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[2014-01] Local air pollution and global climate change taxes: a distributional analysis
Xaquín Garcia-Muros, Mercedes Burguillo, Mikel Gonzalez-Eguino and Desiderio Romero-Jordán

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Local air pollution and global climate change are two significant environmental problems which are interrelated. Some recent papers examine them together, but most of the relevant literature has focused either on climate change alone or on the ancillary benefits of mitigating it (in terms of air pollution). In regard to distribution, most publications have focused on the impacts of climate change-related taxes such as excise duties on CO2, energy or fuels. This paper explores the distributional implications of policies for taxing local air pollution and compares them with climate change taxes. The framework of taxation on air pollution is based on the estimated damage associated with the main local air pollutants, while the climate change framework is based on a CO2 tax. The case of Spain is examined, using an Input-Output model in combination with a micro-simulation model. The distributional implications of a revenue-neutral tax reform are also explored. We find that taxes on local pollutants are more regressive than those levied on climate change pollutants, because the goods implicitly taxed have a greater weight in the consumer basket of low income groups, even if the tax revenues are recycled.
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[2013-14] Decarbonising urban transportation
Joseph V. Spadaro, Sérgio H. Faria and Anil Markandya

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The transportation sector is a major contributor to global greenhouse gas emissions, accounting for around one-quarter of current annual emissions. Surface transportation (passenger vehicles, buses, rail, and freight transportation) contributes 75% of total emissions, with the remaining 25% allocated equally between air and water transport.
According to the recently released 5th Assessment Report of the IPCC (September 2013), the transportation sector is expected to grow significantly in future years, particularly in rapidly developing countries around the world, and will therefore be one of a few key drivers of increasing global warming. Unless there is a major political effort and consumer willingness to change current energy consumption patterns and travel modes over the next few decades, transport-related emissions are likely to double by 2050 relative to levels observed in 2010. Because of the contribution of transportation to climate change and its impact on urban air quality, a comparative assessment of potential carbon emission reductions and health benefits of reduced particulate matter emissions was undertaken considering several low carbon pathways for development of the urban road transport sector up to 2050. As a result, we conclude that aggressive changes will be needed to scale back future emissions by 20% (or more) compared to present day emissions. These changes will impact vehicle fuel economy (+50%), urban mobility patterns (lower private car demand and greater use of public transportation), choice of alternative fuels (less use of petroleum-based fuels and greater use of biofuels and electrons) and electricity generation mix (greater use of renewables, carbon capture technologies for limiting fossil fuel carbon emissions, and/or nuclear energy). Public acceptance is fundamental to bring about changes in consumer attitudes and behaviour. Given the long lead times required for research, development, demonstration and deployment of new technologies, the time to act is now if we are to limit the global mean surface temperature increase to within 2°C above preindustrial levels.
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[2013-13] Time and tide wait for no man: pioneers and laggards in the deployment of CCS
Dirk Rübbelke and Stefan Vögele

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In Europe the ambitions of individual countries to deploy carbon capture and storage (CCS) technologies are diverse. Reasons for this are, amongst other things, the heterogeneity of national electricity generation systems and storage capacities and the differences in the public perception of these technologies. In this analysis we investigate the consequences of partial deployment of CCS, i.e. we consider a situation where some European countries (the “pioneers”) actively deploy CCS technologies, while others (the “laggards”) do not use CCS. Our study focuses on the question whether it pays throughout to be a pioneer and whether laggards will generally be disadvantaged. In our assessment, we take into account impacts on consumers affected from rising electricity prices, electricity suppliers whose profits are influenced by changes in both electricity prices and sales, and international trade-flow changes (modifications in European electricity import/export patterns).
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[2013-12] The economics of hydro-meteorological disasters: approaching the estimation of the total costs
Stefano Balbi, Carlo Giupponi, Roland Olschewski and Vahid Mojtahed

