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[en] Our willingness to embrace climate change policies depends on our perception of their benefits and costs. Evaluation of these costs and benefits requires careful economic analysis. Yet the standard tools for such assessment - computable general equilibrium (CGE) models - are inadequate on several grounds. Their underlying theory suffers from well-known logical difficulties; in general, their equilibria may be neither unique, stable, nor efficient. Moreover, real-world phenomena such as increasing returns to scale, learning, and technological innovation are neglected in CGE models. These phenomena make the resulting equilibria in the models inefficient; in the real world they can lock society into sub-optimal technology choices. They introduce uncertainty and path-dependence, annihilating the concept of a single efficient allocation produced by the unfettered market. Yet conventional economics assesses the cost of policies solely on the basis of their departure from a purportedly efficient equilibrium - ignoring deeper structural changes that are often decisive in practice. New socioeconomic theories and models are emerging that allow for bounded rationality, the limiting and enabling character of institutions, technological change, and the complexities and uncertainties in economic evolution. Meanwhile, existing models should be modified to better reflect real-world phenomena and to abandon unfounded assumptions about the inherent ''inefficiencies'' of government intervention in the market. (author)
[en] The cost-benefit study of Nordhaus (1994) is representative for the neoclassical approach towards global warming. Nordhaus found that no substantial emission cuts are warranted. Most of his critics have concentrated on the issue of discounting and demanded that a lower discount rate should be applied. These criticisms first miss the point and second lead to ethically dubious, inconsistent conclusions and inefficient policy choices. They miss the point because the real problem of Nordhaus's methodology is his implicit underlying assumption of perfect substitutability between natural and other forms of capital. Given the validity of this assumption, lowering the rate of discount is inconsistent with current savings behaviour, is ethically dubious because future generations will be much richer than the current one anyway, and is inefficient because scarce financial resources are channelled into emissions abatement that exhibits rates of return far inferior to alternative public investments. Any call for aggressive emission abatement must therefore directly attack the perfect substitutability assumption of neoclassical economics. The real disagreement is about whether consumption growth can compensate for environmental degradation caused by global warming. Discounting is not the issue, but substitutability is. (author)
[en] The European Commission as a whole and a number of its Member States individually have adopted a stringent long-term target for climate policy, namely that the global mean temperature should not rise more than 2 oC above pre-industrial times. This target is supported by rather thin arguments, based on inadequate methods, sloppy reasoning, and selective citation from a very narrow set of studies. In the scientific literature on 'dangerous interference with the climate system', most studies discuss either methodological issues, or carefully lay out the arguments for or against a particular target. These studies do not make specific recommendations, with the exception of cost-benefit analyses, which unanimously argue for less stringent policy targets. However, there are also a few 'scientific' studies that recommend a target without supporting argumentation. Overall, the 2 oC target of the EU seems unfounded
[en] This paper describes an energy-efficient housing stimulus strategy that can: (1) quickly provide large-scale job creation; (2) reduce home energy bills by 30-50% with associated reductions in emissions and energy assistance spending; (3) stabilize home values and reduce foreclosure inventory; (4) help to eliminate childhood lead poisoning; and (5) implement regulatory reforms that highlight market incentives for cost effective energy efficiency and alternative home energy investments. These benefits, far in excess of costs, can be achieved by combining 'lead-safe window replacement' with other weatherization activities and simple regulatory and market reforms. This strategy can help to coordinate American Recovery and Reinvestment Act funding for energy efficiency, the $75 billion Making Home Affordable plan to reduce foreclosures, and the recently announced partnership between the Departments of Energy (DOE) and Housing and Urban Development (HUD) to streamline weatherization efforts and spur job creation. (author)
[en] This paper identifies the fundamental elements and critical research tasks of a comprehensive analysis of the costs and benefits of nuclear power relative to investments in alternative baseload technologies. The proposed framework seeks to: (i) identify the set of expected parameter values under which nuclear power becomes cost competitive relative to alternative generating technologies; (ii) identify the main risk drivers and quantify their impacts on the costs of nuclear power; (iii) estimate the nuclear power option value; (iv) assess the nexus between electricity market structure and the commercial attractiveness of nuclear power; (v) evaluate the economics of smaller sized nuclear reactors; (vi) identify options for strengthening the institutional underpinnings of the international safeguards regime; and (vii) evaluate the proliferation resistance of new generation reactors and fuel cycles.
