adjustment measures in the form of emissions allowance requirements (EAR) under the U.S. proposed cap-and-trade regime are the most concrete unilateral trade measure put forward to level the carbon playing field. The paper argues that, on the U.S. side, in designing such trade measures, WTO rules need to be carefully scrutinised, and efforts need to be made early on to ensure that the proposed measures comply with them. After all, a conflict between the trade and climate regimes, if it breaks out, helps neither trade nor the global climate. The U.S. needs to explore, with its trading partners, cooperative sectoral approaches to advancing low-carbon technologies and/or concerted mitigation efforts in a given sector at an international level.

Zhang, Z. (2010). "Climate Change Meets Trade in Promoting Green Growth: Potential Conflicts and Synergies." FEEM Note di lavoro 2010.018, Feb 2010.

Too Much Oil

by Reyer Gerlagh

- In the climate change debate, economists have pointed to a green paradox: when policy makers stimulate the development of non-carbon energy sources to (partly) replace fossil fuels in the future, oil markets may anticipate a future reduction in demand and increase current supply. The insight comes from the basic exhaustible resource model. We reproduce the green paradox and to facilitate discussion differentiate between a weak and a strong version, related to short-term and long-term effects, respectively. Then we analyze the green paradox in 2 standard modifications of the exhaustible resource model.

Gerlagh, R. (2010). "Too Much Oil." FEEM Note di lavoro 2010.014, Feb 2010.

What Drives the International Transfer of Climate Change Mitigation Technologies? Empirical Evidence from Patent Data

by Antoine Dechezleprêtre, Matthieu Glachant and Yann Ménière

- Using patent data from 66 countries for the period 1990-2003, we characterize the factors which promote or hinder the international diffusion of climate-friendly technologies on a global scale. Regression results show that technology-specific capabilities of the recipient countries are determinant factors. In contrast, the general level of education is less important. We also show that restrictions to international trade -e.g., high tariff rates- and lax intellectual property regimes negatively influence the international diffusion of patented knowledge.

Dechezleprêtre, A., M. Glachant and Y. Ménière (2010). "What Drives the International Transfer of Climate Change Mitigation Technologies? Empirical Evidence from Patent Data." FEEM Note di lavoro 2010.012, Feb 2010.

Is There Really a Green Paradox?

by Frederick van der Ploeg and Cees Withagen

- The Green Paradox states that, in the absence of a tax on CO2 emissions, subsidizing a renewable backstop such as solar or wind energy brings forward the date at which fossil fuels become exhausted and consequently global warming is aggravated. We shed light on this issue by solving a model of depletion of non-renewable fossil fuels followed by a switch to a renewable backstop, paying attention to timing of the switch and the amount of fossil fuels remaining unexploited.

van der Ploeg, F. and C. Withagen (2010). "Is There Really a Green Paradox?" CESifo Working Paper No. 2963, Feb 2010.

Biofuels Subsidies and the Green Paradox

by R. Quentin Grafton, Tom Kompas and Ngo Van Long

- This paper develops sufficient conditions under which the Weak Green Paradox may (and may not) hold in terms of subsidies for biofuel production such that the supply-side responses by fossil fuel producers may more than offset the substitution to biofuels. Analytical results are derived and numerical simulations show that, under a wide range of parameter values, biofuel subsidies will increase the rate of extraction of fossil fuels in the short and medium term, and possibly bring climate-change damages closer to the present.

Grafton, R.Q. T. Kompas and N. Van Long (2010). "Biofuels Subsidies and the Green Paradox." CESifo Working Paper No. 2960, Feb 2010.

Will Border Carbon Adjustments Work?

by Winchester, N., S. Paltsev and J. Reilly

- The potential for greenhouse gas (GHG) restrictions in some nations to drive emission increases in other nations, or leakage, is a contentious issue in climate change negotiations. We evaluate the potential for border carbon adjustments (BCAs) to address leakage concerns using an economy-wide model. For 2025, we find that BCAs reduce leakage by up to two-thirds, but result in only modest reductions in global emissions and significantly reduce welfare. In contrast, BCA-equivalent leakage reductions can be achieved by very small emission charges or efficiency improvements in nations targeted by BCAs, which have negligible welfare effects.

Winchester, N., S. Paltsev and J. Reilly (2010). "Will Border Carbon Adjustments Work?" MIT Joint Program Report Series, Report 184, Feb 2010.

Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices

by Don Fullerton and Garth Heutel

- Using an analytical general equilibrium model, we find closed form solutions for the effect of energy policy on factor prices and output prices. We calibrate the model to the US economy, and we consider a tax on carbon. By looking at expenditure and income patterns across household groups, we quantify the uses-side and sources-side incidence of the tax. When households are categorized either by annual income or by total annual consumption as a proxy for permanent income, the uses-side incidence is regressive.

Fullerton, D. and G. Heutel (2010). "Analytical General Equilibrium Effects of Energy Policy on Output and Factor Prices." NBER Working Paper No. 15788, Feb 2010.

On the Drivers of Eco-Innovations: Empirical Evidence from the UK

by Effie Kesidou and Pelin Demirel

- The environmental economics literature emphasises the key role that environmental regulations play in stimulating eco-innovations. Innovation literature, on the other hand, underlines other important determinants of eco-innovations, mainly the supply-side factors such as firms’ organisational capabilities and demand-side mechanisms, such as customer requirements and societal requirements on corporate social responsibility (CSR). This paper brings together the views of these different disciplines and provides empirical insights on the drivers of eco-innovations based on a novel dataset of 1566 UK firms that responded to the Government Survey of Environmental Protection Expenditure by Industry in 2006.

Kesidou, E. and P. Demirel (2010). "On the Drivers of Eco-Innovations: Empirical Evidence from the UK." Nottingham University Business School Research Paper No. 2010-03, Feb 2010.

How to Combat Climate Change? The Determinants of Joining in and Complying with the Kyoto Protocol

by Christian Almer and Ralph Winkler

- The outcome of the COP15 in Copenhagen failed to meet even modest expectations, still there is no alternative to international cooperation for the mitigation of climate change. Thus, it is certainly of interest to know about the determinants of the only existing treaty defining greenhouse gas emission targets, the Kyoto Protocol. We separately analyze accession to and compliance with the Protocol in an empirical political economy framework. While joining in is influenced by damage costs of climate change and political factors, compliance is mainly driven by abatement costs.

Almer, C. and R. Winkler (2010). "How to Combat Climate Change? The Determinants of Joining in and Complying with the Kyoto Protocol." Available at SSRN, Feb 2010.

Policy Uncertainty in Emission Permits and Capital Investment Decisions: A Real Option Approach

by Sang Baum Kang

- Policy uncertainty or a time-inconsistency problem of a government in emission permits may lead to inefficiency in physical capital investments. This paper proposes a new analytic framework in the real option theory to address this problem by introducing a first passage time distribution to Least-Square Monte Carlo (LSMC) simulation. Our simulation outcomes using real-world data are consistent with three theoretical predictions that under the policy uncertainty, investments in a green technology will be reduced, investments in a green technology will be deferred, and a rational firm will expect more profit.

Kang, S.B. (2010). "Policy Uncertainty in Emission Permits and Capital Investment Decisions: A Real Option Approach." Available at SSRN, Jan 2010.

Carbon Dioxide Offsets from Anaerobic Digestion of Dairy Waste

by Brent A. Gloy

- Anaerobic digestion allows farmers to create renewable energy and significantly reduce manure methane emissions. Estimates of the aggregate supply curve for CO2e offsets were developed based upon dairy farm data collected by the USDA/ERS Agricultural Resource and Management Survey (ARMS). The results provide insight regarding the potential for methane emission reductions and renewable energy generation on U.S. dairy farms. Offset prices in excess of $15 per ton of carbon dioxide equivalent would be required to reduce methane emissions from manure storages by 50 percent from 2005 levels.

Gloy, B.A. (2010). "Carbon Dioxide Offsets from Anaerobic Digestion of Dairy Waste." Department of Applied Economics and Management, Cornell University, Ithaca, Feb 2010.

Are Compact Cities Environmentally Friendly?

by Carl Gaigne, Stéphane Riou and Jacques-François Thisse

- There is a large consensus among international institutions and national governments to favor urban-containment policies - the compact city - as a way to reduce the ecological footprint of cities. This approach overlooks the following basic trade-off: the concentration of activities decreases the ecological footprint stemming from commodity shipping between cities, but it increases emissions of greenhouse gas by inducing longer worktrips. What matters for the ecological footprint of cities is the mix between urban density and the global pattern of activities.