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Hydro-meteorological disasters have caused increasing losses in recent years. Efficient risk reduction policies require accurate assessment approaches, with careful consideration of costs, beyond direct tangible costs, which are commonly used in practice. Faced with possible risk reduction scenarios, limited financial resources require an improvement in the quality of cost estimation, thereby contributing to an efficient allocation of resources. This paper focuses on the concept of total costs of hydro-meteorological disasters, based on direct and indirect as well as tangible and intangible cost categories. These categories are defined and explained, supported by a comprehensive review of economic valuation methods. Based on this information, practice relevant suggestions are made concerning the most appropriate methods for different cases in terms of scale, availability of data and of technical resources. Our survey also provides critical insights to drawbacks of flood risk estimation, which need to be addressed and carefully dealt with in any future research in this area.
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[2013-11] Identifying social determinants of urban low carbon transitions: the case of energy transition in Bilbao, Basque Country
Marta Olazabal and Unai Pascual

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Cities are widely defined as complex systems formed by coupled social, ecological and economical systems. The complexity of urban dynamics goes far beyond its boundaries due to the strong influence of larger scales and the deep dependence of cities on outside resources. Such crucial cross-scale effects can fuel maladaptive behaviour, conducting cities to rigid and unsustainable traps. Urban energy systems have all the ingredients of complexity, dependence and vulnerability to global environmental change. Presumably, transformability, like adaptability, depends on perceptions, values and culture of each society. Here it is hypothesized that often social behaviours related to the scepticism, close-minded attitudes, traditional economic models, lack of trust in institutions and in self-capacities are those which limit the potential of transformation in cities (favouring lock-in status). The type of energy and the way it is supplied depends largely on utilities, urban planning and design, economic incentives, regulations, investment opportunities etc. These determinants, together with household factors depending on lifestyle, rent, etc. affect the level of consumption and choices. Altogether, these determinants play a decisive role in decision making processes at individual and institutional level and therefore can limit the transformation potential. We use a case study in Bilbao (Basque Country) to illustrate barriers and hidden opportunities of a local energy transition through an analysis of its cognitive dimension.

This is done by applying a semi-quantitative methodology (Q method) which aids to investigate the stakeholders’ perceived capacity of change. This results in four distinct discourses with direct implications in the potential of transformation of the city of Bilbao.

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[2013-10] Climate change impacts on the water services in Costa Rica: a production function for the hydroenergy sector
Elisa Sainz de Murieta and Aline Chiabai

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The case study presented in this section aims to estimate the economic value of the water services used for hydropower in tropical forests in Costa Rica, and to assess the expected economic impact due to climate change. The model developed allows estimating the economic impacts of climate change on the hydroelectric sector, using the association between bio-physical data, technical data related to the plants and economic inputs. A production function is used for this purpose which relates the quantity of water available (runoff) with the energy generated by the selected plants, based on a sample of 40 plants.

Results show a significant reduction in the hydropower production in all future scenarios, estimated between 41 and 43% for Costa Rica. This translates in a considerable reduction in the expected revenues of the hydroelectric sector in Costa Rica under all climate change scenarios considered, but with lower reductions in the B1 scenario, which incorporates sustainability criteria. Taking into account future technological changes, the model shows that it would be necessary to double the installed capacity of all plants to get an increase in annual revenue that ranges from 3-18%. With an increase in the installed capacity of about 50%, economic losses would be reduced by 12% in all the scenarios.
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[2013-09] The Green Paradox and Learning-by-doing in the Renewable Energy Sector
Daniel Nachtigall and Dirk Rübbelke

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We investigate the effect of climate policies on fossil fuel use in the presence of a clean alternative technology that exhibits learning-by-doing. In a two-period framework, the costs of clean and regenerative energy in the second period are decreasing with the amount of this energy produced in the first one. While a carbon tax on present fossil fuels always reduces the use of the conventional energy source, the effect of a subsidy for regenerative energy is ambiguous and depends on the size of the learning effect. For small learning effects, a subsidy reduces the present use of fossil fuels since their substitute becomes comparatively cheap. However, for larger learning effects, a subsidy leads to the green paradox as the cost reduction in the clean energy sector reduces the future demand for conventional energy and brings forward extraction. We conclude that the best way to reduce present CO2 emissions is the implementation of a carbon tax. If the learning effect is small, the carbon-tax revenues should additionally finance the subsidy for the renewable energy.

