The FAERE Working Papers are included in EconPapers and RePEc. The International Standard Serial Number (ISSN) assigned to the online FAERE Working Papers Series is ISSN: 2274-5556.


Investment in Energy Efficiency, Adoption of Renewable Energy and Household Behaviour: Evidence from OECD countries

Prudence Dato

There are possible synergies between the decision to invest in energy efficiency measures and to adopt renewable energy, in the sense that the former reduces energy demand so that the latter can further cut future greenhouse gas (GHG) emissions, and which has great potential in the residential sector. Much work has been done in the residential sector on demand for clean energy and on investment in energy efficiency, but to our knowledge there is no specific study that investigates the interaction between the two. This paper fills a gap in the literature, and first shows theoretically that there are interactions between the two decisions depending on the threshold of the cross effect related to the environmental motivation of the consumer. Second, the paper empirically shows that the two decisions are positively interrelated and cannot be estimated independently. As a result, univariate methods that estimate the decision to adopt renewable energy and investment in energy efficiency separately may produce biased results, because there may be unobserved characteristics that determine both decisions. Third, the paper
investigates household characteristics that significantly affect the interaction between the two decisions using a generalised ordered logit model. Specifically, the paper provides evidence of factors that affect the joint probability of adopting renewable energy and investing in energy efficiency, and the probability of doing nothing. This contribution can serve to define incentive policies to advance the energy transition.

The Biofuel-Development Nexus: A Meta-Analysis

Johanna Choumert – Pascale Combes Motel – Charlain Guegang

Although the production of biofuels has expended in recent years, the literature on its impact on growth and development finds contradictory findings. This paper presents a meta-analysis of computable general equilibrium studies published between 2006 and 2014. Using 26 studies, we shed light on why results differ. We investigate factors such as the type of biofuels, the geographic area and the characteristics of models. Our results indicate that the outcomes of CGE simulations are sensitive to models parameters. They also suggest a divide between developed / emerging countries versus Sub-Saharan African countries.

Sustainability of an economy relying on two reproducible assets

Robert D. Cairns – Stellio Del Campo – Vincent Martinet

Evaluating the sustainability of a society requires a system of shadow or accounting values derived from the sustainability objective. As a first step toward the derivation of such shadow values for a maximin objective, this paper studies an economy composed of two reproducible assets, each producing one of two consumption goods. The effect of the substitutability between goods in utility is studied by postulating, in turn, neoclassical diminishing marginal substitutability, perfect substitutability and perfect complementarity. The degree of substitutability has strong effects on the maximin solution, affecting the regularity or non-regularity of the program, and on the accounting values. This has important consequences for the computation of genuine savings and the sustainability prospects of future generations.

Natural cycles and pollution

Stefano Bosi – David Desmarchelier

In this paper, we study a competitive Ramsey model where a pollution externality, coming from production, impairs a renewable resource which affects the consumption demand. A proportional tax, levied on the production level, is introduced to finance public depollution expenditures.
In the long run, two steady states may coexist, the one with a low resource level, the other with a high level. Interestingly, a higher green tax rate lowers the resource level of the low steady state, giving rise to a Green Paradox (Sinn, 2008). Moreover, the green tax may be welfare-improving at the high steady state but never at the low one. Therefore, at the latter, it is optimal to reduce the green tax rate as much as possible. Conversely, the optimal tax rate is positive when the economy experiences the high steady state. This rate is unique.
In the short run, the two steady states may collide and disappear through a saddle-node bifurcation. Since consumption and natural resources are substitutable goods, a limit cycle may arise around the high stationary state. To the contrary, this kind of cycles never occur around the low steady state whatever the resource effect on consumption demand. Finally, focusing on the class of bifurcations of codimension two, we find a Bogdanov-Takens bifurcation.

Exploitation and Recycling of Rare Earths

Bocar Samba Ba – Raphaël Soubeyran

We study the exploitation of recyclable exhaustible resources such as rare earths and Phosphorus. We use a standard Hotelling model of resource exploitation that includes a primary sector and a recycling sector. We show that, when the primary sector is competitive, the price of the recyclable resource increases through time. This result stands in contrast to durable resources, for which the optimal price path is either decreasing or U-shaped. We then show a new reason why the price of an exhaustible resource may decrease: when the primary sector is monopolistic, the primary producer has incentives to delay its production activities in order to delay recycling. As a consequence, the price path of the recyclable resource may be U-shaped. We also show that a technological improvement in the recycling sector increases the price in the short term but decreases it later.


2016.30   Young Economist Best Paper FAERE Award
Common Resources Management and the “Dark Side” of Collective Action : an Impact Evaluation for Madagascar’s Forests

Sébastien Desbureaux

A sufficient level of collective action between community members is often presented as a strong pre-requisite to sustainably governing local common property resources (CPR).
What if in some contexts instead, strong collective action led to short-term depletion of CPR instead of their sustainable use ? This paper brings to light causal evidence on the environmental impact of establishing community-managed forests in Madagascar and highlights the complexities underlying collective action in their sustainable management. I compile fine-scale deforestation data over 15 years, use a unique spatial census of locally managed CPR and mobilize firsthand field data from four case studies to show that transferring management rights to local communities has failed to decrease deforestation. Instead, the policy has led to an increasein deforestation in some areas, often when collective action was strong, not when it was weak. This is what I call the possible “dark side” of collective action.

Phasing out the U.S. Federal Helium Reserve: Policy insights from a world helium model

Olivier Massol – Omer Rifaat

This paper develops a detailed partial equilibrium model of the global helium market to study the effects of the recently decided rapid phase out of the U.S. Federal Helium Reserve (FHR), a vast strategic stockpile accumulated during the 1960s. The model incorporates a detailed representation of that industry and treats both helium producers and the FHR as players in a dynamic non-cooperative game. The goal of each player is assumed to be the maximization of discounted profit, subject to technical and resource constraints. We consider two alternative policies aimed at organizing the phase out of the FHR: the currently implemented one and a less stringent one whereby the FHR would be allowed to operate as a profit-maximizing agent during a 20-year extended period. Evidences gained from a series of market simulations indicate that, compared to the current policy, the less stringent policy mandate systematically increases the financial return to the U.S. federal budget, always enhances environmental outcomes as it lowers helium venting into the atmosphere, and also augments global welfare in three out of the four scenarios considered in the paper.

Merchants of Doubt: Corporate Political Influence when Expert Credibility is Uncertain

Mireille Chiroleu-Assouline – Thomas P. Lyon

A key role of science-based non-governmental organizations (NGOs) is to communicate scientific knowledge to policymakers. However, recent evidence has emerged showing that industry-backed groups often attempt to undermine the credibility of such NGOs and weaken their ability to influence policy. To investigate the mechanisms by which a firm can profitably create doubt about scientific information, we use a signaling model of interest-group lobbying in which the policymaker has fixed costs of taking action. We explore two mechanisms for the creation of doubt. The first involves using Bayesian persuasion to imply that the NGO may be a radical extremist whose lobbying is not credible. The second involves the creation of a think tank which can offer its own testimony on scientific matters. We show the firm prefers that the think tank does not act as a credible moderate, but instead sometimes takes radical, non-credible, positions. We identify conditions under which each mechanism is preferred by the firm.

The role of conflict for optimal climate and immigration policy

Fabien Prieur – Ingmar Schumacher

In this article we investigate the role that internal and external conflict plays for optimal climate and immigration policy. Reviewing the empirical literature, we put forward five theses regarding the link between climate change, migration, and conflict. Based on these theses, we then develop a theoretical model in which we take the perspective of the North who unilaterally chooses the number of immigrants from a pool of potential migrants that is endogenously determined by the extent of climate change. Accepting these migrants allows increases in local production which not only increases climate change but also gives rise to internal conflicts. In addition, those potential migrants that want to move due to climate change but that are not allowed to immigrate may induce external conflict. While we show that the external and internal conflict play a significant yet decisively different role, it is the co-existence of both conflicts that makes policy making difficult. Considering only one conflict induces significant immigration but no mitigation. Allowing for both types of conflict, then depending on parameters, either a steady state without immigration but with mitigation will be optimal, or a steady state with a larger number of immigrants but less mitigation. Furthermore, we find the possibility of Skiba points, signaling that optimal policy depends on initial conditions, too. During transition we examine the substitutability and complementarity between the mitigation and immigration policy.

