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2012

[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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[2012-05] Effects of Carbon Dioxide Capture and Storage in Germany on European Electricity Exchange and Welfare
Dirk Rübbelke, Stefan Vögele

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In the course of European efforts to mitigate global warming, the application of carbon dioxide capture and storage (CCS) technologies is discussed as a potential option. Some political opposition was raised – inter alia – by uncertainties about the effective cost of such technologies. Because of the cost structure of CCS power plants with high ‘flat’ investment cost and – in case of high carbon allowance prices – comparable low variable cost, the application of CCS will induce a merit-order effect causing a decline in electricity prices on the spot market. On the one hand, the reduction of electricity supply cost raises suppliers’ rents, while the decline of electricity prices augments consumers’ surpluses. These positive welfare effects tend to mitigate political opposition against CCS. On the other hand, the merit-order effect reduces electricity suppliers’ revenues as the electricity prices decline. This mitigates their scope for additional investments in CCS capacity. In this study, we focus on the influence of CCS in Germany on electricity supplier and consumer surpluses and associated impacts on the scope for investments in additional CCS capacity. By means of the applied model of electricity markets, influences on European electricity exchange and welfare levels are investigated
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[2012-04] Environmental Fiscal Reform and Unemployment in Spain
Anil Markandya, Mikel González-Eguino and Marta Escapa

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The theoretical literature relevant to the relationship between environmental taxation and employment creation is centred on the suggestion by Pearce (1991) that environmental taxation could lead to a “double dividend”. In this paper we review the literature on the employment double dividend for Spain and add to it with some new analysis of our own that fills some important gaps in the literature.
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[2012-03] From Shadow to Green: Linking Environmental Fiscal Reforms and the Informal Economy
Mikel González-Eguino, Anil Markandya and Marta Escapa

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In the past few decades many papers have analysed in some depth different environmental tax reforms and the double dividend hypothesis, i.e. the possibility of improving not only the environment but also the economy through the reduction of distortions in the tax system. Recently, more stress has been placed on testing empirically what effects a reduction in labour taxes may have on unemployment when accompanied by a carbon or other environmental tax. However, such studies have not modelled the effects of the presence of a shadow economy, even though informal markets account for a significant and growing part of GDP in many developed economies. This paper analyses this link using an Applied General Equilibrium model for the case of Spain, which has one of the highest unemployment rates in the world and one of the biggest informal economies of any wealthy country. We conclude that our analysis strengthens the case for an environmental tax reform in Spain if revenues from a CO2 tax are recycled via a labour tax reduction.
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[2012-02] Exploitation of soil biota ecosystem services in agriculture: a bioeconomic approach.
Sébastien Foudi

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This paper analyzes the interactions between soil biota and agricultural practices in the exploitation of soil ecosystem services. A theoretical bioeconomic model stylized this set of interactions and combined a production function approach with optimal
control theory. In the model, a farmer decides his optimal use of external input and land use given that (i) land uses modify soil biota composition, (ii) the external input reduces soil biota population. The results show how the combination of ecological interactions, farmer's expectations on the evolution of the stock of soil biota and the technology of production determines the optimal decisions. The interpretation of the results helps to understand why and under which circumstances a sustainable or a non-sustainable use of soil ecosystem services may be optimal for farmers. A particular emphasis given to the role of property rights and time preferences in the use of soil biota services reveals the ambiguity of their role on the conservation of soil ecosystem services generated by soil biota.
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[2012-01] Trends in Income and Price Elasticities of Transport Demand (1850-2010)
Roger Fouquet

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The purpose of this paper is to estimate trends in income and price elasticities and to offer insights for the future growth in transport use, with particular emphasis on the impact of energy and technological transitions. The results indicate that income and price elasticities of passenger transport demand in the United Kingdom were very large (3.1 and -1.5, respectively) in the mid-nineteenth century, and declined since then. In 2010, long run income and price elasticity of aggregate land transport demand were estimated to be 0.8 and -0.6. These trends suggest that future elasticities related to transport demand in developed economies may decline very gradually and, in developing economies, where elasticities are often larger, they will probably decline more rapidly as the economies develop. Because of the declining trends in elasticities, future energy and technological transitions are not likely to generate the growth rates in energy consumption that occurred following transitions in the nineteenth century. Nevertheless, energy and technological transitions, such as the car and the airplane, appear to have delayed and probably will delay declining trends in income and price elasticity of aggregate land transport demand.
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2011

[2011-13] Climate change, Responsibilities, and Defeatism and Complacency
Thomas Heyd