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[2013-08] Economic Evaluation of Energy Efficiency Labelling in Domestic Appliances: the Spanish Market
Ibon Galarraga and Josu Lucas

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This paper estimates the economic value that consumers place on energy efficiency (EE) labels for appliances in the Spanish market.

It uses the hedonic method to calculate the price premium paid in the market for that attribute isolated from others. Furthermore, the Quantity Based Demand System (QBDS) is applied to calculate the own and cross price elasticities of demand for both EE appliances and others.

These elasticities are useful for improving the design of policies to promote EE. The paper looks at three different appliances marketed in Spain during 2012: washing machines, fridges and dishwashers.

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[2013-07] Evaluation of Two Alternative Carbon Capture and Storage Technologies: A Stochastic Model
Luis M. Abadie, Ibon Galarraga and Dirk Rübbelke

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In this paper we evaluate two alternative CCS technologies of a coal-fired power plant from an investor’s point of view. The first technology uses CO2 for enhanced oil recovery (EOR) paired with storage in deep saline formations (DSP) and the second one just stores CO2 in DSF. For projects of this type there are many sources of risk, and three sources of uncertainty stand out: the price of electricity, the price of oil and the price of carbon allowances. In this paper we develop a general stochastic model that can be adapted to other projects such as enhanced gas recovery (EGR) or industrial plants that use CO2 for either EOR or EGR with CCS. The model is calibrated with UK data and applied to help understand the conditions that generate the incentives needed for early investments in these technologies. Additionally, we analyse the risks of these investments.
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[2013-06] Regional IAM: analysis of risk-adjusted costs and benefits of climate policies
Alexander Golub, Oleg Lugovoy, Anil Markandya, Ramon Arigoni Ortiz and James Wang

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Across the full range of publications in the field of economics of climate change there is perhaps only one firm agreement: both costs and benefits of climate policy are highly uncertain. In an ideal world one would wait until a good deal of uncertainty is resolved and then make a final decision. Usually in the economic literature it would be interpreted as adopting a relatively weak policy now and adjusting it later. Unfortunately, in the context of path-dependency and irreversibility of climatic events there is no way to preserve a full flexibility for the future: near-term selection of an interim climate policy implies some irreversible consequences. Continued accumulation of GHG in the atmosphere makes some policy targets (expressed in temperature level or GHG ppm concentration) infeasible. The paper examines the application of real option analysis to calculate costs and benefits of an interim climate policy. In contrast to conventional CBA, the proposed methodology also accounts for lost and gained flexibility attributed to the adoption of an interim target.

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[2013-05] Economic Efficiency, Environmental Effectiveness and Political Feasibility of Energy Efficiency Rebates: The Case of the Spanish Energy Efficiency Renove Plan
Ibon Galarraga, Luis M. Abadie and Alberto Ansuategi

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Energy labels are used to promote the purchase of efficient appliances. Many countries in Europe use subsidies (namely energy efficiency rebates) to support these purchases as it is the case of Spain. A figure ranging from 50 to 105€ subsidy has been granted in the past for the acquisition of the most efficient appliances. This paper first analyses the impact of a 80€ subsidy on the dishwasher market and compares the results with a 40 € tax for non-labelled ones. The results take into account the effects that the policies generate in the market segment that is a close substitute, that is, cross effects. The paper shows that the subsidy is expensive for the Government, generates some welfare losses and it also generates a rebound effect as a consequence of the increase in the total number of appliances sold. The 40 € tax does not cost money to the Government, it generates a lower welfare loss and reduces the energy bill. However, the analysis is extended to go beyond the two extreme scenarios: subsidies without taxes and taxes without subsidies. Different combinations of both instruments are suggested and they are assessed based on their performance regarding economic efficiency, environmental effectiveness and political feasibility.
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[2013-04] Understanding Public Support for Externality-Correcting Taxes and Subsidies: A Lab Experiment
David Heres, Steffen Kallbekken and Ibon Galarraga

