Fuel taxes: An important instrument for climate policy

This article shows that fuel taxes serve a very important role for the environment and that we risk a backlash of increased emissions if they are abolished. Fuel taxes have restrained growth in fuel demand and associated carbon emissions. Although fuel demand is large and growing, our analysis shows that it would have been much higher in the absence of domestic fuel taxes. People often assert that fuel demand is inelastic but there is strong research evidence showing the opposite. The price elasticity is in fact quite high but only in the long-run: in the short run it may be quite inelastic which has important implications for policy makers. Had Europe not followed a policy of high fuel taxation but had low US taxes, then fuel demand would have been twice as large. Hypothetical transport demand in the whole OECD area is calculated for various tax scenarios and the results show that fuel taxes are the single most powerful climate policy instrument implemented to date—yet this fact is not usually given due attention in the debate.     

America's bottom-up climate change mitigation policy

Many diverse actions can be taken to reduce greenhouse gas (GHG) emissions. Increasingly in the United States, policy-makers at sub-national levels are setting emission targets and implementing plans for sector-specific GHG reductions. In this paper, local, state, and regional policy actions in the US are inventoried and analyzed as to their potential effect on national emissions. The realization of all existing sub-national initiatives, as of September 2007, could stabilize US emissions at 2010 levels by the year 2020. The scale of these many decentralized mitigation actions, and their tendency to follow consistent steps, provide a counterpoint to oft-cited drawbacks of decentralized environmental policy. It also indicates that the US has been more committed to climate change mitigation than is generally acknowledged.     

ECLIPSE: An integrated energy-economy model for climate policy and scenario analysis

This paper describes the development of the Energy and Climate Policy and Scenario Evaluation (ECLIPSE) model—a flexible integrated assessment tool for energy and climate change policy and scenario assessment. This tool builds on earlier efforts to link top-down and bottom-up models, and combines a macroeconomic energy demand model and a consumer-budget transport demand model with the technology-rich bottom-up energy and transport system model Energy Research and Investment Strategy (ERIS), and solves the models iteratively. Compared to previous efforts, ECLIPSE includes many new features, such as a more disaggregated production function, improved calibration and parameterization and separate modeling of passenger transport demand. The separate modeling of transportation makes ECLIPSE particularly well-suited to analyzing interactions between the transport sector and the broader energy market and economy. This paper presents results illustrating some features of the integrated model, compares technology deployment results with ECLIPSE and the bottom-up ERIS model, and briefly describes illustrative baseline and greenhouse gas mitigation scenarios to highlight some of the features of the framework outlined in this paper. A number of modeling and policy insights arising from this scenario analysis are discussed.     

Prospective analysis of beyond Kyoto climate policy: a sequential game framework

This article proposes a sequential game methodology to analyse the long-term climate policy prospects. Players can sequentially choose the best policy, among a series of policy options, while reacting to past moves of the other players. In order to illustrate the game methodology, a numerical optimisation exercise is made, based on a simple integrated assessment model. The non-cooperative equilibrium arising from a five-stage sequential game with two large players (Annex B and non-Annex B regions), which tries to replicate the Kyoto and beyond Kyoto scenarios, is studied.     

Addressing competitiveness and leakage concerns in climate policy: An analysis of border adjustment measures in the US and the EU

The implementation of climate policies in the US and EU in light of uncertainties about future international climate policy has shifted attention to two interrelated concerns, namely competitiveness and carbon leakage. Although various policy measures are available to address these concerns, there has been much discussion about one such measure in particular: the use of offsetting measures at the border. This article compares policy discussions in the US and the EU on how to address competitiveness and carbon leakage concerns, with a focus on the role of import-related border adjustment measures. It analyses the kinds of measures that so far have been put forward with a view to addressing competitiveness and carbon leakage; compares the approaches to the problems in the US and the EU; and provides a preliminary discussion of international cooperation on border adjustment measures. It concludes that two kinds of cooperation are needed between the EU and the US – not only cooperation through formal international negotiations, but also cooperation through international learning processes, in which the EU and the US learn from each other about design and implementation issues as they develop their respective cap-and-trade systems.     

