The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet–Brownian uncertainty

The effects of two environmental policy options for the reduction of pollution emissions, i.e. taxes and non-tradable quotas, are analyzed. In contrast to the prior literature this work endogenously takes into account the level of emissions before and after the adoption of the new environmental policy. The level of emissions is determined by solving the firm's profit maximization problem under taxes and fixed quotas. We find that the optimal adoption threshold under taxes is always larger than the adoption threshold under fixed quota, even in a setting characterized by ecological uncertainty and ambiguity – in the form of Choquet–Brownian motions – on future costs and benefits over adopting environmental policies.     

Trade-induced technological change: Analyzing economic and environmental outcomes

We analyze how changes in trade openness are related to induced technological innovations that are not only GDP increasing but also pollution saving. Our model includes by-products of carbon dioxide and sulfur dioxide emissions. We estimate a directional distance function for 76 countries over the period 1963–2000 to measure exogenous and trade-induced technological change. On average, we find substantial trade-induced technological progress, and its magnitude is about one third of the overall technological change. The trade-induced technological changes, however, are GDP reducing and pollution increasing. Empirically, we find that increased trade openness correlates to increased pollution.     

基于Kaya模型的高能耗产业低碳发展研究——以山西省为例

通过Kaya公式计算并描述了山西省1994~2008年工业中各行业的碳足迹,并界定了高能耗行业。通过分解模型定量分析了山西省1998~2008年高能耗行业碳足迹的影响因素贡献大小,计算结果表明经济增长对二氧化碳排放促进作用最大,技术引进对二氧化碳的抑制作用最大。由此提出山西省急需在提高能源使用效率的同时优化产业结构,以提高对二氧化碳排放的抑制作用的政策建议。     

On the potential economic costs of cutting carbon dioxide emissions in Portugal

The objective of this paper is to estimate the impact of reducing carbon dioxide emissions from fossil fuel combustion activities on economic activity in Portugal. We find that energy consumption has a significant impact on macroeconomic activity. In fact, a 1 ton of oil equivalent permanent reduction in aggregate energy consumption reduces output in the long term by €6,340. More importantly, and since carbon dioxide emissions are linearly related to the amounts of fuel consumed, our results allow us to estimate the costs of reductions in carbon dioxide emissions. We estimate that a uniform standard for reducing carbon dioxide emissions from fossil fuel combustion activities would lead to a marginal abatement cost of €95.74 per ton of carbon dioxide. This is a first rough estimate of the potential economic costs of policies designed to reduce carbon dioxide emissions. At this level one may conclude that uniform, across the board reductions in carbon emissions would have a clear negative effect on economic activity. Hence, at the aggregate level there is clear evidence for a trade-off between economic performance and a reduction in carbon emissions. This opens the door to the investigation of the scope for policy to minimize the costs of environmental policy and regulation.     

Carbon Dioxide Emissions in the U.S. Economy: A Structural Decomposition Analysis

This paper provides an empirical analysis of the impact of various influences on carbon dioxide emissions. It incorporates methodological refinements of input-output structural decomposition analysis, which is the examination of economic change by means of a set of comparative static variations in key parameters of I-O tables. The analysis is performed using a two-tiered KLEM model, which allows for estimation of substitution and technological change effects within and between input aggregates. The model is used to decompose the sources of change in CO₂ emissions in the U.S. over the 1972–82 timeframe using hybrid energy/value tables for the initial and terminal years. Results show the significant effect of substitution within the energy sector and between energy and other inputs as the leading causes of the decline in carbon dioxide emissions.     

Swedish CO<Subscript>2</Subscript> Emissions 1993–2006: An Application of Decomposition Analysis and Some Methodological Insights

This study undertakes a decomposition analysis to identify the drivers of carbon dioxide emissions change in the Swedish business and industry sectors 1993–2006. On aggregate, energy intensity decreased, but this does not seem to have been very important for reducing emissions. Rather, fuel substitution seems to have been more important, which is in line with findings from the decomposition literature on Sweden. However, at the sectoral level, we find no clear pattern of the effect of fuel substitution and energy intensity on emissions. We also draw some methodological conclusions: decomposition analysis should be undertaken at the most disaggregate level possible; assessing decomposition results by summing results over several time periods leads to biased results; and decomposition analysis should not be based only on some initial and final years of a long time period. Furthermore, we address the problem of double counting energy flows in decomposition analysis of aggregate effects when the energy sector is included, and point out potential problems related to output measured in monetary terms.     

