Documents Löschel, Andreas 9 results

"In the aftermath of the climate conference in Copenhagen in December 2009 (15th Conference of the Parties of the United Nations), two issues appear to have played a determinant role in the negotiation discourse in protecting the global climate. First, different views on fairness considerations in sharing the burden of the greenhouse gas mitigation costs: Developed countries are historically the main contributors to climate change, while in some newly industrializing economies, notably China, emissions grow at an unprecedented rate. What is a fair way to share the responsibilities among developing and developed countries in the containment of global emissions? In international climate policy, different notions of equity have been proposed supported by different countries. The lack of consensus on equity principles has informed much of the exchanges between the United States and China. These two largest emitters worldwide have managed to stay clear of binding commitments to date. Second, coordination difficulties are displayed by the many participants to the climate negotiations: The Copenhagen Accord has introduced a nonbinding "pledge and review" mechanism where individual countries define voluntary emission reduction targets to reduce greenhouse gas emissions before 2020. Can this emergent institution prove successful as a first stage to achieve the required global coordination? Against this background, this paper is concerned with the drivers of cooperation among groups of unrelated individuals faced with a coordination game requiring multilateral effort in order to reach a target and avoid losses to all members. Free riding and coordination difficulties are held to be the primary causes of cooperation breakdown among nonrelatives. These thwarting effects are particularly severe in the absence of effective monitoring institutions capable of sanctioning deviant behavior. A growing literature however stresses the importance of non-economic factors in explaining human behavior; therefore, instruments that go beyond the traditional incentives might prove effective in facilitating the task. Given the empirical nature of the problem, we address it by means of a controlled laboratory experiment. To this end, we extend an experiment regarding a framed threshold public goods game with distinctive elements such as inequality and commitment as salient features of the ongoing debate over how best to share the "common but differentiated responsibilities" of climate change. We have built upon the game proposed by Milinski et al. (2008) to explore these further aspects that were not captured by the original design, and that we deem important both at the theoretical and policy level. The experimental results show that the real-world features introduced in the game have deep consequences on the cooperation level. Both claims that the inequality disrupts and the commitments help coordination are supported by the data. Thereby the experiment clearly shows the conditions under which subjects effectively coordinate their efforts to avoid the climate catastrophe: All successful groups agreed on a common equity notion and eliminated inequality while failing groups often disagreed about the reduction of inequality. In that context, the announcement of unbinding targets is particularly helpful to solve the coordination problem."

"This paper reviews the literature on distributional effects of energy and carbon taxation with focus on microsimulation models. Most studies find that direct energy and carbon taxation tends to be regressive. Regressive effects occur mostly with respect to taxation of electricity or space heating. Taxation of transportation fuels show less regressive, neutral, or even progressive effects. Adequate revenue recycling often allows for neutralisation or full elimination of regressive effects so that energy and carbon tax reforms can be progressive. Some studies find evidence for the existence of a double dividend. There seems to be an efficiency-equity trade-off in revenue recycling, i.e. whether to foster growth or to assist low-income households. While a large number of studies on advanced economies are available, there clearly is a gap with regard to evidence for developing countries. Another gap relates to the lack of documentation on the challenges of incorporating macroeconomic models and long-term modelling perspectives in microsimulation. Both aspects can be of great importance with respect to the design of green growth policies. Thoughtful incorporation of social considerations, including aspects of poverty in modelling approaches could enhance the existing instruments of exante policy assessments since poverty is a tangible concept which is well-known, understandable, and openly observable for citizens and policy makers."

"One of the most promising ways of meeting climate policy targets is improving energy efficiency, i.e. reducing the amount of scarce and polluting resources needed to produce a given quantity of output. This study undertakes an empirical exercise using the World Input-Output Database (WIOD), a harmonized dataset comprising time-series of input-output tables along with environmental satellite accounts and socioeconomic information. The paper consists of two parts. In the first part we begin with an aggregated picture of EU27 energy intensity and its evolution between 1995 and 2009. Then we dig deeper and introduce sectoral detail to identify the economic changes that occurred during the same period. Finally, we disaggregate the EU27 into countries for regional analysis and perform a sectoral disaggregation for a fine-grained picture of energy intensity in Europe. In the second part of the study we take our findings from index decomposition analysis and subject them to panel estimations. The objective is to control for factors that may have shaped the evolution of energy intensity in the European Union. In particular, we investigate the impact of technological change, structural change, trade, environmental regulation and country-specific characteristics."

"In the last decades supply chains emerged that stretch across many countries. This has been explained with decreasing trade and communication costs. We extend the literature by analyzing if and how unilateral environmental regulation induces offshoring to unregulated jurisdictions. We first apply an analytical partial-equilibrium model of a two-stage production process that can be distributed between two countries and investigate unilateral emission pricing and its supplementation with border carbon taxes. To get a more comprehensive picture, we subsequently apply a computable general equilibrium model that includes a better representation of international supply chains. We find heterogeneous, but mostly positive effects of a unilateral carbon emission reduction by the European Union on the degree of vertical specialisation of European industries and explain these differences by heterogeneity in the emission-intensity and pre-policy vertical specialisation of sectors. Border taxes are successful in protecting upstream industries, but with negative side effects for downstream industries."