The European climate change program: An evaluation of stakeholder involvement and policy achievements

In order to step up its efforts in reducing climate change, the European Commission (hereafter: the Commission) has launched in June 2000 its European climate change program (hereafter: ECCP). This wide-ranging stakeholder consultation aimed at identifying and developing all elements necessary for a European climate change strategy. The ECCP formally came to a close in April 2003.     

The economics of climate change and the change of climate in economics

Economics is an unavoidable decision-making tool in the field of climate policy. At the same time, traditional economics is being challenged both empirically and theoretically by scholars in different fields. Its non-neutrality in dealing with climate-related issues—which is illustrated by the controversy over the “no-regret potential”—would thus call for an opening of economics to insights from other disciplines. Within that context, we show that an evolutionary-inspired line of thought coupled with a systemic and historical perspective of technological change provides a very insightful alternative to traditional economics. More particularly, it follows from that framework that the picture of the climate challenge ahead looks very different from what traditional economic analyses would suggest. For instance, the lock-in process makes it unlikely that traditional cost-efficient measures (such as carbon taxation or tradable emission rights) will be sufficient to bring about the required radical changes in the field of energy as they fail to address structural barriers highlighted in our approach.     

Views on peak oil and its relation to climate change policy

Definitions of fossil fuel reserves and resources and assessed stock data are reviewed and clarified. Semantics explain a large stake of conflict between advocate and critical voices on peak oil. From a holistic sources–sinks perspective, limited carrying capacity of atmospheric sinks, not absolute scarcity in oil resources, will impose tight constraints on oil use. Eventually observed peaks in oil production in nearby years will result from politically imposed limits on carbon emissions, and not be caused by physical lack of oil resources. Peak-oil belief induces passive climate policy attitudes when suggesting carbon dioxide emissions will peak naturally linked to dwindling oil supplies. Active policies for reducing emissions and use of fossil fuels will also encompass higher energy end-use prices. Revenues obtained from higher levies on oil use can support financing energy efficiency and renewable energy options. But when oil producers charge the higher prices they can pump new oil for many decades, postponing peak oil to occur while extending carbon lock-in.     

Endogenizing technological change: Matching empirical evidence to modeling needs

Given that technologies to significantly reduce fossil fuel emissions are currently unavailable or only available at high cost, technological change will be a key component of any long-term strategy to reduce greenhouse gas emissions. In light of this, the amount of research on the pace, direction, and benefits of environmentally-friendly technological change has grown dramatically in recent years. This research includes empirical work estimating the magnitude of these effects, and modeling exercises designed to simulate the importance of endogenous technological change in response to climate policy.Unfortunately, few attempts have been made to connect these two streams of research. This paper attempts to bridge that gap. We review both the empirical and modeling literature on technological change. Our focus includes the research and development process, learning by doing, the role of public versus private research, and technology diffusion.Our goal is to provide an agenda for how both empirical and modeling research in these areas can move forward in a complementary fashion. In doing so, we discuss both how models used for policy evaluation can better capture empirical phenomena, and how empirical research can better address the needs of models used for policy evaluation.     

Quasi-option value and climate policy choices

In the climate change issue, the environmental irreversibility (risk of an acceleration of mitigation policies if the worst happens) has to be balanced with the investment irreversibility (risk of over-cautious policies). To explore this balance, we define an option value for a precautionary climate policy. Using the simplest decision-making model, we expose how option value relates to the expected value of future information. Using quantitative data from an integrated assessment model, we find that most of the time the environmental irreversibility dominates the investment irreversibility. For all cases explored here, the order of magnitude of the option value was significant, about 50% of the opportunity cost.     

