A key finding of our analysis is that the loss in fossil fuel rents is over-compensated by the carbon rent introduced by climate stabilization targets (see Kalkuhl and Brecha, 2013). It accrues to the owner of the emissions allowances, and therefore opens the possibility to compensate those that lose from climate policy. We also show that this is not necessarily the case at the country level based on the domestically generated carbon rent. Assuming that the efficiency of markets is not affected by the initial allocation of freely tradable emission permit among regions, admittedly a strong assumption, the results demonstrate the availability of permit allocations schemes that would compensate fossil fuel rent losses of all regions. The essential point is that the fossil fuel rent depends on natural endowments whereas its reduction as well as the compensation depends on international climate policies. The carbon rent, however, cannot only be seen as a compensatory fund for the loss of fossil fuel rents because higher final energy prices will also lead to economy-wide losses of GDP. Moreover, the large values of rents and their redistribution must also be treated with care. The rents are subject to various uncertainties and the compensation of their losses with the climate rent discussed here does not suggest that such compensation mechanism is required. The general findings on rent redistribution are robust against variations in energy demand and fossil supply assumptions. For future fossil fuel use and rents, assumptions about fossil fuel supply are more important than the assumptions about future energy demand.
The third contribution addresses the deviation from the idealized approach of full ‘when’-flexibility. Starting from the case with full ‘when’-flexibility we assess short- and long-term impacts of pledges in the Copenhagen Accord on fossil fuel markets. In the short-term fossil fuel markets revert back to the pathway of a scenario without emission limitations. Coal is the fossil fuel for which the quantity change is largest, but as the price is low revenue effects are small. Though oil and gas use increase less, the gain in revenues is larger than for coal, because the prices are higher and also revert back to the baseline case. In the longer-term, fossil fuel use would need to decrease to comply with the carbon budget. The short-term distortion with higher coal use leads to strongly amplified reallocations over the rest of the century, because higher near-term emissions from coal are balanced with lower emissions from gas and oil as well as reduced use of fossils with CCS. The initial distortion is amplified even more if the energy sector suffers from a coal lock-in. This amplification can lead to double or even triple as large long-term fossil fuel re-allocation as compared to the initial distortion. However, total fossil fuel revenues over the 21st century would increase due to discounting because the short-term effect
Some of the academic papers express an explicit interdisciplinary ambition (e.g. Kruyt et al., 2009; von Hippel et al., 2011), but the majority are – at least partly – based on an economics perspective. Awerbuch (2006), for example, applies the perspective of economics using mean variance portfolio theory to optimise the overall production cost and risk of energy systems. Most of the economically orientated papers emphasise a cost perspective, i.e. the analyses are based on real costs or on other non-monetary efforts, effects or aspects operationalised as costs. In Bollen et al. (2010), cost-benefit modelling is used to perform an integrated assessment of climatechange, air pollution and energy security for eight different policy scenarios. A main finding of that study is that energy security policy alone does not decrease the use of oil. Only integrated policy for the three policy areas can make the world’s oil reserves last to the twenty-second century, and also limit the global mean temperature increase to 3 degrees Celsius compared with pre-industrial levels. Other papers emphasise cost-effectiveness or cost-minimisation (e.g. Hedenus et al., 2010), or cost-projections (e.g. Bauen, 2006; Jun et al., 2009), while some apply a price perspective. For example, by way of modelling the relationship between environmental sustainability, energy prices and stock prices, Henriques and Sadorsky (2010) show that a company’s energy price exposure can be reduced through sustainability measures. Theirs is an example of a paper with a business economics perspective, which is also the case for Southworth (2009). However, most economically orientated papers in this review are based on a national perspective, i.e. “economics”, or even aggregated global economics, e.g. in terms of world-cost minimisation (Huntington and Brown, 2004). Persson et al. (2007) address revenues, but with a national, rather than corporate, perspective.