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Paradoxically, knowledge of the increasing certainty about climate change, and of the severe consequences of this phenomenon for large portions of the world population, may lead individuals and communities to fall into a paralysing defeatism. Such defeatism, even more paradoxically, may be accompanied by complacency, due to assumption that, on the basis of our societies’ institutional, scientific and technical capabilities, we can wait until problems really become evident. Both the defeatist and the complacent attitude may lead to failure in the application of entirely feasible mitigation and adaptation measures, with consequent much increased probabilities of economic, human and ecological costs. In view of the degree to which these attitudes are present in our societies we may wonder whether inaction may be justifiable on our part despite awareness of stringent responsibilities. Here I argue that, even if it may appear that, under these conditions, we cannot take direct action on our responsibilities regarding climate change, we still have responsibilities to act at another level.
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[2011-12] The Uniform World Model: A Methodology for Predicting the Health Impacts of Air Pollution
Joseph V. Spadaro

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Throughout history, technological development and economic growth has led to greater prosperity and overall standard of living for many people in society. However, along with the benefits of economic development comes the social responsibility of minimizing the mortality and morbidity health impacts associated with human activities, safeguarding ecosystems, protecting world cultural heritage and preventing integrity and amenity losses of man-made environments. Effects are often irreversible, extend way beyond national borders and can occur over a long time lag. At current pollutant levels, the monetized impacts carry a significant burden to society, on the order of few percent of a country’s GDP, and upwards to 10% of GDP for countries in transition. A recent study for the European Union found that the aggregate damage burden from industrial air pollution alone costs every man, woman and child between 200 and 330 € a year, of which CO2 emissions contributed 40 to 60% (EEA 2011).

In a sustainable world, an assessment of the environmental impacts (and damage costs) imposed by man's decisions on present and future generations is necessary when addressing the cost effectiveness of local and national policy options that aim at improving air quality and reducing greenhouse gas emissions. The aim of this paper is to present a methodology for calculating such adverse public health outcomes arising from exposure to routine atmospheric pollutant emissions using a simplified methodology, referred to as the Uniform World Model (UWM). The UWM clearly identifies the most relevant factors of the analysis, is easy to implement and requires only a few key input parameters that are easily obtained by the analyst, even to someone living in a developing country. The UWM is exact in the limit all parameters are uniformly distributed, due to mass conservation.

The current approach can be applied to elevated and mobile sources. Its robustness has been validated (typical deviations are well within the ±50% range) by comparison with much more detailed air quality and environmental impact assessment models, such as ISC3, CALPUFF, EMEP and GAINS. Several comparisons illustrating the wide range of applicability of the UWM are presented in the paper, including estimation of mean concentrations at the local, country and continental level and calculation of local and country level intake factors and marginal damage costs of primary particulate matter and inorganic secondary aerosols. Relationships are also provided for computing spatial concentration profiles and cumulative impact or damage cost distributions. Assessments cover sources located in the USA, Europe, East Asia (China) and South Asia (India).

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[2011-11] The Demand for Environmental Quality in Driving Transitions to Low Polluting Energy Sources
Roger Fouquet

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The purpose of this paper is to understand the long run demand for energy-related environmental quality, its influence on legislation and on transitions to low polluting energy sources. It starts by presenting a simple framework of the relationship between the demand for and supply of environmental quality, environmental legislation and energy. This forms the structure for presenting a series of episodes in British history where a demand for improvements in energy-related environmental quality existed. This analysis proposes that markets can drive transitions to low polluting energy sources, in specific economic conditions. However, most probably, governments will need to push them, and this cannot be expected without strong and sustained demand for environmental improvements. Yet, while demand is a prerequisite, it is not enough. It must also be spearheaded by strong, creative and sustained pressure groups (i.e., powerful lobbying and the weakening of the counter-lobby) to introduce legislation, to enforce it and to avoid it being over-turned by future governments.
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[2011-10] The Equivalency Principle for Discounting the Value of Natural Assets: An Application to an Investment Project in the Basque Coast
Aline Chiabai, Ibon Galarraga, Anil Markandya and Unai Pascual

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Making decisions about optimal investments in green infrastructure necessitates setting social discount rates. This paper suggests a practical way for determining the discount rate for projects or programmes in which one of the options is to maintain or improve land in its natural state. We propose an “equivalency principle” to derive a simple rule that sets the discount rate. The rule is based on the premise that the long term value of a naturally preserved land track ought to be at least the same as the value of an identical land track in the vicinity to which permission has been granted for development. We illustrate this principle with various case studies and we apply it to a contentious investment project in the Basque Country associated with the regeneration of a large scale harbour in the province of Gipuzkoa (North of Spain) that involves reclaiming natural land that has important ecological value, including for the conservation of a marine ecosystem.
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[2011-09] The Private Provision of International Impure Public Goods: the Case of Climate Policy
Martin Altemeyer-Bartscher, Anil Markandya and Dirk T.G. Rübbelke

