March 21, 2010

Should Carbon-Exporting Countries Strive for Consumption-Based Accounting in a Global Cap-and-Trade Regime?

by Jan C. Steckel, Matthias Kalkuhl and Robert Marschinski

- In the context of the post-Kyoto policy debate, the question was raised whether the current practice of production-based emissions accounting should be replaced by a consumption-based approach. In this paper, we qualify the conditions under which the way of carbon accounting makes a difference, and show how this affects the incentive of countries to opt for one or the other alternative. For a net exporter of carbon such as China, the preference for one or the other turns out to be ambiguous.

Jan C. Steckel, Matthias Kalkuhl and Robert Marschinski (2010). "Should Carbon-Exporting Countries Strive for Consumption-Based Accounting in a Global Cap-and-Trade Regime?" PIK Working Paper, Mar 2010.

Income, Resources and Electricity Mix

by Paul J. Burke

- This paper presents evidence on a national-level electricity ladder which sees countries transition toward coal and natural gas, and finally nuclear power and modern renewables such as wind power, for their electricity needs as they develop. The extent to which countries climb the electricity ladder is dependent on energy endowments. The results imply that the environmental implications of economic development differ in countries with different energy resource endowments. An effective global carbon mitigation strategy will require developing countries to leapfrog the middle rungs of the electricity ladder.

Burke, P.J. (2010). "Income, Resources and Electricity Mix." Centre for Economic Policy Research Discussion Paper No. 636, Mar 2010.

The Choice of Environmental Policy Instruments: Energy Efficiency and Redistribution

by Alexander Haupt and Magdalena Stadejek

- We analyse optimal environmental policies in a market that is vertically differentiated in terms of the energy efficiency of products. Considering energy taxes, subsidies to firms for investment in more eco-friendly products, and product standards, we are particularly interested in how distributional goals in addition to environmental goals shape the choice of policy instruments. Surprisingly, we find that an industry-friendly government levies an energy tax to supplement a lax product standard, but shies away from subsidies to firms. By contrast, a consumer-friendly government relies heavily on a strict product standard and in addition implements a moderate subsidy to firms, but avoids energy taxes.

Haupt, A. and M. Stadejek (2010). "The Choice of Environmental Policy Instruments: Energy Efficiency and Redistribution." CESifo Working Paper No. 2986, Mar 2010.

What is the Best Environmental Policy? Taxes, Permits and Rules under Economic and Environmental Uncertainty

by Konstantinos Angelopoulos, George Economides and Apostolis Philippopoulos

- We study the importance of uncertainty and public finance to the welfare ranking of three environmental policy instruments: pollution taxes, pollution permits and Kyoto-like numerical rules for emissions. The setup is the basic stochastic neoclassical growth model augmented with the assumptions that pollution occurs as a by-product of output produced and environmental quality is treated as a public good. To compare alternative policies, we compute welfare-maximizing values for the second-best policy instruments. We find that, in all cases studied, pollution permits are the worst policy choice, even when their revenues finance public abatement.

Angelopoulos, K., G. Economides and A. Philippopoulos (2010). "What is the Best Environmental Policy? Taxes, Permits and Rules under Economic and Environmental Uncertainty." CESifo Working Paper No. 2980, Mar 2010.

Rapacious Resource Depletion, Excessive Investment and Insecure Property Rights

by Frederick van der Ploeg

- For a country fractionalized in competing factions, each owning part of the stock of natural exhaustible resources, or with insecure property rights, we analyze how resources are transformed into productive capital to sustain consumption. We allow property rights to improve as the country transforms natural resources into capital. The ensuing power struggle about the control of resources is solved as a non-cooperative differential game. Prices of resources and depletion increase faster than suggested by the Hotelling rule, especially with many competing factions and less secure property rights.

van der Ploeg, F. (2010). "Rapacious Resource Depletion, Excessive Investment and Insecure Property Rights." ESifo Working Paper No. 2981, Mar 2010.

