alternative transportation fuel standards welfare effects and climate benefits this paper develops an integrated model of the fuel and agricultural sectors to analyze the welfare and greenhouse gas emission ghg effects of the existing renewable fuel standard rfs a low carbon fuel standard lcfs and a carbon price policy the conceptual framework shows that these policies differ in the incentives they create for the consumption and mix of different types of biofuels and in their effects on food and fuel prices and ghg emissions we also simulate the welfare and ghg effects of these three policies which are normalized to achieve the same level of us ghg emissions by promoting greater production of food crop based biofuels the rfs is found to lead to a larger reduction in fossil fuel use but also a larger increase in food prices and a smaller reduction in global ghg emissions compared to the lcfs and carbon tax all three policies increase us social welfare compared to a no biofuel baseline scenario due to improved terms of trade even when environmental benefits are excluded global social welfare increases with a carbon tax but decreases with the rfs and lcfs due to the efficiency costs imposed by these policies even after including the benefits of mitigating ghg emissions

taxing capital not a bad idea after all we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic uninsurable income shocks and permanent productivity difierences of households the optimal capital income tax rate is signiflcantly positive at 36 percent the optimal progressive labor income tax is roughly a at tax of 23 percent with a deduction of 7 200 relative to average household income of 42 000 the high optimal capital income tax is mainly driven by the life cycle structure of the model whereas the optimal progressivity of the labor income tax is attributable to the insurance and redistribution role of the tax system jel e62 h21 h24

idiosyncratic risk aggregate risk and the welfare effects of social security we ask whether a pay as you go financed social security system is welfare improving in an economy with idiosyncratic productivity and aggregate business cycle risk we show analytically that the whole welfare benefit from joint insurance against both risks is greater than the sum of benefits from insurance against the isolated risk components one reason is the convexity of the welfare gain in total risk the other reason is a direct risk interaction which amplifies the utility losses from consumption risk we proceed with a quantitative evaluation of social security s welfare effects we find that introducing an unconditional minimum pension leads to substantial welfare gains in expectation even net of the welfare losses from crowding out about 60 of the welfare gains would be missing when simply summing up the isolated benefits

environmental impacts of coal subsidies in turkey a general equilibrium analysis abstract in this study we aim at providing an analytical framework for turkey to study the macroeconomics and environmental impacts of the existing coal subsidization scheme to this end we develop a regionally differentiated applied general equilibrium model spanning over 2015 2030 our analytical apparatus focuses exclusively on the fiscal implications as well as the environmental repercussions of the removal of the subsidies on greenhouse gas emissions with the aid of a set of alternative policy scenarios against a business as usual path we study the regional and sectorial performances of growth employment investment and capital accumulation consumption welfare and trade balance our results indicate that by simple elimination of the coal subsidization scheme turkey can reduce its aggregate gaseous emissions by as much as 5 without a significant loss in its gdp

unilateral climate policy design efficiency and equity implications of alternative instruments to reduce carbon leakage abstract global cost effectiveness of unilateral emission abatement can be seriously hampered by carbon leakage we assess three widely discussed proposals for leakage reduction carbon motivated border tax adjustments industry exemptions from carbon regulation and output based allocation of emission allowances we find that none of these measures amounts to a magic bullet when both efficiency and equity criteria matter compared to unilateral emission pricing alone border carbon adjustments are most effective in leakage reduction and promotion of global cost effectiveness but can markedly exacerbate regional inequality exemptions and output based allocation tend to avoid distributional pitfalls but are less effective in leakage reduction and global cost savings exemptions may even decrease global cost effectiveness of unilateral emission abatement

risk self protection and ex ante economic value abstract we develop three propositions about the ex ante value of reduced risk if there is a continuous outcome distribution and if self protection influences outcome probability and severity then 1 unobservable utility terms cannot be eliminated from the ex ante value expressions 2 knowledge of the convexity or the nonconvexity of dose response functions is insufficient to sign changes in these expressions and 3 self protection expenditures need not be a lower bound measure of these expressions therefore many restrictions applied in recent empirical work on the economic value of risk changes are not immediately transferable to settings where endogenous risks prevail