Even though there is no initial capital investment in making a three-stone or mud firewood stove, particularly in rural areas, it is more expensive to use when compared with improved charcoal stove in the case where firewood is purchased. Otherwise, the three-stone or mud firewood stove is the least expensive cooking device and has the lowest life-cycle cost as well. For health reasons, however, it will be wise to encourage a switch from firewood stove to charcoal stove usage, but that involves an initial capital investment of about USD 10.00. On the environmental front, charcoal usage consumes more wood than firewood does, and is not an attractive option for CDM and other large climatechange-related financial facilities. Charcoal usage leads to higher GHG (methane) emissions because it takes between four and six units of wood to make a unit of charcoal, whilst firewood is used directly from the field. A switch from fuelwood usage to kerosene for cooking is the most expensive option in terms of annual expenses. Secondly, kerosene is a fossil fuel and so the shift is not environmentally attractive. A switch from fuelwood to electricity for cooking presents the cleanest option in terms of indoor pollution. However, it is not climatechange-neutral if the electricity is a product of thermal-based generation. Carbon dioxide emission from fuelwood is neutral in terms of global warming whilst emissions from fossils are non- biogenic. There is also the issue of availability, since national electricity access is still less than 55% in real terms (UNEP Risoe 2013). The most advocated option is the switch from fuelwood to liquefied petroleum gas (LPG), since the latter is quite ‘environmentally’ friendly. LPG is a cleaner fuel in terms of indoor pollution, with far less emissions of particulate matter, acidic and other pollutants. Other renewable sources of energy are not viable
way of mitigating globalclimatechange. Biogas is generally considered to be a carbon- neutral source of energy because the carbon emitted during combustion was atmospheric carbon that was recently fixed by plants biomass, as opposed to the combustion of fossil fuels where carbon sequestered for millions of years is emitted into the atmosphere . Moreover, the technology is considered by many experts to be an effective tool for improving life, livelihoods, and public health in the developing world (KNDBP, 2011). Biogas energy is considered a sustainable solution to local energy needs, and provides significant benefits to human and ecosystem health. Unlike firewood, biogas burns without smoke, improving indoor air quality, and thus saving women and children from respiratory distress and ailments. Biogas can be used to generate electricity, prolonging the active hours of the day and enabling the family to engage in social or self-improvement activities, or to earn extra income.
The aim of this chapter is to provide a thorough analysis of the dependence structure between EUA returns and those of other ﬁnancial variables and commodi- ties. As EUAs are a factor of production, it is plausible to assume that changes in the emission allowance price are related to the dynamics of other commodity markets. We contribute to the literature in three dimensions. First, we apply diﬀerent copula models to investigate the nature of dependence between EUA returns and those of other ﬁnancial assets. Copulas are generally a very ﬂexible method to model the relationship between diﬀerent variables. Among the advantages are the possibility to account for diﬀerent types of tail dependence of the return series under consideration. The application of copulas yields possibly better insights than the application of linear correlation models only. To our best knowledge, this chapter is a pioneer study on copulas in the area of carbon market research. Second, we apply time-varying copulas to investigate whether the relationships under consideration are constant over time. This procedure allows us to investigate whether inﬂuencing factors on the carbon price changed over time and whether the ﬁnancial crisis had an impact on the dependence of the considered variables. Finally, we conduct a risk management analysis to further illustrate the usefulness of the application of copulas. It is often argued that the EUA price is more strongly inﬂuenced by policy measures and regulatory changes than other commodities (Chevallier, 2009). In consequence, this market provides new challenges to market participants that need to adapt their risk strategy. Therefore, we provide a risk analysis by comparing benchmark models including a standard variance-covariance approach to the estimated copula models. This allows to evaluate the models’ ability to quantify market risk. We show that a misspeciﬁcation of the actual dependence structure might not only lead to an inappropriate speciﬁcation of the portfolio return distribution but also underestimate the risks from joint extreme returns.
One of the unresolved issues in the global effort towards a sustainable climate regime is the extent to which the developed countries emissions reduction measures will impact on the economies of the oil exporting countries, and how these impacts can be minimised (Barnett and Dessai, 2002). The impact of the United Nation Framework Conventio n on ClimateChange (UNFCCC) Annex 1 countries 1 climatechangemitigation policy responses on the Organisation of Petroleum Exporting Countries (OPEC) crude oil exports is an issue that will make or mar the implementation of the existing or new global agre ements on climatechangemitigation. Several energy economy models suggest that responsive policies and measures to the implementation of the Kyoto Protocol and subsequent climatechange policies by developed and emerging economies will reduce their demand for fossil based fuels such as crude oil. The reduction in the demand for fossil fuels by Annex 1 countries, which account for 60% of world oil and gas consumptions, would also reduce the revenues received by the fossilenergy producers and suppliers (Bar nett and Dessai, 2002; Henman, 2002; Barnett et al, 2004).
An early peak study of fossil fuel production was that by Hubbert ( Hubbert, 1949 ). Since then much scientific literature has been written analyzing the possible peaks in exploitation of global or regional fossil fuels and their possible impacts on the development of the economy and human society (see, for example, Nel and Cooper, 2009; Nel and van Zyl, 2010 ). Today the concept of peak fossil fuel production is generally widely accepted ( Zhao et al., 2009; de Almeida and Silva, 2011; Bentley and Bentley, 2015 ), and an increasing number of scientific and commercial forecasts have shown that the world will experience a near-term production peak (or at least, plateau) of conventional fossil fuel production, and especially of the production of convention oil and conventional gas ( Campbell and Laherrere, 1998; Kerr, 2011; Heinberg and Fridley, 2010; Murray and King, 2012 ). Moreover, the International Energy Agency (IEA), one of the world’s main energy forecasting organizations, has been steadily reducing its forecast global production levels for conventional fossil hydrocarbons (i.e., oil & gas) in its annual flagship reports, the World Energy Outlooks (WEOs) ( Miller, 2011 ). The IEA first mentioned the issue of peak oil in its WEO 1998, and later in all WEOs published since 2008; and also indicated that the global production of conventional crude oil (less natural gas liquids, NGLs) had possibly peaked in 2006 ( IEA, 2008 ).
