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# PARIS ENVIRONMENTAL AND ENERGY ECONOMICS SEMINAR-PEES 2011-2012

Université Paris-Descartes
Salle J 202, Jacob Building, 2nd floor,
45 rue des Saints-Pères, 75006

Agenda

Program June 2012

07/06/2012
Wolfram Schlenker (Columbia University)
"Airports, Air pollution and Contemporaneous Heatlh",
joint with W. Reed Walker (Columbia University)

Abstract: Airports are some of the largest sources of air pollution in the United States. We demonstrate that daily airport runway congestion contributes significantly to local pollution levels and contemporaneous health of residents living nearby and downwind from airports. Our research design exploits the fact that network delays originating from large airports on the East Coast increase runway congestion in California, which in turn increases daily pollution levels around California airports. Using the component of California air pollution driven by airport congestion, we find that carbon monoxide (CO) leads to significant increases in hospitalization rates for asthma, respiratory, and heart related emergency room admissions that are an order of magnitude larger than conventional estimates: A one standard deviation increase in daily pollution levels leads to an additional $1 million in hospitalization costs for respiratory and heart related admissions for the 6 million individuals living within 10km (6.2 miles) of the 12 largest airports in California. While infants and the elderly are more sensitive to air pollution, we also find significant relationships for the adult population. The health impacts are driven by CO, not NO2 or O3, and occur at levels far below existing EPA mandates. Our results suggest there may be sizable morbidity benefits from lowering the existing CO standard. =-=-=-=-=-= 21/06/2012 : Thomas Olivier Leautier (TSE, IDEI), "tba". Program May 2012 May 31, 2012 Steve Salant (University of Michigan) "Experimental Departures from Self-Interest when Competing Partnerships Share Output" joint work with Josh Cherry and Neslihan Uler Abstract : When every individual’s effort imposes negative externalities on his competitors, com- petition results in excessive aggregate effort. This explains overfishing when competing on common properties, duplication in innovation tournaments, and excessive talent searches among competing sports teams. One way to curb these excesses is for subsets of competitors to form groups that share output or gross revenue. If the right number of groups forms, Nash equilibrium aggregate effort falls to the socially optimal level. By varying the cost of investment, we investigate experimentally whether individuals manage to form the efficient number of groups and to invest within the chosen groups as theory predicts. We show that while a theory based on self interest makes correct qualitative predictions, there are systematic departures from the point predictions. We find that deviations are always in the direction of the socially optimal level, which may be higher or lower than the predicted contribution level depending on the cost parameter and the group size. When groups are formed endogenously, subjects form output-sharing groups even for the cases when theory predicts that they should not, and manage to decrease inefficiency significantly by 50% to 71%. =-=-=-=-=-= May 3, 2012 Scott Taylor (Calgary University) "Back to the future of green powered economies" joint with J. Moreno Cruz (School of Economics, Georgia Institute of Technology) Abstract: We investigate how the energy (Joules/kg) and power density (Watts/m2) of re- newable energy sources determine the extent of energy exploitation, the density of urban agglomerations, and the peak level of income per capita. Economic historians refer to economies where all energy comes from direct and indirect solar flows as or- ganic economies; current usage suggests we call them Green Powered economies. By introducing an explicit spatial structure into a simple general equilibrium model we are able to investigate how the density of available energy supplies creates density in energy demands by agglomerating economic activity - a result we term the density- breeds-density hypothesis. We then test this hypothesis on data from pre and post fossil-fuel England from 1086 to 1801. =-=-=-=-=-= Program April 2012 Thursday 12th of April 2012 16:30-18:00 Natalia Fabra ( Universidad Carlos III de Madrid) "Internalization and Passthrough of Emission Costs in Electricity Markets" Joint work with M. Reguant (Stanford GSB) and J. Sanchez-Fuentesv(U. Completense de Madrid) Abstract: We analyze the response of firms to the introduction of emissions permits in the Spanish electricity market. While previous papers have focused on assessing the pass-through of emission costs to electricity prices, there is still little evidence on how firms incorporate these costs in their output or pricing decisions. The goal of the paper is to separately identify the degree to which firms factor in emission costs in their behavior (internalization rate) from the degree to which this feeds into higher prices (pass-through). Whereas the first can be interpreted as a test of rational behavior, the latter is informative about the competitive environment and demand response. We present reduced-form and structural tests of cost internalization based on impli- cations of optimal bidding. We also quantify the extent of pass-through in this market. =-=-=-=-=-= Thursday 5th of April, 2012 16:30-18:00 Madhu Khanna (University of Illinois) "Alternative transportation fuel standards: Welfare effects and climate benefits" Joint work with X. Chen and H. Huang (University of Illinois) Abstract: This paper develops a conceptual framework and a numerical simulation model of the fuel and agricultural sectors in the US to analyze the effects of the existing Renewable Fuels Standard (RFS) that mandates the blending of specific volumes of low carbon biofuels with liquid fossil fuels and a proposed national Low Carbon Fuel Standard (LCFS) that imposes a limit on the GHG intensity of the blended fuel on fuel mix, GHG emissions and social welfare in an open economy and to compare them to those with a carbon price policy. The conceptual framework illustrates that, unlike a carbon price policy, the RFS and LCFS have an ambiguous effect on GHG emissions. The numerical analysis shows that all three policies reduce US GHG emissions and increase domestic social welfare (not including environmental benefits) relative to a nopolicy, business-as usual scenario, with the RFS leading to a lower reduction in GHG emissions than the LCFS. However, the RFS leads to higher social welfare among the policies examined here than the LCFS and the carbon tax. =-=-=-=-=-= Thursday 22nd of March, 2012 16:30-18:00 Sjak Smulders (Tilburg University) "Resource extraction, backstop technologies and growth" Joint work with Gerard Van der Meijden (VU University Amsterdam) Abstract: We incorporate a nonrenewable resource in a standard framework of endogenous growth through expanding varieties. Moreover, we allow for a backstop technology that is able to produce a perfect substitute for the resource. Our model is used to analyze resource extraction and technological progress over time. Three consecutive regimes of energy use can emerge in the economy: only resource extraction, simultaneous use, and complete reliance on the backstop technology. The introduction of the backstop technology crucially affects the time paths of fossil fuel extraction and technological progress. We provide conditions under which either peak-oil emerges, or the extraction path is monotonically increasing or decreasing until exhaustion of the resource stock. The rate of technological progress is non-monotonic over time: it declines initially, starts increasing when the economy approaches the regime change and jumps down once the resource stock is exhausted. =-=-=-=-=-= Thursday 8th of March, 2012 16:30-18:00 Larry Karp (University of Berkeley) "Provision of a public good with altruistic overlapping generations and many tribes" Abstract: I develop