Clear Skies: Multi-Pollutant Climate Policy in the Presence of Global Dimming

Publisher PD

On coordination of abatement in voluntary agreements

The negotiated agreement (NA) -- the strictest form of a voluntary agreement -- is modeled as a coordination device to exchange emission abatement offers between firms to preempt environmental regulation. We find that the NA is Pareto efficient and that the potential cost savings to be derived from a NA increases with firm heterogeneity. The NA realizes almost all of the cost savings when the potential cost savings are low and it realizes only a fraction of the cost savings if the savings are potentially high. Consequently, the cost savings under a NA are typically smaller than those achievable by market-based policy instruments, in spite of the NA being Pareto efficient

Why falling oil prices should not undermine investment in green energy

First paragraph: When the price of crude oil dropped from US$110 a barrel in mid-2014 to below US$50 by January 2015, there were fears that it would destroy the “green revolution”. But a look at what’s gone on in the renewable energy sector since oil prices dropped shows that low energy prices alone do not undermine investment in renewable energy. Access this article on The Conversation website: https://theconversation.com/why-falling-oil-prices-should-not-undermine-investment-in-green-energy-3642

A Note on Organizational Design and the Optimal Allocation of Environmental Liability

A multi task principal-agent model is employed to derive optimal environmental liability rules for risk neutral managers under two alternative organizational structures - a functional organization and a product-based organization. For a product-based organization it is shown that efficiency is independent of whether the firm or managers are liable for environmental damages. In a functional organization it is optimal either to hold the firm liable for environmental damages or, equivalently, not to hold the production managers liable for environmental damages. We derive conditions to obtain the first-best solution for a given organizational structure. Finally, the organizational form that induces the highest environmental effort induces the lowest production effort and vice versa. This suggests that production and environmental protection are substitutes rather than complements

Carbon trading thickness and market efficiency: A non-parametric test

This note tests for the efficient market hypothesis (EMH) in the market for CO2 emission allowances in Phase I and Phase II of the European Union Emissions Trading Scheme (EU ETS). As usually is the case in emerging and non-competitive markets such as the EU ETS, trading often not occurs on a frequent basis. This has adverse implications for both the gains from permit trade as well as biases the EMH tests. Variance ratio tests are employed to adjust for the thin trading effect. The results indicate that Phase I – the trial and learning period – was inefficient, whereas the first period under Phase II shows signs of restoring market efficiency

Dynamic Efficiency in Experimental Emissions Trading Markets with Investment Uncertainty

This study employs a laboratory experiment to assess the performance of tradable permit markets on dynamic efficiency arising from cost-reducing investment. The permit allocation rule is the main treatment variable, with permits being fully auctioned or grandfathered. The experimental results show significant investment under both allocation rules in the presence of ex ante uncertainty over the actual investment outcome. However, auctioning permits generally provides stronger incentives to invest in R&D, leading to greater dynamic efficiency compared to grandfathering