Combining Policies for Renewable Energy: Is the Whole Less than the Sum of Its Parts?

by Carolyn Fischer and Louis Preonas

- Since the energy crisis in the 1970s and later the growing concern for climate change in the 1990s, policymakers at all levels of government and around the world have been enthusiastically supporting a wide range of incentive mechanisms for electricity from renewable energy sources (RES-E). Motivations range from energy security to environmental preservation to green jobs and innovation, and measures comprise an array of subsidies to mandates to emissions trading. But do these policies work together or at cross-purposes? In this article, we review the recent environmental economics literature on the effectiveness of RES-E policies and the interactions between them, with a focus on the increasing use of tradable quotas for both emissions reduction and RES-E expansion.

Fischer, C. and L. Preonas (2010). "Combining Policies for Renewable Energy: Is the Whole Less than the Sum of Its Parts?" RFF Discussion Paper 10-19, Mar 2010.

The Bioeconomics of Conservation Agriculture and Soil Carbon Sequestration in Developing Countries

by Wisdom Akpalu and Anders Ekbom

- Improving soil carbon through conservation agriculture in developing countries may generate some private benefits to farmers, as well as sequester carbon emissions, which is a positive externality to society. Leaving crop residue on the farm has become an important option in conservation agriculture practice. However, in developing countries, using crop residue for conservation agriculture has the opportunity cost of feed for livestock. In this paper, we model and develop an expression for an optimum economic incentive that is necessary to internalize the positive externality.

Akpalu, W. and A. Ekbom (2010). "The Bioeconomics of Conservation Agriculture and Soil Carbon Sequestration in Developing Countries." RFF Discussion Paper EfD 10-07, Mar 2010.

Cost Analysis of Carbon Capture and Storage for the Latrobe Valley

by Charles Kolstad and Daniel Young

- This report assesses the cost and economic environment of different carbon capture and storage (CCS) technologies, in order to make a decision regarding the best approach for capturing and then sequestering the carbon-dioxide (CO2) from the emissions of a brown coal fired power plant in Southeastern Australia.

Kolstad, C. and D. Young (2010). "Cost Analysis of Carbon Capture and Storage for the Latrobe Valley." Bren School of Environmental Science and Management, University of California, Santa Barbara, Mar 2010.

Adaptation, Mitigation and "Green" R&D to Combat Global Climate Change. Insights From an Empirical Integrated Assessment Exercise

by Francesco Bosello

- This work develops a framework for the analysis at the macro-level of the relationship between adaptation and mitigation policies. The FEEM-RICE growth model with stock pollution, endogenous R&D investment and emission abatement is enriched with a planned-adaptation module where a defensive capital stock is built through adaptation investment. Within this framework the optimal path of planned adaptation, the optimal inter and intra temporal mix between adaptation, mitigation and investment in R&D, and the sensitivity of a strategy to each other is identified.

Bosello, F. (2010). "Adaptation, Mitigation and "Green" R&D to Combat Global Climate Change. Insights From an Empirical Integrated Assessment Exercise." FEEM Nota di Lavoro 2010.022, Mar 2010.

Will the Clean Development Mechanism Mobilize Anticipated Levels of Mitigation?

by Shaikh M. Rahman, Ariel Dinar, Donald F. Larson

- Clean Development Mechanism investments have so far failed to reach many of the high-potential sectors identified by the Intergovernmental Panel on Climate Change. This raises doubts about whether the Clean Development Mechanism can generate an adequate supply of credits from the limited areas where it has proved successful. This paper examines the current trajectory of mitigation projects entering the Clean Development Mechanism pipeline and projects it forward under the assumption that the diffusion of the Clean Development Mechanism will follow a path similar to other innovations.

Rahman, S.M., A. Dinar and D.F. Larson (2010). "Will the Clean Development Mechanism Mobilize Anticipated Levels of Mitigation?" World Bank Policy Research working paper no. WPS 5239, Mar 2010.

Assessing the Financial Vulnerability to Climate-Related Natural Hazards

by Reinhard Mechler

- National governments are key actors in managing the impacts of extreme weather events, yet many highly exposed developing countries have been unable to raise sufficient and timely capital to replace or repair damaged infrastructure and restore livelihoods after major disasters. Such financial vulnerability hampers development and exacerbates poverty. Based on the record of the past 30 years, this paper finds many developing countries, in particular small island states, to be highly financially vulnerable, and experiencing a resource gap (net disaster losses exceed all available financing sources) for events that occur with a probability of 2 percent or higher.