[en] As the world’s top energy consumer, China is facing a great challenge to solve its energy supply issue. In this paper energy use from all industrial sectors in China’s economy of 2007 was explored by conducting an extended environmental input–output analysis. We compare the energy consumption embodied in the final demand for goods and services from 29 sectors with the energy demand required for the actual production process in each sector. Two different viewpoints for sectoral energy use have been presented: energy use is directly allocated to the producer entity, and energy use is reallocated to sector’s supply chain from consumption perspective. Our results show that considerable amount of energy use is embodied in the supply chain, especially for “Construction” and “Other Service Activities” sectors, which is not detected if energy use is allocated on a production basis. When further dividing embodied energy consumption into direct energy consumption and indirect energy consumption, total indirect energy consumption is much higher than that of total direct energy consumption, accounting for 80.6% of total embodied energy consumption in 2007. Our results provide a more holistic picture on sectoral energy consumption and therefore can help decision-makers make more appropriate policies. - Highlights: ► A hybrid IO-LCA model was employed to analyze China’s energy use at sectoral level. ► A case study on China’s sectoral energy consumption is done. ► Construction and service sectors are actually energy intensive from the supply chain perspectives. ► Upstream and downstream ectoral collaboration along the whole supply chain is necessary. ► Energy conservation policies should be based upon a comprehensive analysis on sectoral energy use.
[en] The aim of this paper is to analyze the economic impact of alternative policies implemented on the energy activities of the Catalan production system. Specifically, we analyze the effects of a tax on intermediate energy uses, a reduction in intermediate energy demand, and a tax on intermediate uses combined with a reduction in intermediate energy demand. The methodology involves two versions of the input-output price model: a competitive price formulation and a mark-up price formulation. The input-output price framework will make it possible to evaluate how the alternative measures modify production prices, consumption prices, private real income, and intermediate energy uses. The empirical application is for the Catalan economy and uses economic data for the year 2001. The combination of a tax on energy uses and an improvement in the energy efficiency of the production system is a measure that accomplishes both economic and environmental goals, since it has no effects on prices, it has a positive effect on private real income and, finally, energy consumption is considerably reduced
[en] The steadily increasing focus on energy production and consumption has led to growing research attention to patterns of energy use within economies. Of particular interest has been comparing the driving forces of increasing efficiency and economic structural change. Input-output analysis (IOA) and decomposition analysis have become critical tools for performing such analyses. This study analyzes aggregate energy use in the United States in 1997 and 2002 to discover the causes of changing energy usage and flows. Results show that rising population and household consumption acted to drive up energy demand, but this driving force was offset by considerable structural change within the economy, particularly related to a quickly increasing trade deficit in manufacturing goods. Thus, while total energy intensity, the ratio of energy use to economic output, declined by approximately 12% between 1997 and 2002, changes in the structure of the economy explain this drop more than increased energy efficiency. The level of aggregation at which decomposition analyses are run was identified as a crucially sensitive parameter for the determination of structural change, and future studies should specifically address the amount of detail necessary to adequately measure changes in economic structure
[en] Research which attempted to determine the macroeconomic importance of mitigating climate change through 2100 was presented primarily in Chapter 6 of the 2014 IPCC Working Group III report. Some of the findings of this chapter were then summarized in the Summary for Policy Makers (SPMs) of both the Synthesis Report, and the WGIII report. Unfortunately, these SPMs omitted key aspects of what the overall macroeconomic results for the costs and benefits of mitigating climate change actually did and did not include, how they were produced, and a careful assessment of their uncertainty and scientific validity. Yet, many of the major omissions were acknowledged deep in the text of Chapter 6, but were not revealed to the public. We conclude, therefore, that neither of these SPMs was useful for energy policy makers and energy managers, and they were misleading due to their many key omissions. Finally, we recommend several improvements that can be made to integrated assessment modeling methodologies so that the macroeconomic analysis of mitigating climate change resulting from the use of such models can be more relevant and useful to energy policy makers in the future, and can be communicated to them better. - Highlights: •The 2014 IPCC Working Group III Report has major omissions in its economic analysis. •Many well-known benefits of mitigation are not included in its economic results. •The Summary for Policy Makers is not very useful for energy policy decision makers. •The upcoming Sixth IPCC WGIII analysis should be structured quite differently.
[en] This study focuses on how to assess the optimal environmental investment decisions under economic and ecological uncertainty, and establishes the continuous time model using the real option approach to optimize environmental pollution policy. Unlike traditional cost benefit analysis, this work extends the model of [Pindyck, R.S., 2002. Optimal timing problems in environmental economics. Journal of Economic Dynamics and Control 26(9-10), 1677-1697], and attempts to identify the storage threshold of pollution stocks and the optimal timing for implementing environmental pollution decisions