cost pass through of the eu emissions allowances examining the european petroleum markets this paper explores the ability of european refineries to pass through costs associated with the introduction of the eu emissions trading scheme eu ets we estimated a sequence of vector error correction models vecm within a multi national setting which covers 14 eu member states using weekly data at the country level this paper finds a significant influence of prices for european union allowances euas on unleaded petrol retail prices during the trial phase of the eu ets from 2005 to 2007 petrol prices are found to be elastic with respect to crude oil prices and exchange rates but rather inelastic with respect to carbon costs the long run elasticity of petrol prices with respect to the eua prices typically ranges between 0 01 and 0 09 furthermore by computing the variance decomposition our analysis shows that a significant fraction of petrol price changes in austria germany france and spain can be explained by changes in allowances prices between 10 and 20

how well does the u s social insurance system provide social insurance we analyze the insurance provided by the u s social security and income tax system within a model in which agents receive idiosyncratic wage rate shocks that are privately observed we consider two reforms a piecemeal reform that optimally chooses the social security benefit function and a radical reform that eliminates the entire social insurance system and replaces it with an optimal tax on lifetime earnings the radical reform outperforms the piecemeal reform and achieves nearly all of the maximum possible welfare gain when wages differ permanently over the lifetime when wage shocks match properties in u s data the piecemeal reform outperforms the radical reform

carbon abatement and international spillovers carbon abatement policies in large open economies affect both the allocation of domestic resources and international market prices a change in international prices implies an indirect secondary burden or benefit for all trading countries based on simulations with a large scale computable general equilibrium model of global trade and energy use we show that international spillovers have important welfare implications for carbon abatement policies designed to meet exogenous emission reduction targets we present a decomposition of the total welfare effect of carbon abatement policies into a primary domestic market effect at constant international prices and a secondary international spillover impact as a result of changes in international prices this decomposition reveals the extent to which domestic abatement costs are increased or decreased as a result of the impact of carbon abatement on international prices

on the self interested use of equity in international climate negotiations abstract we discuss self interested uses of equity arguments in international climate negotiations using unique data from a world wide survey of agents involved in international climate policy we show that the perceived support of different equity rules by regions may be explained by the ranking of their economic costs despite being self interested equity arguments may be perceived as being used for different reasons for example out of fairness considerations or in order to facilitate negotiations consistent with experimental and behavioral studies on fairness perceptions we find that individuals are more likely to state reasons with positive attributes if they evaluate their own region or regions that support the individual s personally preferred equity rule negotiators perceive the use of equity by regions as less influenced by pressure from interest groups

higher price lower costs minimum prices in the eu emissions trading scheme this paper examines the introduction of a price floor in an emissions trading system ets when some emissions are regulated outside of the ets we theoretically characterize the conditions under which a price floor enhances welfare using a numerical simulation model of the european union we find that moderate minimum prices in the eu ets can reduce the costs of eu climate policy by up to thirty percent we also find that due to tax interaction effects the optimal minimum price in the eu ets should be about four times higher than the average marginal abatement cost in non ets sectors this article is protected by copyright all rights reserved

eu climate policy up to 2020 an economic impact assessment in its fight against climate change the eu is committed to reducing its overall greenhouse gas emissions to at least 20 below 1990 levels by 2020 to meet this commitment the eu builds on segmented market regulation with an eu wide cap and trade system for emissions from energy intensive installations ets sectors and additional measures by each eu member state covering emission sources outside the cap and trade system the non ets sector furthermore the eu has launched additional policy measures such as renewable energy subsidies in order to promote compliance with the climate policy target basic economic reasoning suggests that emission market segmentation and overlapping regulation can create substantial excess costs if we focus only on the climate policy target in this paper we evaluate the economic impacts of eu climate policy based on numerical simulations with a computable general equilibrium model of international trade and energy use our results highlight the importance of initial market distortions and imperfections as well as alternative baseline projections for the appropriate assessment of eu compliance cost

