April 18, 2010

Energy-Efficiency Program Evaluations: Opportunities for Learning and Inputs to Incentive Mechanisms

by Noah Kaufman and Karen L. Palmer

- We analyze the evaluations of California energy-efficiency programs to assess the effectiveness of these evaluations in: 1) improving our understanding of their performance and 2) providing a check on utility incentives to overstate energy savings. We find that third-party evaluations are useful tools to achieve both ends because the programs largely did not meet their energy-savings projections, and the utility-reported savings estimates are systematically higher than the evaluated savings estimates.

Kaufman, N. and K.L. Palmer (2010). "Energy-Efficiency Program Evaluations: Opportunities for Learning and Inputs to Incentive Mechanisms." RFF Discussion Paper 10-16, Apr 2010.

Optimal Emission Pricing in the Presence of International Spillovers: Decomposing Leakage and Terms-of-Trade Motives

by Christoph Böhringer, Andreas Lange and Thomas F. Rutherford

- Carbon control policies in OECD countries commonly differentiate emission prices in favor of energy-intensive industries. While leakage provides a efficiency argument for differential emission pricing, the latter may be a disguised beggar-thy-neighbor policy to exploit terms of trade. Using an optimal tax framework, we propose a method to decompose the leakage motive and the terms-of-trade motive for emission price differentiation. We illustrate our method with a quantitative impact assessment of unilateral climate policies for the U.S. and EU economies.

Böhringer, C., A. Lange and T.F. Rutherford (2010). "Optimal Emission Pricing in the Presence of International Spillovers: Decomposing Leakage and Terms-of-Trade Motives." NBER Working Paper No. 15899, Apr 2010.

Greenhouse Gas Regulation under the Clean Air Act: Structure, Effects, and Implications of a Knowable Pathway

by Nathan Richardson, Arthur G. Fraas and Dallas Burtraw

- It appears inevitable, absent legislative intervention, that regulation under the Clean Air Act (CAA) will move beyond mobile sources to the industrial and power facilities that emit most U.S. greenhouse gas (GHG) emissions. We analyze the mechanisms available to the EPA for regulating such sources, and identify one, New Source Performance Standards (NSPS) as the most predictable, likely, and practical, i.e. knowable, pathway. Based on the legal structure of the NSPS and the EPA’s traditional approach, we analyze a hypothetical GHG NSPS for one sector, coal electricity generation.

Richardson, N., A.G. Fraas and D. Burtraw (2010). "Greenhouse Gas Regulation under the Clean Air Act: Structure, Effects, and Implications of a Knowable Pathway." RFF Discussion Paper 10-23, Apr 2010.

A Hybrid Approach to the Valuation of Climate Change Effects on Ecosystem Services: Evidence from the European Forests

by Helen Ding, Silvia Silvestri, Aline Chiabai and Paulo A.L.D. Nunes

- In this paper we present a systematic attempt to assess economic value of climate change impact on forest ecosystems and human welfare. In the present study, climate change impacts are downscaled to the different European countries, which in turn constitute the elements of our analysis. First, we anchor the valuation exercise in the Millennium Ecosystem Assessment (MEA) Approach. Second, climate change is operationalized by exploring the different storylines developed by the International Panel on Climate Change (IPCC) and applied, downscaled, for each of the European countries under consideration. Third, and bearing in mind the different nature of the benefits provided by the different types of forest ecosystems under examination, we shall explore different economic valuation methodologies so as to shed light on the magnitude of the involved welfare changes.

Ding, H., S. Silvestri, A. Chiabai and P.A.L.D. Nunes (2010). "A Hybrid Approach to the Valuation of Climate Change Effects on Ecosystem Services: Evidence from the European Forests." FEEM Note di Lavoro 2010.050, Apr 2010.

