Time perspective and climate change policy

The tendency to foreshorten time units as we peer further into the future provides an explanation for hyperbolic discounting at an inter-generational time scale. We study implications of hyperbolic discounting for climate change policy, when the probability of a climate-induced catastrophe depends on the stock of greenhouse gasses. We characterize the set of Markov perfect equilibria (MPE) of the inter-generational game amongst a succession of policymakers. Each policymaker reflects her generation's preferences, including its hyperbolic discounting. For a binary action game, we compare the MPE set to a “restricted commitment” benchmark. We compare the associated “constant-equivalent discount rates” and the willingness to pay to control climate change with assumptions and recommendations in the Stern Review on Climate Change.“…My picture of the world is drawn in perspective…. I apply my perspective not merely to space but also to time”—Ramsey.     

Adjustment costs from environmental change

The paper is concerned with the case whereby the distribution of a firm's productivity shocks changes without the knowledge of the firm. Over time the firm learns about the nature and extent of the change in the distribution of the shock and adjusts, incurring adjustment costs in the process. The long-run loss in profits (±) due to the shift in the distribution we term the equilibrium response. The transitory loss in profits, incurred while the firm is learning about the distribution shift, is termed the adjustment cost. The theory is then applied to the problem of measuring adjustment costs in the face of imperfectly observed climate change in agriculture. The empirical part of the paper involves estimating a restricted profit function for agricultural land in a five-state region of the Midwest US as a function of prices, land characteristics, actual weather realizations and expected weather. We then simulate the effect of an unobserved climate shock, where learning about the climate shock is by observing the weather and updating prior knowledge using Bayes Rule. We find adjustment costs to climate change are 1.4% of annual land rents.     

Challenges for a sustainable resource use: Uncertainty,trade, and climate policies

We integrate new challenges to thinking about resource markets and sustainable resource use policies in a general framework. The challenges, emerging from six papers that JEEM publishes in a special issue, are (i) demand uncertainty and stockpiling, (ii) international trade and resource dependence, (iii) deforestation, and (iv) intertemporal effects of climate change policies (“Green Paradox”). We discuss new insights and results on these issues by fitting them into the Hotelling model of non-renewable resource depletion.     

The value of information for integrated assessment models of climate change

We estimate the value of information (VOI) for three key parameters of climate integrated assessment models (IAMs): marginal damages at low temperature anomalies, marginal damages at high temperature anomalies, and equilibrium climate sensitivity. Most empirical studies of climate damages have examined temperature anomalies up to 3 °C, while some recent theoretical studies emphasize the risks of “climate catastrophes,” which depend on climate sensitivity and on marginal damages at higher temperature anomalies. We use a new IAM to estimate the VOI for each parameter over a range of assumed levels of study precision based on prior probability distributions calibrated using results from previous studies. We measure the VOI as the maximum fixed fraction of consumption that a social planner would be willing to pay to conduct a new study before setting a carbon tax. Our central results suggest that the VOI is greatest for marginal damages at high temperature anomalies.     

Innovation and diffusion of clean/green technology: Can patent commons help?

This paper explores the characteristics of 238 patents on 90 inventions contributed by major multinational innovators to the “Eco-Patent Commons”, which provides royalty-free access to third parties to patented innovations on green technologies. We compare the pledged patents to other patents in the same technologies or held by the same multinationals to investigate the motives of the contributing firms as well as the potential for such commons to encourage innovation and diffusion of climate change related technologies. We find pledged patents to protect environmentally friendly technologies and to be of similar value as the average patent in a pledging firm's patent portfolio but of lower value than other patents in their class. Our analysis of the impact of the patent commons on diffusion of patented technologies suggests that making patents accessible royalty-free did not result in any significant increase in diffusion as measured by citing patents. This study, therefore, indirectly provides evidence on the role of patents in the development and diffusion of green technologies.     

Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate

A critical feature of the distant future is currently unresolvable uncertainty about what will then be the appropriate rate of return on capital to use for discounting. This paper shows that there is a well-defined sense in which the “lowest possible” interest rate should be used for discounting the far-distant future part of any investment project. Some implications are discussed for evaluating long-term environmental projects or activities, like measures to mitigate the possible effects of global climate change.     