Gaigne, C., S. Riou and J-F Thisse (2010). "Are Compact Cities Environmentally Friendly?" GATE (Groupe D'Analyse et de Théorie Èconomique) Working Paper No. 1001. Available at SSRN, Feb 2010.

The Scale and Scope of Environmental Taxation

by Agnar Sandmo

- This paper provides a discussion of the principles of environmental taxation. It considers the empirical identification of environmental taxes and the problems associated with the choice of the right tax base from the point of view of the correction of market incentives. It then presents a model of optimal second best environmental taxation when taxes must fulfil the double role of modifying market incentives and generating tax revenue. It also considers the issues of the double dividend, the interaction between intrinsic and extrinsic incentives and the problem of designing a tax policy for the alleviation of global environmental problems.

Sandmo, A. (2009). "The Scale and Scope of Environmental Taxation." NHH Dept. of Economics Discussion Paper No. 18/2009. Available at SSRN, Oct 2009.

Climate Cost Uncertainty, Retrofit Cost Uncertainty, and Infrastructure Closedown: a Framework for Analysis

by Jon Strand, Sebastian Miller

- Large and energy-intensive infrastructure investments with long life times have substantial implications for climate policy. This study focuses on options to scale down energy consumption and carbon emissions now and in the future, and on the costs of doing so. Two ways carbon emissions can be reduced post-investment include retrofitting the infrastructure, or closing it down. Generally, the presence of bulky infrastructure investments makes it more costly to reduce emissions later.

Strand, J. and S. Miller (2010). "Climate Cost Uncertainty, Retrofit Cost Uncertainty, and Infrastructure Closedown: a Framework for Analysis." World Bank Policy Research Working Paper no. WPS 5208, Feb 2010.

February 14, 2010

Cores of Games with Positive Externalities

by Parkash Chander

- This paper introduces a core concept, called the gamma-core, in the primitive framework of a strategic game. For a certain class of strategic games, it is a weaker concept than the strong Nash equilibrium, but in general stronger than the conventional a- and ß- cores. We argue that the coalition formation process is an infinitely repeated game and show that the grand coalition forms if the gamma-core is nonempty. This is a weaker sufficient condition than the previous such condition (Maskin (2003, Theorem 4)). As an application of this result, it is shown that the gamma-core of an oligopolistic market is nonempty and thus the grand coalition forms.

Chander, P. (2010). "Cores of Games with Positive Externalities." CORE Discussion Paper 2010/4, Jan 2010.

Carbon Emission Values in Cost Benefit Analyses

by Svante Mandell

- New infrastructure projects may affect CO2 emissions and, thus, cost benefit analyses for these projects require a value to apply for CO2. The value may be based on the marginal social cost associated with emissions or on the shadow price resulting from present and future policies geared towards CO2 emissions. In the present paper it is argued that the social cost approach should be seen as preceding the shadow price approach. Both are thus necessary, but for cost benefit analysis of infrastructure projects we argue for the shadow price approach as the primary tool.

Mandell, S. (2010). "Carbon Emission Values in Cost Benefit Analyses." Working Papers, Swedish National Road & Transport Research Institute (VTI), 10.01.307, Jan 2010.

Testing Value vs Waiting Value in Environmental Decisions under Uncertainty

by Giuseppe Attanasi and Aldo Montesano

- The paper analyzes environmental decisions under uncertainty and irreversibility by introducing a value - the Testing Value. This value emerges in all situations in which the level of information concerning future economic benefits and costs of development depends on the level of development carried out. We show that including the Testing Value into the analysis could push a risk-neutral decision maker towards a higher level of preservation of the environmental resource in the present and eventually in the future.

Attanasi, G. and A. Montesano (2010). "Testing Value vs Waiting Value in Environmental Decisions under Uncertainty." LERNA, Working Papers 10.01.307, Jan 2010.

Climate Change Mitigation and Ecosystem Services: A Stochastic Analysis.

by Thomas S. Lontzek and Daiju Narita

- Degradation of ecosystem services may be a major component of climate change damage, and incorporation of this factor could significantly alter the significance of uncertainty in climate-economy modeling. However, this aspect has been little investigated by economic analyses of climate change and uncertainty. We apply standardized numerical techniques of stochastic optimization to this research question.

Lontzek, T.S. and D. Narita (2010). "Climate Change Mitigation and Ecosystem Services: A Stochastic Analysis." Kiel Working Paper No. 1593, Jan 2010.