Uncertainty and endogenous technical change in climate policy models

Until recently endogenous technical change and uncertainty have been modeled separately in climate policy models. In this paper, we review the emerging literature that considers both these elements together. Taken as a whole the literature indicates that explicitly including uncertainty has important quantitative and qualitative impacts on optimal climate change technology policy.     

American policy conflict in the greenhouse: Divergent trends in federal,regional, state,and local green energy and climate change policy

Climate change threatens significant impacts on global ecosystems and human populations. To address this challenge, industrialized nations have ratified the Kyoto Protocol and undertaken commitments to reduce emissions of greenhouse gases, the primary agents linked to anthropogenic alteration of earth's climate. By contrast, the US government, led by the Bush Administration, has rejected mandatory targets for curbing emissions under the Protocol, and has instead pursued voluntary mitigation measures amid a larger push for clean coal and “next generation” nuclear technologies. These actions in total have fueled global perceptions that the US is not acting in substantial ways to address climate change. Nevertheless, action within the US is indeed moving forward, with states, cities and regional partnerships filling the federal leadership vacuum. This paper reviews the diverse policies, strategies, and cooperative frameworks that have emerged at regional, state and local levels to guide climate protection, and identifies the environmental and economic benefits linked to such programs. The paper also attempts to explain the existing federal impasse on climate policy, with attention given to how sub-national efforts may ultimately obviate national governmental inaction.     

Reducing conflicts between climate policy and energy policy in the US: The important role of the states

The absence of US national action on global climate change policy has prompted initiatives by the US Congress, cities, states, and regions toward what is likely to become a long-term, collaborative effort to harmonize national energy and climate policies. This upward evolution in the face of a reluctant administration is historically consistent with the development of national legislation on other environmental and social issues in the US. At the heart of this movement is the need to resolve conflicts between high-intensity use of low-cost fossil energy supplies, and the dominating impact of carbon dioxide emissions on global climate change. US states are among the largest carbon dioxide emitters in the world and play a critical role in supplying and transforming energy, as well as consuming it, for economic advantage. State governments are also likely to have to shoulder some of the cost of potentially extensive climate damages and bear the brunt of the cost of implementing future federal mandates. As a result, many are taking proactive stances on the development of climate mitigation policy to prepare for, accelerate, and/or guide national policy. As US states show leadership on addressing greenhouse gas emissions, they also play an important role in forging policies and measures that reduce economic conflict between energy and climate goals. A number have launched or completed greenhouse gas mitigation plans and other major policies in the past few years that address these conflicts through: (1) finding ways to reduce mitigation costs, including the use of incentive-based policy instruments; (2) promoting an open and democratic policy process that includes major stakeholders; (3) promoting equity across socioeconomic groups, regions, and generations; and (4) promoting interregional cooperation. The results are promising and suggest that the state arena for climate and energy policy is evolving quickly and constructively toward alternatives that reduce conflict. Regional efforts are also unfolding, along with greater congressional attention to the lessons learned and commitments made by sub-federal actions. In the next few years many national energy and climate conflicts are likely to be tested and addressed by states. Among these, Pennsylvania is likely to be an important player due to its high profile of energy production and potential for leadership.     

Review of Taiwan's climate policy after Copenhagen

The Copenhagen Accord in 2009 initiated new opportunities for international cooperation in reducing greenhouse gas (GHG) emissions. The purpose of this study was to review Taiwan's current climate policy and, in response to the Copenhagen Accord, to deliberate this policy in the light of new strategic thinking. The study proposes a two-stage approach with a dividing line in 2020. In the first stage, from now until 2020, strategy should be based on cost constraints, with a suggested reduction cost below $60/t-CO₂, and implementation of domestic GHG emissions trading scheme and reduction strategies. In the second stage, from 2020 and beyond, action by Taiwan should, accord with international cooperative actions to link its domestic emissions trading scheme with the international carbon market.     

