Mitigation Portfolio and Policy Instruments When Hedging Against Climate Policy and Technology Uncertainty

In this paper, we use a stochastic integrated assessment model to evaluate the effects of uncertainty about future carbon taxes and the costs of low-carbon power technologies. We assess the implications of such ambiguity on the mitigation portfolio under a variety of assumptions and evaluate the role of emission performance standards and renewable portfolios in accompanying a market-based climate policy. Results suggest that climate policy and technology uncertainties are important with varying effects on all abatement options. The effect varies with the technology, the type of uncertainty, and the level of risk. We show that carbon price uncertainty does not substantially change the level of abatement, but it does have an influence on the mitigation portfolio, reducing in particular energy R&D investments in advanced technologies. When investment costs are uncertain, investments are discouraged, especially during the early stages, but the effect is mitigated for the technologies with technological learning prospects. Overall, these insights support some level of regulation to encourage investments in coal equipped with carbon capture and storage and clean energy R&D.     

Assessing the impact of environmental regulation on pollution abatement and collaborative emissions reduction: Micro-evidence from Chinese industrial enterprises

Given the rapid industrialization and urbanization of China, environmental problems have gradually become major constraints that hinder its sustainable economic development. Moreover, China's pollution abatement and reduction of greenhouse gas emissions have been severely affected by pressures coming from domestic environmental appeals and international environmental diplomacy. By using integrated data from the Chinese Industrial Enterprise and the Chinese Enterprise Environmental Survey and Reporting databases, this study constructs comprehensive indicators of pollutant discharge intensity and carbon emissions index at the enterprise level and uses the panel fixed effect model, Kaya identity, and mediation effect model to assess the effects of environmental regulations on pollution abatement and collaborative emissions reduction from the micro-perspective. Results show that these regulations can abate the pollution emissions of Chinese industrial enterprises and verify the effectiveness of environmental policies. These regulations can also efficiently reduce the carbon dioxide emissions of enterprises through pollution abatement. In other words, environmental regulations facilitate a collaborative emissions reduction of pollutant and greenhouse gas emissions from enterprises. Such collaborative emissions reduction effect is also influenced by the energy structure and consumption of enterprises. This paper presents empirical evidence and policy basis for further improving China's environmental regulation policy system and achieving coordinated progress in China's economic development and environmental governance.     

The Kyoto Protocol and non-CO2 Greenhouse Gases and Carbon Sinks

Many trace constituents other than carbon dioxide affect the radiative budget of the atmosphere. The existing international agreement to limit greenhouse gases, the Kyoto Protocol, includes carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF₆) and credit for some carbon sinks. We investigate technological options for reducing emissions of these gases and the economic implications of including other greenhouse gases and sinks in the climate change control policy. We conduct an integreated assessment of costs using the MIT Emissions Prediction and Policy Analysis (EPPA) model combined with estimates of abatement costs for non-CO₂ greenhouse gases and sinks. We find that failure to take advantage of the other gas and sink flexibility would nearly double aggregate Annex B costs. Including all the GHGs and sinks is actually cheaper than if only CO₂ had been included in the Protocol and their inclusion achieves greater overall abatement. There remains considerable uncertainty in these estimates, the magnitude of the savings depends heavily on reference projections of emissions, for example, but these uncertainties do not change the overall conclusion that non-CO₂ GHGs are an important part of a climate control policy.     

