|
on Energy Economics |
| By: | James D. Hamilton |
| Abstract: | This paper examines the factors responsible for changes in crude oil prices. The paper reviews the statistical behavior of oil prices, relates these to the predictions of theory, and looks in detail at key features of petroleum demand and supply. Topics discussed include the role of commodity speculation, OPEC, and resource depletion. The paper concludes that although scarcity rent made a negligible contribution to the price of oil in 1997, it could now begin to play a role. |
| JEL: | Q3 Q4 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14492&r=ene |
| By: | Giulio Cifarelli (Università degli Studi di Firenze, Dipartimento di Scienze Economiche); Giovanna Paladino (Intesa-Sanpaolo Economic Research Dept. and LUISS University, Economics Dept) |
| Abstract: | This paper assesses empirically whether speculation affects oil price dynamics. The growing presence of financial operators in the oil markets has led to the diffusion of trading techniques based on extrapolative expectations. Strategies of this kind foster feedback trading that may cause large departures of prices from their fundamental values. We investigate this hypothesis using a modified CAPM that follows Shiller (1984) and Sentana and Wadhwani (1992). At first, a univariate GARCH(1,1)-M is estimated assuming that the risk premium is a function of the conditional oil price volatility. The single factor model, however, is outperformed by the multifactor ICAPM (Merton, 1973) which takes into account a larger investment opportunity set. The analysis is then carried out using a trivariate CCC GARCH-M model with complex nonlinear conditional mean equations where oil price dynamics are associated with both stock market and exchange rate behavior. We find strong evidence that oil price shifts are negatively related to stock price and exchange rate changes and that a complex web of time varying first and second order conditional moment interactions affect both the CAPM and feedback trading components of the model. Despite the difficulties, we identify a significant role of speculation in the oil market which is consistent with the observed large daily upward and downward shifts in prices. A clear evidence that it is not a fundamentals-driven market. Thus, from a policy point of view - given the impact of volatile oil prices on global inflation and growth - actions that monitor more effectively speculative activities on commodity markets are to be welcomed. |
| Keywords: | oil price dynamics; feedback trading; speculation; multivariate GARCH-M |
| JEL: | G11 G12 G18 Q40 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2008_15.rdf&r=ene |
| By: | Dean Baker; Nichole Szembrot |
| Abstract: | This issue brief compares projected savings from drilling in presently restricted offshore zones and savings if the nation had continued adjusting fuel efficiency standards at 1980-1985 rates. The issue brief projects savings through 2027, the year in which offshore drilling would reach peak capacity. |
| Keywords: | offshore drilling, energy conservation, fuel efficiency |
| JEL: | Q4 Q48 Q41 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:epo:papers:2008-19&r=ene |
| By: | Fischer, Carolyn (Resources for the Future); Herrnstadt, Evan; Morgenstern, Richard D. |
| Abstract: | This paper investigates the potential for systematic errors in the Energy Information Administration’s (EIA) widely used Annual Energy Outlook, focusing on the near- to midterm projections of energy demand as measured in physical quantities. Overall, based on an analysis of the EIA’s 22-year projection record, we find a fairly modest but persistent tendency to underestimate total energy demand by an average of 2 percent per year over the one- to five-year projection horizon after controlling for projection errors in gross domestic product, oil prices, and heating/cooling degree days. For the 14 individual fuels/consuming sectors routinely reported by the EIA, we observe a great deal of directional consistency in the error patterns over time, ranging up to 7 percent per year. Electric utility renewables, electric utility natural gas, transportation distillate, and residential electricity all show significant biases, on average, across the full five year projection horizon examined. Projections for certain other fuels/consuming sectors have significant unexplained errors for selected time horizons. Independent evaluation of this type can be useful for validating ongoing analytic efforts and for prioritizing future model revisions. |
| Keywords: | EIA, energy forecasting, bias |
| JEL: | Q43 C53 |
| Date: | 2008–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-08-54&r=ene |
| By: | Mabiso, Athur; Weatherspoon, Dave |
