October 24, 2010

Beyond Copenhagen: A Realistic Climate Policy in a Fragmented World

by Carlo Carraro and Emanuele Massetti

- We propose a realistic approach to climate policy based on the Copenhagen Agreement to reduce Greenhouse Gases (GHGs) emissions. We assess by how much the non-binding, although official, commitments to reduce emissions made in Copenhagen will affect the level of world GHGs emissions in 2020. We are not interested in estimating the gap between the expected level of emissions and what would be needed to achieve the 2°C target. Nor do we attempt to calculate the 2100 temperature level implied by the Copenhagen pledges. We believe these two exercises are subject to high uncertainty and would not improve the current state of negotiations. Rather, we take stock of the present politically achievable level of commitment and suggest an effective way to push forward the climate policy agenda.

Carraro, C. and E. Massetti (2010). "Beyond Copenhagen: A Realistic Climate Policy in a Fragmented World." FEEM Note di Lavoro No. 136.2010, Oct 2010.

'The Voracity Effect' and Climate Change: The Impact of Clean Technologies

by Hassan Benchekroun and Amrita Ray Chaudhuri

- In the absence of a successful international cooperative agreement over the control of emissions there is a growing interest in the role that clean technologies may play to alleviate the climate change problem. Within a non-cooperative transboundary pollution game, we investigate, analytically and within a numerical example based on empirical evidence, the impact of the adoption of a cleaner technology (i.e., a decrease in the emission to output ratio). We show that countries may respond by increasing their emissions resulting in an increase in the stock of pollution that may be detrimental to welfare.

Benchekroun, H. and A.R. Chaudhuri (2010). "'The Voracity Effect' and Climate Change: The Impact of Clean Technologies." CentER Discussion Paper, No. 2010-97, Sept 2010.

Climate Change, Economic Growth, and Health

by Masako Ikefuji, Jan Magnus and Hiroaki Sakamoto

- This paper studies the interplay between climate, health, and the economy in a stylized world with four heterogeneous regions, labeled ‘West’ (cold and rich), ‘China’ (cold and poor), ‘India’ (warm and poor), and ‘Africa’ (warm and very poor). We introduce health impacts into a simple integrated assessment model where both the local cooling effect of aerosols as well as the global warming effect of CO2 are endogenous, and investigate how those factors affect the equilibrium path. We show how some of the important aspects of the equilibrium, including emission abatement rates, health costs, and economic growth, depend on the economic and geographical characteristics of each region.

Ikefuji, M., J.R. Magnus and H. Sakamoto (2010). "Climate Change, Economic Growth, and Health." CentER Discussion Paper, No. 2010-86, Aug 2010.

Sharing the Cost of Global Warming

by Justin Leroux and Étienne de Villemeur

- Due to meteorological factors, the distribution of the environmental damage due to climate change bears no relationship to that of global emissions. We argue in favor of offsetting this discrepancy, and propose a "global insurance scheme" to be financed according to countries responsibility for climate change. Because GHG decay very slowly, we argue that the actual burden of global warming should be shared on the basis of cumulated emissions, raher than sharing the expected costs of actual emissions as in a Pigovian taxation scheme. We characterize new versions of two well-known cost-sharing schemes by adapting the responsibility theory of Bossert and Fleurbaey (1996) to a context with externalities.

Leroux, J. and É. de Villemeur (2010). "Sharing the Cost of Global Warming." IDEI Working Paper No. 629, Jul 2010.

Hot Stuff: Would Climate Change Alter Transboundary Water Sharing Treaties?

by Stefan Ambec and Ariel Dinar

- By signing an international river sharing agreement (RSA), countries voluntary commit to release water in exchange for a compensation. We examine the robustness of such commitments to reduced water flows. We focus on RSAs that satisfy core lower bounds and fairness upper bounds. We characterize the constrained upstream incremental RSA as the core and fair RSA that is sustainable during the most severe droughts. It assigns to each country its marginal contribution to its followers, up to its maximal benefit from water extraction. It lexicographically maximizes the welfare of the most upstream countries in the set of core and fair RSAs. Its mirror image, the downstream incremental RSA, is not sustainable to drought at the river source.

Ambec, S. and A. Dinar (2010). "Hot Stuff: Would Climate Change Alter Transboundary Water Sharing Treaties?" LERNA Working Paper, n. 10.15.321, Sept 2010.

The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness?

by Stefan Ambec, Mark A. Cohen, Stewart Elgie and Paul Lanoie

- Over the past 20 years, much has been written about what has since become known simply as the Porter Hypothesis ("PH"). Yet, even today, there is conflicting evidence, alternative theories that might explain the PH, and oftentimes a misunderstanding of what the PH does and does not say. This paper provides an overview of the key theoretical and empirical insights on the PH to date, draw policy implications from these insights, and sketches out major research themes going forward.

Ambec, S., M.A. Cohen, S. Elgie and P. Lanoie (2010). "The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness?" LERNA Working Paper, n. 10.14.320, Sept 2010.

