Forward-looking versus recursive-dynamic modeling in climate policy analysis: A comparison

This paper develops a multi-regional general equilibrium model for climate policy analysis based on the latest version of the MIT Emissions Prediction and Policy Analysis (EPPA) model. We develop two versions so that we can solve the model either as a fully inter-temporal optimization problem (forward-looking, perfect foresight) or recursively. The standard EPPA model on which these models are based is solved recursively, and it is necessary to simplify some aspects of it to make inter-temporal solution possible. The forward-looking capability allows one to better address economic and policy issues such as borrowing and banking of GHG allowances, efficiency implications of environmental tax recycling, endogenous depletion of fossil resources, international capital flows, and optimal emissions abatement paths among others. To evaluate the solution approaches, we benchmark each version to the same macroeconomic path, and then compare the behavior of the two versions under a climate policy that restricts greenhouse gas emissions. We find that the energy sector and CO₂ price behavior are similar in both versions (in the recursive version of the model we force the inter-temporal theoretical efficiency result that abatement through time should be allocated such that the CO₂ price rises at the interest rate.) The main difference that arises is that the macroeconomic costs are substantially lower in the forward-looking version of the model, since it allows consumption shifting as an additional avenue of adjustment to the policy. On the other hand, the simplifications required for solving the model as an optimization problem, such as dropping the full vintaging of the capital stock and fewer explicit technological options, likely have effects on the results. Moreover, inter-temporal optimization with perfect foresight poorly represents the real economy where agents face high levels of uncertainty that likely lead to higher costs than if they knew the future with certainty. We conclude that while the forward-looking model has value for some problems, the recursive model produces similar behavior in the energy sector and provides greater flexibility in the details of the system that can be represented.     

China＇s adjustment of climate change policies： what lessons can be learned from the US？

From the US New Energy Plan, personnel appointment, and diplomatic activities, etc., we can see that US is now on the way to returning to the negotiation table and undertaking the leadership in addressing climate change. What US has done puts tremendous challenges on China, which emits large amount of greenhouse gas into the atmosphere. However, different from US, China is undergoing rapid development, and huge energy consumption is unavoidable. China has to make a balance between developing economy and addressing climate change. This paper focuses on the US climate change policies and its greenhouse gas emissions, and its influences on China climate change policy. China greenhouse gas emissions and relative policies are also analyzed to see what situation China is in, and what challenges that China is facing. Consequently, combing China＇s local situation, we propose several solutions for China to address climate change, i.e. moving towards a low carbon economy, struggling for emitting more, enhancing China-US cooperation, and implementing different climate change policies based on local situation. Meanwhile, the achievements that China has made are also introduced.     

Ecological footprint accounting in the life cycle assessment of products

We present and discuss ecological footprint (EF) calculations for a large number of products and services consumed in the western economy. Product-specific EFs were calculated from consistent and quality-controlled life cycle information of 2630 products and services, including energy, materials, transport, waste treatment and infrastructural processes. We formed 19 homogeneous product/process subgroups for further analysis, containing in total 1549 processes. Per group, the average contribution of two types of land occupation (direct and energy related) to the total EF was derived. It was found that the ecological footprint of the majority of products is dominated by the consumption of non-renewable energy. Notable exceptions are the EFs of biomass energy, hydro energy, paper and cardboard, and agricultural products with a relatively high contribution of direct land occupation. We also compared the ecological footprint results with the results of a commonly used life cycle impact assessment method, the Ecoindicator 99 (EI). It was found that the majority of the products have an EF/EI ratio of around 30 m²-eq. yr/ecopoint ± a factor of 5. The typical ratio reduces to 25 m² yr/ecopoints by excluding the arbitrary EF for nuclear energy demand. The relatively small variation of this ratio implies that the use of land and use of fossil fuels are important drivers of overall environmental impact. Ecological footprints may therefore serve as a screening indicator for environmental performance. However, our results also show that the usefulness of EF as a stand-alone indicator for environmental impact is limited for product life cycles with relative high mineral consumption and process-specific metal and dust emissions. For these products the EF/EI ratio can substantially deviate from the average value. Finally, we suggest that the ecological footprint product data provided in this paper can be used to improve the footprint estimates of production, import and export of products on a national scale and footprint estimates of various lifestyles.     

