capital malleability emission leakage and the cost of partial climate policies general equilibrium analysis of the european union emission trading system computable general equilibrium cge models are the premier analytical platform for assessing the economic impacts of climate change mitigation but these models tend to treat physical capital as malleable capable of reallocation among sectors over the time period for which equilibrium is solved because the extent to which capital adjustment costs might dampen reallocation is not well understood there is concern that cge assessments understate the true costs of greenhouse gas ghg reduction policies this paper uses a multi region multi sector cge model to investigate cap and trade schemes such as the european union emission trading system which cover a subset of the economy elucidating the effects of capital malleability on ghg abatement the potential for emission leakage from abating to non abating sectors and the impacts on welfare to simplify the complex interactions being simulated within the cge model that analysis is complemented with an analytical model a partial climate policy results in negative internal carbon leakage with emissions declining not only in capped sectors but also in non regulated ones this result is stronger when capital is intersectorally mobile interestingly in partial climate policy settings capital malleability can amplify or attenuate welfare losses depending on the attributes of the economy

the uk regional distribution of foreign direct investment analysis and determinants hill s and munday m 1992 the uk regional distribution of foreign direct investment analysis and determinants reg studies 26 535 544 this paper analyses the regional distribution of foreign direct investment fdi within the uk following an examination of those regions that have been successful in winning new inward investment the paper goes on to consider hypotheses that can be used to explain relative regional success in attracting new fdi projects and jobs empirical testing of these hypotheses suggests that both financial incentives and access to markets are important determinants of the regional distribution of new fdi projects and jobs hill c et munday m 1992 la distribution regionale de l investissement direct etranger au royaume uni analyse et determinants reg studies 26 535 544 cet article cherche a analyser la distribution regionale de l investissement direct etranger au sein du royaume uni suite a une examination des regions qui ont reussi a attirer de nouvel investissement

balancing the carbon budget for oil the distributive effects of alternative policies keeping temperature change below 2 c will require leaving large reserves of fossil fuels unextracted we assess alternative policies to achieve this goal in a world divided into two regions one regulated with emissions pricing and one unregulated supplied by multiple resource pools with different extraction costs and a carbon free backstop whose costs decline over time global emissions can be reduced by combinations of three policies 1 increasing the size of the regulated coalition 2 raising the tax or tightening the cap within the regulated coalition and 3 accelerating cost reductions of the clean technology we ask how combinations achieving the same cumulative co2 emissions the carbon budget affect the discounted surplus of regulated and unregulated consumers and the wealth of the extractors we first evaluate these policy alternatives in a two pool theoretical model with high and low cost extractors and once tradeoffs are illuminated in a calibrated oil market model a global co2 tax is both cost effective and the best policy for regulated consumers extractors and unregulated consumers however prefer a technology only policy when the regulating coalition is subglobal support for the clean substitute is desired and often required but the preferred policy portfolio of the coalition involves a tighter cap and less technology policy than is globally optimal leaving room for bargaining over who pays for clean innovation

energy and physical capital a case of non classical dynamics we study the importance of considering different energy requirements for physical capital and final good production in an overlapping generations olg resource economy in contrast to the standard olg framework but consistently with the empirical evidence we assume that the accumulation of physical capital requires more energy than the production of consumption goods focusing on exhaustible energy resources we find that olg equilibria can exhibit non classical dynamics the economy generates complex dynamics where differing from the response predicted by the standard approach resource prices may not increase monotonically this result illustrates that the technological assumptions behind the energy inputs should be taken with caution in particular on dynamic analyses involving exhaustible energy resources

second best carbon taxation in the global economy the green paradox and carbon leakage revisited acceleration of global warming resulting from a future carbon tax is large if the price elasticities of oil demand are large and that of oil supply is small the fall in the world interest rate weakens this weak green paradox effect especially if intertemporal substitution is weak still social damages from greenhouse gases drop if the fall in oil supply and cumulative emissions is strong enough if the current carbon tax is set too low the second best future carbon tax is set below the first best too to mitigate adverse green paradox effects unilateral second best optimal carbon taxes exceed the first best taxes due to an import tariff component the intertemporal terms of trade effects of the future carbon tax increase current and future tariffs and those of the current tax lower the current tariff finally carbon leakage and globally altruistic and unilateral second best optimal carbon taxes if non kyoto oil importers price carbon too low are analysed in a three country model of the global economy

supply versus demand side policies in the presence of carbon leakage and the green paradox we consider a climate coalition that seeks to reduce global emissions in the presence of carbon leakage and resource exhaustibility we show that a credible announcement of future unilateral supply side policies delays foreign emissions and we derive the optimal combination of consumer taxes and producer taxes when we consider leakages from free riders both within periods and across periods the tax shares generally differ over time a decline in the present value of the social cost of carbon over time supports a time path where the consumers tax share of the total carbon tax also declines over time we illustrate our findings with a numerical model

loss aversion and individual characteristics many studies have shown that loss aversion affects the valuation of non market goods using stated choice data this paper presents an empirical investigation of how individual level loss aversion varies with observable personal characteristics and with the choice context we investigate loss aversion with respect to travel time and money and find significant loss aversion in both dimensions the degree of loss aversion in the time dimension is larger than in the money dimension and depends on age and education subjects tend to be more loss averse when the reference is well established

trade in fossil fuel deposits for preservation and strategic action abstract in the world economy with interdependent markets for fossil fuel deposits and extracted fossil fuel some coalition of countries may fight climate change by purchasing and preserving fossil fuel deposits which would be exploited otherwise assuming that deposits are traded on a market with a uniform price we find that the outcome is efficient if the coalition is a price taker in both markets but inefficient if it acts strategically in the deposit market but not in the fuel market or acts strategically in both markets the latter result demonstrates that harstad s 2012 theorem 1 efficiency despite strategic action result is not robust with respect to changes in the concepts of the deposit market and market or bargaining power in a simplified parametric version of the game a strategically acting coalition buys fewer deposits consumes more fuel and puts up with higher climate damage than in first best

