Efficiency of a Biofuel Subsidy Policy in the Presence of Environmental Externalities

The object of this paper is to analyze, in a general equilibrium setting with four markets, the efficiency of a biofuel subsidy policy. The analysis takes into account environmental externalities associated both with the production and the consumption of biofuels, as well as associated with the production of agricultural raw material. Our preliminary numerical results, applied to the biodiesel subsidy policy in France, first show that this policy increases the utility of the representative consumer compared to the laissez-faire solution. The same policy action leads, however, to an increased level of agricultural and GHG emissions, in comparison with the laissez-faire solution.biofuels, subsidy, environment, Environmental Economics and Policy,

How does the design of international environmental agreements affect investment in environmentally friendly technologies ?

This paper studies the link between the design of international environmental agreements and the incentives for the private sector to invest in cleaner technologies. More specifically, it compares the performance, in the Paretoo sense, of two types of agreement : an agreement on a uniform standard with transfers and an agreement on differentiated standards without transfers. To achieve this goal, we use a multi-stage game where the private sector anticipates its irreversible investment given the expected level of abatement standards, resulting from future bilateral negotiations. Our findings indicate that whenever countries are able to partially commit, the agreement on a uniform standard may be preferable, as it creates greater incentives for firms to invest in costly abatement technology. This result relies on the low level of the set-up cost of this technology. If this level is sufficiently high, the announcement and implementation of the agreement on a uniform standard with transfers is not optimal, because it takes away the incentive of all firms to invest in a new abatement technology.agreements, standards, transfers, technology adoption, irreversible investment, bargaining, transboundary pollution.

How does the design of international environmental agreements affect investment in environmentally friendly technologies?

URL des Documents de travail : http://centredeconomiesorbonne.univ-paris1.fr/documents-de-travail/Documents de travail du Centre d'Economie de la Sorbonne 2007.30 - ISSN : 1955-611XThis paper studies the link between the design of international environmental agreements and the incentives for the private sector to invest in cleaner technologies. More specifically, it compares the performance, in the Pareto sense, of two types of agreement: an agreement on a uniform standard with transfers and an agreement on differentiated standards without transfers. To achieve this goal, we use a multi-stage game where the private sector anticipates its irreversible investment given the expected level of abatement standards, resulting from future bilateral negotiations. Our findings indicate that whenever countries are able to partially commit, the agreement on a uniform standard may be preferable, as it creates greater incentives for firms to invest in costly abatement technology. This result relies on the low level of the set-up cost of this technology. If this level is sufficiently high, the announcement and implementation of the agreement on a uniform standard with transfers is not optimal, because it takes away the incentive of all firms to invest in a new abatement technology.Ce travail étudie le lien entre le design des accords environnementaux internationaux et les décisions d'investissement des entreprises dans de nouvelles technologies de traitement de la pollution. Les deux types d'accords étudiés dans ce travail sont l'accord de norme uniforme avec transferts et l'accord de normes différenciées sans transfert. La principale question posée est celle du type d'accord environnemental international qui doit être annoncé et mis en oeuvre par les pays de façon optimale au sens de Pareto. Ceci est effectué dans le cadre d'un modèle à plusieurs étapes où le secteur privé décide de réaliser un investissement irréversible, étant donné le niveau anticipé des normes de dépollution résultant des négociations bilatérales futures. Nos travaux mettent en évidence un résultat qui peut paraître contre intuitif : il est optimal, en présence de pays très hétérogènes, d'annoncer et de mettre en oeuvre un accord de norme uniforme avec transferts lorsque le coût irrécupérable de l'installation de la technologie est faible et que les bénéfices marginaux de la dépollution globale sont élevés, tandis que ce n'est plus le cas lorsque le coût irrécupérable de l'installation de la technologie est élevé. Dans ce cas, la mise en oeuvre de l'accord de norme uniforme avec transferts donne le même niveau de paiement que celui au point de menace de la négociatio

The role of fixed cost in international environmental negotiations.

We investigate the relative efficiency of an agreement based on a uniform standard without transfers and one based on differentiated standards with transfers when strictly identical countries deal with transboundary pollution. We especially ask what role fixed cost plays. Two approaches are examined: the Nash bargaining solution, involving two countries, and the coalition formation framework, involving numerous countries and emphasizing self-enforcing agreements. In the former, in terms of welfare, strictly identical countries may wish to reduce their emissions in a non-uniform way under the differentiated agreement. For this result to hold, the fixed cost of investment in abatement technology must be sufficiently high. The nature of the threat point of negotiations, however, also plays a crucial role. As concerns global abatement, the two countries abate more under the uniform agreement than under the differentiated one. In terms of coalition formation when numerous countries are involved, a grand coalition could emerge under a differentiated agreement.bargaining; standards; costs; Transboundary pollution;

Comparison of negotiated uniform versus differentiated abatement standards for a transboundary pollution problem