| Abstract: | As oil prices continue to skyrocket and food riots surface across the globe, there are growing concerns that food-fuel tradeoffs are beginning to present serious challenges for food security across the world. In South Africa, where the government is embarking on a biofuels expansion strategy, understanding the nature of food-fuels tradeoffs is imperative for effective policy making and ultimately safeguarding consumers' welfare. Using time series monthly data constructed from various sources, this preliminary study makes a step toward explaining the nature of food-fuel tradeoffs in South Africa. By including fuel prices in the estimation of single-equation and seemingly unrelated regression (SUR) estimates of demands for maize meal (the South African staple food) and wheat bread (which is increasingly accounting for a large proportion of total expenditure in South Africa) the study presents preliminary findings. Further construction of the data used in this preliminary analysis is anticipated in order to allow for a systems approach that entails testing of separability between fuel and food, the estimation of cross-price elasticities and simulations of the expansion in the biofuels industry, for the elicitation of more information on the food-fuel tradeoffs in South Africa. |
| Keywords: | Food Consumption/Nutrition/Food Safety, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6126&r=ene |
| By: | Du, Xiaodong; Hayes, Dermot J. |
| Abstract: | Using pooled regional time-series data and panel data estimation, we quantify the impact of monthly ethanol production on monthly retail regular gasoline prices. This analysis suggests that the growth in ethanol production has caused retail gasoline prices to be $0.29 to $0.40 per gallon lower than would otherwise have been the case. The analysis shows that the negative impact of ethanol on gasoline prices varies considerably across regions. The Midwest region has the biggest impact, at $0.39/gallon, while the Rocky Mountain region had the smallest impact, at $0.17/gallon. The results also indicate that ethanol production has significantly reduced the profit margin of the oil refinery industry. The results are robust with respect to alternative model specifications. |
| Keywords: | crack spread, crude oil prices, ethanol, gasoline prices, Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6353&r=ene |
| By: | Maung, Thein A.; McCarl, Bruce A. |
| Abstract: | In the past, studies on agricultural feedstocks for energy production were motivated by rising fossil fuel prices interpreted by many as caused by resource depletion. However, today's studies are mainly motivated by concerns for climate change and global warming. Currently, most studies concentrate on liquid fuels with little study devoted toward electricity. This study examines crop residues for electricity production in the context of climate change and global warming. We use sector modeling to simulate future market penetration for biopower production from crop residues. Our findings suggest that crop residues cost much more than coal because they have lower heat content and higher production/hauling costs. For crop residues to have any role in electricity generation either the carbon or carbon dioxide equivalent greenhouse gas price must rise to about 15 dollars per ton or the price of coal has to increase to about 43 dollars per ton. We find crop residues with higher heat content and lower production costs such as wheat residues have greater opportunities in biopower production than the residues with lower heat content and higher production costs. In addition, the analysis shows that improvements in crop yield do not have much impact on biopower production. However, the energy recovery efficiency does have significant positive impact but only if the carbon equivalent price rises substantially. The analysis also indicates the desirability of cofiring biomass as opposed to 100% replacement because this reduces hauling costs and increases the efficiency of heat recovery. In terms of policy implications, imposing carbon emission pricing could be an important step in inducing electric power producers to include agricultural biomass in their fuel-mix power generation portfolios and achieve greenhouse gas emission reductions. |
| Keywords: | Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6417&r=ene |
| By: | Serra, Teresa; Zilberman, David; Gil, Jose M.; Goodwin, Barry K. |
| Abstract: | We use a smooth transition vector error correction model to assess price relationships within the US ethanol industry. Daily ethanol, corn and oil futures prices observed from mid-2005 to mid-2007 are used in the analysis. Results indicate the existence of an equilibrium relationship between ethanol, corn and oil prices. However, only ethanol prices adjust, in a non-linear fashion, to deviations from this long-run parity. Generalized impulse response functions indicate that a shock to both oil and corn prices causes a change in ethanol prices of the same sign. Ethanol responses usually reach a peak after about 10 days of the initial shock and fade away within 35 days. |
