Energy substitutions, climate change and carbon sinks

We determine the optimal exploitation time-paths of two energy resources, one being depletable and polluting, namely a fossil fuel, the other being renewable and clean. These optimal paths are considered along with the two following features. First, the cumulative atmospheric pollution stock is set not to exceed some critical threshold and second, the polluting emissions produced by the use of fossil fuel can be reduced at the source and stockpiled in several carbon sinks of limited capacity. We show that, if the renewable resource flow is abundant, the optimal path requires that sequestration is implemented only once the ceiling is reached. Moreover, the reservoirs should be completely filled by increasing order of their respective sequestration costs.     

The dynamics of optimal abatement strategies for multiple pollutants—An illustration in the Greenhouse

We investigate optimal abatement strategies for cumulative and interacting pollutants. We show that different decay rates can cause non-monotonic behavior in the optimal paths of emissions, the aggregate level of pollution, and even the relative optimal price for emissions. This contrasts strikingly with the case of a single pollutant. The results are illustrated by numerical simulations, first for instructive fictitious and second for more realistic parameters mimicking the greenhouse problem. The results add to the skepticism existing about whether the concept of global warming potential is a useful indicator for the optimal relative abatement of different GHGs over time. In fact, we show that a constant index suitable for comparing dynamically different pollutants with respect to their economic harmfulness does not exist.     

The opportunity cost of land use and the global potential for greenhouse gas mitigation in agriculture and forestry

This paper analyses the role of global land management alternatives in determining potential greenhouse gas mitigation by land-based activities in agriculture and forestry. Land-based activities are responsible for over a third of global greenhouse gas emissions, yet the economics of land-use decisions have not been explicitly modeled in global mitigation studies. In this paper, we develop a new, general equilibrium framework which effectively captures the opportunity costs of land-use decisions in agriculture and forestry, thereby allowing us to analyse competition for heterogeneous land types across and within sectors, as well as input substitution between land and other factors of production. When land-using sectors are confronted with a tax on greenhouse gas emissions, we find significant changes in the global pattern of comparative advantage across sectors, regions, and land types. Globally, we find that forest carbon sequestration is the dominant strategy for GHG emissions mitigation, while agricultural-related mitigation comes predominantly from reduced methane emissions in the ruminant livestock sector, followed by fertilizer and methane emissions from paddy rice. Regionally, agricultural mitigation is a larger share of total land-use emissions abatement in the USA and China, compared to the rest of the world, and, within agriculture, disproportionately from reductions in fertilizer-related emissions. The results also show how analyses that only consider regional mitigation, may bias mitigation potential by ignoring global market interactions. For example, USA-specific analyses likely over-estimate the potential for abatement in agriculture. Finally, we note that this general equilibrium framework provides the research community with a practical methodology for explicit modeling of global land competition and land-based mitigation in comprehensive assessments of greenhouse gas mitigation options.     

Measurement and communication of greenhouse gas emissions from U.S. food consumption via carbon calculators

Food consumption may account for upwards of 15% of U.S. per capita greenhouse gas emissions. Online carbon calculators can help consumers prioritize among dietary behaviors to minimize personal “carbon footprints,” leveraging against emissions-intensive industry practices. We reviewed the fitness of selected carbon calculators for measuring and communicating indirect GHG emissions from food consumption. Calculators were evaluated based on the scope of user behaviors accounted for, data sources, transparency of methods, consistency with prior data and effectiveness of communication. We found food consumption was under-represented (25%) among general environmental impact calculators (n = 83). We identified eight carbon calculators that accounted for food consumption and included U.S. users among the target audience. Among these, meat and dairy consumption was appropriately highlighted as the primary diet-related contributor to emissions. Opportunities exist to improve upon these tools, including: expanding the scope of behaviors included under calculations; improving communication, in part by emphasizing the ecological and public health co-benefits of less emissions-intensive diets; and adopting more robust, transparent methodologies, particularly where calculators produce questionable emissions estimates. Further, all calculators could benefit from more comprehensive data on the U.S. food system. These advancements may better equip these tools for effectively guiding audiences toward ecologically responsible dietary choices.     