Global warming as an asymmetric public bad

Louis-Gaëtan Giraudet – Céline Guivarch

We extend the canonical dynamic game of global warming to capture three stylized facts: (i) while most countries are expected to suffer damages, some might enjoy short-term benefits; (ii) countries’ exposure to impacts bears little relation to their mitigation capabilities; (iii) some adaptation technologies, such as air conditioning, may exacerbate warming. These sources of asymmetry add free driving to the classical free riding problem. This opens up possibilities for excessive mitigation in a non-cooperative regime, even though damages outweigh benefits. Moreover, it restricts the possibilities of Pareto improvements without transfers. Finally, it can provide a rationale for differentiating Pigouvian prices across countries.

The land use change time-accounting failure

Marion Dupoux

Land use change (LUC) is the second human-induced source of greenhouse gases (GHG). This paper warns about the LUC time-accounting failure in internalizing GHG impacts in economic appraisal (within policies). This emerges from (i) relative carbon prices commonly following the Hotelling rule as if climate change were regarded as an exhaustible resource problem and (ii) a uniform annualization (i.e. constant flows over time) of LUC impacts supported by most energy policies. First, carbon prices time evolution should account for the climate change framework specificities (natural carbon absorption, uncertainty), which makes a departure from the Hotelling rule necessary. Second, there is a carbon dynamic after land conversion: GHG impact flows are strictly decreasing over time. With a theoretical framework, I show that the employment of the uniform annualization, within a benefit-cost analysis, enhances both the discounting overwhelming effect and the carbon price increase, whatever the type of impact (emissions or sequestrations). It results in skewed values of LUC-related projects as long as relative carbon prices deviate from the Hotelling rule. I apply this framework to global warming impacts of bioethanol in France and quantify this bias. In particular, carbon profitability payback periods under the uniform approach do not reflect the LUC effective carbon investment. This potentially modifies the conclusions regarding a project’s achievement of imposed environmental criteria.

L’économicisation de la nature, réalités historiques et mythes contemporains

Harold Levrel – Antoine Missemer

It is more and more common to read in scientific papers that there is a deep trend of economicization of nature that would be expressed through monetization mechanisms, privatization and commodification. No doubt some phenomena of economicisation are real. Nevertheless, they deserve to be closely examined to see firstly that they are not new in the history of human-nature relationships, and to emphasize that they compete with some trends of dis-economicization of nature, that it is also necessary to take into account today in order to have a complete picture of the situation. Our contribution therefore aims to clarify the debate, distinguishing the reality of such phenomenon with some myths in this economization of nature, stressing that this trend is neither new nor irreversible, nor linear and it does not seem inextricably linked to the raise of the (neo) liberalism.

Effect of gold mining on income distribution in Ghana

George Adu – Franklin Amuakwa-Mensah – George Marbuah – Justice Tei Mensah

This paper examined the effect of mining on household income and welfare and how such effects are distributed over different quantiles of income and welfare. Using the three most recent rounds of the Ghana Living Standards Surveys together with information on the location of gold mines during the survey years, we estimated effects of living in a mining area on real gross income, employment income, and real per capita household expenditure (a proxy for welfare) using average and quantile treatment effect models. We find robust evidence of negative effect of mining on household income and welfare. Our results also indicate that the income reducing effect of mining activity falls heavily on households at bottom of the income distribution. In the case of household welfare, the interesting revelation from our result is that the negative effect of mining falls largely on both the lower and upper ends of the welfare distribution, with much heavier burden at the lower relative to the upper tail. Our paper, thus, provides ample evidence that mining activity does not only reduce income and welfare, but further increases inequality in the distribution of income and welfare.

Pollution and infectious diseases

Forthcoming in International Journal of Economic Theory.

Stefano Bosi – David Desmarchelier

Recent empirical contributions highlight the negative impact of pollution on labor supply. This relationship is explained by two mechanisms: (1) pollution modifies agents’ work-leisure trade-off as it deteriorates their working conditions (incentive effect); (2) a polluted environment is likely to generate more frequent epidemic outbreaks and to affect agents’ immune systems (health effect). Bosi et al. (2015) explore the aggregate consequences of the incentive effect and show that it can generate endogenous fluctuations of the economic activity. The present paper rather focuses on the health effect as we study a Ramsey model augmented with the spread of infectious disease. We find that industrial pollution may generate limit cycles around an endemic steady state. More precisely, the economic system may undergo a transcritical bifurcation followed by two Hopf bifurcations near this steady state.

A simple degrowth model

Marc Germain

With the help of a growth model à la Ramsey with a natural resource and pollution and relying on the postulates of ecological economics, this paper studies the impact of voluntary degrowth
policies on production and welfare. The instrument of these policies is a tax levied on the natural resource. These policies are assumed to be applied by the public authorities after the downturn of the households’utility function due to the increase of pollution. With respect to the laissez-faire situation, their impact is to simultaneously decrease production and pollution on the one hand and increase welfare on the other. A delayed reaction of the public authorities after the turnover of the households’utility function implies a higher tax rate on the resource during the first periods. If the authorities’preference for the future is higher, then welfare gains from the degrowth policy are lower for the first generations of the dynasty and higher for the later. The impact of technical progress saving the resource or improving the pollution treatment is also analysed.

Bring Back Our Light: Power Outages and Industrial Performance in Sub-Saharan Africa

Justice Tei Mensah

Power cuts have become a characteristic feature of many Sub-Saharan African economies. This paper attempts to investigate the micro and macro impacts of power outages by estimating the effects on firm revenue and productivity, and output growth of the manufacturing and industrial sectors. Further, I evaluate the impact of self-generation in ameliorating the effects of electricity shortages on firm performance using a quasi-experimental approach. Results from the analysis reveal significant negative effects of electricity shortages on firm revenue and productivity, and output growth of manufacturing and industrial sectors. Finally, contrary to the notion that self-generation may be helpful to firms during outage periods, evidence from this paper suggest the reliance on self-generation is associated with productivity losses albeit short run revenue gains.

The actual impact of shale gas revolution on the U.S.manufacturing sector

Yassine Kirat

This paper investigates the comparative advantage allowed by the U.S shale gas revolution to the U.S manufacturing sector. It estimates the response of various economic variables related to the U.S manufacturing sector using dynamic panel data models that allow each sector’s response to vary with its energy intensity. We show that the decline in natural gas prices in the US relative to natural gas prices in Europe has led to an increase in industrial activity by nearly 2%. We show also that exports increased by 0,86% and imports decreased by 1,11%. Moreover, we find an empirical evidence that the relationship between natural gas prices and imports or exports has experienced structural breaks. Overall, we conclude that the shale gas revolution expended some industries but it does not have a strong effect on the manufacturing sector as a whole.

An evaluation of French municipal solid waste pricing system

Houévoh Amandine Gnonlonfin

This study investigates the preventive effect and substitution effect of the Municipal Solid Waste (MSW) pricing policy in France. We examine the relationship between quantities of MSW and incentive taxes with the use of a panel of 96 French metropolitan departments between 2005 and 2011, and we use panel data and Heckman two-step estimation in order to consider sample selection. We perform the analysis for the collection of MSW and six technologies of management of the waste, namely recycling materials, composting, incineration with and without energy recovery, landfilling and dumping. We estimate the elasticity of the collection of MSW and the elasticity of these technologies in relation to three incentive taxes of the French pricing system by considering the endogeneity of municipality’s decisions about both local incentive tax and technology choice. The results confirm that the French MSW pricing system has a preventive and a substitution effect and show that these effects are complementary.

Climate agreements in a mitigation-adaptation game

Basak Bayramoglu – Michael Finus – Jean-François Jacques

We study the strategic interaction between mitigation (public good) and adaptation (private good) strategies in a climate agreement. We show that these two strategies are strategic substitutes considering various definitions of substitutability. Moreover, adaptation may cause mitigation levels between different countries to be no longer strategic substitutes but complements. We analyze under which conditions this leads to more succesful self-enforcing agreements. We argue that our results extend to many important externality problems involving public goods.

