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2013

[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

[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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[2012-09] Evaluating Governance and Participatory Processes in Natura 2000: Lessons Learned and Guidance for Future Prospects
María-Angeles Díez, Iker Etxano, Eneko Garmendia,

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In recent years, participatory approaches have been incorporated in decision-making processes as a way to strengthen the bonds between diverse areas of knowledge and social actors in natural resources management and environmental governance. Despite the favourable context, this paradigm shift is still in an early stage within the development of the Natura 2000 in the European Union, the largest network of protected areas in the world. To enhance the full scope of participatory approaches in this context, this article: (i) briefly reviews the role of participatory approaches in environmental governance, (ii) develops a common framework to evaluate such participatory processes in protected area management, (iii) applies this framework to a real case study, and (iv) based on the lessons learned, provides guidance to improve the future governance of Natura 2000 sites.
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[2012-08] Economics of Energy and Climate Change: Origins, Developments and Growth
Roger Fouquet

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This paper briefly highlights some of the most influential ideas in the literature on the economics of energy and (energy-related) climate change. This paper will use bibliometric evidence to examine the trends in related research over the last forty years, and analyse the explosion in energy and climate change research in the last ten years. It will also, more controversially, consider the validity of the hypothesised rise in original ideas in the literature (during the 1990s) and then decline (or relative decline) since the explosion in research output (since 2005). This paper proposes that if economists are going to make an equally important and constructive contribution as they did up to 2012, then their ideas will need to move forward and evolve, offering exciting and stimulating new solutions for the post-Kyoto era.
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[2012-07] Towards a Comprehensive Approach to Quantifying and Mapping Ecosystem Services Flows
Ferdinando Villa, Ken Bagstad, Gary Johnson, Brian Voigt

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Recent ecosystem services research has highlighted the importance of spatial connectivity between ecosystems and their beneficiaries. Despite this need, a systematic approach to ecosystem service flow quantification has not yet emerged. In this article, we present such an approach, which we formalize as a class of agent-based models termed “Service Path Attribution Networks” (SPANs). These models, developed as part of the Artificial Intelligence for Ecosystem Services (ARIES) project, expand on ecosystem services classification terminology introduced by other authors. Conceptual elements needed to support flow modeling include a service’s rivalness, its flow routing type (e.g., through hydrologic or transportation networks, lines of sight, or other approaches), and whether the service is supplie d by an ecosystem’s provision of a beneficial flow to people or by absorption of a detrimental flow before it reaches people. We describe our implementation of the SPAN framework for five ecosystem services and discuss how to generalize the approach to additional services. SPAN model outputs include maps of ecosystem service provision, use, depletion, and flows under theoretical, possible, actual, inaccessible, and blocked conditions. We highlight how these different ecosystem service flow maps could be used to support various types of decision making for conservation and resource management planning.
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[2012-06] Weighting social preferences in participatory multi-criteria evaluations: a case study on sustainable natural resource management
Eneko Garmendia and Gonzalo Gamboa

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The use of multi-criteria evaluation tools in combination with participatory approaches provides a promising framework for integrating multiple interests and perspectives in the effort to provide sustainability. However, the inclusion of diverse viewpoints requires the "compression" of complex issues, a process that is controversial. Ensuring the quality of the compression process is a major challenge, especially with regards to retaining the essential elements of the various perspectives. In this article, we suggest a process in which the explicit elicitation of weights (i.e., the prioritisation of criteria) within a participatory multi-criteria evaluation serves as a quality assurance mechanism to check the robustness of sustainability integrated assessment processes from a social perspective. We demonstrate this approach using a case study focused on the sustainable management of the Urdaibai Estuary in the Basque Country (Southern Europe). Drawing on the large body of literature on sophisticated mathematical models that help identify and prioritise criteria, this approach allows (1) an explicit "social sensitivity" analysis despite the incommensurability of values regarding individual or group priorities, and (2) participants to learn from and reflect upon diverse social preferences without forcing their consensus.
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