Carbon taxation,OPEC and the end of oil

I develop a differential game between an oil cartel and an importer investing in research and development (R&D) to reduce the cost of a green substitute to oil. In equilibrium, the cartel is forced to deter the substitute, which thus imposes a price ceiling falling over time. Credible carbon taxes are below the Pigovian level, implying the importer cannot internalise the full pollution externality, much less capture resource rents. Without carbon pricing, the importer curtails long-run pollution using a costly R&D programme. Normatively, climate policy will be more expensive if relying on green R&D programmes only.     

The optimal time path of clean energy R&D policy when patents have finite lifetime

We study the optimal time path for clean energy innovation policy. In a model with emission reduction through clean energy deployment, and with R&D increasing the overall productivity of clean energy, we describe optimal R&D policies jointly with emission pricing policies. We find that while emission prices can be set at the Pigouvian level independently of innovation policy, the optimal level of R&D subsidies and patent lifetime change with the stages of the climate problem. In the early stages of clean energy development, innovators find it more difficult to capture the social value of their innovations. Thus, for a given finite patent lifetime, optimal clean energy R&D subsidies are initially high, but then fall over time. Alternatively, if research subsidies are kept constant, the optimal patent lifetime should initially be long and fall over time.     

Regulatory attitudes and environmental innovation in a model combining internal and external R&D

The extent to which environmental regulatory institutions are either ‘green’ or ‘brown’ impacts not just the intensity of regulation at any moment, but also the incentives for the development of new pollution-control technologies. We set up a strategic model of R&D in which a polluter can deploy technologies developed in-house, or license technologies developed by specialist outsiders (an ‘eco-industry’). Polluters exert R&D effort and may even develop redundant technologies to improve the terms on which they procure technology from outside. We find that, while regulatory bias has an ambiguous impact on the best-available technology, strategic delegation to systematically biased regulators can improve social welfare.     

Are energy efficiency standards justified?

This paper develops an analytical framework for comparing the welfare effects of energy efficiency standards and pricing policies for reducing gasoline, electricity, and nationwide carbon emissions. The model is parameterized with US data and includes key externalities in the energy/transportation sectors and possible underinvestment in energy efficiency due to “misperceptions” over energy savings. Even with large misperceptions, the extra welfare gains from complementing efficient pricing policies with energy efficiency standards are zero for reducing gasoline and 5 percent for reducing electricity. And when viewed as substitutes, these standards forgo 60 percent or more of the potential welfare gains from corresponding pricing policies. A combination of energy efficiency and emissions standards is more than three times as costly as carbon pricing when there is no misperception over energy savings, and even with large misperceptions, combining carbon pricing with gasoline/electricity taxes is better than combining it with energy efficiency standards.     

Brown backstops versus the green paradox

Anticipated climate policies are ineffective when fossil fuel owners respond by shifting supply intertemporally (the green paradox). This mechanism relies crucially on the exhaustibility of fossil fuels. We analyze the effect of anticipated climate policies on emissions in a simple model with two fossil fuels: one scarce and dirty (e.g. oil), the other abundant and dirtier (e.g. coal). We derive conditions for a ‘green orthodox’: anticipated climate policies may reduce current emissions. The model can also be used to analyze spatial carbon leakage. Calibrations suggest that intertemporal carbon leakage (from 0% to 8%) is a relatively minor concern.     

Green tax reform,endogenous innovation and the growth dividend

We study theoretically and numerically the effects of an environmental tax reform using endogenous growth theory. In the theoretical segment, mobile labor between manufacturing and R&D activities, and elasticity of substitution between labor and energy in manufacturing lower than unity allow for a growth dividend, even if we consider preexisting tax distortions. The scope for innovation is reduced when we consider direct financial investment in the lab, or elastic labor supply. We then apply the core theoretical model to a real growing economy and find that a boost in long-run economic growth following such a carbon policy is a possible outcome. Redistribution of additional carbon tax revenue by lowering capital taxation performs best in terms of effciency measured by aggregate welfare. In terms of equity among social segments the progressive character of lump-sum redistribution fails when we consider very high emissions reduction targets.     

The role of environmental activity integration into the R&D department to obtain competitive advantage

The objective of this work is to examine to what degree the integration between R&D and environmental departments facilitates the achievement of an environmental practice-derived competitive advantage. With this aim, we surveyed 110 International Organization for Standardization (ISO) 14001 certified factories. The results reveal that the integration of environmental action into the R&D department enhances a company's reputation through the product quality and image. Moreover, the said integration positively influences the company's overall innovative capability and, hence, its ability to penetrate international markets.     