| Keywords: | Biofuels, United States, Cointegration, Threshold, Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6512&r=ene |
| By: | Low, Sarah A.; Isserman, Andrew M. |
| Abstract: | This paper presents an overview of the U.S. ethanol industry, its location, and the public policy umbrella that supports its growth. Then the paper analyzes what happens when a county adds an ethanol plant, demonstrates what must be done to modify input-output models to capture those effects realistically, and applies the approach to proposed plants in three counties. |
| Keywords: | Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6157&r=ene |
| By: | Falck-Zepeda, Jose; Msangi, Siwa; Sulser, Timothy; Zambrano, Patricia |
| Abstract: | Biofuel expansion is seen as a way to reduce dependence on fossil fuels, as an alternative energy source for transportation and other uses, as a way to reduce Green House Gases, and as way to revitalize the agricultural sector. Very little discussions have been focused on Latin America, except for Brazil. Potential negative impacts re-enforce the need of performing more in depth analysis of the potential impact of biofuels expansion in Latin America and the Caribbean (LAC). Paper estimates biofuels production potential based on current production situation and develops a forward-looking analysis of the long-term impact of biofuels expansion in Latin America and its effects on prices, trade, food security, malnutrition and other indicators using the IMPACT-WATER model developed by IFPRI. The analysis conducted for this paper of potential crops in the region show that from a technical and productivity standpoint in which to base biofuels expansion continues to be sugarcane and palm oil trees. Most countries in Latin America will not have a production constraint in terms of meeting existing and projected mandatory blends requirements. However, if the goal is to obtain energy independence, this result only holds for a few countries, with obvious food security implications as countries dedicate higher shares of their agricultural land to biofuels expansion. Our analysis, and those made in other studies, show that biofuels expansion is not likely to have a binding land production constraint in Latin America, with a few exceptions. The forward-looking estimations from the IMPACT-WATER model show that Brazil will continue to be the major player in the ethanol market. Brazil will expand its ethanol exports to meet growing demand in other countries including some in Latin America. Other countries such as Argentina and Colombia will likely continue their biofuels expansion plans, although our estimate show that they will not likely meet their demand based on current production potential. The IMPACT-WATER simulations also show that biofuels impacts on food security and malnutrition will likely happen in those countries where the feedstock used for biofuels production is a critical component of a major share of the population, other things equal. An example of this potential is Mexico and most of the Central America region, where a high proportion of the diet is composed of maize. The extent to which biofuels efforts can contribute towards addressing or affecting all broader contextual issues depend on a series of strategic determinants of impact success, ranging from the characteristics of installed capacity and industrial organization and coordination to whether any nascent market for biofuels will be economically sustainable and financially viable without continuous government support or interventions. |
| Keywords: | Community/Rural/Urban Development, Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6113&r=ene |
| By: | Spaulding, Aslihan D.; Schmidgall, Timothy J. |
| Abstract: | Growing concerns about the dependence on foreign oil and high prices of gasoline have led to rapid growth in ethanol production in the past decade. Unlike earlier development of the ethanol industry which was highly concentrated in a few large corporations, recent ownership of the ethanol plants has been by farmer-owned cooperatives. Not much is known about the marketing and purchasing practices and plants€٠flexibility with respect to adapting new technologies. The purpose of this research is to fill the gap in knowledge on these practices and to test whether the practices differ with the size and type of ownership. |
| Keywords: | ethanol, marketing, input procurement, technology, Marketing, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6457&r=ene |
| By: | Higgins, Lindsey M.; Richardson, James W.; Outlaw, Joe L. |