The Effect of Green Investments in an Agent-Based Climate-Economic Model

Climate-economic modeling often relies on macroeconomic integrated assessment models (IAMs) that in general try to capture how the combined system reacts to different policies. Irrespective of the specific modeling approach, IAMs suffer from two notable problems. First, although policies and emissions are dependent on individual or institutional behavior, the models are not able to account for the heterogeneity and adaptive behavior of relevant actors. Second, the models unanimously consider mitigation actions as costs instead of investments: an arguable definition, given that all other expenditures are classified as investments. Both are challenging if the long-term development of climate change and the economy shall be analyzed. This paper therefore proposes a dynamic agent-based model, based on the battle of perspectives approach (Janssen [1]; Janssen and de Vries [2]; Geisendorf [3, 4]) that details the consequences of various behavioral assumptions. Furthermore, expenditures for climate protection, e.g., the transition of the energy system to renewables, are regarded as investments in future technologies with promising growth rates and the potential to incite further growth in adjoining sectors (Jaeger et al. [5]). The paper analyzes how a different understanding of climate protection expenditures changes the system’s dynamic and, thus, the basis for climate policy decisions. The paper also demonstrates how erroneous perceptions impact on economic and climate development, underlining the importance to acknowledge heterogeneous beliefs and behavior for the success of climate policy.     

The role of physical and human capital in FDI-pollution-growth nexus in countries with different income groups: A simultaneity modeling analysis

This paper examines the causal links between foreign direct investment (FDI), CO₂ emissions, and economic growth in a global panel of 101 countries and four diverse income groups (low, lower-middle, upper-middle, and high) countries using the simultaneous equations framework, with data from 1990 to 2014. Considering physical capital and human capital, this is the first time these two determinants have been linked to the FDI-pollution-growth simultaneous equation model. The dependent variables in the three simultaneous equations are inflow of foreign direct investment, CO₂ emissions as a proxy for environmental pollution, and real gross domestic product. Three critical inferences can be drawn from the results. First, there is a two-way causal relationship between growth and FDI in the global panel and across all income groups (except for lower-middle-income groups). Likewise, except for high-income countries, there is a two-way causal relationship between FDI and CO₂ emissions in the global panel. Second, the results support a one-way causal relationship between economic growth and CO₂ emissions in the global panel and the income subgroup, but only in the low-middle and high-income groups support the environmental Kuznets curve (EKC) and pollution haven hypothesis (PHH). Third, the heterogeneous impact of human and physical capital on the environment is genuinely striking: human capital improves its quality while physical capital degrades it. The results suggest that physical and human capital contributes to economic growth and attracts foreign direct investment.     

Near term mitigation policy for global change under uncertainty: Minimizing the expected cost of meeting unknown concentration thresholds

An aggregate integrated assessment model is used to investigate the relative merits of hedging over the near term against the chance that atmospheric concentrations of carbon dioxide will be limited as a matter of global policy. Hedging strategies are evaluated given near term uncertainty about the targeted level of limited concentrationsand the trajectory of future carbon emissions. All uncertainty is resolved in the year 2020, and strategies that minimize the expected discounted value of the long term cost of abatement, including the extra cost of adjusting downstream to meet unexpected concentration limits along unanticipated emission trajectories, are identified. Even with uncertainties that span current wisdom on emission futures and restriction thresholds that run from 550 ppm through 850 ppm, the results offer support for at most modest abatement response over the next several decades to the threat of global change.     

Carrots and sticks for new technology: Abating greenhouse gas emissions in a heterogeneous and uncertain world

Many governments use technology incentives as an important component of their greenhouse gas abatement strategies. These carrots are intended to encourage the initial diffusion of new, greenhouse-gas-emissions-reducing technologies, in contrast to carbon taxes and emissions trading which provide a stick designed to reduce emissions by increasing the price of high-emitting technologies for all users. Technology incentives appear attractive, but their record in practice is mixed and economic theory suggests that in the absence of market failures, they are inefficient compared to taxes and trading. This study uses an agent-based model of technology diffusion and exploratory modeling, a new technique for decision-making under conditions of extreme uncertainty, to examine the conditions under which technology incentives should be a key building block of robust climate change policies. We find that a combined strategy of carbon taxes and technology incentives, as opposed to carbon taxes alone, is the best approach to greenhouse gas emissions reductions if the social benefits of early adoption sufficiently exceed the private benefits. Such social benefits can occur when economic actors have a wide variety of cost/performance preferences for new technologies and either new technologies have increasing returns to scale or potential adopters can reduce their uncertainty about the performance of new technologies by querying the experience of other adopters. We find that if decision-makers hold even modest expectations that such social benefits are significant or that the impacts of climate change will turn out to be serious then technology incentive programs may be a promising hedge against the threat of climate change.     

