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on Energy Economics |
| By: | Mr. Philippe Wingender; Florian Misch |
| Abstract: | This paper estimates the carbon leakage rate across countries, arguably a key parameter in the international climate policy discussion including on border carbon adjustment, but which remains subject to significant uncertainty. We propose innovations along two lines. First, we exploit recently published data on sector-country-specific changes in energy prices to identify changes in domestic carbon emissions and other flows (rather than the historically limited variation in carbon prices or adherence to international climate agreements). Second, we present a simple accounting framework to derive carbon leakage rates from reduced-form regressions in contrast to existing papers, thereby making our results directly comparable to model-based estimates of carbon leakage. We show that carbon leakage rates differ across countries and could be larger than what existing estimates suggest. |
| Keywords: | carbon leakage, CO2 content of trade, emission spillovers, competitiveness; carbon leakage; leakage rate; carbon flow; emission constraint; price data; Energy pricing; Energy prices; Greenhouse gas emissions; Consumption; Global |
| Date: | 2021–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/207&r= |
| By: | Mr. Philippe Wingender; Ian Parry |
| Abstract: | Finland has pledged to cut net greenhouse gas emissions to zero by 2035 and has sectoral targets for deploying electric vehicles, phasing out coal generation, and oil-based space heating. Fiscal policies at the national and sectoral level could play a critical role in achieving these objectives. Carbon dioxide emissions are already priced significantly in Finland but prices vary substantially across fuels and sectors. The paper discusses a reform to both scale up, and progressively harmonize, pricing while using revenues to address equity issues. It also discusses the potential use of revenue-neutral feebate schemes to strengthen mitigation incentives for the transportation, industry, building, forestry, and agricultural sectors. |
| Keywords: | neutrality target; carbon pricing scheme; emission rate; comparing emission reduction; carbon dioxide emission; emission target; Greenhouse gas emissions; Carbon tax; Energy prices; Non-renewable resources; Global |
| Date: | 2021–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/171&r= |
| By: | Mr. Philip Barrett |
| Abstract: | In short, yes. I use a multi-region integrated assessment model with fuel-specific endogenous technical change to examine the impact of Europe and China reducing emissions to zero by mid-century. Without international technological diffusion this is insufficient to avoid catastrophic climate change. But when innovation can diffuse overseas, long-run temperature increases are limited to 3 degrees. This occurs because policy not only encourages green innovations but also dissuades dirty innovations which would otherwise spread. The most effective policy package in emissions-reducing regions is a research subsidy funded by a carbon tax, driven in the short term by the direct effect of the carbon tax on the composition of energy, and later by innovation induced by research subsidies. Green production subsidies are ineffective because they undermine incentives for innovation. |
| Keywords: | research subsidy; policy package; green production subsidy; package in emissions-reducing region; energy-producing firm; Carbon tax; Climate policy; Greenhouse gas emissions; Spillovers; Global; Europe |
| Date: | 2021–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/173&r= |
| By: | Hanwoong Kim; Haewon McJeon; Dawoon Jung; Hanju Lee; Candelaria Bergero; Jiyong Eom |
| Abstract: | This integrated assessment modeling research analyzes what Korea's 2050 carbon neutrality would require for the national energy system and the role of the power sector concerning the availability of critical mitigation technologies. Our scenario-based assessments show that Korea's current policy falls short of what the nation's carbon-neutrality ambition would require. Across all technology scenarios examined in this study, extensive and rapid energy system transition is imperative, requiring the large-scale deployment of renewables and carbon capture & storage (CCS) early on and negative emission technologies (NETs) by the mid-century. Importantly, rapid decarbonization of the power sector that goes with rapid electrification of end-uses seems to be a robust national decarbonization strategy. Furthermore, we contextualize our net-zero scenario results using policy costs, requirements for natural resources, and the expansion rate of zero-carbon technologies. We find that the availability of nuclear power lowers the required expansion rate of renewables and CCS, alleviating any stress on terrestrial and geological systems. By contrast, the limited availability of CCS without nuclear power necessarily demands a very high penetration of renewables and significantly high policy compliance costs, which would decrease the feasibility of achieving the carbon neutrality target. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.01598&r= |
| By: | Victor Ajai (Energy Policy Research Group, Judge Business School, University of Cambridge); Karim Anaya (Energy Policy Research Group, Judge Business School, University of Cambridge); Michael Pollit (Energy Policy Research Group, Judge Business School, University of Cambridge) |
| Keywords: | Total factor productivity, incentive regulation, electricity networks, emissions |
| JEL: | D24 H23 L43 L94 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:anj:wpaper:012&r= |
| By: | Tal, Gil; Davis, Adam |
| Abstract: | In the US, the market share of plug-in electric vehicles (PEVs)—including battery electric and plug-in hybrid electric vehicles—has been rapidly increasing as a variety of new PEVs have been introduced. Knowing where PEV users are located is important to ensure that electric vehicle charging infrastructure is installed in areas where it is needed. Information on PEV location can also inform electricity supply planning to prepare for a future with higher PEV adoption. Previous studies have looked at the spatial distribution of new PEVs but not of used PEVs. Yet these spatial distributions will likely differ because the buyers of used PEVs have different characteristics than new PEV buyers. Therefore, planning charging infrastructure and electricity supply based solely on new PEV data may not serve both new and used PEV buyers. Policies developed to support drivers of used PEVs may ultimately attract a broader group of people into the PEV market, as used vehicles are less expensive than new ones. Researchers at the University of California, Davis used aggregated data at the zip code level to understand where buyers of second-hand PEVs are located, and to explore differences in the location and characteristics of regions with more original owners vs. second owners of PEVs. This policy brief summarizes the findings from that research and provides policy implications. View the NCST Project Webpage |