Methods to empirically estimate direct and indirect rebound effect of energy-saving technological changes in households

Energy efficiency policies have a special importance within carbon emission reduction policies to mitigate the climate change effects. However, potential reductions of energy consumption and, consequently, its resulting emissions, can be offset through the so called “rebound effect”. The concept of “rebound effect” refers to a set of mechanisms whereby the improvement of efficiency reduces the cost of the energy service and this results in the household energy consumption rising and totally or partially negating the reduction achieved by the energy efficiency improvement. This paper provides a methodology to estimate the static direct plus indirect rebound effect of energy efficiency improvements in the use of energy in households. It is based on the combination of econometric estimations of energy demand functions, re-spending modelling and generalised intput-output of energy modelling. It also provides estimations for Catalonia.     

Can household consumers save the wild fish? Lessons from a sustainable seafood advisory

Conservation organizations seeking to reduce over-fishing and promote better fishing practices have increasingly turned to market-based mechanisms such as environmental sustainability labels (eco-labels) in order to shift patterns of household consumption. This paper presents an analysis of consumer response to an advisory for sustainable seafood adopted by a regional supermarket in the United States. The advisory consisted of a label in which one of three traffic light colors was placed on each fresh seafood product to inform consumers about its relative environmental sustainability. Green meant “best” choice, yellow meant “proceed with caution,” and red meant “worst choice”. Using a unique product-level panel scanner data set of weekly sales and taking advantage of the random phase-in of the advisory by the retailer, we apply a difference-in-differences identification strategy to estimate the effect of the advisory on overall seafood sales as well as the heterogeneous impact of the advisory by label color and whether the seafood met additional health-related criteria. We find evidence that the advisory led to a statistically significant 15.3% decline in overall seafood sales, a statistically significant 34.9% decline in the sale of yellow labeled seafood, and a statistically significant 41.3% decline in the sale of yellow labeled seafood on a mercury safe list. We find no statistically significant difference in sales of green or red labeled seafood.     

Dissecting the tragedy: A spatial model of behavior in the commons

Much of the discussion of the tragedy of the commons focuses on aggregate impacts, often in data-poor developing country settings. Few non-experimental empirical studies shed light on contextual circumstances driving the extent of rent dissipation and overexploitation. We utilize a high-resolution data set to estimate a behavioral model of fishermen's spatial choices. A unique policy setting allows us to measure the degree to which individual fishermen's choices appear aimed at mitigating the tragedy of the commons in a small numbers setting. We find evidence of partial mitigation in excess of what we would expect under pure self-interest but short of what would occur under group-maximizing behavior. We also examine how contextual factors in the fishery shape the degree of cooperation within the fishing season and find evidence that competition for the common pool resource distorts fishermen's implicit cost of distance—creating a form of “common property inertia”.     

The model of long-term evolution of the carbon cycle

The weathering processes and their role in the formation of the atmospheric carbon and, as a consequence, on the climate are considered. The model operates in the framework of “active planetary cover”, i.e. considering the interactive role of the biosphere, looking at its development as a non-linear evolutionary system of so-called “virtual biospheres”.     

Pressure cookers or pressure valves: Do roads lead to deforestation in China?

The effect of roads on forests is ambiguous. Many studies conclude that building and upgrading roads increases pressure on forests but some find that new and better roads may reduce the rate of deforestation. In this paper we use satellite remote sensing images of forest cover in Jiangxi Province, China, to test whether the existence and the size of roads (ranging from expressways to tertiary roads) in 1995 affected the level of forest cover in 2000 or the rate of change between 1995 and 2000. To account for road access for each of our 1 km² (“pixel”) units of forest cover we measure whether or not and what type of roads penetrate the “watershed” in which the pixel lies. These watersheds allow more plausible measures of accessibility than do traditional “crowfly” distance measures that ignore topography. To account for possible confounding we also use 12 additional covariates: geographic and climatic variables (e.g., elevation, slope, rainfall, temperature, soil properties); demographic and economic variables (e.g., local population and GDP per square kilometer); and distance variables (e.g., distance to the nearest provincial capital). Although simple univariate OLS regressions show that forest levels are lower and deforestation rates higher either when there is a road, or when there is a higher quality road, these results are not robust. Controlling for all of the covariates and also using recently developed covariate matching techniques to estimate treatment effects, we find that roads in China’s Jiangxi Province can most safely be described as having no impact on the level of forests and no impact on the rate of deforestation.     