| Abstract: | With the passage of the Energy Policy Act, the rapidly expanding number of ethanol plants, and the fury with which ethanol is being promoted, it is clear that ethanol will play a rising role in our domestic energy supply. Along with this rise there will be an increase in the consumptive use of water by ethanol production facilities. Regions, such as the Texas High Plains, that are already considered to be water stressed have the potential of being impacted. The objective of this research is to assess the potential impact the addition of an ethanol plant may have on the Texas High Plains and to determine how increased water costs will transform the economic viability of an ethanol plant. |
| Keywords: | Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6533&r=ene |
| By: | Baker, Mindy L.; Hayes, Dermot J.; Babcock, Bruce A. |
| Abstract: | A myriad of policy issues and questions revolve around understanding the bioeconomy. To gain insight, we develop a stochastic and dynamic general equilibrium model and capture the uncertain nature of key variables such as crude oil prices and commodity yields. We also incorporate acreage limitations on key feedstocks such as corn, soybeans, and switchgrass. We make standard assumptions that investors are rational and engage in biofuel production only if returns exceed what they can expect to earn from alternative investments. The Energy Independence and Security Act of 2007 mandates the use of 36 billion gallons of biofuels by 2022, with significant requirements for cellulosic biofuel and biodiesel production. We calculate the level of tax credits required to stimulate this level of production. Subsidies of nearly $2.50 per gallon to biodiesel and $1.86 per gallon to cellulosic biofuel were required, and long-run equilibrium commodity prices were high, with corn at $4.76 per bushel and soybeans at $13.01 per bushel. High commodity prices are due to intense competition for planted acres among the commodities. |
| Keywords: | Crop Production/Industries, Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6352&r=ene |
| By: | Moita, Rodrigo; Rezende, Leonardo |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ibm:ibmecp:wpe_149&r=ene |
| By: | Hertel, Thomas W.; Tyner, Wallace E.; Birur, Dileep K. |
| Abstract: | The recent rise in world oil prices, coupled with heightened interest in the abatement of greenhouse gas emissions, has led to a sharp increase in domestic biofuels production around the world. Previous authors have devoted considerable attention to the impacts of these policies on a country-by-country basis. However, there are also strong interactions among these programs, as they compete in world markets for feedstocks and ultimately for a limited supply of global land. In this paper, we evaluate the interplay between two of the largest biofuels programs, namely the renewable fuel mandates in the US and the EU. We examine how the presence of each of these programs influences the other, and also how their combined impact influences global markets and land use around the world. We begin with an analysis of the origins of the recent bio-fuel boom, using the historical period from 2001-2006 for purposes of model validation. This was a period of rapidly rising oil prices, increased subsidies in the EU, and, in the US, there was a ban on the major competitor to ethanol for gasoline additives. Our analysis of this historical period permits us to evaluate the relative contribution of each of these factors to the global biofuel boom. We also use this historical simulation to establish a 2006 benchmark biofuel economy from which we conduct our analysis of future mandates. Our prospective analysis of the impacts of the biofuels boom on commodity markets focuses on the 2006-2015 time period, during which existing investments and new mandates in the US and EU are expected to substantially increase the share of agricultural products (e.g., corn in the US, oilseeds in the EU, and sugar in Brazil) utilized by the biofuels sector. In the US, this share could more than double from 2006 levels, while the share of oilseeds going to biodiesel in the EU could triple. Having established the baseline 2006-2015 scenario, we proceed to explore the interactions between the US and EU policies. This involves decomposing the contributions of each set of regional policies to the global changes in output and land use. The most dramatic interaction between the two sets of policies is for oilseed production in the US, where the sign of the output change is reversed in the presence of EU mandates (rising rather than falling). In other sectors, the interaction is more modest. However, when it comes to the impacts of these combined mandates on third economies, the two policies combine to have a much greater impact than just the US or just the EU policies alone. |
| Keywords: | Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6526&r=ene |
| By: | O'BRIEN, Daniel; WOOLVERTON, Mike; MADDY, Lucas; POZO, Veronica; ROE, Josh; TAJCHMAN, Jenna; YEAGER, Elizabeth |