Optimal Control Models and Elicitation of Attitudes towards Climate Damages

This paper examines the consequences of various attitudes towards climate damages through a family of stochastic optimal control models (RESPONSE): cost-efficiency for a given temperature ceiling; cost-benefit analysis with a pure preference for current climate regime and full cost-benefit analysis. The choice of a given proxy of climate change risks is actually more than a technical option. It is essentially motivated by the degree of distrust regarding the legitimacy of an assessment of climate damages and the possibility of providing in due time reliable and non controversial estimates. Our results demonstrate that (a) for early decades abatement, the difference between various decision-making frameworks appears to matter less than the difference between stochastic and non stochastic approach given the cascade of uncertainty from emissions to damages; (b) in a stochastic approach, the possibility of non-catastrophic singularities in the damage function is sufficient to significantly increase earlier optimal abatements; (c) a window of opportunity for action exists up to 2040: abatements further delayed may induce significant regret in case of bad news about climate response or singularities in damages.     

The impact of terrorism and FDI on environmental pollution: Evidence from Afghanistan,Iraq, Nigeria,Pakistan, Philippines,Syria, Somalia,Thailand and Yemen

In this study, the relationships among environmental pollution, terrorism, foreign direct investments (FDI), energy consumption and economic growth is investigated for Afghanistan, Iraq, Nigeria, Pakistan, Philippines, Syria, Somalia, Thailand and Yemen covering the 1975–2017 period utilizing Panel cointegration tests, ANOVA tests, long-run estimators and panel trivariate Causality tests. ANOVA results are in favor of evidence of homogeneity between the selected countries. Long-run estimators reveal that terrorism, FDI, energy consumption and economic growth have statistically significant effects on environmental pollution. Panel trivariate Causality test determines the causal relationship between the variables. Accordingly, one-way causal nexus from terrorism to Carbon dioxide (CO₂) emissions and from FDI inflows to CO₂ emissions are found in the short-run. In the long-run, with strong causality results, the evidence of bi-directional causality between CO₂ emissions and other variables, namely, terrorism, FDI inflow energy consumption and economic growth are detected.     

Sequential climate decisions under uncertainty: An integrated framework

We develop an integrated framework for evaluating sequential greenhouse gas abatement policies under uncertainty. The analysis integrates information concerning the magnitude, timing, and impacts of climate change with data on the likely effectiveness and cost of possible response options. Reduced-scale representations of the global climate system, drawn from the MIT Integrated Global System Model, form the empirical basis of the analysis. The method is illustrated in application to emissions control policies of the form considered under the United Nations Framework Convention on Climate Change.     

Integrated Assessment of Swiss GHG Mitigation Policies After 2012

The residential sector presents a great potential for greenhouse gases (GHG) mitigation. We perform an integrated assessment of different mitigation policies for Switzerland focusing on the residential sector. We analyze the case of pure incentive taxes and technical regulations. For our analysis, we have coupled a general equilibrium model with a Swiss residential energy model. We find that a progressive GHG tax of more than 200 USD2000/tCO₂ eq is necessary to reach a target of 50% reduction of GHG emissions in 2050. Finally, we also find that efficiency-based technical regulations provide limited additional abatement incentives.     

INASUD project findings on integrated assessment of climate policies

This communication summarizes the main findings of INASUD, an European-wide research project on integrated assessment of climate policies. The project aimed at improving the framing of climate policy analysis through the parallel use of various existing integrated assessment models. It provides a comprehensive examination of the link between uncertainty regarding damages and inertia in economic systems. Results show that the Kyoto targets and timing are consistent with the precautionary principle but offers little insurance for longer-term climate protection. Flexibility mechanisms offer potentials for cooperation with developing countries, and are necessary to tap the environmental and economic benefits of joint carbon and sulfur emissions abatement.     