Overconfidence and consumption over the life cycle

Overconfidence is a widely documented phenomenon. In this paper, we study the implications of consumer overconfidence in a life-cycle consumption/saving model. Our main analytical result is a necessary and sufficient condition under which any degree of overconfidence concerning the mean return on savings can produce a hump in the work-life consumption profile. This condition is almost always met in the data. We show by simulations that overconfidence concerning the variance of the return can have little effect on the long-run average behavior of consumption over the life cycle, and that our basic conclusion is fairly robust with various realistic modifications to the baseline model. We interpret the general applicability of our analytical framework and discuss our numerical results in the light of aggregate consumption data.     

Do differences in attitudes explain differences in national climate change policies?

In meeting the threat posed by climate change nations have responded quite differently. Using an extensive data set this study explores factors that affect individuals' attitudes towards climate change and how those attitudes ultimately affect national climate change policy. The results show that attitudes do indeed matter in implementing policy and that attitudes are shaped not only by how individuals react to the specific attributes of climate change, but also by information, by the openness of society and by attitudes toward the trustworthiness of government.     

Consumption over the life cycle: The role of annuities

We explore the quantitative implications of uncertainty about the length of life and a lack of annuity markets for life cycle consumption in a general equilibrium overlapping generations model in which markets are otherwise complete. Empirical studies find that consumption displays a hump shape over the life cycle. Our model exhibits life cycle consumption that is consistent with this pattern. Our calibrated model, which includes an unfunded social security system, displays a hump shape but the peak occurs later in the life cycle than in the data. Adding a bequest motive causes this decline to begin at a younger age.     

The political economy of global carbon emissions reductions

The discussion about what reductions in greenhouse gas emissions are required and how the emissions rights might be distributed globally has fostered the belief that there is a fundamental conflict between the rich nations of the “North” and the poor but populous nations of the “South.” The argument is that grandfathering the rights will only reinforce existing global inequalities, while per capita distribution of the rights would lead to such huge transfers of wealth to the South as to be unacceptable to the North. However, a very simple general equilibrium model highlighting key elements of the global economy shows that this perception is incorrect under a plausible interpretation of the goal of the United Nations Framework Convention on Climate Change to “avoid dangerous anthropogenic interference with the climate system.” Instead of using an economic damage function to determine the optimal level of emissions reductions, the model's utility functions are calibrated to reflect scientific understanding of what would be required to stabilize the atmosphere at safe concentrations of greenhouse gases. Among policy options that would accomplish this, the United States has a preference for grandfathering the allocation of emissions rights over a per capita allocation, but this preference is not strong and could be offset by other geopolitical considerations.     

GHG mitigation schemes and energy policies: A model-based assessment for the Italian economy

We build up a large scale dynamic general equilibrium model embodying a cap on pollutant emissions, an electricity sector and fuel consumption to analyse climate-energy policies for the Italian economy. Our results show how the trade-off between environmental quality and economic activity can be effectively overcome by recycling the revenues from the sales of emission permits in labour tax reductions. A tax combination aimed at reducing the consumption of fossil fuel, while simultaneously decreasing taxes on labour, is expansionary, but the final outcome is influenced by the underlying GHG emission policy. Tax incentives encouraging the use of clean energy sources, by discouraging the use of fossil fuel, produce a sizeable reallocation of emissions across sectors and are found to be expansionary. Overall the paper highlights the non-trivial interactions between the different fiscal tools in hand to meet the legally binding commitment on emission reduction, while limiting the potential negative fallout on the economy.     