international passenger transport and climate change a sector analysis in car demand and associated co2 emissions from 2000 to 2050 abstract the paper provides global regionalized projections of passenger car demand use and associated co 2 emissions from 11 world regions the study is based on empirical data that have been originally collated from international sources for the purpose of modeling region specific car stock demand derived demands serve as indicator of car related fuel consumption and associated co 2 emissions which are calculated on the basis of behavioral and technological scenarios the obtained co 2 emission paths are sectoral baseline scenarios that identify region specific potentials of growth in car induced co 2 emissions assuming that current trends continue to prevail the study adopts a multi model approach to car demand by applying two methodologies rooted in the economics of consumption utility maximization and single equation models the utility maximization method for modeling car demand is driven by the preferences of the representative consumers of each world region subject to exogenous price and income trajectories the latter is adopted from an optimal growth model this is a novel approach to projecting global regionalized sectoral car demands the study is complemented by the application of single equation income consumption models based on logistical gompertz functions and non linear regression techniques to compare model results

unilateral climate policy and competitiveness economic implications of differential emission pricing unilateral emission reduction commitments raise concerns on international competitiveness and emission leakage that result in preferential regulatory treatment of domestic energy intensive and trade exposed industries our analysis illustrates the potential pitfalls of climate policy design which narrowly focuses on competitiveness concerns about energy intensive and trade exposed eite branches the sector specific gains of preferential regulation in favour of these branches must be traded off against the additional burden imposed on other industries beyond burden shifting between industries differential emission pricing bears the risk for substantial excess cost in emission reduction as policy concedes too low carbon prices to eite industries and thereby foregoes relatively cheap abatement options in these sectors from the perspective of global cost effectiveness we find that differential emission pricing of eite industries hardly reduces emission leakage since the latter is driven through robust international energy market responses to emission constraints as a consequence the scope for efficiency compared to uniform pricing is very limited only towards stringent emission reduction targets will a moderate price differentiation achieve sufficient gains from leakage reduction to offset the losses of diverging marginal abatement cost

energy efficiency and economic growth a retrospective cge analysis for canada from 2002 to 2012 abstract the efficiency with which energy is used by firms and households has widespread impacts on economic activity which in turn has implications for environmental quality and energy security using a novel method that could be used for other jurisdictions we estimate the impact of energy efficiency improvements on canadian gdp employment economic structure and welfare from 2002 to 2012 we use a counterfactual back casting method with a sectorally and regionally disaggregated dynamic recursive computable general equilibrium model in effect reverse calibrating the model from observed data to isolate the effects of energy efficiency we estimate that total energy efficiency improvements in canada during this period increased gdp by 2 0 0 19 yr employment by 2 5 0 24 yr and household welfare by about 1 5 0 15 yr additionally energy efficiency improvements reoriented economic structure from capital intense energy supply sectors to relatively labour intense manufacturing and services we find evidence of widespread rebound on an energy expenditure basis across most sectors and backfire where energy efficiency leads to absolute energy use increases in oil sands in situ extraction bitumen upgrading shale gas extraction lime production pulp paper and metal smelting but overall energy use is reduced by energy efficiency improvements over this period

a reconsideration of minsky s financial instability hypothesis the worst and longest depressions have tended to occur after periods of prolonged and reasonably stable prosperity this results in part from agents rationally updating their expectations during good times and hence becoming more optimistic about future economic prospects investors then increase their leverage and shift their portfolios towards projects that would previously have been considered too risky so when a downturn does eventually occur the financial crisis and the extent of default become more severe whereas a general appreciation of this syndrome dates back to minsky 1992 jerome levy economics institute wp 74 and even beyond to irving fisher 1933 econometrica 1 337 357 we model it formally in addition endogenous default introduces a pecuniary externality since investors do not factor in the impact of their decision to take risk and default on the borrowing cost we explore the relative advantages of alternative regulations in reducing financial fragility and suggest a novel criterion for improvement of aggregate welfare

economic and environmental implications of turkish accession to the european union a cge analysis abstract the purpose of this paper is to analyze the economic and environmental implications of turkey s possible accession to the european union eu the paper focuses on the impacts of three main components of turkey s possible eu membership i the free movement of labor between the eu and turkey ii the free movement of capital and iii the burden sharing of turkey in terms of the eu s environmental objectives in the horizon of 2020 that is the reduction of carbon emissions among these a particular focus is placed on the influence of the co 2 emission reduction targets in both regions and their consequences on the carbon price in 2020 we estimate the resource allocation effects of eu climate change policies on both regions by taking into account the likely labor movement from turkey to the eu and capital movement in the reverse direction the results show that different emission targets for the two regions bring about a change in comparative advantages and thus a change in interregional competitiveness