Long-Run E ects of Post-Kyoto Policies: Applying a Fully Dynamic CGE model with Heterogeneous Capital

by Lucas Bretschger, Roger Ramery and Florentine Schwarkz

- The paper develops a new type of CGE model to predict the effects of carbon policies on consumption, welfare, and sectoral development in the long run. Growth is fully endogenous, based on increasing specialization in capital varieties, and specific in each sector of the economy. The benchmark scenario is calculated based on the endogenous gains from specialization which carry over to policy simulation.

Bretschger, L., R. Ramery and F. Schwarkz (2010). "Endogenous Growth, Asymmetric Trade and Resource Taxation." CER-ETH, Center of Economic Research, ETH Zürich, Economics Working Paper Series, Working Paper No. 10/129, Apr 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. Methane emission reductions have the potential to be an important source of carbon dioxide offsets under cap and trade climate legislation. 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, WP No. 2010-05, Feb 2010.

Analysis of the Scope of Energy Subsidies and Suggestions for the G-20 Initiative

by the IEA, OPEC, OECD and WORLD BANK

- In June 2010, the IEA, OPEC, OECD & World Bank delivered a Joint Report on fossil fuel subsidies to G20 Finance Ministers and G20 Leaders. This was in response to a request by G20 Leaders when they met in Pittsburgh in September 2009. At that time, leaders agreed to "rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption". They asked the OECD together with the International Energy Agency (IEA), OPEC and the World Bank, to "provide an analysis of the scope of energy subsidies and suggestions for the implementation of this G20 country initiative".

IEA, OPEC, OECD and World Bank (2010). "Analysis of the Scope of Energy Subsidies and Suggestions for the G-20 Initiative." Joint Report Prepared for submission to the G-20 Summit Meeting Toronto (Canada), Jun 2010.

Transport Energy Efficiency- Implementation of IEA Recommendations since 2009 and next steps

by Kazunori Kojima and Lisa Ryan

- This paper updates the progress that has been made in implementing the transport energy efficiency recommendations in IEA countries since March 2009. Many countries have in the last year moved from "planning to implement" to "implementation underway", but none have fully implemented all transport energy efficiency recommendations. The IEA calls therefore for full and immediate implementation of the recommendations.

IEA (2010). "Transport Energy Efficiency- Implementation of IEA Recommendations since 2009 and next steps." International Energy Agency, Information Paper, Sept 2010.

Modelling Load Shifing Using Electric Vehicles in a Smart Grid Environment

by Shin-ichi Inage

- Electric vehicles (EVs) represent both a new demand for electricity and a possible storage medium that could supply power to utilities. The "load shifting" and "vehicle-to-grid" concepts could help cut electricity demand during peak periods and prove especially helpful in smoothing variations in power generation introduced to the grid by variable renewable resources such as wind and solar power. This paper proposes a method for simulating the potential benefits of using EVs in load shifting and "vehicle-to-grid" applications for four different regions - the United States, Western Europe, China and Japan - that are expected to have large numbers of EVs by 2050.

IEA (2010). "Modelling Load Shifing Using Electric Vehicles in a Smart Grid Environment."
##### International Energy Agency, Working Paper, Aug 2010.

October 17, 2010

Climate and Civil War: Is the Relationship Robust?

by Marshall Burke, John Dykema, David Lobell, Edward Miguel and Shanker Satyanath

- A recent paper by Burke et al. (henceforth "we") finds a strong historical relationship between warmer- than-average temperatures and the incidence of civil war in Africa (Burke et al. 2009). These findings have recently been challenged by Buhaug (2010) who finds fault with how we controlled for other potential explanatory variables, how we coded civil wars, and with our choice of historical time period and climate dataset. We demonstrate that Buhaug’s proposed method of controlling for confounding variables has serious econometric shortcomings and show that our original findings are robust to the use of different climate data and to alternate codings of major war.

Burke, M., J. Dykema, D. Lobell, E. Miguel and S. Satyanath (2010). "Climate and Civil War: Is the Relationship Robust?" NBER Working Paper No. 16440, Oct 2010.

Voting in International Environmental Agreements - Experimental Evidence from the Lab

by Astrid Dannenberg

- The present paper experimentally analyses the effects if signatories to an IEA apply different voting schemes to determine the terms of agreement. To this end, unanimity, qualified majority voting, and simple majority voting are compared with respect to the resulting pollution abatement level and social welfare. At first sight in line with theoretical predictions, the experiment shows that a change of the voting scheme implemented in an IEA does not significantly change social welfare. However, changing the majority required to determine the terms of an IEA alters the 'depth and breadth' of cooperation. The coalitions under the unanimity rule are relatively large and implement moderate effort levels while the coalitions with majority votes implement very high effort levels but attract only few participants.

Dannenberg, A. (2010). "Voting in International Environmental Agreements - Experimental Evidence from the Lab." ZEW Discussion Paper No. 10-072, Oct 2010.

