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on Energy Economics |
| By: | Paul L. Joskow |
| Abstract: | Economic evaluations of alternative electric generating technologies typically rely on comparisons between their expected life-cycle production costs per unit of electricity supplied. The standard lifecycle cost metric utilized is the levelized cost per MWh supplied. This paper demonstrates that this metric is inappropriate for comparing intermittent generating technologies like wind and solar with dispatchable generating technologies like nuclear, gas combined cycle, and coal. Levelized cost comparisons are a misleading metric for comparing intermittent and dispatchable generating technologies because they fail to take into account differences in the production profiles of intermittent and dispatchable generating technologies and the associated large variations in the market value of the electricity they supply. Levelized cost comparisons overvalue intermittent generating technologies compared to dispatchable base load generating technologies. These comparisons also typically overvalue wind generating technologies compared to solar generating technologies. Integrating differences in production profiles, the associated variations in the market value of the electricity at the times it is supplied, and the expected life-cycle costs associated with different generating technologies is necessary to provide meaningful economic comparisons between them. This market-based framework also has implications for the appropriate design of procurement auctions created to implement renewable energy procurement mandates, the efficient structure of production tax credits for renewable energy, incentives for and the evaluation of electricity storage technologies and the evaluation of the additional costs of integrating intermittent generation into electric power networks. |
| Date: | 2011–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0292&r=ene |
| By: | Lynette Molyneaux (Department of Economics, University of Queensland); Liam Wagner (Department of Economics, University of Queensland); Craig Froome; John Foster (Department of Economics, University of Queensland) |
| Abstract: | Electricity systems have generally evolved based on the natural resources available locally. Few metrics exist to compare the security of electricity supply of different countries despite the increasing likelihood of potential shocks to the power system like energy price increases and carbon price regulation. This paper seeks to calculate a robust measure of national power system resilience by analysing each step in the process of transformation from raw energy to consumed electricity. Countries with sizeable deposits of mineral resources are used for comparison because of the need for electricity-intensive metals processing. We find that shifts in electricity-intensive industry can be predicted based on countries’ power system resilience. |
| Keywords: | Electricity; resilience; energy security |
| JEL: | Q40 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqeemg:15&r=ene |
| By: | Luciano De Castro |
| Abstract: | Smart Grid (SG) technologies may bring substantial advantages to society, but the required investments are also sizable. This paper establishes a framework for examining the issues related to the SG, and highlights some of the difficulties in establishing a mechanism for paying SG costs. In particular, we show that generators will lose profits as a direct effect of demand response initiatives, and most of the benefits of SG cannot be easily converted into payments. JEL Code: D61,H42, D62,L51 |
| Keywords: | Smart Grid, Energy Economics, Cost-Benefit Analysis, Demand Response, Demand Response Formalization |
| Date: | 2011–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1544&r=ene |
| By: | Nikogosian, Vigen; Veith, Tobias |
| Abstract: | The literature on vertical integration in markets with regulated upstream prices suggests that the integrated upstream firm might engage in non-price discrimination. Several studies provide policy recommendations derived either from case study approaches or based on theoretical modeling which addresses the unbundling issue. In this study we analyze the impact of vertical integration of retail incumbent and network operator on retail prices and upstream charges. As the vertical structure is heterogeneous across the 850 German electricity submarkets for residential customers (there exist legally unbundled, vertically integrated or fully separated firms), we use firm level data to analyze the effects of different vertical structures and regulation schemes on retail electricity prices. We find significantly higher prices in markets with vertically integrated firms compared to markets with fully separated firms. This finding could indicate non-price discrimination. Furthermore, we find no evidence that legal unbundling eliminates the incentives for non-price discrimination because the prices do not differ from prices in markets under vertical integration. -- |
| Keywords: | electricity,regulation,vertical integration,legal and total unbundling,non-price discrimination |
| JEL: | L1 L5 L9 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11069&r=ene |
| By: | Nikogosian, Vigen; Veith, Tobias |
| Abstract: | In German electricity submarkets for residential customers standard contracts offered by former monopolists are the more costly option for customers who have not switched to an alternative contract yet. As most German households are served with this contract type we follow the Limit Pricing theory and show that standard contract price could be used as an instrument to affect competition, in terms of market entries, in the related market. We theoretically derive the optimal price-setting behavior of a price-discriminating incumbent provider and show that under particular circumstances reducing the standard contract price could increases the incumbent's profit. We then analyze our theoretical findings employing data for German retail electricity submarkets using simultaneous equation approach and can find support for our hypothesis. In particular for customers with low consumption and high relative switching costs the results show that the standard contract price can affect market entry whereas for high consumption level customers we have to reject our hypothesis. -- |
| Keywords: | barrier to entry,first-mover advantage,price discrimination |
| JEL: | L11 L13 L43 L94 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11068&r=ene |
| By: | Francesco Nicolli; Francesco Vona; Lionel Nesta |
| Abstract: | This paper carries out a comprehensive analysis of renewable energy innovations considering four mechanisms suggested by innovation models: 1. policy-inducement; 2. market structure; 3. demand and social cohesion- mainly proxied by income inequality; 4. characteristics of country knowledge base. For OECD countries and years 1970-2005, we build a unique dataset containing time-varying information on quality-adjusted patent production in renewable energy, the latter being a function of environmental policies, green R&D, entry barriers, knowledge stock, knowledge diversity and income inequality. We develop count data models using the Generalized Method of Moments (GMM) to account for endogeneity of policy support. Our synthetic policy index positively affects innovations especially in countries with deregulated energy markets and low entry barriers. The effect of entry barriers and inequality is negative and of similar magnitude as that of policy. Product market liberalization positively affects green patent generation, especially so when ambitious policies are adopted, when the initial level of public R&D expenditures and when the initial share of distributed energy generation is high. Our results are robust to alternative specifications, to the inclusion of technology-specific effects and to the use of quality-adjusted patents as dependent variables. In the latter case, the estimated effect of lowering entry barriers and of knowledge diversity almost double on citation count relatively to patent count. |