| Keywords: | Social and Behavioral Sciences, Automobile ownership, Consumers, Electric vehicles, Market share, Spatial analysis, Used cars |
| Date: | 2021–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:itsdav:qt01p6x4np&r= |
| By: | Han Teng Chua; Jochen Schmittmann |
| Abstract: | Green debt markets are rapidly growing while product design and standards are evolving. Many policymakers and investors view green debt as an important component in the policy mix to achieve the transition to a low carbon economy and ensure the pricing of climate risks. Our analysis contributes to the nascent literature on the environmental impact of green debt by documenting the CO2 emission intensity of corporate green debt issuers. We find lower emission intensities for green bond issuers relative to other firms, but no difference for green loan and sustainability-linked loan borrowers. Green bond, green loan, and sustainability-linked loan borrowers lower their emission intensity over time at a faster rate than other firms. |
| Keywords: | debt issuer; bond issuer; loan borrower; debt data; emission intensity; Climate finance; Greenhouse gas emissions; Climate change; Bonds; Global |
| Date: | 2021–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/194&r= |
| By: | James Carroll (Department of Economics, Trinity College Dublin); Eleanor Denny (Department of Economics, Trinity College Dublin); Ronan C. Lyons (Department of Economics, Trinity College Dublin) |
| Abstract: | With buildings accounting for roughly 40% of energy consumption in the US and Europe, energy efficiency upgrades will be central in meeting climate targets. Based on the hypothesis that there is imperfect information regarding the cost-saving implications of efficiency improvements, we add property-specific energy cost labels to sales advertisements in a randomized controlled trial covering the entire Irish housing market. This is the first energy framing field trial for property, the household’s largest energy consuming investment and the household technology which likely has the highest variation in energy consumption due to heterogeneity in efficiency and size. Our analysis of over 31,000 transacted properties finds strong evidence that energy cost forecasts change homebuyer behaviour, with the energy efficiency premium increasing by 0.7 percentage points in treatment counties. We also find that more energy efficient properties sell faster and, for the first time, show that treatment further shortened this time-to-sell. While a major departure from existing property labelling policy, these results suggest that framing property energy efficiency according to cost implications rather than kilowatt-hours increases the demand for energy efficiency. |
| Keywords: | Energy Labels, Energy Efficiency Premium, Energy Performance Certificate, Randomized Controlled Trial |
| JEL: | D12 Q40 C93 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep1520&r= |
| By: | Simshauser, P. |
| Abstract: | Over the period 2016-2021 Australia’s National Electricity Market (NEM) experienced an investment supercycle comprising 24,000MW of renewables. One of the more intriguing aspects of the supercycle was a partial shift of investment decision-making from utility boardrooms to family kitchen tables – rooftop solar PV comprised 8,000MW of the 24,000MW total. In NEM regions such as Queensland, take-up rates have now reached ~40% of households, currently the highest take-up rate in the world. At the household level there is a distinct mismatch between peak demand and solar PV output, which tends to suggest any peak load problem will be exacerbated. When the contribution of rooftop solar PV is abstracted to the power system level these results reverse. The partial equilibrium framework of Boiteux (1949), Turvey (1964) and Berrie (1967) has historically been used to define the optimal plant mix to satisfy demand growth. In this article, their partial equilibrium framework is used to define conventional plant ‘dis-investment’ in the presence of rising rooftop solar PV and utility-scale renewables in an energy-only market setting. Queensland’s 4400MW of rooftop solar displaces 1000MW of conventional generation in equilibrium, 500MW of peaking plant and somewhat counterintuitively, 500MW of baseload coal plant – falling ‘minimum system demand’ being a driving factor. The NEM’s energyonly market and its $15,000/MWh price cap proves tractable through to a 50% renewable market share, but relies critically on frictionless coal plant divestment and bounded negative price offers. |
| Keywords: | rooftop solar PV, renewables, power generation, energy-only markets, peak load problem |
| JEL: | D25 D80 G32 L51 Q41 |
| Date: | 2021–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2180&r= |
| By: | Johannes Eugster |
| Abstract: | This paper studies the effect of climate change mitigating policies on innovation in clean energy technologies. Results suggest that the tightening of environmental policies since the early 1990s have made a statistically and economically significant contribution to the increase in clean innovation. These effects generally materialized quickly, within 2 to 3 years of the policy change, and were driven by individually significant marginal effects of both market-based policies – such as feed-in tariffs and trading schemes – as well as non-market policies, such as R&D subsidies or emission limits. Looking at electricity innovation in particular, the paper finds that the estimated effect on total innovation is positive on net, meaning that increased innovation in clean and grey technologies is not offset by a decrease in innovation in dirty technologies. From a policy point of view, the paper’s results call for strong policy efforts to decisively shift innovation towards clean technologies. |