The Political Economy of Intergenerational Risk Sharing

by David Hollanders

- This paper analyses the political constraints of intergenerational risk sharing. The first result is that the political process generally does not lead to ex ante optimal insurance. The second result is that in a second best political setting PAYG still contributes to intergenerational risk sharing. The third result is that aging increases the discrepancy between first-best and second-best transfers. The source of the inefficiency is that politicians redistribute to larger and easier swayed cohorts. Ex post redistribution to lower incomes still leads to an outcome that from an ex ante point of view is preferable to a situation without intergenerational transfers.

Hollanders, D. (2010). "The Political Economy of Intergenerational Risk Sharing." CentER Discussion Paper, No. 2010-102, Oct 2010.

IMAGE User Manual

by E. Stehfest, L. de Waal, R. Oostenrijk

- This user manual contains the basic information for running the simulation model IMAGE ("Integrated Model to Assess the Global Environment") of PBL. The motivation for this report was a substantial restructuring of the source code for IMAGE version 2.5. The document gives concise content information about the submodels, tells the user how to install the program, describes the directory structure of the run environment, shows how scenarios have to be prepared and run, and gives insight in the restart functionality.

Stehfest, E., L. de Waal, R. Oostenrijk (2010). "IMAGE User Manual." Netherlands Environmental Assessment Agency (PBL), Report No. 500110006, Sept 2010.

Endogenous Growth, Asymmetric Trade and Resource Taxation

by Lucas Bretschger and Simone Valente

- Since 1980, the aggregate income of oil-exporting countries relative to that of oil-poor countries has been remarkably constant despite structural gaps in productivity growth rates. This stylized fact is analyzed in a two-country model where resource-poor (Home) and resource-rich (Foreign) economies display productivity differences but stable income shares due to terms-of-trade dynamics.

Bretschger, L. and S. Valente (2010). "Endogenous Growth, Asymmetric Trade and Resource Taxation." CER-ETH, Center of Economic Research, ETH Zürich, Economics Working Paper Series, Working Paper No. 10/132, Aug 2010.

GHG Mitigation Potentials in Annex I Countries. Comparison of Model Estimates for 2020

by Markus Amann, Peter Rafaj and Niklas Höhne

- In March 2009, the International Institute for Applied Systems Analysis (IIASA) invited leading modelling teams to a comparison of available model estimates of GHG mitigation potentials and costs in the Annex I countries for the year 2020. Eight modelling teams provided input to this comparison exercise.

Amann, M., P. Rafaj and N. Höhne (2010). "GHG Mitigation Potentials in Annex I Countries. Comparison of Model Estimates for 2020." IIASA Interim Report IR-09-034, Aug 2010.

The Climate Subsystem in IMAGE Updated to MAGICC 6.0

by M. Schaeffer and E. Stehfest

- Tecnical background report on the upgrade of the simple climate model MAGICC within the IMAGE model ("Integrated Model to Assess the Global Environment") of PBL. This report presents details about the improvements and the re-calibration of the model, it shows the model results and discusses the similarities and differences with the previous IMAGE versions and the new MAGICC 6.0 version. The single most important advantage of the new IMAGE model is that, in combination with MAGICC 6.0, the model can reproduce the time-dependent response of AOGCMs for various scenarios, by adjusting the values of a limited number of parameters. This makes the IMAGE model better suited to provide plausible projections of future climate-change feedbacks and impacts.

Schaeffer, M. and E. Stehfest (2010). "The Climate Subsystem in IMAGE Updated to MAGICC 6.0." Netherlands Environmental Assessment Agency (PBL), Report No. 500110005, Jun 2010.

Economics of Endogenous Technical Change in CGE Models - The Role of Gains from Specialization

by Florentine Schwark

- Computable general equilibrium models simulate the reaction of industries on carbon taxes. Their results differ strongly on the assumption of the underlying technologies. This paper compares two models and emphasizes the differences between their approaches to technology. The first model is the CITE model, which is the fi rstmodel with endogenous growth based on gains from specialization so that growth dynamics result from investment incentives. The second model is a model with exogenous growth of endowments, which is the basis for many other CGE models.

Schwarkz, F. (2010). "Endogenous Growth, Asymmetric Trade and Resource Taxation." CER-ETH, Center of Economic Research, ETH Zürich, Economics Working Paper Series, Working Paper No. 10/130, Jun 2010.

Reporting GHG Emissions: Change in Uncertainty and Its Relevance for Detection of Emission Changes

by Khrystyna Hamal

- This study analyzes the relative uncertainty in emissions of greenhouse gases over time that countries report in their annual national inventories under the Kyoto Protocol to the United Nations Framework Convention on Climate Change. The analysis shows how to take advantage of emissions estimates that are recalculated annually and how this knowledge can be used to estimate biases (systematic errors) that are included in the reporting (first-order approximation or one-sided view). This study focuses on the EU-15 as a whole, with examples drawn from individual countries.