| Keywords: | renewable energy technology; patent; environmental policies; product market regulation; inequality |
| JEL: | Q55 Q58 Q42 Q48 O34 |
| Date: | 2012–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:udf:wpaper:201204&r=ene |
| By: | David Popp; Nidhi Santen; Karen Fisher-Vanden; Mort Webster |
| Abstract: | R&D is an uncertain activity with highly skewed outcomes. Nonetheless, most recent empirical studies and modeling estimates of the potential of technological change focus on the average returns to research and development (R&D) for a composite technology and contain little or no information about the distribution of returns to R&D—which could be important for capturing the range of costs associated with climate change mitigation policies—by individual technologies. Through an empirical study of patent citation data, this paper adds to the literature on returns to energy R&D by focusing on the behavior of the most successful innovations for six energy technologies, allowing us to determine whether uncertainty or differences in technologies matter most for success. We highlight two key results. First, we compare the results from an aggregate analysis of six energy technologies to technology-by-technology results. Our results show that existing work that assumes diminishing returns but assumes one generic technology is too simplistic and misses important differences between more successful and less successful technologies. Second, we use quantile regression techniques to learn more about patents that have a high positive error term in our regressions – that is, patents that receive many more citations than predicted based on observable characteristics. We find that differences across technologies, rather than differences across quantiles within technologies, are more important. The value of successful technologies persists longer than those of less successful technologies, providing evidence that success is the culmination of several advances building upon one another, rather than resulting from one single breakthrough. Diminishing returns to research efforts appear most problematic during rapid increases of research investment, such as experienced by solar energy in the 1970s. |
| JEL: | O31 Q4 Q42 Q54 Q55 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17792&r=ene |
| By: | Narayanan, K.; Sahu, Santosh Kumar |
| Abstract: | The problem of mitigating climate change has continued to dominate public debates in terms of its origin, sources, potential impacts and possibly adaptation strategies. In this paper, the contributions of energy to the climate change debate are explored. The analysis based on the secondary information shows that the global use of fossil fuels has increased and dominated world energy consumption and supply. This case is quite similar to Indian case and the emissions in Indian are also increasing. To account for the change in CO2 emission, we have followed index decomposition analysis using data from the PROWESS database of the Center for Monitoring Indian Economy. Two factors are considered to account for the changes in emission intensity of Indian economy, namely, (1) output shift among three sectors of the India economy (Agriculture, Service and Manufacturing) and (2) the structural change based on the aggregate output change with respect to the emissions change for the post globalised period. Based on the estimates we found that the structural change in Indian economy from 1991-2007 plays a major role in reducing emission as compared to the output shifts across the sectors. Based on the findings and international experiences, few policy options for Indian case such as; energy pricing reforms, promoting investment in renewable energy technologies and creating public environmental awareness are suggested. |
| Keywords: | Emission; Energy Consumption; Climate Change; Post-Globalization; Policy Instruments |
| JEL: | C63 Q43 Q58 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36366&r=ene |
| By: | Alfredo Marvão Pereira (Department of Economics, College of William and Mary, Williamsburg, VA, USA and Center for Advanced Studies in Economics and Econometrics CASEE, Portugal); José Manuel Belbute (Department of Economics, University of Évora, Portugal Center for Advanced Studies in Management and Economics CEFAGE, Portugal) |
| Abstract: | The objective of this paper is to analyze the degree of persistence of final energy demand in Portugal. Our results suggest the presence of a strong level of persistence for aggregate final energy demand. Final demand for gas is the most persistent component of energy demand, while the final demand for coal is the least persistent. In turn, final demand for petroleum and biomass tend to have levels of persistence similar to aggregate final demand. The case of final demand for electricity is inconclusive. These results have the important implication for the design of environmental policies. First, the fact that final energy demand is highly persistent is good news in that environmental policies in Portugal can be implemented in a favorable setting in which their effects will tend to be long lasting. Second, the high persistence of gas and the fact that biomass and petroleum have levels of persistence that are similar suggests that fuel switching policies will be relatively easy to implement in these cases. The case of coal is somewhat different in that switching away from coal may not be easy. In turn, the case of electricity is somewhat ambiguous. While the fact that it is also highly persistent suggests that shocks to its final demand will produce long lasting effects, it is not clear, however, how they compare to the effects on the other final demand components and therefore we can make no statements about fuel switching. |
| Keywords: | Persistence, final energy demand, fuel switching, environmental policy, Portugal. |
| JEL: | C14 C22 O13 Q41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:cfe:wpcefa:2011_20&r=ene |
| By: | Shahiduzzaman, Md; Alam , Khorshed |
| Abstract: | This paper investigates the long-run and short-run relationships between energy consumption and economic growth in Australia using the bound testing and the ARDL approach. For the first time in the literature we employ both production and demand side models and a unified model comprising both production and demand side variables for a single set of data. The relationships are investigated at aggregate as well as several disaggregated energy categories, such as coal, oil, gas and electricity. The possibilities of one or more structural break(s) in the data series are examined by applying the recent advances in techniques. We find that the results of the cointegration tests could be affected by the structural break(s) in the data. It is, therefore, crucial to incorporate the information on structural break(s) in the subsequent modelling and inferences. Moreover, neither the production side nor the demand side framework alone can provide sufficient information to draw an ultimate conclusion on the cointegration and causal direction between energy and output. When alternative frameworks and structural break(s) in time-series are explored properly, strong evidence of a bidirectional relationship between energy and output can be observed. The finding is true both at aggregate and disaggregate levels of energy consumption. |
