April 25, 2011

Environmental Regulations, Market Structure and Technological Progress in Renewable Energy Technology: A Panel Data Study on Wind Turbines

by Dirk Rübbelke and Pia Weiss

- We study the impact of environmental regulations on the patent activities for wind turbines between 1980 and 2008. We explicitly control for energy market liberalisation and take a potential interaction between liberalisation and policy instruments into account. We find a strong and highly significant effect of environmental tax revenues, which we regard as a proxy for the extent to which energy prices changed in favour of renewable energies, as well as foreign demand for wind turbines on innovation activities.

Rübbelke, D. and P. Weiss (2011). "Environmental Regulations, Market Structure and Technological Progress in Renewable Energy Technology: A Panel Data Study on Wind Turbines." FEEM Note di lavoro No. 2011.032, Apr 2011.

Negative Leakage

by Don Fullerton, Dan Karney and Kathy Baylis

- We build a simple analytical general equilibrium model and linearize it, to find a closed-from expression for the effect of a small change in carbon tax on leakage - the increase in emissions elsewhere. The model has two goods produced in two sectors or regions. Many identical consumers buy both goods using income from a fixed stock of capital that is mobile between sectors. An increase in one sector’s carbon tax raises the price of its output, so consumption shifts to the other good, causing positive carbon leakage. However, the taxed sector substitutes away from carbon into capital. It thus absorbs capital, which shrinks the other sector, causing negative leakage. This latter effect could swamp the former, reducing carbon emissions in both sectors.

Fullerton, D., D. Karney and K. Baylis (2011). "Negative Leakage." CESifo Working Paper No. 3379, Mar 2011.

Climate Effects of Carbon Taxes, Taking into Account Possible Other Future Climate Measures

by Florian Habermacher and Gebhard Kirchgässner

- The increase of fuel extraction costs as well as of temperature will make it likely that in the medium-term future technological or political measures against global warming may be implemented. In assessments of a current climate policy the possibility of medium-term future developments like backstop technologies is largely neglected but can crucially affect its impact. Given such a future measure, a currently introduced carbon tax may more generally mitigate climate change than recent reflections along the line of the Green Paradox would suggest.

Habermacher, F. and G. Kirchgässner (2011). "Climate Effects of Carbon Taxes, Taking into Account Possible Other Future Climate Measures." CESifo Working Paper No. 3404, Mar 2011.

A Tale of Two Countries: Emissions Scenarios for China and India

by Emanuele Massetti

- The aim of the paper is to present evidence that China and India are, and will remain, two very different actors in international negotiations to control global warming. We base our conclusions on historical data and on scenarios until 2050. The Business-as-Usual scenario (BaU) is compared to four Emissions Tax scenarios to draw insights on major transformations in energy use and in energy supply and to assess the possible contribution of China and India to a future international climate architecture. We study whether or not the Copenhagen intensity targets require more action than the BaU scenario and we assess whether the emissions reductions induced by the four tax scenarios are compatible with the G8 and MEF pledge to reduce global emissions by 50% in 2050.

Massetti, E. (2011). "A Tale of Two Countries: Emissions Scenarios for China and India." FEEM Note di lavoro No. 2011.024, Mar 2011.

Contracting for Impure Public Goods: Carbon Offsets and Additionality

by Charles F. Mason and Andrew J. Plantinga

- Governments contracting with private agents for the provision of an impure public good must contend with agents who would potentially supply the good absent any payments. This additionality problem is centrally important in the use of carbon offsets as part of climate change mitigation. Analyzing optimal contracts for forest carbon sequestration, an important offset category, we conduct a national-scale simulation using results from an econometric model of land-use change. The results indicate that for an increase in forest area of 50 million acres, annual government expenditures with optimal contracts are about $4 billion lower compared than under a uniform subsidy.

Mason, C.F. and A.J. Plantinga (2011). "Contracting for Impure Public Goods: Carbon Offsets and Additionality." FEEM Note di lavoro No. 2011.013, Mar 2011.

Effects of the Uncertainty about Global Economic Recovery on Energy Transition and CO2 Price

by Olivier Durand-Lasserve, Axel Pierru and Yves Smeers

- This paper examines the impact that uncertainty over economic growth may have on global energy transition and CO2 prices. We use a general-equilibrium model derived from MERGE, and define several stochastic scenarios for economic growth. Each scenario is characterized by the likelihood of a rapid global economic recovery. The climate policy considered corresponds in the medium term to the commitments announced after the Copenhagen conference, and in the long term to a reduction of 25% in global energy-related CO2 emissions (with respect to 2005).