| Keywords: | Climate change mitigation, innovation, environmental policies; policy point of view; effect of climate change; climate change mitigation; policy effort; policy tool; Environmental policy; Electricity; Climate policy; Renewable energy; Global |
| Date: | 2021–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/213&r= |
| By: | He, Gang; Lin, Jiang; Sifuentes, Froylan; Liu, Xu; Abhyankar, Nikit; Phadke, Amol |
| Abstract: | The costs for solar photovoltaics, wind, and battery storage have dropped markedly since 2010, however, many recent studies and reports around the world have not adequately captured such dramatic decrease. Those costs are projected to decline further in the near future, bringing new prospects for the widespread penetration of renewables and extensive power-sector decarbonization that previous policy discussions did not fully consider. Here we show if cost trends for renewables continue, 62% of China's electricity could come from non-fossil sources by 2030 at a cost that is 11% lower than achieved through a business-as-usual approach. Further, China's power sector could cut half of its 2015 carbon emissions at a cost about 6% lower compared to business-as-usual conditions. |
| Date: | 2020–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:agrebk:qt9z42t224&r= |
| By: | Wen Hsu (Jimmy); Bing-Fang Hwang (Jimmy); Chau-Ren Jung (Jimmy); Yau-Huo (Jimmy); Shr |
| Abstract: | Air pollution has been linked to elevated levels of risk aversion. This paper provides the first evidence showing that such effect reduces life-threatening risky behaviors. We study the impact of air pollution on traffic accidents caused by risky driving behaviors, using the universe of accident records and high-resolution air quality data of Taiwan from 2009 to 2015. We find that air pollution significantly decreases accidents caused by driver violations, and that this effect is nonlinear. In addition, our results suggest that air pollution primarily reduces road users' risky behaviors through visual channels rather than through the respiratory system. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.06837&r= |
| By: | Juncal Cunado (Department of Economics, University of Navarra, Pamplona, Spain); David Gabauer (Data Analysis Systems, Software Competence Center Hagenberg, Hagenberg, Austria); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa) |
| Abstract: | This paper analyzes the degree of dynamic connectedness between energy and metal commodity prices in the pre and post COVID-19 era, using the TVP-VAR based connectedness approach of Antonakakis et al. (2020). The results suggest that market interconnectedness slightly increased following the outbreak of COVID-19, although this increase was lower and less persistent than that observed after the Global Financial Crisis of 2008. Furthermore, we find that crude oil was the main transmitter of shocks during the period prior to COVID-19 while heating oil, gold and silver became the main transmitters of shocks during the COVID-19 pandemic. On the contrary, natural gas and palladium have been the main receivers of shocks during the whole sample period, making these two commodities attractive hedging and safe-haven options for investors during the pandemic crisis. The implications of our findings for portfolio diversification and energy transition policies are discussed. |
| Keywords: | Realized volatilities, energy market, metal market, TVP-VAR, dynamic connectedness |
| JEL: | C32 C50 G15 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202180&r= |
| By: | Weifeng Liu; Warwick J. McKibbin; Ms. Florence Jaumotte |
| Abstract: | Background paper prepared for the October 2020 IMF World Economic Outlook. This paper provides a detailed presentation of the simulation results from the October 2020 IMF World Economic Outlook chapter 3 and an additional scenario with carbon pricing only for comparison with the comprehensive policy package where green investments were also included. This paper has greatly benefitted from continuous discussions with Oya Celasun and Benjamin Carton on the design of simulations; contributions from Philip Barrett for part of the simulations; and research support from Jaden Kim. We also received helpful comments from other IMF staff. All remaining errors are ours. McKibbin and Liu acknowledge financial support from the Australian Research Council Centre of Excellence in Population Ageing Research (CE170100005). |
| Keywords: | policy package; climate mitigation strategy; baseline CO2 emission; scenario design; B. Policy tool; Carbon tax; Greenhouse gas emissions; Non-renewable resources; Climate finance; Global; Europe |
| Date: | 2021–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/195&r= |
| By: | Badunenko, Oleg; Galeotti, Marzio; Hunt, Lester C. |
| Abstract: | The standard approach to the Environmental Kuznets Curve (EKC) holds that as a country develops and GDP per capita grows environmental degradation initially increases but eventually it reaches a turning point where environmental degradation begins to decline. Environmental degradation takes many forms, one of them being emissions of harmful gases. According to the EKC concept, a country can reduce emissions by ‘growing’. The standard approach implicitly assumes that a country emits as little as possible for its economic development, whereas in reality, a country might emit above the best attainable level of emissions. Therefore, emissions could be reduced before and after the turning point by becoming more environmentally efficient – i.e., ‘improving’ the emissions level. This article proposes a Stochastic Environmental Kuznets Frontier (SEKF) which is estimated for CO2 emissions for OECD countries and used to benchmark each country before and after the turning point differently, thus, indicating how a country could ‘grow’ and/or ‘improve’ to reduce its CO2 emissions. Additionally, we analyse the role of the stringency of environmental policies in reducing a country’s carbon inefficiency measured by the distance from the benchmark EKC and find widespread carbon inefficiencies that could be reduced by more stringent market-based environmental policies. |
| Keywords: | Environmental Economics and Policy |
| Date: | 2021–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemwp:316226&r= |
| By: | H. Emre Yalcin; Cihan Yalcin |