| Keywords: | Energy consumption; Economic growth; Cointegration; Causality |
| JEL: | O56 O13 Q43 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36256&r=ene |
| By: | Amiri, Arshia; Zibaei, Mansour |
| Abstract: | This paper introduces a new way for investigating linear and nonlinear Granger causality between energy use and economic growth in France over the period 1960_2005 with using geostatistical models (kiriging and IDW). This approach imitates the Granger definition and structure and also, improves it to have better ability for probe nonlinear causality. Results of both VEC and Improved-VEC (with geostatistical methods) are almost same. Both show the existence of long run unidirectional causality from energy consumption to economic growth. The geostatistical analyzing shows there are some Exponential functions in VEC structure instead of linear form. |
| Keywords: | Granger causality; Energy consumption; GDP; Geostatistical model; France |
| JEL: | Q4 |
| Date: | 2012–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36357&r=ene |
| By: | Halkos, George; Tzeremes, Nickolaos |
| Abstract: | This paper by applying Data Envelopment Analysis (DEA) ranks for the first time Economics journals in the field of Agricultural, Environmental and Natural Resource. Specifically, by using one composite input and one composite output the paper ranks 32 journals. In addition for the first time three different quality ranking reports have been incorporated to the DEA modelling problem in order to classify the journals into four categories (‘A’ to ‘D’). The results reveal that the journals with the highest rankings in the field are Journal of Environmental Economics and Management, Land Economics, American Journal of Agricultural Economics, Journal of Agricultural Economics, Energy Journal, Resource and Energy Economics, Environment and Planning A, Ecological Economics and European Review of Agricultural Economics. |
| Keywords: | Journals Rankings; Agricultural Economics; Environmental Economics; Natural Resource Economics; Data Envelopment Analysis |
| JEL: | Q00 C14 C02 A10 A11 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36233&r=ene |
| By: | Shahiduzzaman, Md; Alam, Khorshed |
| Abstract: | This paper provides an empirical estimation of energy efficiency and other proximate factors that explain energy intensity in Australia for the period 1978-2009. The analysis is performed by decomposing the changes in energy intensity by means of energy efficiency, fuel mix and structural changes both at sectoral and sub-sectoral levels of the economy. Results show that the driving forces behind the decrease in energy intensity in Australia are efficiency effect and sectoral composition effect, where the former is found to be more prominent than the latter. Moreover, the favourable impact of the composition effect has been consistently slowed down in the recent past. A perfect positive association characterizes the relationship between energy intensity and carbon intensity in Australia. Given the trends in decomposition factors, it is necessary to boost energy efficiency further to reduce Australia’s overall contribution to energy intensity and carbon emissions in the future. |
| Keywords: | Energy intensity; Energy efficiency; Index decomposition analysis |
| JEL: | O56 Q43 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36250&r=ene |
| By: | Peters, Anja; Sonnberger, Marco; Dütschke, Elisabeth; Deuschle, Jürgen |
| Abstract: | The replacement of appliances and other energy using products by more efficient ones is generally regarded as an effective strategy to reduce energy demand. However, the savings realized by this strategy may be lower than those theoretically expected or calculated from a technological point of view due to changes of behaviour following the acquisition. This phenomenon is known as the rebound effect. While scientists generally agree on the existence of rebound effects, size, relevance and explanations of such effects are controversially discussed. This paper discusses concepts to explain rebound effects from a psychological as well as sociological point of view. In particular, an approach which combines variables from psychological action theories with the sociological life-style concept is suggested as a framework for studying determinants of rebound effects. -- |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fisisi:s22012&r=ene |
| By: | Gonzalez, Patrick |
| Abstract: | Ce texte presente une esquisse des elements quie devrait inclure une analyse couts-benefices de la pertinence de developper la filiere de l'extraction du gaz de shale au Quebec. This article offers a sketch of the components that should include a costs-benefits analysis of developing or not a shale gas industry in Quebec. |
| Keywords: | Gaz de schiste, analyse couts-benefices, Quebec, shale gas, costs-benefits analysis, Environmental Economics and Policy, Q30, Q34, D61, |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ulavwp:120264&r=ene |
| By: | Clemens Haftendorn |
| Abstract: | Before 2004 South Africa was the dominant steam coal exporter to the European market. However a new market situation with rising global demand and prices makes room for a new entrant: Russia. The hypothesis investigated in this paper is that the three incumbent dominant firms located in South Africa and Colombia reacted to that new situation by exerting market power and withheld quantities from the market in 2004 and 2005. Three market structure scenarios of oligopoly with a competitive fringe are developed to investigate this hypothesis: a Stackelberg model with a cartel, a Stackelberg model with a Cournot-oligopoly as leader and a Nash-bargaining model. The model with a Cournot oligopoly as leader delivers the best reproduction of the actual market situation meaning that the dominant players exert market power in a non-cooperative way without profit sharing. Furthermore some methodological clarifications regarding the modeling of markets with dominant players and a competitive fringe are made. In particular we show that the use of mixed aggregated conjectural variations can lead to outcomes that are inconsistent with the actions of rational profit-maximizing players. |
| Keywords: | Atlantic coal market, partial equilibrium modeling, market power |
| JEL: | L13 L72 C69 C72 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1185&r=ene |
| By: | Christiane Baumeister; Lutz Kilian |
| Abstract: | Recently, there has been increased interest in real-time forecasts of the real price of crude oil. Standard oil price forecasts based on reduced-form regressions or based on oil futures prices do not allow consumers of forecasts to explore how much the forecast would change relative to the baseline forecast under alternative scenarios about future oil demand and oil supply conditions. Such scenario analysis is of central importance for end-users of oil price forecasts interested in evaluating the risks underlying these forecasts. We show how policy-relevant forecast scenarios can be constructed from recently proposed structural vector autoregressive models of the global oil market and how changes in the probability weights attached to these scenarios affect the upside and downside risks embodied in the baseline real-time oil price forecast. Such risk analysis helps forecast users understand what assumptions are driving the forecast. An application to real-time data for December 2010 illustrates the use of these tools in conjunction with reduced-form vector autoregressive forecasts of the real price of oil, the superior realtime forecast accuracy of which has recently been established. |