Eco-driving: An overlooked climate change initiative

The actions individuals can take to mitigate climate change are, in the aggregate, significant. Mobilizing individuals to respond personally to climate change, therefore, must be a complementary approach to a nation's climate change strategy. One action item overlooked in the United States has been changing driver behavior or style such that eco-driving becomes the norm rather than the exception. Evidence to date indicates that eco-driving can reduce fuel consumption by 10%, on average and over time, thereby reducing CO₂ emissions from driving by an equivalent percentage. A sophisticated, multi-dimensional campaign, going well beyond what has been attempted thus far, will be required to achieve such savings on a large scale, however, involving education (especially involving the use of feedback devices), regulation, fiscal incentives, and social norm reinforcement.     

Directed technical change and differentiation of climate policy

This paper studies the cost effectiveness of climate policy if there are technology externalities. For this purpose, we develop a forward looking model that captures empirical links between CO₂ emissions associated with energy use, directed technical change and the economy. We find our most cost effective climate policy to include a combination of R&D subsidies and CO₂ emission constraints, although R&D subsidies raise the shadow value of the CO₂ constraint (i.e. CO₂ price) because of a strong rebound effect from stimulating innovation. Furthermore, we find that cost effectiveness of climate policy improves if it is differentiated between technologies. Even our rudimentary distinction between CO₂ intensive technologies and non-CO₂ intensive technologies lead to this result. Such differentiated climate policy encourages growth in the non-CO₂ intensive sectors and discourages growth in CO₂ intensive sectors by harnessing positive effects of technology externalities on total factor productivity in the former and letting the latter bear relatively more of the abatement burden. This result is robust to whether emission constraints, R&D subsidies or combinations of both are used as climate policy instruments.     

An integrated assessment of climate change,air pollution,and energy security policy

This article presents an integrated assessment of climate change, air pollution, and energy security policy. Basis of our analysis is the MERGE model, designed to study the interaction between the global economy, energy use, and the impacts of climate change. For our purposes we expanded MERGE with expressions that quantify damages incurred to regional economies as a result of air pollution and lack of energy security. One of the main findings of our cost–benefit analysis is that energy security policy alone does not decrease the use of oil: global oil consumption is only delayed by several decades and oil reserves are still practically depleted before the end of the 21st century. If, on the other hand, energy security policy is integrated with optimal climate change and air pollution policy, the world’s oil reserves will not be depleted, at least not before our modeling horizon well into the 22nd century: total cumulative demand for oil decreases by about 24%. More generally, we demonstrate that there are multiple other benefits of combining climate change, air pollution, and energy security policies and exploiting the possible synergies between them. These benefits can be large: for Europe the achievable CO₂ emission abatement and oil consumption reduction levels are significantly deeper for integrated policy than when a strategy is adopted in which one of the three policies is omitted. Integrated optimal energy policy can reduce the number of premature deaths from air pollution by about 14,000 annually in Europe and over 3 million per year globally, by lowering the chronic exposure to ambient particulate matter. Only the optimal strategy combining the three types of energy policy can constrain the global average atmospheric temperature increase to a limit of 3 °C with respect to the pre-industrial level.     

Beyond Bush: Environmental politics and prospects for US climate policy

The United States was a pioneer in domestic environmental lawmaking, and it was a leader in international environmental cooperation in the final decades of the last century. During the current decade, however, it has moved away from cooperating with other states in finding new ways to protect the global environment. While its early efforts to address climate change were no worse, and often better than, other developed countries, it has fallen far behind as a number of European states and the European Union have started to implement robust policies to reduce their greenhouse gas emissions. This chapter recounts this evolution in US policy from environmental leader to environmental laggard. It summarizes the US climate change-related policies and diplomacy, recounting significant events during the presidential administrations of George HW Bush, Bill Clinton and George W Bush. It then extends this summary of events to assess the prospects for US climate policy in the near future.     

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.