a model to assess the relative importance, for the provision of a long-lived public good, of intergenerational altruism and contemporaneous cooperation. An application to climate policy suggests that contemporaneous cooperation is more important than altruism. Each of n tribes consists of a sequence of overlapping generations. Tribal members discount their own and their descendants' utility at different rates. Agents in the resulting game are indexed by their tribal affiliation and the time at which they act. The Markov Perfect equilibrium can be found by solving a control problem with a constant discount rate and an endogenous annuity. =-=-=-=-=-= Thursday 23rd of February, 2012 16:30-18:00 George MacKerron (LSE) "Hapiness is greater in natural environments" Joint work with S. Mourato (LSE) Abstract: Background Links between wellbeing and environmental factors are of interest in health, psychology, economics, and more widely. There is some evidence, albeit limited, that green or natural environments are positive for physical and mental health and wellbeing. We present a new and unique primary research study exploring the relationship between momentary subjective wellbeing (SWB) and individuals’ immediate environment within the UK. Methods We developed and applied an innovative data collection tool: a smartphone app that signals participants at random moments, presenting a brief questionnaire while using satellite positioning (GPS) to determine geographical coordinates. We used this to collect over one million responses from more than 20,000 participants. Associating GPS response locations with objective spatial data, we estimate a model relating land cover to SWB using only the within-individual variation, while controlling for weather, daylight, activity, companionship, location type, time, day, and any response trend. Findings On average, study participants are significantly and substantially happier outdoors in all green or natural habitat types than they are in urban environments. These findings are robust to a number of alternative models and model specifications. Interpretation This study provides a new line of evidence on links between nature and wellbeing, strengthening existing evidence of a positive relationship between SWB and exposure to green or natural environments in daily life. The novel geo-located experience sampling methodology we describe has great potential to provide new insights in psychology, health, and beyond. =-=-=-=-=-= Thursday 9th February,2012 16:30-18:00 Ian Parry (IMF, RFF) Environmental tax reform: principles from theory and practice to date" Joint work with John Norregaard and Dirk Heine =-=-=-=-=-= Thursday 26th of January 2012 16:30-18:00 Geir Asheim (University of Oslo) "Characterizing the sustainability problem in an exhaustible resource model" Joint with Tapan Mitra, Wolfgang Buchholz, Cees Withagen Abstract: The Dasgupta-Heal-Solow-Stiglitz model of capital accumulation and resource depletion poses the following sustainability problem: is it feasible to sustain indefinitely a level of consumption that is bounded away from zero? We provide a complete technological characterization of the sustainability problem in this model without reference to the time path. As a byproduct we show general existence of a maximin optimal path under weaker conditions that those employed in previous work. Our proofs yield new insights into the meaning and significance of Hartwick's reinvestment rule. =-=-=-=-=-= Thursday 8th of December 2011 16:30-18:00 Dimitris Varvarigos (Leicester University) "Growth and demographic change: Do environmental factors matter?" Joint with Intan Zanariah Zakaria (Leicester University) Abstract: We incorporate health-damaging pollution into a three periode overlapping generations model in which life expectancy, fertility and economic growth are all endogenous. We show that environmental factors can cause significant changes to the economy's demographics. In particular, the entrepreneurial choice of less polluting production processes, induced by environmental policy, can account for such demographic changes as higher longevity and lower fertility rates. =-=-=-=-=-= Thursday 24th of November 2011 16:30-18:00 Rolf Golombeck (Frisch Centre for Economic Research) "Is electricity more important than natural gas? Partial liberalizations of the Western European energy markets" joint with Kyelle Arne Brekke (University of Oslo) and Sverre A. Kittelsen (Frisch Centre for Economic Research) Abstract:The European Union has introduced directives that aim to liberalize and integrate electricity and gas markets in Western Europe. While progress has been made, there have also been setbacks, partly because of concerns about national interests and security of supply. This may call for an EU medium-term strategy to implement and enforce liberalizations in only selected parts of the energy industry. We use a numerical model to assess what types of liberalization – electricity vs. natural gas; domestic markets vs. international trade – are most influential in decreasing prices and increasing welfare in Western Europe. As part of identifying effects of different types of liberalizations, we present a method for calibrating the magnitude of deviations from the hypothetical competitive outcome in different parts of the energy industry in Western Europe. We find that a liberalization of electricity markets has greater quantity and welfare effects than a liberalization of gas markets, and that liberalizations of domestic energy markets have (overall) greater effects than liberalizations of trade in energy between Western European countries. Finally, the short-run effects essentially parallel the long-run effects, though they are significantly smaller. =-=-=-=-=-= Thursday 10th of November 2011 16:30-18:00 Nils-Henrik von der Fehr (University of Oslo) "Green certificates, Vertical integration and market power" Joint work with Stephanie Ropenus (University of Oslo) Abstract: Markets for green certificates allow generators with market power to squeeze the margins of their competitors, similar to what a generator that is vertically integrated into network activities might do. We analyse this issue in stylised electricity industry in which a monopolistic producer of both conventional and renewable energy is facing a competitive fringe of producers of renewable energy. We demonstrate that, irrespective of whether or not the monopolist is vertical integrated into network activities, with a market for green certificates the monopolist can disadvantage the fringe producers by distorting prices, leading to cost inefficiency in the generation of renewable energy. We compare green certificates to a system of feed-in tariffs, where a similar margin squeeze is not possible. =-=-=-=-=-= Thursday 20th of October 2011 16:30-18:00 Jayson Lusk (Oklaoma State University) "A calibrated auction-conjoint valuation method: Valuing pork and eggs produced under differing animal welfare conditions" Joint work with Bailey Norwood (Oklaoma State University) Abstract: This paper develops a valuation method which generates consistent and systematic estimates of people's preferences for complex multi-attribute goods by inextricably linking auction bids with conjoint ratings. The advantage of the valuation approach is that it permits the estimation of people's values for many potential goods, allows one to decompose people's values for a good into its sub-components, and permits the study of preference heterogeneity without distributional assumptions. We apply the method to an important and increasingly controversial topic: animal welfare. The method is used to determine people's preferences for eggs and pork produced from different production systems. Data from experiments conducted in three diverse U.S. locations (Chicago, IL; Dallas, TX; and Wilmington, NC) indicates that people are, on average, willing to pay$0.95 more for a dozen eggs raised in an aviary, pasture system vs. a cage system, and are willing to pay \$2.02 more for two-pounds of pork chops raised in a pasture system as opposed to a crate system.