Mechler, R., S. Hochrainer, G. Pflug, A. Lotsch and K. Williges (2010). "Assessing the Financial Vulnerability to Climate-Related Natural Hazards." World Bank Policy Research Working Paper No. WPS 5232, Mar 2010.

Multi-Lateralisms: Explaining Variation in Regime Instruments

by Alexander Thompson and Daniel Verdier

- Different international regimes are built from legal instruments that vary in terms of whether they are multilateral or bilateral. We investigate the reasons for such variation. The choice between multilateralism and bilateralism is a function of the trade-off between each instrument's relative flaw: multilateralism is wasteful in incentives whereas bilateralism multiplies transaction costs. We illustrate some of these propositions by looking at four regimes: foreign direct investment, human rights, climate change, and international trade.

Thompson, A. and D. Verdier (2010). "Multi-Lateralisms: Explaining Variation in Regime Instruments." The Harvard Project on International Climate Agreements Discussion Paper Series, Discussion Paper 10-34, Mar 2010.

Individual Characteristics and Stated Preferences for Alternative Energy Sources and Propulsion Technologies in Vehicles: A Discrete Choice Analysis

by Andreas Ziegler

- This paper empirically examines the determinants of the demand for alternative energy sources and propulsion technologies in vehicles. The data stem from a stated preference discrete choice experiment with 598 potential car buyers. In order to simulate a realistic automobile purchase situation, seven alternatives were incorporated in each of the six choice sets, i.e. hybrid, gas, biofuel, hydrogen, and electric as well as the common fuels gasoline and diesel. The vehicle types were additionally characterized by a set of attributes, such as purchase price or motor power.

Ziegler, A. (2010). "Individual Characteristics and Stated Preferences for Alternative Energy Sources and Propulsion Technologies in Vehicles: A Discrete Choice Analysis." Swiss Federal Institute of Technology (ETH) Zurich, Center of Economic Research, Working Paper 10/125.

Economic Aspects of Global Warming in a Post-Copenhagen Environment

by William Nordhaus

- The present study examines alternative outcomes for emissions, climate change, and climate damages under different policy scenarios. It uses a new and updated version of the RICE model (Regional Integrated model of Climate and the Economy), denoted the RICE-2010 model. New projections suggest that there will be substantial future warming if no policies are implemented. The model also calculates the path of carbon prices that are necessary to remain within the 2 °C limits in an efficient manner. The estimated 2-degree-C-limiting carbon price for 2010 is estimated to be $64 per ton carbon (2005 prices), whereas the effective globally average carbon price today is around $5 per ton C.

Nordhaus, W.D. (2010). "Economic Aspects of Global Warming in a Post-Copenhagen Environment." Yale University, Feb 2010.

March 7, 2010

The U.S. Low Carbon Economics Tool

by McKinsey & Company

- McKinsey has developed a model to allow public- and private-sector leaders and nongovernmental organizations (NGOs) to better understand the macroeconomic impact that different policy and infrastructure-development scenarios have on GDP, jobs, and the consumer in the United States at the state and federal levels, by year, for the two decades between 2010 and 2030. The model enables analysis of the potential economic implications of a wide variety of possible energy and climate policies.

McKinsey & Co. (2010). "The U.S. Low Carbon Economics Tool." Mar 2010.

The Political Economy of India’s Climate Agenda

by Noriko Fujiwara

- This Working Document elaborates on three key issues related to the country’s energy challenges: access to energy, the future emissions trajectory and energy subsidies. This study looks into the making and framing of the country’s domestic climate agenda from a political economy perspective. As long as both GDP and primary energy demand keep growing at the current rates, it may be concluded that the country’s future, absolute greenhouse-gas emissions are also likely to grow but remain relatively low. Moreover, India’s emissions intensity is expected to continue declining.

