August 1, 2010

Global Warming and Extreme Events: Rethinking the Timing and Intensity of Environmental Policy

by Yu-Fu Chen and Michael Funke

- The possibility of low-probability extreme events has reignited the debate over the optimal intensity and timing of climate policy. In this paper we therefore contribute to the literature by assessing the implications of low-probability extreme events on environmental policy in a continuous-time real options model with "tail risk". In a nutshell, our results indicate the importance of tail risk and call for foresighted pre-emptive climate policies.

Yu-Fu Chen and M. Funke (2010). "Global Warming and Extreme Events: Rethinking the Timing and Intensity of Environmental Policy." CESifo Working Paper No. 3139, Jul 2010.

The Effect of Risk, Ambiguity and Coordination on Farmers’ Adaptation to Climate Change: A Framed Field Experiment

by Francisco Alpizar, Fredrik Carlsson and Maria Naranjo

- The risk of losses of income and productive means due to adverse weather associated to climate change can significantly differ between farmers sharing a productive landscape. It is important to learn more about how farmers react to different levels of risk, under measurable and unmeasurable uncertainty. Moreover, the costs associated to investments in reduced vulnerability to climatic events are likely to exhibit economies of scope. We explore these issues using a framed field experiment that captures realistically the main characteristics of production, and the likely weather related losses of premium coffee farmers in Tarrazu, Costa Rica.

Alpizar, F., F. Carlsson and M. Naranjo (2010). "The Effect of Risk, Ambiguity and Coordination on Farmers’ Adaptation to Climate Change: A Framed Field Experiment". FEEM Nota di Lavoro 81.2010, Jul 2010.

Global Climate Change and the Resurgence of Tropical Disease: An Economic Approach

by Douglas Gollin and Christian Zimmermann

- We study the impact of global climate change on the prevalence of tropical diseases using a heterogeneous agent dynamic general equilibrium model. In our framework, households can take actions (e.g., purchasing bednets or other goods) that provide partial protection from disease. However, these actions are costly and households face borrowing constraints. Parameterizing the model, we explore the impact of a worldwide temperature increase of 3°C. We find that the impact on disease prevalence and especially output should be modest and can be mitigated by improvements in protection efficacy.

Gollin, D. and C. Zimmermann (2010). "Global Climate Change and the Resurgence of Tropical Disease: An Economic Approach." CESifo Working Paper No. 3122, Jul 2010.

Combining a Renewable Portfolio Standard with a Cap-and-Trade Policy: A General Equilibrium Analysis

by Jennifer F. Morris, John M. Reilly, and Sergey Paltsev

- Many efforts to address greenhouse gas emissions combine a cap-and-trade system with other measures such as a renewable portfolio standard. In this paper we use a computable general equilibrium (CGE) model, the MIT Emissions Prediction and Policy Analysis (EPPA) model, to investigate the effects of combining these policies. We find that adding an RPS requiring 20 percent renewables by 2020 to a cap that reduces emissions by 80% below 1990 levels by 2050 increases the net present value welfare cost of meeting such a cap by 25 percent over the life of the policy, while reducing the CO2-equivalent price by about 20 percent each year.

Morris, J.F., J.M. Reilly and S. Paltsev (2010). "Combining a Renewable Portfolio Standard with a Cap-and-Trade Policy: A General Equilibrium Analysis." MIT Joint Program Report Series No. 187, Jul 2010.

Improving Education as Key to Enhancing Adaptive Capacity in Developing Countries

by Wolfgang Lutz

- This paper summarizes new scientific evidence supporting the hypothesis that among the many factors contributing to international development, the combination of education and health stands out as a root cause on which other dimensions of development depend. Much of this recent analysis is based on new reconstructions and projections of populations by age, sex and four levels of educational attainment for more than 120 countries using the demographic method of multi-state population dynamics. The paper also claims that most concerns about the consequences of population trends are in fact concerns about human capital, and that only by adding the ‘quality’ dimension of education to the traditionally narrow focus on size and age structure can some of the long-standing population controversies be resolved.

Lutz, W. (2010). "Improving Education as Key to Enhancing Adaptive Capacity in Developing Countries." FEEM Nota di Lavoro 83.2010, Jul 2010.

