Technological greening, eco-efficiency, and no-regret strategy

In this paper we analyze the relationship between technological greening, eco-efficiency and no- regret strategies. By using a simple theoretical model, we evaluate the effects of technological greening on creation value, pollution level, and eco-efficiency. We show three contrasting effects of technological greening. First, technological greening may increase the pollution of a firm, and also of the whole industry. Second, the indicator of eco-efficiency can be misleading because it may improve in situations where pollution increases and/or profit decreases after technological greening. Third, technological greening that induces an improvement of the eco-efficiency indicator does not necessarily lead to a no-regret strategy. As a result, the indicator should not be used for decision making.technological greening, clean technology, eco-efficiency, environmental performance, rebound effect

Model predictive control, the economy, and the issue of global warming

This study is motivated by the evidence of global warming, which is caused by human activity but affects the efficiency of the economy. We employ the integrated assessment Nordhaus DICE-2007 model [16]. Generally speaking, the framework is that of dynamic optimization of the discounted inter-temporal utility of consumption, taking into account the economic and the environmental dynamics. The main novelty is that several reasonable types of behavior (policy) of the economic agents, which may be non-optimal from the point of view of the global performance but are reasonable form an individual point of view and exist in reality, are strictly defined and analyzed. These include the concepts of “business as usual”, in which an economic agent ignores her impact on the climate change (although adapting to it), and of “free riding with a perfect foresight”, where some economic agents optimize in an adaptive way their individual performance expecting that the others would perform in a collectively optimal way. These policies are defined in a formal and unified way modifying ideas from the so-called “model predictive control”. The introduced concepts are relevant to many other problems of dynamic optimization, especially in the context of resource economics. However, the numerical analysis in this paper is devoted to the evolution of the world economy and the average temperature in the next 150 years, depending on different scenarios for the behavior of the economic agents. In particular, the results show that the “business as usual”, although adaptive to the change of the atmospheric temperature, may lead within 150 years to increase of temperature by 2°C more than the collectively optimal policy.environmental economics, dynamic optimization, optimal control, global warming, model predictive control, integrated assessment

The race for polluting permits

International markets for tradable emission permits (TEP) co-exist with national energy taxation. A firm trading emission permits in the international market also pays energy taxes in its host country, thus creating an interaction between the international TEP-market and national energy taxes. In this paper we model that interaction in a framework of a perfectly competitive international TEP-market, where heterogeneous firms trade their TEP endowments. National governments set energy taxes non-cooperatively so as to maximize fiscal revenue from energy and profit taxes. We identify the driving forces behind Nash equilibrium taxes. We show how they depend on the total amount of TEPs in the market, on firms TEP-endowment and on thenumber of participating countries. We also show how energy taxation varies with the introduction of the market on a previously unregulated world. Finally, we highlight the fact that the TEP-market does not achieve abatement cost efficiency, despite itsbeing perfectly competitive.tradable permits, fiscal competition, Kyoto protocol

The price of silence tradeable noise permits and airports

This paper presents a market design for the management of noise disturbance created by aircraft traffic around large airports. A market for tradable noise permits allows noise generators to compensate harmed residents. We show that the noise permit markets allow the achievement of the planner's optimal allocation of flights provided that she/he does not over-weight the benefit of economic activity compared to the disutility of noise disturbances. The fact that zones are likely to be strategic players does not fundamentally alter this finding. Because of the market auctioneer's information constraints, noise permits are likely to redistribute windfall gains to residents located in non-critical zones. This entices landlords to increase their land/house rents there and to design smaller houses in the long run.

Can education be good for both growth and the environment?

We develop an overlapping generations model of growth and the environment with public policy on education. Beyond the traditional mechanisms through which knowledge, growth and the environment interplay, we stress out the role played by education on environmental awareness. Assuming first that environmental awareness is constant, we show the existence of a balanced growth path along which environmental quality increases continually. Then, if education enhances environmental awareness, the equilibrium properties are modi?ed: the economy can reach a steady state or converge to an asymptotic balanced growth path. Therefore, education does not necessarily promote sustained and sustainable growth.overlapping generations, public education, environmental maintenance, green awareness, sustainable growth

The economics of airport noise: how to manage markets for noise licenses

Noise-induced pollution constitutes a hot and topical societal problem for all major airports. This paper discusses various issues in the implementation of a market for noise licenses as a solution to solve the noise externality between the residents located around airports and the aircrafts moving in and to airports.airport, environment, noise, licenses

Tradable pollution permits in dynamic general equilibrium: can optimality and acceptability be reconciled?

In this paper we study the optimal growth path and its decentralization in a two-sector overlapping- generations model with pollution. One sector (power generation) is polluting and the other (final good) is not. Pollution is regulated by tradable emission permits. The issue is whether the optimal growth path can be replicated in equilibrium with pollution permits, given that some permits must be issued free of charge for the sake of political acceptability. We provide a policy rule that allows optimality and acceptability to be reconciled.general equilibrium, optimal growth, pollution, tradable emission permits, acceptability

The impact of the unilateral EU commitment on the stability of international climate agreements

In this paper we analyze the negotiation strategy of the European Union regarding the formation of an international climate agreement for the post-2012 era. We use game theoretical stability concepts to explore incentives for key players in the climate policy game to join future climate agreements. We compare a minus 20 percent unilateral commitment strategy by the EU with a unilateral minus 30 percent emission reduction strategy for all Annex-B countries. Using a numerical integrated assessment climate-economy simulation model, we find that carbon leakage effects are negligible. The EU strategy to reduce emissions by 30% (compared to 1990 levels) by 2020 if other Annex-B countries follow does not induce participation of the USA with a similar 30% reduction commitment. However, the model shows that an appropriate initial allocation of emission allowances may stabilize a larger and more ambitious climate coalition than the Kyoto Protocol in its first commitment period.climate change, coalition theory, integrated assessment model, Kyoto protocol.

THE RACE FOR POLLUTING PERMITS

International markets for tradable emission permits (TEP) co-exist with national energy taxation. A firm trading emission permits in the international market also pays energy taxes in its host country, thus creating an interaction between the international TEP-market and national energy taxes. In this paper we model that interaction in a framework of a perfectly competitive international TEP-market, where heterogeneous firms trade their TEP endowments. National governments set energy taxes non-cooperatively so as to maximize fiscal revenue from energy and profit taxes. We identify the driving forces behind Nash equilibrium taxes. We show how they depend on the total amount of TEPs in the market, on firms ’ TEP-endowment and on the number of participating countries. We also show how energy taxation varies with the introduction of the market on a previously unregulated world. Finally, we highlight the fact that the TEP-market does not achieve abatement cost efficiency, despite its being perfectly competitive. JEL Classification: Q48; Q52; H23; H73

Markets for emission permits with free endowment: a vintage capital analysis

In this paper we develop a vintage capital model for a firm involved in a market for tradable emission permits. We analyze both the firm’s optimal investment plans and the market equilibrium. This allows us to scrutinize how firms use permits free endowment, and to highlight the implications of non-optimal uses both at the firm and at the market level. We provide a new rationale for the market of tradable permits not to be cost-efficient. The novel technical points in this context are the use a distributed (vintage) optimal control model of the firm, the use of optimality conditions for non-smooth problems, and the involvement of a nonlinear Fredholm integral equation of the first kind for the description of the equilibrium price of permits, and its practical meaning for market regularization.