Climate Policy, Technology Choice, and Multiple Equilibria in A Developing Economy

by Daiju Narita

- Control of carbon dioxide emissions in developing countries is becoming a key issue in the international climate policy. A critical element for achieving substantial emission reduction in those countries is the installment of new energy technologies. Drawing on the framework of poverty-trap models in development economics, we discuss how climate policy affects the transition of energy technologies in a developing economy.

Narita, D. (2010). "Climate Policy, Technology Choice, and Multiple Equilibria in A Developing Economy." Kiel Working Paper No. 1590, Jan 2010.

Incentives to Invest in Abatement Technology. A Tax Versus Emissions Trading under Imperfect Competition

by Halvor Briseid Storrøsten

- In the longer run, effects on R&D and the implementation of advanced abatement technology may be at least as important as short-run cost effectiveness when we evaluate public environmental policy. In this paper, we show that the number of firms that adopt advanced abatement technology could be higher with emissions trading than with a tax if there is imperfect competition in the permits market. Under perfect competition, the number would always be higher with a tax, given that the regulator is myopic. If we allow for environmental policy response, the ranking is still ambiguous under imperfect competition, while the regimes become equal with perfect competition.

Storrøsten, H.B. (2010). "Incentives to Invest in Abatement Technology. A Tax Versus Emissions Trading under Imperfect Competition." Discussion Papers 606, Statistics Norway, Jan 2010.

Carbon Capture and Storage Technologies in the European Power Market

by Rolf Golombek, Mads Greaker, Sverre A.C Kittelsen, Ole Røgeberg and Finn Roar Aune

- We examine the potential of Carbon Capture and Storage (CCS) technologies in the European electricity markets, assessing whether CCS technologies will reduce carbon emissions substantially in the absence of investment subsidies, and how the availability of CCS technologies may affect electricity prices and the amount of renewable electricity. To this end we augment a multi-market equilibrium model of the European energy markets with CCS electricity technologies.

Golombek, R., M. Greaker, S.A.C Kittelsen, O. Røgeberg and F.R. Aune (2009). "Carbon Capture and Storage Technologies in the European Power Market." Discussion Papers 603 - Statistics Norway, Dec 2009.

On the Measurement of Environmental Taxes

by Annegrete Bruvoll

- In practical policy, environmental and fiscal taxes are conceptually intertwined. This mixture complicates the calculation of the extent and the evaluation of the effects of environmental taxes. Eurostat, OECD and IEA include all taxes related to energy, transport and pollution, and most resource taxes in their international measurement of environmentally related taxes. Consequently, numerous fiscal taxes are added together with the environmental taxes. This article discusses the distinctions between the Pigouvian and the fiscal taxes in light of tax theory. The revenues following the Eurostat et al. statistical basis deviate significantly from the revenues from the environmental taxes defined on the basis of theory.

Bruvoll, A. (2009). "On the Measurement of Environmental Taxes." Discussion Papers 599 - Statistics Norway, Dec 2009.

It’s One Climate Policy World Out There? Almost

by Nancy Birdsall and Jan von der Goltz

- In the run-up to the December 2009 Copenhagen climate conference, the authors surveyed members of the international development community with a special interest in climate change on three sets of detailed questions: (1) what action different country groups should take to limit climate change; (2) how much non-market funding there should be for emissions reductions and adaptation in developing countries, and how it should be allocated; and (3) which institutions should be involved in delivering climate assistance, and how the system should be governed. A broad majority of respondents from both developing and developed countries held very similar views on the responsibilities of the two different country groups, including on issues that have been very controversial in the negotiations.

Birdsall, N. and J. von der Goltz (2010). "It’s One Climate Policy World Out There? Almost" Center for Global Development Working Paper 195, Dec 2009.

Does Global Climate Policy Promote Low-Carbon Cities? Lessons learnt from the CDM

by Maike Sippel and Axel Michaelowa

- An increasing proportion of greenhouse gas emissions is produced in urban areas in industrializing and developing countries. Recent research shows that per capita emissions in cities like Bangkok, Cape Town or Shanghai have already reached the level of cities like London, New York or Toronto. Based upon a survey of projects under the Clean Development Mechanism (CDM) of the Kyoto Protocol, we find that only about 1% of CDM projects have been submitted by municipalities, mostly in the waste management sector. This low participation is probably due to a lack of technical know how to develop CDM projects and an absence of motivation due to the long project cycle and the limited "visibility" of the projects for the electorate.

