The design of optimal climate policy with air pollution co-benefits

This paper develops a model of an optimal regulatory program for greenhouse gases (GHGs) emissions that accommodates the benefits due to reductions of co-pollutants including: sulfur dioxide (SO₂), nitrogen oxides (NO_x), volatile organic compounds (VOC), and fine particulate matter (PM_2.5). Employing per ton damage estimates for the co-pollutants produced by an integrated assessment model, co-pollutant damage estimates per ton carbon dioxide equivalent (CO₂e) are developed for over 10,000 sources of GHGs in the lower 48 states including both transportation sources and electric power generation. For coal-fired electric power generation, the co-pollutant damages are larger in magnitude than recent peer-reviewed estimates of the marginal damage for GHGs. The co-pollutant damage per ton CO₂e varies considerably across source types and source location. The paper estimates the welfare gain from adopting a policy that encompasses the spatially variant co-pollutant damage to be between $1 million and $85 million annually. The range depends on the slope of the marginal abatement cost curve. The paper also shows that a distortionary aggregate emission cap reduces the advantage of differentiated policy. Provided an excessively strict cap, the spatially differentiated policy may reduce aggregate welfare. This result has important implications for GHG policy in the United States; although co-pollutant benefits of abating GHGs have been shown to be significant in magnitude, tailoring climate policy to reflect these source-specific co-benefits is not necessarily socially beneficial. This bolsters arguments for upstream policy designs.     

Climate policy in Western Europe and avoided costs of air pollution control

Abatement of CO₂ emissions will be accompanied by reduced air pollutant emissions such as particulate matter (PM), SO₂, and NO_x. This, in turn, will reduce the need for end of pipe (EOP) pollution control technologies to meet future air quality targets. This dynamic could put more stringent air quality goals within reach, and increase the political feasibility of climate policy. This paper presents a CGE model that has been modified to include the emissions and EOP abatement of PM, SO₂, and NO_x from stationary sources in the EU-17. Emissions of pollutants are modeled as fixed-factor complementary inputs to their associated source. Abatement in each sector is modeled as a substitution between the pollutants and discrete abatement technologies, each of which is sector-specific and characterized by a marginal abatement cost and technical capacity constraint. Scenarios are run to 2020, to assess the costs and co-benefits of simultaneous air quality and climate policies. We find that under the Kyoto Protocol in 2010, the welfare cost of pollution control is reduced by 16% compared to the baseline, effectively offsetting the cost of CO₂ abatement by 15%. The co-benefit results depend heavily on policy choices, and their magnitude relative to total costs is likely to decline as greenhouse targets become more ambitious. In our scenarios, pollution control cost savings range from 1.3 to 20% in 2020, yielding a climate cost offset range of 0.2 to 3.9%. The CO₂ credit imports allowed by the EU via the Clean Development Mechanism (CDM) offer a total savings of $9.7bn in 2020, but only need to be compensated by an additional $0.3–0.4bn in domestic pollution control from stationary sources.     

Does economic growth and energy consumption drive environmental degradation in China’s 31 provinces? New evidence from a spatial econometric perspective

The panel data analysis points to economic and social factors contributing to NO_x, PM_2.5, PM₁₀, SO₂, and VOCs in China’s 31 provinces. The spatial correlation analysis using Global and Local Moran’s I values indicates the existence of a significant and positive spatial autocorrelation with respect to environment, economy and energy, and the high spatial correlation is evident in the eastern region, covering the northern part of Yangtze River Delta, Huaihai Economic Zone, and the lower reaches of the Yellow River Economic Belt. The empirical estimation is performed through spatial lag and spatial Durbin models. All emitted air pollutants in 31 provinces have significant spatial dependence and strong spillover effects. There is an inverted U-shaped relationship between emitted air pollutants (NO_x, PM₁₀, VOCs, and PM_2.5) and per capita GDP, which follows the EKC hypothesis. The relationship between SO₂ and per capita GDP does not follow the EKC hypothesis. There is a positive relationship between pollutant emissions and coal consumption, which is consistent with current studies for various countries like Canada, Denmark, UK and US and regions like New York State. However, the effects of science and technology investment on air pollutants are mostly positive, which is not as policy expected.     