us climate policy a critical assessment of intensity standards intensity standards have gained substantial momentum as a regulatory instrument in us climate policy energy intensive and trade exposed industries are traditionally opposed to initiatives for domestic carbon pricing as they are particularly vulnerable to competitiveness losses and refer to counterproductive emission leakage in a unilateral climate policy context this has led to policy proposals where intensity standards on energy and carbon might at least in part substitute for explicit carbon pricing via taxes or emission allowances in this paper we study the economic efficiency properties of intensity standards as an instrument of unilateral climate policy we first develop a theoretical partial equilibrium framework and show that standards can have an ambiguous effect on carbon leakage we then use an applied computable general equilibrium model of the global economy to gain quantitative insights into the effects of intensity standards for the case of the us our numerical results show that intensity standards may rather increase than decrease carbon leakage moreover standards can lead to considerable welfare losses compared to uniform emission taxing the tradability of standards across industries is a mechanism that can reduce these negative effects

economic impact assessment of turkey s post kyoto vision on emission trading for the post kyoto period turkey strongly emphasizes the establishment of national emission trading system by 2015 and its integration with the eu ets along its accession process to the eu in this paper we study the mechanisms of adjustment and economic welfare consequences of various ets regimes that turkey considers to apply by 2020 i e regional ets and international trading within the eu ets we conduct our analysis under the current eu 20 20 20 emission target 20 and also under its revised version 30 we find that turkey has economic gains from linking with the eu ets under the 20 cap in comparison to the domestic etss despite the eu s welfare loss under linkage in comparison to the case where turkey has domestic abatement efforts it still prefers linking as it increases economic well being compared to the case where turkey does not abate under 30 cutback turkey has critical output loss under linkage due to high abatement burden on the eu while the eu is better off as it passes some of its abatement burden to turkey therefore emission quotas and their allocation across the ets and non ets sectors become highly critical in distributing the overall economic gains from bilateral trading

risk aversion and the value of life we show that state non separable preferences a la epstein zin weil ezw provide a tractable and flexible framework to study the economics of health and longevity this utility representation 1 admits a preference for timing of resolution of uncertainty regarding mortality risks 2 links the marginal valuation of survival to the level of survival 3 can preserve homotheticity even for low degrees of intertemporal substitution without generating implausible predictions regarding the value of life and 4 adds needed flexibility to account for the empirical evidence on the value of life we illustrate the implications of ezw preferences for the economic value of observed differences in life expectancy across countries and over time and for the value of life over the life cycle

optimal pension systems with simple instruments we analyze optimal pension systems relying on simple policy instruments in a lifecycle environment which admits endogenous decisions of how much to work as well as when to retire the optimality in this context means the highest welfare that can be achieved within a restricted set of instruments while keeping the total cost of the pension system unchanged the policy instruments we consider are the optimized retirement benefit functions modeled after a stylized version of the current us social security

embodied carbon tariffs in a world where the prospects of a global agreement to control greenhouse gas emissions are bleak the idea of using trade policy as an implicit regulation of foreign emission sources has gained many supporters in countries contemplating unilateral climate policies embodied carbon tariffs tax the direct and indirect carbon emissions embodied in imported goods the appeal seems obvious as oecd countries are on average large net importers of embodied emissions from non oecd countries carbon tariffs could substantially extend the reach of oecd climate policies we investigate this claim by simulating the effects of embodied carbon tariffs with a computable general equilibrium model of global trade and energy use we find that embodied carbon tariffs do effectively reduce carbon leakage however the scope for improvements in the global cost effectiveness of unilateral climate policy is limited the main welfare effect of the tariffs is to shift the burden of oecd climate policy to the developing world