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The potential of taxation to correcting environmental externalities has been long recognized among economists. Yet, this welfare-enhancing policy commonly faces strong opposition by citizens. Conversely, externality-correcting subsidies frequently enjoy high levels of public acceptance. We conduct a lab experiment to explore public support for Pigouvian taxes and subsidies. In an experimental market with a negative externality, participants vote on the introduction of Pigouvian taxes and subsidies under full or partial information concerning how the tax revenues will be spent and the subsidy paid for. Theoretically the two instruments should produce identical outcomes. We find substantially greater support for subsidies than taxes. This can partially be explained by the expectation that the subsidy will increase payoffs more than a tax, but not because it could be more effective in changing behavior. Furthermore, we find that under partial information, the preference for subsidies is even stronger.
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[2013-03] Long Run Demand for Energy Services: the Role of Economic and Technological Development
Roger Fouquet

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This paper investigates how the demand for energy services has changed since the Industrial Revolution. It presents evidence on the income and price elasticities of demand for domestic heating, passenger transport and lighting in the United Kingdom over the last two hundred years. It finds that the general trend in income elasticity followed an inverse U-shape curve and in price elasticity was a U-shape curve, as the economy developed and energy service prices fell. However, these general trends were disrupted by energy and technological transitions, which boosted demand (either by encouraging poorer consumers to fully enter the market or by offering new attributes of value to wealthier consumers). This evidence suggests that energy service consumption in developing economies is likely to continue rising rapidly and in industrialised countries is not likely to decline. Thus, in the absence of a full transition to low carbon energy sources and technologies, this implies long run increases in global carbon dioxide emissions.
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[2013-02] Development of a new modelling framework to estimate the C footprint from Basque dairy farms
Agustin del Prado, Karlos Mas, Guillermo Pardo, Patricia Gallejones

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There is world-wide concern for the contribution of dairy farming to global warming. However, there is still a need to improve the quantification of the C-footprint of dairy farming systems under different production systems and locations since most of the studies (e.g at farm-scale or using LCA) have been carried out using too simplistic and generalised approaches. A new modelling approach in order to estimate the C footprint from milk in the Basque Country has been developed. This working paper provides a description of the model and shows a case study for a set of dairy farms in the province of Bizkaia.
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[2013-01] Budget-Neutral Financing to Unlock Energy Savings Potential: An Analysis of the ESCO Model in Barcelona
Samuel Bobbino, Héctor Galván and Mikel González-Eguino

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The objective of this article is to introduce an increasingly popular business model known as the Energy Service Company (ESCO) model and bring to light the principal barriers to its widespread implementation both from the public and private perspectives. The ESCO model is essentially a "budget neutral" method of financing the purchase, installation and maintenance of energy efficient technologies. This concept, which incorporates notions of "third-party financing" and "energy performance contracting", has been used successfully for quite some time in countries like the US, the UK and Germany. In this article we will analyze the possibilities and limitations in the implementation of the ESCO model in a specific case study: the Barcelona municipal area in Spain.
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[2012-14] Payments for Water Ecosystem Services in Latin America: Evidence from Reported Experience
Julia Martin-Ortega, Elena Ojea, Camille Roux

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Payments for Ecosystem Services (PES) schemes are attracting increasing interest as policy mechanisms to improve conservation and sustainable development outcomes. PES initiatives aim to reach mutually beneficial agreements between providers and users of ecosystem services. In Latin America, with Costa Rica as the frontrunner, there are now more than two decades of experience in the implementation of PES schemes, which potentially represent a valuable source of knowledge for the improvement of the efficacy of conservation programs. Reviews and special issues dedicated to the study of PES exist, but they remain to most of their extent descriptive and qualitative. This paper presents the first study that systematically analyses the PES experience on the basis of a descriptive analysis of existing programs. The objective is twofold: (i) understanding the key features of existing PES mechanisms based on reported evidence; and (ii) identifying information needs for evidence-based policy design and implementation. We focus on water-related services since this type of service is involved in the majority of schemes. A database was constructed with 287 observations from 39 studies, from 1984 to 2011 in 10 Latin American countries. We find evidence confirming some known facts, such as deforestation and forest management as the main drivers of PES establishment, and revealing new ones, such as that average income for sellers is 60% larger than average buyers’ payment for the service.
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[2012-13] The Economic Impacts of Biodiversity Policy for Improving the Climate Regulating Services Provided by EU Natura 2000 Habitats
Helen Ding, Anil Markandya and Paulo A.L.D. Nunes