Sippel, M. and A. Michaelowa (2009). "Does Global Climate Policy Promote Low-Carbon Cities? Lessons learnt from the CDM." ETH Zurich CIS Working Paper No 49, 2009.

Think Globally, Act Locally? Stock vs Flow Regulation of a Fossil Fuel

by Jean-Pierre Amigues, Ujjayant Chakravorty and Michel Moreaux

- Regulation of environmental externalities like global warming from the burning of fossil fuels (e.g., coal and oil) is often done by capping both emission flows and stocks. Flow regulation is often local or regional in nature, while stock regulation is global. In this paper we show that local and global pollution control efforts, if uncoordinated, may exacerbate environmental externalities. For example, a stricter cap on emission flows may actually increase the global pollution stock and hasten the date when the global pollution cap is reached.

Amigues, J-P, U. Chakravorty and M. Moreaux (2009). "Think Globally, Act Locally? Stock vs Flow Regulation of a Fossil Fuel." LERNA, Working Paper 09.30.306, Nov 2009.

February 8, 2010

Temperature and the Allocation of Time: Implications for Climate Change

by Joshua Graff Zivin and Matthew J. Neidell

- In this paper we estimate the impacts of climate change on the allocation of time using econometric models that exploit plausibly exogenous variation in daily temperature over time within counties. We find large reductions in U.S. labor supply in industries with high exposure to climate and similarly large decreases in time allocated to outdoor leisure. We also find suggestive evidence of short-run adaptation through temporal substitutions and acclimatization.

Zivin, J.G. and M.J. Neidell (2010). "Temperature and the Allocation of Time: Implications for Climate Change." NBER Working Paper No. 15717, Feb 2010.

Linking Emission Trading Schemes

by Georg Gruell and Luca Taschini

- Linking emission trading schemes would favor the depletion of low-cost abatement opportunities that are geographically spread over the globe. However, this would only be possible if the price of the emission permits in the different schemes converge to one price. Using a simple model-free structure, the paper first assesses how a unilateral link between two schemes or a bilateral link between schemes with restrictions on the amount of imported permits preempt a correct price convergence. Second, it shows under which conditions bilateral links between schemes with price containment mechanisms ensure permit price convergence.

Georg Gruell and Luca Taschini (2010). "Linking Emission Trading Schemes." Available at SSRN, Feb 2010.

Potentials and Limits of Bayesian Networks to Deal with Uncertainty in the Assessment of Climate Change Adaptation Policies

by Michela Catenacci and Carlo Giupponi

- The present paper analyses the effectiveness of the Bayesian networks model as a synthesis framework, which would allow the user to manage the uncertainty characterising the definition and implementation of climate change adaptation policies. The review shows the potentials of the model to characterise, incorporate and communicate the uncertainty, with the aim to provide an efficient support to an informed and transparent decision making process. The possible drawbacks arising from the implementation of BNs are also analysed, providing potential solutions to overcome them.

Catenacci, M. and C. Giupponi (2010). "Potentials and Limits of Bayesian Networks to Deal with Uncertainty in the Assessment of Climate Change Adaptation Policies." FEEM Note di lavoro 2010.007, Jan 2010.

Optimal Emission Tax with Endogenous Location Choice of Duopolistic Firms

by Masako Ikefuji, Jun-ichi Itaya and Makoto Okamura

- This paper explores optimal environmental tax policy under which duopoly firms strategically choose the location of their plants in a simple three-stage game. We examine how the relationship between the optimal emission tax and the choice of location of duopoly firms affects the welfare of the home country. We characterize the relationship between the optimal emission tax and the fixed cost, depending on the degree of environmental damage from production. Finally, we show the existence of asymmetric equilibrium in which either firm chooses relocation of its plant even if the duopoly firms are identical ex ante.

Ikefuji, M., J. Itaya and M. Okamura (2010). "Optimal Emission Tax with Endogenous Location Choice of Duopolistic Firms." FEEM Note di lavoro 2010.006, Jan 2010.