Trade in environmental goods and sustainable development: What are we learning from the transition economies’ experience?

Natalia Zugravu-Soilita

We investigate the causal effects of trade intensity in environmental goods (EGs) on air and water pollution by treating trade, environmental policy and income as endogenous. We estimate a system of reduced-form, simultaneous equations on extensive data, from 1995 to 2003, for transition economies that include Central and Eastern Europe and the Commonwealth of Independent States. Our empirical results suggest that although trade intensity in EGs (pooled list) reduces CO₂ emissions mainly through an indirect income effect, it increases water pollution because the income-induced effect does not offset the direct harmful scale-composition effect. No significant effect is found for SO2 emissions with respect to the list of aggregated EGs. In addition to diverging effects across pollutants, we show that results are sensitive to EGs’ classification: e.g., cleaner technologies and products, end-of-pipe products, environmentally preferable products, etc. For instance, a double profit—environmental and economic—is found only for “cleaner technologies and products” in the models explaining greenhouse gases emissions. Interesting findings are discussed for imports and exports of various classifications of EGs. Overall, we cannot support global and uniform trade liberalization for EGs in a sustainable development perspective. Regional or bilateral trade agreements taking into account the states’ priorities could act as building blocks towards a global, sequentially achieved liberalization of EGs.

Environmental Incentives: Nudge or Tax?

Benjamin Ouvrard – Sandrine Spaeter

We consider a model where individuals can voluntarily contribute to improve the quality of the environment. They differ with regard to their confidence in the announcement made by the regulator about the risk of pollution, modelized in a RDEU model, and to their environmental sensitivity. We compare the efficiency of a tax in increasing individual contributions with the advantages of a nudge based on the announcement of the social optimum to each individual. Under some conditions, a nudge performs better than a tax, in particular, because the individual reaction depends directly on sensitivity, while only indirectly with a tax. Moreover, a nudge does not require information about private contributions, contrary to a tax based on the contributions that are not provided compared to the social optimum. Lastly, its implementation is much cheaper. Yet, some drawbacks are discussed and simulations illustrate our results.

Interaction between CO2 emissions trading and renewable energy subsidies under uncertainty: feed-in tariffs as a safety net against over-allocation

Oskar Lecuyer – Philippe Quirion

We study the interactions between a CO2 emissions trading system (ETS) and renewable energy subsidies under uncertainty over electricity demand and energy costs. We first provide evidence that uncertainty has generated over-allocation (defined as an emissions cap above business-as-usual emissions) during at least part of the history of most ETSs in the world. We then develop an analytical model and a numerical model applied to the European Union electricity market in which renewable energy subsidies are justified only by CO2 abatement. We show that in this context, when uncertainty is small, renewable energy subsidies are not justified, but when it is big enough, these subsidies increase expected welfare because they provide CO2 abatement even in the case of over-allocation.
The source of uncertainty is important when comparing the various types of renewable energy subsidies. Under uncertainty over electricity demand, renewable energy costs or gas prices, a feed-in tariff brings higher expected welfare than a feed-in premium because it provides a higher subsidy when it is actually needed i.e. when the electricity price is low. Under uncertainty over coal prices, the opposite result holds true. These results shed new light on the ongoing switch from feed-in tariffs to feed-in premiums in Europe.

Willingness to pay for environmental quality and social capital influence in Sweden

George Marbuah

The growing recognition of social capital as an important parameter necessary for shaping pro-environmental behaviour and attitudes is well established in the literature and continues to engage the attention of policymakers, academics and citizens in many jurisdictions. In this paper, we contribute to this strand of literature by investigating the extent to which various elements of social capital influences Swedish public’s tendency to contribute financially or through lifestyle changes in order to protect the environment. Using data from the latest wave of the International Social Survey Programme (ISSP) on the environment in 2010, we explore empirically the link between individuals’ willingness to pay (WTP) and social capital influence using an ordered logistic model. The results show, that, individuals in Sweden are fairly willing to pay for the environment and that this decision is principally and significantly influenced by elements of social capital. In particular, we find quite robust results to show that social and institutional trust, environmental group membership among related civic participation activities and adherence to environmental norms significantly impacts the probability of individuals’ decision to sacrifice toward environmental sustainability by paying higher environmental taxes, prices or through standard of living adjustments.

How useful are (Censored) Quantile Regressions for Contingent Valuation? Evidence from a flood survey

Victor Champonnois – Olivier Chanel

We investigate the interest of quantile regression (QR) and censored quantile regression (CQR) to deal with issues from contingent valuation (CV) data. Indeed, although (C)QR estimators have many properties of interest for CV, the literature is scarce and restricted to six studies only. We proceed in three steps. First, we provide analytical arguments showing how (C)QR can tackle many econometric issues associated with CV data. Second, we show by means of Monte Carlo simulations, how (C)QR performs w.r.t. standard (linear and censored) models. Finally, we apply and compare these four models on a French CV survey dealing with flood risk. Although our findings show the usefulness of QR for analyzing CV data, findings are mixed on the improvements from CQR estimates with respect to QR estimates.

The determinants of household’s flood mitigation decisions in France – evidence of feedback effects from past investments

Claire Richert – Katrin Erdlenbruch – Charles Figuières

In this paper, we investigate the determinants of private flood mitigation in France. We conducted a survey among 331 inhabitants of two flood-prone areas and collected data on several topics, including individual flood mitigation, risk perception, risk experience, and sociodemographic characteristics. We estimate discrete choice models to explain either the presence of precautionary measures implemented by the household, or the intention to take such measures. We test the robustness of the Protection Motivation Theory in France, discuss its scope and investigate the existence of feedback effects from past investments on people’s protection intentions. Our results confirm that the Protection Motivation Theory is a relevant framework to describe the mechanisms of private flood mitigation in France, highlighting in particular the importance of threat appraisal, threat experience appraisal, and coping appraisal. Some sociodemographic features are also significant to explain private flood mitigation. Our results also give evidence for feedback effects as they suggest that implementing precautionary measures reduces perceptions of the risk of flooding. The existence of these feedback effects implies that intended measures, rather than implemented ones, should be examined to explore further the determinants of private flood mitigation.

From Primary Resources to Useful Energy: The Pollution Ceiling Efficiency Paradox

Jean-Pierre Amigues – Michel Moreaux

We study an economy producing energy services from a polluting fossil fuel and a carbon free renewable resource under a constraint on the admissible atmospheric carbon concentration, equivalently under a constraint on the admissible temperature. The transformation rates of natural primary resources energy into useful energy are costly endogenous variables. Choosing higher efficiency rates requires to bring into operation more sophisticated ones, that is more costly ones. We show that, independently of technical progress, along a perfect foresight equilibrium path which is Pareto optimal, the transformation rate of any exploited resource should increase though out time, excepted within the period during which the carbon constraint is binding, what we call the ‘ceiling paradox’.

La transition énergétique est-elle favorable aux branches à fort contenu en emploi ? Une approche input-output pour la France

Quentin Perrier – Philippe Quirion

In the public debate on energy transition in France, employment figures prominently. We calculate, for the French economy in 2010, the employment content and greenhouse gas intensities in different branches, that is to say the number of jobs and tonne-CO2 equivalent per million euro of final demand. For this we use the input-output table at the most disaggregated level available (64 branches). We develop and then apply a unique methodology to decompose the differences in job content between industries in five factors: the rate of imports of final products, the rate of imports of intermediate goods, the rates of taxes and subsidies, the levels of wages and the share of labor compensation in value added. Finally, we study some intersectoral substitutions that would result from an energy transition to reduce emissions of greenhouse gases.

Trade and fisheries subsidies

Basak Bayramoglu – Brian R. Copeland – Jean-François Jacques

World Trade Organization members included fishery subsidies in the Doha round of trade negotiations, which subsequently stalled. This paper develops a simple model to show why prospects for a deal on fisheries subsidies may be difficult. Typically international spillover effects create incentives among exporters to negotiate reductions in subsidies: one country’s subsidy worsens other exporters’ terms of trade. These incentives may not exist in fisheries for 3 reasons. First, if fisheries are severely depleted, one country’s subsidy reduces its long run supply of fish, raising prices and benefiting other fish exporting countries. Second, if governments use other policies to manage fish stocks, then changes in subsidies may not affect harvests and hence may not generate international spillover effects. And third, even if governments were compelled to reduce fishery subsidies, there may be little real effect because governments would be motivated to weaken other regulations targeting the fish sector.