oligopoly equilibria in nonrenewable resource markets abstract most nash cournot oligopoly models of nonrenewable resources apply open loop equilibrium concepts and are based on physical resource depletion this paper studies feedback equilibria and economic depletion assuming affine quadratic functional forms the existence uniqueness and explicit solutions for the equilibria are derived for duopoly and n player oligopoly with multiple resource stocks for the cases of nonquadratic criteria we develop a numeric solution scheme for the nash feedback equilibrium this scheme is an application of a discrete time discrete state controlled markov chain approximation method originally developed for solving deterministic and stochastic dynamic optimization problems in our nash cournot equilibrium the degree of concentration in supply declines over time whereas the previous models with physical depletion and open loop equilibrium concepts predict that a nash cournot resource market will develop in the direction of monopoly supply

competition in interregional taxation the case of western coal markets for many products are dominated by small group of states or countries with a natural advantage in the marketplace because of some initial endowment of resources favorable climate or location the purpose of this paper is to explore how such markets involving a few political jurisdictions interact noncooperatively we examine how such a market might be structured and operate and the extent of monopoly rent that can be extracted in the absence of collusion we answer these questions for an empirically estimated model of western u s coal in which two states montana and wyoming dominate production we demonstrate that in this market the amount of rent that can be extracted is greatly reduced through competition relative to a cartel nevertheless even with two producing states competing against each other significant rents can be captured significant enough to refute the contention that little rent can accrue without a cartel

foreign direct investment and development agency intervention a theoretical model a model is proposed in which there are two regions that differ in terms of size there are two firms one located in each region producing a homogeneous product the firms have identical cost functions and act as cournot oligopolists transporting the product between the two regions is costly a foreign firm is to establish a plant in one of the regions the foreign firm experiences higher fixed costs but has lower marginal costs than the domestic firms the optimal location of the foreign firm s plant is determined it is then assumed that there exists a regional development agency in the region not chosen by the foreign firm that can commit funds to defray the fixed costs of the foreign firm if it were to choose to locate in its region the amount of the subsidy necessary to induce the foreign firm to alter its choice is determined and the implications for the levels and regional distributions of price output employment and welfare are compared with the position that would have arisen without th

announcing climate policy can a green paradox arise without scarcity unintended consequences of a pre announced climate policy are studied within a framework that allows for competition between polluting and clean energy sources we show that early announcement of a carbon tax gives rise to a green paradox in that it increases emissions in the interim period between announcement and actual implementation irrespective of the scarcity of fossil fuels the paradoxical outcome is driven by consumption saving tradeoffs facing households who seek to smooth consumption over time and holds both when the announced implementation date is taken as a credible threat and when households are skeptical about the political will or capability of the government to implement the policy as announced

marginal tax reform externalities and income distribution the paper examines welfare improving and revenue neutral directions marginal policy reforms for an economy with nonidentical individuals and an externality that has a feedback effect on the consumption of taxed goods it considers three types of policy instruments the indirect taxes the uniform poll transfer and public abatement this extends the framework set up by ahmad and stern 1984 bovenberg and de mooij 1994 and schob 1996 the theoretical model is illustrated for a specific externality namely congestion caused by peak car transport

what role for trade in a post 2012 global climate policy regime what role for trade in post 2012 this paper discusses the role that trade can potentially play in both negotiating and operating a post kyoto post 2012 global climate policy regime as an addition to the bargaining set for a global climate negotiation trade in principle widens the range of jointly beneficial potential outcomes and can in this sense be a potential facilitator of an agreed global climate regime the reverse is also true that in a linked climate trade finance global policy coordination structure that goes well beyond what was envisioned at bretton woods climate now added to the global policy bargaining set also offers the prospect of potentially stronger trade disciplines and even beyond wto disciplines being negotiated trade policy can as well be an instrument for the implementation of a global climate regime since trade provides a mechanism for achieving an internalisation outcome for the global externality that climate change represents and that provides a potentially more efficient outcome and also helps meet distributional objectives in short trade added to the emerging post 2012 climate regime can both expand the bargaining set for both effectively linked negotiations and additionally provide an instrument for the implementation of an agreed outcome

political economy aspects of climate change mitigation efforts regardless of the policies used to mitigate climate change a positive and relatively high price of carbon will have to be established with slow convergence across regions leading to huge rents up to capture way beyond those that have been fought over in the general agreement on tariffs and trade gatt based international trading system the paper explores the political economy feasibility and desirability implications of the two main alternatives a carbon tax and a cap and trade cat system having the same concerns cat systems in the eu and the us have accounted for different outcomes in each case likely leakages under foreseeable carbon prices are estimated to be small and not of an order of magnitude justifying the special allowances sought across a wide spectrum of industries the experience of the eu and us reviewed here suggests that mitigation is likely to continue to be carried out under a cat provided permits are distributed for free to the lobbies whose support is necessary to get adoption of mitigation policies this quota mechanism long used to allocate scarcity in the international trading system both nationally and internationally would end up with the most powerful receiving the quotas rents giving them the leverage and resources to maintain allocation schemes favourable to them

unilateral emission cuts and carbon leakages in a dynamic north south trade model the effects of a unilateral cut in emissions are analyzed in a dynamic two country model two intermediate goods are produced one of which uses the fossil fuel these inputs are traded and combine to produce a final good the effect of a cut in fossil fuel use by a bloc e g annexure 1 countries in the kyoto protocol depends on whether the fuel is priced at marginal cost or above in the latter case a green paradox may appear the paper s contribution lies in analyzing the dynamics and trade implications of the unilateral action

