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Theory

2013-02-21

Putting a price on the future of our children and grandchildren

Discounting has the dubious distinction of being the most controversial issue in social cost-benefit analysis. This is largely because choosing the discount rate will often dominate other choices a modeler makes. For example, consider how we might estimate future damages from greenhouse gas emissions.

2012-11-13

    Electricity provision with intermittent sources of energy

    We analyze the interaction between a reliable source of electricity production and intermittentsources such as wind or solar power. We first characterize the optimal energy mix, emphasizing the availability of the intermittentsource as a major parameter for the optimal investment in capacity.

    2012-09-27

      Regulation of a Spatial Externality: Refuges versus Tax for managing pest Resistance.

      We examine regulations for managing pest resistance to pesticide varieties in a temporally and spatially explicit framework. We compare the performance of the EPA’s mandatory refuges and a tax (or subsidy) on the pesticide variety under several biological assumptions on pest mobility and the heterogeneity of farmers’ pest vulnerability.

      2012-08-15

      Discounting: Unbalanced Growth, Uncertainty, and Spatial Considerations

      The economics of climate change and the various measures that should be implemented to reduce future damages are highly tied to the use of cost-benefit analysis. Traditional approaches ignore the fact that environmental amenities do not experience the same growth rate as do most of the sectors in the economy, which leads to changing relative prices. Uncertainty should also be considered, especially when one is conducting cost-benefit analysis involving the long-run damages from climate change. This article reviews some theoretical approaches to the economics of discounting and discusses issues associated with unbalanced growth, uncertainty, and spatial discounting.

      2012-04-30

      Climate Policy, Uncertainty, and the Role of Technological Innovation

      We study how uncertainty about climate change severity affects the relative benefits of early abatement and a portfolio of research and development (R&D) in lowering future abatement costs. Optimal early abatement depends on the curvature of the marginal benefit and marginal abatement cost (MAC) functions and how the uncertain parameter affects marginal benefits.

      2012-04-30

      How Should Support for Climate-Friendly Technologies Be Designed?

      Stabilizing global greenhouse gas concentrations at levels to avoid significant climate risks will require massive ‘‘decarbonization’’ of all the major economies over the next few decades, in addition to the reduced emissions from other GHGs and carbon sequestration. Achieving the necessary scale of emissions reductions will require a multifaceted policy effort to support a broad array of technological and behavioral changes. Change on this scale will require sound, well-thought-out strategies.

      2012-02-22

      Natural Resource Management: Challenges and Policy Options

      Much of the improvement in living standards in developed and developing countries alike is attributable to the exploitation of nonrenewable and renewable resources. The problem is to know when the exploitation occurs at rates and with technologies that are sustainable.

      2012-01-24

      Taxes, permits and costly policy response to technological change

      In this paper, we analyze the effects of the choice of price (taxes) versus quantity (tradable permits) instruments on the policy response to technological change. We show that if policy responses incur transactional and political adjustment costs, environmental targets are less likely to be adjusted under tradable permits than under emission taxes. This implies that the total level of abatement over time might remain unchanged under tradable permits while it will increase under emission taxes.

      2012-01-20

      Policy Instruments for Environmental and Natural Resource Management

      This book by Thomas Sterner and Jessica Coria is an attempt to encourage more widespread and careful use of economic policy instruments. The book compares the accumulated experiences of the use of economic policy instruments in the U.S. and Europe, as well as in rich and poor countries in Asia, Africa, and Latin America. Ambitious in scope, it discusses the design of instruments that can be employed in any country in a wide range of contexts, including transportation, industrial pollution, water pricing, waste, fisheries, forests, and agriculture.

      2011-12-21

      Ecotourism and the development of indigenous communities: The good, the bad, and the ugly.

      A large part of the literature analyzing the links between biodiversity conservation and community development assumes that nature-based tourism managed by indigenous communities will result not only in conservation of natural resources but also in increased development. In practice, ecotourism has often failed to deliver the expected benefits to indigenous communities due to a combination of factors, including shortages in the endowments of human, financial and social capital within the community, lack of mechanisms for a fair distribution of the economic benefits of ecotourism, and land insecurity.

      2011-11-06

      Should we tax or let firms trade emissions? An experimental analysis with policy implications for developing countries

      In this paper we use laboratory experiments to test the theoretical predictions derived by Villegas-Palacio and Coria (2010) about the effects of the interaction between technology adoption and incomplete enforcement. They show that under Tradable Emissions Permits (TEPs), and in contrast to taxes, the fall in permit price produced by adoption of environmentally friendly technologies reduces the benefits of violating the environmental regulation at the margin and leads firms to improve their compliance behavior. Moreover, when TEPs are used, the regulator can speed up the diffusion of new technologies since the benefits from adopting the new technology increase with the enforcement stringency.

      2011-01-26

      Natural Resource Management: Challenges and Policy Options

      Much of the improvement in living standards in developed and developing countries alike is attributable to the exploitation of nonrenewable and renewable resources. The problem is to know when the exploitation occurs at rates and with technologies that are sustainable.

      2010-11-29

      To trade or Not to Trade: A Firm-Level Analysis of Emissions Trading in Santiago, Chile

      The authors surveyed firms participating in emissions trading programs in Santiago, Chile, to explore further whether tradable permits are appropriate for transition and developing economies. Their survey information revealed serious implementation and design flaws in Chile’s trading, but they are not more severe than the EU or U.S. systems. Countries with similar income levels and institutional maturity as Chile should be able to develop well-functioning permit trading schemes.