Cost Benefit Analysis of European Air Quality Targets for Sulphur Dioxide, Nitrogen Dioxide and Fine and Suspended Particulate Matter in Cities

The European Commission has proposed air quality standards for NO₂, SO₂ and PM₁₀ to be in force by 2010. The present paper presents a study that gauged their costs and benefits. An analysis of the expected emissions for 2010 (reference emission scenario), using simplified air quality models, showed that non-compliance with these standards will occur in cities only, not in rural areas. Most compliance problems are expected for PM₁₀, least for SO₂. Central estimates of the costs to meet standards range from 21 MECU (SO₂), to 79 MECU (NO₂) to 87--225 MECU (PM₁₀). The estimated benefits are 83--3783 MECU (SO₂), 408--5900 MECU (NO₂), and 5007--51247 MECU (PM₁₀). Uncertainties are high, due to errors and incertitude in various steps of the methodology, mainly the estimation of the human health effects, in particular effects on mortality, and in the valuation of a statistical life. In the case of PM₁₀, additional uncertainty results from the small size of the air quality database. Notwithstanding the uncertainties, the indications are that the benefits exceed the costs.     

Reduction of acidification from electricity — Generating industries in Taiwan by Life Cycle Assessment and Monte Carlo optimization

Life Cycle Assessment (LCA) is a rather common tool for reducing environmental impacts while striving for cleaner processes. This method yields reliable information when input data is sufficient; however, in uncertain systems Monte Carlo (MC) simulation is used as a means to compensate for insufficient data. The MC optimization model was constructed from environmental emissions, process parameters and operation constraints. The results of MC optimization allow for the prediction of environmental performance and the opportunity for environmental improvement. The case study presented here focuses on the acidification improvement regarding uncertain emissions and on the available operation of Taiwan's power plants. The boundary definitions of LCA were established for generation, fuel refining and mining. The model was constructed according to objective functional minimization of acidification potential, base loading, fuel cost and generation mix constraints. Scenario simulations are given the different variation of fuel cost ratios for Taiwan. The simulation results indicate that fuel cost was the most important parameter influencing the acidification potential for seven types of fired power. Owing to the low operational loading, coal-fired power is the best alternative for improving acidification. The optimal scenario for acidification improvement occurred at 15% of the fuel cost. The impact decreased from 1.39 to 1.24 kg SO₂-eq./MWh. This reduction benefit was about 10.5% lower than the reference year. Regarding eco-efficiency at an optimum scenario level of 5%, the eco-efficiency value was − 12.4 $US/kg SO₂-eq. Considering the environmental and economical impacts, results indicated that the ratio of coal-fired steam turbine should be reduced.     

Benefits and costs to China of three different climate treaties

There are currently several ideas on the table for a climate treaty post-Kyoto. We consider the impact on China of three ideas: a cap on the CO₂ intensity, a cap on the CO₂ level, and a cap on the CO₂ intensity in key sectors. We find that a cap on the CO₂ intensity gives large environmental co-benefits to China on aggregate, but there are significant negative effects for rural households. Assuming these are addressed the country could reduce its CO₂ intensity by a third before costs outweigh environmental co-benefits. By contrast a cap confined to the manufacturing and power sector does not bring substantial co-benefits to China.     