Community-based Adaptation: Lessons from the Development Marketplace 2009 on Adaptation to Climate Change

by Rasmus Heltberg, Habiba Gitay and Radhika Prabhu

- The Development Marketplace 2009 focused on adaptation to climate change. This paper identifies lessons from the Marketplace and assesses their implications for adaptation support. Our findings are based on: statistical tabulation of all proposals; in-depth qualitative and quantitative analysis of the 346 semi-finalists; and interviews with finalists and assessors.

Heltberg, R., H. Gitay and R. Prabhu (2010). "Community-based Adaptation: Lessons from the Development Marketplace 2009 on Adaptation to Climate Change." FEEM Nota di Lavoro 84.2010, Jul 2010.

What is the Value of Hazardous Weather Forecasts? Evidence from a Survey of Backcountry Skiers

by Anna Alberini, Christoph M. Rheinberger, Andrea Leiter, Charles A. McCormick and Andrew Mizrahi

- What is the value of hazardous weather warnings? To answer this question, we focus on the avalanche bulletin for Switzerland issued by the WSL Institute for Snow and Avalanche Research (SLF). We take a survey-based, non-market valuation approach to estimating the value of hypothetical improvements in avalanche forecasting. We focus on backcountry skiers. The respondents’ willingness to pay (WTP) for the improved services ranges between CHF 42 to 46, implying a mean value of statistical life (VSL) of CHF 1.75 million.

Alberini, A., C.M. Rheinberger, A. Leiter, C.A. McCormick and A. Mizrahi (2010). "What is the Value of Hazardous Weather Forecasts? Evidence from a Survey of Backcountry Skiers." FEEM Nota di Lavoro 85.2010, Jul 2010.

The Future of U.S. Natural Gas Production, Use, and Trade

by Sergey Paltsev, Henry D. Jacoby, John M. Reilly, Qudsia J. Ejaz, Francis, O’Sullivan, Jennifer Morris, Sebastian Rausch, Niven Winchester, and Oghenerume Kragha

- Two computable general equilibrium models, one global and the other providing U.S. regional detail, are applied to analysis of the future of U.S. natural gas as an input to an MIT study of the topic. The focus is on uncertainties including the scale and cost of gas resources, the costs of competing technologies, the pattern of greenhouse gas mitigation, and the evolution of global natural gas markets. Results show that the outlook for gas over the next several decades is very favorable.

Paltsev, S., H.D. Jacoby, J.M. Reilly, Q.J. Ejaz, F. O’Sullivan, J. Morris, S. Rausch, N. Winchester and O. Kragha (2010). "The Future of U.S. Natural Gas Production, Use, and Trade." MIT Joint Program Report Series No. 186, Jun 2010.

Two Directives, Two Politics - Prospects for the EU ETS

by Andrés Jonathan Drew

- The allocation rules for phase one EU ETS emissions permits demonstrates that energy generators were lobbying winners because they successfully blocked differential treatment from energy intensive industries, who cannot pass-on real or nominal costs of permits to consumers. The application of public choice theory predicted free allocations to industry, but failed to anticipate windfall profits for energy generators. In phase three, the reverse is true; energy intensive industries successfully established differential rules. These rules provide them with free allocations while most energy generators will be subject to 100 per cent auctioning. Public choice theory also failed to predict these changes. This paper presents the argument that a shift in Wilson’s Typology from client to interest group politics explains this change in allocation rules.

Drew, A.J. (2010). "Two Directives, Two Politics - Prospects for the EU ETS." LSE Legal Studies Working Paper No. 11/2010, Jun 2010.

Estimating the Effect of a Gasoline Tax on Carbon Emissions

by Lucas W. Davis Lutz Kilian

- Several policymakers and economists have proposed the adoption of a carbon tax in the United States. It is widely recognized that such a tax in practice must take the form of a tax on the consumption of energy products such as gasoline. Although a large existing literature examines the sensitivity of gasoline consumption to changes in price, these estimates may not be appropriate for evaluating the effectiveness of such a tax. First, most of these studies fail to address the endogeneity of gasoline prices. Second, the responsiveness of gasoline consumption to a change in tax may differ from the responsiveness of consumption to an average change in price. We address these challenges using a variety of methods including traditional single- equation regression models, estimated by least squares or instrumental variables methods, and structural vector autoregressions.

Davis, L.D. and L. Kilian (2009). "Estimating the Effect of a Gasoline Tax on Carbon Emissions." Sept 2009.