Is fairness blind?—The effect of framing on preferences for effort-sharing rules

This paper uses a choice experiment to study citizens' preferences for effort-sharing rules for reducing carbon dioxide emissions. For a given global cost and level of emission reduction, we study the willingness to pay for various rules that imply different distributions of the cost between EU, the US, China and Africa. The focus of this paper is on the use of two different treatments, one where the respondents were informed about the country (or country group) names and one where the names were replaced with anonymous labels A-D. This allows us to test whether people's preferences for effort-sharing rules depend on the framing of the problem. We find that the ranking of the rules and the strength of the preferences are not significantly different between the two treatments, and hence we find no evidence of ingroup bias in preferences for effort-sharing rules.     

Climate policy and the optimal extraction of high‐ and low‐carbon fossil fuels

Abstract. We study how restricting CO₂ emissions affects resource prices and depletion over time. We use a Hotelling‐style model with two non‐renewable fossil fuels that differ in their carbon content (e.g., coal and natural gas) and in addition are imperfect substitutes in final good production. We show that an economy facing a CO₂ flow‐constraint may substitute towards the relatively dirty input. As the economy tries to maximize output per unit of emissions it is not only carbon content that matters: productivity matters as well. With an announced constraint the economy first substitutes towards the less productive input such that more of the productive input is available when constrained. Preliminary empirical results suggest that it is cost‐effective to substitute away from dirty coal to cleaner oil or gas, but to substitute from natural gas towards the dirtier input oil.     

Oil rents, corruption, and state stability: Evidence from panel data regressions

We examine the effects of oil rents on corruption and state stability exploiting the exogenous within-country variation of a new measure of oil rents for a panel of 30 oil-exporting countries during the period 1992–2005. We find that an increase in oil rents significantly increases corruption, significantly deteriorates political rights while at the same time leading to a significant improvement in civil liberties. We argue that these findings can be explained by the political elite having an incentive to extend civil liberties but reduce political rights in the presence of oil windfalls to evade redistribution and conflict. We support our argument documenting that there is a significant effect of oil rents on corruption in countries with a high share of state participation in oil production while no such link exists in countries where state participation in oil production is low.     

Reallocation and restructuring: A generalization of the Balassa–Samuelson effect

Despite its strong theoretical position when it comes to explaining inflation in transition economies, the empirical findings of the Balassa–Samuelson (B–S) effect assign only a minor role to structural inflation – to the disappointment of analysts and policymakers. This article points to 3 theory-based contributing factors to these ‘weak’ findings and offers an alternative methodological approach. First, a short-term focus makes B–S prone to underestimating the magnitude of the productivity growth differential. Second, the conventional demand side CPI based definition of sectoral value added reduces the extent to which the productivity growth differential is passed through to inflation. Third, by ignoring the dependence between the 2 main B–S components, a further downward bias to the productivity growth pass through comes about. The key to our proposed alternative methodology centres on an endogenous relation between the productivity growth differential and sector sizes. Together with the long-run supply-side approach this allows us to capture inflation drivers that conventional B–S fails to incorporate. In our extension to the conventional B–S model a reduced productivity growth differential can be compensated by an increased productivity growth pass-through, or vice versa – with the effect of augmenting inflation pressure. Hence, the link between productivity growth differentials and the dynamics of structural inflation is shown to be more complex than previously assumed.     

Evaluating the carbon-macroeconomy relationship: Evidence from threshold vector error-correction and Markov-switching VAR models

This paper studies the nonlinear adjustment between industrial production and carbon prices – coined as ‘the carbon-macroeconomy relationship’ – in the EU 27. We model carbon price returns and industrial production as nonlinear and state-dependent, with dynamics depending on the sign and magnitude of past realization of returns and the growth of industrial production. Our findings show that (i) macroeconomic activity is likely to affect carbon prices with a lag, due to the specific institutional constraints of this environmental market; (ii) the joint dynamics of industrial production and carbon prices seem adequately captured by two-regime threshold vector error-correction and two-regime Markov-switching VAR models compared to linear models as main competitors. The regime-switching models proposed are profoundly checked for their economic content and statistical congruency, and are found to provide a sound statistical framework for a comprehensive analysis of the carbon-macroeconomy relationship.     

On the feasibility of monetary union: Does it make sense to look for shocks symmetry across countries when none of the countries constitutes an optimum currency area?