Re-Examining the Empirical Evidence for Stochastic Convergence of Two Air Pollutants with a Pair-Wise Approach

This paper examines the hypothesis of stochastic convergence for two air pollutants emissions (carbon dioxide [CO₂] and sulfur dioxide [SO₂]). The value-added of this paper lies in the use of a recent, alternative econometric method, a pair-wise approach that considers all the possible pairs of log per-capita pollutant emission gaps across all the countries in the sample. In this method, all emissions differences must be stationary around a constant mean. Empirical results support different conclusions on stochastic convergence in per capita CO₂ and SO₂ emissions depending on the choice of the unit root test. The use of specific critical values from the ADF-KPSS joint test overcomes these initial conflicting results and leads to small percentages of stationary pairs around a constant mean; which invalidate the hypothesis of stochastic convergence for per capita emissions of CO₂ and SO₂, even over the OECD sub-dataset.     

Impacts of an EC carbon/energy tax and deregulating thermal power supply on CO2, SO2 and NOx emissions

Emission of CO₂, SO₂ and NO_x are all closely linked to the burning of fossil fuels. Here we report on simulations done by linking a Sectoral European Energy Model (SEEM), covering energy demand in nine Western European countries, with the emission-transport-deposition model RAINS developed by IIASA. The study analyses emissions of CO₂, SO₂ and NO_x, deposition of sulphur and nitrogen and the extent of areas where the critical load for sulphur is exceeded in year 2000 under four different energy scenarios. Two different sets of future behavioural patterns for the thermal electric power production sector are considered. In one regime, called the plan-efficient regime, the sector is assumed to follow official plans with regard to investment in new capacity. In the other regime, called the cost-efficient regime, the thermal power sector is assumed to behave in a cost minimizing manner. The effects of the proposed EC carbon/energy tax are studied under both regimes, giving rise to altogether four scenarios.In both regimes the effect of the EC tax is to reduce emissions by between 6 and 10 per cent in year 2000 relative to the scenarios without the tax. A change of regime, from the regulated, plan-efficient regime to the market-based, cost-efficient regime, will, by itself, reduce emissions of CO₂ and NO_x by approximately 3 per cent, while SO₂ emissions are reduced by 13 per cent. The EC tax will reduce sulphur deposition by more than 5 per cent in the nine model countries under the plan-efficient regime. A change of regime further reduces the total deposition by 9 per cent. The area where depositions exceed the critical load is reduced by approximately 6 per cent in year 2000 by the tax in both regimes. Changing from the plan-efficient to the cost-efficient regime has a similar impact.Although the emission reductions due to the EC tax may seem modest, they are shown to have a sizeable effect on the technological abatement costs of reaching targets like those prescribed in the Sofia protocol on the stabilisation of NO_x emissions, and the Helsinki protocol on SO₂ emission reductions. This is part of what can be considered to be secondary benefits of the EC carbon/energy tax.     

The impacts of weather variations on energy demand and carbon emissions

This paper examines the impacts of climate fluctuations on carbon emissions using monthly models of US energy demand. The econometric analysis estimates price, income, and weather elasticities of short-run energy demand. Our model simulations suggest that warmer climate conditions in the US since 1982 slightly reduced carbon emissions in the US. Lower energy use associated with reduced heating requirements offsets higher fuel consumption to meet increased air-conditioning needs. The analysis also suggests that climate change policies should allow some variance in carbon emissions due to short-term weather variations.     

Spatial organization, transport, and climate change: Comparing instruments of spatial planning and policy

Approaching the analysis of climate policies from a spatial organization perspective is necessary for realizing both efficient and effective mitigation of greenhouse gas (GHG) emissions. In particular, it allows assessing the potential contribution of specific mechanisms of spatial organization and related spatial planning and policy to climate policy goals. So far, this spatial organization angle of climate policy has hardly received attention in the literature. The main sector significantly contributing to GHG emissions and sensitive to spatial organization and planning is urban transport. A qualitative evaluation of the available spatial organization policy options is provided, on the basis of four standard ‘E criteria’ and a decomposition of CO₂ emissions.     