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We adopted the state-of-the-art methodologies to quantify the total carbon stocked by Natura 2000 habitats as well as to project the future changes of carbon stocks influenced by alternative policy options for the management of Natura 2000 habitats by 2020. Our results show that the N2K network currently stores around 9.6 billion tonnes of Carbon, equivalent to 35 billion tonnes of CO2, which is estimated to be worth between €607 billion and €1,130 billion (stock value in 2010), depending on the price attached to a ton of carbon. Of the different ecosystems the forest habitats contain the highest carbon value in the network, ranging between €318 and €610 billion in 2010. Furthermore, our results also show that in the future these carbon values can be increased. A policy scenario (Policy ON), where full Protected Area coverage (terrestrial PAs + fuller MPAs) with a move to full favourable conservation status is estimated to generate a gain of at least a total of 1.71-2.86% by 2020 compared to a policy inaction scenario (Policy OFF), where no additional action is taken to conserve the current Natura 2000 sites over the next decade.
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[2012-12] Modeling the Links between Biodiversity, Ecosystem Services and Human Wellbeing in the Context of Climate Change: Results from an Econometric Analysis on the European Forest Ecosystems
Helen Ding and Paulo A.L.D. Nunes

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The paper conducts an empirical investigation on the complex relationship between biodiversity and the values of ecosystem goods and services that are supported by biodiversity and ecosystem functioning, aiming to produce an econometric quantification of the magnitudes involved. Furthermore, we operate this study at a in the context of global climate change, which is considered one of the major drivers today that alter the pattern of biodiversity distribution, affect the ecosystem functioning and change the flows of ecosystem goods and services to be provided by a healthy ecosystem. In the paper, we first built a composite biodiversity indicator on the concept of Natural Capital Index so as to integrate information regarding the quantitative and qualitative changes of ecosystems driven by warming climate conditions. Furthermore, the composite indicator is integrated into the econometric specification so as to capture the marginal impacts of changes in biodiversity on the value of ecosystem goods and services due to climate change. The econometric problem is solved in a structural simultaneous system using three-stage-least-squares (3SLS) to analyze climate change impacts on forest ecosystems and the respective ecosystem service values across 17 European countries.
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[2012-11] Valuation of wind energy projects: A real options approach
Luis M. Abadie and José M. Chamorro

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This paper addresses the valuation of an operating wind farm and the finite-lived option to invest in such a farm under diferent reward and/or support schemes. They range from a feed-in tarif to a premium on top of electricity market price, to a transitory subsidy to capital expenditure. The availability of futures contracts on electricity with ever longer maturities allows to undertake valuations based on market data. The model considers two sources of uncertainty, namely the future electricity price (which shows seasonality) and the level of wind generation (which is intermittent in addition to seasonal). Lacking analytical solutions we resort to a trinomial lattice (which supports mean reversion in prices) combined with Monte Carlo simulation at each of the nodes in the lattice. Our data set refers to the UK. The numerical results show the impact of a number of factors involved in the decision to invest: the subsidy per unit of electricity generated, the initial lump-sum subsidy, the investment option’s maturity, and price volatility.

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[2012-10] Towards a Participatory Integrated Assessment Approach for Planning and Managing Natura 2000 Network Sites
Iker Etxano, Eneko Garmendia, Unai Pascual, David Hoyos, María A. Díez, José A. Cadiñanos, Pedro J. Lozano

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Managing protected areas implies dealing with complex social-ecological systems where multiple dimensions (social, institutional, economic and ecological) interact over time for the delivery of ecosystem services. Uni-dimensional and top-down management approaches have been unable to capture this complexity. Instead, new integrated approaches that acknowledge the diversity of social actors in the decision making process are required. In this paper we put forward a novel participatory assessment approach which integrates multiple methodologies to reflect different value articulating institutions in the case of a Natura 2000 network site in the Basque Country. It integrates within a social multi-criteria evaluation framework, both the economic values of ecosystem services through a choice experiment model and ecological values by means of a spatial bio-geographic assessment. By capturing confronting social and institutional conflicts in protected areas the participatory integrated assessment approach presented here can help decision makers for better planning and managing Natura 2000 sites.
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