Impact of Carbon Pricing on Low-Carbon Innovation and Deep Decarbonisation : Controversies and Path Forward

Acord transformatiu CRUE-CSICUnidad de excelencia María de Maeztu CEX2019-000940-MThere is an ongoing discussion about the effectiveness of carbon pricing, with a strong division between optimists and pessimists. A recent review study by Lilliestam, Patt and Bersalli (2021) of the impact of carbon pricing on low-carbon innovation and deep carbonization concludes that there is no evidence for such an impact. We evaluate this study and identify various shortcomings of it, which together cast strong doubts on its main conclusion. Instead, we conclude, based on the studies reviewed by the authors and additional, overlooked literature, that carbon pricing has had a small but positive and significant effect on low-carbon innovation. Our evaluation provides lessons for undertaking a systematic and objective review of research on this topic. Since the main goal of carbon pricing is changing choices by firms and consumers that affect carbon emissions, we also point the reader towards recent evidence for the broader effectiveness of carbon pricing

Energy rebound due to re-spending: A growing concern

Energy conservation is widely accepted as an important strategy to combat climate change. It can, nevertheless, stimulate new energy uses that partly offset the original savings. This is known as rebound. One particular rebound mechanism is re-spending of money savings associated with energy savings on energy intensive goods or services. We calculate the average magnitude of this "re-spending rebound" for different fuels and countries. We find that emerging economies, neglected in past studies, typically have substantially larger rebounds than OECD countries. The effect is generally stronger for gasoline than for natural gas and electricity. Paradoxically, strengthening financial incentives to conserve energy tends to increase rebound. This is expected to gain importance with climate regulation and peak oil. We discuss the policy implications of our findings

Assessing the authenticity of national carbon prices : A comparison of 31 countries

Acord transformatiu CRUE-CSICUnidad de excelencia María de Maeztu CEX2019-000940-MMany countries have carbon pricing in place, in the form of a tax and/or market. Generally, this involves low price rates, incomplete emissions coverage, and price reductions for particular sectors. This raises the question whether the label "carbon price" - in the environmental-economics textbook sense - really applies. To answer it, we assess the authenticity of 31 national carbon prices, calculating average carbon prices and their gap with advertised prices, at both national and sector levels. The results indicate a poor level of authenticity. This means that the carbon prices published by sources such as the World Bank provide a misleading representation of the actual national policy pressure on emissions. Countries show considerable differences regarding the average carbon price level and the gap with advertised prices. Moreover, there is not a one-to-one relationship between advertised and average carbon prices, suggesting the former are not a good basis for international comparison of policy effectiveness. Across countries, the mean carbon price equals €7.90/ton of CO while the mean price gap is 57.7%. Most noticeably, the highest advertised price for Sweden should be interpreted with care as it goes along with a price gap of almost €100 to the average price. In addition, Switzerland and Finland show relatively high price gaps. To illustrate the relevance and non-triviality of our indicators, note that Sweden occupies a 3rd position in terms of average carbon price (after Norway and Switzerland), 27th in terms of price gap, and 16th in terms of effective rate (i.e. sum of implicit and explicit carbon prices). We further find that implicit carbon prices dominate explicit ones for most countries, notably in road transport, whereas the reverse holds for industrial and electricity sectors. Combining our findings with recent empirical evidence for carbon-pricing effectiveness highlights the potential of the instrument to combat climate change, provided implementation is improved and internationally harmonized. Shifting the attention from advertised to average carbon prices might help in this regard

Tired of climate targets? Shift focus of IPCC scenarios from emission and growth targets to policies

Unidad de excelencia María de Maeztu CEX2019-000940-MAcord transformatiu CRUE-CSICUTP en procés de revisióClimate change has revived the debate on growth-versus-environment. In line with this, recently it has been proposed to shift the target focus of IPCC scenarios from emissions to post-growth. We argue here that this confounds ends and means, since while reduction of growth may be an outcome of good climate policies, it should not be a goal in itself. In fact, a post- or degrowth goal would mean an ineffective and costly way to reduce emissions. Instead, we suggest that the debate about pursuing economic growth versus achieving climate goals will become more transparent and policy-relevant through refocusing scenarios from targets to policy

ABM-IAM : optimal climate policy under bounded rationality and multiple inequalities

Unidad de excelencia María de Maeztu CEX2019-000940-MDespite considerable concern about potentially inequitable effects of climate policy, models fall short in assessing their implications for policy design. To address this issue, we develop an agent-based climate-economy model, agent-based modelling-Integrated Assessment Model, as a disaggregated, behavioural approach to integrated climate assessment. It describes networks of heterogeneous consumers, banks, power plants and firms, and is calibrated on patterns of growth and carbon dioxide emissions generated by the DICE model of Nordhaus. Whereas the latter assumes full employment and abstains from a financial sector and inequality considerations, our approach relaxes these restrictions to obtain a more reliable assessment of climate policy impacts. We show that inequalities in labour and capital income serve as essential but overlooked links between climate-change damages and optimal climate policy. Our result show that lower inequalities of labour income increase the social cost of carbon (SCC), while the impact of capital income inequalities on the SCC depends on the share of population receiving capital rents

Behavioral Interventions for Climate Mitigation in Developing Countries : Overview and Prospects