Fujiwara, N. (2010). "The Political Economy of India’s Climate Agenda." CEPS Working Document, Mar 2010.

The Impact of Instrument Choice on Investment in Abatement Technologies: A Case Study of Tax versus Trade Incentives for CCS and Biomass for Electrici

by Tim Laing and Michael Grubb

- There has been a wide discussion on the different properties between carbon taxes, cap-and-trade schemes and hybrid instruments such as cap-and- trade schemes with price floors and ceilings. There has been less discussion on the incentives to investment that each of these instruments may provide. We build a three-period model to investigate the incentives offered to a large firm with diversified abatement options from such instruments when facing a choice between investing in low-carbon technologies with potential learning benefits. We parameterise our model for a system similar to the EUETS and for two sample technologies, biomass for electricity and coal with carbon capture and storage.

Laing, T. and M. Grubb (2010). "The Impact of Instrument Choice on Investment in Abatement Technologies: A Case Study of Tax versus Trade Incentives for CCS and Biomass for Electricity." EPRG Working Paper: EPRG1004, Mar 2010.

The Effects of an Emissions Offsets Scheme on Australian Agriculture

by Evan M Calford, Andrew Gurney, Edwina Heyhoe and Helal Ahammad

- This paper presents an assessment, both qualitative and quantitative, of the long-run effects of an offsets scheme on Australian agriculture. The uptake of agricultural technologies and practices that may generate offsets is likely to be significantly higher in the long run than in the short run. This paper focuses on the long-run uptake of mitigation technologies and practices under the assumption that relevant offset methodologies for agriculture will have been developed during the projection period to 2030. The effects of the offsets scheme on Australian agriculture, as a whole, are projected to be positive by 2030.

Calford, E.M., A. Gurney, E. Heyhoe and H. Ahammad (2010). "The Effects of an Emissions Offsets Scheme on Australian Agriculture." ABARE, Issues Insights 10.2, Mar 2010.

Robust Incentives and the Design of a Climate Change Governance Regime

by Gregory F. Nemet

- In building a governance regime to address climate change, should we prioritize the development of global institutions or national ones? This paper adds insight to the issue of how much international coordination on climate governance is optimal by focusing on two neglected characteristics of the problem: first, the crucial role of incentives for private sector investors in low-carbon energy technology and second, that investors typically risk-adjust expectations of policy-induced payoffs because of historical policy volatility.

Nemet, G.F. (2010). "Robust Incentives and the Design of a Climate Change Governance Regime." La Follette School Working Paper No. 2010-006, Feb 2010.

Auctioning Greenhouse Gas Emissions Permits in Australia

by Regina Betz, Stefan Seifert, Peter Cramton and Suzi Kerr

- This paper discusses the proposed Australian CPRS’s auction design. A major difference to other emissions trading schemes is that the CPRS plans to auction multi-ple vintages of emissions permits simultaneously.

Betz, R., S. Seifert, P. Cramton and S. Kerr (2010). "Auctioning Greenhouse Gas Emissions Permits in Australia." Australian Journal of Agricultural and Resource Economics, forthcoming. - Available as MOTU Working Paper, Feb 2010.

Does Foreign Aid Reduce Energy and Carbon Intensities in Developing Countries

by Bettina Kretschmer, Michael Hübler and Peter Nunnenkamp

- Advanced OECD countries are widely held responsible to contain global carbon emissions by providing financial and technical support to developing economies, where emissions are increasing most rapidly. It is open to question, however, whether more generous official development assistance would help fight climate change effectively. Empirical evidence on the effects of foreign aid on energy and emission intensities in recipient countries hardly exists. We contribute to closing this gap by considering energy use and carbon emissions as dependent climate-related variables, and the volume and structure of aid as possible determinants.

Bettina Kretschmer, Michael Hübler and Peter Nunnenkamp (2010). "Does Foreign Aid Reduce Energy and Carbon Intensities in Developing Countries." Kiel Institute Working Paper No. 1598, Feb 2010.