the political economy of urban transport system choice this paper analyzes the political economy of transport system choice with the goal of gaining an understanding of the forces involved in this important urban public policy decision transport systems pose a continuous trade off between time and money cost so that a city can choose a fast system with a high money cost per mile or a slower cheaper system the paper compares the socially optimal transport system to the one chosen under the voting process focusing on both homogeneous and heterogeneous cities while considering different landownership arrangements the analysis identifies a bias toward underinvestment in transport quality in heterogeneous cities

world oil market or mayhem the world oil market is regarded by many as a puzzle why are oil prices so volatile what is opec and what does opec do where are oil prices headed in the long run is peak oil a genuine concern why did oil prices spike in the summer of 2008 and what role did speculators play any attempt to answer these questions must be informed and disciplined by economics such is the purpose of this essay to illuminate recent developments in the world oil market from the perspective of economic theory

a review of recent multi region input output models used for consumption based emission and resource accounting abstract the interest in consumption based emission and resource accounting has grown significantly many studies juxtapose consumer emissions carbon footprint and producer territorial emissions of greenhouse gases in order to demonstrate the effects of trade on the national emission budget to this end a respectable number of studies have been undertaken worldwide in order to estimate emissions embedded in international trade of numerous countries and world regions input output approaches and increasingly multi region input output mrio models are commonly chosen as they provide an appropriate methodological framework for complete carbon footprint estimates at the national and supra national level with increasing processing capabilities of computers and a wider availability of economic accounts environmental accounts and trade data such models are now being implemented on a wide scale after a brief overview of salient single region input output studies i provide an in depth review of the most recent multi region input output models used for the purpose of consumption based environmental accounting the main methodological features and important results are described for around twenty studies covering the years 2007 to 2009 this is followed by a detailed review of studies dealing with uncertainty in mrio analysis an area which has not received a lot of attention so far i conclude that further research is mainly needed in two areas a improvements in data availability and quality and b improvements in the accuracy of mrio modelling

rethinking climate change governance and its relationship to the world trading system international climate negotiations have thus far eschewed efforts to incorporate trade restrictions but they have also failed to achieve their objective of reducing global emissions because of this failure some countries are now inclined to act unilaterally and minilaterally in many cases by imposing trade restrictions against third parties such actions are likely to invite retaliation they could even ignite an escalating trade war the best way to avoid such conflicts is not to limit the use of trade restrictions but to make international climate negotiations effective ironically success in addressing climate change multilaterally may require incorporating trade restrictions in a new kind of climate agreement trade restrictions have been used successfully in other international agreements but in these agreements the primary purpose of the restrictions has been to encourage participation that is their primary purpose has been to enforce the agreement this is the role trade restrictions ought to play in a new climate treaty but for them to play this role the design of climate treaties must change if climate treaties are designed strategically the threat to restrict trade will suffice to enforce the agreement and if the threat to restrict trade is credible and the punishment associated with the restriction severe trade restrictions will not actually have to be used by incorporating trade restrictions in this way greenhouse gas emissions can be reduced without putting at risk the gains from multilateral cooperation in trade

efficient climate policy in the presence of free riders abstract if all countries participate in a climate agreement policies affecting the supply of fossil fuels have identical economic consequences as policies affecting the demand of fossil fuels this is no longer true when there is limited participation in an international agreement in the paper it is assumed that a group of countries commit themselves to cooperating while the remaining countries act independently and in pure self interest the paper compares supply and demand policies in this context and demonstrates that policies which affect only demand or only supply of carbon generally are inferior to policies affecting both demand and supply of carbon the optimal mix of supply and demand policies is derived in the paper with particular emphasis on carbon taxes an important result is that if the marginal environmental costs of total emissions are sufficiently high in the cooperating countries then both production and consumption of carbon should be taxed at a positive rate if on the other hand the marginal environmental costs of total emissions are sufficiently low it may be optimal to subsidize production or consumption in this case production should be subsidized if the cooperating countries are net importers of carbon while consumption should be subsidized if the cooperating countries are net exporters of carbon another important conclusion of the paper is that the cooperating countries should try to induce the non cooperating countries through appropriate transfers to tax consumption and production of carbon at the same rate as in the cooperating countries

is there really a green paradox abstract in the absence of a co2 tax the anticipation of a cheaper renewable backstop increases current emissions of co2 since the date at which renewables are phased in is brought forward and more generally future emissions of co2 will decrease the effect on global warming is unclear green welfare falls if the backstop is relatively expensive and full exhaustion of fossil fuels is optimal but may increase if the backstop is sufficiently cheap relative to the cost of extracting the last drop of fossil fuels plus marginal global warming damages as then it is attractive to leave more fossil fuels unexploited and thus limit co2 emissions we establish these results by analyzing depletion of non renewable fossil fuels followed by a switch to a clean renewable backstop paying attention to timing of the switch and the amount of fossil fuels remaining unexploited we also discuss the potential for limit pricing when the non renewable resource is owned by a monopolist finally we show that if backstops are already used and more backstops become economically viable as the price of fossil fuels rises a lower cost of the backstop will either postpone fossil fuel exhaustion or leave more fossil fuel in situ thus boosting green welfare however if a market economy does not internalize global warming externalities and renewables have not kicked in yet full exhaustion of fossil fuel will occur in finite time and a backstop subsidy always curbs green welfare