| Abstract: | Due to environmental and energy security concerns, the efforts of countries to increase their share of renewable energy (NEW) and energy efficiency (ENVER) have become the main axis of energy policies at the global level. In addition to these concerns, these two energy sources are very important for the Turkish economy, as they have the potential to reduce the chronic current account deficit. In this study, using the country data of the World Bank for the period 1990-2018, the relations of YENI and ENVER with net imported energy share (imported energy dependence) and current account balance were tested econometrically (panel data fixed effects model) and scenario analyzes were made for Turkey. Econometric estimates reveal that the increases in NEW and ENVER are statistically related to the decrease in the share of net imported energy and the improvement in the current account balance. The effect of the increase in NEW on the net imported energy share is estimated to be stronger for the middle-income country group such as Turkey and the highly urbanized country group. It has been observed that the reducing impact of the increase in ENVER on the share of net imported energy is more pronounced in the relatively lower income and highly urbanized country groups. The improvement effect of the increase in NEW on the current account balance is more evident in the relatively high-income group and moderately urbanized countries such as Turkey. It is estimated that the improvement effect of the increase in ENVER on the current account balance is more pronounced in high and moderate urbanized countries and middle and high income country groups. The scenario analysis for Turkey, based on the estimation results, reveals that a decrease of up to 21 billion USD in Turkey's current account deficit in 2030 is possible with the reasonable increases to be provided in NEW and ENVER. |
| Keywords: | Energy efficiency, Renewable energy, Imported energy dependency, Current account balance |
| JEL: | C23 F32 O13 O24 Q4 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2129&r= |
| By: | Chuang Li (University of Connecticut); Subhash C. Ray (University of Connecticut) |
| Abstract: | All nations stand to benefit from addressing the problem of global warming caused by green-house gas emissions. However, the economic impact of pollution reduction in the form of reduction in GDP and jobs lost will be different for different countries and across different industries. In this paper, we estimate the opportunity cost of emission reduction in terms of the loss of intended output and, collaterally, the effect on employment that would result from a reduction in the con-sumption of fuel for various industries of different countries by using the data constructed from the World Input-Output Database. We conceptualize a production technology with one intended out-put and one undesirable output (CO2 emission) produced from labor, capital, and materials (treated as neutral input) and fuel (treated as the polluting input). The nonparametric Data Envelopment Analysis model of by-production formulated by Murty, Russell, and Levkoff (2012) and modified by Ray, Mukherjee, and Venkatesh (2018) is employed. |
| Keywords: | CO2 Emission, Opportunity Cost, DEA, Efficiency |
| JEL: | Q52 C61 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2021-13&r= |
| By: | Nelly Exbrayat (Université de Lyon); Stéphane Riou (Université de Lyon); Skerdilajda Zanaj (Department of Economics and Management, Université du Luxembourg) |
| Abstract: | This paper investigates the multiple effects of a global carbon tax in an imperfectly competitive economy characterized by asymmetrically sized countries, mobile and heterogeneous firms, and international trade. In the short run, the global tax produces only Pigouvian effects, thereby reducing emissions, as argued in the literature. However, in the long run, when firms are mobile we uncover several less friendly impacts of the tax that crucially depend on the level of trade costs. In fact, agglomeration and relocation effects of dirty or clean firms may greatly reduce or magnify the effects of the tax. In addition, we show that a global tax instrument may actually eliminate the most environmentally-friendly spatial locations when trade costs are high. Given the urgent need for a global environmental policy that curbs emissions, our findings highlight the relevance of trade costs, which may heavily impact the effectiveness of such a policy. |
| Keywords: | Global carbon tax; Heterogeneous firms; International trade; Firm location. |
| JEL: | F12 F15 F18 Q28 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:21-17&r= |
| By: | Macdonald, Kevin (World Bank); Patrinos, Harry A. (World Bank) |
| Abstract: | Carbon pricing is increasingly used by governments to reduce emissions. The effect of carbon pricing on economic outcomes as well as mitigating factors has been studied extensively since the early 1990s. One mitigating factor that has received less attention is education quality. If technological change that reduces the reliance of production on emissions is skill-biased, then carbon pricing may increase the skill premium of earnings and subsequent wage inequality; however, a more elastic skill supply through better education quality may mitigate adverse economic outcomes, including wage inequality, and enhance the effect of carbon pricing on technological change and subsequently emissions. A general equilibrium, overlapping-generations model is proposed, with endogenous skill investment in which the average skill level of the workforce can affect the need for emissions in an aggregate production function. This study uses data on industrial emissions linked to the Organisation for Economic Co-operation and Development's Programme for International Assessment of Adult Competencies dataset for European Union countries. The findings show that, within countries, cognitive skills are positively associated with employment in industries that rely less on emissions for production and in industries that, over time, have been able to reduce their reliance on emissions for production. In the estimated general equilibrium model, higher cognitive skills reduce an economy's reliance on emissions for production. Having higher quality education—defined as the level of cognitive skills attained by workers per unit of cost—increases the elasticity of skill supply and, as a result, mitigates a carbon tax's economic costs including output loss and wage inequity, and enhances its effect on emissions reduction. The implication is that investments in education quality are needed for better enabling green technological innovation and adaptation and reducing inequality that results from carbon pricing. |
