"Local Solutions To Global Problems: Policy Choice and Regulatory Jurisdiction." James Bushnell, Carla Peterman, Catherine Wolfram, National Bureau of Economic Research
Finding: Local emissions policies are likely to result in reshuffling of emissions rather than overall net decreases in emissions.
Abstract: This paper considers the efficiency of various types of environmental regulations when they are applied locally to pollutants whose damages extend outside the jurisdiction of the local regulator. We draw on examples from state- and city-level efforts to address climate change by enacting policies to reduce greenhouse gases. While previous work has noted the possibility for leakage, whereby the polluting sources move outside the jurisdiction of the regulation in order to escape it, we note an additional problem when policies are targeted downstream at consumers of goods whose production creates pollution. Specifically, we show how consumer-based policies can be circumvented by a simple reshuffling of who is buying from whom. We argue that the leakage and reshuffling problems are most pronounced with more flexible or market-based regulations. We conclude that localities may have the most effect on global pollutants when they enact efficiency standards or targeted subsidies.
http://papers.nber.org/papers/w13472
"The Incidence Of A U.S. Carbon Tax: A Lifetime and Regional Analysis." Kevin A. Hassett, Aparna Mathur, Gilbert E. Metcalf, October 2007, National Bureau of Economic Research
Finding: Carbon taxes have the capacity to be more or less regressive depending on implementation and how much they shift consumer behavior.
Abstract: This paper measures the direct and indirect incidence of a carbon tax using current income and two measures of lifetime income to rank households. Our results suggest that carbon taxes are more regressive when annual income is used as a measure of economic welfare than when proxies for lifetime income are used. Further, the direct component of the tax, in any given year, is significantly more regressive than the indirect component. In fact, for 1987, the indirect component of the tax is mildly progressive. We observe a modest shift over time with the direct component of carbon taxes becoming less regressive and the indirect component becoming more regressive. These effects mostly offset each other and the distribution of the total tax burden has not changed much over time. In addition we find that regional variation has fluctuated over the years of our anlaysis. By 2003 there is little systematic variation in carbon tax burdens across regions of the country.
http://www.nber.org/papers/w13554
"An Even Sterner Review, Introducing Relative Prices into the Discounting Debate," Thomas Sterner and U. Martin Persson, July 2007, Resources for the Future.
Finding: The Stern Review did not overestimate the costs of possible damages of global warming.
Abstract: The Economics of Climate Change: The Stern Review has had a major influence on the policy discussion on climate change. One reason is that the report has raised the estimated cost of unmitigated climate damages by an order of magnitude compared to most earlier estimates, leading to a call for strong and urgent action on climate change. Not surprisingly, severe criticism has been levied against the report by authors who think that these results hinge mainly on the use of a discount rate that is too low. Here we discuss the Ramsey rule for the discount rates and its implications for the economics of climate change.While we find no strong objections to the discounting assumptions adopted in the Stern Review, our main point is that the conclusions reached in the review can be justified on other grounds than by using a low discount rate. We argue that nonmarket damages from climate change are probably underestimated and that future scarcities that will be induced by the changing composition of the economy and climate change should lead to rising relative prices for certain goods and services, raising the estimated damage of climate change and counteracting the effect of discounting. We build our analysis on earlier research (Hoel and Sterner 2007) that has shown that the Ramsey discounting formula is somewhat modified in a two-sector economy with differential growth rates. Most importantly, such a model is characterized by changing relative prices, something that has major implications for a correct valuation of future climate damages. We introduce these results into a slightly modified version of the DICE model (Nordhaus 1994) and find that taking relative prices into account can have as large an effect on economically warranted abatement levels as can a low discount rate.
http://www.rff.org/Documents/RFF-DP-07-37.pdf
"Divergence in State-Level Per Capita Carbon Dioxide Emissions." Aldy, Joseph E. Land Economics, August 2007, v. 83, iss. 3, pp. 353-69
Finding: Income convergence in the United States did not bring convergence of per capita CO2 emissions from 1960 to 1999.
Abstract: This paper addresses the question of whether income convergence is sufficient for per capita carbon dioxide (CO2) emissions convergence by focusing on a set of advanced economies, the U.S. states. I undertake a variety of cross-sectional and stochastic convergence tests with two novel measures of 1960 to 1999 state-level CO2 emissions per capita: production (pre-electricity trade) CO2 and consumption (post-electricity trade) CO2, and with income per capita. Although incomes continue to converge, I find stark divergence in production CO2 per capita and no evidence of convergence for consumption CO2 per capita. Forecasts of future distributions show little convergence in emissions.
http://www.ingentaconnect.com/content/wisc/lec/2007/00000083/00000003/art00005
"Enforcing the Kyoto Protocol: Can Punitive Consequences Restore Compliance?"