Environmental quality control and environmental games

Conclusion  In this paper we have considered a specific environmental game emphasizing both control-prevention efforts and the propensity to pollute by a firm which adopts a given pollution abatement technology. A random payoff game was constructed and solved under a risk neutral assumption and quadratic utilities for both the firm and the environmental controller. The game thus defined, provides a wide range of interpretations and potential approaches for selecting a control-inspection policies to prevent environmental risks. There are of course many facets to this problem, which could be considered and have not been considered in sufficient depth. For example, more complex control mechanisms and liabilities, the effects of insurance and risk sharing, the application of cooperative efforts and subvention of pollution abatement investments (through tax incentives and their like), etc. have not been considered [5,7]. These are topics for further research. The basic presumption of this paper is that it is very difficult to fully enforce pollution prevention by firms, as a result, some controls are needed to ensure that firms be controlled so that appropriate efforts are carried.     

Factor-Augmenting Technical Change: An Empirical Assessment

This paper estimates factor-specific technical change and input substitution using a structural approach. It contributes to the existing literature by introducing various technology drivers for factor productivities and by assessing the impact of endogenous technical change on the elasticity of substitution. The empirical results suggest that factor productivities are indeed endogenous. In addition, technology drivers are factor-specific. Whereas the R&D stock and machinery imports are important determinants of energy and capital productivity, the education stock is statistically related to labour productivity. The rate of energy-augmenting technical change is larger than that of either labour or capital. By contrast, the productivity of these two factors grows at similar rates. Estimates of the elasticity of substitution are within the range identified by previous literature. In addition, we show that endogenous technical change reduces substitution. Because the elasticity of substitution is lower than one, knowledge and human capital can ultimately have an energy-using effect. The estimated structure of endogenous technical change suggests that Integrated Assessment models focusing on energy-saving technical change might underestimate climate policy costs.     

On the optimal control of carbon dioxide emissions: an application of FUND

This paper presents the Climate Framework for Uncertainty, Negotiation and Distribution (FUND), an integrated assessment model of climate change, and discusses selected results. FUND is a nine‐region model of the world economy and its interactions with climate, running in time steps of one year from 1990 to 2200. The model consists of scenarios for economy and population, which are perturbed by climate change and greenhouse gas emission reduction policy. Each region optimizes its net present welfare. Policy variables are energy and carbon efficiency improvement, and sequestering carbon dioxide in forests. It is found that reducing conventional air pollution is a major reason to abate carbon dioxide emissions. Climate change is an additional reason to abate emissions. Reducing and changing energy use is preferred as an option over sequestering carbon. Under non‐cooperation, free riding as well as assurance behaviour is observed in the model. The scope for joint implementation is limited. Under cooperation, optimal emission abatement is (slightly) higher than under non‐cooperation, but the global coalition is not self‐enforcing while side payments are insufficient. Optimal emission control under non‐cooperation is less than currently discussed under the Framework Convention on Climate Change, but higher than observed in practice. This revised version was published online in July 2006 with corrections to the Cover Date.     

Assessing the effects of noise abatement measures on health risks: A case study in Istanbul

In recent decades, noise pollution caused by industrialization and increased motorization has become a major concern around the world because of its adverse effects on human well-being. Therefore, transportation agencies have been implementing noise abatement measures in order to reduce road traffic noise. However, limited attention is given to noise in environmental assessment of road transportation systems. This paper presents a framework for a health impact assessment model for road transportation noise emissions. The model allows noise impacts to be addressed with the health effects of air pollutant and greenhouse gas emissions from road transportation. The health damages assessed in the model include annoyance, sleep disturbance, and cardiovascular disease in terms of acute myocardial infarction. The model was applied in a case study in Istanbul in order to evaluate the change in health risks from the implementation of noise abatement strategies. The noise abatement strategies evaluated include altering pavement surfaces in order to absorb noise and introducing speed limits. It was shown that significant improvements in health risks can be achieved using open graded pavement surfaces and introducing speed limits on highways.     