Spatial organization,transport, and climate change: Comparing instruments of spatial planning and policy

Approaching the analysis of climate policies from a spatial organization perspective is necessary for realizing both efficient and effective mitigation of greenhouse gas (GHG) emissions. In particular, it allows assessing the potential contribution of specific mechanisms of spatial organization and related spatial planning and policy to climate policy goals. So far, this spatial organization angle of climate policy has hardly received attention in the literature. The main sector significantly contributing to GHG emissions and sensitive to spatial organization and planning is urban transport. A qualitative evaluation of the available spatial organization policy options is provided, on the basis of four standard ‘E criteria’ and a decomposition of CO₂ emissions.     

Convergence of per capita sulphur dioxide emissions across US states

This study examines the stochastic conditional convergence of sulphur dioxide (SO₂) emissions using the Residual Augmented Least Squares–Lagrange Multiplier (RALS–LM) unit root test with structural breaks. This procedure allows the data to account for trend breaks and nonnormal errors that have been ignored or deemphasized in previous studies. The study finds that per capita sulphur dioxide emissions exhibits stochastic conditional convergence across US states.     

The Stochastic Convergence of CO<Subscript>2</Subscript> Emissions: A Long Memory Approach

In response to equity concerns surrounding the spatial distribution of CO₂ emissions and assumptions of CO₂ convergence within some climate models, this paper examines the convergence of CO₂ emissions within the OECD over the period 1870–2004. More specifically, using the Local Whittle estimator and its variants we examine whether relative per capita CO₂ emissions are fractionally integrated, that is they are long memory processes which, although highly persistant, may revert to the mean/trend in the long run. Our results suggest that CO₂ emissions within 13 out of 18 OECD countries are indeed fractionally integrated implying that they converge over time, albeit slowly. Interestingly though, the countries whose emissions are not found to be fractionally integrated are some of the highest polluters within the OECD, at least in per capita terms. Our results have implications both for future studies of CO₂ convergence and for climate policy.     

Phase I Completed: An Empirical Assessment of the 1990 CAAA

With the conclusion of Phase I trading of SO₂ allowances, the EPA declared the allowance trading policy to be a success. The time had come to include cap-and-trade programs in the arsenal of effective policy tools. In terms of reducing atmospheric emissions of sulfur dioxide, the program appears to be successful. It is not clear, however, whether or not the program has minimized the cost of achieving the emission reductions. The measure of the true success of a market-based incentive program, however, has yetto be quantified: Has the program resulted in converging marginalabatement costs across participant plants? In this study I report theshadow prices of Phase I power plants from 1994 to 1998 anddetermine that there are more costs to be saved within theambitious public policy experiment.     

An analysis of China's climate policy using the China-in-Global Energy Model

The primary approach to address climate change in China has been the use of CO₂ intensity targets coupled with targets for low carbon energy deployment. We evaluate the impact of extending similar targets through 2050 on China's energy use profile and CO₂ emissions trajectory using the China-in-Global Energy Model (C-GEM). The C-GEM is a global computable equilibrium model that includes energy and economic data provided by China's statistical agencies, calibration of savings, labor productivity, and capital productivity dynamics specific to China's stage of development, and regional aggregation that resolves China's major trading partners. We analyze the combined impact of extending CO₂ intensity targets, implemented via a cap-and-trade program, and low carbon energy policies (directives for nuclear power expansion and feed-in tariffs for wind, solar, and biomass energy) through 2050. Although with the policy, simulated CO₂ emissions are around 43% lower in 2050 relative to a reference (No Policy) counterfactual, China's CO₂ emissions still increase by over 60% between 2010 and 2050. Curbing the rise in China's CO₂ emissions will require fully implementing a CO₂ price, which will need to rise to levels higher than $25/ton in order to achieve China's stated goal of peaking CO₂ emissions by 2030.     