Durand-Lasserve, O., A. Pierru and Y. Smeers (2011). "Effects of the Uncertainty about Global Economic Recovery on Energy Transition and CO2 Price." MIT CEEPR Working Paper No. WP-2011-003, Mar 2011.

Estimating the Social Cost of Carbon for Use in U.S. Federal Rulemakings: A Summary and Interpretation

by Michael Greenstone, Elizabeth Kopits and Ann Wolverton

- The United States Government recently concluded a year-long process to develop a range of values representing the monetized damages associated with an incremental increase in carbon dioxide (CO2) emissions, commonly referred to as the social cost of carbon (SCC). These values are currently used in benefit-cost analyses to assess potential federal regulations. For 2010, the central value of the SCC is $21 per ton of CO2 emissions and sensitivity analyses are to be conducted at $5, $35, and $65 (2007$). This paper summarizes the methodology and process used to develop the SCC values, complemented with our own commentary about how the SCC can be used to inform regulatory decisions and areas where further research would be particularly useful.

Greenstone, M., E. Kopits and A. Wolverton (2011). "Estimating the Social Cost of Carbon for Use in U.S. Federal Rulemakings: A Summary and Interpretation." NBER Working Paper No. 16913, Mar 2011.

Fuel Tax Incidence and Supply Conditions

by Justin Marion and Erich Muehlegger

- The incidence of taxes on consumers and producers plays a central role in evaluating energy tax policy, yet the literature testing the main predictions of the tax incidence model is sparse. In this paper, we examine the pass-through rate of state gasoline and diesel taxes to retail prices, and importantly we estimate the dependence of pass-through on factors constraining the gasoline and diesel supply chains.

Marion, J. and E. Muehlegger (2011). "Fuel Tax Incidence and Supply Conditions." NBER Working Paper No. 16863, Mar 2011.

How CO2 Capture and Storage Can Mitigate Carbon Leakage

by Philippe Quirion, Julie Rozenberg, Olivier Sassi and Adrien Vogt-Schilb

- Most CO2 abatement policies reduce the demand for fossil fuels and therefore their price in international markets. If these policies are not global, this price decrease raises emissions in countries without CO2 abatement policies, generating "carbon leakage". On the other hand, if the countries which abate CO2 emissions are net fossil fuel importers, they benefit from this price decrease, which reduces the abatement cost. In contrast, CO2 capture and storage (CCS) does not reduce fossil fuel demand, therefore it generates neither this type of leakage nor this negative feedback on abatement costs. We quantify these effects with the global hybrid general equilibrium model Imaclim-R and show that they are quantitatively important.

Quirion, P., J. Rozenberg, O. Sassi and A. Vogt-Schilb (2011). "How CO2 Capture and Storage Can Mitigate Carbon Leakage." FEEM Note di lavoro No. 2011.015, Mar 2011.

Innovation and Diffusion of Clean/Green Technology: Can Patent Commons Help?

by Bronwyn H. Hall and Christian Helmers

- This paper explores the characteristics of 238 patents on 94 "inventions" contributed by major multinational innovators to the “Eco-Patent Commons”, which provides royalty-free access to third parties to patented climate change related innovations. By comparing the pledged patents to other patents in the same technologies or held by the same multinationals, we investigate the motives of the contributing firms as well as the potential for such commons to encourage innovation and diffusion of climate change related technologies. This study, therefore, indirectly provides evidence on the role of patents in the development and diffusion of green technologies. More generally, the paper sheds light on the performance of hybrid forms of knowledge management that combine open innovation and patenting.

Hall, B.H. and C. Helmers (2011). "Innovation and Diffusion of Clean/Green Technology: Can Patent Commons Help?" NBER Working Paper No. 16920, Mar 2011.

General Equilibrium, Electricity Generation Technologies and the Cost of Carbon Abatement

by Bruno Lanz and Sebastian Rausch

- Electricity generation is a major contributor to carbon dioxide emissions, and a key determinant of abatement costs. Ex-ante assessments of carbon policies mainly rely on either of two modeling paradigms: (i) partial equilibrium models of the electricity sector that use bottom-up engineering data on generation technology costs, and (ii) multi-sector general equilibrium models that represent economic activities with smooth top-down aggregate production functions. In this paper, we examine the structural assumptions of these numerical techniques using a suite of models sharing common technological features and calibrated to the same benchmark data.