Identifying the Indirect Effects of Bio-Energy Production

by JPM Ros, KP Overmars, E Stehfest, AG Prins, J Notenboom and M van Oorschot

- Bio-energy has the potential to reduce greenhouse gas (GHG) emissions. Indirect effects might partly or even completely undo this advantage. Indirect land use change (ILUC) -leading to emissions and loss of nature- is an important example, but there are other indirect effects, as well.

Ros, JPM, KP Overmars, E Stehfest, AG Prins, J Notenboom and M van Oorschot (2010). "Identifying the Indirect Effects of Bio-Energy Production." PNB Report No. 500143003, Feb 2010.

Bio-Economics of Conservation Agriculture and Soil Carbon Sequestration in Developing Countries

by Wisdom Akpalu and Ekbom Anders

- Improvement in soil carbon through conservation agriculture in developing countries may generate some private benefits to farmers as well as sequester carbon emissions, which is a positive externality to society. Leaving crop residue on the farm has become an important option in conservation agriculture practice. However, in developing countries, using crop residue for conservation agriculture has the opportunity cost of say feed for livestock. In this paper, we model and develop an expression for an optimum economic incentive that is necessary to internalize the positive externality.

Akpalu, W. and E. Anders (2010). "Bio-Economics of Conservation Agriculture and Soil Carbon Sequestration in Developing Countries." University of Gothenburg School of Business, Economics and Law, Working Papers in Economics No 431, Feb 2010.

Optimal Capture and Sequestration from the Carbon Emission Flow and from the Atmospheric Carbon Stock with Heterogeneous Energy Consuming Sectors

by Jean-Pierre Amigues, Gilles Lafforgue and Michel Moreaux

- We characterize the optimal exploitation paths of two primary energy resources. The first one is a non-renewable polluting resource, the second one a pollution-free renewable resource. Both resources can supply the energy needs of two sectors. Sector 1 is able to reduce the potential carbon emissions generated by its non-renewable energy consumption at a reasonable cost while sector 2 cannot. Another possibility is to capture the carbon spread in the atmosphere but at a signi cantly higher cost.

J-P Amigues, G. Lafforgue and M. Moreaux (2010). "Optimal Capture and Sequestration from the Carbon Emission Flow and from the Atmospheric Carbon Stock with Heterogeneous Energy Consuming Sectors." LERNA Travaux No. 10.05.311, Feb 2010.

Non-cooperative Games with Confirmed Proposals

by Giuseppe Attanasi, Aurora García Gallego, Nikolaos Georgantzís and Aldo Montesano

- We propose a bargaining process as a way of playing and solving non cooperative games. We focus on social dilemma situations and show that sequential proposals which, if confirmed by players, determine real play, may give rise to equilibrium outcomes which differ from the standard non cooperative solution. Specifically, we show that, under standard assumptions, in a prisoners’ dilemma with confirmed proposals, there is a unique confirmed agreement between players to behave cooperatively.

Attanasi, G., A. García Gallego, N. Georgantzís and A. Montesano (2010). "Non-cooperative Games with Confirmed Proposals." LERNA Travaux No. 10.02.308, Jan 2010.

Future Impacts of Climate Change across Europe

by Arno Behrens, Anton Georgiev and Maelis Carraro

- This CEPS Working Document reviews the potential impacts of climate change on 11 key indicator categories and 3 large regions covering the entire European Union. Although there remains a considerable degree of uncertainty about local and regional effects, the paper highlights strong distributional patterns. Northern Europe might even experience some positive effects, while the Mediterranean will mostly be negatively affected.

Behrens, A., A. Georgiev and M. Carraro (2010). "Future Impacts of Climate Change across Europe." CEPS Working Document No. 324, Feb 2010.

UK Renewable Energy Policy since Privatisation

by Michael G. Pollitt

- The aim of this paper is to look at the UK’s renewable energy policy in the context of its overall decarbonisation and energy policies. This will allow us to explore the precise nature of the ‘failure’ of UK renewables policy and to suggest policy changes which might be appropriate in light of the UK’s institutional and resource endowments. Our focus is on the electricity sector both in terms of renewable generation and to a lesser extent the facilitating role of electricity distribution and transmission networks.