Hamal, K. (2010). "Reporting GHG Emissions: Change in Uncertainty and Its Relevance for Detection of Emission Changes." IIASA Interim Report IR-10-003, Jul 2010.

U.S. Agriculture & Climate Change Legislation: Markets, Myths & Opportunities

by Jessica Shipley, Sara Hessenflow-Harper and Laura Sands

- Any climate and energy legislation will impact U.S. farmers and ranchers, and this paper examines the many legitimate concerns the agriculture sector has with such legislation. This brief tries to objectively assess the impacts of climate legislation and identify ways that such legislation could be shaped to provide greater opportunities for the sector. U.S. farmers have long exhibited adaptability and entrepreneurship in the face of changing circumstances, and they will be presented with a host of new markets and opportunities with the advent of climate and energy legislation.

Shipley, J., S. Hessenflow-Harper and L. Sands (2010). "U.S. Agriculture & Climate Change Legislation: Markets, Myths & Opportunities." Pew Center on Global Climate Change, Jul 2010.

Estimating the Influence of Ethanol Policy on Plant Investment Decisions: A Real Options Analysis with Two Stochastic Variables

by T.M. Schmit, Luo J. Luo and J.M. Conrad

- Ethanol policies have contributed to changes in the levels and the volatilities of revenues and costs facing ethanol firms. The implications of these policies for optimal investment behavior are investigated through an extension of the real options framework that allows for the consideration of volatility in both revenue and cost components, as well as the correlation between them.

T.M. Schmit, Luo J. Luo and J.M. Conrad (2010). "Estimating the Influence of Ethanol Policy on Plant Investment Decisions: A Real Options Analysis with Two Stochastic Variables." Department of Applied Economics and Management, Cornell University, WP No. 2010-10, Jun 2010.

Dynamics and Deliberations: Comparing Heuristics for Low Carbon Innovation Policy

by J. Ivan Scrase, Adrian Smith and Florian Kern

- The neo-classical economic paradigm that has dominated energy policy in recent decades is loosening its grip under the challenges decarbonisation present to energy systems. Other frameworks for interpreting and responding to those challenges are available. We focus on two heuristics for interpreting these issues - the multi-level perspective in sociotechnical transitions theory, and grid-group cultural theory. Both indicate how the framing of any issue has important consequences for subsequent policy actions.

Scrase, J.I., A. Smith and F. Kern (2010). "Dynamics and Deliberations: Comparing Heuristics for Low Carbon Innovation Policy." SPRU Electronic Working Paper Number 184, Mar 2010.

The Case of two Self-Enforcing International Agreements for Environmental Protection with Asymmetric Countries

by Dritan Osmani and Richard S.J. Tol

- Non-cooperative game theoretical models of self-enforcing international environmental agreements (IEAs) that employ the cartel stability concept of d'Aspremont et al. (1983) frequently assume that countries are identical, and they can sign a single agreement only. We modify the assumption by considering two self-enforcing IEAs and also two types of asymmetric countries. Extending a model of Barrett (1994), we demonstrate that there are similarities between one and two self-enforcing IEAs. But in the case of few countries and high environmental damage we show that two self-enforcing IEA work far better than one self-enforcing IEA in terms of both welfare and environmental quality.

Osmani, D. and R.S.J. Tol (2010). "The Case of two Self-Enforcing International Agreements for Environmental Protection with Asymmetric Countries." Working Paper FNU 1871, Hamburg University and Centre for Marine and Atmospheric Science, Jun 2010.

Valuing Equally the Environmental Goods in Rich and Poor Countries in a Post-Kyoto World

by Dritan Osmani

- The optimal pollution abatement levels are found by maximizing global social welfare in a permit and no-permit trade systems under the constrain that environmental goods are evaluated equally in rich and poor countries. One finding is that in a Post-Kyoto world, the optimal abatement levels of poor countries have to be significantly big, if we aim to evaluate equally the environmental goods in poor and rich countries. Furthermore, in a permit trade system, if we plan big amount emission reductions then, it can happen that poor countries have to carry out higher emission reductions than rich ones.

Osmani, D. (2010). "Valuing Equally the Environmental Goods in Eich and Poor Countries in a Post-Kyoto World." Working Paper FNU-190, Hamburg University and Centre for Marine and Atmospheric Science, Hamburg
Aug 2010.

October 10, 2010

The Problem of the Commons: Still Unsettled After 100 Years

by Robert N. Stavins

- The problem of the commons is more important to our lives and thus more central to economics than a century ago when Katharine Coman led off the first issue of the American Economic Review. As the U.S. and other economies have grown, the carrying-capacity of the planet - in regard to natural resources and environmental quality - has become a greater concern, particularly for common-property and open-access resources. The focus of this article is on some important, unsettled problems of the commons.