Climate treaties and approaching catastrophes

If the threshold that triggers climate catastrophe is known with certainty, and the benefits of avoiding catastrophe are high relative to the costs, treaties can easily coordinate countries' behavior so as to avoid the threshold. Where the net benefits of avoiding catastrophe are lower, treaties typically fail to help countries cooperate to avoid catastrophe, sustaining only modest cuts in emissions. These results are unaffected by uncertainty about the impact of catastrophe. By contrast, uncertainty about the catastrophic threshold normally causes coordination to collapse. Whether the probability density function has “thin” or “fat” tails makes little difference.     

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.     

Allometric scaling of resource acquisition by ruminants in dynamic and heterogeneous environments

We present a mechanistic formulation of the intake response of ruminants to vegetation biomass based solely on physiological and morphological parameters that scale allometrically with the animal's body mass. The model is applied to describe herbivore-vegetation interactions in dynamic and heterogeneous landscapes with low quality but abundant “tall grass” and high quality but sparsely available “short grass”, under two conditions: “uncoupled” (such that the effect of food intake on vegetation biomass can be neglected), or “coupled” (such that the vegetation biomass is determined by herbivore feeding). The results show that under uncoupled conditions, the minimum acceptance (proportion of vegetation consumed by the herbivore) at which the herbivore can leave its current patch without reducing its intake rate is when it has depleted the current patch by the energetic cost required to travel to another patch. The maximum acceptance at which the herbivore should leave its patch is when it has depleted the current patch by the cumulative energetic cost of traveling, handling, cropping, and digesting. Under coupled conditions, the optimal acceptance equals half the relative growth rate of the vegetation. Analytical solutions are obtained for equilibrium values for utilization of the vegetation, and for the densities of vegetation and ruminants, expressed in physiological and morphological herbivore parameters.     

What did Lotka really say? A critical reassessment of the “maximum power principle”

This paper presents a critical discussion of the so-called “maximum power principle”, often quoted in studies about the energy balance of living systems and also known in the emergy literature as “maximum em-power principle”. Several authors consider this principle highly relevant and some even proposed it as a “fourth law of thermodynamics”. A critical analysis of the original source, namely Alfred Lotka's 1921-22 papers, conducted both in an historical perspective (the connection between Lotka's writings and the ongoing debate at his time) and in a more modern context, leads to a more detailed and less biased assessment. It turns out that in spite of Lotka's very anticipatory and incredibly sharp vision of the possible interconnections between the second law of thermodynamics and evolutionism, doubts arise about the general applicability of his “maximum power principle”. From an accurate analysis of his writings, it can be concluded that: (a) Lotka explicitly and consistently addressed the “optimal use” of the flow of exergy (available energy), and therefore the quantity defined as “em-power” is an incorrect interpretation of Lotka's constrained maximum power principle; (b) “Lotka's principle” can be reformulated within Ziegler's “maximum entropy production” or Prigogine “minimum entropy generation” paradigm only under two different respective sets of rather stringent additional conditions which Lotka was probably already aware of but never explicitly stated.     

Those outsiders: How downstream externalities affect public good provision

Some policy problems pit one group?s interests against another?s. One group may determine provision of a project (such as a dam) that benefits group members but hurts others. We introduce a model of such projects. In-group members may contribute to a common fund that benefits them as a public good. Benefits from the project may vary within the group. Provision has negative downstream externalities: contributions hurt agents outside the in-group (“Outsiders”), rendering them anti-social. Many models of social preferences predict that such externalities should reduce provision, although conditional cooperation or a preference for in-group members may counteract this. We test this model with a lab experiment using Outsiders with whom the in-group members have more and less contact. With homogeneous in-group benefits, the presence of negative downstream externalities reduces contributions by half when they have closer contact with Outsiders but not at all when they have had no contact. We introduce a rotating high-return position that allows subjects to trade favors. In this setting, contributions of non-privileged members diminish slightly when faced with the negative externality given closer contact with Outsiders, and not at all with less contact. Reciprocal giving occurs whether or not Outsiders are present.     

Re-evaluating the role of energy efficiency standards: A behavioral economics approach

The economic models that prescribe Pigovian taxation as the first-best means of reducing energy-related externalities are typically based on the neoclassical model of rational consumer choice. Yet, consumer behavior in markets for energy-using durables is generally thought to be far from efficient, giving rise to the concept of the “energy-efficiency gap.” This paper presents a welfare analysis of energy policies that is based on a behavioral model of temptation and self-control, introduced by Gul and Pesendorfer 23 and 24. We find that, in the presence of temptation, (i) Pigovian taxes alone do not yield a first-best outcome, (ii) when viewed as substitutes, energy efficiency standards can dominate Pigovian taxes, and (iii) a policy combining standards with a Pigovian tax can yield higher social welfare than a Pigovian tax alone, implying that the two instruments should be viewed as complements rather than substitutes.     