Usually, a monetary union is not considered feasible between countries if the correlations of shocks are positive but weak. This may not be so if the country with the larger output gap converges to full-employment equilibrium faster than the country with the smaller gap. We argue that common monetary policy can be destabilizing when countries' responses to non-monetary shocks are perfectly symmetric with a correlation of 1 but exhibit differing investment sensitivities to the real interest rate. We use Canada, Mexico and the United States to test the feasibility of a monetary union by documenting whether: 1) gross investments in Canada and Mexico are equally responsive to the real fund rate, and 2) Canada and Mexico's output growth and inflation respond differently to US monetary policy shocks and oil price shocks. This approach implicitly dictates whether the shocks themselves are symmetric or asymmetric. Using quarterly data and SVAR methodology, we conducted two layers of analysis. We estimated SVARs for the periods 1970–2008, 1970–1990 and 1991–2008 to find that a monetary union is feasible between Canada and the US for the first two sample periods. For Canada and Mexico, we find similar responses of output growth to US monetary policy shocks. We conducted further robustness tests by estimating two identified VARs with common US variables and oil prices for Canada and Mexico to assess commonality in responses to shocks with the US. These results affirm that a monetary union is also feasible between Canada and the US.     

A multi-factor efficiency perspective to the relationships among world GDP, energy consumption and carbon dioxide emissions

Most of the research articles on climate change study the relationships between economic growth, and, carbon dioxide (CO₂) emission or energy consumption separately for analyzing the impacts of economic growth and energy consumption on global carbon dioxide emissions. In this paper, the linkages among CO₂ emissions, Gross Domestic Product (GDP) growth and energy consumption are studied simultaneously using Data Envelopment Analysis (DEA). The time period considered for the study is 1980-2001. The results show that world in the year 1980 was the most efficient in achieving the highest economic growth, emitting least carbon dioxide for a given level of energy consumption for that year. The efficiency index reduced in the next 8 years, fluctuated with a declining trend for the next 7 years, and began to rise from 1996 till 2001. The model is further extended in this paper for technology forecasting to identify the links between energy consumption and carbon dioxide emissions for achieving projected levels of GDP under two different assumptions on efficiency index. It has been identified using the forecasting model that, when the carbon dioxide emissions are restricted to the levels emitted in the year 1990 and when the efficiency index for the year 2025 is assumed to be at the level registered for the year 1980 (highest value), the non-fossil energy consumption needed to meet the GDP level projected for 2025 will be much smaller (35.46 quadrillion Btu for the reference GDP) than the values actually recorded in the year 1990 (44.59). However, the non-fossil energy consumption in 2025 (118.8) increases much more than the actual recorded in the year 1990 when the efficiency index in 2025 is assumed to be at the level registered for the year 1990.     

Carbon sequestration and permit trading on the competitive fringe

This paper makes two contributions to the carbon-sequestration policy literature. First and foremost, we develop a theoretical framework in which sequestration and permit-trading markets are analyzed jointly in the context of a competitive fringe model. Our framework formalizes the linkage between regulatory policy changes (as they manifest themselves in the permit market) and subsequent equilibrium allocations in the sequestration market. Second, we perform a numerical analysis demonstrating the role market structure, or market power, might play in the determination of the equilibrium sequestration allocation and carbon price. Both our analytical and numerical results demonstrate the importance of incorporating into empirical supply-side models demand-side information that is reflective of an underlying market structure.     

The causal dynamics between renewable energy,real GDP,emissions and oil prices: evidence from OECD countries

This study extends the empirical literature on the determinants of renewable energy consumption in the case of 25 OECD countries for the period 1980–2011. Preliminary analysis suggests the presence of cross-sectional dependence within the panel data. As a result, second-generation panel unit root tests of Smith et al. (2004) and Pesaran (2007) are undertaken to find the respective variables that are integrated of order one. Panel cointegration and error correction modelling reveal that a long-run relationship exists between renewable energy consumption per capita, real GDP per capita, carbon dioxide emissions per capita and real oil prices. The long-run elasticity estimates are positive and statistically significant for real GDP per capita, carbon dioxide emissions per capita and real oil prices. The panel error correction model shows that a feedback relationship exists among the variables.     

