Unilateral Emissions Abatement: An Experiment

According to the model of HOEL (1991), a unilateral emissions abatement of a global pollutant leads to lower aggregated emissions in a game with a simultaneous decision protocol. Our experiment tests the Hoel model and examines the question of whether a leader can induce additional abatement of followers in a game with a mixed sequential-simultaneous decision protocol. Using an environment with a unique interior equilibrium, our experiments confirm the stylized outcomes of previous public good experiments. Changes in abatement and profits for the simultaneous decision protocol are in line with the theoretical predictions of the Hoel model albeit not significantly in every case. In the treatments with a mixed sequential-simultaneous decision protocol, during the first periods an abatement near social optimum is mostly chosen by the leader. However, in most cases the leader failed to induce cooperation, i.e. there are few followers who react cooperatively to the leader’s signal. High efforts by the leader and the cooperative followers are exploited by the majority of defective followers.

Does Mandatory Labeling of Genetically Modified Food Grant Consumers the Right to Know? Evidence from an Economic Experiment

Opponents of the voluntary labeling scheme for genetically modified (GM) food products often argue that consumers have the ?right to know? and therefore advocate mandatory labeling. In this paper we argue against this line of reasoning. Using experimental auctions conducted with a sample of the resident population of Mannheim, Germany, we show that the quality of the informational signal generated by a mandatory labeling scheme is affected by the number of labels in the market. If there are two labels, one for GM products and one for non-GM products, mandatory and voluntary labeling schemes generate a similar degree of uncertainty about the quality of products that do not carry a label. --labeling,genetically modified foods,consumer preferences,experimental auctions

Do Equity Preferences Matter in Climate Negotiations? An Experimental Investigation

This paper investigates in how far equity preferences may matter for climate negotiations. For this purposes we conducted a simple experiment with people who have been involved in international climate policy. The experiment, which was run via the Internet, consisted of two simple non-strategic games suited to measure the parameters of inequity aversion in a Fehr and Schmidt (1999) utility function. We find that our participants show aversion against advantageous as well as disadvantageous inequity to a considerable amount. Moreover, the degree of inequity aversion is higher compared to that of students in the similar study of Dannenberg et al. (2007). Regarding the geographical variety in our sample, we cannot confirm significant differences in the degree of inequity aversion between different regions in the world, which is in line with previous findings from the experimental literature. This finding lends support to the hypothesis that equity preferences are "hard-wired" and not much influenced by socio-economic or cultural circumstances. --individual preferences,inequity aversion,climate policy,experimental economics,public goods

On the formation of coalitions to provide public goods: Experimental evidence from the lab

The provision of public goods often relies on voluntary contributions and cooperation. While most of the experimental literature focuses on individual contributions, many real-world problems involve the formation of institutions among subgroups (coalitions) of players. International agreements serve as one example. This paper experimentally tests theory on the formation of coalitions in different institutions and compares those to a voluntary contribution mechanism. The experiment confirms the rather pessimistic conclusions from the theory: only few players form a coalition when the institution prescribes the full internalization of mutual benefits of members. Contrary to theory, coalitions that try to reduce the freeriding incentives by requiring less provision from their members, do not attract additional members. Substantial efficiency gains occur, however, both along the extensive and intensive margin when coalition members can each suggest a minimum contribution level with the smallest common denominator being binding. The experiment thereby shows that the acceptance of institutions depends on how terms of coalitions are reached. --public goods,institutions,coalition formation,cooperation

Hot Air for Sale: A Quantitative Assessment of Russia's Near-Term Climate Policy Options

Since January 1st the European Union has launched an EU-internal emissions trading scheme (EU ETS) for emission-intensive installations as the central pillar to comply with the Kyoto Protocol. The EU ETS may be linked at some time to a Kyoto emissions market where greenhouse gas emission allowances of signatory Kyoto countries can be traded. In this paper we investigate the implications of Russian market power for environmental effectiveness and regional compliance costs to the Kyoto Protocol taking into account potential linkages between the Kyoto emissions market and the EU ETS. We find that Russia may have incentives to join the EU ETS as long as the latter remains separated from the Kyoto international emissions market. In this case, Russia can exert monopolistic price discrimination between two separated markets thereby maximizing revenues from hot air sales. The EU will be able to substantially reduce compliance costs when it does not restrain itself to EU-internal emission regulation schemes. However, part of the gains from extra-EU emissions trading will come at the expense of environmental effectiveness as (more) hot air will be drawn in. --market power,hot air,climate policy

Auctioning of CO2 Emission Allowances in Phase 3 of the EU Emissions Trading Scheme