economic and environmental impacts of the kyoto protocol in 2003 the kyoto protocol which imposes legally binding greenhouse gas emission constraints on industrialized countries is likely to enter into force the protocol has been celebrated as a milestone in climate protection but standard economic theory casts doubt that it will go beyond symbolic policy in this paper we show that the final concretion of the kyoto protocol is consistent with the theoretical prediction kyoto more or less boils down to business as usual without significant compliance costs to ratifying parties jel classification d58 q43 q58 consequences economiques et environnementales du protocole de kyoto en 2003 le protocole de kyoto qui impose aux pays industrialises l obligation de reduire leurs emissions de gaz a effet de serre entrera probablement en vigueur si le protocole a ete accueilli comme un grand pas en avant dans le combat pour proteger l environnement la theorie economique jette un regard sceptique sur la portee reelle d un tel accord et le considere comme un geste symbolique dans ce memoire on montre que la concretisation finale de l accord de kyoto s arrime aux predictions theoriques kyoto n est rien de plus que business as usual et n impliquera pas de couts significatifs pour les parties qui ont signe le protocole

the costs of compliance a cge assessment of canada s policy options under the kyoto protocol canada has committed itself under the kyoto protocol to reduce greenhouse gas emissions between 2008 and 2012 on average by six per cent from the base 1990 level as of 2009 however canada s greenhouse gas emissions are far above its 1990 level which calls for stringent short term policy measures if canada is to meet its legally binding commitment this paper uses a multi region multi commodity static general equilibrium model to quantify the economic impacts of alternative compliance strategies for canada in the context of climate policies undertaken by other kyoto parties the numerical results confirm fears by canadian policymakers of substantial economic adjustment costs should canada fulfill its kyoto commitments solely through domestic action however a rigorous use of the project based cdm on top of international emissions trading could allow canada to live up to its international climate policy commitment at politically much more tolerable costs

optimal emission pricing in the presence of international spillovers decomposing leakage and terms of trade motives abstract carbon leakage provides an efficiency argument for differentiated emission prices in favor of emission intensive and trade exposed sectors under unilateral climate policy however differential emission pricing can be used as a beggar thy neighbor policy to exploit terms of trade adopting an optimal tax framework we propose a method to decompose the leakage and terms of trade motives for emission price differentiation we employ our method for the quantitative impact assessment of unilateral climate policy based on empirical data we find that the leakage motive yields only small efficiency gains compared to uniform emission pricing likewise the terms of trade motive has rather limited potential for strategic burden shifting we conclude that in many cases the simple first best rule of uniform emission pricing remains a practical guideline for unilateral climate policy design

climate policy induced investments in developing countries the implications of investment risks international climate policy has assigned the leading role in emissions abatement to the industrialized countries while developing countries remain uncommitted to binding emission reduction targets however cooperation between the industrialized and the developing world through joint implementation of emission abatement promises substantial economic gains to both parties in this context the policy debate on joint implementation has addressed the question of how investment risks to project based emission crediting between industrialized countries and developing countries affect the magnitude and distribution of such gains in our quantitative analysis we find that the incorporation of country specific investment risks induces rather small changes vis a vis a situation where investment risks are neglected only if investors go for high safety of returns is there a distinct decline in the overall volume of emission crediting and the associated total economic benefits while the welfare effects of risk incorporation for industrialized countries are unequivocally negative the implications across developing countries are ambiguous whereas low risk developing countries attract higher project volumes and benefit from higher effective prices per emission credit compared to a reference scenario without risk the opposite applies to high risk countries sensitivity analysis with respect to higher risk estimates show that shifts in the comparative advantage of emission abatement against high risk countries may become dramatic as only very low cost mitigation projects will be realized driving down the country s benefits from emission crediting to the advantage of low risk developing countries this result is supported by empirical evidence on regional imbalances of activities implemented jointly under the pilot phase of the kyoto protocol

do drunk drivers pay their way a note on optimal penalties for drunk driving this paper uses a simple framework to describe optimal penalties for drunk driving and reviews available data to judge current policies against this standard the analysis suggests that policies should be designed so that the penalties paid by drunk drivers equal the value of the increased risks drunk drivers impose on others current penalties appear to be too lenient implying that current levels of drunk driving are too high