Precautionary Storage in Electricity Markets

Tunç Durmaz

As renewable energy depends on meteorological shocks and is non-controllable, the overall energy production becomes riskier with the rising renewable share. Although this has led to a renewed interest in storage technologies, not much consideration has been given to energy storage due to precautionary motives. In our study, we look at to what extent a convex marginal utility (prudence) and a convex marginal cost (frugality) can spur precautionary energy storage. We set up a simple theoretical model of energy consumption and production with intermittent renewable sources, dispatchable thermal systems, and energy storage. First, we characterize the optimum and demonstrate how prudence and frugality can lead to higher levels of energy storage. By applying our findings to perfectly competitive markets, we further show that prudence and frugality increase the market energy price through higher demand for energy storage and decrease price volatility. The results present important lessons about the direct and indirect impacts precautionary motives can have on electricity prices and energy generation decisions.

Energy Tax Reform in Time of Crisis : The Case of Energy-Dependent and Open Economies

Emmanuel Combet

The increase in energy prices resulting from energy taxation and environmental pricing is the cornerstone for policies that seek to manage efficiently the energy systems in the long run. However, such a price increase may harm the economy during the transition, when substitutions have not yet taken place. In this paper, we consider an increase in the relative price of energy with respect to labour costs, and we analyse its consequences for aggregate domestic production and employment. A relative price adjustment is implemented through a marginal tax reform by swapping labour taxes for energy taxation. We develop a general equilibrium model of an open-economy assuming unemployment and high dependence to imported energy. Simplified enough to be solved analytically, this model does not restrict the analysis to the neighbourhood of an optimum. We show how the impact on production and employment is sensitive to a set of parameters on 1) the behaviour of the economy (the reactions of domestic wages to unemployment, and external trade to the level of domestic costs), and 2) the initial state of the economy (energy consumptions, import price of fossil energy, levels of unemployment and wages, taxation of energy and labour). When the economy does not benefit from important ‘non-cost’ comparative advantages (the Marshall-Lerner condition holds), the impact is positive regardless of the other parameters. When this condition does not hold, the impact is positive only when wages adjust to compensate the higher energy bills for households, and therefore, to maintain the level of internal demand.

Groundwater Overdraft, Electricity, and Wrong Incentives: Evidence from Mexico

Vicente Ruiz

Groundwater overdraft is threatening the sustainability of an increasing number of aquifers in Mexico. The excessive amount of groundwater extracted by farming activities relying on irrigation methods have significantly contributed to this problem. The objective of this paper is to analyse the effect of changes in groundwater’s price over the allocation of different production inputs from a structural approach. Using a combination of multiple micro-data sources, I model the technology of producers facing groundwater overdraft through a Translog cost function. The results following this analysis show that groundwater’s own price elasticity for the sample analysed is -0.54. Moreover, these results also show that both labour and fertiliser can act as substitutes for groundwater, further reacting to changes in groundwater’s price.

The nature and impacts of environmental spillovers on housing prices: A spatial hedonic analysis

Masha Maslianskaia-Pautrel – Catherine Baumont

This paper investigates the spatial dimension of the environmental effects. We use recent advances in spatial econometrics to show that hedonic equations produce estimates to be differently interpreted as implicit prices according to spatial models. In particularly, the implicit price of housing attribute combines a feedback effect and a propagation effect and may be interpreted in terms of local or global spillovers. We drive an empirical study in the estuary of the Loire, a rural and urban area well occupied by various natural areas and more artificialized ones. We study various spatial interaction patterns to test the robustness of our estimates and we find that spatial dependencies based on inverse distance and small neighborhoods provide stable estimations. It is consistent too with realistic spatial interaction patterns for household behaviors: information on closer housings is more reliable and comparison areas are in fact limited by the research process. As expected, positive impacts are concentrated on traditional attributes like the proximity to the ocean frontage and quiet places. On the contrary, the presence of various natural wet amenities is negatively valued because of the impression of housing density associated to flood risk. If urban places are more valued by households, it’s rather because rural location are less desired than because of urban intrinsic attributes.

Preferences and pollution cycles

Stefano Bosi – David Desmarchelier – Lionel Ragot

We consider a competitive Ramsey economy where a pollution externality affects both consumption demand and labor supply, and we assume the stock of pollution to be persistent over time. Surprisingly, when pollution jointly increases the consumption demand (compensation effect) and lowers the labor supply (leisure effect), multiple equilibria arise near the steady state (local indeterminacy) through a Hopf bifurcation (limit cycle). This result challenges the standard view of pollution as a flow to obtain local indeterminacy, and depends on the leisure effect which renders the pollution accumulation process more volatile.

Climate variability and infectious diseases nexus: evidence from Sweden

Franklin Amuakwa-Mensah – George Marbuah – Mwenya Mubanga

In this paper, we present evidence based on a theoretical model developed that links the impact of climate change on health. Using Swedish data on infectious diseases, we empirically estimate the causal relationship between climate variability and health outcomes. Generally, we find that the number of infectious disease patients and admissions are significantly driven by indicators of climate change and socio-economic variables such as income and number of immigrants. Specifically, the effect of temperature variation on the health outcomes is ambiguous and sensitive to the choice of winter, summer or average temperature. Precipitation is relevant in explaining the number of infectious disease patients and admissions only when summer temperature considered in the model. Further, we find that an increase in carbon emissions directly causes the number patients and admissions in the summer. The relationship between infectious disease proxies (i.e. patients and admissions) and inc ome per capita follows an inverted-U shape.

Adaptation and mitigation are not enough: turning to emissions reduction abroad

Aude Pommeret – Alain Ayong Le Kama

In this paper we focus on a long-term dynamic analysis of the optimal adaptation/mitigation mix in the presence of a pollution threshold above which adaptation is no longer efficient. We account for accumulation in abatement capital, greenhouse gases, and adaptation capital in order to better capture the arbitrage between abatement and adaptation investments. Pollution damages arise from the emissions due to the country consumption but also from the emissions of the rest of the world (ROW). A pollution threshold is then introduced, above which adaptation is no longer efficient. We obtain that if this threshold is lower than the steady-state level of pollution, there is no way for the modeled economy to avoid it. In particular, such a situation will appear if the ROW’s emissions are high. Next step is then to introduce another type of investment allowing for lower ROW pollution ie. emissions reduction abroad through CDM for instance. We obtain that CDM may be a means to avoid a pollution threshold above which adaptation becomes of no use.


A Tale of Two Diversities

Chloé Mulier – Pierre Courtois – Charles Figuières

Efficient management of biodiversity aims at allocating conservation efforts in order to maximize diversity. Defining a diversity criterion is however far to be trivial; there is not one but several indices that can be used as biodiversity measures. This paper elicits and compares two in situ criterions for biodiversity conservation, based on two biodiversity indices stemming from different disciplines: Weitzman’s index in economics and Rao’s index in ecology. Both indices combines differently pieces of information about (1) species survival probability, and (2) measures of dissimilarity between species. In order to truly have in situ protection criterions, we add another layer of information about (3) the ecological interactions between species. Considering a simple three species ecosystem, we show that choosing one criterion or the other has policy implications, for they sometimes deliver diverging protection recommendations. We unravel the role played by the elements (1), (2) and (3) in the ranking, which allows us to highlight some specificities of the in situ criterions. For example, other things equal, Weitzman’s in situ ranking tends to favor “robust” species, while Rao’s in situ ranking gives priority to “fragile” species.

Optimal Timing of Carbon Capture Policies under Learning-by-doing

Published in Journal of Environmental and Economics Management, 78: 20-37 (2016).