| Abstract: | The development of grain-based ethanol production in Kansas has had a marked impact upon the feedgrain and livestock industries of the state. The increased focus on feedgrain production stemming from ethanol development impacts the use and sustainability of Kansas water resources, and has changed the proportional mix of crops grown in the state. The need to handle increased amounts of feedgrains and to transport them to ethanol plants has affected the functional role of local grain elevators as well as the directional flow of grain within the state. The grain trucking industry has been dramatically affected by the increase in demand for moving both feedstock inputs and co-product outputs to and from ethanol plants in the state. |
| Keywords: | Crop Production/Industries, Livestock Production/Industries, Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6432&r=ene |
| By: | Feng, Hongli; Rubin, Ofir D.; Babcock, Bruce A. |
| Abstract: | Life cycle analysis (LCA) is the standard approach used to evaluate the greenhouse gas (GHG) benefits of biofuels. However, it is increasingly recognized that LCA results do not account for some impacts including land use changes that have important implications on GHGs. Thus, an alternative accounting system that goes beyond LCA is needed. In this paper, we contribute to the literature by laying out the basics of a system-wide accounting (SWA) method that takes into account all potential changes in GHGs resulting from biofuel expansion. We applied both LCA and SWA to assess the GHG impacts of ethanol based on Iowa corn. Growing corn in rotation with soybeans generated 35% less GHG emissions than growing corn after corn. Based on average corn production, ethanol's GHG benefits were lower in 2007 than in 2006 because of an increase in continuous corn in 2007. When only additional corn was considered, ethanol emitted about 22% less GHGs than gasoline. Results from SWA varied with the choice of baseline and the definition of geographical boundaries. Using 2006 as a baseline and 2007 as a scenario, corn ethanol's benefits were about 20% of the emissions of gasoline. If we expand geographical limits beyond Iowa, but assume the same emission rates for soybean production and land use changes as those in Iowa, then corn ethanol generated more GHG emissions than gasoline. These results highlight the importance of boundary definition for both LCA and SWA |
| Keywords: | biofuels, corn ethanol, greenhouse gas, life cycle analysis, system-wide accounting, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6503&r=ene |
| By: | Adelaja, Soji; Hailu, Yohannes G. |
| Abstract: | Food and energy security have increasingly acquired key natural resource policy focus. As alternative energy solutions become more land intensive, the potential implication to the agricultural sector becomes of policy interest. This study investigated the impact of projected wind energy development in Michigan on the agricultural sector. Results indicate that land lease payments overtime for wind turbine siting are expected to generate $50 million per year, impacting agricultural viability. Spatial distribution analysis suggests that most of the projected lease payments to farmers are concentrated in low value agricultural land, low value agricultural production, urban influenced, and low net farm income locations. We found that the spatial distribution of wind energy impact on agricultural viability is wide, but significant in some counties, by a margin of more than 50% net farm income gain. As renewable energy development becomes more land intensive, the potential cross-sectoral impacts need to be carefully considered. |
| Keywords: | agricultural viability, renewable energy, land use, spatial analysis, Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6132&r=ene |
| By: | Finon, D.; Roques, F. |
| Abstract: | The paper studies how risks specific to a nuclear power investment in liberalised markets – regulatory, construction, operation and market risks – can be mitigated or transferred away from the plant investor through different contractual and organisational arrangements. It argues that significant risk transfers onto governments, consumers, and, vendors are likely to be needed to make nuclear power attractive to investors in liberalised markets, at least for the first batch of new reactors. These different types of risk allocations will in turn induce different investment financing choices. Four case studies of recent new nuclear projects illustrate the consistent combinations of contractual, organisational, and financial arrangements for new nuclear build depending on the industrial organisation, market position of the company and the institutional environment prevailing in different countries. The most likely financing structure will likely be based on corporate financing or some form of hybrid arrangement backed by the balance sheet of one or a consortium of large vertically integrated companies. |
| Keywords: | electricity market, nuclear, financing |
| JEL: | D24 G3 L38 N7 Q48 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0850&r=ene |