Stavins, R.N. "The Problem of the Commons: Still Unsettled After 100 Years." HKS Faculty Research Working Paper Series RWP10-042, Sept 2010.

Trade and Climate Change: The Challenges Ahead

by Jaime de Melo and Nicole Andréa Mathys

- The outcome of the 15th conference of the Parties to the UNFCC showed a shift from a top-down approach with a collective target favoring environmental objectives to a bottom-up accord favoring political feasibility with no meaningful binding agreement in sight as the global climate regime and the global trade policy regime represented by the WTO appear to be on a collision course. Following a review of the alternative architectures for the next Climate Change Agreement, the paper outlines four areas in which trade will play a role: as a purveyor of technological transfer; as a mechanism to separate where abatement takes place from who bears the cots of abatement; as a participation mechanism; and as a way to address the pressures for border adjustments.

de Melo, J. and N.A. Mathys (2010). "Trade and Climate Change: The Challenges Ahead." CEPR Discussion Paper No. DP8032, Sept 2010.

The Optimal Portfolio of Emissions Abatement and Low-Carbon R&D Depends on the Expected Availability of Negative Emission Technologies

by Derek M. Lemoine, Sabine Fuss, Jana Szolgayova, Michael Obersteiner and Daniel M. Kammen

- Combining policies to remove carbon dioxide (CO2) from the atmosphere with policies to reduce emissions can potentially decrease CO2 concentrations to earlier levels. We model the optimal selection of a dynamic portfolio of abatement, research and development (R&D), and negative emission policies under an exogenous CO2 constraint and with stochastic technological change. We find that near-term abatement is not sensitive to the availability of R&D policies, but the anticipated availability of negative emission strategies can reduce near-term abatement if CO2 targets are sufficiently ambitious.

Lemoine, D.M., S. Fuss, J. Szolgayova, M. Obersteiner, and D.M. Kammen (2010). "The Optimal Portfolio of Emissions Abatement and Low-Carbon R&D Depends on the Expected Availability of Negative Emission Technologies." Available at SSRN, Sept 2010.

The Mixed History of EPA Management of Banked Emissions Allowances

by Arthur G. Fraas, Nathan Richardson

- The history of emissions-trading markets in the United States is marked by change. Since cap-and-trade programs were first implemented on a large scale after the 1990 Amendments to the Clean Air Act, the U.S. Environmental Protection Agency (EPA) has repeatedly revised and replaced emissions trading markets for nitrous oxides and sulfur dioxide. In each transition, the agency has had to decide what to do with emissions allowances banked in the earlier program. The paper discusses EPA’s mixed record regarding these transitions and implications for the future of cap and trade as a policy tool.

Fraas, A.G. and N. Richardson (2010). "The Mixed History of EPA Management of Banked Emissions Allowances." RFF Discussion Paper 10-42, Sept 2010.

Institutional Support for an International Forest Carbon Sequestration Agreement

by Liz Baldwin and Kenneth R. Richards

- This paper will examine three possible international forest carbon sequestration (IFCS) models: a fund-based approach, proposed by Brazil; a market-based approach submitted jointly by several rainforest nations; and the Forest Program for Inventories of National Carbon (PINC) approach, which focuses on rewarding a broad range of countries for increases in national carbon stocks. While these three approaches share the same overall goal, they are structured in different ways, and their need for support services will differ as well.

Baldwin, L. and K.R. Richards (2010). "Institutional Support for an International Forest Carbon Sequestration Agreement." Discussion Paper 2010-41, Harvard Project on International Climate Agreements, Belfer Center for Science and International Affairs, Harvard Kennedy School, Aug 2010.

Europe's Emissions Trading System

by Richard N. Cooper

- This paper describes and evaluates the system for trading CO2 emission permits introduced by the European Union to encourage the reduction of greenhouse gas emissions to help abate climate change. This system represents a live example of a functioning trading system under the so-called cap-and-trade approach to limiting greenhouse gas emissions. Data are fully available for only one year (2008) of the fully functioning system, and that year was influenced by a sharp economic recession in the final months of the year, making evaluation difficult. Preliminary analysis suggests, however, that the trading system made only a limited contribution to reducing CO2 emissions.

Cooper, R.N. (2010). "Europe's Emissions Trading System." Discussion Paper 2010-40, Harvard Project on International Climate Agreements, Belfer Center for Science and International Affairs, Harvard Kennedy School, Aug 2010.

Negligence, Strict Liability, and Responsibility for Climate Change

by David Weisbach

- This paper examines the data on responsibility for climate change due to past emissions. It addresses two aspects of responsibility. First it shows that the data present a mixed picture. By some measures, developed or wealthy countries are responsible for most past emissions while on other means, responsibility is spread widely with poor countries responsible for a majority of emissions. The differences in the measurements are due two factors: whether the data uses a comprehensive measure of emissions and the extent to which the data is aggregated into regions.