Hovi, Jon; Froyn, Camilla Bretteville; Bang, Guri. Review of International Studies, July 2007, v. 33, iss. 3, pp. 435-50
Finding: Because of how the enforcement mechanism of the Kyoto Protocol is structured, punitive consequences for noncompliance are unlikely to be applied.
Abstract: To enhance effective cooperation, the Marrakesh Accords provide a compliance system for the international climate regime. An innovative part of this system is an Enforcement Branch authorised to apply punitive consequences against countries that fail to comply with their Kyoto obligations. While previous research has primarily focused on the ability of this compliance system to deter non-compliance, this article discusses whether the actual use of punitive consequences will induce a non-compliant country to return to compliance. The Marrakesh Accords explicitly emphasise that the punitive consequences shall be aimed at the restoration of compliance. However, we show that the application of punitive consequences will accomplish this in only exceptional circumstances.
http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=1208108
"Energy System Change and External Effects in Climate Change Mitigation." Anderson, Dennis; Winne, Sarah. Environment and Development Economics, June 2007, v. 12, iss. 3, pp. 359-78
Finding: Ecomomic models measuring the costs and benefits of benefits of innovation, specifically in low-carbon fuel, underpredict the benefits of investment in research and development.
Abstract: Through a dynamic model of energy system change the paper examines the role of innovation in bringing about a low carbon energy system. The processes of innovation and technological substitution are cumulative, dynamic, and highly non-linear processes such that how the energy system evolves in the long term is extraordinarily sensitive to the strength and duration of the initial policies. It is possible, under some policy assumptions, that energy systems would continue to depend on fossil fuels for so long as fossil fuels remain abundant and the least cost resource; and under other assumptions, after allowing for the unavoidable lags associated with investment and the building up of a new capital stock, that fossil fuels would become almost wholly displaced by the non-carbon alternatives. The implication is that the external benefits of innovation, which include the creation of options and the reduction of costs arising directly from innovation itself, and the reduction of environmental damage, are far greater, perhaps by orders of magnitude, than the traditional cost-benefit models used for the analysis of climate change mitigation. The analysis suggests why a focus on discovery and innovation offers a promising way forward for national and international policies on climate change.
http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=1036912
"The Climate Change Learning Curve." Leach, Andrew J. HEC Montreal and CIRANO Journal of Economic Dynamics and Control, May 2007, v. 31, iss. 5, pp. 1728-52
Finding: Uncertainly about global warming trends and their causes may not be resolved quickly, and the higher the degree of uncertainty, the more likely that policy errors will be made.
Abstract: The purpose of this paper is to confront economic models of climate change with the reality that limited information exists with which to form expectations about the evolution of the climate. A key element in the tension between those who believe we should impose aggressive climate change mitigation policies and those who do not is the question of if we are merely in a long period of shock-induced, above average temperatures or if observed increases in temperature are a result of carbon emissions. This paper characterizes learning dynamics resulting from the use of observations of temperature to update beliefs about two key characteristics of global climate: the persistence of natural trends and the sensitivity of temperature to atmospheric carbon levels. This paper shows that, contrary to predictions in the literature that uncertainty may be resolved very quickly, the time to learn the true processes may be in the order of thousands of years. Further, this paper shows the effects of uncertainty on the likelihood that observations from the statistical record lead to important estimate and policy errors.
http://econpapers.repec.org/article/eeedyncon/v_3A31_3Ay_3A2007_3Ai_3A5_3Ap_3A1728-1752.htm
"Assessment of U.S. Cap-and-Trade Proposals."Paltsev, Sergey; Reilly, John M.; Jacoby, Henry D.; Gurgel, Angelo C.; Metcalf, Gilbert E.; Sokolov, Andrei P.; Holak, Jennifer F. National Bureau of Economic Research, Inc, NBER Working Papers: 13176
Finding: Cutting greenhouse gas emissions by 50% to 80% by 2050 is consistent with global goals of atmospheric stabilization if other nations, including developing nations, also comply.