Lanz, B. and S. Rausch (2011). "General Equilibrium, Electricity Generation Technologies and the Cost of Carbon Abatement." Joint Program Report Series Report No. 194, Feb 2011.

Does the Indexing of Government Transfers Make Carbon Pricing Progressive?

by Don Fullerton, Garth Heutel and Gilbert E. Metcalf

- We analyze both the uses side and the sources side incidence of domestic climate policy using an analytical general equilibrium model, taking into account the degree of government program indexing. When transfer programs such as Social Security are explicitly indexed to inflation, higher energy prices automatically lead to cost-of-living adjustments for recipients. We show results with no indexing, 100 percent indexing, and partial indexing based on our analysis of actual transfer programs. When households are classified by annual income, the indexing of U.S. transfers is not enough to offset the regressive uses side, but when they are classified by annual expenditures as a proxy for permanent income, transfer indexing does offset regressivity across the lowest income groups.

Fullerton, D., G. Heutel and G.E. Metcalf (2011). "Does the Indexing of Government Transfers Make Carbon Pricing Progressive?" NBER Working Paper No. 16768, Feb 2011.

April 17, 2011

International Environmental Agreements in the Presence of Adaptation

by Walid Marrouch and Amrita Ray Chaudhuri

- We show that adaptive measures undertaken by countries in the face of climate change, apart from directly reducing the damage caused by climate change, may also indirectly mitigate greenhouse gas emissions by increasing the stable size of international agreements on emission reductions. Moreover, we show that the more effective the adaptive measure in terms of reducing the marginal damage from emissions, the larger the stable size of the international environmental agreement. In addition, we show that larger coalitions, in the presence of adaptation, may lead to lower global emission levels and higher welfare.

Marrouch, W. and A.R. Chaudhuri (2011). "International Environmental Agreements in the Presence of Adaptation." FEEM Note di lavoro No. 2011.035, Apr 2011.

How to Measure Carbon Equity: Carbon Gini Index Based on Historical Cumulative Emission Per Capita

by Fei Teng, Jiankun He, Xunzhang Pan and Chi Zhang

- This paper uses Lorenz Curve and Gini Index with adjustment to per capita historical cumulative emission and constructs Carbon Gini Index to measure inequality in climate change area. The analysis using Carbon Gini Index shows that 70% of carbon space in the atmosphere has been used for unequal distribution, which is almost the same as that of income in the country with the biggest gap between rich and poor in the world. The carbon equity should be an urgency and priority in the climate agenda. Carbon Gini Index established in this paper can be used to measure inequality in the distribution of carbon space and provide a quantified indicator for measurement of carbon equity among different proposals.

Fei, T., J. He, X. Pan and C. Zhang (2011). "How to Measure Carbon Equity: Carbon Gini Index Based on Historical Cumulative Emission Per Capita." FEEM Note di lavoro 2011.031, Apr 2011.

The Supply Side of CO2 with Country Heterogeneity

by Michael Hoel

- Several recent articles have analyzed climate policy giving explicit attention to the non-renewable character of carbon resources. In most of this literature the economy is treated as a single unit, which in the context of climate policy seems reasonable to interpret as the whole world. However, carbon taxes and other climate policies differ substantially across countries. With such heterogeneity, the effects on emission paths of changes in taxes, costs and subsidies may be very different from what one finds for a hypothetical world of identical countries.

Hoel, M. (2011). "The Supply Side of CO2 with Country Heterogeneity." CESifo Working Paper No. 3393, Mar 2011.

Pollution Permits, Strategic Trading and Dynamic Technology Adoption

by Santiago Moreno-Bromberg and Luca Taschini

- This paper analyzes the dynamic incentives for technology adoption under a transferable permits system, which allows for strategic trading on the permit market. Initially, firms can invest both in low-emitting production technologies and trade permits. In the model, technology adoption and allowance price are generated endogenously and are inter-dependent. It is shown that the non-cooperative permit trading game possesses a pure-strategy Nash equilibrium, where the allowance value reflects the level of uncovered pollution (demand), the level of unused allowances (supply), and the technological status.