Does energy‐related aid affect emissions? Evidence from a global dataset

Donor countries have been using international aid in the field of energy for at least three decades. The stated objective of this policy is to reduce emissions and promote sustainable development in the global South. In spite of the widespread use of this policy tool, very little is known about its effect on emissions. In this paper we perform an empirical audit of the effectiveness of energy‐related aid in tackling CO₂ and SO₂ emissions. Using a global panel dataset covering 128 countries over the period 1971–2011 and estimating a parsimonious model using the Anderson and Hsiao estimator, we do not find any evidence of a systematic effect of energy‐related aid on emissions. We also find that the non‐effect is not conditional on institutional quality or level of income. Countries located in Europe and Central Asia do better than others in utilizing this aid to reduce CO₂ emissions. Our results are robust after controlling for the environmental Kuznets curve, country fixed effects, country‐specific trends, and time‐varying common shocks.     

Impact of FDI and trade on environmental quality in the CAFTA-DR region

This study investigates the relationship between foreign direct investment (FDI), trade and industrial emissions in member countries of the Central American Free Trade Agreement–Dominican Republic (CAFTA-DR) between 1979 and 2010. Our model is based on extant literature about the Environmental Kuznets’ Curve framework. In this study, we consider sulphur dioxide (SO₂), nitrogen oxides (NO_x) and carbon dioxide (CO₂) as our dependent variables. Our key independent variables are FDI and trade. Our study finds evidence that foreign investment and trade have had a negative impact on our selected emissions. However, our models also estimate turning points which are below the current GDP per capita values for all CAFTA-DR member countries. This is an encouraging trend in terms of the potential reduction in emissions in the region.     

Climate Policy with Multiple Sources and Sinks of Greenhouse Gases

This paper studies how inclusion of many sources, sinks and reservoirs -- a comprehensive approach -- affects climate policy, compared with a control merely of CO₂. Two questions of particular importance arise in such an analysis. One is how to aggregate the emissions of different climate gases, and the other is how to include all relevant measures in the analysis. To aggregate gases properly, an intertemporal analysis should be carried out. To assure that all relevant measures are included, we suggest that certain measures to reduce emissions of greenhouse gases are specified explicitly and evaluated together with indirect measures, such as carbon charges. A numerical analysis based on an optimal control model indicates that direct measures may play an important role in the design of climate policy, especially for the control of the emissions of greenhouse gases other than CO₂. Similar to other studies of the time-path for abatement efforts, the bulk of abatement should be taken by the end of the planning period. This result is significantly strengthened if gases with short life-times in the atmosphere, such as methane, are subject to control.     

Norwegian Emissions of CO2 1987–1994 A Study of Some Effects of the CO2 Tax

Several countries have introduced taxes on fossil fuels with the aim of reducing atmospheric emissions, partly because of local environmental goals (SO₂, NO_x) and partly to participate in a global effort to reduce emissions of greenhouse gases. Many macroeconomic studies, based on both global and national models, have been made of how emissions can be reduced with the help of taxes and the consequent reduction in GDP following the introduction of such taxes. Norway has had a CO₂ tax for five years, thereby providing a unique opportunity to evaluate the effects of this tax on emissions. The paper provides a counterfactual analysis of energy consumption and emissions if no CO₂ taxes had been introduced, compared with the actual situation in which such taxes exist. The effect of a CO₂ tax on oil consumption, and thus CO₂ emissions is studied on the basis of partial economic models for various sectors of the Norwegian economy. The study indicates that the CO₂ tax has had an impact on CO₂ emissions in Norway.     

Stochastic Divergence or Convergence of Per Capita Carbon Dioxide Emissions: Re-examining the Evidence

This paper revisits the time-series literature on the convergence of per capita carbon dioxide (CO₂) emissions and examines the robustness of previous results. Using a sample of OECD countries for the period 1950–2002 we employ a battery of stationarity and unit root tests including those that allow for cross-sectional dependencies within the panel. We also correct for inaccuracies in previous studies that could result in a trend-stationary series being labelled as converging even if it were actually diverging from the international average. The body of evidence provided by our analysis suggests that per capita CO₂ emissions have not converged among OECD countries during the period under consideration. This finding is of importance to both climate change policy makers and to those who construct climate change models.