The Climate action and renewable energy package proposed by the European Commission in the beginning of 2008 suggests auctioning as basic principle for allocation for the upcoming third trading phase of the EU Emissions Trading Scheme that runs from 2013 to 2020. Overall, it is estimated that at least two third of the total quantity of allowances will be auctioned in 2013, to be increased to 100 % by 2020. In this paper, we emphasize the importance of a properly chosen auction design as the significantly higher auction share, compared to the past and current trading phase, is expected to yield a thin secondary market for CO2 allowances. We elaborate main criteria that a viable auction design is supposed to fulfil and propose a specific auction design for the third trading phase. The auction we recommend is a simultaneous dynamic uniform double auction. -- Die Europäische Kommission hat in ihrem Klima- und Energiepaket vom Januar 2008 eine Weichenstellung für den europäischen Emissionshandel vorgeschlagen. Bislang wurden die Zertifikate an die betroffenen Unternehmen aus den energieintensiven Sektoren kostenfrei vergeben. Nach den Plänen der Kommission sollen Stromproduzenten ab 2013 alle benötigten Zertifikate ersteigern müssen. Unternehmen aus anderen energieintensiven Branchen sollen zunächst nur 20 % ersteigern, in 2020 dann 100 %. Da insgesamt mindestens zwei Drittel aller Zertifikate versteigert werden, ist zu erwarten, dass der freie Markt für Zertifikate ab 2013 deutlich dünner sein wird als dies bisher der Fall ist. Aus diesem Grund gewinnt das Design der Auktion an Bedeutung, denn vom Auktionspreis, der die Knappheit an Zertifikaten signalisieren soll, werden wichtige Investitionsentscheidungen in CO2-arme Technologien abhängen. Eventuelle Fehler im Auktionsdesign können, wenn die Zertifikate überwiegend versteigert werden, nicht mehr durch einen liquiden freien Markt geheilt werden.climate policy,emissions trading,auction design

The influence of collective action on the demand for voluntary climate change mitigation in hypothetical and real situations

In this experiment, we investigate determinants of the individual demand for voluntary climate change mitigation. Subjects decide between a cash prize and an allowance from the EU Emissions Trading Scheme for one ton of CO2 that will be deleted afterwards. We vary the incentives of the decision situation in which we distinguish between real monetary incentives and a hypothetical decision situation with and without a cheap talk script. Furthermore, decisions were implemented either as purely individual or as a collective action using majority voting. We observe a significant hypothetical bias in the demand for voluntary climate change mitigation. In case of the individual decision situation this bias is caused solely by subjects with low income. Collective decision making affects demand positively in the hypothetical decision situation only

A European perspective on recent trends in U.S. climate policy

Without participation of the United States, the world’s largest emitter of greenhouse gases, mitigation of global climate change seems hardly conceivable. Despite the U.S. rejection of the Kyoto Protocol and the reluctance of the Bush administration to engage in Post-Kyoto negotiations, recent developments suggest that the U.S. position towards climate policy might change in the medium run. This study provides an overview on current trends in U.S. climate policy. Besides the main elements of national climate policy proposals and state-level initiatives the climate contents in the U.S. presidential candidates’ agendas are outlined. Based on this overview recent trends in U.S. climate policy are related to the European approach to combat climate change. Furthermore, we elaborate on the aspects which may be important for Europe to design its own domestic and international climate policy in-term goal of stabilizing greenhouse gas concentrations

Energieeffizienz – eine neue Aufgabe für staatliche Regulierung?

Hinter der Forderung nach höherer Energieeffizienz stehen üblicherweise konkrete umwelt- und energiepolitische Ziele wie Klimaschutz, Versorgungssicherheit und Ressourcenschonung. Das vorliegende Papier analysiert diese Argumente und diskutiert mögliche Politikinstrumente zur Zielerreichung. Dabei zeigt sich, dass eine rationale Wirtschaftspolitik im Fall von energierelevantem Marktversagen und Problemen intergenerationaler Gerechtigkeit kosteneffiziente, spezifische Instrumente nutzen sollte. Hierzu zählen informatorische Maßnahmen, CO2- Zertifikate und spezifische Energiesteuern. Eine höhere Energieeffizienz ist Ergebnis einer solchen rationalen Politik und nicht Mittel zum Zweck. Pauschale Instrumente, die direkte Energiesparvorgaben machen, wie Weiße Zertifikate und Zwangsstandards sind dagegen nicht zu empfehlen

The ratchet effect in social dilemmas

In this paper, we investigate whether dynamic incentive schemes lead to a ratchet effect in a social dilemma. We test whether subjects strategically restrict their contribution levels at the beginning of a cumulative public goods game in order to avoid high obligations in the future and how this affects efficiency. The incentive schemes prescribe that individual contributions have to be at least as high as, or strictly higher than, contributions in the previous period. We observe a substantial and statistically significant ratchet effect. Participants reduce their public good contribution levels at the beginning of the game, anticipating that higher contributions imply higher minimum contribution levels in the future, which increases the risk of being exploited by freeriders. While the dynamic incentive schemes lead to increasing contribution levels over the course of the game, this increase is not strong enough to compensate the efficiency losses at the beginning