Environmental rights on the futures markets an application to the dutch manure market

A study was carried out to analyze futures markets for tradable rights after a cash market was initiated. Furthermore, some indication was given on the size of such a futures market to provide insight into its viability. Futures markets can play a role in solving environmental problems, by making the market for pollution rights (i.e. P₂O₅ rights) and agro rights (milk rights, sugar rights and P₂O₅ rights) more effective and transparent. Moreover, the market for tradable rights would be able to meet the users' need for hedging. This paper investigated the possibility of introducing a futures markets for tradable P₂O₅ rights and the commodity manure. Because there is already a cash market for manure, although not well developed yet, and there will be a cash market for P₂O₅ rights, a futures market is a logical sequel. The futures market can play a role in implementing agricultural policy efficiently and with respect to manure and P₂O₅ rights can be an economically efficient solution to environmental problems.We acknowledge the financial support of the ATA (Agricultural Futures Market Amsterdam).     

Modelling risk premia in CO2 allowances spot and futures prices

This article analyzes the modelling of risk premia in CO₂ allowances spot and futures prices, valid for compliance under the EU Emissions Trading Scheme (EU ETS). Similarly to electricity markets, a salient characteristic of CO₂ allowances is that the theory of storage does not hold, as CO₂ allowances only exist on the balance sheets of companies regulated by the scheme. The main result features positive time-varying risk premia in CO₂ spot and futures prices, which are strictly higher for post-2012 contracts (€6–9/ton of CO₂) than for Phase II contracts (€0–6/ton of CO₂). Contrary to Benth et al.'s (2008) for electricity markets, a positive relationship between risk premia and time-to-maturity is found in the EU ETS. As for relative differences between CO₂ futures and spot prices, CO₂ futures traded between + 1% (December 2008 contract) and + 33% (December 2014 contract) above spot prices during February 2008–April 2009. Contrary to Bessembinder and Lemmon (2002) for the electricity market, a positive relationship between risk premia and the variance/skewness of CO₂ spot prices is found. The futures-spot bias to the EU ETS explains around 1–6% of the variance of CO₂ futures premia.     

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.     

The control of CO2 emissions and its economic impact: An AGE model for a german state

Since it is believed that CO₂ is responsible for 55% of the greenhouse effect, a CO₂ levy is now under consideration in several countries. For an assessment of the macroeconomic implications of an integrated energy and environmental policy we employ an applied general equilibrium model (AGE) since all sectors of an economy and all private households contribute to CO₂ emission. Our model is a temporary equilibrium model with capacity extension under adjustment costs and with abatement activities for SO₂ and NO_x emissions.The model of consumer behavior will result in a system of consumer demand functions for non-durables as well as for durable goods. The simulations show the cost of inefficiency in resource allocation if CO₂ taxes differ between industries and households. We finally present the marginal cost curve of CO₂ emission reduction.     

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.     

The carbon footprint of UK households 1990-2004: A socio-economically disaggregated, quasi-multi-regional input-output model

This paper presents a socio-economically disaggregated framework for attributing CO₂ emissions to people's high level functional needs. Based around a quasi-multi-regional input-output (QMRIO) model, the study, in theory, takes into account all CO₂ emissions that arise from energy used in production of goods and services to satisfy UK household demand, whether the emissions occur in the UK or abroad. Results show that CO₂ emissions attributable to households were 15% above 1990 levels in 2004, and that although absolute decoupling occurred between household expenditure and CO₂ during the UK's switch from coal to gas in the early 1990s, since then only slight relative decoupling is evident. The proportion of CO₂ that arises outside UK borders in support of UK consumption is rising, and reducing these emissions is particularly problematic in a global trading system. Investigation into the carbon footprint of different segments of the UK population shows wide variation: the segment with the highest carbon footprint emits 64% more CO₂ than the segment with the lowest. Results show that recreation and leisure are responsible for over one quarter of CO₂ emissions in a typical UK household in 2004. We conclude that expanding lifestyle aspirations are significant factors in driving household CO₂ emissions, but the study also emphasizes that attention must be paid to the infrastructures and institutions that result in considerable amounts of CO₂ being locked up in basic household activities through which people meet their everyday needs for subsistence, protection, and communication with family and friends. The findings highlight the sheer scale of the challenge facing UK policy-makers, and suggest that policies should be targeted towards segments of society responsible for the highest carbon footprints.     