Biodiversity value and the optimal location of forest conservation sites in Southern Finland

Safeguarding biodiversity has been one of the most important issues in environmental and forest policies since the 1990s. In Southern Finland, decisions concerning further actions for the preservation of forest biodiversity will be made in the coming years. To support policy making, we present a multi-regional model that is applicable in determining the economically optimal regional allocation of conservation sites. Three habitat quality models are evaluated to calculate habitat quality indices used as a surrogate for a biodiversity value in a forest sector model. The scenarios presented provide information about the economic impacts of conservation choices on the forest sector. The overall economic impacts of conservation depend on its scale and regional allocation. Conserving land with high biodiversity value can have less adverse impact on the forest sector than conservation of typical commercial forest sites. When optimizing conservation set-asides, we found that set-asides targeted to certain regions possessing higher/lower than average relative share of ecologically valuable land, caused lower/higher adverse economic impacts on the forest sector. Because it is expensive to search land suitable for conservation, these regions could be respectively favoured/avoided when asking forest owners to offer their land for the new conservation program in Southern Finland, which will be based on voluntariness.     

Trade imbalance and the endogenous optimal tariff

Endogenous tariff literatures reveal empirically that trade imbalance is negatively related with import tariff, this article gives a theoretical evidence and explanation to support this finding with the methodology of multi-country numerical general equilibrium modelling and simulation. We explore how optimal tariff changes after trade imbalance is introduced, and find that optimal tariffs decrease substantially, either for surplus or deficit countries, when imbalance is considered. Specifically, when the imbalance is modelled in endogenous monetary and inside-money structures, the optimal tariffs decrease by 26% globally on average. Our results suggest that the deepening trade imbalance is beneficial to the global trade liberalization due to its driving tariffs down.     

The economics of the thermohaline circulation—A problem with multiple thresholds of unknown locations

A potentially serious environmental threat facing humanity is the possibility of a collapse of the thermohaline circulation. Resulting climate changes, including absolute cooling near Greenland and northwest Europe, could be abrupt. Collapse of the thermohaline circulation may be triggered if the temperature or the rate of temperature change exceeds certain thresholds. The locations of these thresholds are unknown. Economic regulation of this problem requires solution methods for a class of dynamic optimization problems with multiple thresholds located in n-dimensional space. This class of problems has hitherto not been discussed in the literature. We present a model for the economic regulation of CO₂ emissions in the presence of threshold-triggered risk of a collapsing thermohaline circulation and derive optimality conditions for regulation.     

The Armington assumption and the size of optimal tariffs

There has been commentary on the seeming success of the world trading system in responding to the large shock of the 2008 financial crisis without an outbreak of retaliatory market closing. The threat of large retaliatory tariffs and fears of a 1930s style downturn in trade have been associated with numerical trade modelling, which projects post retaliation optimal tariffs in excesses of 100%. In the relevant numerical modelling, it is common to use the Armington assumption of product heterogeneity by country. Here, we argue and show by numerical calculation that the widespread use of this assumption gives a large upward bias to optimal tariffs, both first step and post retaliation, relative to alternative homogenous good models used in trade theory. The reason is that optimal tariffs equal the inverse of the foreign export supply elasticity and are negatively related to the elasticity of the foreign offer curve. The Armington assumption model has a much more bowed foreign offer curve, which generates unrealistic larger optimal tariffs.     

Responding to climate and other change processes in complex contexts:: Challenges facing development of adaptive policy frameworks in the Ganga Basin

