Optimal green tax reforms yielding double dividend

In an stylized endogenous growth economy with a negative externality created by CO2 emissions and in which abatement activities are made by private firms, we find a wide range of dynamically feasible green tax reforms yielding the double dividend without any need to assume a complex production structure or tax system, or a variety of externalities in production. As a remarkable finding, we obtain certain scenarios in which increasing the emissions tax up to the Pigouvian level and removing completely the income tax is dynamically feasible and, also, it is the second-best reform. Hence, as a difference to previous literature, in these scenarios the first-best tax mix is implementable, allowing for the elimination of both environmental and non-environmental inefficiencies. Our result arises because of the consideration of public debt issuing and the management of the government budget balance with an intertemporal perspective. The result is obtained for an intermediate range of environmental bearing in preferences, the valid range being contingent on the pre-existing income tax rate. The type of tax reform that we propose could also be implemented for different energy taxes.     

Towards a low carbon growth in Mexico: Is a double dividend possible? A dynamic general equilibrium assessment

This paper simulates the medium- and long-term impact of proposed and expected energy policy on the environment and on the Mexican economy. The analysis has been conducted with a Multi-sector Macroeconomic Model for the Evaluation of Environmental and Energy policy (Three-ME). This model is well suited for policy assessment purposes in the context of developing economies as it indicates the transitional effects of policy intervention. Three-ME estimates the carbon tax required to meet emissions reduction targets within the Mexican “Climate Change Law”, and assesses alternative policy scenarios, each reflecting a different strategy for the recycling of tax revenues. With no compensation, the taxation policy would reduce CO₂ emissions by more than 75% by 2050 with respect to Business as Usual (BAU), but at high economic costs. Under full redistribution of carbon tax revenues, a double dividend arises: the policy appears beneficial both in terms of GDP and CO₂ emissions reduction.     

Valuing energy policy attributes for environmental management: Choice experiment evidence from a research institution

Many governments, firms, institutions and individuals have become increasingly cognizant of their impact on the environment, most notably with respect to global climate change. Coupled with the possibility of future regulations aimed at curbing greenhouse gas emissions, firms and institutions have begun to critically evaluate their own carbon footprint. This paper examines the preferences of stakeholders within a large academic institution for attributes of alternative greenhouse gas (GHG) reduction strategies. The attributes considered by constituents include: the fuel portfolio mix, effort for conserving energy use, carbon emissions reduction, timeframe for emissions reduction to be achieved and cost. We use a choice experiment technique that enables the examination of greenhouse gas reduction program attribute preferences across three constituent groups. The results show that each of the constituent groups have a positive WTP for carbon emissions reductions and prefer investments in reductions in the shorter- rather than longer-term. The results also suggest differences between the constituent groups in their WTP for types of fuels in the fuel portfolio. Finally, we use the results to examine the welfare implications of different combinations of the policy attributes that coincide with alternative GHG program strategies.     

Climate change and energy policies,coal and coalmine methane in China

The Chinese government has made many energy policies on coal, and coalmine methane (CMM) use. However, not all of these policies have effects or positive impacts. For example, it has been quite a few years since the national government made policies to encourage coalmine methane power to be sold to the grid. Practice showed that not any kilowatt of electricity was sold from a coalmine methane power plant to the grid in Sichuan and Guizhou Provinces as of December 2008. The objectives of this paper are to review and evaluate the Chinese government energy and climate policies that are related to coal and coalmine methane, analyze relevant policy barriers, and make recommendations to overcome these barriers and avoid policy failures. This paper provides the literature review, challenges, resources, policies and other updated information on China's CMM recovery and utilization. The paper concludes that China needs to further reform its energy and environment management system, engage provincial governments in CMM capture and use activities, and provide incentives to qualified engineers and skilled workers to work in remote coal mining areas. This paper transfers key messages to policy makers for them to make better CMM capture and use policies.     