Pollitt, M.G. (2010). "UK Renewable Energy Policy since Privatisation." EPRG Working Paper: EPRG1002, Jan 2010.

Sustainable Production of Second-Generation Biofuels- Potential and Perspectives in Major Economies and Developing Countries

by Anselm Eisentraut

- This study aims to identify opportunities and constraints related to the potential future production of second-generation biofuels in major economies and developing countries, and to examine under which conditions the new fuels could be produced sustainably in these countries. The paper identifies global drivers for second-generation biofuel development, discusses projections on biomass potentials and assesses the potential of agricultural and forestry residues for the sustainable production of lignocellulosic biofuels.

Eisentraut, A. (2010). "Sustainable Production of Second-Generation Biofuels- Potential and Perspectives in Major Economies and Developing Countries." International Energy Agency, Information Paper, Feb 2010. [4 MB]

Household Energy Expenditure and Income Groups: Evidence from Great Britain

by Tooraj Jamasb and Helena Meier

- Household energy use is increasingly important in the context of fuel poverty and the equity debate as well as in relation to energy saving and efficiency policies. We first explore the link between household energy spending and income. We use a panel dataset from a comprehensive survey of UK households from 1991 to 2007 comprising over 77,000 observations to analyse electricity, gas, and overall energy spending for the whole sample and several income groups. We find an S-shaped Engel curve and inflection point at which the increase in household energy spending briefly stabilizes and interpret this as a point where the essential energy needs are likely to have been met.

Jamasb, T. and H. Meier (2010). "Household Energy Expenditure and Income Groups: Evidence from Great Britain." Working Paper: EPRG1003, Feb 2010.

Why is the USA so Energy Intensive? Evidence from US Multinationals in the UK

by Ralf Martin

- A potential explanation for the higher energy intensity are lower US energy price levels. However, common price elasticity estimates are not high enough to explain the observed differences between countries. Alternative explanations include firstly geographic or other locational differences and secondly firm specific technology differences between US firms and others. This study explores this latter possibility by comparing establishments of US firms in Britain with other comparable firms thereby ruling out locational differences.

Martin, R. (2010). "Why is the USA so energy intensive? Evidence from US multinationals in the UK." Grantham Research Institute on Climate Change and the Environment Working Paper No. 15, Jan 2010.

Environmental Policy and the Economic Downturn

by Alex Bowen and Nicholas Stern

- This paper considers how environmental policies should respond to macroeconomic downturns. It first explores the implications of the global economic downturn of 2008-09 for environmental policies, focusing in particular on the example of action against climate change. The arguments for and against activist fiscal policies in general are then reviewed, and the case made that a demand-induced downturn provides a very good opportunity to undertake a necessary step change in the public spending component of environmental policies and to start working through a backlog of public investment to improve the environment.

Bowen, A. and N. Stern (2010). "Environmental Policy and the Economic Downturn." Grantham Research Institute on Climate Change and the Environment Working Paper No. 16, Jan 2010.

Prospects for Large-Scale Energy Storage in Decarbonised Power Grids

by Shin-ichi Inage

- This report describes the development of a simplified algorithm to determine the amount of storage that compensates for short-term net variation of wind power supply and assesses its role in light of a changing future power supply mix. It also examines the range of options available to power generation and transmission operators to deal with variability.

Inage, S. (2009). "Prospects for Large-Scale Energy Storage in Decarbonised Power Grids." International Energy Agency Working Paper, Dec 2009. [3.4 MB]

A Simple hybrid 6 sector I-O model

by Robert U. Ayres and Peter Fleissner

- Most large dynamic economic models, including Input-Output models, are driven by a singlesector ‘driver’, usually a production function of the Cobb-Douglas, or CES form, with two factors of production, capital and labor, possibly augmented by quality multipliers. We think the time has come to graduate from the oversimplified single sector model to a more complex and, hopefully, more realistic model from which interesting implications may be drawn regarding resource exhaustion and long-term growth and consumption, as well as other questions of interest in the present world.

Ayres, R.U. and P. Fleissner (2009). "A Simple hybrid 6 sector I-O Model." IIASA Interim Report IR-09-049, Dec 2009.