Modeling Biased Technical Change.Implications for Climate Policy

by Carlo Carraro, Enrica De Cian and Lea Nicita

- This paper tackles the issues of whether technical change is biased towards the energy sectors, the importance of the elasticity of substitution between factors in determining this bias and how mitigation policy is likely to affect it. The analysis is performed using the World Induced Technical Change model, WITCH. Three different versions of themodel are proposed. The starting set-up includes endogenous technical change only in the energy sector. A second version introduces endogenous technical change in both theenergy and non-energy sectors. A third version of the model embodies different sources of technical change, namely R&D and human capital.

Carraro, C., E. De Cian and L. Nicita (2010). "Modeling Biased Technical Change.Implications for Climate Policy." FEEM Note di lavoro 2010.004, Jan 2010.

Tradable Permits vs Ecological Dumping

by Fabio Antoniou, Panos Hatzipanayotou, Phoebe Koundouri

- In this paper we examine an alternative policy scenario, where governments allow polluting firms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable.

Fabio Antoniou, Panos Hatzipanayotou, Phoebe Koundouri(2010). "Tradable Permits vs Ecological Dumping." FEEM Note di lavoro 2010.002, Jan 2010.

Canada’s Bitumen Industry Under CO2 Constraints

by Gabriel Chan, John M. Reilly, Sergey Paltsev and Y.-H. Henry Chen

- We investigate the effects of implementing CO2 emissions reduction policies on Canada’s oil sands industry, the largest of its kind in the world. We apply the MIT Emissions Prediction and Policy Analysis (EPPA) model, a computable general equilibrium model of the world economy, augmented to include detail on the oil sands production processes, including the possibility of carbon capture and storage (CCS). We find: (1) without climate policy annual Canadian bitumen production increases over 6-fold from 2005 to 2050; (2) with CO2 emissions caps implemented in developed countries, Canadian bitumen production drops by nearly 65% from the reference 6-fold increase and bitumen upgrading capacity moves to the developing countries; (3) with CO2 emissions caps implemented worldwide, the Canadian bitumen production becomes essentially non-viable even with CCS technology, at least through our 2050 horizon.

Chan, G., J.M. Reilly, S. Paltsev and Y.-H. Chen (2010). "Canada’s Bitumen Industry Under CO2 Constraints." MIT Joint Program Report Series, Report 183, Jan 2010.

Modeling the Impact of Warming in Climate Change Economics

by Robert S. Pindyck

- Any economic analysis of climate change policy requires some model that describes the impact of warming on future GDP and consumption. Most integrated assessment models (IAMs) relate temperature to the level of real GDP and consumption, but there are theoretical and empirical reasons to expect temperature to affect the growth rate rather than level of GDP. Does this distinction matter in terms of implications for policy? And how does the answer depend on the nature and extent of uncertainty over future temperature change and its impact?

Robert S. Pindyck (2010). "Modeling the Impact of Warming in Climate Change Economics." NBER Working Paper No. 15692, Jan 2010.

Climate Shocks and Exports

by Benjamin F. Jones and Benjamin A. Olken

- This paper uses international trade data to examine the effects of climate shocks on economic activity. We examine panel models relating the annual growth rate of a country’s exports in a particular product category to the country’s weather in that year. We find that a poor country being 1 degree Celsius warmer in a given year reduces the growth rate of that country’s exports by between 2.0 and 5.7 percentage points, with no detectable effects in rich countries.

Jones, B.F. and B.A. Olken (2010). "Climate Shocks and Exports." NBER Working Paper No. 15711, 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

- This paper presents a model that incorporates both uncertainties in the supply of offsets and in abatement costs. Using numerical methods we solve the model under a variety of parameter settings, including a system that includes allowance price controls. We find that as uncertainty in offsets and uncertainty in abatement costs become more negatively correlated, expected abatement plus offset purchase costs increase, as does the variability in allowance prices and emissions from the regulated sector. Imposing an allowance price collar that limits the upper and lower cost substantially mitigates cost increases as well as the variability in prices and emissions, while roughly maintaining expected environmental outcomes.

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.

Adaptation of Forests to Climate Change: Some Estimates

by Roger A. Sedjo

- This paper is based on a World Bank-sponsored effort to develop a global estimate of adaptation costs, considering the implications of global climate change for industrial forestry. It focuses on the anticipated impacts of climate change on forests broadly, on industrial wood production in particular, and on Brazil, South Africa, and China. The aim is to identify likely damages and possible mitigating investments or activities.

Sedjo, R.A. (2010). "Adaptation of Forests to Climate Change: Some Estimates." RFF Discussion Paper 10-06, Jan 2010.