Jean-Pierre Amigues – Gilles Lafforgue – Michel Moreaux

Using a standard Hotelling model of resource exploitation, we determine the optimal energy consumption paths from three options: dirty coal, which is non-renewable and carbon-emitting; clean coal, which is also non-renewable but carbon-free thanks to carbon capture and storage (CCS); and solar energy, which is renewable and carbon-free. We assume that the atmospheric carbon stock cannot exceed an exogenously given ceiling. Taking into account learning-by-doing in CCS technology, we show the following results: i) Clean coal exploitation cannot begin before the outset of the carbon constrained phase and must stop strictly before the end of this phase; ii) The energy price path can evolve non-monotonically over time; and iii) When the solar cost is low enough, an unusual energy consumption sequence along which solar energy is interrupted for some time and replaced by clean coal may exist.

Environmental regulation with and without commitment under irreversible investments

Jean-Philippe Nicolai

This paper analyzes the long-term investment decisions of firms that are regulated by an emissions tax and that perceive a degree of market power in their respective output markets. Firms invest in abatement equipment that is fixed over the medium term (e.g., buying a new generator). This paper focuses on environmental regulation with and with- out commitment. In the commitment case, the government announces a long-run tax on emissions, and firms decide upon their investment levels. In the no-commitment case, the regulator announces a tax level and is free to modify it once firms have invested. This paper considers differentiated product goods and determines whether no-commitment regulation leads to more lenient or more stringent regulation than regulation with commitment.

Climate element of migration decision in Ghana: Micro Evidence

Franklin Amuakwa-Mensah

The debate about how environmental or climate factors affect migration decision has generated a lot of interest in recent times, however empirical studies about the subject are limited and fragmented. This paper investigates the effect of climate factors on migration decisions by comparing the 2005/06 and 2012/13 rounds of Ghana Living Standards Survey (GLSS5 and GLSS6), using Heckman two-stage method to account for selectivity bias. This is done by relating the climate conditions in the various ecological zones in Ghana to investigate the effect of climate elements on migration decision. We find socio-economic factors together with climatic element to significantly affect an individual’s migration decision, with variation over the years. Whereas climate element does not significantly explain migration decision in 2005/06, we observed climate element do have significant effect on migration decision in 2012/13. Thus, we find the coastal savannah and forest ecological zones t o accommodate more in-migrants relative to the northern savannah ecological zones. Also, we observe that individuals do not prefer extreme climate conditions. With the current climate change of high temperature and low rainfall, migration may be considered as one of the several adaptation strategies in response to changes in the environment.

L’information préventive améliore-t-elle la perception des risques? Impact de l’Information Acquéreur Locataire sur le prix des logements

Amélie Mauroux

This article evaluates the impact of a seller’s disclosure, the ”Information Acquéreur Locataire” (IAL), on the housing prices and natural risk perception in at-risk areas. The date of implementation of the IAL, June the 1st 2006, as an exogenous shock on the buyers’ information on risk exposure of the housing units. A difference-in-differences hedonic price model is estimated on an unique database merging notary data on individual transactions in 2006 and the maps of the at-risk regulated areas. The results suggest that the implementation of the IAL increased the share of informed buyers: every else hold equal, in towns under a PPRi the price of some housing units under IAL decreased compared to the price of similar units located outside the at-risk regulated perimeters. It is the case for apartments on the first floor or in towns hit by a natural disaster the year before the sale.
The implementation of the IAL also decreased the probability that, after June 2006, at-risk individual houses were sold to buyers living in another town and thus less likely to be informed on the local natural risk exposure.

The Long-Run Impact of Biofuel on Food Prices

Forthcoming in Scandinavian Journal of Economics.

Ujjayant Chakravorty – Marie-Hélène Hubert – Michel Moreaux – Linda Nostbakken

More than 40% of US corn is now used to produce biofuels, which are used as substitutes for gasoline in transportation. Biofuels have been blamed universally for past increases in world food prices, and many studies have shown that these energy mandates in the US and EU may have a large (30-60%) impact on food prices. In this paper, we use a partial equilibrium framework to show that demand-side effects – in the form of population growth and income-driven preferences for meat and dairy products rather than cereals – may play as much of a role in raising food prices as biofuel policy. By specifying a Ricardian model with differential land quality, we find that a significant amount of new land will be converted to farming, which is likely to cause a modest increase in food prices. However, biofuels may increase aggregate world carbon emissions, due to leakage from lower oil prices and conversion of pasture and forest land for farming.

Climate damages on production or on growth: what impact on the social cost of carbon

Céline Guivarch – Antonin Pottier

Recent papers have investigated with Integrated Assessment Models the possibility that climate damages bear on productivity growth and not on production, the traditional route that follows Nordhaus’s work. According to these papers, damages on growth lead to a higher social cost of carbon (SCC).Here, we reconsider the evidence with the introduction of a measure of the amount of damages, to allow the comparison between alternative representations of damages.We build a simple climate-economy model and compare three damages specifications: quadratic damages on production, linear damages on growth and quadratic damages on growth. We show that when total damages are the same, the ranking of SCC between a model with damages on production and a model with damages on growth is not unequivocal. It depends on welfare parameters such as the utility discount rate or the elasticity of marginal social utility of consumption. The difference in SCC comes both from when damages occur and from their total amount.

Carbon Emissions and Social Capital in Sweden

George Marbuah – Ing-Marie Gren

This paper addresses the issue of whether or not social capital explains per capita CO2 emissions dynamics in Swedish counties in an augmented environmental Kuznets curve framework. By accounting for issues of endogeneity in the presence of dynamic and spatial effects using geo-referenced emissions data, we show that per capita carbon emissions in a county matters for other counties and that net of economic, demographic and environmental factors, social capital has the potential to reduce carbon emissions in Sweden albeit less robustly. We test two different social capital constructs; trust in government and environmental engagement. Specifically, trust in the government inures to the reduction in CO2 emissions. Membership and engagement in environmental organisations reduces CO2 emissions only through its interaction with per capita income or trust. The implication of our estimates suggest that investment geared toward increasing the stock of social capital could inure to re ductions in CO2 emissions in addition to climate policy instruments in Sweden.

Environmental tax reform in a federation with rent-induced migration

Jean-Denis Garon – Charles Séguin

We study the welfare effects of a revenue-neutral green tax reform in a federation. The reform consists of increasing a tax on a polluting input and reducing that on labor income. Households are fully mobile within the federation. Regions are unequally endowed with a nonrenewable natural resource. Resource rents are owned by regions and are redistributed to citizens on a residence basis, which generates a motive for inefficiently relocating to the resource-rich jurisdiction. Since the resource-poor region has a higher marginal product of labor than does the resource-rich region, the tax reform mitigates the scope of inefficient migration. This positive welfare effect may significantly reduce abatement costs of pollution and calls for higher environmental tax, as compared with a model where migration is assumed away.

Environmental impacts of the French final consumption

Laurent Meunier – Frédéric Gilbert – Eric Vidalenc

In order to fight against climate change, ambitious targets have been set, such as decreasing carbon emissions by 75% in France compared to 1990. Yet, focusing on territorial impacts leads to overlook import-embedded impacts. As a matter of fact, French territorial greenhouse gases (henceforth GHG) emissions have slightly decreased since 1990, whereas consumption-based emissions have been shown to increase. This is why we focus in this paper on consumption-based emissions rather than territorial emissions. Moreover, other environmental impacts are taken into account: air acidification (ACD), photochemical oxidation(PCO) and non-dangerous industrial wastes (NDIW). The contribution of the research presented in this paper is three-fold: first, the quantification of import-embedded impacts of consumption-based emissions is more accurate than previous studies; secondly, we build a scenario of French households final consumption in 2030 aiming at decreasing its environmental impacts; finally, a deep matrix algebra analysis gives us precious hints on the reliability of the results.

Energy efficiency subsidies with price-quality discrimination

Published in Energy Economics 52(S1): S53-62 (2015).