      2010-11-29

      Tradable Permits in Developing Countries: Evidence from Air Pollution in Santiago, Chile

      Santiago was one of the first cities outside the OECD to implement a tradable permit program to control air pollution. This paper looks closely at the program’s performance over the past 10 years, stressing its similarities and discrepancies with trading programs in developed countries, and analyzing how it has reacted to regulatory adjustments and market shocks. Studying Santiago’s experience allows us to discuss the drawbacks and advantages of applying tradable permits in less developed countries.

      2010-09-30

      Consequences of Subpopulation Structure on Fisheries Management: Cod (Gadus morhua) in the Kattegat and Öresund (North Sea)

      This study shows how cod subpopulations may have been eradicated as a consequence of the use of imperfect models for assessing stock assessment, depleting what was formerly a productive sea. The Kattegat and resund (North Sea) were chosen as study objects due to the combination of different exploitation patterns and the possible existence of separate stock units. The scenario was further elaborated by simulating the potential harvest of fishing for different long-run levels of fishing effort as well as stock size. The study clearly indicated that new policy instruments are needed but these instruments need to be carefully fine-tuned to take into account real biological as well as social factors.

      2010-09-30

      The Progress of GHG Markets: Opportunities and Risks

      The purpose of this report is to build knowledge about the effects of the development of regional and international carbon markets and the auxiliary technology agreements that might be needed. Among the topics we address are: the evolution and integration of carbon markets, the impacts of policy and technology cost uncertainty on the cost of meeting targets through a carbon market mechanism, the effect of banking, price floors and ceilings, institutional constraints and technological change in the further development of carbon markets and their links to other environmental policy instruments, and the potential of REDD-plus to encourage sustainable forest development and climate mitigation.

      2009-11-09

      To trade or Not to Trade: A Firm-Level Analysis of Emissions Trading in Santiago, Chile

      The authors surveyed firms participating in emissions trading programs in Santiago, Chile, to explore further whether tradable permits are appropriate for transition and developing economies. Their survey information revealed serious implementation and design flaws in Chile’s trading, but they are not more severe than the EU or U.S. systems. Countries with similar income levels and institutional maturity as Chile should be able to develop well-functioning permit trading schemes.

      2008-12-18

      Tradable Permits in Developing Countries: Evidence from Air Pollution in Santiago, Chile

      Santiago was one of the first cities outside the OECD to implement a tradable permit program to control air pollution. This paper looks closely at the program’s performance over the past 10 years, stressing its similarities and discrepancies with trading programs in developed countries, and analyzing how it has reacted to regulatory adjustments and market shocks. Studying Santiago’s experience allows us to discuss the drawbacks and advantages of applying tradable permits in less developed countries.

      2008-10-22

      Environmental Policy, Fuel Prices, and the Switch to Natural Gas in Santiago, Chile

      The author analyzes the role of environmental policies and energy cost savings in the switch to natural gas by stationary sources in Chile. There is skepticism about using market-based policies (economic instruments) in the developing world—permit trading programs versus emissions fees. This paper produces new evidence of the role of environmental regulations and market forces in a successful air-quality improvement program in Chile, a less-developed country.

      2008-10-22

      Taxes, Permits, and the Diffusions of a New Technology

      The author looks at the effects of the choice between taxes and permits on the pattern of adoption of a new emissions abatement technology. The regulator determines the optimal ex-post amount of emissions before firms start to adopt the technology. Each firm decides when to adopt, considering benefits, costs, and advantage gained over their rivals, producing a sequence of adoption that is “diffused” into the industry over time.

      2008-08-15

      Trade, GMOs, and Environmental Risk: Are Policies Likely to Improve Welfare?

      Controversy over the EU import ban on food from genetically modified organisms (GMOs) forced the EU to change course and institute a mandatory labeling scheme. This study first examined how different policies for the production and use of GMOs might influence the market outcome in consumer food markets. Second, it evaluated the welfare effects of the policy measures, finding that mandatory labeling often increases both domestic welfare and global welfare, while trade bans more likely decrease global welfare.

      2007-10-01

      Discounting and relative prices

      Environmentalists are often upset at the effect of discounting costs of future environmental damage, e.g., due to climate change. An often-overlooked message is that we should discount costs but also take into account the increase in the relative price of the ecosystem service endangered.

      2006-02-01

      Optimal environmental road pricing

      An optimal first-best road charge should not only be differentiated with respect to factors that affect the direct external environmental and time costs from the road-user himself.

      2001-05-02

      Trade, GMOs, and Environmental Risk: Are Policies Likely to Improve Welfare?

      Food with inputs from genetically modified organisms (GMOs) has met considerable skepticism among European Union (EU) consumers. The EU import ban on GM food has triggered a great deal of controversy and has been partly replaced by a mandatory labeling scheme. Although there is no measure in the General Agreement on Tariffs and Trade that directly addresses the use of product labeling, WTO and others have been skeptical to mandatory product labeling on the grounds that they may be used as hidden protectionism hampering global welfare. This study has two foci. First, we examine how different policies for the production and use of GMOs might influence the market outcome in consumer food markets. Second, we evaluate the welfare effects of the policy measures. We find that mandatory labeling often increases domestic welfare and, may also enhance global welfare. On the other hand, a trade ban is more likely to decrease global welfare.