free trade and global warming a trade theory view of the kyoto protocol this paper demonstrates how three important results in environmental economics true under mild conditions in closed economies are false or need serious amendment in a world with international trade in goods since the three results we highlight have framed much of the ongoing discussion and research on the kyoto protocol our viewpoint from trade theory suggests a re examination may be in order specifically we demonstrate that in an open trading world but not in a closed economy setting 1 unilateral emission reductions by the rich north can create self interested emission reductions by the unconstrained poor south 2 simple rules for allocating emission reductions across countries such as uniform reductions may well be efficient even if international trade in emission permits is not allowed and 3 when international emission permit trade does occur it may make both participants in the trade worse off and increase global emissions

environmental and resource economics a canadian retrospective the paper reviews research contributions to environmental and resource economics by scholars in canada we focus mainly on work from the past 25 years but also highlight earlier pathbreaking work we begin by looking at broad trends in research both internationally and within canada we then review canadian contributions to various topics in the field canadians have played a leading role in the development of the field especially in resource economics international environmental economics and the valuation of environmental amenities

why do people pay taxes prospect theory versus expected utility theory abstract using actual probabilities of audit and penalty rates the return on evasion is 91 98 so why do not most of us evade existing analysis based on expected utility theory eut is unable to explain this furthermore and contrary to intuition and the bulk of evidence eut predicts that evasion should be decreasing in the tax rate yitzhaki puzzle we apply tversky and kahneman s tversky a kahneman d 1992 advances in prospect theory cumulative representation of uncertainty journal of risk and uncertainty 5 297 323 cumulative prospect theory to tax evasion we show that prospect theory provides a much more satisfactory account of tax evasion including an explanation of the yitzhaki puzzle this also provides independent confirmation of prospect theory

a political economy model of road pricing abstract in this paper we use a simple majority voting model to study the introduction of urban congestion tolls the model allows for different types of uncertainty and considers different uses of the toll revenues the following results are obtained first we show that individual uncertainty with respect to modal substitution costs may imply that a majority votes against road pricing ex ante although a majority would have been in favor after its introduction ex post moreover if a majority is against road pricing ex ante there will also be no majority for organizing an experiment that would take away the individual uncertainty second political uncertainty with respect to the use of the revenues corroborates the finding that ex ante more voters will be against the introduction of tolls third both types of uncertainty suggest that fewer voters are against road pricing when toll revenues are used to subsidize public transport than when they are redistributed to all voters importantly the results of this paper are consistent with a number of recent empirical observations on efforts to introduce road pricing including the systematic rejection of road pricing in referenda the more favorable attitudes towards road pricing after than before its introduction and tying the toll revenues to support public transport

dynamic pricing in retail gasoline markets supergame models of tacit collusion show that supportable price cost margins increase with expected future collusive profits ceteris paribus as a result collusive margins will be larger when demand is expected to increase or marginal costs are expected to decline using panel data on sales volume and gasoline prices in 43 cities over 72 months we find behavior consistent with tacit collusion in retail gasoline markets controlling for current demand and cost current margins increase with expected next month demand and decrease with expected next month cost the results are not consistent with intertemporal l inkages due to inventory behavior or customer loyalty

optimal timing of ccs policies with heterogeneous energy consumption sectors using the chakravorty et al j econ dyn control 30 2875 2904 2006 ceiling model we characterize the optimal consumption paths of three energy resources dirty oil which is non renewable and carbon emitting clean oil which is also non renewable but carbon free thanks to an abatement technology and solar energy which is renewable and carbon free the resulting energy mix can supply the energy needs of two sectors these sectors differ in the additional abatement cost they have to pay for consuming clean rather than dirty oil as sector 1 industry can abate its emissions at a lower cost than sector 2 transport we show that it is optimal to begin by fully capturing sector 1 s emissions before the ceiling is reached also there may be optimal paths along which the capture devices of both sectors must be activated in this case sector s 1 emissions are fully abated first before sector 2 abates partially finally we discuss the way heterogeneity of abatement costs causes sectoral energy price paths to differ

unilateral climate policy with production based and consumption based carbon emission taxes this paper characterizes a sub global climate coalition s unilateral policy of reaching a given climate damage reduction goal at minimum costs following eichner and pethig j environ econ manag 2013 we set up a two country two period model in which one of the countries represents a climate coalition that implements a binding ceiling on the world s first period emissions the other country is the rest of the world and refrains from taking action the coalition can make use of production based carbon emission taxes in both periods as in eichner and pethig j environ econ manag 2013 but here we consider consumption based carbon emission taxes as an additional instrument the central question is whether and how the coalition employs the consumption based taxes along with the production based taxes in its unilateral cost effective ceiling policy all cost effective policies identified analytically and numerically consist of a mix of both types of taxes implying that there is a tax mix which is less expensive for the coalition than stand alone consumption based or stand alone production based taxes with full cooperation both taxes are perfect substitutes in our model but in case of unilateral action they are imperfect substitutes because coalition s total welfare loss from two different but moderate distortions is smaller than that from a single but severe distortion

strategic entry deterrence in analyzing deterrence of large scale entry two classes of entry barriers may be distinguished an innocent entry barrier is unintentionally erected as a side effect of innocent profit maximization in contrast a strategic entry barrier is purposely erected to reduce the possibility of entry two types of innocent barriers may also be distinguished a postentry absolute advantage has the property that if entry did occur the established firm would be at a profit advantage over the entrant examples are superior technology or product design patents and lower input prices a preentry asymmetry advantage arises from the fundamental preentry asymmetry between established firm and potential entrant before the entrant makes his entry decision the established firm has already committed resources this prior existence gives first move advantages the preentry asymmetry is independent of symmetry or asymmetry in the rules the equilibrium concept of the postentry game that might ensue even if the postentry game will be played according to nash cournot or entrant as leader rules the preentry leadership