| Keywords: | Econometric and statistical methods; International topics |
| JEL: | Q43 C53 E32 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:12-1&r=ene |
| By: | Havranek, Tomas (Czech National Bank, Charles University, Prague); Irsova, Zuzana (Charles University, Prague); Janda, Karel (University of California, Berkeley, University ofIowa. Research Institute of Agricultural Economics and CERGEEI, Prague, Czech Republic) |
| Abstract: | One of the most frequently examined statistical relationships in energy economics has been the price elasticity of gasoline demand. We conduct a quantitative survey of the estimates of elasticity reported for various countries around the world. Our meta-analysis indicates that the literature suffers from publication selection bias: insignificant or positive estimates of the price elasticity are rarely reported, although implausibly large negative estimates are reported regularly. In consequence, the aver- age published estimates of both short- and long-run elasticities are exaggerated twofold. Using mixed effects multilevel meta-regression, we show that after correction for publication bias the average long-run elasticity reaches -0:31 and the average short-run elasticity only -0:09. |
| Keywords: | gasoline demand, price elasticity, meta-analysis, publication selection bias |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:are:cudare:1118&r=ene |
| By: | Christiane Baumeister; Gert Peersman |
| Abstract: | We use vector autoregressions with drifting coefficients and stochastic volatility to investigate how the dynamic effects of oil supply shocks on the U.S. economy have changed over time. We find a substantial decline in the short-run price elasticity of oil demand since the mid-eighties. This finding helps explain why an oil production shortfall of the same magnitude is associated with a stronger response of oil prices and more severe macroeconomic consequences over time, while an oil price increase of the same magnitude is associated with a smaller decline in oil production and smaller losses in U.S. output in more recent years. We also show that oil supply shocks more recently account for a smaller fraction of the variability of the real price of oil, implying a greater role for oil demand shocks. Notwithstanding this time variation, the overall cumulative effect of oil supply disruptions on the U.S. economy has been modest. Oil supply shocks contributed to some extent to the 1991 recession and slowed the economic boom of 1999-2000, but they do not explain other U.S. recessions nor do they help explain the "Great Inflation" of the 1970s and early 1980s. |
| Keywords: | Econometric and statistical methods; International topics |
| JEL: | E31 E32 Q43 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:12-2&r=ene |
| By: | Carlos P. Barros; Guglielmo Maria Caporale; Luis A. Gil-Alana |
| Abstract: | This study examines the long-memory properties of German energy price indices (specifically, import and export prices, as well as producer and consumer prices) for hard coal, lignite, mineral oil and natural gas adopting a fractional integration modelling framework. The analysis is undertaken using monthly data from January 2000 to August 2011. The results suggest nonstationary long memory in the series (with orders of integration equal to or higher than 1) when breaks are not allowed for. However, endogenous break tests indicate a single break in all series except for producer prices for lignite for which two breaks are detected. When such breaks are taken into account, and with autocorrelated disturbances, evidence of mean reversion is found in practically all cases. |
| Keywords: | Energy prices, Germany, fractional integration, persistence, breaks and outliers |
| JEL: | C32 E30 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1186&r=ene |
| By: | Hacihasanoglu, Erk; Turhan, Ibrahim M.; Soytas, Ugur |
| Abstract: | This paper investigates the role of oil prices in explaining the dynamics of selected emerging countries exchange rates. Using daily data series, the study concludes that a rise in oil price is leading to a significant appreciation in emerging economies currencies against the US dollar. In our study, we divide daily returns from 03/01/2003 to 02/06/2010 into 3 subsamples and test the role of oil price changes on exchange rate movements. We employ generalized impulse response functions to trace out the dynamic response of each exchange rate in three different time periods. Our findings suggest that oil price dynamics are changing significantly in the sample period and the relation between oil prices and exchange rates becomes more relevant after the 2008 financial crisis. |
| Keywords: | oil prices; emerging market exchange rates; international financial markets; financial crisis |
| JEL: | G15 F31 Q43 G01 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36477&r=ene |
| By: | Chen, Shiu-Sheng; Hsu, Kai-Wei |
| Abstract: | This paper examines whether higher oil price volatility causes a reversal in globalization. Using a large annual panel data set covering 84 countries all over the world from 1984 to 2008, we investigate the impacts of oil price fluctuations on international trade, namely exports and imports. We present strong and robust evidence that international trade flows will be lower when oil prices fluctuate significantly. We therefore conclude that oil price volatility hurts globalization. |
| Keywords: | oil price shocks; oil price volatility; international trade; reverse globalization |
| JEL: | F40 Q40 |
| Date: | 2012–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36182&r=ene |
| By: | Torfinn Harding and Frederick van der Ploeg (Statistics Norway) |
| Abstract: | Official forecasts for oil revenues and the burden of pensioners are used to estimate forward-looking fiscal policy rules for Norway and compared with permanent-income and bird-in-hand rules. The results suggest that fiscal reactions have been partial forward-looking with respect to the rising pension bill, but backward-looking with respect to oil and gas revenues. Solvency of the government finances might be an issue with the fiscal rules estimated from historical data. Simulation suggests that declining oil and gas revenue and the costs of a rapidly graying population will substantially deteriorate the net government asset position by 2060 unless fiscal policy becomes more prudent or current pension and fiscal reforms are successful. |
| Keywords: | oil windfalls; official forecasts; forward-looking fiscal policy rules; permanent income hypothesis; graying population; debt sustainability |
| JEL: | H20 H63 Q33 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:676&r=ene |
| By: | Michael Plante (Federal Reserve Bank of Dallas); Nora Traum (North Carolina State University) |
| Abstract: | We illustrate the theoretical relation among output, consumption, investment, and oil price volatility in a real business cycle model. The model incorporates demand for oil by a firm, as an intermediate input, and by a household, used in conjunction with a durable good. We estimate a stochastic volatility process for the real price of oil over the period 1986-2011 and utilize the estimated process in a non-linear approximation of the model. For realistic calibrations, an increase in oil price volatility produces a temporary decrease in durable spending, while precautionary savings motives lead in- vestment and real GDP to rise. Irreversible capital and durable investment decisions do not overturn this result. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2012-002&r=ene |
| By: | Kisswani, Khalid /M.; Nusair, Salah /A. |