Abstract: The MIT Emissions Prediction and Policy Analysis model is applied to synthetic policies that match key attributes of a set of cap-and-trade proposals being considered by the U.S. Congress in spring 2007. The bills fall into two groups: one specifies emissions reductions of 50% to 80% below 1990 levels by 2050; the other establishes a tightening target for emissions intensity and stipulates a time-path for a "safety valve" limit on the emission price that approximately stabilizes U.S. emissions at the 2008 level. Initial period prices are estimated between $7 and $50 per ton CO2-e with these prices rising by a factor of four by 2050. Welfare costs vary from near zero to less than 0.5% at the start, rising in the most stringent case to near 2% in 2050. If allowances were auctioned these proposals could produce revenue between $100 billion and $500 billion per year depending on the case. Outcomes from U.S. policies depend on mitigation effort abroads, and simulations are provided to illuminate terms-of-trade effects that influence the emissions prices and welfare effects, and even the environmental effectiveness, of U.S. actions. Sensitivity tests also are provided of several of key design features. Finally, the U.S. proposals, and the assumptions about effort elsewhere, are extended to 2100 to allow exploration of the potential role of these bills in the longer-term challenge of reducing climate change risk. Simulations show that the 50% to 80% targets are consistent with global goals of atmospheric stabilization at 450 to 550 ppmv CO2 but only if other nations, including the developing countries, follow suit.
www.nber.org/papers/w13176
"Climate Change, Mortality, and Adaptation: Evidence from Annual Fluctuations in Weather in the US." Deschenes, Olivier; Greenstone, Michael National Bureau of Economic Research, Inc, NBER Working Papers: 13178
Finding: Higher temperatures within the United States during the 21th century are likely to result in modest health-related welfare costs and moderate increases in energy consumption for air conditioning.
Abstract: This paper produces the first large-scale estimates of the US health related welfare costs due to climate change. Using the presumably random year-to-year variation in temperature and two state of the art climate models, the analysis suggests that under a "business as usual" scenario climate change will lead to an increase in the overall US annual mortality rate ranging from 0.5% to 1.7% by the end of the 21st century. These overall estimates are statistically indistinguishable from zero, although there is evidence of statistically significant increases in mortality rates for some subpopulations, particularly infants. As the canonical Becker-Grossman health production function model highlights, the full welfare impact will be reflected in health outcomes and increased consumption of goods that preserve individuals' health. Individuals' likely first compensatory response is increased use of air conditioning; the analysis indicates that climate change would increase US annual residential energy consumption by a statistically significant 15% to 30% ($15 to $35 billion in 2006 dollars) at the end of the century. It seems reasonable to assume that the mortality impacts would be larger without the increased energy consumption. Further, the estimated mortality and energy impacts likely overstate the long-run impacts on these outcomes, since individuals can engage in a wider set of adaptations in the longer run to mitigate costs. Overall, the analysis suggests that the health related welfare costs of higher temperatures due to climate change are likely to be quite modest in the US.
www.nber.org/papers/w13178
"Crop selection: adapting to climate change in Africa." Kurukulasuriya, Pradeep; Mendelsohn, Robert. The World Bank, Policy Research Working Paper Series: 4307
Finding: Farmers in Africa will adapt crop choices to temperature and precipitation conditions, and this has significant potential to mitigate the effects of climate change on their crop production.
Abstract: This paper examines whether the choice of crops is affected by climate in Africa. Using a multinomial logit model, the paper regresses crop choice on climate, soils, and other factors. The model is estimated using a sample of more than 7,000 farmers across 11 countries in Africa. The study finds that crop choice is very climate sensitive. For example, farmers select sorghum and maize-millet in the cooler regions of Africa; maize-beans, maize-groundnut, and maize in moderately warm regions ' and cowpea, cowpea-sorghum, and millet-groundnut in hot regions. Further, farmers choose sorghum, and millet-groundnut when conditions are dry; cowpea, cowpea-sorghum, maize-millet, and maize when medium wet; and maize-beans and maize-groundnut when wet. As temperatures warm, farmers will shift toward more heat tolerant crops. Depending on whether precipitation increases or decreases, farmers will also shift toward drought tolerant or water loving crops, respectively. There are several policy relevant conclusions to draw from this study. First, farmers will adapt to climate change by switching crops. Second, global warming impact studies cannot assume crop choice is exogenous. Third, this study only examines choices across current crops. Future farmers may well have more choices. There is an important role for agronomic research in developing new varieties more suited for higher temperatures. Future farmers may have even better adaptation alternatives with an expanded set of crop choices specifically targeted at higher temperatures.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1005546
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