would hotelling kill the electric car in this paper we show that the potential for endogenous technological change in alternative energy sources may alter the behaviour of resource owning firms when technological progress in an alternative energy source can occur through learning by doing resource owners face competing incentives to extract rents from the resource and to prevent expansion of the new technology we show that in such a context it is not necessarily the case that scarcity driven higher traditional energy prices over time will induce alternative energy supply as resources are exhausted rather we show that as we increase the learning potential in the substitute technology lower equilibrium energy prices prevail and there may be increased resource extraction and greenhouse gas emissions we show that the effectiveness and the incidence of emissions reduction policies may be altered by increased potential for technological change our results suggest that treating finite resource rents as endogenous consequences of both technological progress and policy changes will be important for the accurate assessment of climate change policy

rent seeking with uncertain opposition abstract it is observed that sometimes dispersed interests are passive to rent seeking by concentrated interests and that sometimes they provide rigorous opposition this paper assumes that opposing political activism is triggered when rents accruing to concentrated interests exceed a threshold level unknown to the latter in these conditions rents will increase asymptotically to a level less than the trigger level the threat of opposition means that social costs of rent seeking may be less than found by static analysis under certainty the model may be applicable to certain types of regulation such as taxi licensing or pollution control

optimal fossil fuel taxation with backstop technologies and tenure risk abstract the paper derives the global welfare optimizing time path for a tax on fossil fuels causing a negative stock externality climate change under increasing marginal extraction cost and in the presence of an unlimited backstop resource causing no externality in a basic competitive case the optimal tax equals the pigou rate equivalent to the present discounted value of marginal damage costs we consider two separate types of tenure insecurity for resource owners and their impact on the tax implementing the optimal policy when insecure control is with respect to future ownership to the resource competitive extraction is higher than otherwise and the efficiency implementing tax exceeds the pigou rate when tenure insecurity instead implies possible expropriation holdup of investment in extraction capacity it deters extraction and the optimal tax is lower than the pigou rate

too much coal too little oil abstract our main message is that it is optimal to use less coal and more oil once one takes account of coal being a backstop which emits much more co2 than oil the way of achieving this is to have a steeply rising carbon tax during the initial oil only phase a less steeply rising carbon tax during the intermediate phase where oil and coal are used alongside each other and the following coal only phase and a flat carbon tax during the final renewables only phase the laissez faire outcome uses coal forever or starts with oil until it is no longer cost effective to do so and then switches to coal we also analyze the effects on the optimal transition times and carbon tax of a carbon free albeit expensive backstop solar or wind energy subsidizing renewables to just below the cost of coal does not affect the oil only phase the gain in green welfare dominates the welfare cost of the subsidy if the subsidy gap is small and the global warming challenge is acute without a carbon tax a prohibitive coal tax leads to less oil left in situ and substantially delays introduction of renewables but curbs global warming substantially as coal is never used finally we characterize under general conditions what the optimal sequencing oil and coal looks like

carbon motivated border tax adjustments old wine in green bottles 1285 ben lockwood and john whalley we discuss emerging proposals for border tax adjustments btas to accompany commitments to reduce carbon emissions in the eu the us and other oecd economies the rationale offered for such border adjustment is that various entities such as the eu if making commitments to reduce emissions which go beyond those undertaken in other regions of the world impose added costs on domestic producers which create a competitive disadvantage for them some form of remedy is viewed as reasonable to maintain the competitiveness of domestic industries when responding to global environmental problems in this paper we argue that despite its current carbon manifestation the issue of border tax adjustments and both their rationale and their effects on trade are not new and despite the present debate which seems to overlook older literature have arisen before earlier debate on border tax adjustments occurred at the time of the adoption of the value added tax vat in the eu as a tax harmonisation target in the early 1960s but academic literature of the time showed that a change between origin and destination basis in the vat would be neutral and hence the use of a destination based tax in the eu to accompany the vat offered no trade advantage to europe here we argue that essentially the same arguments also apply for carbon motivated btas and in the current debate there seems to be a misconception between price level effects and relative price effects stemming from a bta which needs correcting we also argue that the impact of border tax adjustments should be viewed as independent of the motivation of the adjustments

the trade off between money and travel time a test of the theory of reference dependent preferences we formulate a model of reference dependent preferences based on the marginal rate of substitution at the reference point of a reference free utility function using binary choices on the trade off between money and travel time reference dependence is captured by value functions that are centered at the reference the model predicts a directly testable relationship among four commonly used valuation measures willingness to pay wtp willingness to accept wta equivalent gain eg and equivalent loss el moreover we show that the model allows recovering the underlying reference free value of time based on a large survey data set we estimate an econometric version of the model allowing for both observed and unobserved heterogeneity in a series of tests of high statistical power we find that the relationship among the four valuation measures conforms to our model and that the constraints on the parameters implied by the model are met the gap between wtp and wta is found to be a factor of four loss aversion plays an important role in explaining responses moreover participants are more loss averse in the time dimension than the cost dimension we further find evidence of asymmetrically diminishing sensitivity finally we show that the fraction of mistakes in the sense that participants are observed to sometimes select dominated options varies systematically in a way consistent with the model of reference dependence the results of the paper have important implications for the evaluation of infrastructure investment and pricing reforms in the transport sector