| Abstract: | We utilize non-linear models to examine the stationarity of oil prices (Brent, Dubai, WIT and World) over the period 1973:2-2011:2. Real oil prices are calculated and expressed in the domestic currencies of seven Asian countries (Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore and Thailand) and in the U.S dollar. Applying linear unit root tests with and without structural breaks shows very limited evidence of stationarity. However, applying non-linear models shows evidence of non-linearity in all the cases. In most cases, we find significant evidence of exponential smooth transition autoregression (ESTAR) type non-linearity. Notably, the results for Japan suggest logistic (LSTAR) type non-linearity for the four oil prices. Applying unit root tests, which account for two types of non-linearities (smooth transition and nonlinear deterministic trends), reveals evidence of stationarity in all the cases. |
| Keywords: | oil prices; nonlinear unit root tests; nonlinear deterministic trends; smooth transition autoregression |
| JEL: | O53 C20 Q40 |
| Date: | 2012–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36586&r=ene |
| By: | Elmarzougui, Eskandar; Larue, Bruno |
| Abstract: | The relationship between corn and oil prices is not a stable one. We identified three breaks in the relationship between corn and oil prices. The first break coincides with the second oil crisis. The second break marks the end of the agricultural export subsidy war between the EU and the US in the mid 1980s while the third one occurred at the beginning of the ethanol boom at the very end of the 1990s. The relationship between corn and oil prices tends to be stronger when oil prices are highly volatile and when agricultural policies create less distortion. The ethanol boom strengthened the relation between corn and oil prices which are (were not) cointegrated in the fourth regime (first three) regime(s). Impulse response functions confirm that corn prices systematically respond to oil price shocks, but the converse is not observed. |
| Keywords: | Oil, corn, structural changes, cointegration, ethanol, protectionism, Agricultural and Food Policy, C32, Q11, Q17, Q40, |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ulavwp:118580&r=ene |
| By: | Janda, Karel (University of California, Berkeley, Charles University, Prague, University of Economics, Prague and CERGE-EI); Kristoufek, Ladislav (Charles University, Prague and Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic); Zilberman, David (University of California, Berkeley. Dept of agricultural and resource economics) |
| Abstract: | This paper provides an overview of the environmental, economical, and policy considerations related to biofuels. While the biofuel production and consumption exhibited significant increase over the first decade of the new millennium, this and further increases in biofuel production are driven primarily by government policies. Currently available first generation biofuels are with a few exceptions not economically viable in the absence of fiscal incentives or high oil prices. Also the environmental impacts of biofuels as an alternative to fossil fuels are quite ambiguous. The review of the most recent economic models dealing with biofuels and their economic impacts provides a distinction between structural and reduced form models. The review ofreduced models is structured toward the time series analysis approach to thedependencies between prices of feedstock, biofuels, and fossil fuels. |
| Keywords: | biofuels, ethanol, biodiesel |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:are:cudare:1119&r=ene |
| By: | Bernard, Jean-Thomas; Gavin, Michael; Khalaf, Lynda; Voia, Marcel |
| Abstract: | We consider an empirical estimation of the Environmental Kuznets Curve (EKC) for carbon dioxide and sulphur, with a focus on confidence set estimation of the tipping point. Various econometric â parametric and nonparametric â methods are considered, reflecting the implications of persistence, endogeneity, the necessity of breaking down our panel regionally, and the small number of countries within each panel. In particular, we propose an inference method that corrects for potential weak-identification of the tipping point. Weak identification may occur if the true EKC is linear while a quadratic income term is nevertheless imposed into the estimated equation. Relevant literature to date confirms that non-linearity of the EKC is indeed not granted, which provides the motivation for our work. Viewed collectively, our results confirm an inverted U-shaped EKC in the OECD countries but generally not elsewhere, although a local-pollutant analysis suggest favorable exceptions beyond the OECD. Our measures of uncertainty confirm that it is difficult to identify economically plausible tipping points. Policy-relevant estimates of the tipping point can nevertheless be recovered from a local-pollutant long-run or non-parametric perspective. |
| Keywords: | Environmental Kuznets Curve, Fieller method, Delta method, CO2 and SO2 emissions, Confidence set, Tipping point, Climate policy, Environmental Economics and Policy, C52, Q51, Q52, Q56, |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ulavwp:119109&r=ene |
| By: | Romuald, Kinda Somlanare |
| Abstract: | This paper aims at analysing the effect of democratic institutions on environmental quality (carbon dioxide per capita, sulfure dioxide per capita) and at identifying potential channel transmissions. We use panel data from 1960 to 2008 in 122 developing and developed countries and modern econometric methods. The results are as follows: Firstly, we show that democratic institutions have opposite effects on environment quality: a positive direct effect on environment quality and a negative indirect effect through investments and income inequality. Indeed, democratic institutions attract investments that hurt environment quality. Moreover, as democratic institutions reduce income inequality, they also damage environment. Secondly, we find that the direct negative effect of democratic institutions is higher for local pollutant (SO2) than for global pollutant (CO2). Thirdly, the nature of democratic institutions (presidential, parliamentary) is not conducive to environmental quality. Fourtly, results suggest that the direct positive effect of democratic institutions on environment quality is higher in developed countries than in developing countries. Thus, the democratic process in the first group of countries has increased their awareness for the environment protection. |
| Keywords: | Democratic institutions, Air pollution, Panel data, Income inequality, Investments, Environmental Economics and Policy, O43, Q53, C23, D31, E22, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:120396&r=ene |
| By: | Leila Baghdadi (LIM-MES Polytechnic School of Tunisia, University of Carthage Tunisia); Inmaculada Martínez-Zarzoso (Georg-August University of Göttingen and Universitat Jaume I); Celestino Suárez-Burguet (Universitat Jaume I, Department of International Economics); Habib Zitouna (LIM-MES Polytechnic School of Tunisia, University of Carthage Tunisia) |
| Abstract: | This paper evaluates the impact of free trade agreements (FTAs) on carbon dioxide emissions convergence for a cross-section of 182 countries over the period 1980 to 2008, paying particular attention to Mediterranean and European Union countries. In order to overcome the endogeneity problem of the FTA variable, a propensity score matching approach is first used to match country pairs. Next the convergence properties of relative CO2 emissions are examined for the whole panel and for the matched sample using difference-in-difference techniques. The main results indicate that CO2 emissions of the pairs of countries that belong to an FTA tend to converge, and do so at a higher rate for more advanced integration agreements. In particular, we find that emissions converge more rapidly for NAFTA and EU-27 countries than for Euro-Med countries. |
