Lessons from the polder: Energy tax design in The Netherlands from a climate change perspective

This paper evaluates energy tax reform in The Netherlands between 1988 and 2002 from a climate change perspective. In particular, the introduction of two (indirect) taxes on energy products is now responsible for a considerable amount of tax revenue from a green tax base. The paper discusses the energy tax base and rate structure from a modern Pigovian tax perspective and illustrates the practical difficulties involved in the indirect and non-uniform taxation of emissions. Also further improvements of the energy tax structure are discussed, such as a better targeting of the energy tax base and tax rate to fuel characteristics.     

The effect of climate change on optimal wetlands and waterfowl management in Western Canada

Warmer temperatures and a decrease in precipitation in the 21st century could severely deplete wetlands in the prairie pothole region of western Canada. In this study, we employ linear regression analysis to determine the casual effect of climate change on wetlands in this region, with temperature, precipitation and the standardized precipitation index (SPI) used to predict the effect of potential climate change on wetlands. We then use a waterfowl-wetlands bioeconomic model to solve for socially optimal levels of duck harvests and wetlands retention under current climate conditions and various climate change scenarios. The model maximizes benefits to hunters plus the amenity values of ducks to non hunters and the non-market ecosystem benefits of wetlands. Results indicate that climate change could decrease wetlands by between 7 and 47%, and that the optimal number of wetlands to retain could decrease by as much as 38% from the baseline climate.     

Energy taxation: Reasons for discriminating in favor of the production sector

If a small open economy wishes to restrict it's greenhouse gas emissions, it has to decide whether to impose uniform taxes on all polluters or to resort to a discriminatory policy. In practice, countries tend to impose higher taxes on households and to tax the industrial sector more leniently. This paper identifies conditions under which this is efficient. It is shown that an efficiency maximizing tax planner discriminates in favor of the production sector if (i) there are restrictions on the taxation of lump-sum income or if (ii) labor supply exerts market power.     

Barriers to energy efficiency: A comparison across the German commercial and services sector

Based on a large sample for the German commercial and services sector, this paper econometrically assesses the relevance of various types of barriers to energy efficiency at the sectoral level and across fifteen sub-sectors. The results at the level of entire sectors suggest that the lack of information about energy consumption patterns and about energy efficiency measures, lack of staff time, priority setting within organizations, and - in particular - the investor/user dilemma are all relevant barriers. Allowing for sector-specific differences in the relevance of these individual barriers yields a more heterogeneous picture. The numbers and types of relevant barriers vary across sub-sectors, and the majority of sub-sectors are subject to relatively few barriers. The statistically most significant barriers are found for the sub-sector of public administrations. These findings are robust, independent of whether the definition of an organization's energy efficiency performance includes only measures that have actually been realized or also those that are being planned. For planned projects, however, organizations appear to underestimate internal priority setting as a barrier to energy efficiency.     

An investigation of issues relating to where energy should enter the production function

This paper examines the impact of imposing different separability assumptions in the specifications of the standard hierarchical KLEM production function in a computable general equilibrium (CGE) model. The appropriate means of introducing energy to production functions has been a source of debate for a number of years. However, while modellers often subject results to parametric sensitivy analysis regarding the values associated with elasticities of substitution between inputs, it is rarely the case that the structure of the production function is subjected to testing. However, the chosen structure reflects the modeller's view about elasticity between different inputs and will have implications for model results wherever there are changes in relative prices. We illustrate our argument by introducing a simple demand shock to a CGE model of the Scottish economy (targeted at the energy supply sector) under different assumptions regarding the structure of the KLEM production function and separability assumptions therein.     

Intertemporal transfers of emission quotas in climate policies

We are interested in situations in which governments are committed to some pollution abatement constraint which does not match the society's most preferred level of pollution, like in the current climate change policies undergone on behalf of the Kyoto protocol. We develop an overlapping generations model with capital and pollution in which the individuals care about the environmental quality. We show that slightly improving the intertemporal flexibility of the emission quotas by authorizing two-period backward and forward transfers allows to decentralize the whole optimal growth path at competitive equilibrium.     

The impacts of energy insecurity on household welfare in Cambodia: Empirical evidence and policy implications

This study investigates the impacts of energy insecurity on household welfare in Cambodia. The notion of energy insecurity is not well understood in the literature as well as in local contexts. This study defines household energy insecurity as the status quo derived from the interplay of inadequate and insufficient energy consumption that prevents households from meeting basic energy needs. The notion of energy insecurity can only be well understood by investigation in the local context as it varies from place to place. Households facing insufficient energy consumption may forgo many other opportunities. Once energy security has been defined in the Cambodian context, the study employs multiple regression models using the Cambodia Socio-Economic Survey Data (2015) to investigate the impacts of household energy insecurity. The study confirmed that energy insecurity has enormous negative impact on welfare of the households, with a further negative impact on the human capital formation of the children. The findings will lead to policy implications to improve household energy security, and thus impact economic, social, and environmental development.     