Unidad de excelencia María de Maeztu CEX2019-000940-MBehavioral interventions are increasingly being considered as useful complements of traditional climate-policy instruments. These interventions are so far mostly being studied and applied in high-income countries. Here, we examine their application to achieve carbon emissions reduction in low- and middle-income countries. This involves synthesizing evidence from meta-analyses and systematic reviews from developed countries and deriving general insights for developing countries. We also review evidence from primary studies in developing countries, organizing insights by major world regions. We discuss context dependence of findings, as well to what extent behavioral interventions are complementary to, and create synergies with, other policy instruments. We hope that the present overview serves as starting point to expand the currently small evidence base on climate-relevant behavioral interventions in developing countries. Suggestions are made how to move this research forward

Taxing interacting externalities of ocean acidification, global warming, and eutrophication

We model a stylized economy dependent on agriculture and fisheries to study optimal environmental policy in the face of interacting external effects of ocean acidification, global warming, and eutrophication. This allows us to capture some of the latest insights from research on ocean acidification. Using a static two-sector general equilibrium model we derive optimal rules for national taxes on (Formula presented.) emissions and agricultural run-off and show how they depend on both isolated and interacting damage effects. In addition, we derive a second-best rule for a tax on agricultural run-off of fertilizers for the realistic case that effective internalization of (Formula presented.) externalities is lacking. The results contribute to a better understanding of the social costs of ocean acidification in coastal economies when there is interaction with other environmental stressors. Recommendations for Resource Managers: Marginal environmental damages from (Formula presented.) emissions should be internalized by a tax on (Formula presented.) emissions that is high enough to not only reflect marginal damages from temperature increases, but also marginal damages from ocean acidification and the interaction of both with regional sources of acidification like nutrient run-off from agriculture. In the absence of serious national policies that fully internalize externalities, a sufficiently high tax on regional nutrient run-off of fertilizers used in agricultural production can limit not only marginal environmental damages from nutrient run-off but also account for unregulated carbon emissions. Putting such regional policies in place that consider multiple important drivers of environmental change will be of particular importance for developing coastal economies that are likely to suffer the most from ocean acidification. © 2021 The Authors. Natural Resource Modeling published by Wiley Periodicals LLC

A group selection perspective on economic behavior, institutions and organizations

This article examines the role of group dynamics and interactions in explaining economic behavior and the evolution of institutions. Our starting point is the large literature on group selection in the biological, behavioral and social sciences. We present a range of interpretations of group selection, describe a complete set of group selection mechanisms, and discuss the empirical and experimental evidence for group selection. Unique features of cultural group selection are investigated, and opportunities for applying the latter to various areas of economic theory and economic policy are identified

Potential carbon leakage under the Paris agreement

Unidad de excelencia María de Maeztu CEX2019-000940-MCarbon leakage is the effect of emissions transferring to certain countries due to others having a stricter climate policy. This phenomenon is shown to have undercut the effectiveness of the Kyoto Protocol. Considering the increasingly globalised nature of the world economy, carbon leakage may have an even greater potential under the Paris Agreement some fifteen years later. Although a more global approach to combatting climate change, the Paris Agreement is susceptible to leakage because of its lack of policy harmonization and enforcement mechanisms. Here we perform the first quantitative analysis of the potential for carbon leakage under Paris, using the GTAP-E general equilibrium model of the world economy with energy and carbon emissions to analyse leakage effects under six scenarios. Two of these scenarios analyse regions implementing climate policy in isolation, two greater participation, but still not harmonized, global Paris Agreement policy, and a further two analyse the effect of a US withdrawal from the agreement. Both cases are considered with and without the US withdrawal. Our analysis demonstrates that there is potential for significant carbon leakage effects, in line with the rates produced from studies on the Kyoto Protocol. Depending on model elasticities, we find medium carbon leakage in the range of 1-9% (with a central estimate of 3-4%) under co-ordinated Paris Agreement policy across countries, compared to high leakage of 8-31% when countries operate in isolation. However, scenarios where the US withdraws from the agreement result in roughly doubling of leakage rates, in the range of 3-16% (central estimate 7%), which demonstrates the vulnerability of the Paris Agreement in its current form. To limit leakage effects greater policy co-ordination to achieve consistent implicit carbon prices is needed across countries

2010,23: Environmental and climate innovation : limitations, prices and policies

There is currently much hope about environmental innovation and green technologies, notably as a response to the threat of climate change. This paper offers a critical perspective on the role of technological innovation to solving environmental problems, based on considering empirical economic studies, energy and environmental rebound, the energy return on energy investment (EROEI) of alternative energy technologies, and various crowding out effects. Features of green technologies and motives of green innovators are briefly discussed. This is followed by an examination of the desirable mix of environmental and innovation policies to stimulate environmental innovation, to escape current and to evade early new lock-ins, and to avoid the occurrence of a "green paradox". This involves an evaluation of specific policy instruments from an environmental innovation angle. An extended argument is offered to clarify that environmental (CO2) pricing is crucial - even though insufficient - for environmental innovation to deliver definite solutions. In other words, environmental innovation (policy) is no substitute for environmental regulation (through prices). The paper also discusses the importance for environmental innovation of international agreements for regulation of greenhouse gas emissions and international coordination of innovation efforts