| Keywords: | Pollution haven hypothesis, convergence, CO2 emissions, Euro-med Agreements, difference-in-difference. |
| JEL: | F18 O13 L60 Q43 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2012/03&r=ene |
| By: | Pal, Barundeb; Pohit, Sanjib; Roy, Joyashree |
| Abstract: | This paper analyse the impact of growth in sectoral output and employment on green house gas emissions (GHG) in India. To analyse this we have used environmentally extended social accounting matrix (ESAM) based approach for India. The ESAM shows inter relationship between the economic activities as well as their impact on environment. The environmental impacts are captured through emission of GHGs, depletion of natural resources like land, coal and crude oil. India was an early leader in social accounting matrix (SAM) based analysis but this is the first ESAM for India. In this study we have constructed 35 sectors ESAM for India for the year 2006-07 with detail description of energy sectors. The pollution trade-off multiplier obtained from this ESAM helps us to analyse total (direct, and indirect-induced) impact of growth in sectoral output and employment on GHG emission in India. Here we have assumed public investment and foreign trade as exogenous variables. So the result shows that due to interdendency between the production sectors total increase in GHG emission is higher than their direct effects. Sometimes researchers rely on the direct relationship between the economic activity and GHG emissions but their indirect impact must be incorporated to see economy wide impact on GHG emission. The result of this study shows that the direct effect of paddy sector on GHG emission is substantially lower than their indirect-induced effect. The direct effect of paddy sector on GHG emission is around 6tons/Rs. lakh of output but its total effect on GHG emission is around 32 tons /Rs. lakh of output. Also this study shows that growth in service sector in India will not be the jobless growth and its total impact on GHG emission is not significant. |
| Keywords: | SAM; India; Environment;Climate Change |
| JEL: | C6 Q5 |
| Date: | 2011–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36540&r=ene |
| By: | Georg Zachmann |
| Abstract: | A drastic change in the way we produce and consume energy is necessary to contain the risk of global environmental catastrophe. For its part, the EU has set agreed to a greenhouse gas reduction target of 80-95 percent by 2050, compared to 1990. However, with the current fuel mix, even the most ambitious improvements on incumbent technologies are unlikely to be sufficient for reaching the reduction targets. Meeting the targets requires low-carbon transition. However, the process of transition will likely be littered with market failures. Hundreds of more-or-less proven low-carbon technologies are competing for market share in the low-carbon system. In order to bring about the transition to a low-carbon energy and transport system at the lowest cost, policymakers should rely as much as possible on private action to choose, develop, and deploy low-carbon technologies. For those market failures that might only be overcome with technology-specific measures, governments should set up a transparent and predictable mechanism for selecting technologies. This Policy Contribution largely draws on research conducted for The great transformation: decarbonising Europeâ??s energy and transport systems. The research leading to these results has received funding from the Fuel Cell and Hydrogen Joint Undertaking (FCH). The views expressed in this publication are those of the author alone and do not necessarily reflect the views of FCH. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:692&r=ene |
| By: | Ghafele, Roya; Gibert, Benjamin |
| Abstract: | The intellectual property (IP) system plays an important role in the development and diffusion of technologies by determining the institutional context in which transactions occur. This article reviews the recent EPO report ‘Patents and Clean Energy Technologies: Bridging the Gap between Evidence and Policy’ and offers further insights into the interplay between patents, innovation in climate change mitigating technologies and access to technology. Empirical evidence and analysis of patent trends forms the basis for understanding the spectrum of policy choices available to combat climate change. In an effort to bridge the gap between policy and evidence, the EPO report provides ample statistical analysis of existing patenting trends, fleshes out the current patent landscape and assesses licensing trends in emerging technologies relating to climate change. This review evaluates these statistical insights and discusses the implications for both the developed and developing world. It aims to deepen understanding of how intellectual property influences the development of markets for green technologies. |
| Keywords: | Climate Change Mitigating Technologies; Patent Statistics; European Patent Office; Technology Transfer |
| JEL: | O30 O34 L41 |
| Date: | 2011–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36217&r=ene |
| By: | Wilfried Ehrenfeld |
| Abstract: | Climate change, including its possible causes and consequences, is one of the most controversial and intensely discussed topics of our time. However, European businesses nowadays are less affected by the direct effects of climate change than by its indirect consequences. One central issue that arises in this context is the change in demands imposed by the enterprises’ operational environment. This article contributes to environmental innovation literature by providing a comprehensive framework which allows an analysis of the drivers, determinants and outcomes of climate innovations implemented by companies. In this context, the prime issue is how the perception of climate change affects corporate innovation processes. Firstly, the new demands imposed on the company by its stakeholders are considered. Secondly, the innovative reactions to these impulses are captured. Finally, the functions and relevance of certain internal and external determinants in the innovative process are highlighted. |
| Keywords: | climate change, evolutionary economics, innovation, research framework |
| JEL: | O31 Q54 O33 O38 Q55 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:1-12&r=ene |
| By: | Saltari, Enrico; Travaglini, Giuseppe |
| Abstract: | In this paper we present a continuous time model with reversible abatement capital in order to analyze the effects of environmental policies on the value of the firm and investment decisions. We show that the effects depend on what sort of future policy are implemented. We focus on investment effects of changes in corrective taxes to control the use of polluting inputs, and subsidies to promote abatement investment. We show that (1) while taxes have a depressive effect on capital accumulation, subsidies boost investment; (2) the impact of these policies on the value of the firm is ambiguous. This latter result has important empirical implications insofar as investment are based on the average value of the firm rather than the (unobservable) marginal value. |
| Keywords: | Pollution uncertainty; externality; capital reversibility; environmental policy |
| JEL: | L51 E22 H23 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35072&r=ene |
| By: | Gabriel Chan; Robert Stavins; Robert Stowe; Richard Sweeney |