Weisbach, D. (2010). "Negligence, Strict Liability, and Responsibility for Climate Change." Discussion Paper 2010-39, Harvard Project on International Climate Agreements, Belfer Center for Science and International Affairs, Harvard Kennedy School, Jul 2010.

Individual Adaptation to Climate Change: The Role of Information and Perceived Risk

by Daniel Osberghaus, Elyssa Finkel and Max Pohl

- This study aims to shed light onto some of the factors supporting or hindering individual engagement in adaptation behavior, which little research has empirically investigated to date. In order to analyze behavioral change with regard to climate change, this paper takes on a broader perspective of adaptation, which can be defined as all changes an individual makes in order to adjust to a changing environment. In particular, the effect of information on the perceived risk of individuals was investigated, drawing on a psychological framework called Protection Motivation Theory.

Osberghaus, D., E. Finkel and M. Pohl (2010). "Individual Adaptation to Climate Change: The Role of Information and Perceived Risk." ZEW Discussion Paper No. 10-061, Aug 2010.

The Impact of Regulation-driven Environmental Innovation on Innovation Success and Firm Performance

by Klaus Rennings and Christian Rammer

- In general, the Porter hypothesis suggests that strict environmental policy spurs "innovation offsets". Increases in resource efficiency lead to higher economic efficiency, at least in the long run. These arguments are however still based on case studies. We want to validate the hypothesis by analysing regulation-driven environmental innovations. The impact of environmental innovations on firm performance is ambiguous.

Rennings, K. and C. Rammer (2010). "The Impact of Regulation-driven Environmental Innovation on Innovation Success and Firm Performance." ZEW Discussion Paper No. 10-065, Aug 2010.

Linking Policies When Tastes Differ: Global Climate Policy in a Heterogeneous World

by Gilbert E. Metcalf, David Weisbach

- The authors discuss linkage of various types of trading systems. Their goal is to identify opportunities for constructive linkage and policy choices that might limit or hinder linkage. They argue that the basic approach of existing emission-reduction-credit systems, especially the Clean Development Mechanism (CDM), can be extended to create linkage opportunities among diverse emission control systems while eliminating some of the problems in the CDM. Moreover, while emission-reduction-credit systems are designed to work with cap and trade, the authors describe how they might complement tax and certain regulatory systems, as well.

Metcalf, G.E. and D. Weisbach (2010). "Linking Policies When Tastes Differ: Global Climate Policy in a Heterogeneous World." Discussion Paper 2010-38, Harvard Project on International Climate Agreements, Belfer Center for Science and International Affairs, Harvard Kennedy School, Jul 2010.

Energy and Urban Innovation

by the World Energy Council

This report outlines the energy-related challenges that cities, particularly large and 'mega-cities', will face during the coming decades. It analyses the technical and policy actions that must be taken to meet these challenges and the role the energy industry and business can play in designing and implementing efficient solutions.

WEC (2010). "Energy and Urban Innovation." The World Energy Council, Sept 2010.

Expected Utility Theory and the Tyranny of Catastrophic Risks

by Wolfgang Buchholz and Michael Schymura

- Expected Utility (EU) theory is not only applied to individual choices but also to ethical decisions, e.g. in cost-benefit analysis of climate change policy measures that affect future generations. In this context the crucial question arises whether EU theory is able to deal with "catastrophic risks", i.e. risks of high, but very unlikely losses, in an ethically appealing way. In this paper we show that this is not the case. Rather, if in the framework of EU theory a plausible level of risk aversion is assumed, a "tyranny of catastrophic risk" (TCR)emerges, i.e. project evaluation may be dominated by the catastrophic event even if its probability is negligibly small.

Buchholz, W. and M. Schymura (2010). "Expected Utility Theory and the Tyranny of Catastrophic Risks." ZEW Discussion Paper No. 10-059, Aug 2010.

Pollution Externalities in a Schumpeterian Growth Model

by Simon Koesler

- Global warming, the pollution of the seas or a continuously increasing noise level are just a few examples of environmental issues that have alerted the global public in recent years. To shed further light on this question, a standard Schumpeterian growth model is enlarged to include an environmental dimension. Thereby it explicitly links the pollution intensity of economic activity to the overall level of technological progress. More precisely, it is assumed that pollution arises as an externality of the intermediate good production process and the amount of pollution created in the production process crucially depends on the overall level of technological progress.

Koesler, S. (2010). "Pollution Externalities in a Schumpeterian Growth Model." ZEW Discussion Paper No. 10-055, Aug 2010.

Coordinating to Protect the Global Climate: Experimental Evidence on the Role of Inequality and Commitment

by Alessandro Tavoni, Astrid Dannenberg and Andreas Löschel

- The Copenhagen Accord has introduced a nonbinding "pledge and review" mechanism where individual countries define voluntary emission reduction targets to reduce greenhouse gas emissions before 2020. Can this emergent institution prove successful as a first stage to achieve the required global coordination? Against this background, this paper is concerned with the drivers of cooperation among groups of unrelated individuals faced with a coordination game requiring multilateral effort in order to reach a target and avoid losses to all members.