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We discuss a tax-transfer scheme that aims at addressing the under-provision problem associated with the private supply of international public goods and at bringing about Pareto optimal allocations internationally. In particular, we consider the example of the global public good ‘climate stabilisation’, both in an analytical and a numerical simulation model. The proposed scheme levies Pigouvian taxes globally, while international sidepayments are employed in order to provide incentives to individual countries for not taking a free-ride from the international Pigouvian tax scheme. The side-payments, in turn, are financed via the environmental taxes. As a distinctive feature we take into account ancillary benefits that may be associated with local public characteristics of climate policy. We determine the positive impact that ancillary effects may exert on the scope for financing side-payments via environmental taxation. A particular attractive feature of ancillary benefits is that they arise shortly after the implementation of climate policies and therefore yield an almost immediate payback of investments in abatement efforts. Especially in times of high public debt levels, long periods of amortisation would tend to reduce political support for investments in climate policy.
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[2011-08] Low Climate Stabilisation under Diverse Growth and Convergence Scenarios
Anil Markandya, Mikel González-Eguino, Patrick Criqui and Silvana Mima

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In the last decade, a few papers have analysed the consequences of achieving the greenhouse gas concentration levels necessary to maintain global temperature increases below 2 degrees Celsius above preindustrial levels. Most models and scenarios assume that future trends in global GDP will be similar to the growth experienced in the past century, which would imply multiplying current output nineteen-fold in this century. However, natural resource and environmental constraints suggest that future global economic growth may not be so high. Furthermore, the environmental implications of such growth depend on how it is distributed across countries. This paper studies the implications on GHG abatement policies of different assumptions on global GDP growth and convergence levels. A partial equilibrium model (POLES) of the world´s energy system is used to provide detailed projections up to 2050 for the different regions of the world. The results suggest that while low stabilisation is technically feasible and economically viable for the world in all the scenarios considered, it is more likely to occur with more modest global growth. Convergence in living standards on the other hand places greater pressures in terms of the required reduction in emissions. In general we find that there are major differences between regions in terms of the size and the timing of abatement costs and economic impact.
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[2011-07] Price Premium for High-Efficiency Refrigerators and Calculation of Price-Elasticities for Close-Substitutes: Combining Hedonic Pricing and Demand Systems
Ibon Galarraga, David Heres Del Valle and Mikel González-Eguino

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This article uses the hedonic pricing method to estimate the price premium paid for the highest energy-efficiency label (A+) in the refrigerators market of the Basque Autonomous Community (Spain). The estimated figure is 8.9% of the final price or about 60 euro, which represents one third of the energy savings that a consumer gets during the lifetime of a refrigerator with the highest energy-efficiency label. This figure is then combined with the linear version of the Almost Ideal Demand System (LA/AIDS) to obtain own and cross-price elasticities of demand. The information presented here is useful for policy design and analysis. The results indicate that the demand for refrigerators with the highest energy-efficiency label is highly sensitive to price variations.
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[2011-06] The Long Run Demand for Lighting: Elasticities and Rebound Effects in Different Phases of Economic Development
Roger Fouquet and Peter J.G Pearson

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The provision of artificial light was revolutionised by a series of discontinuous innovations in lighting appliances, fuels, infrastructures and institutions during the nineteenth and twentieth centuries. In Britain, the real price of lighting fell dramatically (3,000-fold between 1800 and 2000) and quality rose. Along with rises in real income and population, these developments meant that total consumption of lighting was 40,000 times greater by2000 than in 1800. The paper presents estimates of the income and price elasticities of demand for lighting services over the past three hundred years, and explores how they evolved. Income and price elasticities increased dramatically (to 3.5 and -1.7, respectively) between the 1840s and the 1890s and fell rapidly in the twentieth century. Even in the twentieth century and at the beginning of the twenty-first century, rebound effects in the lighting market still appear to be potentially important. This paper provides a first case study of the long run effects of socio-economic change and technological innovation on the consumption of energy services in the UK. We suggest that understanding the evolution of the demand for energy services and the factors that influence it contributes to a better understanding of future energy uses and associated greenhouse gas emissions.
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[2011-05] Households WTP for the Reliability of Gas Supply
Wan-Jung Chou, Andrea Bigano, Alistair Hunt, Stephane La Branche, Anil Markandya, Roberta Pierfederici