Development of a low-carbon economy in China

Under the pressures of climate change, many countries are trying to adapt to a low-carbon economy. In this paper, we review the development pattern of the low-carbon economy of major countries and its impact on the world economy. We then argue that economic development and abatement of greenhouse gas (GHG) emissions in China should be balanced. The challenges that China faces should also be considered carefully. It is necessary for China to find an approach to solve the issues of climate change, which should include new technologies and establishing incentive mechanisms and reform-oriented policies. These guidelines can adjust the structure of the economy and energy use, improve energy efficiency, promote the development of alternative and renewable energy, enhance the potential of carbon sinks, and develop advanced technology to perfect a 'Clean Development Mechanism' and sustainable development through international cooperation.     

Environmental Policy and International Trade when Governments and Producers Act Strategically

Some environmentalists express concern that trade liberalization may damage the environment by giving governments incentives to relax environmental policies to give domestic producers a competitive advantage. Support for such concern may be given by models of imperfectly competitive trade where there may be “rent-shifting” incentives for governments to relax environmental policies. But there are also incentives for producers to act strategically, e.g., through their investment in R&D, and in this paper I extend the literature on strategic environmental policy by allowing for strategic behavior by producers as well as governments. I show that (i) allowing for producers to act strategically on balance reduces the incentive for governments to act strategically; (ii) allowing governments to act strategically increases the incentive for producers to act strategically; (iii) welfare is lower when both parties act strategically; and (iv) strategic behavior by producers and governments is greater when governments use emission taxes than when they use emission standards.     

Status and trends in research and development projects in the mountains: A situational analysis in the Indian Himalaya

The mountains hold the key to global ecological and social stability by virtue of being centres of biological and cultural diversity and the storehouse for water and other resources. However, they are becoming unable to sustain the demands of the changing life style of the growing number of inhabitants as well as the population in the plains and, therefore, the resources are depleting rapidly. Inadequacy of research and development (R&D) projects undertaken in mountain ecosystems is, perhaps, a major factor that has not enabled us to evolve and introduce suitable interventions to replenish and restore the health of the degraded mountains. In this article, taking the Indian Himalayan region as a case study, an effort has been made to understand the adequacy and appropriateness of R&D projects in mountain ecosystems by analysing the research and development projects implemented in this region from 1985–86 to1998–99. The analysis revealed inadequacy in the number and budgets of R&D projects implemented in this mountain ecosystem as a whole as well as in specific subject areas; the number of R&D projects implemented during this period was only 5.28% of the total projects, with a fund allocation of 4.45% of the total R&D budget of India, which appears to be inadequate considering the geophysical and bio-social importance of the Himalaya. The finding suggests that national funding agencies of mountain nations need to increase the number of R&D projects in mountain regions as a priority, with the intention of developing scientific packages capable of restoring the degraded ecosystem of the mountains and ensuring their sustainable development.     

Scarcity, growth and R&D

The limits to economic growth due to resource scarcity can be alleviated only by the development of backstop substitutes. This paper combines resource-based economic growth with R&D to reduce the cost of backstop technologies. Characterizing the entire dynamics of optimal growth and R&D processes, we find that an economy's growth prospects depend on its type, as determined by its production technology and learning ability, and by its knowledge–capital endowment. A wide variety of growth patterns emerges, ranging from cases in which an economy that without R&D eventually stagnates (converges to a steady state) is diverted by R&D onto a path of sustained growth, to cases in which R&D is not warranted. Resource scarcity is shown to encourage R&D due to the increased reliance on the backstop technology.     

Innovation and the dynamics of global warming

Global warming and the carbon cycle are a dynamic system with positive feedbacks. Fossil fuels are exhaustible resources. These two facts mean that innovation in clean energy technology, rather than mitigating global warming, can lead to a permanently higher temperature path. This paper explores the impact of innovation in the simplest model linking the economic theory of exhaustible resources with positive feedback dynamics in the carbon cycle.     

At home and abroad: An empirical analysis of innovation and diffusion in energy technologies

This paper contributes to the induced innovation literature by extending the analysis of supply and demand determinants of innovation in energy technologies to account for international knowledge flows and spillovers. We select a sample of 38 innovating countries and study how knowledge related to energy-efficient and environmentally friendly technologies flows across geographical and technological space. We demonstrate that higher geographical and technological distances are associated with lower probabilities of knowledge flow. Next, we use previous estimates to construct internal and external knowledge stocks for a panel of 17 countries. We then present an econometric analysis of the supply and demand determinants of innovation accounting for international knowledge spillovers. Our results confirm the role of demand-pull effects, proxied by energy prices, and of technological opportunity, proxied by the knowledge stocks. Our results show that spillovers between countries have a significant positive impact on further innovation in energy-efficient and environmentally friendly technologies.     

Do renewable energy policies reduce carbon emissions? On caps and inter-industry leakage

In a parsimonious two-sector general equilibrium model, we challenge the widely-held tenet that within a cap-and-trade system renewable energy policies have no effect on carbon emissions. If the cap does not capture all sectors, we demonstrate that variations of a renewable energy subsidy change aggregate carbon emissions through an inter-industry leakage effect. We decompose this effect into intuitively intelligible components that depend in natural ways on measurable elasticity parameters. Raising the subsidy always reduces emissions if funded by a lump-sum tax, reinforcing recent findings that tightening environmental regulation can cause negative leakage. However, if the subsidy is funded by a levy on electricity, it can increase emissions. These results provide a valuable basis for an informed design of renewable energy policies and an accurate assessment of their effectiveness. We highlight how a state-of-the-art statistic used by governments to gauge such effectiveness, “virtual emission reductions”, is biased, because inter-industrial leakage effects are not captured.     