Marie-Laure Nauleau – Louis-Gaëtan Giraudet – Philippe Quirion

We compare a range of energy efficiency policies in a durable good market subject to both energy-use externalities and price-quality discrimination by a monopolist. We find that the social optimum can be achieved with differentiated subsidies. With ad valorem subsidies, the subsidization of the high-end good leads the monopolist to cut the quality of the low-end good. The rates should always be decreasing in energy efficiency. With per-quality subsidies, there are no such interference and the rates can be increasing if the externality is large enough relative to the market share of low-type consumers. Stand-alone instruments only achieve second-best outcomes. A minimum quality standard may be set at the high-end of the product line if consumers are not too dissimilar, otherwise it should only target the low-end good. An energy tax should be set above the marginal external cost. Likewise, a uniform ad valorem subsidy should be set above the subsidy that would be needed to spec ifically internalize energy-use externalities. Lastly, if, as is often observed in practice, only the high-end good is to be incentivized, a per-quality schedule should be preferred over an ad valorem one. An ad valorem tax on the high-end good may even be preferred over an ad valorem subsidy if the externality is small enough and low-end consumers dominate the market.

Heterogeneous firms and the environment: a cap-and-trade program

Lisa Anouliès

Cap-and-trade programs are presently the cornerstone of climate change policies and proposals in many countries. I investigate the economic and environmental effects of different designs for this policy in a general equilibrium setting when firms are heterogeneous and in monopolistic competition. This study first predicts that the cap on emissions perfectly defines the environmental quality but has no effect on firms’ profits and decisions to enter or exit the market. On the contrary, increasing the share of free allocation of emissions allowances reallocates resources among firms toward the most productive ones: the initial allocation of allowances therefore impacts firms’ entry and exit decisions and aggregate economic variables but not the environment. Firm heterogeneity magnifies this economic effect of a change in the initial allocation of allowances.


Cross-commuting and housing prices in a polycentric modeling of cities

Vincent Viguié

Long term strategies, relying on city planning and travel demand management, are essential if deep GHG reduction ambitions are to be achieved in urban transport sector. However, how to precisely design such strategies remains unclear. Indeed, whereas there is a broad consensus that urban spatial structure is a key determinant in explaining travel pattern generation, the mechanisms are not yet fully understood. Especially, the interplay between commuting and localization choices leading to cross commuting in a polycentric city remains an open question, and cannot be easily explained using existing urban economics frameworks. In this study, we introduce a novel urban economic framework, fully micro-economic based, which describes land prices, population distribution and commuting travel choices in a polycentric city, with jobs locations exogenously given. It relies on the modeling of moving costs and market imperfections, especially housing-search imperfections. Using Paris as a case study, we show how this model, when adequately calibrated, reproduces available data on the internal structure of the city (rents, population densities, travel choices). A validation over the 1900-2010 period also shows that the model captures the main determinants of city shape evolution over this time. This suggests that this tool can be used to inform policy decisions.


Quel mode de soutien pour les énergies renouvelables électriques?

Forthcoming in Revue Française d’Economie.

Philippe Quirion

While most developed and emergent countries support renewable energies in the power sector, they do so in a different manner. The three main existing support systems are feed-in-tariffs, feed-in-premiums and tradable renewable quotas. We provide a survey of the literature which compares these support systems. We conclude that tradable renewable quotas suffer from many weaknesses compared to the other two: bad reaction to uncertainty, important risk for funders which increases investment cost, higher transaction costs. Both feed-in-tariffs and premiums have pros and cons and there is little evidence that the transition from the former to the latter, currently occurring in Germany and France, is justified. Finally, beyond the choice between tariff and premium, many concrete choices are at least as important such as the way to finance the support and the differentiation between market segments, necessary to limit the rents but potentially a source of inefficiency.

Hedonic Model with Discrete Consumer Heterogeneity and Horizontal Differentiated Housing

Masha Maslianskaia Pautrel

This paper investigates how the hedonic equilibrium is modified when discrete consumer heterogeneity with horizontal differentiated housing supply is assumed. Our results are threefold. First, discrete consumer heterogeneity leads to a segmentation of the hedonic price function at equilibrium and the discontinuity of the implicit price of environmental quality on the borders of the segments. Second, we demonstrate that horizontal differentiation may lead to a partial sorting of consumer demand for housing attributes at hedonic equilibrium. Finally, we show that the discrete consumer heterogeneity with horizontal differentiation can lead to modification of welfare assessment related to changes in environmental quality.

Global Sensitivity Analysis of an Energy-Economy Model of the Residential Building Sector

Published in Environmental Modelling & Software. 70 : 45-54 (2015).

Frédéric Branger – Louis-Gaëtan Giraudet – Céline Guivarch – Philippe Quirion

In this paper, we discuss the results of a sensitivity analysis of Res-IRF, an energy-economy model of the demand for space heating in French dwellings. Res-IRF has been developed for the purpose of increasing behavioral detail in the modeling of energy demand. The different drivers of energy demand, namely the extensive margin of energy efficiency investment, the intensive one and building occupants’ behavior are disaggregated and determined endogenously. The model also represents the established barriers to the diffusion of energy efficiency: heterogeneity of consumer preferences, landlord-tenant split incentives and slow diffusion of information. The relevance of these modeling assumptions is assessed through the Morris method of sensitivity analysis, which allows for the exploration of uncertainty over the whole input space. We find that the Res-IRF model is most sensitive to energy prices. It is also found to be quite sensitive to the factors parameterizing the di fferent drivers of energy demand. In contrast, inputs mimicking barriers to energy efficiency have been found to have little influence. These conclusions build confidence in the accuracy of the model and highlight occupants’ behavior as a priority area for future empirical research.

Energy Transition under Irreversibility: a Two-sector Approach

Prudence Dato

In this paper, we analyze the optimal energy transition of a two-sector economy (energy and final goods) with exhaustible oil reserves, a renewable source of energy and a pollution threat. The latter corresponds to a pollution threshold above which a part of the capital is lost (following flooding for instance). Part of the energy is used as energy services by a representative consumer through a CRRA utility function and the other part is used as input in a Leontief production function to produce final goods. Moreover, we assume that both energy sources are complementary. We use the optimality conditions as in Boucekkine et al. (2013) to show that the optimal energy transition path may correspond to a corner regime in which the economy starts using both resources, then crosses the pollution threshold and therefore loses a part of its capital. At the end, the economy never adopts only renewable energy. This result is in line with the asymptotic energy transition arguments stating that the transition to “clean” energy may happen only in the long run. We extend the present model to allow for additional investment in energy saving technologies. Our main results show that this additional investment favours the energy transition in the sense that it increases the time within which the economy may experience the catastrophe and the welfare of the society. For policy implications, economic instruments such as taxes on “dirty” energy, subsidies on “clean” energy or incentives for energy saving technologies need to be implemented in order to promote the energy transition. But those economic instruments should be carefully designed in line with the asymptotic energy transition result.

Can the Energy Transition Be Smooth?

Jean-François Fagnart – Marc Germain

We analyse the transition of a decentralized economy whose energy supply switches progressively from non-renewable (NRE) to renewable energy (RE) sources. The two energies are perfect substitutes but RE production offers a lower Energy Return On Energy Invested (EROEI). The transition is characterized by a decreasing trend of the aggregate EROEI and by major changes both in the allocation of output between consumption and investment and in the allocation of capital between energy and final good productions. As a result, the energy transition may (and will usually) be characterized by a non-monotonic evolution of aggregate income and private consumption: after a peak and before the NRE exhaustion, the economy experiences a contraction. We analyze what affects 1) its magnitude and 2) the possibility of an ulterior recovery of income. Incidentally, a complementarity appears between a rapid development of RE production and the availability of NRE: the end of the NRE era puts a drag on the development of the RE production.

Protecting Biodiversity by Developing Bio-Jobs: a Multi-branch Analysis with an Application on French Data

Jean De Beir – Céline Emond – Yannick L’Horty – Laetitia Tuffery

In each economy there is employment favourable to biodiversity, which we call bio-jobs. These jobs are located in a small number of branches linked to or controlling natural resources: green core activities, quarrying, public works, water and waste management, etc. We are interested in the economic policies for the preservation of biodiversity which affect the development of employment. We consider a model where government wields two types of instrument: it can support demand in sectors concentrating bio-jobs, through public procurement, or it can seek to promote the development of new productive combinations with more bio-jobs, with subsidies targeted at employment. We seek the most effective combination of these two instruments- demand and supply- and show that government must adopt a differentiated approach depending on the sectors being regulated. We find that the level of private demand and of wages play a major role in the government choice. Finally, we apply these recommendations to French data.