Reinforcing the EU Dialogue with Developing Countries on Climate Change Mitigation

by Frank Vöhringer, Alain Haurie, Dabo Guan, Maryse Labriet, Richard Loulou, Valentina Bosetti, Pryadarshi R. Shukla, Philippe Thalmann

- The FP6 TOCSIN project has evaluated climate change mitigation options in China and India and the conditions for strategic cooperation on research, development and demonstration (RD&D) and technology transfer with the European Union. In particular, the project investigated the strategic dimensions of RD&D cooperation and the challenge of creating incentives to encourage the participation of developing countries in post-2012 GHG emissions reduction strategies and technological cooperation. This paper summarizes the main policy-relevant results of the project.

Vöhringer, F., A. Haurie, D. Guan, M. Labriet, R. Loulou, V. Bosetti, P.R. Shukla, P. Thalmann (2010). "Reinforcing the EU Dialogue with Developing Countries on Climate Change Mitigation." FEEM Note di Lavoro 2010.043, Apr 2010.

Sectoral Targets for Developing Countries: Combining "Common but Differentiated Responsibilities" with "Meaningful participation"

by Meriem Hamdi-Cherif, Céline Guivarch and Philippe Quirion

- Although a global cap-and-trade system is seen by many researchers as the most cost-efficient solution to reduce greenhouse gas emissions, developing countries governments refuse to enter into such a system in the short term. Hence, many scholars and stakeholders, including the European Commission, have proposed various types of commitments for developing countries that appear less stringent, such as sectoral approaches. In this paper, we assess such a sectoral approach for developing countries.

Hamdi-Cherif, M., C. Guivarch and P. Quirion (2010). "Sectoral Targets for Developing Countries: Combining "Common but Differentiated Responsibilities" with "Meaningful participation"" FEEM Note di Lavoro 2010.037 , Apr 2010.

The Optimal Climate Policy Portfolio when Knowledge Spills across Sectors

by Emanuele Massetti and Lea Nicita

- This paper studies the implications for climate policy of the interactions between environmental and knowledge externalities. Using a numerical analysis performed with the hybrid integrated assessment model WITCH, extended to include mutual spillovers between the energy and the non-energy sector, we show that the combination between environmental and knowledge externalities provides a strong rationale for implementing a portfolio of policies for both emissions reduction and the internalisation of knowledge externalities.

Massetti, E. and L. Nicita (2010). "The Optimal Climate Policy Portfolio when Knowledge Spills across Sectors." CESifo Working Paper No. 2988, Mar 2010.

How to Design a Border Adjustment for the European Union Emissions Trading System?

by Stéphanie Monjon and Philippe Quirion

- Border adjustments are currently discussed to limit the possible adverse impact of climate policies on competitiveness and carbon leakage. We discuss the main choices that will have to be made if the European Union implements such a system alongside with the EU ETS. Although more analysis is required on some issues, on others some design options seem clearly preferable to others.

Monjon, S. and P. Quirion (2010). "How to Design a Border Adjustment for the European Union Emissions Trading System?" FEEM Note di Lavoro 2010.036, Apr 2010.

Climate Treaties and Backstop Technologies

by Scott Barrett

- In this paper I examine the design of climate treaties when there exist two kinds of technology, a conventional abatement technology with (linearly) increasing marginal costs and a backstop technology ("air capture") with high but constant marginal costs. I focus on situations in which countries can gain collectively by using both technologies. I show that, under some circumstances, countries will be better off negotiating treaties that are not cost-effective. When countries prefer to negotiate self-enforcing agreements that are cost-effective, the availability of the backstop technology causes cooperation in abatement to increase significantly.

Barrett, S. (2010). "Climate Treaties and Backstop Technologies." CESifo Working Paper No. 3003, Mar 2010.

What Should we Expect from Innovation? A Model-Based Assessment of the Environmental and Mitigation Cost Implications of Climate-Related R&D

by Valentina Bosetti, Carlo Carraro, Romain Duval and Massimo Tavoni

- This paper addresses two basic issues related to technological innovation and climate stabilisation objectives: i) Can innovation policies be effective in stabilising greenhouse gas concentrations? ii) To what extent can innovation policies complement carbon pricing (taxes or permit trading) and improve the economic efficiency of a mitigation policy package? To answer these questions, we use an integrated assessment model with multiple externalities and an endogenous representation of technical progress in the energy sector.