URL des Cahiers : https://halshs.archives-ouvertes.fr/CAHIERS-MSECahiers de la MSE 2005.14 - Série Verte - ISSN : 1624-0340This paper analyses a transboundary pollution problem between two countries and studies the efficiency comparison of uniform versus differentiated abatement standards when there are imperfect transferts between countries. To achieve this goal, we use a negotiation game and the Nash bargaining solution as equilibrium. On the one hand, we remark that the argument of similarity of countries to defend the use of uniform standards is not appropriate, when there exists high level of fixed costs in abatement technology for symmetric countries. On the other hand, for asymmetric countries, according to the total welfare criteria, we notice first that differentiated standards with transfers are generally better than uniform standards with transfers. Secondly, differentiated standards without transfers always outperform uniform standards without transfers. Last, the numerical results show that the asymmetry on abatement benefits between the countries makes the uniform regime with imperfect transfers better than the differentiated regime without transfers, while an asymmetry on abatement costs gives the opposite result.Ce papier analyse un problème de pollution transfrontalière entre deux pays. Il étudie principalement la comparaison en termes d'efficacité des normes uniformes et différenciées d'abattement en présence de transferts monétaires imparfaits entre les pays. Pour le faire, on utilise un jeu de négociation et la solution de Nash bargaining comme équilibre. En ce qui concerne les pays symétriques, on remarque que l'utilisation des normes uniformes n'est pas approprié quand il s'agit de coûts fixes élevés dans la technologie d'abattement. Concernant les pays asymétriques, nos résultats théoriques montrent d'un côté que les normes différenciées avec transferts sont généralement mieux que les normes uniformes avec transferts en termes de bien-être total. De l'autre côté, les normes différenciées sans transferts dominent toujours les normes uniformes sans transferts. Enfin, les résultats des applications numériques mettent en évidence que l'hétérogénéité entre les pays sur les bénéfices d'abattement amène à la supériorité d'un accord de normes uniformes avec transferts imparfaits sur un autre accord de normes différenciées sans la possibiité de transferts. Au contraire, une hétérogénéité entre les pays sur les coûts d'abattement donne le résultat opposé

Efficiency of Uniform Standards for Transboundary Pollution Problems : a note

URL des Documents de travail :http://ces.univ-paris1.fr/cesdp/CESFramDP2007.htmDocuments de travail du Centre d'Economie de la Sorbonne 2007.31 - ISSN : 1955-611XThis note proposes an example which contradicts the idea that similar countries will negotiate an agreement on a uniform standard. It shows that strictly identical countries may have an interest in reducing their emissions differently, and not in a uniform way. This result relies on the existence of fixed costs in the abatement technology. Identical countries could be better off by signing an agreement on differentiated standards in order to exploit increasing returns to scale in the abatement activities. More specifically, one of the countries abates for both, and pays for the fixed cost of investment. In return, it is compensated by monetary transfers for this effort. We show that the level of fixed cost must be sufficiently high in this case.Cette note propose un exemple qui contredit l'idée selon laquelle des pays identiques vont négocier un accord de norme uniforme. Ce travail démontre la proposition suivante : des pays strictement identiques peuvent trouver intérêt à réduire différemment leurs émissions. L'explication de ce résultat trouve son origine dans l'hypothèse de coûts fixes dans la technologie de dépollution. En effet, l'introduction de coûts fixes implique une non-convexité locale de la fonction de coût de dépollution. Des pays identiques peuvent gagner collectivement en signant un accord de normes différenciées afin de profiter des rendements d'échelle dans la dépollution. En revanche, un des pays dépollue pour les deux, et donc paie le coût fixe de l'investissement. En contrepartie, il est compensé pour cet effort par des transferts monétaires. Nous montrons que le niveau des coûts fixes doit être suffisamment élevé dans ce cas

Comparison of negotiated uniform versus differentiated abatement standards for a transboundary pollution problem

This paper analyses a transboundary pollution problem between two countries and studies the efficiency comparison of uniform versus differentiated abatement standards when there are imperfect transferts between countries. To achieve this goal, we use a negotiation game and the Nash bargaining solution as equilibrium. On the one hand, we remark that the argument of similarity of countries to defend the use of uniform standards is not appropriate, when there exists high level of fixed costs in abatement technology for symmetric countries. On the other hand, for asymmetric countries, according to the total welfare criteria, we notice first that differentiated standards with transfers are generally better than uniform standards with transfers. Secondly, differentiated standards without transfers always outperform uniform standards without transfers. Last, the numerical results show that the asymmetry on abatement benefits between the countries makes the uniform regime with imperfect transfers better than the differentiated regime without transfers, while an asymmetry on abatement costs gives the opposite result.Transboundary pollution, cooperative games, bargaining, standards, transfers.

Efficiency of Uniform Standards for Transboundary Pollution Problems : a note

This note proposes an example which contradicts the idea that similar countries will negotiate an agreement on a uniform standard. It shows that strictly identical countries may have an interest in reducing their emissions differently, and not in a uniform way. This result relies on the existence of fixed costs in the abatement technology. Identical countries could be better off by signing an agreement on differentiated standards in order to exploit increasing returns to scale in the abatement activities. More specifically, one of the countries abates for both, and pays for the fixed cost of investment. In return, it is compensated by monetary transfers for this effort. We show that the level of fixed cost must be sufficiently high in this case.Transboundary pollution, cooperative games, bargaining, standards, transfers, fixed cost.

Climate Agreements in a Mitigation-Adaptation Game

We analyze the strategic interaction between mitigation (public good) and adaptation (private good) strategies in a climate agreement. We show that adaptation can lead to larger self-enforcing agreements, associated with higher global mitigation levels and welfare if it causes mitigation levels between different countries to be no longer strategic substitutes but complements. Thus, the fear that adaptation will reduce the incentives to mitigate carbon emissions may be unwarranted. We argue that our results extend to many important public goods. The purchase of private goods may not crowd out the provision of public goods, as this is commonly believed

Biofuel Policies in the Presence of Environmental Externalities Preliminary Version (Please do not quote)

Abstract The objective of this paper is to compare, in a general equilibrium setting with three goods, the relative efficiency of biofuel subsidy and biofuel mandate policies with the laissez-faire solution. The outcomes of these institutional arrangements are also compared to that of the optimal solution. This analysis takes into account several environmental externalities such as those associated with the production of biofuels. Our numerical results, applied to the biodiesel policy of France in 2006, show that both policies decrease the utility of the representative consumer compared to the laissez-faire solution. The biofuel subsidy policy also increases overall emissions