The Regime Complex for Climate Change

By Robert O. Keohane and David G. Victor

- There is no integrated, comprehensive regime governing efforts to limit the extent of climate change. Instead, there is a regime complex: a loosely coupled set of specific regimes. We describe the regime complex for climate change and seek to explain it, using functional, strategic, and organizational arguments. It is likely that such a regime complex will persist: efforts to build an effective, legitimate, and adaptable comprehensive regime are unlikely to succeed.

Keohane, R.O. and D.G. Victor (2010). "The Regime Complex for Climate Change." Discussion Paper 10-33, Harvard Project on International Climate Agreements, Belfer Center for Science and International Affairs, Jan 2010.

Theory of Adaptation to Climate Change as a Global Public Good

by S. Niggol Seo

- Policy discussions of climate change have been primarily concerned about mitigating greenhouse gases. However, when adaptation to climate change is a global public good, an efficient allocation cannot be achieved by the imposition of a carbon tax alone to abate greenhouse gases. This paper proposes an alternative policy framework in which a carbon tax is levied globally while adaptation is supported through the recycling of carbon tax revenue. The optimal level of adaptation aid is discussed.

Seo, N.S. (2010). "Theory of Adaptation to Climate Change as a Global Public Good." USAEE-IAEE WP 10-041, available at SSRN, Jan 2010.

The Cost of Pipelining Climate Change Mitigation: An Overview of the Economics of CH4, CO2 and H2 Transportation

by Koen Schoots, Rodrigo Rivera-Tinoco, Geert Verbong and Bob Van der Zwaan

- Gases like CH4, CO2 and H2 may play a key role in establishing a sustainable energy system: CH4 is the cleanest and least carbon-intensive among the fossil energy resources (that is, natural gas versus oil and coal); CO2 capture and storage can significantly reduce the climate footprint of especially fossil-based electricity generation; and the use of H2 as energy carrier could enable carbon-free automotive transportation. Yet the establishment of extensive distribution networks, required to transport these gases, is challenging. In this paper we present an overview of both the total costs and cost components of the distribution of these three gases via pipelines.

Schoots, K., R. Rivera-Tinoco, G. Verbong and B. Van der Zwaan (2010). "The Cost of Pipelining Climate Change Mitigation: An Overview of the Economics of CH4, CO2 and H2 Transportation." Available at SSRN, Jan 2010.

The Health Effects of Climate Change: A Survey of Recent Quantitative Research

by Margherita Grasso, Matteo Manera, Aline Chiabai and Anil Markandya

- In recent years there has been a large scientific and public debate on climate change and its direct as well as indirect effects on human health. In the past fifteen years a large amount of research on the effects of climate changes on human health has addressed two fundamental questions (WHO, 2003). First, can historical data be of some help in revealing how short-run or long-run climate variations affect the occurrence of infectious diseases? Second, is it possible to build more accurate statistical models which are capable of predicting the future effects of different climate conditions on the transmissibility of particularly dangerous infectious diseases? The primary goal of this paper is to review the most relevant contributions which have directly tackled those questions.

Grasso, M., M. Manera, A. Chiabai and A. Markandya (2010). "The Health Effects of Climate Change: A Survey of Recent Quantitative Research." IEFE Working Paper No. 27, Jan 2010.

Integration of the Global Emissions Trading Markets

by Bruce Mizrach

- Emissions markets have emerged in Europe, North America, and around the globe. This paper analyzes the market architecture and common factors of emission reduction instruments. Within the EU ETS, I find that the major spot and futures exchanges in Europe are cointegrated. The spot and futures prices for both Phase I and Phase II EUA are also cointegrated, but the futures curve beyond the calendar year evolves independently. While registry linkage has narrowed spreads, EUA and CER spot and futures instruments are not cointegrated.

Mizrach, B. (2010). "Integration of the Global Emissions Trading Markets." Available at SSRN, Jan 2010.

The Economics of Adaptation to Extreme Weather Events in Developing Countries

by Brian Blankespoor, Susmita Dasgupta, Benoit Laplante and David Wheeler

- This paper contributes by assessing the economics of adaptation to extreme weather events. We address several questions that are relevant for the international discussion: How will climate change alter the incidence of these events, and how will their impact be distributed geographically? How will future socioeconomic development, notably an increased focus on education and empowerment for women and girls, affect the vulnerability of affected communities? And, of primary interest to negotiators and donors, how much would it cost to neutralize the threat of additional losses in this context?