Understanding barriers to commercial-scale carbon capture and sequestration in the United States: An empirical assessment

Although a potentially useful climate change mitigation tool, carbon capture and sequestration (CCS) efforts in the United States remain mired in demonstration and development. Prior studies suggest numerous reasons for this stagnation. This article empirically assesses those claims. Using an anonymous opinion survey completed by 229 CCS experts, we identified four primary barriers to CCS commercialization: (1) cost and cost recovery, (2) lack of a price signal or financial incentive, (3) long-term liability risks, and (4) lack of a comprehensive regulatory regime. These results give empirical weight to previous studies suggesting that CCS cost (and cost recovery) and liability risks are primary barriers to the technology. However, the need for comprehensive rather than piecemeal CCS regulation represents an emerging concern not previously singled out in the literature. Our results clearly show that the CCS community sees fragmented regulation as one of the most significant barriers to CCS deployment. Specifically, industry is united in its preference for a federal regulatory floor that is subject to state-level administration and sensitive to local conditions. Likewise, CCS experts share broad confidence in the technology's readiness, despite continued calls for commercial-scale demonstration projects before CCS is widely deployed.     

Greenhouse gas mitigation policies and the transportation sector: The role of feedback effects on policy effectiveness

The US transportation sector is a major contributor to global greenhouse gas (GHG) emissions. As such, policymakers and stakeholder groups have proposed a number of policy instruments aimed at reducing these emissions. In order to fully evaluate the effectiveness of these policies, policymakers must consider both the direct responses associated with policy actions, and the indirect responses that occur through complex relationships within socioeconomic systems. In cases where multiple policy instruments are employed, these indirect effects create policy interactions that are either complementary or competing; policymakers need to understand these interactions in order to leverage policy synergies and manage policy conflicts. Analysis of these indirect effects is particularly difficult in the transportation sector, where system boundaries are uncertain and feedback among systems components can be complicated. This paper begins to address this problem by applying systems dynamics tools (in particular causal loop diagrams) to help identify and understand the role of feedback effects on transportation-related GHG reduction policies. Policymakers can use this framework to qualitatively explore the impacts of various policy instruments, as well as identify important relationships that can be later included in quantitative modeling approaches.     

How do energy & environmental policy goals and instruments affect electricity demand? A framework for the analysis

Several measures in the environment and energy realms are currently being implemented in the EU and its Member States. Three of these instruments, with an impact on the electricity market, are demand side management activities, promotion of electricity from renewable energy sources and measures aimed at the mitigation of Greenhouse Gas (GHG) emissions. The objective of this paper is to analyse the impact of these energy efficiency and environmental goals and instruments on electricity demand and costs to electricity consumers when electricity markets are either national or international and when those policies are implemented by a national or an international institution. The paper shows that the effectiveness and impact of those measures largely depends on the demand response in the electricity market. An additional conclusion is that, when either the electricity markets or the support policies are national, distortions may occur, i.e. the reductions in electricity demand in one country may be subsidised by consumers or taxpayers in another country.     

Asia energy mixes from socio-economic and environmental perspectives

Sustainable clean energy is the top social, economic, and environmental agenda of political leaders, policy makers, enlightened business executives, and civil society in Asia. Strong economic growth in Asia has caused a great demand for energy which has resulted in an enormous increase in CO₂ emissions. The association of Southeast Asian nations (ASEAN), India, China, South Korea and Japan are the most important regions in Asia as their economies have been growing steadily. These countries though heavily dependent on fossil fuels have stepped up their measures towards low-carbon society amid domestic affordability challenges and changing global mindset. This report highlights the current energy scenario in these countries and their effort towards an affordable and sustainable clean energy future. The energy policy to enhance energy security and improve environmental sustainability is also explicated in this article.     

The value of technological advance in decarbonizing the U.S. economy

This paper examines the role of technology in managing the costs of a carbon constraint on the U.S. economy. Two portfolios of technology are examined. One reflects modest investments in climate-friendly technologies, the other more aggressive development. The analysis indicates that the development of a broad range of low- to zero-carbon emitting technologies can substantially reduce (but not eliminate) the economic cost of decarbonization. By enabling large-scale emission reductions on the supply-side, costly reductions in demand are avoided. In particular, the emergence of electricity as a low-carbon fuel provides a powerful lever for achieving reductions in other sectors of the economy at lower cost. While the analysis suggests that there is no “free lunch,” the bill, which may indeed be well worth paying, can be greatly reduced through an accelerated R&D program and successful diffusion of new technology throughout the economy.     