Tavoni, A., A. Dannenberg and A. Löschel (2010). "Coordinating to Protect the Global Climate: Experimental Evidence on the Role of Inequality and Commitment."ZEW Discussion Paper No. 10-049, Jul 2010.

October 4, 2010

A Numerical Analysis of Optimal Extraction and Trade of Oil under Climate Policy

by Emanuele Massetti and Fabio Sferra

- We introduce endogenous investments for increasing conventional and non-conventional oil extraction capacity in the integrated assessment model WITCH. The international price of oil emerges as the Nash equilibrium of a non-cooperative game. When carbon emissions are not constrained, oil is used throughout the century, with unconventional oil taking over conventional oil from mid-century onward. When carbon emissions are constrained, oil consumption drops dramatically and the oil price is lower than in the BaU. Unconventional oil is not extracted. Regional imbalances in the distribution of stabilisation costs are magnified and the oil-exporting countries bear, on average, costs three times larger than in previous estimates.

Massetti, E. and F. Sferra (2010). "A Numerical Analysis of Optimal Extraction and Trade of Oil under Climate Policy." FEEM Nota di Lavoro No 2010.113, Sept 2010.

Justifying Social Discounting: The Rank-Discounted Utilitarian Approach

by Stéphane Zuber and Geir B. Asheim

- The discounted utilitarian criterion for infinite horizon social choice has been criticized for treating generations unequally. We propose an extended rank-discounted utilitarian (ERDU) criterion instead. The criterion amounts to discounted utilitarianism on non-decreasing streams, but it treats all generations impartially: discounting becomes the mere expression of intergenerational inequality aversion. We show that more inequality averse ERDU societies have higher social discount rates when future generations are better-off.

Zuber, S. and G.B. Asheim (2010). "Justifying Social Discounting: The Rank-Discounted Utilitarian Approach." CESifo Working Paper No. 3192, Sept 2010.

A Note on the Design of Experiments Involving Public Goods

by Philip E. Graves

- Concern about potential free riding in the provision of public goods has a long history. More recently, experimental economists have turned their attention to the conditions under which free riding would be expected to occur. A model of free riding is provided here which demonstrates that existing experimental approaches fail to explore a potentially important real-world dimension of free riding. In a cash-in-advance economy, free riding becomes a two-stage problem, while existing experiments only address the second stage.

Graves, P.E. (2010). "A Note on the Design of Experiments Involving Public Goods." CESifo Working Paper No. 3187, Sept 2010.

Subsidizing Renewable Energy under Capital Mobility

by Thomas Eichner and Marco Runkel

- This paper provides a rationale for subsidizing green (renewable) energy production. Within a multi-country model where energy is produced with mobile capital in green and dirty production, we investigate the countries’ decentralized choice of emissions taxes and green energy subsidies. Without green subsidies, the emissions tax is set inefficiently low, since each country ignores the environmental externality inflicted on other countries and since the emissions tax leads to a capital outflow to other countries.

Eichner, T. and M. Runkel (2010). "Subsidizing Renewable Energy under Capital Mobility." CESifo Working Paper No. 3185, Sept 2010.

"True Believers" or Numerical Terrorism at the Nuclear Power Plant

by Walter Kraemer and Gerhard Arminger

- For decades, there has been a heated debate about whether or not nuclear power plants contribute to childhood cancer in their respective neighbourhoods, with statisticians testifying on both sides. The present paper points to some flaws in the pro-arguments, taking a recent study prepared for the political party "Bündnis 90 / Grüne" as a specimen. Typical mistakes include an understatement of the size of tests of significance, disregard of important covariates and extreme reliance on very few selected data points.

Kraemer, W. and G. Arminger (2010). "'True Believers' or Numerical Terrorism at the Nuclear Power Plant." CESifo Working Paper No. 3180, Sept 2010.

Is there a Green Paradox?

by Michael Hoel

- A sufficiently rapidly rising carbon tax may increase near-term emissions compared with the case of no carbon tax. Even so, such a carbon tax path may reduce total costs related to climate change, since the tax may reduce total carbon extraction. A government cannot commit to a specific carbon tax rate in the distant future. For reasonable assumptions about expectation formation, a higher present carbon tax will reduce near-term carbon emissions. Moreover, whatever the expectations about future tax rates are, near-term emissions will decline for a sufficiently high carbon tax. However, if the near-term tax rate for some reason is set below its optimal level, increased concern for the climate may change taxes in a manner that increases near-term emissions.

Hoel, M. (2010). "Is there a Green Paradox?" CESifo Working Paper No. 3168, Sept 2010.

Overlapping Coalitions, Bargaining and Networks

by Messan Agbaglah and Lars Ehlers

- This paper extends the theory of endogenous coalition formation, with complete information and transferable utility, to the overlapping case. We propose a cover function bargaining game which allows the formation of overlapping coalitions at equilibrium. We show the existence of subgame perfect equilibrium and provide an algorithm to compute this equilibrium in the symmetric case. As an application, we establish an interesting link with the formation of networks.