"The assessment of climate change mitigation policies mainly depends on three not mutually exclusive modeling decisions: First, the chosen discount rate, since costs are incurred today and long-term benefits occur in the future. A low (high) discount rate favors immediate (delayed) action. Second, the uncertainties related to the problem of climate change. This debate was revived by the literature dealing with Martin Weitzman's "dismal theorem", stating that the unknown unknowns could be too large for cost-benefit analysis of long-term climate policy measures. Third, the treatment of technological change in economic modeling of climate policy.
Climate change, climate policy measures and technological change are highly intertwined matters. In general, the close relationship lies in negative and positive economic externalities. On the level of an individual firm as well as on a more global scale, pollution and climate change are negative externalities. On the other hand, the generation of knowledge represents a positive externality. The appropriate modeling of both is a crucial decision each modeler has to make. Many empirical studies have demonstrated the sensitivity of long-term analysis to assumptions about technological change. Most economic modeling was done under the assumption of exogenous technological change. These models are unable to capture and examine important links between policy and technical change. The wider literature acknowledged that technical change is not autonomous and that it is possible to identify processes which are responses to market conditions, expectations and governmental regulatory standards. To capture these developments, models incorporating endogenous technological change were developed, but the empirical base for the linkage between environmental policy and technical change was weak. In the past few years, significant improvements in the description of technological progress in climate policy assessment models have been achieved.
The purpose of this paper is threefold: First, we want to sketch the different options for modeling technological change on both a microeconomic and macroeconomic level, where our main focus will lie on large-scale macroeconomic models. Second, we want to give an overview of the different models surrounding climate change and energy economics. How is technological change implemented in the models? How does this affect the results? Which efforts have been made to endogenize the technological progress previously treated as exogenous? And finally we want to give a brief discussion of open research issues.
Although many problems associated with modeling technological change as exogenous have been resolved, numerous questions still remain unanswered. As technological change is an uncertain phenomenon, these uncertainties have to be incorporated in large-scale models more carefully. This holds particularly true for major innovations. Another important dimension of technical change that has to be taken into account is the potential for path-dependency, inertias and lock-in situations. Environment-energy-economy models can account for such effects by a careful inclusion of learning-by-doing, time lags, assumptions about the diffusion rates of innovations and directed (or biased) technological change. A further important aspect of the innovation process not appropriately accounted for is the heterogeneity of firms, as different firms respond differently to environmental policies."

"The objective of this study is the economic analysis of the Decarbonisation Roadmap 2050, recently published by the EU Commission. The Decarbonisation Roadmap is the latest strategy to make the decarbonisation of the EU reality. It aims at a reduction in greenhouse gas emissions of more than 80% in 2050 vis-à-vis 1990 and an expansion of renewable energies to 50% or more in electricity generation in 2050. Since there is a lack in detailed economic analysis of this latest EU climate strategy so far, our study aims at shedding more light on it at the sectoral and the macro level. Compared to the EU Roadmap simulations, we examine especially welfare effects, carbon leakage and terms of trade on the macro level, and output, investment, emissions and competitiveness on the sectoral level.
The simulation of the Fragmented Action scenario yields the following key results: The costs for the EU-27 induced by the Decarbonisation Roadmap could stay below 0.3% until 2020 and below 2% until 2035 in terms of consumption losses (or welfare effects). They might increase to 3% thereafter and possibly increase significantly in later periods in the absence of breakthrough technologies. The international carbon leakage rate might reach up to 20%, presumably mainly through the fossil fuel price channel. Moreover, the changes in the output value of industry sectors could substantially differ in a range of around +1% to -15% in the 2040s.
The simulations of the other policy scenarios show that an extensive future use of CDM would have strong positive welfare effects on the EU and could widely disburden the EU from the additional costs of the Decarbonisation Roadmap. (Herein, we understand CDM in the sense of "where"-flexibility, this means the reduction of emissions where it is cheapest, such as in developing countries, not in the sense of a project-based mechanism associated with technology transfer.) CDM would not solve the global climate problem, though. A sustained allocation of free allowances (benchmarking) to leakage sectors, on the contrary, would slightly increase overall costs. Global climate action would improve the terms of trade in favour of the EU. Without international emissions trading, it would have limited positive welfare effects on the EU, though. However, the equalisation of the CO2 price across EU ETS and non-ETS sectors would significantly reduce the mitigation costs (under global action). Additionally allowing for international emissions trading (under global action) might disburden the EU from the additional costs of the Roadmap until 2040; and in the 2040s the mitigation costs for the EU could fall to less than 1.5%.
At the sectoral level, CDM could increase the output of all EU sectors compared to pure fragmented action, sustained free allocation of allowances could increase the output of most ETS sectors, and global climate action without international emissions trading would have diverse sectoral effects. When the carbon price were equalised across sectors and across regions via international emissions trading, global climate action would benefit most EU sectors. Climate policy induced changes in investment, emissions and competitiveness could have even more diverse sectoral patterns than the output effects under the different climate policy scenarios mentioned above.
We also discuss a number of uncertainties and limitations that numerical economic analyses in general face. Some of the most important uncertainties are future economic growth (against the backdrop of the current economic turbulences in the EU and the USA and political upheavals in middle-East and North African countries), technical progress (in general and regarding energy efficiency and energy generation technologies in particular) and elasticities of substitution and price elasticities (that govern, for example, the possibility to replace fossil fuel inputs in production and in electricity generation). These uncertainties strongly increase when extending the time horizon of the analysis. In this sense, our estimations for the final periods with high emissions cuts are subject to the highest uncertainties.
We conclude that the successful implementation of the EU Decarbonisation Roadmap probably requires a wise and joint consideration of technology, policy design and sectoral aspects. These three aspects are closely interlinked. For example, technological solutions are necessary to achieve ambitious emissions targets at acceptable costs from a global perspective. An appropriate climate policy design is necessary to transfer the benefits from climate policy to the EU macro level and further to the sectoral level. Sector- or firm-specific strategies in correspondence with macro policies can be helpful for avoiding structural and technological lock-in effects and reducing costs in energy-intensive sectors. However, the avoidance of severe climate change damages requires global action. In this sense, as a feasible option, climate policy could make use of CDM in (smaller) countries that are not part of the climate coalition, while the main emitters were within the climate coalition; and climate policy would make use of international emissions trading as well as emissions trading across all sectors within the EU and elsewhere to avoid the additional costs of the EU Decarbonisation Roadmap to a large extent."