A Stochastic Dynamic Game of Carbon Emissions Trading

This paper proposes a computable stochastic equilibrium model to represent the possible competition between Russia and China on the international market of carbon emissions permits. The model includes a representation of the uncertainty concerning the date of entry of developing countries (e.g., China) on this market in the form of an event tree. Assuming that this date of entry is an uncontrolled event, we model the competition as a dynamic game played on an event tree and we look for a solution called S-adapted equilibrium. We compare the solution obtained from realistic data describing the demand curves for permits and the marginal abatement cost curves in different countries, under different market and information structures: (i) Russia's monopoly, (ii) Russia–China competition in a deterministic framework, (iii) Russia–China competition in a stochastic framework. The results show the possible impact of this competition on the pricing of emissions permits and on the effectiveness of Kyoto and post-Kyoto agreements, without a US participation.     

Aircraft Emissions: A Comparison of Methodologies Based on Different Data Availability

The impact of air traffic on the global atmosphere is characterised by a high degree of uncertainty, concerning both the physico-chemical phenomena involved and the extent of the forcing due to anthropogenic emissions. The different effects of these emissions (e.g. on climate change, stratospheric ozone depletion, acidification, tropospheric ozone formation) are dealt with by different international bodies and conventions (e.g. IPCC, EMEP. . .) which are trying to define a standard methodology allowing countries to evaluate their contributions to global aircraft emissions and to report these figures in a standardised way. The paper compares different methodologies proposed by the joint EMEP/CORINAIR 'Atmospheric Emission Inventory Guidebook' for estimating aircraft emissions. Adjustments to these methodologies have been proposed, in order to integrate some additional data such as the total amount of flight hours per aircraft type or fuel consumption per trip. In case detailed information is not available, we recommend the use of a VERY SIMPLE methodology which may yield acceptable results, provided that every country makes adequate assumptions on the average aircraft type.     

Assessing the Impact of Carbon Tax Differentiation in the European Union

To what extent do the welfare costs associated with the implementation of the Burden Sharing Agreement in the European Union depend on sectoral allocation of emissions rights? What are the prospects for strategic climate policy to favor domestic production? This paper attempts to answer those questions using a CGE model featuring a detailed representation of the European economies. First, numerical simulations show that equalizing marginal abatement costs across domestic sectors greatly reduces the burden of the emissions constraint but also that other allocations may be preferable for some countries because of pre-existing tax distortions. Second, we show that the effect of a single country's attempt to undertake a strategic policy to limit impacts on its domestic energy-intensive industries has mixed effects. Exempting energy-intensive industries from the reduction program is a costly solution to maintain the international competitiveness of these industries; a tax-cum-subsidy approach is shown to be better than exemption policy to sustain exports. The welfare impact either policy – exemption or subsidy – on other European countries is likely to be small because of general equilibrium effects.     

Nuclear Versus Coal plus CCS: a Comparison of Two Competitive Base-Load Climate Control Options

In this paper, we analyze the relative importance and mutual behavior of two competing base-load electricity generation options that each are capable of contributing significantly to the abatement of global CO₂ emissions: nuclear energy and coal-based power production complemented with CO₂ capture and storage (CCS). We also investigate how, in scenarios developed with an integrated assessment model that simulates the economics of a climate-constrained world, the prospects for nuclear energy would change if exogenous limitations on the spread of nuclear technology were relaxed. Using the climate change economics model World Induced Technical Change Hybrid, we find that until 2050 the growth rates of nuclear electricity generation capacity would become comparable to historical rates observed during the 1980s. Given that nuclear energy continues to face serious challenges and contention, we inspect how extensive the improvements of coal-based power equipped with CCS technology would need to be if our economic optimization model is to significantly scale down the construction of new nuclear power plants.