Agbaglah, M. and L. Ehlers (2010). "Overlapping Coalitions, Bargaining and Networks." FEEM Nota di Lavoro No. 2010.116, Sept 2010.

Improving the Energy-Efficiency of Buildings: The Impact of Environmental Policy on Technological Innovation

by Joëlle Noailly

- This paper investigates the impact of alternative environmental policy instruments on technological innovations aiming to improve energy-efficiency in buildings. The empirical analysis focuses on three main types of policy instruments, namely regulatory energy standards in buildings codes, energy taxes as captured by energy prices and specific governmental energy R&D expenditures. Technological innovation is measured using patent counts for specific technologies related to energy-efficiency in buildings (e.g. insulation, high-efficiency boilers, energy-saving lightings).

Noailly, J. (2010). "Improving the Energy-Efficiency of Buildings: The Impact of Environmental Policy on Technological Innovation." FEEM Nota di Lavoro No. 2010.106, Sept 2010.

In What Format and under What Timeframe Would China Take on Climate Commitments? A Roadmap to 2050

by ZhongXiang Zhang

- In what format and under what timeframe China would take on climate commitments is of significant relevance to China because it is facing great pressure both inside and outside international climate negotiations to exhibit greater ambition and is being confronted with the threats of trade measures. In response to these concerns and to put China in a positive position, this paper maps out the roadmap for China’s specific climate commitments towards 2050.

Zhang, Z. (2010). "In What Format and under What Timeframe Would China Take on Climate Commitments? A Roadmap to 2050." FEEM Nota di Lavoro No. 2010.112, Sept 2010.

Modeling the Global Water Resource System in an Integrated Assessment Modeling Framework: IGSM-WRS

by Strzepek, K., A. Schlosser, W. Farmer, S. Awadalla, J. Baker, M. Rosegrant and X. Gao

- We have enhanced the Integrated Global System Model (IGSM) framework capabilities to model effects on the managed water-resource systems of the influence of potential climate change and associated shifts in hydrologic variation and extremes (i.e. non-stationarity in the hydro-climate system), and how we may be able to adapt to these impacts. A key component of this enhancement is the linkage of the Water Resources System (WRS) into the IGSM framework.

Strzepek, K., A. Schlosser, W. Farmer, S. Awadalla, J. Baker, M. Rosegrant and X. Gao (2010). "Modeling the Global Water Resource System in an Integrated Assessment Modeling Framework: IGSM-WRS." MIT Joint Program Report Series No 189, Sept 2010.

The role of patent protection in (clean/green) technology transfer

by Bronwyn H. Hall and Christian Helmers

- Global climate change mitigation will require the development and diffusion of a large number and variety of new technologies. How will patent protection affect this process? In this paper we first review the evidence on the role of patents for innovation and international technology transfer in general. We conclude that the "double externality" problem, that is the presence of both environmental and knowledge externalities, implies that patent protection may not be the optimal instrument for encouraging innovation in this area, especially given the range and variety of green technologies as well as the need for local adaptation of technologies.

Hall, B.H. and C. Helmers (2010). "The role of patent protection in (clean/green) technology transfer." NBER Working Paper No. 16323, Sept 2010.

Fat Tails, Thin Tails, and Climate Change Policy

by Robert S. Pindyck

- Climate policy is complicated by the considerable compounded uncertainties over the costs and benefits of abatement. We don’t even know the probability distributions for future temperatures and impacts, making cost-benefit analysis based on expected values challenging to say the least. There are good reasons to think that those probability distributions are fat-tailed, which implies that if social welfare is based on the expectation of a CRRA utility function, we should be willing to sacrifice close to 100% of GDP to reduce GHG emissions. I argue that unbounded marginal utility makes little sense, and once we put a bound on marginal utility, this implication of fat tails goes away: Expected marginal utility will be finite even if the distribution for outcomes is fat-tailed.

Pindyck, R.S. (2010). "Fat Tails, Thin Tails, and Climate Change Policy." NBER Working Paper No. 16353, Sept 2010.

The Demand for Ethanol as a Gasoline Substitute

by Soren T. Anderson

- This paper estimates household preferences for ethanol as a gasoline substitute. I develop a theoretical model linking the shape of the ethanol demand curve to the distribution of price ratios at which individual households switch fuels. I estimate the model using data from many retail fueling stations. Demand is price-sensitive with a mean elasticity of 2.5-3.5. I find that preferences are heterogeneous with many households willing to pay a premium for ethanol. This reduces the simulated cost of an ethanol content standard, since some households choose ethanol without large subsidies; simulated costs are still high relative to likely environmental benefits.

Anderson, S.T. (2010). "The Demand for Ethanol as a Gasoline Substitute." NBER Working Paper No. 16371, Sept 2010.