altruism fertility and the value of children health policy evaluation and intergenerational welfare abstract this paper accounts for the value of children and future generations in the evaluation of health policies this is achieved through the incorporation of altruism and fertility in a value of life type of framework we are able to express adults willingness to pay for changes in child mortality and also to incorporate the welfare of future generations in the evaluation of current policies our model clarifies a series of puzzles from the literature on the value of life and on intergenerational welfare comparisons we show that by incorporating altruism and fertility into the analysis of the recent u s experience the estimated welfare gain of a young adult from reductions in mortality easily doubles

fair retirement under risky lifetime a premature death unexpectedly brings a life and a career to their end leading to substantial welfare losses we study the retirement decision in an economy with risky lifetime and compare the laissez faire with egalitarian social optima we consider two social objectives 1 the maximin on expected lifetime welfare allowing for a compensation for unequal life expectancies and 2 the maximin on realized lifetime welfare allowing for a compensation for unequal lifetimes the latter optimum involves in general decreasing lifetime consumption profiles as well as raising the retirement age this result is robust to the introduction of unequal life expectancies and unequal productivities

the world price of coal a significant increase in the seaborne trade for coal over the past 20 years has unified formerly separate coal markets into a world market in which prices move in tandem by virtue of its large domestic market the usa has become the residual supplier and price setter in the world coal market changes in multifactor productivity have been the primary cause of the long term fluctuations in coal prices that have been observed in the usa since the end of the second world war and in the world coal market

effects of unilateral climate policy on terms of trade capital accumulation and welfare in a world economy we present a two good two country overlapping generations model where emissions arise from production and each country has a domestic emission permit system when one country unilaterally reduces her cap on emissions her output available for domestic and foreign consumption diminishes more than in the other country with unchanged consumption expenditure shares for both goods the domestic terms of trade improve while capital stocks decline in the reducing and less strongly in the non reducing country improving terms of trade in the reducing country and falling capital stocks lead in total to welfare losses in both countries however if the country which unilaterally reduces her emission permits is a net creditor to the world economy and the golden rule applies her own welfare loss remains below that of the non reducing country

assessment of european union transition scenarios with a special focus on the issue of carbon leakage this paper uses the model gemini e3 to simulate and assess the transition scenario to 2020 framed by the european union in its energy climate directive and it raises several issues in this connection after a brief description of the model the paper presents the results of the scenarios mainly the values of the major indicators of carbon price both in the ets and in non ets sectors and the welfare cost of the eu policy under the various configurations considered while it is independent of the scenario in the ets sector in the non ets sector the value of carbon is very sensitive to the provisions of the directive and in particular the option of resorting to the flexibility mechanisms the welfare cost also varies significantly according to scenarios and its value for the entire eu is more than double in the scenario closest to the directive as compared to the least cost one the paper also addresses the very sensitive issue of carbon leakage and argues in favor of a new concept of net leakage the analysis shows that while carbon leakage may affect some specific sectors at the aggregate level it does not represent a real concern with a magnitude of at most a few percent of ghg abatement by annex b countries

international coal trade and restrictions on coal consumption coal consumption is a major source of co2 emissions and other air pollutants and is therefore a focus of environmental policy however countries that restrict their coal consumption will likely expand their coal exports to foreign markets with fewer restrictions on consumption the adjustment in international trade will mitigate the impact on coal industry employment but will also reverse some of the reduction in global emissions this paper quantifies the impact of restrictions on coal consumption in the united states and several other large countries on global coal consumption trade and industry employment the impact calculations are based on an econometric model of the international coal market the parameters of the model are fitted to panel data on coal consumption and production in 53 countries

differentiated carbon prices and the economic cost of decarbonization employing a numerical general equilibrium model with multiple fuels end use sectors heterogeneous households and transport externalities this paper examines three motives for differentiated carbon pricing in the context of swiss climate policy fiscal interactions with the existing tax code non hbox co 2 related transport externalities and social equity concerns interaction effects with mineral oil taxes reduce carbon taxes on motor fuels and transport externalities increase them we show that the cost effective overall carbon tax on motor fuels should be lower than the one on thermal fuels this is found in spite of the fact that pre existing taxes on motor fuels are well below our estimate of the transport externality per unit of transport fuel consumption differentiating taxes in favor of motor fuels yields only slightly more equitable incidence effects among households suggesting that equity considerations play a minor role when designing differentiated carbon pricing policies