2015

WP 2015.21 A Tale of Two Diversities

Chloé Mulier – Pierre Courtois – Charles Figuières

Abstract
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.


WP 2015.20
Optimal Timing of Carbon Capture Policies under Learning-by-doing

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

Jean-Pierre Amigues – Gilles Lafforgue – Michel Moreaux

Abstract
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.


WP 2015.19
Environmental regulation with and without commitment under irreversible investments

Jean-Philippe Nicolai

Abstract
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.


WP 2015.18
Climate element of migration decision in Ghana: Micro Evidence

Franklin Amuakwa-Mensah

Abstract
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.


WP 2015.17
L’information préventive améliore-t-elle la perception des risques? Impact de l’Information Acquéreur Locataire sur le prix des logements

Amélie Mauroux

Abstract
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.


WP 2015.16
The Long-Run Impact of Biofuel on Food Prices

Published in The Scandinavian Journal of Economics (2017), 119(3), 733-767.

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

Abstract
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.


WP 2015.15
Climate damages on production or on growth: what impact on the social cost of carbon

Published in Environmental Modeling & Assessment (2018), 23(2), 117-130.

Céline Guivarch – Antonin Pottier

Abstract
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.


WP 2015.14
Carbon Emissions and Social Capital in Sweden

George Marbuah – Ing-Marie Gren

Abstract
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.


WP 2015.13
Environmental tax reform in a federation with rent-induced migration

Jean-Denis Garon – Charles Séguin

Abstract
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.


WP 2015.12
Environmental impacts of the French final consumption

Laurent Meunier – Frédéric Gilbert – Eric Vidalenc

Abstract
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.


WP 2015.11
Energy efficiency subsidies with price-quality discrimination

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

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

Abstract
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.


WP 2015.10
Heterogeneous firms and the environment: a cap-and-trade program

Published in Journal of Environmental Economics and Management (2017), 84, 84-101.

Lisa Anouliès

Abstract
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.


WP 2015.09
Cross-commuting and housing prices in a polycentric modeling of cities

Vincent Viguié

Abstract
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.


WP 2015.08
Quel mode de soutien pour les énergies renouvelables électriques?

Published in Revue Française d’Economie (2015), XXX(4), 105-140.

Philippe Quirion

Abstract
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.


WP 2015.07
Hedonic Model with Discrete Consumer Heterogeneity and Horizontal Differentiated Housing

Masha Maslianskaia Pautrel

Abstract
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.


WP 2015.06
Global Sensitivity Analysis of an Energy-Economy Model of the Residential Building Sector

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

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

Abstract
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.


WP 2015.05
Energy Transition under Irreversibility: a Two-sector Approach

Published in Environmental and Resource Economics (2017), 68(3), 797-820.

Prudence Dato

Abstract
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.


WP 2015.04
Can the Energy Transition Be Smooth?

Published in Sustainability (2020), 12(3), 1176.

Jean-François Fagnart – Marc Germain

Abstract
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.


WP 2015.03
Protecting Biodiversity by Developing Bio-Jobs: a Multi-branch Analysis with an Application on French Data

Published in International Journal of Sustainable Development (2017), 20(3-4), 306-323.

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

Abstract
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.


WP 2015.02
Non-renewable and Intermittent Renewable Energy Sources: Friends and Foes?

Published in Energy Policy (2017), 111, 58-67.

Edmond Baranès – Julien Jacqmin – Jean-Christophe Poudou

Abstract
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 differential 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 specifications.


WP 2015.01
Consumer Misperception of Eco-labels, Green Market Structure and Welfare

Published in Journal of Regulatory Economics (2017), 51(3), 340-364.

Dorothée Brécard

Abstract
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.

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