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The security of natural gas supply is an important issue for all EU countries due to the region’s heavy dependence on imported supply sources and in light of energy demand for gas that is continuously increasing. Discussions have emphasised strategies for securing the supply at the macro level, e.g. diversification in supply sources, increase in storage capacity, etc. By contrast, consumers’ demand for the reliability of gas supply is rarely investigated. Hence this study was conducted to examine the economic implications associated with the security of gas supply directly to domestic consumers. Based on the choice experiment approach, household surveys were conducted in France, Italy and the UK. The results confirmed that the degree of the economic impact of a disruption of gas supply to domestic consumers was a function of the duration of a supply disruption and the season in which a supply cut would take place, as well as other preferences of consumers. The willingness to pay to secure per unit of gas consumption, or alternatively the costs of gas unsupplied, was estimated at between €2.65/cubic metre and €41.48/cubic metre across three different European countries.
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[2011-04] International Climate Finance and its Influence on Fairness and Policy
Karen Pittel and Dirk Rübbelke

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Besides costs and benefits, fairness aspects tend to influence negotiating parties’ willingness to join an international agreement on climate change mitigation. Fairness is largely considered to improve the prospects of success of international negotiations and hence measures raising fairness perception might – in turn – help to bring about effective cooperative international climate change mitigation. We consider the influences present international support of climate policy in developing countries exerts on fairness perception and how this again might affect international negotiations. In doing so, we distinguish between fairness perception which is based on historical experiences and perception which is based on conjectures about opponents’ intentions. By identifying beneficial components of current support schemes, lessons can be learnt for designing new schemes like the Green Climate Fund.
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[2011-03] Endogenous Timing in Pollution Control: Stackelberg versus Cournot-Nash Equilibria
Melanie Heugues

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In the framework of international cooperation on climate change to control greenhouse gas emissions
(GHG), this paper aims to shed new light on the eventuality of the emergence of a country (or a group
of countries) behaving as a leader in the implementation of its environmental policy. The sequence of
moves in the existing literature is usually an exogenous assumption, – known as the Cournot
assumption (if countries take action simultaneously) and the Stackelberg assumption (if they act
sequentially, the latter observing the strategy of the former). The main purpose here is to make the
timing endogenous. To do so, we introduce a pre-play stage in the basic two-country game. Then we
provide different sets of minimal conditions – on the benefit and damage functions linked to GHG
emissions into the atmosphere, yielding respectively the simultaneous and the two sequential modes of
play. While the results essentially confirm the prevalence of the former, they also indicate that the
latter are natural under some robust conditions: a leader can emerge endogenously when
implementing its environmental policy. Finally we provide sufficient conditions for a specific leader
to appear. All the results come with an analysis in terms of global emissions and global welfare. No
extraneous assumptions such as concavity, existence, or uniqueness of equilibria are needed, and the
analysis makes crucial use of the basic results from the theory of supermodular games.

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[2011-02] International Support of Climate Change Policies in Developing Countries: Strategic, Moral and Fairness Aspects
Dirk Rübbelke

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International transfers in climate policy channeled from the industrialized to the developing
world either support the mitigation of climate change or the adaptation to global warming.
From an allocative efficiency point of view, transfers supporting mitigation tend to be Pareto-improving
whereas this is not very likely in the case of adaptation support. We illustrate this
by regarding transfer schemes currently applied under the UN Framework Convention on
Climate Change (UNFCCC) and the Kyoto framework.
However, if we enrich the analysis by integrating distributional aspects, we find that
international adaptation funding may help both developing and developed world. Interestingly
this is not due to altruistic incentives, but due to follow-up effects on international
negotiations on climate change mitigation. We argue that the lack of fairness perceived by
developing countries in the international climate policy arena can be reduced by the support
of adaptation in these countries. As we show – taking into account different fairness concepts
– this might raise the prospects of success in international negotiations on climate change.
Yet, we find that the influence of transfers may induce different fairness effects on climate
change mitigation negotiations to run counter.
We discuss whether current transfer schemes under the UNFCCC and the Kyoto framework
adequately serve the distributive and allocative objectives pursued in international climate
policy.

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[2011-01] Long Run Trends in Energy-Related External Costs
Roger Fouquet

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This paper considers how energy-related external costs change through time. It focuses on one of the key periods in the history of energy. After a period of declining coal prices and soaring consumption which fuelled the Second Industrial Revolution, the nineteenth century British economy was externalising the social costs of energy production and consumption on a massive scale. Rising from 25% in the 1820s, an estimated 60%-70% of the average social costs of coal were externalised in the 1880s, imposing damages close to 20% of GDP. The eventual decline in air pollution concentration (around 1900) occurred fifty years later than was broadly socially optimal. This experience highlights the evolution of the demand for and supply of environmental quality in the context of economic growth, and the nature of related market and government failures, implying the necessity for adaptation rather than encouraging mitigation. This experience may offer lessons for climate analysis and policy-making.
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