The Ganga Basin, one of the world's most densely populated and vulnerable regions, is also among the world's most dynamic hydrological systems. Rivers exiting the Himalaya deposit massive amounts of sediment in the plains and shift their courses regularly. The natural dynamics of this system have a direct impact on populations. On August 18th, 2008, for example, embankments on the Kosi River (a tributary to the Ganges), failed and the channel shifted by as much as 120 km (Sinha, 2008 [1]) displacing over sixty thousand people in Nepal and three and a half million in India. Transport and power systems disrupted across large areas. The embankment failure was not caused by an extreme event. Instead the breach represented a failure of interlinked physical and institutional infrastructure systems in an area characterized by complex social, political, and environmental relationships.Projected climate changes in the Ganga Basin are likely to greatly exacerbate vulnerability (Adaptation Study Team, 2008 [2]). While the Kosi breach had nothing to do with climate change, such events will increase if climatic variability, sediment transport, and extreme events increase. Understanding how populations can respond to the dynamic nature of rivers such as the Kosi is, as a result, essential to develop strategies for adapting to climatic change. Understanding is also essential at the policy level for building adaptive capacity. The challenge is to identify policy frameworks and their relationship to interlinked physical and institutional infrastructure combinations that create environments enabling adaptation within households, communities, and regions.This paper explores the challenges and opportunities facing the development of adaptive policy frameworks in the Ganga Basin. The characteristics of frameworks that are adaptive in themselves and enable adaptation along with their relationship to different types of interlinked institutional and infrastructure systems are explored first. Following this, the case of the Kosi embankment along with the projected impacts of climate change across the Ganga Basin is used to identify the key challenges and opportunities that are common in many regions. The paper concludes with specific observations on the development of adaptive policy frameworks for responding to climate change in complex developing country contexts.     

Identifying and evaluating robust adaptive policy responses to climate change for water management agencies in the American west

Climate change presents a significant planning challenge for water management agencies in the western United States. Changing precipitation and temperature patterns will disrupt their supply and extensive distribution systems over the coming decades, but the precise timing and extent of these impacts remain deeply uncertain, complicating decisions on needed investments in infrastructure and other system improvements. Adaptive strategies represent an obvious solution in principle, but are often difficult to develop and implement in practice. This paper describes work helping the Inland Empire Utilities Agency (IEUA) explicitly develop adaptive policies to respond to climate change and integrating these policies into the organizations' long-range planning processes. The analysis employs Robust Decision Making (RDM), a quantitative decision- analytic approach for supporting decisions under conditions of deep uncertainty. RDM studies use simulation models to assess the performance of agency plans over thousands of plausible futures, use statistical “scenario discovery” algorithms to concisely summarize those futures where the plans fail to perform adequately, and use these resulting scenarios to help decisionmakers understand the vulnerabilities of their plans and assess the options for ameliorating these vulnerabilities. This paper demonstrates the particular value of RDM in helping decisionmakers to design and evaluate adaptive strategies. For IEUA, the RDM analysis suggests the agency's current plan could perform poorly and lead to high shortage and water provisioning costs under conditions of: (1) large declines in precipitation, (2) larger-than-expected impacts of climate change on the availability of imported supplies, and (3) reductions in percolation of precipitation into the region's groundwater basin. Including adaptivity in the current plan eliminates 72% of the high-cost outcomes. Accelerating efforts in expanding the size of one of the agency's groundwater banking programs and implementing its recycling program, while monitoring the region's supply and demand balance and making additional investments in efficiency and storm-water capture if shortages are projected provides one promising robust adaptive strategy — it eliminates more than 80% of the initially-identified high-cost outcomes.     

The optimal harvesting problem with a land market: a characterization of the asymptotic convergence

We study the asymptotic behavior of the optimal harvesting policies for a multiple species forest with a land market, i.e., any fraction of the land can be traded at any time stage. We prove the existence of sustainable states and we discuss the conditions under which any optimal trajectory converges in the long run towards one of these states or towards the set of optimal periodic cycles. We also discuss briefly a more general problem that includes costs of converting land between the different species.      

How large are the gains to commitment policy and optimal delegation for New Zealand?

This paper measures the benefits of commitment-based monetary policy over discretion for a small open economy inflation targeting country—New Zealand. Significant gains accrue from commitment policy. If commitment-based policy is unavailable, the government can recoup much of the gains to commitment through optimal delegation, asking the Reserve Bank of New Zealand to care more about inflation stabilisation. The 1999 PTA, the core of the policy contract between the New Zealand government and the Reserve Bank of New Zealand, placed an increased emphasis on stabilisation of output, interest rates and the exchange rate. This is inconsistent with a shift to optimal delegation behaviour and must stem from a changed perception of the welfare costs of macroeconomic stabilization on the part of the Government. This is shown to be true when the definition of inflation is extended to a medium term measure.     