efficient contracting and market power evidence from the u s natural gas industry it is well recognized by economists that long term contracting under an array of price and non price provisions may be an efficient response to small numbers bargaining problems empirical work to distinguish such issues from predictions of models of market power and bargaining has been sparse principally because the necessary data on individual transactions are seldom publicly available the u s natural gas industry is well suited for such tests both because of the small number of buyers pipelines and sellers producers in each market and the large capital commitments required of transacting parties at the inning of the contract we present a model of the bilateral bargaining process is natural gas field markets under uncertainty we identify the initial price as the outcome of the bargaining aver a fixed payment for pipeline to producer and describe price escalator provisions as a means of making the contract responsive at the margin to changes in the valuation of gas over the term of the agreement our econometric work rakes use of a large detailed data set on during the l950s empirical evidence from models of price determination and the use of most favored nation clauses is supportive of the theoretical model this abstract was borrowed from another version of this item

winning or losing from dynamic bottleneck congestion pricing the distributional effects of road pricing with heterogeneity in values of time and schedule delay abstract this paper analyses the efficiency and distributional impacts of congestion pricing in vickrey s 1969 dynamic bottleneck model of congestion allowing for continuous distributions of values of time and schedule delay we find that congestion pricing can leave a majority of travellers better off even without returning the toll revenues to them we also find that the consumer surplus losses or gains from tolling are not strictly monotonic in the value of time because they also depend on the value of schedule delays the greatest losses are not incurred by drivers with the lowest value of time but by users with an intermediate value of schedule delays and the lowest value of time for that value of schedule delays for second best pricing with an untolled alternative the pattern of distributional effects is quite similar to that for first best pricing in contrast with results from prior static models users who are indifferent between the two alternative routes are not the ones who gain least from this type of second best pricing our results suggest that in assessing the distributional impacts of road congestion pricing it is important to take into account both the distribution of the value of time and of the value of schedule delays as well as the dynamics of departure time choice

between a rock and a hard place a trade theory analysis of leakage under production and consumption based policies without a comprehensive global climate agreement carbon leakage remains a contentious issue consumption based pricing of emissions which could in practice be implemented with a full border tax adjustment bta has been forwarded as an option to increase the effectiveness of unilateral climate policy this paper questions the economic rationale behind this approach using a theoretical 2 times 2 trade model in which leakage occurs through terms of trade effects we show analytically first that consumption based pricing of emissions does not necessarily result in less leakage than production based policies second the sign of the optimal unilateral carbon tariff depends on the carbon intensity differential between the foreign country s exporting and non exporting sectors and not on the differential between home s and foreign s exporting sectors as implied by the full bta approach third based on empirical data for the year 2004 our model implies that full bta applied by the european union on e g imports from and exports to china would by shifting china s production from the export sector with a relatively low carbon intensity towards the more carbon intensive non export sector actually increase leakage

carbon leakage revisited unilateral climate policy with directed technical change using a stylized theoretical model we argue that current economic analyses of climate policy tend to over estimate the degree of carbon leakage as they abstract from the effects of induced technological change we analyse carbon leakage in a two country model with directed technical change where only one of the countries enforces an exogenous cap on emissions climate policy induces changes in relative prices that cause carbon leakage through a terms of trade effect however these changes in relative prices also affect the incentives to innovate in different sectors this leads to a counterbalancing induced technology effect which always reduces carbon leakage we therefore conclude that the leakage rates reported in the literature may be too high as these estimates neglect the effect of price changes on the incentives to innovate

entry deterrence in the commons the authors analyze a common property resource model with a single incumbent firm that faces future potential entry of a rival the cost of harvest from the resource is a function of the stock size by drawing down current stock sufficiently which lowers future stock the incumbent can make entry unprofitable the authors analyze the conditions under which the incumbent firm would deter entry and when entry would be allowed further they analyze the effect that potential entry has on the harvest rate both before and after the date of potential entry and whether or not potential entry is welfare improving copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

climate change policy market structure and carbon leakage abstract the 1997 kyoto protocol on climate change obliges the industrialized countries to initiate the international effort of abating anthropogenic greenhouse gas ghg emissions if such an initiative is to be taken the associated competitive effects may lead to significant relocation of developed countries energy intensive production this paper examines this issue i adopt an oligopolistic structure combined with increasing returns to scale production technologies to represent the strategic interaction among the firms producing energy intensive products this representation is then embedded within a multi regional computable general equilibrium model which in turn is used for quantifying these relocational effects the results suggest that significant relocation of energy intensive industries away from the oecd may occur depending on the type of market structure with leakage rates as high as 130 in which case ghg control policies in the industrialized countries actually lead to higher global emissions

trade and carbon taxes we study various scenarios for taxing emissions of carbon dioxide c02 the question is how carbon tax policies will perform given interna tional trade if countries adopt different tax rates we investigate this question quantitatively using cim earth a newly developed open source computable general equilibrium cge model since climate change is a function of global c02 emissions an efficient strategy for control ling emissions would be to impose the same price wherever they occur such an approach presents a free riding problem however because nations have an incentive not to comply while gaining the ben efits of reduced emissions elsewhere moreover because of distributive concerns and claims about

taxing consumption to mitigate carbon leakage this is a post print version of an article published in environmental and resource economics made available in accordance with the copyright policy of the journal publisher no commercial re distribution or re use is allowed this version may contain minor differences from the journal s pdf version

uncertain demand consumer loss aversion and flat rate tariffs we consider a model of firm pricing and consumer choice where consumers are loss averse and uncertain about their future demand possibly consumers in our model prefer a flat rate to a measured tariff even though this choice does not minimize their expected billing amount a behavior in line with ample empirical evidence we solve for the profit maximizing two part tariff which is a flat rate if a marginal costs are not too high b loss aversion is intense and c there are strong variations in demand moreover we analyze the optimal nonlinear tariff this tariff has a large flat part when a flat rate is optimal among the class of two part tariffs