Beyond Kyoto, plan B: A climate policy master plan based on transparent metrics

Many scholars analyze the Kyoto–Copenhagen process, and offer corrective suggestions for identified flaws in the present design. Based on various proposals in the literature, this article adopts a global master-plan perspective, leaving executive architecture to sovereign participants. Transparent, flexible and fair top-down rules must synchronize the numerous bottom-up initiatives while addressing the diversity of national circumstances in the drastic transformation of the world's energy economies.Plan B refutes absolute emission reduction targets on old or speculative baselines. It criticizes global tax and permit trade instruments for being ineffective, inefficient and unfair when uniformly applied on a tremendous differentiated world. Plan B is built on three annually observed variables measuring percentage progress against rolling baselines (the variables' values in the previous year): the ratio of net climate tax revenues to GDP, the commercial energy intensity of GDP, and the carbon intensity of commercial energy use. The three variables together indicate countries' progress affecting emissions per person, a metric that must converge to lower bands when climate change is addressed seriously. Long-term scenarios of global convergence “funnels” serve as guidance to frame near-term actions rich and poor countries individually propose to take. The global regime is common for all countries, and is ranked by GDP per person to determine whether a nation is a donor or a beneficiary in a Global Climate Transfer Fund. Fund payments and drawing rights depend on that ranking but also on the performances of the countries in realizing committed progress. The transparent mechanisms of the design and of the fund persuasively invite countries to participate in a fair, self-enforcing agreement.     

Trends in energy consumption and carbon dioxide emissions of passenger cars and buses

In this work we develop aggregate car ownership and bus fleet models in order to forecast and compare fuel consumption and CO₂ emissions from passenger cars and buses. Greece was selected as a case study, being a country fairly representative of lower-income Mediterranean and Eastern European countries and data were collected for the period 1970 to 2002. Percent adults in the population, per capita gross domestic product, inflation, unemployment, car occupancy and bus kilometers were predictors included in the car ownership and bus fleet multiple regression models. A shift in the overall trend of both models around 1995 was explained as a slope change of per capita gross domestic product, possibly reflecting the impact of a boom of the Greek Stock Market along with a retirement program for older vehicles. Predictor variables were forecast via Box-Jenkins and the models were subsequently used to develop car ownership and bus fleet forecasts to the year 2010. We predict that the contribution of cars to total CO₂ emissions will rise to an astounding 95% of total CO₂ emissions from road passenger transport (excluding taxis and mopeds), an effect expected in other Mediterranean and Eastern European countries with socioeconomic characteristics similar to Greece. Suggestions for further research include developing regional car ownership forecasts in order to compare the dynamics of different regions within a country and looking into other land transportation means (such as mopeds, taxicabs and railway).     

International support of climate change policies in developing countries: Strategic, moral and fairness aspects

International transfers in climate policy channeled from the industrialized to the developing world either support the mitigation of climate change or the adaptation to global warming. From a purely allocative point of view, transfers supporting mitigation tend to be Pareto-improving whereas this is not very likely in the case of adaptation support. We illustrate this by regarding transfer schemes currently applied under the UN Framework Convention on Climate Change (UNFCCC) and the Kyoto framework.However, if we enrich the analysis by integrating distributional aspects, we find that international adaptation funding may help both the developing and developed world. Interestingly this is not due to altruistic incentives, but due to follow-up effects on international negotiations on climate change mitigation. We argue that the lack of fairness perceived by developing countries in the international climate policy arena can be reduced by the support of adaptation in these countries. As we show - taking into account different fairness concepts - this might raise the prospects of success in international negotiations on climate change. Yet, we find that the influence of transfers may induce different fairness effects on climate change mitigation negotiations to run counter.We discuss whether current transfer schemes under the UNFCCC and the Kyoto framework adequately serve the distributive and allocative objectives pursued in international climate policy.     