Non-renewable and Intermittent Renewable Energy Sources: Friends and Foes?

Edmond Baranès – Julien Jacqmin – Jean-Christophe Poudou

This paper studies the links between renewable and non-renewable intermittent energy sources in the production of electricity. More precisely, we argue that the relationship between the natural gas price and capacity investments in solar and wind power energy is far from univocal. We find that this relationship is not linear but is better represented by a bell-shaped curve. Hence, for relatively low gas price, the two modes of production are substitutable. After a price threshold is reached, the two are complementary. A theoretical model explains this as the trade-o resulting from two forces: the input price di fferential of these two modes of production and the risks related to the unpredictable nature of the intermittence of renewable energies. Using U.S. state level data from 1998 to 2012, we find that this relationship is robust to various empirical speci fications.

Consumer Misperception of Eco-labels, Green Market Structure and Welfare

Dorothée Brecard

How does consumer misperception of competing eco-labels affect environmental and economic efficiency of eco-labels? This article provides a theoretical insight into this issue by using a double-differentiation model, where three products are potentially in competition: an unlabeled product and two eco-labeled products of medium and high environmental qualities (with distinct labels). We compare the case of perfect information, where consumers can perfectly assess the environmental quality of the three products, and the case of imperfect information, where consumers cannot fully assess the environmental quality associated with each label while perceiving all eco-labels as a sign of high environmental quality and each label as a particular variety of a product. We show that consumer confusion can affect the market structure by weakening the firm that provides the greenest product. Paradoxically, consumer misperception is not always detrimental to social welfare because, when th e perceived quality of both eco-labeled products is relatively high, it can improve the quality of the environment and raise global profits and consumer surplus. Moreover, although firms would harmonize their demanding eco-labeling criteria if they face full-informed consumers, they turn to greenwashing when they know the way the consumers form their belief on environmental quality. Finally, we show that an NGO faced with consumer misperception will require less stringent standard than in the perfect information case, while conclusions on the regulator eco-labeling strategy are not clear-cut.


Interval Bidding in a Distribution Elicitation Format

Pierre-Alexandre Mahieu – François-Charles Wolff – Jason Shogren

Interval bidding allows people to report a range of values for a non-market good. Herein we allow people to choose their distribution over this range endogenously. Using elephant protection as our motivating example, our results suggest the shape of the distribution greatly varies across people and the degree of uncertainty is proportional to their willingness to pay. We also find that both the expected willingness to pay and the degree of uncertainty differ when the valuation exercise is real versus hypothetical.

Un modèle de mobilité résidentielle avec taxe foncière

Marc Germain – Dominique Peeters

Individuals with heterogeneous incomes occupy a territory divided into zones with unequal levels of amenities. Using the concept of land rent à la Ricardo, we propose a model determining the land rent in the different zones as well as the distribution of individuals across them.
A land tax modifies the equilibrium of the land market without tax if its amount exceeds the rent in some zones. In this case, individuals are led to concentrate on a reduced part of the territory, which affects negatively their utility. If the tax incomes are used to finance a global public good, the direct negative impact of the tax can be reduced and possibly more than compensated.
An externality that affects negatively the amenities in one zone impacts the rents in all zones via a process of “voting with the feet”. In the presence of a land tax, the externality may lead to a reduction in the populated part of the territory. However, the tax incomes may finance a compensation system where the landowners victims of the externality are compensated by those who are not affected.

Tradable Renewable Quota vs. Feed-In Tariff vs. Feed-In Premium under Uncertainty

Robert Marschinski – Philippe Quirion

We study the performance under uncertainty of three renewable energy policy instruments: Tradable Renewable Quota (TRQ), Feed-In-Tariff (FIT), and Feed-In-Premium (FIP). We develop a stylized model of the electricity market, where renewables are characterized by a positive learning externality, which the regulator aims to internalize. Assuming shocks on the fossil-based electricity supply, renewables supply, or on total electricity demand, we analytically derive the conditions determining the instruments’ relative welfare ranking. Although we generally confirm the key role of the slopes of marginal benefits and costs associated with the policy, the specific ranking depends on which type of uncertainty is considered, and whether shocks are permanent or transitory. However, a high learning rate generally favours the FIT, while TRQ is mostly dominated by the other two instruments. These results are confirmed in a numerical application to the US electricity market, in which the FIP emerges as the most robust overall choice and TRQ as the least robust.

Inducing Sorting Investment and Implementation of an Alternative e-Waste Market under Imperfect Information

Prudence Dato

In a context of high disposal costs in rich countries together with an imperfect monitoring system, the non reusable part of e-wastes is often illegally mixed with the reusable part and ends up in developing countries leading to an `environmental injustice’ and important negative externalities. To tackle this problem, we propose an alternative e-waste market for a joint trade in reusable and non-reusable e-wastes, other than the monitoring system and we analyze the optimal mechanism design for its implementation. In this paper, we use the theory of incentives applied to e-waste market. We want to show how to induce firms in North to undertake sorting investment that would help implementing the alternative e-waste market. Results show that, if the sorting cost is low, the optimal contract to induce sorting investment and to implement the alternative e-waste market for a joint trade in reusable and non-reusable e-wastes is the Baron-Myerson (BM) contract. Moreover, we iden tify conditions to avoid the standard market. Finally, we construct the optimal decisions of the firm in South over the set of sorting costs. One of the direct implications of the results is that if the cost is not too high to deter the sorting investment, the firm in South should give incentives to the firm in North to invest in sorting so that the alternative market can easily be implemented.

Is Choice Experiment Becoming more Popular than Contingent Valuation? A Systematic Review in Agriculture, Environment and Health

Pierre-Alexandre Mahieu – Henrik Andersson – Olivier Beaumais – Romain Crastes – François-Charles Wolff

This paper provides a systematic review based on a large sample of articles published between 2004 and 2013 in economic journals and listed in ISI Web of Science. Results from descriptive statistics and regression models show that choice experiment (CE) is becoming more popular than contingent valuation (CV) in terms of number of publications and citations. Also, journals related to health economics and agricultural economics are more CE oriented than journals related to environmental economics. Finally, divergences across economic journals are found when comparing recent CE articles in terms of questionnaire design, econometric procedure, administration of questionnaire and type of participants. In particular, it is more standard to allow for unobserved taste heterogeneity in environmental journals than in health or agricultural journals.

Optimal Carbon Sequestration Policies in Leaky Reservoirs

Alain Jean-Marie – Michel Moreaux – Mabel Tidball

We study in this report a model of optimal Carbon Capture and Storage in which the reservoir of sequestered carbon is leaky, and pollution eventually is released into the atmosphere. We formulate the social planner problem as an optimal control program and we describe the optimal consumption paths as a function of the initial conditions, the physical constants and the economic parameters. In particular, we show that the presence of leaks may lead to situations which do not occur otherwise, including that of non-monotonous price paths for the energy.

Reaping the Carbon Rent: Abatement and Overallocation Profits in the European Cement Industry, Insights from an LMDI Decomposition Analysis

Published in Energy Economics, 47, January 2015.

Frédéric Branger – Philippe Quirion

We analyse variations of carbon emissions in the European cement industry from 1990 to 2011, at the European level (EU 27), and at the national level for six major producers (Germany, France, Spain, United Kingdom, Italy and Poland). We apply a Log-Mean Divisia Index (LMDI) method, crossing data from three databases: the Getting the Numbers Right (GNR) database developed by the Cement Sustainability Initiative, the European Union Transaction Log (EUTL), and the Eurostat International Trade database.
Our decomposition method allows disentangling seven channels of emissions change: activity, clinker trade, clinker share, alternative fuels, thermal and electric energy efficiency, and electricity decarbonisation. We find that, apart from a slow trend of emissions reductions coming from technological improvements (first from a decrease in the clinker share, then from an increase in alternative fuels), most of the emissions changes can be attributed to the activity effect.
Using counterfactual scenarios, we estimate that the introduction of theEU ETS brought small but positive technological abatement (2.0% plus or minus 1.1% between 2005 and 2011). Moreover, we find that the European cement industry have gained 3.5 billion euros of “overallocation profits”, mostly due to the slowdown of production.
Based on these findings, we advocate for output-based allocations, based on a stringent hybrid clinker and cement benchmarking.