| Keywords: | carbon pricing, education, skills, learning outcomes |
| JEL: | Q43 O47 Q56 O41 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14792&r= |
| By: | Ajayi, V.; Anaya, K.; Pollitt, M .G. |
| Abstract: | We analyse the productivity growth of electricity transmission and distribution networks in Great Britain and how changes in incentive mechanism have influenced the measured total factor productivity (TFP). In doing so we are also concerned to examine the effects of quality of service and environmental targets on measured productivity growth. It is increasingly important that productivity measures adjust for the increasing regulatory pressure to reduce the wider societal impacts of the electricity sector and improve quality of service. Failure to do so, may mean that productivity growth may look slower than it actually is. We employ a DEA technique which considers the underlying data without a stochastic element. Our findings show that productivity growth is consistently low for the period we examine, in the region of 1% p.a. over the 29 years from 1990/1991-2018/2019. For both electricity transmission and electricity distribution we try to monetise a wider range of quality and emissions variables in order to show the difference their inclusion makes to measured productivity growth. We show that it can make a difference both positively and negatively, though often this difference is small (e.g. 0.1% p.a.). However, the impact can be much larger (c. 1% p.a.), especially with respect to improvements in quality of service in the distribution network. In the context of generally slow productivity growth, we therefore show the importance of appropriate measurement. |
| Keywords: | Total factor productivity, incentive regulation, electricity networks, emissions |
| JEL: | D24 H23 L43 L94 |
| Date: | 2021–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2181&r= |
| By: | Liu, Zhongyuan; Florkowski, Wojciech J.; Chen, Huiguang |
| Keywords: | Labor and Human Capital, Environmental Economics and Policy |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315909&r= |
| By: | Baoping Shang |
| Abstract: | Addressing the poverty and distributional impacts of carbon pricing reforms is critical for the success of ambitious actions in the fight against climate change. This paper uses a simple framework to systematically review the channels through which carbon pricing can potentially affect poverty and inequality. It finds that the channels differ in important ways along several dimensions. The paper also identifies several key gaps in the current literature and discusses some considerations on how policy designs could take into account the attributes of the channels in mitigating the impacts of carbon pricing reforms on households. |
| Date: | 2021–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/172&r= |
| By: | Francisco Estrada; Oscar Calder\'on-Bustamante; Wouter Botzen; Juli\'an A. Velasco; Richard S. J. Tol |
| Abstract: | Complex physical models are the most advanced tools available for producing realistic simulations of the climate system. However, such levels of realism imply high computational cost and restrictions on their use for policymaking and risk assessment. Two central characteristics of climate change are uncertainty and that it is a dynamic problem in which international actions can significantly alter climate projections and information needs, including partial and full compliance of global climate goals. Here we present AIRCC-Clim, a simple climate model emulator that produces regional probabilistic climate change projections of monthly and annual temperature and precipitation, as well as risk measures, based both on standard and user-defined emissions scenarios for six greenhouse gases. AIRCC-Clim emulates 37 atmosphere-ocean coupled general circulation models with low computational and technical requirements for the user. This standalone, user-friendly software is designed for a variety of applications including impact assessments, climate policy evaluation and integrated assessment modelling. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.01762&r= |
| By: | Mazzarano, Matteo; Guastella, Gianni; Pareglio, Stefano; Xepapadeas, Anastasios |
| Abstract: | The Security and Exchange Commission (SEC) has considered climate change as a risk issue since 2010. Several emission disclosure initiatives exist aimed at informing investors about the financial risks associated with a zero or low carbon transition. Stricter regulations, particularly in a few sectors, could affect operations costs, ultimately impacting companies financial performances, especially of listed companies. There are two ways these companies can disclose their transition risk exposure and are not alternatives. One is the explicit declaration of exposure to transition risk in the legally binding documents that listed companies must provide authorities. The other is the disclosure of GHG equivalent emissions, which is implicitly associated with transition risk exposure. This paper empirically analyses to what extent US companies stock returns incorporate information about transition risk by using explicit and implicit risk measures and comparing them. In addition, multiple total stock return measures distinguishing dividend payouts from simple stock returns. Results suggest that both explicit and implicit risks are positively related to dividend payouts and not to stock returns, while the overall effect on total stock returns is negative. Evidence supports the view that market operators price negatively the transition risk exposure and, probably as a consequence, boards in carbon intensive companies use dividend policies to attract investment in risky companies. |
| Keywords: | Risk and Uncertainty |
| Date: | 2021–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemwp:316261&r= |
| By: | Agrawal, Sneha (International Monetary Fund); Gaurav, Abhishek (Princeton University); Suveg, Melinda (Research Institute of Industrial Economics (IFN)) |