Club convergence and clustering of U.S. energy-related CO2 emissions

This study examines the convergence of energy-related carbon dioxide emissions among a panel of U.S. states between the period 1960–2010. This examination is carried out by means of a two-stage procedure. In the first stage, we conduct an endogenous grouping, regression-based convergence test. Unlike previous studies, this methodology endogenously identifies groups of states with emissions that are converging to a similar steady state growth path over time. In the second stage, we evaluate the conditional rate of convergence for the whole sample and for each club using panel data, fixed effects models that control for unobserved, time-invariant heterogeneous effects. More specifically, we examine the rates of convergence conditional on certain structural and non-structural characteristics of the state economy. Results from stage one and stage two suggest that one group of twenty-six states is converging to a unique steady-state equilibrium, and otherwise, the remaining states are diverging. Finally, we discuss different policy approaches to mitigating carbon dioxide emissions based on the club convergence hypothesis.     

The age-dependent value of time: a life cycle analysis

A life cycle framework is developed to examine how the value of time (VOT) changes as one ages. We consider two risk-sharing schemes, the Tonti scheme under which wealth is actuarially insured, and the Robinson Crusoe scheme under which insurance institution is entirely absent. For the first time in the literature, we characterize the condition, in terms of key parameters for valuating VOT, under which VOT may increase, decline, or even display more complicated profiles, as one ages. Our analysis reveals the crucial role played by the relative magnitude of the market interest rate to other parameters (including the parameter of time preference, the age-specific mortality and the wage growth rate) in determining the age profile of VOT, and the difference in VOT that is caused by the insurance scheme.      

Biofuel policies and the environment: Do climate benefits warrant increased production from biofuel feedstocks?

We examine whether climate benefits warrant policies promoting biofuel production from agricultural crops when other environmental impacts are accounted for. We develop a general economic-ecological modelling framework for integrated analysis of biofuel policies. An economic model of farmers' decision making is combined with a biophysical model predicting the effects of farming practices on crop yields and relevant environmental impacts. They include GHG emissions over the life cycle, nitrogen and phosphorus runoff, and the quality of wildlife habitats. We apply our model to crop production in Finland. We find that under current biofuel production technology the case for promotion of biofuels is not as evident as has been generally thought. Only reed canary grass for biodiesel is unambiguously desirable, whereas biodiesel from rape seed and ethanol production from wheat and barley cause in most cases negative net impacts on the environment. Suggested policies in the US and the EU tend to improve slightly the environmental performance of biofuel production.     

京津冀治理大气污染的财政金融政策协同配合

京津冀协同发展的根本取向是低碳绿色发展。以治理大气污染为导向,以能源革命为保障条件,带动经济社会全面、协调、持续发展,是京津冀协同发展的客观要求。治理京津冀大气污染,需要按照节能减排目标,淘汰落后产能,改造提升产业结构,调整优化能源结构,提高能源利用效率,控制和减少污染物排放。实现“治污带动发展,发展促进治污”的京津冀协同发展,不仅需要技术支持,更需要资金支持。在多渠道资金投入保障机制方面,必须搞好财政金融政策协同配合,在注重发挥财政政策引导能力和支持作用的同时,更加注重发挥市场的决定作用,发挥多层次资本市场融资功能,多渠道引导金融机构、实体企业、社会资金,积极投入到节能减排和产业结构改造升级中,为治理京津冀大气污染,实现京津冀协同发展提供相应的资金保障。     

New relationships between production and patent activity during the high-growth life cycle stage for materials

A comparison of the life cycle plots for the production and patent activity for several materials indicates that the two life cycle plots may be correlated to such an extent that they may be superimposed to a large degree, for all growth-stages, simply by an origin shift. Over fifty metallic and non-metallic materials have been studied. This origin shift may be indicative of the presence of Stage III (high-growth stage). The drive force ratio for innovation-enhanced supply also scales with the origin shift. When the drive force ratio is equal to one, the materials in their Stage III life, are balanced in the amount of resources which impact production and patents. One of the key findings is that materials may be grouped into two groups depending on their drive ratio and the lag ratio in the data sets of the production and patent activity. In the first group, innovation is unable to influence the production activity and consequently materials tend to slide towards Stage IV (i.e. the stage of low average growth with high oscillation) regardless of the fact that patents may impact unit production significantly in this group. The existence of a Stage V (final death stage) is also discussed. It appears that materials that have been recognized to be highly toxic are particularly prone to a Stage V type behavior.     