Bosetti, V., C. Carraro, R. Duval and M. Tavoni (2010). "What Should we Expect from Innovation? A Model-Based Assessment of the Environmental and Mitigation Cost Implications of Climate-Related R&D." CESifo Working Paper No. 2998, Mar 2010.

Buy Coal! Deposit Markets Prevent Carbon Leakage

by Bård Harstad

- If a coalition of countries implements climate policies, nonparticipants tend to consume more, pollute more, and invest too little in renewable energy sources. In response, the coalition’s equilibrium policy distorts trade and it is not time consistent. By adding a market for the right to exploit fossil fuel deposits, I show that these problems vanish and the first best is implemented.

Harstad, B. (2010). "Buy Coal! Deposit Markets Prevent Carbon Leakage." CESifo Working Paper No. 2992, Mar 2010.

The U.S. Proposed Carbon Tariffs, WTO Scrutiny and China’s Responses

by ZhongXiang Zhang

- If the international climate change negotiations continue on their current course without extending the commitment period to 2030, which would really open the possibility for the U.S. and China to make the commitments that each wants from the other, the inclusion of border carbon adjustment measures seems essential to secure passage of any U.S. legislation capping its own greenhouse gas emissions. Moreover, the joint WTO-UNEP report indicates that border carbon adjustment measures might be allowed under the existing WTO rules, depending on their specific design features and the specific conditions for implementing them.

Zhang, Z. (2010). "The U.S. Proposed Carbon Tariffs, WTO Scrutiny and China’s Responses." FEEM Note di Lavoro 2010.034, Mar 2010.

Politics and Economics of Second-Best Regulation of Greenhouse Gases: The Importance of Regulatory Credibility

by Valentina Bosetti and David G. Victor

- Much more important than variable geometry, trading and sectors is another factor that analysts have largely ignored: credibility. In the real world governments find it difficult to craft and implement credible international regulations and thus agents are unable to be so forward-looking as assumed in ideal-world modelling exercises. As credibility declines the cost of coordinated international regulation skyrockets.

Bosetti, V. and D.G. Victor (2010). "Politics and Economics of Second-Best Regulation of Greenhouse Gases: The Importance of Regulatory Credibility." FEEM Note di Lavoro 2010.029, Mar 2010.

International Greenhouse Gas Offsets Under the Clean Air Act

by Nathan Richardson

- Offsets, and in particular international offsets, have been advanced as an important tool in climate policy, capable of significantly reducing the costs of emissions reductions. As attention turns to the existing Clean Air Act as a potential vehicle for general reduction of greenhouse gas emissions, an important question is whether regulation under the statute is compatible with international offsets. This paper analyzes the regulatory programs under the Clean Air Act that are the most likely candidates for greenhouse gas regulation and concludes that many of them are legally incompatible with international offsets.

Richardson, N. (2010). "International Greenhouse Gas Offsets Under the Clean Air Act." RFF Discussion Paper 10-24, Apr 2010.

The Effect of Allowance Allocations on Cap-and-Trade System Performance

by Robert W. Hahn and Robert N. Stavins

- We examine an implication of the "Coase Theorem" which has had an important impact both on environmental economics and on public policy in the environmental domain. Under certain conditions, the market equilibrium in a cap-and-trade system will be cost-effective and independent of the initial allocation of tradable rights. We call this the independence property. Our primary objective in this paper is to examine the conditions under which the independence property is likely to hold, both in theory and in practice.

Hahn, R.W. and R.N. Stavins (2010). "The Effect of Allowance Allocations on Cap-and-Trade System Performance." RFF Discussion Paper 10-21, Mar 2010.