| Abstract: | In this paper, we study a new channel to explain firms’ price-setting behavior. We propose that uncertainty about factor prices has a positive effect on markups. We show theoretically that firms with higher shares of inputs with volatile prices set higher markups. We use the Bartik shift-share approach to empirically test whether firms that use more oil relative to other inputs set higher markups when oil prices are more volatile. Our estimates imply that a one standard deviation increase in oil price volatility leads to a 0.38 percent increase in the markup of firms with average oil exposure. |
| Keywords: | Price setting; Markups; Input price volatility; Precautionary pricing |
| JEL: | D21 D22 D24 D42 D80 E31 E32 L11 L60 |
| Date: | 2021–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1418&r= |
| By: | Odhiambo |
| Abstract: | In this paper, the causal relationship between trade openness and energy consumption in 20 sub-Saharan African (SSA) countries during the period 1990-2019 is examined. Trade openness is derived from three components, namely total trade, total exports, and total imports, all expressed as a percentage of GDP. In order to account for the omission-of-variable bias, economic growth and urbanisation have been incorporated as intermittent variables between the various components of trade openness and energy consumption. The study first examines the presence of cross-sectional dependence among the countries employed using four cross-sectional dependence tests. Thereafter, both the first- and second-generation unit root tests are used to examine the order of integration. In addition, three panel cointegration tests are used to examine the cointegration among the variables included in the study. Using a multivariate ECM-based panel Granger-causality test, the study found that there is a unidirectional causal flow from trade openness to energy consumption, but only when the exports are used as a proxy for trade openness. When total trade and total imports are used as proxies, no causality is found to exist between trade openness and energy consumption in either direction, irrespective of whether the causality test is conducted in the short run or in the long run. This finding, though contrary to some of the previous studies, is not surprising given the disparity in trade balance and energy challenges facing many SSA countries. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:afa:wpaper:aeri0821&r= |
| By: | Butt, Ali Azhar; Harvey, John |
| Abstract: | An environmental product declaration (EPD) is a transparent, verified report used to communicate the environmental impacts (e.g., resource use, energy, emissions) associated with the manufacture or production of construction materials such as asphalt, cement, asphalt mixtures, concrete mixtures, or steel reinforcement. EPDs, which are also called Type III Environmental Declarations, are product labels developed by industry in accordance with International Organization for Standardization standards. The scoping document for an EPD, which is also referred to as a product category rule (PCR), defines the requirements for EPDs for a certain product category. Beginning in 2019, Caltrans initiated a pilot study requiring EPDs for hot mix asphalt, aggregates, and concrete in addition to the materials specified by the Buy Clean California Act (BCCA) (Assembly Bill 262). The requirement to submit EPDs for these materials is how plans made several years prior to passage of the BCCA, for use of EPDs to help achieve environmental goals, are being implemented. While the BCCA considers only the greenhouse gas emissions contributing to global warming, the Caltrans pilot program for pavement and bridge materials also looks for other emissions in the EPDs, primarily emissions that cause air pollution. This project consisted of the University of California Pavement Research Center reviewing and helping develop Caltrans’s plans for collecting EPDs, reviewing PCRs and EPDs for consistency and inconsistencies, helping to communicate strategy with industries and the Federal Highway Administration, supporting Caltrans’s development of a web-based portal for entry of EPD data and the underlying database, and writing of a summary report. This technical memorandum is the summary report. This report documents the roadmaps developed for collecting and using EPDs, other support activities for the Caltrans EPD program, and a review of the EPDs supplied to Caltrans as of the summer of 2020 and their underlying PCRs. The PCRs for the materials in the Caltrans EPD program have inconsistencies that should be relatively simple to resolve with direction from Caltrans. In their current form, consistent data entry is difficult in the Caltrans EPD portal. To improve the consistency and quality of EPDs, Caltrans staff must receive guidance on how to review EPDs, and staff at materials producers require training about how to interpret PCRs to produce EPDs. Systems for inputting data from EPDs into department of transportation (DOT) reporting systems that include data quality checks, system consistency, and certification are also needed. Similarly, a nationally accepted and adopted data quality assessment standard is needed for EPDs as DOTs move toward their use in procurement. A single data quality matrix should also be included in a harmonized PCR. |
| Keywords: | Engineering, environmental product declaration, product category rules, life cycle assessment, pavement materials, cradle-to-gate |
| Date: | 2021–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:itsdav:qt1qh0c638&r= |
| By: | Pavel V. Shevchenko; Daisuke Murakami; Tomoko Matsui; Tor A. Myrvoll |
| Abstract: | The classical DICE model is a widely accepted integrated assessment model for the joint modeling of economic and climate systems, where all model state variables evolve over time deterministically. We reformulate and solve the DICE model as an optimal control dynamic programming problem with six state variables (related to the carbon concentration, temperature, and economic capital) evolving over time deterministically and affected by two controls (carbon emission mitigation rate and consumption). We then extend the model by adding a discrete stochastic shock variable to model the economy in the stressed and normal regimes as a jump process caused by events such as the COVID-19 pandemic. These shocks reduce the world gross output leading to a reduction in both the world net output and carbon emission. The extended model is solved under several scenarios as an optimal stochastic control problem, assuming that the shock events occur randomly on average once every 100 years and last for 5 years. The results show that, if the world gross output recovers in full after each event, the impact of the COVID-19 events on the temperature and carbon concentration will be immaterial even in the case of a conservative 10\% drop in the annual gross output over a 5-year period. The impact becomes noticeable, although still extremely small (long-term temperature drops by $0.1^\circ \mathrm{C}$), in a presence of persistent shocks of a 5\% output drop propagating to the subsequent time periods through the recursively reduced productivity. If the deterministic DICE model policy is applied in a presence of stochastic shocks (i.e. when this policy is suboptimal), then the drop in temperature is larger (approximately $0.25^\circ \mathrm{C}$), that is, the lower economic activities owing to shocks imply that more ambitious mitigation targets are now feasible at lower costs. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.00835&r= |