carbon leakage the green paradox and perfect future markets policies of lowering carbon demand may aggravate instead of alleviate climate change green paradox in a two period three country general equilibrium model with finite endowment of fossil fuel one country enforces an emissions cap in the first or second periods when that cap is tightened the extent of carbon leakage depends on the interaction of various parameters and elasticities conditions for the green paradox are specified all determinants of carbon leakage resulting from tightening the first period cap work in the opposite direction when the second period cap is tightened tightening the second period cap does not necessarily lead to the green paradox

network effects and environmental externalities do clean technologies suffer from excess inertia abstract we study the diffusion of a clean substitute to a dirty durable in a dynamic model consumer utility of both durables increases in their respective market shares due to network effects first we characterize the optimal dirty good tax the tax should achieve a long run optimal division of the market between the two goods along the transition path to this steady state the optimal tax depends on the current and future market shares of the clean durable thus even if the marginal environmental damage from an additional dirty durable is constant the optimal tax should not be constant second we study whether excess inertia can occur if the emission tax is not optimally set we then find that a constant tax that only accounts for the environmental damage caused by the dirty good may lead to excess inertia excess inertia could happen even if the clean technology is proprietary and the technology owner has incentives to sponsor the initial market diffusion of the technology

clean air regulation and heterogeneity in us gasoline prices in order to improve public health in areas with air quality problems the us clean air act imposes a variety of federal regulations on gasoline which have led to a proliferation of fuel blends known as boutique fuels more than 45 fuel blends are sold nationwide we examine the effects of this program on wholesale gasoline prices the methodological innovation in this study is the use of a regulatory distance measure as a proxy for measuring market power that arises from product differentiation we find that clean air regulation increases gasoline prices by increasing the cost of refining but more importantly by creating regulatory islands it segments the market and increases the market power of firms our estimation controls for the potential endogeneity of the regulatory variables we find that ols techniques systematically underestimate the effect of regulation on gasoline prices

innovation and natural resources a dynamic game with uncertainty we analyze a dynamic game between a resource exporting country and an importing country that is seeking to invent a substitute technology the time of innovation is an uncertain function of the importer s r d efforts which cannot be committed in advance the game has a unique equilibrium in markov strategies the importer s r d efforts grow over time the exporter s output often decreases with time before innovation occurs but strategic factors imply that the opposite can happen the output path is characterized by a simple modification of hotelling s rule to account for uncertainty and strategic behavior

bayesian learning growth and pollution abstract environmental problems such as climate change have great uncertainties current expectations are that uncertainties about climate change will be resolved quickly we examine this hypothesis theoretically and computationally we consider bayesian learning about the relationship between greenhouse gas levels and global mean temperature changes a key uncertainty learning is non trivial because of a stochastic shock to the realized temperature we find theoretically the expected learning time which is related to the variance of the shock and the emissions policy implying a tradeoff between the benefits of controlling emissions and information we imbed the learning model into an optimal growth model with a climate sector and solve the resulting dynamic program we find computationally that learning takes on average over 90 yr far longer than currently believed

a hotelling model with a ceiling on the stock of pollution abstract environmental agreements such as the kyoto protocol aim to stabilize the amount of carbon in the atmosphere which is mainly caused by the burning of nonrenewable resources such as coal we characterize the solution to the textbook hotelling model when there is a ceiling on the stock of emissions we consider both increasing and decreasing demand for energy we show that when the ceiling is binding both the low cost nonrenewable resource and the high cost renewable resource may be used jointly a key implication is that if energy demand were to decline in the long run we may supplement energy supply through clean renewables to meet the environmental standard but then revert back to using only dirty fossil fuels in the future when the ceiling has become non binding that is the much heralded societal transition to clean energy resources may be short lived

flattening the carbon extraction path in unilateral cost effective action internalizing the global negative externality of carbon emissions requires the flattening of the extraction path of world fossil energy resources world carbon emissions we consider governments with sign unconstrained emission taxes at their disposal and seeking to prevent world emissions from exceeding some binding aggregate emission ceiling in the medium term such a ceiling policy can be carried out either in full cooperation or by a sub global climate coalition unilateral action has to cope with carbon leakage and high costs which makes a strong case for choosing a policy that implements the ceiling in a cost effective way in a two country two period general equilibrium model with a non renewable fossil energy resource we characterize the unilateral cost effective ceiling policy and compare it with its fully cooperative counterpart we show that with full cooperation there exists a cost effective ceiling policy in which only first period emissions are taxed at a rate that is uniform across countries in contrast the cost effective ceiling policy of a sub global climate coalition is characterized by emission regulation in both periods the share of the total stock of energy resources owned by the sub global climate coalition turns out to be a decisive determinant of the sign and magnitude of unilateral cost effective taxes

political economy of commuting subsidies abstract we study the political economy of commuting subsidies in a model of a monocentric city with two income classes depending on housing demand and transport costs either the rich or the poor live in the central city and the other group in the suburbs commuting subsidies increase the net income of those with long commutes or high transport costs they also affect land rents and therefore the income of landowners the paper studies how the locational pattern of the two income classes and the incidence of landownership affects the support for commuting subsidies

international capital markets oil producers and the green paradox a rapidly rising carbon tax leads to faster extraction of fossil fuels and accelerates global warming we analyze how general equilibrium effects operating through the international capital market affect this green paradox in a two region two period world with identical homothetic preferences and without investment the global interest rate falls and the green paradox weakens with investment or a relatively more impatient oil importing region the green paradox may be strengthened because the future oil demand function shifts downward or because the interest rate rises if the oil importing region is very much more patient than the oil exporting region the green paradox may be reversed but in our calibrated model the effects are tiny with exploration and endogenous initial oil reserves a future carbon tax lowers cumulative oil extraction in partial equilibrium if the boost to current oil extraction is weakened strengthened or reversed in general equilibrium so is the fall in cumulative extraction a partial and general equilibrium welfare analysis of a future carbon tax both for full and partial exhaustion is given the effects of stock dependent extraction costs are separately discussed in an appendix