Equity weighting and the marginal damage costs of climate change

Climate change will give rise to different impacts in different countries, and different countries have different levels of development. Equity-weighted estimates of the (marginal) impact of greenhouse gas emissions reflect these differences. This paper analyses the impact of equity weighting on the marginal damage cost of carbon dioxide emissions, and reaches four main conclusions. First, equity-weighted estimates are substantially higher than estimates without equity-weights; equity-weights may even change the sign of the social cost estimates. Second, estimates differ by two orders of magnitude depending on the region to which the equity weights are normalised. Third, equity-weighted estimates are sensitive to the resolution of the impact estimates. Depending on the assumed intra-regional income distribution, estimates may be more than twice as high if national rather than regional impacts are aggregated. Fourth, variations in the assumed inequality aversion have different impacts in different scenarios, not only because different scenarios have different emissions and hence warming, but also because different scenarios have different income differences, different growth rates, and different vulnerabilities.     

Optimal compliance with emission constraints: dynamic characteristics and the choice of technique

The paper analyzes how to comply with an emission constraint, which restricts the use of an established energy technique, given the two options to save energy and to invest in two alternative energy techniques. These techniques differ in their deterioration rates and the investment lags of the corresponding capital stocks. Thus, the paper takes a medium-term perspective on climate change mitigation, where the time horizon is too short for technological change to occur, but long enough for capital stocks to accumulate and deteriorate. It is shown that, in general, only one of the two alternative techniques prevails in the stationary state, although, both techniques might be utilized during the transition phase. Hence, while in a static economy only one technique is efficient, this is not necessarily true in a dynamic economy.      

Privatization and optimal share release in the Chinese banking industry

This paper establishes a mixed oligopoly model to explore how the government determines the percentage of shares of the state-owned banks to be released to foreign investors under the goal of seeking to maximize social welfare. The theoretical model finds that the release of shares of state-owned banks to foreign investors will reduce the outputs of the state-owned banks. The direction of the change in the profitability of the state-owned banks depends on the percentage of the shares released. The direction of the changes in the levels of social welfare also varies. If the gap in production efficiency between the state-owned banks and private banks is not large enough, we can be certain that a partial release of shares is the government's best policy.     

Climate Change and the Stability of Water Allocation Agreements

We analyse agreements on river water allocation between riparian countries. Besides being efficient, water allocation agreements need to be stable in order to be effective in increasing the efficiency of water use. In this paper we assess the stability of water allocation agreements using a game theoretic model. We consider the effects of climate change and the choice of a sharing rule on stability. Our results show that a decrease in mean river flow decreases the stability of an agreement, while an increased variance can have a positive or a negative effect on stability. An agreement where the downstream country is allocated a fixed amount of water has the lowest stability compared to other sharing rules. These results hold for both constant and flexible non-water transfers.     

Geographically explicit global modeling of land-use change, carbon sequestration, and biomass supply

This study aims to determine whether carbon sequestration policies could present a significant contribution to the global portfolio of climate change mitigation options. The objective is to model the effects of policies designed to induce landowners to change land use and management patterns with a view to sequester carbon or to reduce deforestation. The approach uses the spatially explicit Dynamic Integrated Model of Forestry and Alternative Land Use (DIMA) to quantify the economic potential of global forests. The model chooses which of the land-use processes (afforestation, reforestation, deforestation, or conservation and management options) would be applied in a specific location, based on land prices, cost of forest production and harvesting, site productivity, population density, and estimates of economic growth. The approach is relevant in that it (1) couples a revised and updated version of the Special Report on Emissions Scenarios with the dynamic development of climate policy implications through integration with the Model for Energy Supply Strategy Alternatives and their General Environmental Impact (MESSAGE); (2) is spatially explicit on a 0.5° grid; and (3) is constrained by guaranteeing food security and land for urban development. As outputs, DIMA produces 100-year forecasts of land-use change, carbon sequestration, impacts of carbon incentives (e.g., avoided deforestation), biomass for bioenergy, and climate policy impacts. The modeling results indicate that carbon sequestration policies could contribute to a significant part of the global portfolio of efficient climate mitigation policies, dependent upon carbon prices.