| By: | Fang, Xingming; Hu, Xiaoping; Wang, H. Holly |
| Abstract: | Whether the high economic growth of China is sustainable is the matter of interest to the public, government and academic circle of China and meanwhile it catches the attention of the world because the development of China has been exerting increasing impact on the world economy. Since the high economic growth of China has been promoted by heavy and chemical industry (HCI) to a great extent, which resulted in high consumption of energy resource, high consumption of mineral resources and high emission of pollutants (the €ܴriple highness€ݩ, the sustainability of high economic growth of China depends on a sustainable growth road for China€ٳ HCI and effective control on the €ܴriple highness€ݮ We find that the contributing factors of the €ܴriple highnessÂ€Ý are not the growth of HCI itself but the small scale and out dated technology. We conclude that the €ܴriple highnessÂ€Ý can be effectively controlled if some proper measures are adopted and the high growth of China can be sustainable. |
| Keywords: | economic growth, energy, resource, pollution, International Development, Resource /Energy Economics and Policy, O10, O11, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6274&r=ene |
| By: | Bryan K. Mignone |
| Abstract: | The overall economic efficiency of a quantity-based approach to greenhouse gas mitigation depends strongly on the extent to which such a program provides opportunities for compliance flexibility, particularly with regard to the timing of emissions abatement. Here I consider a program in which annual targets are determined by choosing the optimal time path of reductions consistent with an exogenously prescribed cumulative reduction target and fixed technology set. I then show that if the availability of low-carbon technology is initially more constrained than anticipated, the optimal reduction path shifts abatement toward later compliance periods. For this reason, a rigid policy in which fixed annual targets are strictly enforced in every year yields a cumulative environmental outcome identical to the optimal policy but an economic outcome worse than the optimal policy. On the other hand, a policy that aligns actual prices (or equivalently, costs) with expected prices by simply imposing an explicit price ceiling (often referred to as a "safety valve") yields the opposite result. Comparison among these multiple scenarios implies that there are significant gains to realizing the optimal path but that further refinement of the actual regulatory instrument will be necessary to achieve that goal in a real cap-and-trade system. |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:acb:camaaa:2008-36&r=ene |
| By: | Sippel, M.; Neuhoff, K. |
| Abstract: | This article examines what may be taken into account, when designing a mechanism of international public finance to support south-north cooperation on domestic climate policies in developing countries. We draw lessons from existing mechanisms of conditional transfers. Experience with conditionality provisions that the World Bank, the IMF, and bilateral donors apply to development assistance is varied. Conditionality provisions applied during the EU enlargement process are generally evaluated more positively, as the shared objective is increased credibility and participation. Clearly defining global emissions reductions as a shared objective could offer similar opportunities for cooperation. We discuss lessons that might be of relevance to the design of cooperative climate policy. |
| Keywords: | International cooperation, incentive schemes, mechanism design |
| JEL: | F02 H11 H77 O10 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0849&r=ene |
| By: | Cacho, Oscar |
| Abstract: | Payment for carbon sequestration by agriculture and forestry can provide incentives for adoption of sustainable agricultural practices. However, a project involving contracts with farmers may face high transaction costs in showing that net emission reductions are real and attributable to the project. This paper presents a model of project participation that includes transaction and abatement costs. A project feasibility frontier (PFF) is derived, which shows the minimum project size that is feasible for any given market price of carbon. The PFF is used to analyse how the design of a climate mitigation program may affect the feasibility of actual projects. |
| Keywords: | Climate Policy, Greenhouse Effect, Carbon Sequestration, Agroforestry, Transaction Costs, Environmental Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare08:6007&r=ene |
| By: | Karp, Larry |