unilateral climate policy harmful or even disastrous this paper deals with possible foreign reactions to unilateral carbon demand reducing policies it differentiates between demand side and supply side reactions as well as between intra and inter temporal shifts in greenhouse gas emissions in our model we integrate a stock dependent marginal physical cost of extracting fossil fuels into eichner and pethig s int econ rev 52 3 767 805 2011 general equilibrium carbon leakage model the results are as follows under similar but somewhat tighter conditions than those derived by eichner and pethig int econ rev 52 3 767 805 2011 a weak green paradox arises furthermore a strong green paradox can arise in our model under supplementary constraints that means a green policy measure might not only lead to a harmful acceleration of fossil fuel extraction but to an increase in the cumulative climate damages at the same time in some of these cases there is even a cumulative extraction expansion which we consider disastrous

the climate change learning curve 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

robust policies to mitigate carbon leakage abstract unilateral climate policy induces carbon leakage through the relocation of emission intensive and trade exposed industries to regions without emission regulation previous studies suggest that emission pricing combined with border carbon adjustment is a second best instrument and more cost effective than output based rebating we show that the combination of output based rebating and a consumption tax for emission intensive and trade exposed goods can be equivalent with border carbon adjustment moreover it is welfare improving for a region that implements emission pricing along with output based rebating to introduce such a consumption tax the welfare gain is particularly large if output based rebating is already implemented for a sector that is not much exposed to leakage e g due to uncertainty about exposure or due to lobbying activities thus supplementing output based rebating with a consumption tax constitutes robust policies to mitigate carbon leakage

an empirical analysis of the green paradox in china from the perspective of fiscal decentralization abstract while it is generally recognized that the introduction of environmental policy can effectively control carbon emissions the green paradox hypothesis puts forth a new warning about the validity of this policy s implementation this study uses panel data on 29 chinese provinces from 1995 to 2012 to investigate the impact of fiscal decentralization on the functional mechanisms of environmental policy while controlling for the spatial correlations of carbon emission the empirical results indicate that environmental policy alone can achieve the objective of reducing carbon emissions however the chinese style fiscal decentralization makes the environmental policy significantly promote carbon emissions leading to a green paradox moreover we find that the impact of fiscal decentralization on environmental policy varies greatly among different geographical regions and the direct controlled municipalities in addition our study confirms the spatial correlations in china s carbon emissions by using a spatial integration term finally we recommend that emission reduction efforts should be incorporated into the local government s performance evaluation system to improve the institutional environment further differentiated environmental policies and measures should be considered for different provinces to maximize the emission reduction potential

entry deterrence and overexploitation of the fishery abstract two stackelberg game models open access and restricted entry of a poaching fishery situation are proposed only the long run noncooperative solution of managing resource stocks is assumed feasible the optimal stock under open access for poachers is shown to be lower than under restricted entry and the latter to be lower than under exclusive ownership deterrence is completely successful under open access but is partially successful only under restricted entry the game models considered are shown to be equivalent to a constrained ownership fishery control problem or its surrogate

to b ta or not to b ta on the legality and desirability of border tax adjustments from a trade perspective this paper asks two questions concerning border tax adjustments for climate purposes when viewed from a trade perspective first under what conditions are btas possible in the wto world to address this issue the paper provides a detailed discussion of the relevant law and case law we also apply our main conclusions to what we consider to be paradigmatic cases of measures to address climate change where trade concerns are raised we conclude that the wto regime is no major obstacle to those aspiring to use btas although the allocation of the burden of proof could be a concern the second issue addressed is whether the economic literature on the desirability of btas adequately reflects concerns that have been raised in the trade policy community here we conclude that it has hardly addressed these concerns at all we also point to some aspects of btas that would need to be taken into account in a more complete analysis

distributional effects of alternative vehicle pollution control policies abstract previous work shows that policies that subsidize new vehicles and tax size miles or gasoline efficiently reduce pollution less is known about their distributional effects this paper examines distributional effects by estimating the joint demand for vehicles and miles using the consumer expenditure survey greater price responsiveness among low income households enhances progressivity of gas or miles taxes across lower incomes and mitigates regressivity across upper incomes taxes on engine size or subsidies to new vehicles are significantly more regressive than gas or miles taxes

emissions taxes versus intensity standards second best environmental policies with incomplete regulation the best emissions tax or emissions cap may be an inferior instrument under incomplete regulation leakage without leakage an intensity standard regulating emissions per unit of output is inferior due to an implicit output subsidy this inefficiency can be eliminated by an additional consumption tax with leakage an intensity standard can dominate the optimal emissions tax since the implicit output subsidy prevents leakage the addition of a consumption tax improves an intensity standard s efficiency may prevent leakage and may be efficient comparing intensity standards to output based updating shows that the latter dominates if updating is sufficiently flexible

support and opposition to a pigovian tax road pricing with reference dependent preferences abstract loss aversion can affect support and opposition to pigovian taxes to reduce externalities this paper studies road pricing with reference dependent preferences modeled by a linear gain loss utility function given this specification we find that the socially optimal road toll is smaller than the optimal toll in the absence of reference dependence and it declines in the degree of loss aversion loss aversion can also explain the empirical observation that support for road pricing is lower before than after its introduction we further show that loss aversion may increase or reduce lobbying efforts by driver organizations against the introduction of tolling it will increase lobbying if a high toll is proposed but drivers initially believe that the probability that it will be introduced is small lastly loss aversion unambiguously reduces lobbying by organizations of non drivers representing for example environmentalists or public transport users in favor of the introduction of a toll