The effect of ambiguous risk, and coordination on farmers' adaptation to climate change — A framed field experiment

The risk of losses of income and productive means due to adverse weather can differ significantly among farmers sharing a productive landscape, and is of course hard to estimate, or even “guesstimate” empirically. Moreover, the costs associated with investments in reduced vulnerability to climatic events are likely to exhibit economies of scope. We explore the implications of these characteristics on farmer's decisions to adapt to climate change using a framed field experiment applied to coffee farmers in Costa Rica. As expected, we find high levels of risk aversion, but even using that as a baseline, we further find that farmers behave even more cautiously when the setting is characterized by unknown or ambiguous risk (i.e. poor or non-reliable risk information). Secondly, we find that farmers, to a large extent, coordinated their decisions to secure a lower adaptation cost, and that communication among farmers strongly facilitated coordination.     

What really matters: Discounting, technological change and sustainable climate

This paper discusses the interplay between the choice of the discount rate, greenhouse gas mitigation and endogenous technological change. Neglecting the issue of uncertainty it is shown that the Green Golden Rule stock of atmospheric carbon is uniquely determined, but is not affected by technological change. More generally it is shown analytically within the framework of a reduced model of integrated assessment that the optimal stationary stocks of atmospheric carbon depend on the choice of the discount rate, but are independent of the stock of technological knowledge. These results are then reinforced numerically in a fully specified integrated assessment analysis.     

Effects of the Chinese arable land fallow system and land-use change on agricultural production and on the economy

This study focuses on economic effects of arable land fallow system and land-use change in China using a dynamic single-country, multi-regional computable general equilibrium model. Land supply is adjusted endogenously in our model. Land use in each of 31 provinces is tracked by a land-use change module, which is calibrated with satellite data. Our results reveal that the expansion of real output can be attributed to the increase in capital stock as a result of the growth of investment due to the imposition of the arable land fallow system in China. And the growth of investment is caused by the release of labor from agriculture The reduced supply of arable land in agricultural land contraction regions is partially offset by the increasing arable land in agricultural land expansion regions. Rural households benefit more than urban households from the arable land fallow policy due to relatively higher income and lower rural CPI.     

Economic and environmental impacts of trade liberalization: The case of Indonesia

In recent years, there has been a growing interest in the environmental impacts of trade liberalization. This paper provides further discourse in this area with a study on Indonesia and its trade agreements with Japan (IJEPA) and ASEAN (AFTA). A static global CGE model, known as the Global Trade Analysis Project, was used to project the Indonesian economy to the year 2022, with and without tariff reforms agreed under the agreements. Environmental impacts are assessed using different pollution indicators—air, water and waste. The study suggests that Indonesia would grow rapidly over the period considered with a large deterioration in its environment. Following these, however, the agreements only have a marginal positive impact on Indonesia's output but with a noticeable increase in trade flows and signs of trade diversion. Overall AFTA has a greater impact on the Indonesian economy compared to IJEPA. Similarly, the impact of trade liberalization on the environment is marginal. On the whole, tariff reform is inducing air pollution and reducing water pollution. In conclusion, the study suggests that Indonesia's participation in the AFTA and IJEPA agreements is not likely to bring drastic changes to her economic and environmental performance.     

The productivity impact of climate change: Evidence from Australia's Millennium drought

The economic impact of climate change has usually been estimated based on changes in average weather condition and is often measured in terms of immediate loss of output or profit. Yet little is known about the impact of extreme weather event, in particular its impact on productivity in the medium to long term. Using Australia's Millennium drought as a case of extreme weather event and applying the synthetic control method, we show that severe droughts occurred between 2002 and 2010 has brought down agricultural total factor productivity by about 18 percent in Australia over the period, contributing significantly to the country's long-term slowdown of agricultural total factor productivity growth. Our results highlight the significance of productivity impact of extreme weather events that has been overlooked when accessing the economic impact of climate change.     

Identifying the sources of energy use change: Multiple calibration decomposition analysis and structural decomposition analysis

Decomposition methodologies are requisite to identify the sources of changes in energy use or carbon dioxide emissions. This paper is an inquiry into the theoretical properties of such decomposition methodologies. The study first presents our new decomposition methodology – the Multiple Calibration Decomposition Analysis (MCDA) – as a tool for the investigation. Then, it theoretically reexamines an established decomposition methodology – the Structural Decomposition Analysis proposed by Casler and Rose (1998). Subsequently, the study empirically investigates the properties of both methodologies, applying them to an actual case: the changes in energy use and carbon dioxide emissions in Japan during the oil crises period, when the oil price had a significant influence on the economy. The result shows that understanding the theoretical properties of decomposition methodologies is essential for a precise interpretation of empirical results.     