Price versus Quantities versus Indexed Quantities

Frédéric Branger – Philippe Quirion

We develop a stochastic model to rank different policies (tax, fixed cap and relative cap) according to their expected total social costs. Three types of uncertainties are taken into account: uncertainty about abatement costs, business-as-usual (BAU) emissions and future economic output (the two latter being correlated). Two parameters, the ratio of slopes of marginal benefits and marginal costs on the one hand, and the correlation between uncertainty in BAU emissions and future economic output on the other hand, are crucial to determine which instrument is preferred.
When marginal benefits are relatively flatter than marginal costs, prices are preferred over fixed caps (Weitzman’s result). When the former correlation is higher than a parameter- dependent threshold, relative caps are preferred to fixed caps. An intermediate condition is found to compare the tax instrument and the relative cap. We establish a bridge between the literature which minimizes the variance of abatement costs and the one which also includes the variance of benefits, and find that setting environmental benefit aside introduces a bias favoring relative caps over fixed caps.
The model is then empirically tested for seven different regions (China, the United States, Europe, India, Russia, Brazil and Japan) using past GDP and emissions data, and International Energy Outlook forecasting. We find that tax is preferred to caps (absolute or relative) in all cases, and that relative caps are preferred to fixed caps in the US and emerging countries (except Brazil where it is ambiguous), whereas fixed cap are preferred to relative cap in Europe and Japan.

Renewable Energy, Subsidies, and the WTO: Where has the ‘Green’ Gone?

Patrice Bougette – Christophe Charlier

Faced with the energy transition imperative, governments have to decide about public policy to promote renewable electrical energy production and to protect domestic power generation equipment industries. For example, the Canada – Renewable energy dispute is over Feed-in tariff (FIT) programs in Ontario that have a local content requirement (LCR). The EU and Japan claimed that FIT programs constitute subsidies that go against the SCM Agreement, and that the LCR is incompatible with the non-discrimination principle of the World Trade Organization (WTO). This paper investigates this issue using an international quality differentiated duopoly model in which power generation equipment producers compete on price. FIT programs including those with a LCR are compared for their impacts on trade, profits, amount of renewable electricity produced, and welfare. When `quantities’ are taken into account, the results confirm discrimination. However, introducing a difference in the quality of the power generation equipment produced on both sides of the border provides more mitigated results. Finally, the results enable discussion of the question of whether environmental protection can be put forward as a reason for subsidizing renewable energy producers in light of the SCM Agreement.

Limit-Pricing and the (Un)Effectiveness of the Carbon Tax

Forthcoming in Journal of Public Economics

Saraly Andrade de Sa – Julien Daubanes

This paper questions the ability of a carbon tax to reduce oil extraction. Demand for oil is very price inelastic. Facing such demand, an extractive cartel induces the highest price that does not destroy its demand: it tolerates ”non-drastic” substitutes but deters substitution possibilities that have the potential to drastically deteriorate its demand. Limit-pricing equilibria of non-renewable resource markets sharply differ from conventional Hotelling outcomes. Oil taxes become neutral. Policies only reduce current oil extraction when they support existing non-drastic substitutes. Since the carbon tax applies to oil and to its current carbon substitutes, it induces higher oil current production.

Nutrient Allowances Market and Wetland Abatement

Natacha Fauvet – Jean-Christophe Pereau

The buffering function of wetlands is one of the most efficient mechanisms for regulating agricultural runoffs and water pollution. The aim of this paper is to show how farmers could use wetland abatement as a way to achieve pollution targets set by a regulator in a nutrient allowance market. The introduction of allowances into farmers’ maximisation programs creates an incentive to either reduce fertilizer use per hectare of crops, or to restore wetlands on agricultural land. Comparative statics results express a negative correlation between the quantity of allowances per farmer and the fertilizer use. Furthermore, the quantity of allowances per farmer is negatively correlated to the wetland surface area.

Assessing and Ordering Investment in Polluting Fossil-fueled and Zero-carbon Capital

Oskar Lecuyer – Adrien Vogt-Schilb

We study the transition from preexisting polluting fossil-fueled capital (coal power) to cleaner fossil-fueled capital (gas) and zero-carbon capital (renewable). We model exhaustible resources, irreversible investment, adjustment costs and a carbon budget; both fossil-fuel and renewable energy consumption are subject to capacity constraints. To smooth investment and spread costs, optimal investment in expensive renewable power may start before the cheaper fossil resources are exhausted. Gas power operates as a bridge technology between coal and renewable: it allows building less renewable at the beginning of the transition, moving some efforts from the short to the middle term. Finally, the popular criteria of the levelized cost of electricity is biased toward cheaper and lower-potential alternatives (gas instead of renewable) if computed against current prices. We provide numerical simulations of the European power sector based on the Commission’s energy roadmap to 2050.

An Instrument that Could Turn Crowding-out into Crowding-in

Antoine Beretti – Charles Figuières – Gilles Grolleau

Using a simple decision-theoretic approach, we formalize how agents with different kinds of intrinsic motivations react to the introduction of monetary incentives. We contend that empirical results supporting the existence of a crowding-out effect in various contexts hide a more complex reality. We also propose a new policy instrument which taps into agents’ heterogeneity regarding intrinsic motivations in order to turn a situation subject to crowding-out into a crowding-in outcome. This instrument uses a self-selection mechanism to match adequate monetary incentives with individuals’ types regarding intrinsic motivations.

Towards a Clean Vehicle Fleet: from Households’ Valuation of Fuel Efficiency to Policy Implications

Bénédicte Meurisse – Maxime Le Roy

This paper investigates household behaviour with regard to vehicle fuel efficiency. We propose to approach the Willingness to Pay (WTP) for better fuel efficiency through the Hicksian compensating variation in income. Specifically, we distinguish the Willingness to Pay or to Accept (WTA) buying a more fuel-efficient car from the theoretical WTP for a reduction in fuel consumption without changing one’s car. Then by assuming that the household has to replace its car, we estimate a WTP for the cleanest car.
We also analyse what effect a fuel tax and/or a feebate scheme (e.g. a bonus-malus scheme) have on the WTP for the cleanest car and on the driven mileage. We find that the WTP for the cleanest car decreases following the implementation of a fuel tax. To the contrary, a feebate system leads to an increase in this WTP. But we also find that reducing the market price of the new vehicle (i.e. through a bonus) is not worthwhile in the light of the rebound effect. However, a fuel tax – as soon as it exceeds a certain level – is able to nullify the rebound effect.

Conservation Priorities when Species Interact: the Noah’s Ark Metaphor Revisited

Published in PLoS ONE 9(9), September 2014.

Pierre Courtois – Charles Figuières – Chloé Mulier

This note incorporates ecological interactions into the Noah’s Arch problem [M.L. Weitzman, The Noah’s Arch problem, Econometrica 66(6) (1998) 1279-1298]. In doing so, we arrive at a general model for ranking in situ conservation projects accounting for species interrelations and provide an operational cost-effectiveness method for the selection of best preserving diversity projects under a limited budget constraint.

Optimal Abatement of Carbon Emission Flows

Revised version 06.2015. Published in Journal of Environmental and Economics Management, 74, 55-70 (2015).

Michel Moreaux – Cees Withagen

We study optimal carbon capture and storage (CCS) from point sources, taking into account damages incurred from the accumulation of carbon in the atmosphere and exhaustibility of fossil fuel reserves. High carbon concentrations call for full CCS, meaning zero net emissions. We identify conditions under which partial or no CCS is optimal. In the absence of CCS the CO2 stock might be inverted U-shaped. With CCS more complicated behavior may arise. It can be optimal to have full capture initially, yielding a decreasing stock, then partial capture while keeping the CO2 stock constant, and a final phase without capture but with an inverted U-shaped CO2 stock. We also introduce the option of adaptation and provide a unified theory regarding the optimal use of CCS and adaptation.