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.     

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.     

Decomposition of energy-related CO2 emission over 1991-2006 in China

This paper presents a decomposition analysis of energy-related CO₂ emission in China for the period 1991-2006 divided into three equal time intervals. The complete decomposition method developed by Sun is used to analyze the nature of the four factors: CO₂ intensity, energy intensity, structural changes and economic activity. The results show that economic activity has the largest positive effect in CO₂ emission changes in all the major economic sectors and China has achieved a considerable decrease in CO₂ emission mainly due to the improved energy intensity. However, the impact of CO₂ intensity and structural changes is relatively small. Structural changes only exhibit positive effect to the CO₂ mitigation in agricultural sector, and CO₂ intensity also contributes to the decrease of CO₂ emission in transportation sector. Moreover, a formula about CO₂ mitigation is presented in this paper, which shows that China has made a significant contribution to reducing global CO₂ emission.     

Health Damage of Air Pollution: An Estimate of a Dose–Response Relationship for the Netherlands

This paper estimates the dose-response relationship between air pollution and the number of work loss days for the Netherlands. The study is based on illness data (work loss days) for the Dutch labour population and average year concentrations of air pollution in 29 districts. The dose-response relationship has been estimated by means of two different techniques: the ordinary least squares method (OLS) and the one-way fixed-effects method (OWFEM), which we consider to be more adequate. In general health effects are much smaller when OWFEM is applied than if OLS is used. With OWFEM a significant relationship is found between sulphate aerosol (SO₄), ammonia (NH₃) and the number of work loss days (WLDs). Particulates (TSP), O₃ and SO₂ have no significant effect on the number of WLDs. These results differ from those obtained in studies in the United States, which indicate that particulates (TSP) and other small particles, ozone (O₃) and to a lesser extent SO₄ and SO₂ significantly influence the number of WLDs.     

Carbon Capture and a Commercial Market for CO2

With increasing evidence that the earth is warming at a faster rate than previously expected, there is pressure to reduce carbon dioxide (CO₂) emissions on a large scale. Because carbon capture helps to internalize the CO₂ externality, economists have begun to evaluate its potential. Two possibilities exist: carbon capture and storage (CCS), where CO₂ is sequestered, usually underground; and the development of a commercial market, where CO₂ is used for transformation into calcium carbonate, biofuels, air conditioning, or other market options. This paper contrasts CCS with the development of a commercial market for CO₂ and finds that the commercial market holds many advantages: internalization of the pollution externality, addressing the innovation externality, and revenue generation. Depending on the development of the commercial market, revenue from the sale of CO₂ could partially or fully offset the cost of innovation in carbon capture technology.     

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.     

Analysis and quantification of a new fiscally neutral European tax

The present study contributes to the discussion on the new European tax or excise which would be based on taxing end consumption (taxing the products and not the production) according to how much CO₂ is emitted during the production of particular commodities, irrespective of whether all or a part of this process takes place inside or outside the EU. The analysis is based on the input–output model, which provides an appropriate and unique approach for measuring the total CO₂ content of the various commodities taking the entire production chain into account. The calculation by products can be the basis for the estimation of product specific CO₂ taxes. The model calculations based on the input–output table for the EU-27 for the year 2011 leads to the tax rate of 40.69 euros per tonne of CO₂ emissions, which could have generated fiscal revenue in the amount of 1% of EU GDP. In line with the principle of fiscal neutrality, a reduction of the labour costs by ?2.03% could compensate the introduction of a CO₂ tax by the amount of 40.69 euros per tonne of CO₂. The cost push effects lead to change of relative prices in favour of environmentally produced goods and services.     