| Abstract: | One argument in favor of market based pollution control policies is sometimes exaggerated, and a different argument is usually ignored. Regardless of whether investment is fixed or endogenous, market based policies might lead to a higher or lower equilibrium abatement compared to the level under command and control policies. Therefore, economists should be cautious about trying to convince anti-market environmentalists of the benefit of market based policies on the grounds that these promote environmental goals. However, market based policies reduce regulatory uncertainty. Under command and control emissions policies, there are multiple rational expectations competitive equilibria at the investment stage. From the standpoint of individual firms, this multiplicity looks like regulatory uncertainty. Market based policies eliminate this uncertainty. These results hold in an environment with common knowledge about market fundamentals. In a global games setting the unique investment equilibrium under command and control emissions policies is constrained efficient. |
| Keywords: | tradable permits, coordination games, multiple equilibria, global games, regulatory uncertainty, climate change policies, California AB32, Environmental Economics and Policy, C79, L51, Q58, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6030&r=ene |
| By: | Larson, Donald F.; Ambrosi, Philippe; Dinar, Ariel; Rahman, Shaikh Mahfuzur; Entler, Rebecca |
| Abstract: | The scale of investment needed to slow greenhouse gas emissions is larger than governments can manage through transfers. Therefore, climate change policies rely heavily on markets and private capital. This is especially true in the case of the Kyoto Protocol with its provisions for trade and investment injoint projects. This paper describes institutions and policies important for new carbon markets and explains their origins. Research efforts that explore conceptual aspects of current policy are surveyed along with empirical studies that make predictions about how carbon markets will work and perform. The authors summarize early investment and price outcomes from newly formed markets and point out areas where markets have preformed as predicted and areas where markets remain incomplete. Overall the scale of carbon-market investment planned exceeds earlier expectations, but the geographic dispersion of investment is uneven and important opportunities for abatement remain untapped in some sectors, indicating a need for additional research on how investment markets work. How best to promote the development and deployment of new technologies is another promising area for study identified in the paper. |
| Keywords: | Carbon Policy and Trading,Energy and Environment,Environment and Energy Efficiency,Climate Change,Transport and Environment |
| Date: | 2008–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4761&r=ene |
| By: | Sanderson, Todd; Ancev, Tiho; Betz, Regina |
| Abstract: | Trading schemes for emission allowances have become a panacea for nations aspiring to reduce their aggregate emissions of greenhouse gases from industry in a cost-effective manner. The contention of this paper is that an emissions trading scheme (ETS) should not be based on blanket coverage of installations on a downstream level, but should rather be designed to include some installations, and from some industrial sectors. In the case of an ETS there are high costs of administration, monitoring and transacting imposed on the installations covered. These costs are supposed to be more than offset by the cost savings realised through trading in the market for emission allowances. However, the paper shows that not all installations can fully offset administrative costs, and are therefore exposed to higher cost compared to a situation under an alternative instrument (e.g. standard). The paper formulates a conceptual framework for analysing overall cost and benefits from an ETS in the light of administration and transactions costs. It theoretically establishes a threshold point for optimal coverage of installations on a downstream level. The paper uses data from EU ETS to empirically determine optimal coverage for selected sectors. The results indicate that blanket coverage is more costly than the determined optimum coverage plan. |
| Keywords: | Climate Change, Emissions Trading Scheme, European Union, Marginal Abatement Costs, Environmental Policy, Environmental Economics and Policy, International Relations/Trade, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare08:6047&r=ene |
| By: | Freebairn, John |
| Abstract: | The paper argues from first principles and with supporting related empirical evidence that most of the final incidence of emissions taxes or tradable permits will fall on consumers of greenhouse gas intensive products. This distributional outcome supports an emissions reduction strategy of an emissions tax or auctioning the tradable permits, rather than gifting permits in a grandfather arrangement to current polluters as was done in Europe and has currency with proposals for Australia. Greenhouse gas emissions and climate change is a global pollution problem that gives rise to a prisoner€ٳ dilemma problem in which the global cooperative solution in undermined by individual countries free-riding. Some of the issues and challenges to be overcome to reach a cooperative global policy package are discussed, including the different interests and perspectives of developed and developing countries. |