Economic and environmental implications of Turkish accession to the European Union: A CGE analysis

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 CO₂ 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.     

Climate change and energy policy: The importance of sustainability arguments

It is the stated policy of the UK government to reduce emissions of carbon dioxide by 60% by 2050. This policy, which goes far beyond commitments under the Kyoto agreement, was originally advocated by the Royal Commission on Environmental Pollution, of which the author was a member. Its acceptance was seen by many as a surprising development, possibly reflecting the strength of the underlying case. The target was developed by a three-legged argument which reflects the three components of sustainability:     

Lobbying friends and foes in climate policy: The case of business and environmental interest groups in the European Union

Drawing on two conflicting hypotheses from the theoretical literature on lobbying, I consider the strategies applied by interest groups lobbying to influence climate policy in the European Union (EU). The first hypothesis claims that interest groups lobby their ‘friends’, decision-makers with positions similar to their own. The second claims that interest groups lobby their ‘foes’, decision-makers with positions opposed to their own. Using interviews with lobbyists and decision-makers, I demonstrate that in the field of climate policy, interest groups in the EU lobby both friends and foes, but under different conditions. Moreover, I find that the interest groups’ motives are not always in line with the theoretical hypotheses. Interest groups lobby their friends on single policy decisions to exchange information, to further a common cause and to exert pressure, and their foes because a foe on one issue might prove to be a friend on another issue. Interest groups direct general lobbying towards both friends and foes. This paper provides a new empirical contribution to a literature that has so far been heavily dominated by studies focusing on lobbying in the US.     

Economic and energy impacts from participation in the regional greenhouse gas initiative: A case study of the State of Maryland

Tradable emissions allowance systems to reduce carbon emissions are increasingly promoted as means to mitigate climate change. This paper briefly reviews the application of such systems at the global, regional, and corporate scales. Given the recent expansion of cap-and-trade systems at the regional level, the paper concentrates on energy and economic implications at that level, using the decision of the State of Maryland, USA, to join the Regional Greenhouse Gas Initiative as an illustration. The paper presents the results of an analysis of the implications for technology choice, generation capacity, energy reliability, and cost to ratepayers of that decision, combining a national electricity market model with a regional model that includes market power and an economic impact model. The results suggest several issues that will be key to the acceptability and effectiveness of cap-and-trade systems for regional climate change mitigation policy, including rules for distribution of allowances and subsidies for energy efficiency programs.     

Dynamic carbon caps. Splitting the bill: A fairer solution post-Kyoto?

A dynamic carbon cap scheme is described and illustrated using a future growth scenario. This scheme, called a “bill-splitting dynamic carbon cap,” uses national carbon caps that change in a manner designed to distribute burden equitably, and at the same time to encourage and feed off economic growth. This is achieved by distributing emission-reduction obligations away from the growers, and onto the emitters. The global emission-reduction response is thereby pegged to global growth.     

Global land-use implications of first and second generation biofuel targets

Recently, an active debate has emerged around greenhouse gas emissions due to indirect land use change (iLUC) of expanding agricultural areas dedicated to biofuel production. In this paper we provide a detailed analysis of the iLUC effect, and further address the issues of deforestation, irrigation water use, and crop price increases due to expanding biofuel acreage. We use GLOBIOM – an economic partial equilibrium model of the global forest, agriculture, and biomass sectors with a bottom-up representation of agricultural and forestry management practices. The results indicate that second generation biofuel production fed by wood from sustainably managed existing forests would lead to a negative iLUC factor, meaning that overall emissions are 27% lower compared to the “No biofuel” scenario by 2030. The iLUC factor of first generation biofuels global expansion is generally positive, requiring some 25 years to be paid back by the GHG savings from the substitution of biofuels for conventional fuels. Second generation biofuels perform better also with respect to the other investigated criteria; on the condition that they are not sourced from dedicated plantations directly competing for agricultural land. If so, then efficient first generation systems are preferable. Since no clear technology champion for all situations exists, we would recommend targeting policy instruments directly at the positive and negative effects of biofuel production rather than at the production itself.     