| Abstract: | The introduction of the U.S. SO2 allowance-trading program to address the threat of acid rain as part of the Clean Air Act Amendments of 1990 is a landmark event in the history of environmental regulation. The program was a great success by almost all measures. This paper, which draws upon a research workshop and a policy roundtable held at Harvard in May 2011, investigates critically the design, enactment, implementation, performance, and implications of this path-breaking application of economic thinking to environmental regulation. Ironically, cap and trade seems especially well suited to addressing the problem of climate change, in that emitted greenhouse gases are evenly distributed throughout the world’s atmosphere. Recent hostility toward cap and trade in debates about U.S. climate legislation may reflect the broader political environment of the climate debate more than the substantive merits of market-based regulation. |
| JEL: | Q52 Q53 Q55 Q58 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17845&r=ene |
| By: | Christoph Böhringer, Brita Bye, Taran Fæhn, and Knut Einar Rosendahl (Statistics Norway) |
| Abstract: | In the absence of effective world-wide cooperation to curb global warming, import tariffs on embodied carbon have been proposed as a potential supplement to unilateral emissions pricing. We consider alternative designs for such tariffs, and analyze their effects on global welfare within a multi-region, multi-sector computable general equilibrium (CGE) model of global trade and energy. Our analysis suggests that the most cost-efficient policy could be region-specific tariffs on all products, based on direct plus electricity emissions. In the end, however, the potential cost savings through carbon tariffs must be weighed against the administrative costs as well as legal issues and political considerations. |
| Keywords: | carbon leakage; embodied carbon; border tariffs |
| JEL: | Q43 Q54 H2 D61 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:682&r=ene |
| By: | Burtraw, Dallas (Resources for the Future); Fraas, Arthur G. (Resources for the Future); Richardson, Nathan (Resources for the Future) |
| Abstract: | EPA is in the process of regulating U.S. greenhouse gas (GHG) emissions using its powers under the Clean Air Act. The likely next phase of this regulatory program is performance standards under Section 111 of the act for coal plants and petroleum refineries, which the agency has committed to finalize by the end of 2012. Section 111 appears to allow use of flexible, market-based regulatory tools. In this paper, we discuss one such tool, tradable standards. Tradable standards appear to be a legally and politically viable choice for the agency, and evidence suggests they are substantially more cost-effective than traditional performance standards. The paper discusses implementation issues with tradable standards, including categorization, banking, and phased implementation, as well as broader issues with the Section 111 rulemaking process as it relates to state-level GHG regulatory efforts. |
| Keywords: | averaging, flexibility, regulatory design, market-based regulation |
| JEL: | Q54 Q58 |
| Date: | 2012–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-12-05&r=ene |
| By: | Chevallier, Julien |
| Abstract: | This paper develops two nonlinear cointegration models - a VECM with structural shift and a threshold cointegration model - applied to carbon spot and futures prices. The results extend the previous findings by Chevallier (2010), who studied this topic with a linear VECM. First, in the VECM with structural shift, we observe that the returns of carbon spot and futures prices correct the deviations to the long-term equilibrium, with the futures price being the leader in the price discovery. Besides, we identify a breakpoint in July 2008, which may be related to the financial crisis and its effects on the carbon market. Second, we use Hansen and Seo's (2002) methodology, which points out the need to consider threshold cointegration models. We find strong error-correction effects for the carbon futures price. Asymmetry is implied in the sense that the carbon futures price governs most of the adjustment from the short-run to the long-run equilibrium of the model above or below the estimated threshold. |
| Keywords: | Cointegration; VECM with Structural Shift; Threshold Cointegration; Carbon Price; Spot Price; Futures Price; |
| JEL: | Q4 C1 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ner:dauphi:urn:hdl:123456789/7936&r=ene |
| By: | Chevallier, Julien |
| Abstract: | This paper analyzes jointly the time series of European Union Allowances (EUAs) and Certified Emissions Reductions (CERs) in a Markov regime-switching environment. The purpose consists in capturing the interactions between the two time series - which have been highlighted in previous literature - with respect to the underlying business cycle. Given the recent period of economic growth and financial crisis, regime switching models appear indeed interesting to shed new light on the data. The main result of the paper features a switch from a low-growth period to a high-growth period in July 2009, in a context of timid economic recovery. Besides, the Markov regime-switching model reveals that significant interactions exist between EUAs (during expansions and recessions) and CERs (mostly during expansions). Colletively, these results could be of use to regulatory authorities, academics and financial agents (investment bankers, analysts, asset managers). |
| Keywords: | EUA; CER; Markov regime-switching; |
| JEL: | Q4 C1 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ner:dauphi:urn:hdl:123456789/7938&r=ene |
| By: | Böckers, Veit; Giessing, Leonie; Haucap, Justus; Heimeshoff, Ulrich; Rösch, Jürgen |
| Abstract: | Im Zuge der von der Energiewende wird zunehmend die Frage diskutiert, wie bei einem forcierten Ausbau der erneuerbaren Energien und der dadurch zunehmenden Fluktuation der Stromerzeugung die Versorgungssicherheit gewährleistet werden kann. Zur Diskussion steht die Einführung von Kapazitätsmechanismen zur Ergänzung oder sogar als vollständiger Ersatz klassischer Energy-Only-Märkte. Weil fraglich ist, ob Energy-Only-Märkte langfristig Versorgungssicherheit garantieren können, sollen Kapazitätsmechanismen sicherstellen, dass es zu ausreichenden Investitionen in den Kraftwerkspark kommt. Auch wenn es bisher keinen stichhaltigen Beleg dafür gibt, dass das derzeitige deutsche Marktsystem den Anforderungen an die Versorgungssicherheit nicht gerecht werden kann, verändert sich durch den massiven Ausbau fluktuierender erneuerbarer Energien die Profitabilität von Investitionen in konventionelle Kraftwerke. Wir stellen deshalb ein mögliches Kapazitätsmarktmodell für Deutschland vor, weisen aber zugleich darauf hin, dass ein derartiges System kurzfristig weder notwendig ist noch für Deutschland isoliert eingeführt werden sollte. Ein umfassender Kapazitätsmarkt kann, wenn überhaupt, bei zusammenwachsenden Märkten nur auf europäischer Ebene sinnvoll implementiert werden. Für die Übergangsperiode sollte daher das bestehende Marktsystem gegebenenfalls um eine Kaltreserve für Notfälle ergänzt werden. -- The fundamental change of energy policy in Germany has lead to a discussion how security of electricity supply will be affected by the heavily subsidised expansion of electricity generation from renewable energies, as electricity generation from renewable energies is much more fluctuating and, therefore, less reliable than conventional electricity generation plants. The key question is whether capacity mechanisms are needed to complement or even to substitute classical energy-only-markets. As it is not clear whether energy-onl-markets can guarantee the long-term security of supply, capacity mechanisms are considered to guarantee sufficient investment into generation capacity. Even though there is no solid evidence that the current market system is failing to provide sufficient investment incentives, the expansion of renewable energies changes the profitability of conventional generation plants. Therefore, we discuss a possible capacity market model for Germany, but we also stress that a capacity market should not be introduced in the short term nor should a capacity market be implemented in Germany in isolation. Instead, the need for a capacity market needs to be discussed at a European level as energy markets are increasingly integrated. For the transition period, extensions to the current system such as a cold reserve for emergency cases may be more easily implemented. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:diceop:24&r=ene |