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Thursday 6th of October 2011
16:30-18:00
Elena Verdolini (FEEM)
"Heterogeneous Firms Trading in Ideas : An Application to Energy Technologies"
Joint work with Valentina Bosetti (FEEM)

Abstract: Notwithstanding the central role attributed to technology transfer (TT) and the effort to promote it through the creation of permanent international bodies such as the Subsidiary Body for Scientific and Technological Advice of the UNFCCC, very little is known about the determinants of this process with respect to climate technologies. This paper marries the literature on international trade with that on innovation and TT in carbon efficient technologies, making a number of important contributions. First, a model of monopolistic competition shows how the decision to export a blueprint/technology depends on market and institutional characteristics of the receiving country, on the geographical and technological distance of the two countries and on the quality of the innovator's ideas. Asymmetry of TT are the result of differences in innovation levels and ideas productivity. Second, we empirically test our model using carefully selected patent data for both developed and developing countries. Greater geographical and technological distance hinders patenting. Conversely, lower financial risks in the receiving country is associated with higher levels of patent duplication. This effect is however influenced by the stage of economic development of the receiving country.

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Thursday 29th of September 2011
16:30-18:00
David Martimort (PSE)
"A Mechanism Design Approach to Climate Agreements"
Joint work with Wilfried Sand-Zantman (TSE)

Abstract: We analyze environmental agreements in contexts with asymmetric information, voluntary participation by sovereign countries and possibly limited enforcement. Taking a mechanism design perspective, we study how countries can agree on effort levels and compensations to take into account multilateral externalities. We delineate conditions for efficient agreements and trace out possible inefficiencies to the conjectures that countries hold following disagreement. We show how optimal mechanisms admit simple approximations with attractive implementation properties. Finally, we also highlight how limits on commitment strongly hinder performances of optimal mechanisms.