Climate change dilemma: technology,social change or both?: An examination of long-term transport policy choices in the United States

Time is fast running out for formulating a viable global climate policy regime even as it seems obvious that the major initiative will have to come from the United States, which currently appears indisposed to take any meaningful action at all. This paper reviews the prospects for emissions reductions in the US passenger transport sector and the technical, economic, social, and political barriers to developing policies that focus solely on technology or pricing. Using scenarios it shows that, in order to meet stringent emissions targets over the coming half-century, technology and pricing policies may have to be supplemented by strategies to change life-styles and land uses in ways that effectively reduce car dependence. In the medium to long term, bold initiatives that treat vehicle users as citizens capable of shifting their interests and behaviour could form kernels of social change that in turn provide opportunities for removing many of the social and political constraints.     

Energy security and climate change protection: Complementarity or tradeoff?

Energy security and climate change protection have risen to the forefront of energy policy—linked in time and a perception that both goals can be achieved through the same or similar policies. Although such complementarity can exist for individual technologies, policymakers face a tradeoff between these two policy objectives. The tradeoff arises when policymakers choose the mix of individual technologies with which to reduce greenhouse gas emissions and enhance energy security. Optimal policy is achieved when the cost of the additional use of each technology equals the value of the additional energy security and reduction in greenhouse gas emission that it provides. Such an approach may draw more heavily on conventional technologies that provide benefits in only one dimension than on more costly technologies that both increase energy security and reduce greenhouse gas emissions.     

Exxon is right: Let us re-examine our choice for a cap-and-trade system over a carbon tax

This commentary examines the impact of the recently launched European Union Emission Trading System (EU ETS) in terms of emission reductions and cost to the public. The study points out that a cap-and-trade system may not be the most cost-efficient mechanism to reduce greenhouse gas emissions. It also lists seven main differences between such a system and a carbon tax along the following issues: amount of emissions reduced; flow of revenue to the public purse; cost of the system to the public; marginal cost of carbon emission reductions to the firm; generating excess rent; price setting mechanism and stability of system; as well as duration and commitment. When looking at emission reductions along these dimensions, it becomes clear that an internationally coordinated carbon tax may be a quicker and cheaper way to reduce greenhouse gas emissions worldwide.     

Air-source heat pump carbon footprints: HFC impacts and comparison to other heat sources

European governments see that heat pumps could reduce carbon emissions in space- and hot-water heating. EU’s Renewable Energy Directive designates heat pumps as renewable – eligible for various subsidies – if their carbon footprints are below an implied, average threshold. This threshold omits carbon generated by manufacture and emission of a heat-pump’s fluorocarbon refrigerant. It also omits the footprint of the heat pump’s hardware. To see if these omissions are significant, this study calculated carbon footprints of representative, residential heat pumps in the UK.     

Assessing the effects of CO2 price caps on electricity investments—A real options analysis

This paper uses real options modeling to assess the impact of different climate change policy instruments on investment, profits and cumulative emissions in the electricity sector. Even though CO₂ price caps or “safety valves” have been suggested as methods to limit uncertainty emanating from fluctuating prices of CO₂ permits that would hurt the industry's profit and thereby also energy security, our analysis shows that price caps set at a too low level are detrimental to the adoption of e.g. modern biomass-fired capacity as a replacement for existing coal-fired power plants. We therefore conduct a series of experiments with different policy scenarios to analyze under which regime emissions are most effectively reduced. With respect to CO₂ price uncertainty, it turns out that even for moderately rising CO₂ prices, fluctuations frequently lead to investment into carbon capture and storage (CCS), while investment is often not triggered in the face of deterministic CO₂ prices.