Innovation,foreign direct investment (FDI), and the energy–pollution–growth nexus in OECD region: a simultaneous equation modeling approach

Environmental and Ecological Statistics - The paper proposes a new perspective in the environmental and resource economics literature by examining innovation (measured by R&D expenditures),...     

Assessing carbon footprint in the life cycle of accommodation services: the case of an international tourist hotel

The accommodation sector is the most demanding energy consumer among all building stock categories. This study quantifies an international tourist hotel in Taiwan to holistically estimate the greenhouse gas emissions of hotel accommodation services through a complete life cycle inventory. The study also investigates the difference between the carbon emissions of the baseline and reduction years to understand the effects of carbon emission reduction on the hotel industry. Results show that energy consumption is the main source of carbon footprint. However, the carbon emissions of other activities, such as the production and transportation of hotel amenities and laundry services, are 15.90% for the baseline year and 16.03% for the reduction year. These values are larger than the 5% cutoff rule according to PAS 2050. Thus, these factors should also be considered in assessing the carbon emissions of accommodation services. Hotel occupancy rate significantly affects carbon emissions during a one-night stay in a standard room as the functional unit. The selection of the functional unit should be considered in the hotel strategy. Although this case study involves an international tourist hotel in Taiwan, the findings and recommendations for improvements can be applied elsewhere.     

Optimal management of strategic reserves of nonrenewable natural resources

This paper studies the stockpiling issue for an oil importing country that is likely to suffer embargoes, the occurrence and duration of which are uncertain. I show the existence of a decreasing reserves path that the country wants to attain in order to hedge against these disruptions. Allowing the importing country to invest in R&D in order to free itself from the embargo threat, I determine the optimal effort that should be engaged in research. The incentive to develop a backstop is shown to increase with the depletion of the reserves.     

Circular economy strategies for combating climate change and other environmental issues

Global industrialization and excessive dependence on nonrenewable energy sources have led to an increase in solid waste and climate change, calling for strategies to implement a circular economy in all sectors to reduce carbon emissions by 45% by 2030, and to achieve carbon neutrality by 2050. Here we review circular economy strategies with focus on waste management, climate change, energy, air and water quality, land use, industry, food production, life cycle assessment, and cost-effective routes. We observed that increasing the use of bio-based materials is a challenge in terms of land use and land cover. Carbon removal technologies are actually prohibitively expensive, ranging from 100 to 1200 dollars per ton of carbon dioxide. Politically, only few companies worldwide have set climate change goals. While circular economy strategies can be implemented in various sectors such as industry, waste, energy, buildings, and transportation, life cycle assessment is required to optimize new systems. Overall, we provide a theoretical foundation for a sustainable industrial, agricultural, and commercial future by constructing cost-effective routes to a circular economy.

     

Risk aversion and CO2 regulatory uncertainty in power generation investment: Policy and modeling implications

We consider a simulation of risk-averse producers when making investment decisions in a competitive energy market, who face uncertainty about future regulation of carbon dioxide emissions. Investments are made under regulatory uncertainty; then the regulatory state is revealed and producers realize returns. We consider anticipated taxes, grandfathered permits and auctioned permits and show that some anticipated policies increase investment in the relatively dirty technology. Beliefs about the policy instrument that will be used to price carbon may be as important as certainty that carbon will be priced. More generally, a failure to consider risk aversion may bias policy analysis for the power sector.     

A decomposition analysis of CO2 emissions: evidence from Malaysia’s tourism industry

The most important question raised from issues of environmental degradation is how economic activities bring about changes that will result in pollution. In the pursuit of tourism economy, contrary to popular interest, the travel and tourism (T&T) industry may cause environmental damages through the emissions of carbon dioxide (CO₂) from energy consumption in areas such as transportation and delivery of amenities. Given this major concern, this paper attempts to investigate the linkage between tourism and CO₂ emissions in Malaysia between 1981 and 2011. In particular, this study fills the knowledge gap by taking a closer look at the impact of international tourist arrivals on CO₂ emissions by sector – electricity and heat generation and transport. Results from the bound test method suggest that there exists a long-run relationship among the variables under consideration when CO₂ emissions become the dependent variable. The original result is similarly robust to alternatives, which are CO₂ emissions from sectors of electricity and heat generation and transport. Furthermore, the vector error correction model causality analysis indicates a causal relationship between tourism and CO₂ emissions by transport and electricity and heat generation. Subsequently, several tourism-related policies are drawn from these findings.