Improving the way land use change is handled in economic models

Sound economic modelling of land use in global economic models is critical for evaluating agricultural, biofuel, and climate policies. Current approaches do not preserve physical land area, do not account for the fact that land is of different qualities, or do not explicitly include the cost of converting land from one use to another. This study proposes a land use modelling framework building on the additive form of the constant elasticity of transformation (ACET) approach. We demonstrated that the framework could (1) directly provide traceable physical land use results, (2) flexibly handle land productivity differences based on biophysical information, (3) explicitly introduce land conversion cost, and (4) provide welfare decomposition in light of land heterogeneity and conversion cost. An experiment of mandating a 10 percent increase in grain consumption in the US food sector showed that ignoring land heterogeneity and conversion cost would underestimate the welfare loss by 28 percent.     

Ambiguity of scientific probability predictions and willingness-to-pay for climate change mitigation policies

We estimate a smooth ambiguity preference function, wherein an individual faces multiple probability predictions of policy outcomes, and then empirically measure their willingness-to-pay for the policy, ambiguity attitude, and ambiguity premium. Climate change mitigation policy is used as the example. The estimation results reveal that most people have ambiguity-seeking attitudes, but that these attitudes are heterogeneous across individuals. People who are older, are university graduates, have higher income, or trust more in science show stronger ambiguity-seeking attitudes. Their willingness-to-pay can be underestimated if ambiguity is not considered. Moreover, individuals with stronger ambiguity-seeking attitudes support aggressive mitigation policies more strongly. Our estimation strategy is generally applicable to policy evaluations wherein policy outcomes are ambiguous.     

Modeling growth options and structural change to reach middle income country status: The case of Ghana

This paper develops a recursive dynamic computable general equilibrium (DCGE) model to evaluate sources of accelerated growth and structural transformation. It goes beyond stylized and aggregate general equilibrium models by examining country-specific growth options to reach middle income country (MIC) status. We first examine a set of countries that have successfully transformed their economies to inform model and scenario building. We then simulate potentials and trade-offs of selected sector- and factor-specific growth paths for Ghana. Results show that no individual sector's growth acceleration is sufficient for Ghana to reach MIC status by 2015. Manufacturing growth is constrained by its high dependency on agricultural inputs indicating the need for diversification. Services can support rather than drive economy-wide growth. Agriculture must remain the mainstay of economy-wide growth. While this will delay structural change in sectoral composition, it demonstrates that emphasizing agriculture is a viable option for some countries to reach MIC status.     

Information age to genetic revolution: Embodied technology transfer and assimilation — A tale of two technologies

In this paper, a fifteen regions-fifteen sectors global Computable General Equilibrium (CGE) model is calibrated. It offers quantitative enumeration of 5% exogenous biotechnological invention in USA in genetically modified crops namely, maize grains and soybean. Consequently, it results in endogenously transmitted productivity gains via traded intermediates in user sectors in donor and recipient regions. Sustained absorption and domestic usability of transgenic varieties depend on constellation of: human capital-induced absorptive capacity, governance, and structural congruence between source and recipients contingent on technology infrastructure and socio-institutional parameters. Such innovations result in higher production, welfare and global trade. Also, concomitant 4% exogenous productivity shock in information technology along with 5% productivity growth in the agro-biotech sectors further enhances such simulated impacts on global production and welfare. Regions with larger extent of technology capture aided by higher human capital, better governance, conducive institutional-structural features, and superior technological expertise perform better.     

Demographic change, human capital and welfare

Projected demographic changes in the U.S. will reduce the share of the working-age population. Analyses based on standard OLG models predict that these changes will increase the capital-labor ratio. Hence, rates of return to capital decrease and wages increase, which has adverse welfare consequences for current cohorts who will be retired when the rate of return is low. This paper argues that adding endogenous human capital accumulation to the standard model dampens these forces. We find that this adjustment channel is quantitatively important. The standard model with exogenous human capital predicts welfare losses up to 12.5% (5.6%) of lifetime consumption, when contribution (replacement) rates to the pension system are kept constant. These numbers reduce to approximately 8.7% (4.4%) when human capital can endogenously adjust.     

Free trade and the burden of domestic policy

Abstract. Consider a small economy facing accession to a exogenously defined trade agreement. Before accession, the government controls trade and pollution policy. After accession, it retains control over pollution policy, but must allow free trade in all goods. This is a choice many governments face while joining trade agreements today. They decide whether greater market access to other members is more valuable than control over trade policy. I ask two questions. All else being equal what happens to environmental policy after accession? Second, what affects the choice of accession and how does this choice impact aggregate welfare? I show that a loss in control over trade policy alters the political incentives determining environmental policy. Before accession, producers can transfer a portion of their burden of environmental regulation to consumers through price increases. After accession the same regulation is borne entirely by producers. Owing to the change in burden, there exist plausible conditions under which the adoption of free trade can lead to more stringent environmental regulation, a reduction in the preferential treatment of special interest groups, and an increase in aggregate welfare.     

The long-run causal relationship between transport energy consumption and GDP: Evidence from heterogeneous panel methods robust to cross-sectional dependence

This paper employs panel methods that address/mitigate heterogeneity and cross-sectional dependence to determine the direction and sign of long-run causality between transport energy consumption per capita and real GDP per capita. Granger-causality was determined to run from GDP to energy.