Blankespoor, B., S. Dasgupta, B. Laplante and D. Wheeler (2010). "The Economics of Adaptation to Extreme Weather Events in Developing Countries." Center for Global Development Working Paper No. 199, Jan 2010.

Climate Policy without Commitment

by Rolf Golombek, Mads Greaker and Michael Hoel

- Climate mitigation policy should be imposed over a long period, and spur development of new technologies in order to make stabilization of green house gas concentrations economically feasible. The government may announce current and future policy packages that stimulate current R&D in climate-friendly technologies. However, once climate-friendly technologies have been developed, the government may have no incentive to implement the pre-announced future policies, that is, there may be a time inconsistency problem. We show that if the government can optimally subsidize R&D today, there is no time inconsistency problem. Thus, lack of commitment is not an argument for higher current R&D subsidies.

Golombek, R., M. Greaker and M. Hoel (2010). "Climate Policy without Commitment." CESifo Working Paper No. 2909, Jan 2010.

Unilateral Climate Policy, Asymmetric Backstop Adoption, and Carbon Leakage in a Two-Region Hotelling Model

by Edwin van der Werf

- We study backstop adoption and carbon dioxide emission paths in a two-region model with unilateral climate policy and non-renewable resource consumption. The regions have an equal endowment of the internationally tradable resource and a backstop technology. We first study the case of a unilateral stock constraint (e.g. a 450 ppmv carbon dioxide concentration target), and show that the non-abating region makes the final switch to the backstop before the abating region does, though the latter region has two disjoint phases of backstop use if its marginal cost is sufficiently low. Furthermore, we show that the abating region has an inverse N-shaped emission path, with growing emissions in the period for which the ceiling is binding. We also show that unilateral climate policy does not lead to international carbon leakage.

van der Werf, E. (2010). "Unilateral Climate Policy, Asymmetric Backstop Adoption, and Carbon Leakage in a Two-Region Hotelling Model." CESifo Working Paper No. 2907, Jan 2010.

Trade in 'Virtual Carbon': Empirical Results and Implications for Policy

by Giles Atkinson, Kirk Hamilton, Giovanni Ruta, and Dominique Van Der Mensbrugghe

- The fact that developing countries do not have carbon emission caps under the Kyoto Protocol has led to the current interest in high-income countries in border taxes on the "virtual" carbon content of imports. The authors use Global Trade Analysis Project data and input-output analysis to estimate the flows of virtual carbon implicit in domestic production technologies and the pattern of international trade.

Giles Atkinson, Kirk Hamilton, Giovanni Ruta, and Dominique Van Der Mensbrugghe (2010). "Trade in 'Virtual Carbon': Empirical Results and Implications for Policy." World Bank Policy Research working paper no. WPS 5194, Jan 2010.

The Economics of Renewable Energy Expansion in Rural Sub-Saharan Africa

by Uwe Deichmann, Craig Meisner, Siobhan Murray, and David Wheeler

- Accelerating development in Sub-Saharan Africa will require massive expansion of access to electricity -- currently reaching only about one-third of households. This paper explores how essential economic development might be reconciled with the need to keep carbon emissions in check. The authors develop a geographically explicit framework and use spatial modeling and cost estimates from recent engineering studies to determine where stand-alone renewable energy generation is a cost effective alternative to centralized grid supply.

Deichmann, U., C. Meisner, S. Murray and D. Wheeler (2010). "The Economics of Renewable Energy Expansion in Rural Sub-Saharan Africa." World Bank Policy Research Working Paper no. WPS 5193, Jan 2010.

Economic Insights from Modeling Analyses of H.R. 2454: the American Clean Energy and Security Act (Waxman-Markey)

by the Pew Center on Global Climate Change

- Economic models are an important tool for evaluating the potential impact of proposed legislation on our economy. This brief compares modeling analyses of the House-passed clean energy and climate bill (H.R. 2454) conducted by seven different groups including government agencies, non-governmental organizations, and an academic institution. It identifies key similarities and differences among these analyses.

Pew Center on Global Climate Change (2010). "Economic Insights from Modeling Analyses of H.R. 2454: the American Clean Energy and Security Act (Waxman-Markey)." the Pew Center on Global Climate Change, Jan 2010.