| Keywords: | Environmental Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare08:6770&r=ene |
| By: | Arief Anshory Yusuf (Department of Economics, Padjadjaran University); Arief Ramayandi (Center for Economics and Development Studies Dept. of Economics, Padjadjaran University) |
| Abstract: | Reducing fuel subsidy and taxing carbon have a tendency toward reducing energy consumption and carbon emissions. However, both instruments may have differing impacts in their magnitudes of the emissions reduction and on the economy as a whole. Using INDONESIA-E3 (Economy-Equity-Environment) model, a computable general equilibrium (CGE) model which includes carbon emissions, carbon taxation, as well as, strong feature in distributional analysis, this paper compares and contrast the two instruments to find which policy is better in improving the three pillars of sustainable development: economy, equity, and the environment. The result suggests that given the same amount of government budget saving, carbon tax is relatively superior to using a fuel subsidy reduction instrument, because it can accelerate the decline in CO2 emissions with a lower cost on the economy in terms of GDP reduction with more favorable distributional effect. This has not taken into account the economic incentives it creates for the economy to be less reliant on carbon-intensive energy. |
| Keywords: | Carbon Tax, Fuel Subsidyc Climate Change, CGE, Indonesia |
| JEL: | D30 D58 Q40 Q48 Q54 Q56 Q58 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:unp:wpaper:200808&r=ene |
| By: | Cullen, Joseph |
| Abstract: | Production subsidies for renewable energy have experienced intermittent support from the federal government. One reason for less than united support arises from uncertainty over the environmental impact of projects implemented because of such subsidies. Wind energy in particular has taken advantage of federal subsidies, but what has been the environmental impact? Taking investment in wind capacity as given, I am able to identify the short run substitution patterns between wind power and conventional power for one geographic area of the US electric grid. I exploit the exogenous nature of wind to identify generator level substitution of wind generated electricity for conventionally generated electricity. I then quantify the avoided emissions and associated costs using generator level emissions information and market clearing prices for pollution permits. The end result is the value of avoided emissions due to government subsidies. |
| Keywords: | Environmental Economics and Policy, Resource /Energy Economics and Policy, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea08:6027&r=ene |
| By: | Gillespie, Rob |
| Abstract: | This paper conveniently skips any controversy associated with the science of climate change. On the assumption that greenhouse gas emissions are causing climate change that is detrimental to humanity, the paper focuses on some economic dimensions of the issue which seem to be poorly understood by Australian media commentators, policy analysts, interest groups and the political parties. Using a neoclassical welfare economics framework the paper explores the costs and benefits of greenhouse gas abatement with reference to the findings of the Stern Report, the setting of greenhouse gas targets by Australian political parties, the danger of the government €ܰicking winnersÂ€Ý and the emerging carbon theory of value. The paper concludes with a brief review of the relative merits of a carbon tax and a cap and trade approach. Key Words: This paper conveniently skips any controversy associated with the science of climate change. On the assumption that greenhouse gas emissions are causing climate change that is detrimental to humanity, the paper focuses on some economic dimensions of the issue which seem to be poorly understood by Australian media commentators, policy analysts, interest groups and the political parties. Using a neoclassical welfare economics framework the paper explores the costs and benefits of greenhouse gas abatement with reference to the findings of the Stern Report, the setting of greenhouse gas targets by Australian political parties, the danger of the government €ܰicking winnersÂ€Ý and the emerging carbon theory of value. The paper concludes with a brief review of the relative merits of a carbon tax and a cap and trade approach. |
| Keywords: | climate change, economics, targets, policy, carbon tax, cap and trade, Environmental Economics and Policy, Political Economy, Public Economics, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare08:6006&r=ene |