| By: | Hu, Junjie; López Cabrera, Brenda; Melzer, Awdesch |
| Abstract: | Short Term Load Forecast (STLF) is necessary for effective scheduling, operation optimization trading, and decision-making for electricity consumers. Modern and efficient machine learning methods are recalled nowadays to manage complicated structural big datasets, which are characterized by having a nonlinear temporal dependence structure. We propose different statistical nonlinear models to manage these challenges of hard type datasets and forecast 15-min frequency electricity load up to 2-days ahead. We show that the Long-short Term Memory (LSTM) and the Gated Recurrent Unit (GRU) models applied to the production line of a chemical production facility outperform several other predictive models in terms of out-of-sample forecasting accuracy by the Diebold-Mariano (DM) test with several metrics. The predictive information is fundamental for the risk and production management of electricity consumers. |
| Keywords: | Short Term Load Forecast,Deep Neural Network,Hard Structure Load Process |
| JEL: | C51 C52 C53 Q31 Q41 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:irtgdp:2021020&r= |
| By: | Jean-Charles Bricongne; Baptiste Meunier; Thomas Pical |
| Abstract: | The Covid-19 crisis has highlighted innovative high-frequency dataset allowing to measure in real-time the economic impact. In this vein, we explore how satellite data measuring the concentration of nitrogen dioxide (NO2, a pollutant emitted mainly by industrial activity) in the troposphere can help predict industrial production. We first show how such data must be adjusted for meteorological patterns which can alter data quality and pollutant emissions. We use machine learning techniques to better account for non-linearities and interactions between variables. We then find evidence that nowcasting performances for monthly industrial production are significantly improved when relying on daily NO2 data compared to benchmark models based on PMIs and auto-regressive (AR) terms. We also find evidence of heterogeneities suggesting that the contribution of daily pollution data is particularly important during “crisis” episodes and that the elasticity of NO2 pollution to industrial production for a country depends on the share of manufacturing in the value added. Available daily, free-to-use, granular and covering all countries including those with limited statistics, this paper illustrates the potential of satellite-based data for air pollution in enhancing the real-time monitoring of economic activity. |
| Keywords: | Data Science, Big Data, Satellite Data, Nowcasting, Machine Learning, Industrial Production |
| JEL: | C51 C81 E23 E37 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:847&r= |
| By: | Nicholas Z. Muller |
| Abstract: | Investing according to environmental, social, and governance (ESG) criteria is gaining momentum. Most environmental performance indices focus only on the tonnage of carbon dioxide (CO₂) emissions. This paper proposes an index covering eight pollutants expressed in monetary damage. Inclusion of multiple pollutants reflects a broader range of reputational and regulatory risks. Monetization appropriately weights emissions. CO₂ dominates the mass of other pollutants, yet the marginal damages from other pollutants are larger than CO₂. In the U.S. utility sector from 2014 to 2017, indices which only track CO₂ mischaracterize firms’ environmental performance and underestimate its effect on financial outcomes relative to the multipollutant index. Dirtier firms exhibit lower share prices and higher forward returns. The effect is twice as large for the multipollutant index compared to CO₂. Analysts’ earnings forecasts for dirtier firms systematically undershoot actuals. Earnings errors are between three and five times more sensitive to the multipollutant index than to CO₂. The multipollutant index may suggest new management strategies to financial market participants relative to those based on carbon intensity. ESG disclosure standards based on the new index are more likely to affect financial outcomes, capital allocation decisions, and firm behavior than disclosure of carbon intensity. |
| JEL: | G11 G41 Q51 Q53 Q54 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29454&r= |
| By: | Kazem Biabany Khameneh; Reza Najarzadeh; Hassan Dargahi; Lotfali Agheli |
| Abstract: | The expansion of trade agreements has provided a potential basis for trade integration and economic convergence of different countries. Moreover, developing and expanding global value chains (GVCs) have provided more opportunities for knowledge and technology spillovers and the potential convergence of production techniques. This can result in conceivable environmental outcomes in developed and developing countries. This study investigates whether GVCs can become a basis for the carbon intensity (CI) convergence of different countries. To answer this question, data from 101 countries from 1997 to 2014 are analyzed using spatial panel data econometrics. The results indicate a spatial correlation between GVCs trade partners in terms of CI growth, and they confirm the GVCs-based conditional CI convergence of the countries. Moreover, estimates indicate that expanding GVCs even stimulates bridging the CI gap between countries, i.e., directly and indirectly through spillover effects. According to the results, GVCs have the potential capacity to improve the effectiveness of carbon efficiency policies. Therefore, different dimensions of GVCs and their benefits should be taken into account when devising environmental policies. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.00566&r= |