THE ROLE OF TRANSACTIONS IN KIND IN DEVELOPING ECONOMIES

The paper is concerned with non-monetized transactions which are dimensionally important in developing countries. The notion of degree of monetization attaches to all real flows. It is necessary to analyze non-monetized transactions in order to a have a better understanding of the producing and consuming activities of households which contribute a large part of national product in less developed countries. Among different non-monetized flows, particular attention is paid to the use of the output of own production for different purposes. A survey of Indian information on the degree of non-monetization shows that it is different for different flows: highest for consumption, intermediate for current inputs and lowest for investments. Cross section Indian data indicate that the degree of non-monetization is expected to fall with the improvement in the average household expenditure and urbanisation but it may rise if development occurs largely through agricultural improvement. Some of the Indian findings may apply to other developing countries as well. Normally, estimates of expenditure elasticities based on cross section data are obtained from consumption expenditure on a particular item (e) and the aggregate consumption expenditure (E) without going into the question of the degree of non-monetization of either element. Since traditional models of consumer behaviour apply only to the relation between money expenditure on a particular item (e_m) and the aggregate money expenditure (E_m), it is suggested that the relation between e and E should be broken down into relations between (i) e_m and E_m, (ii) e_k and E_k where these are the corresponding kind elements and (iii)among E, E_m and E_k. Some estimates of elasticity based on this scheme are presented indicating that the procedure is reasonable and suggesting that this type of analysis would probably furnish a suitable framework for answering relevant questions in the field.     

Alpha- and beta-characteristic functions in cooperative non-sidepayment games: An experimental test

This article investigates theories of payoff allocation in cooperative non-sidepayment games, that is, games where players can form coalitions and coordinate strategies but cannot redistribute payoffs via sidepayments. A labotatory experiment was conducted with 4-person, 3-strategy non-sidepayment games. The goal of this experiment was to ascertain which characteristic function, V_α(S) or V_β(S), provides the more accurate basis for payoff predictions from solution concepts. Predictions from each of three solution concepts (core, stable set, imputation set) were computed on the basis of both V_α(S) and V_β(S), making a total of six theories under test. The results showed two basic findings. First, for each of the three solutions, the prediction computed on the basis of V_α(S) was more accurate than the prediction computed from V_α(S). Second, the β-core was the most accurate of the six theories tested. Overall, these results support the view that V_β(S) is superior to V_α(S) as a basis for payoff predictions in cooperative non-sidepayment games.     

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.     

On incentive structures of a socialist economy

This paper considers an incentive structure B_T as an alternative to the incentive structure B_D recently suggested by Domar. Both of these incentive structures induce managers in a planned economy to provide the socially desirable output level while allowing them to set prices. In two aspects B_T is better than B_D. First, B_D works only if demand is elastic at the optimal output level while B_T works whether demand is elastic or inelastic at that level. Second, even when demand is elastic at the optimal level, there are circumstances for which output converges to the optimal level faster under B_T than under B_D.     

Asymptotic distribution of the sup-Wald statistic under specification errors

Consider a simple structural break model where y_t=α₁+β₁f(x_t)+u_t for t≤k₀ and y_t=α₂+β₂f(x_t)+u_t for t>k₀. The timing of break and the structural parameters are unknown. Suppose the true functional form of the regressor f(·) is misspecified as g(·). We do not place too many restrictions on the functional forms of f(·) and g(·). A frequently encountered example in economics is that the true model is measured in level, but we estimate a log-linear model, i.e. when f(x_t)=x_t and g(x_t)=log(x_t) For any f(·) and g(·), we derive a nonstandard limiting null distribution of the sup-Wald test statistic under some very general regularity conditions. Monte Carlo simulations support our findings.     

A proposed convention for measuring the state of the art of products or processes

During 1980, The Futures Group performed a study under contract to the National Science Foundation to devise a convention for describing—in quantitative terms—technological state of the art of essential any technology. In designing this convention we hope that different analysts, working independently, would be able to arrive at a similar conclusion about the state of the art of a technology under study. With such a measure at hand, it would be possible, for example, to evaluate the effectiveness of investment in R&D by evaluating the improvement in the technological state of the art of a given technology, per unit investment.The form of the equation chosen for the state-of-the-art convention was SOA = K₁(P₁/P'₁ + K₂(P₂/P'₂) ? K_n(P_n/P'_n) where SOA = state of the art, K_n = the relative weight associated with each parameter describing the technology, P_n = the value of the particular parameter useful in describing the state of the art, and P'_n = a reference value of the parameter. Various approaches to the selection of the parameters and their weights were described. Of particular interest is a statistical approach which assumes that the state of the art, over time, is an S-shaped curve. In this instance it is possible to compute the value of the weights through an iterative numerical technique.The convention was applied to two technologies: computers and antibiotics, and state-of-the-art measures were developed for each. In the case of antibiotics, selected organism/antibiotic pairs were analyzed to identify the state of the art of a particular antibiotic as applied to the control of a particular microorganism, over time.     

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.