International climate regimes: Effects of delayed participation

This paper analyses how delayed participation by regions can affect international climate regimes in terms of the feasibility, costs, timing, magnitude and nature of the long-term mitigation response. We use the energy-systems optimization model MESSAGE to construct several climate change mitigation scenarios with various levels of regional participation in short-to-mid term. By comparing these with a global scenario that assumes full spatial and temporal flexibility throughout the century, we are able to evaluate how participatory decisions affect the mitigation response as well as the costs and technology choices. We find that short-term postponement of participation from some regions can often lead to a delay of mitigation measures on the global level. However, if the regional delay lasts until mid-century, participants of the regime are likely to increase their efforts in the short term. Mitigation costs are found to substantially increase as a result of delayed participation—the extent of the increase depends on the relative importance of the region that postpones its participation, the stringency of the climate target and the ability to reorganize mitigation measures. Our analysis also shows that a region's decision to delay its participation in an international climate regime can lead to accumulated inertia in its energy system and thus to a delayed ‘technological transition’ toward a low-carbon future.     

The impact of demographic change on energy use and greenhouse gas emissions in Germany

This paper estimates the impact of demographic change on energy use and greenhouse gas emissions in Germany. Since old people display different consumption patterns than young people, an increase in the proportion of old people affects overall consumption patterns. Micro data from a household survey are used to identify age-specific consumption patterns and to project the impact of demographic change on the structure of total consumption expenditure up to the year 2030. The resulting final demand vectors are entered into an environmental input-output model, which allows the calculation of sectoral production, energy use and greenhouse gas emissions. The model results suggest that until 2030, demographic change raises the share of methane in total greenhouse gas emissions and does not contribute to reducing energy use and greenhouse gas emissions in Germany. The model is also used to explore the effects of redistributing income between age groups and a policy-induced switch from motor vehicle use to public transport.     

Data Envelopment Analysis of different climate policy scenarios

Recent developments in the political, scientific and economic debate on climate change suggest that it is of critical importance to develop new approaches able to compare policy scenarios for their environmental effectiveness, their distributive effects, their enforceability, their costs and many other dimensions. This paper discusses a quantitative methodology to assess the relative performance of different climate policy scenarios when accounting for their long-term economic, social and environmental impacts. The proposed procedure is based on Data Envelopment Analysis, here employed in evaluating the relative efficiency of eleven global climate policy scenarios. The methodology provides a promising comparison framework; it can be seen as a way of setting some basic guidelines to frame further debates and negotiations and can be flexibly adopted and modified by decision makers to obtain relevant information for policy design. Three major findings emerge from this analysis: (i) stringent climate policies can outperform less ambitious proposals if all sustainability dimensions are taken into account; (ii) a carefully chosen burden-sharing rule is able to bring together climate stabilisation and equity considerations; and (iii) the most inefficient strategy results from the failure to negotiate a post-2012 global climate agreement.     

Energy consumption, economic growth, and carbon emissions: Challenges faced by an EU candidate member

This paper investigates the long run Granger causality relationship between economic growth, carbon dioxide emissions and energy consumption in Turkey, controlling for gross fixed capital formation and labor. The most interesting result is that carbon emissions seem to Granger cause energy consumption, but the reverse is not true. The lack of a long run causal link between income and emissions may be implying that to reduce carbon emissions, Turkey does not have to forgo economic growth.