Energy efficiency promotion backfires under cap-and-trade

Major climate-cum-energy policies and respective impact projections rest on the widespread belief that increased energy efficiency can be equated with savings in energy use and emissions. This belief is flawed. Due to the rebound effect emissions savings from energy efficiency improvements will be generally less than what is technically feasible, or even be reversed. By means of an analytical general equilibrium model we demonstrate the latter to be true in a case that is both stark and relevant: if electricity generation is subject to a cap-and-trade scheme with partial coverage, increased efficiency of electric devices leads unambiguously to increased carbon emissions. The result implies that a proper distinction between the energy rebound and the carbon rebound is warranted, and that public policy must carefully consider the interactions between energy efficiency promotion and carbon pricing.     

现代工业型与传统资源型城市能源消耗碳排放的对比分析——以无锡市与包头市为例

以现代工业型与传统资源型城市为研究对象,选取包头市与无锡市为代表进行对比,采用对数平均权重分解法对能源消耗引起的碳排放量进行分解,探究两种类型城市碳排放特征与驱动因素的异同。研究认为：①两种类型城市经济发展同碳排放量协同增长,碳排放效率逐年减小,离绝对减排的目标相差较远。新型工业城市具有高GDP低碳排放的特点,且碳排放量趋于稳定;传统资源型城市具有低GDP高碳排放的特点,碳排放强度、减排空间和潜力均大于前者,且碳排放量有进一步增大的潜力。②以煤为主的能源消费结构在短期内很难得到有效改善,使得能源结构调整收效不大;能源效率的提高对碳排放量起到了微弱的抑制作用;经济发展对碳排放贡献一直保持高位。③发展方式转变和产业结构提升,是工业城市尤其是资源型工业城市发展低碳经济的主要路径。     

Structural decomposition analysis and input-output subsystems: Changes in CO2 emissions of Spanish service sectors (2000-2005)

The analysis of gas emissions by an input-output subsystem approach provides detailed insight into pollution generation in an economy. Structural decomposition analysis, on the other hand, identifies the factors behind the changes in key variables over time. Extending the input-output subsystem model to account for the changes in these variables reveals the channels by which environmental burdens are caused and transmitted throughout the production system. In this paper we propose a decomposition of the changes in the components of CO₂ emissions captured by an input-output subsystems representation. The empirical application is for the Spanish service sector, and the economic and environmental data are for years 2000 and 2005. Our results show that services increased their CO₂ emissions mainly because of a rise in the emissions generated by non-services to cover the final demand for services. The decomposed effects show a decrease in CO₂ emissions due to technological changes between 2000 and 2005 compensated by an increase in emissions caused by the rise in final demand of services. Finally, large asymmetries exist not only in the quantitative changes in the CO₂ emissions of the various services but also in the decomposed effects of these changes.     

AGE analysis of the impact of a carbon energy tax on the Irish economy

A computable general equilibrium model with specific detail in taxation and energy use is developed in this paper to quantify the impact of the implementation of energy taxation to reduce carbon dioxide emissions in Ireland. Benchmark data combining physical energy and emissions data and economic data in the form of a Social Accounting Matrix (SAM) had to be compiled from various data sources, because energy and pollution accounts from the SEEA are not available for Ireland. We find that the reduction target for energy related CO₂ emissions in Ireland of 25.8% compared to 1998 levels can be achieved with a carbon energy tax of 10-15 euros per tonne of CO₂. Though fuel switching is important in meeting the target, this result is more sensitive to the possibilities for producers to substitute away from energy use. Welfare would fall but only by small percentages. Production and consumption patterns would change more significantly, with a shift in demand from fuels with a high emission factor to energy sources with a lower carbon-intensity and from energy to other commodities. This paper confirms that a carbon energy tax leads to greater emission reductions than an equivalent uniform energy tax. The latter has a stronger negative impact on the less polluting energy sectors whereas the carbon tax greatly stimulates the use of renewable energy and reduces the use of peat and coal. The new SAM, the model and the application to energy taxes contribute to a better informed debate on environmental policy in Ireland.     

A decomposition analysis of CO2 emissions in the United States

This article decomposes the growth in US CO₂ emissions by state. Using the Logarithmic Mean Divisia Index (LMDI) method, we account for CO₂ emissions change in each state between 1990 and 2004. The change is decomposed into five effects: (a) emissions per unit of fossil fuel; (b) share of fossil fuel in total energy consumption; (c) energy intensity; (d) gross state product per capita and (e) population. Results show that for the past 15 years gains in the efficiency of energy use in the economy, the lowering share of fossil fuels in total energy consumption and lowering of emissions intensity of fuels all contributed to offsetting the effect of Gross Domestic Product (GDP) per capita and the population growth in carbon emission across the US.