| By: | Halvor Briseid Storrøsten (Statistics Norway) |
| Abstract: | This paper shows that tradable emissions permits and an emissions tax affect the firms' technology choice differently under uncertainty. A tax encourages the most flexible technology if and only if stochastic costs and the equilibrium permit price have sufficiently strong positive covariance, compared with the variance in consumer demand for the good produced. Moreover, the firms' technology choices are socially optimal under tradable emissions permits, but not under an emissions tax. Hence, modeling endogenous technology choice provides an argument in favor of tradable emissions permits as compared with emissions taxes. |
| Keywords: | Regulation; Technology choice; Welfare; Uncertainty; Investment. |
| JEL: | H23 Q55 Q58 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:677&r=ene |
| By: | William Brock; Gustav Engstrom; Anastasios Xepapadeas |
| Abstract: | A simpli��ed energy balance climate model is considered with the global mean temperature as the state variable, and an endogenous ice line. The movements of the ice line towards the Poles are associated with damage reservoirs where initial damages are high and then eventually vanish as the ice caps vanish and the damage reservoir is exhausted. We couple this climate model with a simple economic growth model and we show that the endogenous ice line induces a nonlinearity. This nonlinearity when combined with two sources of damages - the conventional damages due to temperature increase and the reservoir damages - generates multiple steady states and Skiba points. It is shown that the policy ramp implied by this model calls for high mitigation now. Simulation results suggest that the policy ramp could be U-shaped instead of the monotonically increasing with low starting mitigation gradualist policy ramp. |
| Keywords: | Energy Balance Climate Models, Damage Reservoir, Ice Line, Permafrost, Heat Di¤usion, Policy Ramp, Skiba Points |
| JEL: | Q54 Q58 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:1204&r=ene |
| By: | Monjon, Stéphanie |
| Keywords: | Groupe Intergouvernemental d’experts sur l’Evolution du Climat (GIEC); Réchauffement Climatique; |
| JEL: | Q58 Q54 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:ner:dauphi:urn:hdl:123456789/7949&r=ene |
| By: | Keswani Mehra, Meeta; Mukherjee, Saptarshi; Dutta, Monica |
| Abstract: | Global warming caused by accumulation of emissions of greenhouse gases (GHGs) is a public bad, addressing which requires collective action by all the countries of the world. Under the United Nations Convention on Climate Change (UNFCCC), most countries have negotiated the Kyoto Protocol for GHG emissions control to stabilize climate change. Several issues about the Protocol remain unresolved -- first, most of the significant countries are required to take a decision on whether or not to sign such a protocol, which has large-scale implications for their energy and industrial sectors and economic well-being; second, climate change mitigation is a public good entailing that all the countries would stand to gain due to mitigation action taken by a sub-group of one or more countries; and third, there exists no supra-national authority to enforce such a protocol for the individual sovereign nations. Thus, commitment to cooperate on an international agreement on climate change control remains tenuous. Formally, such a cooperative model is likely to be unstable. The paper discusses the pros and cons of the already proposed international cooperative mechanisms toward climate change mitigation and highlights the problem of information revelation, particularly related to the abatement issues. In this context, it attempts to outline a structure of a self-enforcing burden sharing mechanism for climate change mitigation in an incomplete information framework. The mechanism is an adoption of the well-known Vickrey-Clarke-Groves mechanism, widely used in mechanism design theory. |
| Keywords: | Climate change negotiations; cooperative games; stable coalitions; self-enforcing mechanism |
| JEL: | D2 D71 Q54 Q58 |
| Date: | 2012–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36286&r=ene |
| By: | Nkuiya, Bruno |
| Abstract: | We characterize the equilibrium level of emissions, the equilibrium stock of global pollution and the discounted net social welfare for both the cooperative and non-cooperative equilibria when the countries face the threat of a sudden irreversible jump in the global damages at an unknown date. The goal is to analyze the impact of this type of uncertainty on the equilibrium behavior of the countries. We find that it can have a significant effect on those equilibria. Countries reduce their emissions to mitigate their exposure to this threat. As the level of threat rises, countries adjust their emissions to lower the stock of pollutant. However, although initially this threat has the effect of lowering the discounted net welfare, it can in the long run have a net positive effect on welfare. The emissions trajectory is non-monotonic and discontinuous, but only under the threat. |
| Keywords: | Global pollution, Environmental uncertainty, regime shift, stochastic differential games, Environmental Economics and Policy, C61, C7, D81, Q54, |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ulavwp:117826&r=ene |
| By: | Lemoine, Derek M. (Energy and Resources Group, University of California, Berkeley); Traeger, Christian P. (University of California, Berkeley. Dept of agricultural and resource economics) |
| Abstract: | We model optimal policy when the probability of a tipping point, the welfare change due to a tipping point, and knowledge about a tipping point's trigger all depend on the policy path. Analytic results demonstrate how optimal policy depends on the ability to affect both the probability of a tipping point and also welfare in a post-threshold world. Simulations with a numerical climate- economy model show that possible tipping points in the climate system increase the optimal near-term carbon tax by up to 45% in base case speciffcations. The resulting policy paths lower peak warming by up to 0.5 C compared to a model without possible tipping points. Different types of tipping points have qualitatively different effects on policy, demonstrating the importance of explicitly modeling tipping points' effects on system dynamics. Aversion to ambiguity in the threshold's distribution can amplify or dampen the effect of tipping points on optimal policy, but in our numerical model, ambiguity aversionincreases the optimal carbon tax. |
| Keywords: | tipping point, threshold, regime shift, ambiguity, climate, uncertainty, integrated assessment, dynamic programming, social cost of carbon, carbon tax |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:are:cudare:1111r&r=ene |