"This paper focuses on the design of emissions trading schemes in practice. After a short introduction to the general idea of emissions trading, practical requirements for the introduction of an emissions trading scheme are considered, including the temporal and spatial dimension as well as administrative requirements and the role of markets. Historical developments regarding emissions trading are discussed briefly.
Currently, the largest trading scheme is the EU Emissions Trading Scheme (EU ETS) that aims to reduce greenhouse gas emissions in the European industry by 21 percent until 2020 compared to 2005 levels. Because of its prominent role, the basic design features and the process of introducing the EU emissions trading scheme are reviewed in more detail.
Finally, the impact of the EU ETS on the regulated entities is analyzed based on an annual survey among German companies regulated by the EU ETS which is conducted by the Centre for European Economic Research (ZEW) in a common project with KfW Bankengruppe.
As the survey showed, carbon dioxide abatement in Germany is currently achieved by energy efficiency improvements in most cases. Larger abatement volumes through renewal of existing production facilities can be expected to occur from 2020 to 2030. Even if most regulated companies currently receive over-allocation of freely distributed permits, about 50 percent of companies in Germany are active in allowance trading. With regard to future regulation, companies suffer from considerable uncertainty, including uncertainty about allocation from 2013 onwards and general uncertainty about the stringency of greenhouse gas regulation in Europe and beyond."

"Drawing on specific examples from products and subsectors within the EU ETS, this paper empirically tests to what extent those sectors are able to adjust their output prices when facing an input price change. The pass-through ability of sectors with respect to country- or regionspecific input prices should serve as an indication of the pass-through ability of carbon costs by firms. While the focus of the study lies on estimating pass-through relationships in selected sectors of the UK economy, the advanced econometric methods, particularly related to the asymmetric price transmission, are applied. The latter means the ability of producers to differently pass on positive and negative input price shocks to the consumers. Our results provide new insights into the debate on the ability of pass-through of costs generated by the EU Emissions Trading Scheme. They show that the UK sectors are not capable to completely pass-through their costs into output prices, with the exception of UK ceramic goods."

"The Conference of the Parties (COP) has proven a valuable outlet to advance the climate agenda. The combination of high media coverage, extremely high expectations set by influential environmentalists, and unanimity rules has, however, started to limit its effectiveness. Technical issues can legitimately require years to be addressed. Delays on such issues should not lead society to ignore progress in other areas. If anything, defining expectations based on technical issues creates more incentives for unwilling countries to delay action and spread pessimism. The coronavirus is bad news for climate action, but also provides opportunities. The absence of a session of the COP in 2020 gives negotiators additional time to address technical issues behind the scenes, including through club approaches. Virtual forums can be used to increase interactions, also involving top diplomats. The extra time also allows global leaders and influential environmentalists to improve their communication strategies, increasing ambition while effectively managing momentum."