| By: | Gough, Ian |
| Abstract: | More and more nation states are now committing to net-zero carbon by 2050 at the latest, which is encouraging, but none have faced up to the transformation of economies, societies and lives that this will entail. This paper considers two scenarios for sustainable welfare and discusses the implications for contemporary incomes, jobs and welfare states. It is necessarily restricted to the EU and similarly rich countries of the developed world. The first scenario is the Green New Deal framework to decarbonise the economy whilst addressing the distributional and welfare issues this would involve. This paper argues that expanded public provision of ‘essentials’ would be a necessary social component of this strategy. The second scenario goes further to counteract runaway private consumption by building an economy of egalitarian sufficiency with ceilings to income, wealth and consumption. This would require a further extension of labour market and welfare state interventions. The paper provides a framework for mapping and developing these two distinct approaches and for identifying a range of policy options on jobs and incomes. |
| JEL: | J1 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112594&r= |
| By: | Guo, Dong; Zhou, Peng (Cardiff Business School) |
| Abstract: | The COVID pandemic reveals the fragility of the global financial market during rare disasters. Conventional safe-haven assets like gold can be used to hedge against ordinary risks, but tail dependence can substantially reduce the hedging effectiveness. In contrast, green bonds focus on long-term, sustainable investments, so they become an important hedging tool against climate risks, financial risks, as well as rare disasters like COVID. The copula approach based on the TGARCH model is applied to estimate the joint distributions between green bonds and selected financial assets in both US and China. The quantile-based approach is also performed to offer a robustness check on tail dependence. The results show that all assets in the two countries have thick tails and tail dependence with time-varying features. The hedging effectiveness does decline during the COVID pandemic, but it is the hedging effectiveness against tail risks rather than against normal risks. It is argued that green bonds play a significant role in hedging against rare disasters especially in forex markets. It is also found that green bonds in the US and China converge in many aspects, suggesting a smaller cross-country difference than cross-asset difference. |
| Keywords: | green bonds; hedging effectiveness; COVID |
| JEL: | G11 G12 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2021/28&r= |
| By: | Johansson, Alva (Department of Economics, Lund University); Berggren, Niclas (Research Institute of Industrial Economics (IFN)); Nilsson, Therese (Research Institute of Industrial Economics (IFN)) |
| Abstract: | While there is almost unanimous consent among scientists that climate change is real and has detrimental consequences, there is a sizable number of people who are skeptical towards these propositions and who are not worried by climate change. In an attempt to understand the basis of climate skepticism, we look at the role of intolerance, a culturally transmitted attitude to the effect that people with certain characteristics are not to be respected. The theoretical link from intolerance to climate skepticism is driven by two elements: insufficient or biased knowledge formation and a value of not caring very much about the welfare of others. Our empirical analysis confirms that intolerance on the basis of race, ethnicity, immigration status, religion or sexual orientation predicts climate skepticism. By using the epidemiological method, relating the views on climate change of second-generation immigrants in Europe to cultural values in their countries of origin, we are able to rule out reverse causality – a novelty in the literature trying to explain climate skepticism. To get a feeling for the importance of intolerance, an increase in the share who are intolerant towards people of a different race in the individual’s country of origin by 10 percentage points implies a reduced probability of the individual considering the consequences of climate change extremely bad of 4.3 percentage points (21.5%). An important implication of our findings is that to influence climate skeptics, it may be necessary to go beyond argumentation about the facts as such and to find ways to affect more basic individual characteristics. |
| Keywords: | Climate skepticism; Culture; Intolerance; Causality; Values |
| JEL: | F64 Q01 Q54 Z10 |
| Date: | 2021–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1416&r= |
| By: | Jim Falk; Faten Attig-Bahar; Rita R. Colwell; Swadhin K. Behera; Adel S. El-Beltagy; Joachim von Braun; Partha Dasgupta; Peter H. Gleick; Ryuichi Kaneko; Charles F. Kennel; Phoebe Koundouri; Yuan Tseh Lee; Thomas E. Lovejoy; Amy Luers; Cherry A. Murray; Rattan Lal; Ismail Serageldin; Youba Sokona; Kazuhiko Takeuchi; Makoto Taniguchi; Chiho Watanabe; Tetsuzo Yasunari |
| Keywords: | Climate change, Biodiversity, Population growth, Risk interaction |
| Date: | 2021–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:2114&r= |
| By: | Danilo Liberati (Bank of Italy); Giuseppe Marinelli (Bank of Italy) |
| Abstract: | This paper presents a comprehensive study of the ESG (Environmental, Social and Governance) bond market which has experienced a dramatic expansion in the last few years and is about to gain an additional boost due to the forthcoming implementation of the Next Generation plan of the European Union. We use a security-by-security data set comprising a large sample of ESG bonds (15,500) exchanged on the main global security markets, integrated with microdata used in official statistics such as financial accounts and security holdings. First, we describe the most salient features of the global supply of ESG bonds by analyzing the characteristics of issuers and securities, the differences across countries and sectors, and their evolution over time. Second, we shed light on Italian residents' holdings of ESG bonds with a focus on sectoral holdings in the context of the financial accounts statistics. |
| Keywords: | Sustainable finance, ESG bonds, security holdings, financial accounts |
| JEL: | G12 G21 Q56 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_654_21&r= |