Moreno-Bromberg, S. and L. Taschini (2011). "Pollution Permits, Strategic Trading and Dynamic Technology Adoption." CESifo Working Paper No. 3399, Mar 2011.

Optimal Exploitation of Groundwater and the Potential for a Tradable Permit System in Irrigated Agriculture

by Dionysis Latinopoulos and Eftichios Sartzetakis

- The aim of the current study is to explore the feasibility and implementation of a tradable permit system in irrigated agriculture. To this end, two distinct optimization models are applied and compared: (a) an individual farmer’s model (representing the myopic non-cooperative exploitation of groundwater) and (b) a social planner’s model (representing the cooperative and sustainable allocation). The deviation of their results shows the rationale for using a tradable permit system, while the final allocation of the social planner’s model, solved as an optimal control problem that maximizes the social welfare under specific water policy objectives, denotes the equilibrium state of this system. The two models are then applied in a typical rural area of Greece where groundwater is the only source of irrigated agriculture.

Latinopoulos, D. and E. Sartzetakis (2011). "Optimal Exploitation of Groundwater and the Potential for a Tradable Permit System in Irrigated Agriculture." FEEM Note di lavoro No. 2011.026, Mar 2011.

Pollution Control: When, and How, to be Precautious

by Stergios Athanassoglou and Anastasios Xepapadeas

- The precautionary principle (PP) applied to environmental policy stipulates that, in the presence of physical uncertainty, society must take robust preventive action to guard against worst-case outcomes. It follows that the higher the degree of uncertainty, the more aggressive this preventive action should be. This normative maxim is explored in the case of a stylized dynamic model of pollution control under Knightian uncertainty. We show that optimal investment in damage control is always increasing in the degree of uncertainty, thus confirming the conventional PP wisdom. Optimal mitigation decisions, however, need not always comport with the PP and we provide analytical conditions that sway the relationship one way or the other.

Athanassoglou, S. and A. Xepapadeas (2011). "Pollution Control: When, and How, to be Precautious." FEEM Note di lavoro No. 2011.018, Mar 2011.

Health Damages from Air Pollution in China

by Kira Matus, Kyung-Min Nam, Noelle E. Selin, Lok N. Lamsal, John M. Reilly and Sergey Paltsev

- In China, elevated levels of urban air pollution result in substantial adverse health impacts for its large and rapidly growing urban population. An expanded version of the Emissions Prediction and Policy Analysis (EPPA), EPPA Health Effects, was used to evaluate air pollution-related health impacts on the Chinese economy. The estimated marginal welfare impact to the Chinese economy of air pollution levels above background levels increased from $22 billion in 1975 to $112 billion in 2005 (1997 US$), despite improvements in overall air quality. This increase is a result of the growing urban population and rising wages that thus increased the value of lost labor and leisure.

Matus, K., K-M Nam, N.E. Selin, L.N. Lamsal, J.M. Reilly and S. Paltsev (2011). "Health Damages from Air Pollution in China." MIT Joint Program Report Series No. 196, Mar 2011.

Stocks & Shocks: A Clarification in the Debate Over Price vs. Quantity Controls for Greenhouse Gases

by John E. Parsons and Luca Taschini

- We construct two simple examples that help to clarify the role of a key assumption in the analysis of price or quantity controls of greenhouse gases in the presence of uncertain costs. Traditionally much has been made of the fact that greenhouse gases are a stock pollutant, and that therefore the marginal benefit curve must be relatively flat. This fact is said to establish the preference of a price control over a quantity control. We show that this argument can only be true if the uncertainty about cost is a special form: all shocks are transitory. We show that in the case of permanent shocks, the traditional comparison of marginal benefits vs. marginal costs is mis-measured. The choice between quantity and price controls becomes ambiguous again and depends upon a more difficult measurement of marginal costs and benefits.

Parsons, J.E. and L. Taschini (2011). "Stocks & Shocks: A Clarification in the Debate Over Price vs. Quantity Controls for Greenhouse Gases." MIT CEEPR Working Paper No. WP-2011-002, Mar 2011.

The Possibilities For Global Poverty Reduction Using Revenues From Global Carbon Pricing

by James B. Davies, Xiaojun Shi and John Whalley

- Global carbon pricing can yield revenues which are large enough to create significant global pro-poor redistributive opportunities. We analyze alternative multidecade growth trajectories for major global economies with carbon tax rates designed to stabilize emissions in the presence of both continued country growth and autonomous energy use efficiency improvement. In our central case analysis, revenues from globally internalizing carbon pricing rise to 7% and then fall to 5% of gross world product.

