• Energy Research

Abstract With the present policy stance of the UK government, the rate of extraction of North Sea oil becames one of the more important instruments for managing the economy in the 1980s. In this paper the effects of different depletion policies are examined, ranging from rapid early extraction to a low profile long-term conservation policy. The author explains how the depletion policy should be seen in the context of the UK economy and present government policies. He describes four possible depletion policies for the 1980s, together with the assumptions which are made in analysing their effects. The macroeconomic results of putting each policy in the Cambridge multisectoral dynamic model are presented and show the severe short-term costs of unrestrained production. Finally relations between depletion policy and de-industrialization are examined.

The Clean Development Mechanism (CDM) of Kyoto Protocol, designed for the industrialized countries to earn emission credits by investing in greenhouse gas (GHG) emission reduction projects in developing countries, shall contribute to emission reductions and sustainable development in the host countries. However, whether the CDM is achieving its dual goals has been questionable. This research empirically investigates the long-run impacts of CDM projects on CO₂ emission reductions for 80 eligible CDM host countries over 1993-2009. By allowing for considerable heterogeneity across countries, this research provides evidence in support of a decline in CO₂ emissions associated with CDM projects. It serves to encourage developing countries to effectively develop CDM projects towards low carbon development.

The problem of avoiding dangerous climate change requires analysis from many disciplines. Mainstream economic thinking about the problem has shifted with the Stern Review from a single-discipline focus on cost-benefit analysis to a new inter-disciplinary and multi-disciplinary risk analysis, already evident in the IPCC Third Assessment Report. This shift is more evidence of the failure of the traditional, equilibrium approach in general to provide an adequate understanding of observed behaviour, either at the micro or macro scale. The economics of the Stern Review has been accepted by governments and the public as mainstream economic thinking on climate change, when in some critical respects it represents a radical departure from the traditional treatment. The conclusions regarding economic policy for climate change have shifted from “do little, later” to “take strong action urgently, before it is too late”. This editorial sets out four issues of critical importance to the new conclusions about avoiding dangerous climate change, each of which have been either ignored by the traditional literature or treated in a misleading way that discounts the insights from other disciplines: the complexity of the global energy-economy system (including the poverty and sustainability aspects of development), the ethics of intergenerational equity, the understanding from engineering and history about path dependence and induced technological change, and finally the politics of climate policy.

The Fourth Assessment Report of IPCC reports that greenhouse gas emissions can be reduced by about 30–50% in 2030 at costs below 100 US$/tCO2 based on an assessment of both bottom-up and top-down studies. Here, we have looked in more detail into the outcomes of specific models and also analyzed the economic potentials at the sectoral and regional level. At the aggregated level, the findings of the IPCC report are confirmed. However, substantial differences are found at the sectoral level. At the same time, there seems to be no systematic difference in the reduction potential reported by top-down and bottom-up approaches. The largest reduction potential as a response to carbon prices exists in the energy supply sector. Reduction potential in the building sector may carry relatively low costs. Although uncertainties are considerable, the modeling results and the bottom-up analyses all suggest that at the global level around 50% of greenhouse gas emissions may be reduced at carbon price (costs) below 100$/tCO2-eq—but with a wide range of 30–60%. At a carbon price (costs) less than 20$/tCO2-eq, still 10–35% of emissions may be abated. The variation of results is higher at low carbon-price levels than at high levels.

Scenarios are used to explore the consequences of different adaptation and mitigation strategies under uncertainty. In this paper, two scenarios are used to explore developments with (1) no mitigation leading to an increase of global mean temperature of 4 °C by 2100 and (2) an ambitious mitigation strategy leading to 2 °C increase by 2100. For the second scenario, uncertainties in the climate system imply that a global mean temperature increase of 3 °C or more cannot be ruled out. Our analysis shows that, in many cases, adaptation and mitigation are not trade-offs but supplements. For example, the number of people exposed to increased water resource stress due to climate change can be substantially reduced in the mitigation scenario, but adaptation will still be required for the remaining large numbers of people exposed to increased stress. Another example is sea level rise, for which, from a global and purely monetary perspective, adaptation (up to 2100) seems more effective than mitigation. From the perspective of poorer and small island countries, however, stringent mitigation is necessary to keep risks at manageable levels. For agriculture, only a scenario based on a combination of adaptation and mitigation is able to avoid serious climate change impacts.

Economic analyses have produced widely differing estimates of the economic implications of policies for greenhouse gas (GHG) mitigation, ranging from high costs to modest benefits. The main reason for the differences appears to be differences in approaches and assumptions. This paper analyzes the extent to which the post-SRES1 (after the IPCC Special Report on Emissions Scenarios) model results for the global costs of GHG mitigation can be explained by the model’s characteristics and the assumptions adopted. The research applies meta-analysis methodology combined with scatter plots of the data to identify the ranges of the results and outlying data points. A database of scenarios and results was compiled for the post-SRES scenarios, which has the major advantage that all seven models for which suitable data are available have been run using the same, independently defined scenarios. The results are strongly clustered, with only a few results outside the range of −4% to 0% gross domestic product (GDP), with a strong correlation between CO2 reduction and GDP reduction. A set of model characteristics is found to be highly significant (1% level), explaining some 70% of the variance. The main conclusion is that all modeling results regarding “GDP costs of mitigating climate change” should be qualified by the key assumptions leading to the estimates. The treatment of these assumptions can lead to the mitigation being associated with increases in GDP or with reductions.

AbstractThis chapter assesses the macroeconomic effects of carbon‐energy taxation introduced under unilateral environmental tax reform (ETR) in the 1990s undertaken in six member states of the European Union: Denmark, Finland, Germany, the Netherlands, Sweden, and the UK. The effects are estimated using the large‐scale Energy–Environment–Economy (E3) model for Europe, E3ME, which covers the countries involved as well as the complete single market, so that the effects on other economies can be considered, along with any effects on competitiveness. The method is to identify the key characteristics of the green tax reform packages and include these in the modelling of the price and non‐price effects of the ETR on energy use and international trade in E3ME. The effects are then compared with a ‘reference case’ (i.e. a counterfactual case) generated by E3ME over the period 1995–2012, including current and expected developments in the EU economy, e.g. the impact of the EU Emission Trading Scheme, but without the ETR. The revenue recycling meant that the cost of ETR to the economy was significantly reduced and in several cases resulted in an increase in GDP. The method for revenue recycling strongly affects the results, as does the scale of exemptions offered to certain fuel user groups.

AbstractThis paper considers the distributional effects of imposing additional excise duties on energy products according to carbon content. The assumed duties escalate from 1999 to 2010 and achieve levels reducing CO2 emissions by 10 per cent below baseline by 2010 for 11 EU member states. By 2010, real personal disposable incomes are 1.6 per cent above baseline and employment is 1.2 per cent above, assuming that the change is tax‐revenue‐neutral. The study concludes that the changes will be weakly regressive for nearly all the member states in the study if revenues are used to reduce employers’ taxes and strongly progressive if they are given back lump‐sum to households. JEL classification: C53, D12, H22, Q48.