What does ecological modelling model? A proposed classification of ecological niche models based on their underlying methods

Species distribution model is the term most frequently used in ecological modelling, but other authors used instead predictive habitat distribution model or species-habitat models. A consensual ecological modelling terminology that avoids misunderstandings and takes into account the ecological niche theory does not exist at present. Moreover, different studies differ in the type of niche that is represented by similar distribution models. I propose to use as standard ecological modelling terminology the terms “ecological niche”, “potential niche”, “realized niche” models (for modelling their respective niches), and “habitat suitability map” (for the output of the niche models). Therefore, the user can understand more easily that models always forecast species’ niche and relate more closely the different types of niche models.     

A revised calculation of the econometric factors α- and β for the Extended Exergy Accounting method

Extended Exergy Accounting (“EEA”) is a method to compute the space- and time integral of the primary exergy required to produce a good or a service: the extended exergy of a commodity measures its “embodied exergy”, including externalities (Labour, Capital and Environmental Costa). A crucial point of the method is the calculation of two econometric coefficients, commonly referred to as “α” and “β”,used to calculate the extended exergy equivalents of Labour and Capital respectively. In previous applications of the EEA method, these coefficients have been assigned approximate values estimated on the basis of global system considerations. In this paper, a novel procedure is described that leads to the calculation of “exact” values of both econometric coefficients, based on detailed exergy- and monetary balances of the Society to which the EEA is applied. It is shown that both α and β depend in a non-trivial way from the consumption patterns, the technological level and the life- and socio-economic standards of each Country. It is also shown that the values are substantially different for developed (OECD) and underdeveloped Countries, and representative samples of values are calculated and critically analysed. On the basis of these new model coefficients, the specific exergy equivalents of Labour (ee_L) and of Capital (ee_K) are calculated, and shown to differ from the values used in previous EEA calculations.     

Projecting landscape changes in southern Chile: Simulation of human and natural processes driving land transformation

We describe a simulation model representing the most important human and natural factors driving land use and cover changes (LUCC) in southern Chile. We evaluate the model by examining its ability to simulate LUCC observed over the past three decades, conduct a sensitivity analysis of simulated trends to changes in important model parameters, and use the model to project likely landscape transformations over the next decade under “as usual,” “pessimistic,” and four “optimistic” scenarios. The model consists of five submodels representing LUCC on two distinct soil formations (volcanic ash and gleysols) and four major land use categories: native forest, agricultural land, shrubland, and urban land. Land use and cover sub-categories include old growth forests, secondary forests, and low and flooded shrubland. The model simulated well general historic trends in forest cover, agricultural land, shrubland, and urban land: from a forest-dominated landscape in 1976 to a landscape dominated by shrubland and agricultural land by 2007. Forest loss, forest degradation by logging and clearing for agriculture were the most important direct drivers of LUCC: forest logging and clearing were most important from 1976 to 1985, whereas after 1985 logging for firewood, driven by population growth, was most important. Sensitivity analysis indicated that model projections of general trends in the main land use and cover categories were not overly sensitive to changes in important model parameters, although further study is necessary to improve our estimates of the proportion of pasture requirements supplied by clearing low shrubland. Projections of LUCC suggested that a reduced amount of secondary forest would be left by 2017 if no actions are taken to reduce forest loss (“as usual”). Increasing population (“pessimistic scenario”) resulted in similar trajectories than those predicted by the as usual scenario, whereas reducing logging for firewood and increasing forest recruitment from shrubland could reduce loss of native forest by nearly one-third (“optimistic scenarios”). Surprisingly, shrubland exhibited the most complex and influential dynamics in all scenarios, being the immediate outcome of forest loss and the main long-term source of land for agriculture, urban expansion, and forest recovery. Few studies in Chile, or elsewhere, have considered the importance of this intermediate successional stage. Of the scenarios simulated, financial incentives targeted toward channeling shrubland into regenerated forest seemed most promising, although obstacles to such a management strategy exist.