Davies, J.B., X. Shi and J. Whalley (2011). "The Possibilities For Global Poverty Reduction Using Revenues From Global Carbon Pricing."NBER Working Paper No. 16878, Mar 2011.

The Effect of Allowing Pollution Offsets With Imperfect Enforcement

by Hilary Sigman and Howard F. Chang

- Public policies for pollution control, including climate change policies, sometimes allow polluters in one sector subject to an emissions cap to offset excessive emissions in that sector with pollution abatement in another sector. The government may often find it more costly to verify offset claims than to verify compliance with emissions caps. Concerns about such difficulties in enforcement may lead regulators to restrict the use of offsets. In this paper, we demonstrate that allowing offsets may increase pollution abatement and reduce illegal pollution, even if the government has a fixed enforcement budget. We explore the circumstances that may make allowing pollution offsets an attractive option when enforcement is costly.

Sigman, H., H.F. Chang (2011). "The Effect of Allowing Pollution Offsets With Imperfect Enforcement." NBER Working Paper No. 16860, Mar 2011.

Efficiency, Productivity and Environmental Policy: A Case Study of Power Generation in the EU

by Jurate Jaraite and Corrado Di Maria

- This study uses the EU public power generating sector as a case study to investigate the environmental efficiency and productivity enhancing performance of the European Union’s CO2 Emissions Trading Scheme (EU ETS) in its pilot phase. Our analysis suggests two conclusions: on the one hand carbon pricing led to an increase in environmental efficiency and to a shift outwards of the technological frontier; on the other hand, the overly generous allocation of emission permits had a negative impact on both measures. These results are shown to be robust to changes in controls and specifications.

Jaraite, J. and C. Di Maria (2011). "Efficiency, Productivity and Environmental Policy: A Case Study of Power Generation in the EU." FEEM Note di lavoro No. 2011.019, Mar 2011.

What to Expect from Sectoral Trading: A U.S.-China Example

by Claire Gavard, Niven Winchester, Henry Jacoby and Sergey Paltsev

- In recent United Nations Framework Convention on Climate Change (UNFCCC) negotiations, sectoral mechanisms were proposed as a way to encourage early action and spur investment in low carbon technologies in developing countries, particularly in the electricity sector. Sectoral trading, which is one such proposition, involves including a sector from one or more nations in an international cap-and-trade system. In order to assess potential impacts from such a mechanism, we analyze trade in carbon permits between the Chinese electricity sector and a U.S. economy-wide cap-and-trade program using the MIT Emissions Prediction and Policy Analysis (EPPA) model.

Gavard, C., N. Winchester, H. Jacoby and S. Paltsev (2011). "What to Expect from Sectoral Trading: A U.S.-China Example." MIT Joint Program Report Series Report No. 193, Feb 2011.

Review of Support Schemes for Renewable Energy Sources in South America

by C. Batlle and L.A. Barroso

- This article reviews the current experiences implemented to date in the South American region to promote non-conventional renewable energy sources. We briefly describe first the particular characteristics of the territory which make it so appealing for the RES deployment. Then we scour the continent examining the mechanisms implemented to date. We conclude by just pointing out what should be expected for the years to come. The authors aim to contribute to fill in the current lack of state of the art, not only for South American audience, but also for those seeking for new "green business" opportunities.

C. Batlle and L.A. Barroso (2011). "Review of Support Schemes for Renewable Energy Sources in South America." MIT CEEPR Working Paper No. WP-2011-001, Feb 2011.

Reducing Greenhouse Gas Emissions by Forest Protection: The Transaction Costs of REDD

by Lee J. Alston and Krister Andersson

- The existing institutional design for REDD+ relies heavily on central government interventions in program countries. Analyzing new data on forest conservation outcomes, we identify several problems with this centralized approach to forest protection. We describe options for a more diversified policy approach that could reduce the full set of transaction costs and thereby improve the efficiency of the market-based approach for conservation.

Alston, L.J. and K. Andersson (2011). "Reducing Greenhouse Gas Emissions by Forest Protection: The Transaction Costs of REDD." NBER Working Paper No. 16756, Feb 2011.