a surprisingly effective strategy to mitigate climatechange. However, this is under the assumption that the global car- bon tax is introduced immediately and no further delays in climatechangemitigation occur. Due to inertia in the cli- mate system, the early reduction of GHG emissions is cru- cial for the long-term effectiveness of any mitigation strat- egy (Luderer et al., 2013), but this is a very large challenge for the global community. Thus, especially for scenarios with high challenges for mitigation, the reductions in atmospheric carbon due to reduced fossil fuel consumption suggested by our study are on the optimistic side of available estimates. In comparison, the SPAs that accompany the SSP marker scenarios assume specifically different lengths of transition phases until full globalclimate cooperation is reached (and transition towards a globally uniform carbon price there- after), where the most ambitious SPA assumes complete tran- sition by 2020 and is only used for SSPs with low challenges for mitigation (Riahi et al., 2015). A second key assumption in the SPAs concerns the extent of land-based mitigation. For example, for SSPs with high affluence and high equality (SSP1 “Taking the green road” and SSP5 “Taking the high- way”) it is assumed in the SPAs that all land use emissions are taxed with the same level of carbon prices as in the en- ergy sector (Riahi et al., 2015). In our study, the mitigation scenario for SSP5 “Taking the highway” achieves a concen- tration pathway just below RCP6. To reach a more stringent RCP, such as RCP2.6, land-based mitigation options would need to be considered, such as afforestation projects or car- bon capture and storage (see Sect. 4.3 for further discussion). Previous studies suggest that excluding emissions from land use in mitigation strategies would lead to large-scale land use change (Wise et al., 2009), as simulated here for SSP2 “Mid- dle of the road” and SSP4 “A road divided”. Further, only taxing fossil fuels leads to unintended outcomes, such as the higher total energy consumption in the mitigation scenario for SSP1 “Taking the green road” compared to the reference scenario for SSP1.
On account of its low per capita energy con- sumption, the SADC region contributes relatively little towards over-all energy related GHG emissions globally (IEA WEO, 2010). Current fossil fuel con- sumption levels in SADC are so low that even if these countries increased consumption at an annu- al rate of 10% per year, from 2010 to 2015, the associated per capita GHG emissions will remain at levels that are less than five percent of current levels in industrialised countries (IEA, 2011). Increased GHG emissions from SADC should therefore not likely have any significant impact on the climate, both local or globally. The foregoing statement should, however, be taken against the backdrop of population growth and accompanying human needs and the effect thereof on energy-related GHG emissions in Africa. The current African population of 954 million people – 14% of global population, will grow to 17% by 2025 and by 2050 a quarter of the world’s population will live in Africa. While this population explosion sets the scene for future eco- nomic growth, the growing demand for food and energy it brings about will undoubtedly contribute toward increasing anthropogenic GHG emissions and ultimately climatechange (Cilliers, 2009). Naturally, this is true only if the status quo pertain- ing to the fossil fuel intensive nature of energy gen- eration in Africa prevails. In short, population growth in Africa will result in an increased demand for energy, leading to higher levels of energy-related GHG emissions and ultimately culminating in heightening the continent’s vulnerability to climatechange. The energy sector and in particular the pro- vision of electricity for southern Africa’s population and industries comprise a complex issue without even adding climatechange to the equation. If energy needs throughout the sub-region increases incrementally with population growth and SADC intends on reducing its energy-related GHG emis- sions a transition to more climate-friendly sources of energy is inevitable. This requires redefining SADC’s competitive advantage from attracting energy–intensive sectors on the basis of non-renew- able energy, such as coal, to building a new advan- tage around low carbon technology and energy (Ruppel, 2012). This shift to a low carbon energy future for the sub-region will need to be regulated in terms of sub-regional law and policy responses. 3. Regional policy as climatechange adaptation measure
Figure 3 compares the size of the domestic fossil fuel reserves (coal, oil, and gas) in absolute terms (Figure 3(a)) and as related to GDP/capita (Figure 3(b)) for the countries investigated. Although we have no strict de ﬁ nition of the di ﬀ erence between fossil-fuel-rich and fossil-fuel-lean countries, we use the fossil-fuel reserves related to GDP/ capita (Figure 3(b)) to di ﬀ erentiate between these, with the division indicated in Figure 3(b). With this criterion, Australia, China, India, Middle East, Russia, USA and Venezuela have large reserves of fossil fuels. Together they are holding around 80% of the globalfossil-fuel reserves. Although Australia has only marginally more fossil fuels than EU and Canada when relating to GDP per capita (Figure 3(b)), we chose to de ﬁ ne it as fossil-fuel-rich since in absolute terms there are large amounts of fossil fuels (Figure 3(a)) and Australia is a major coal exporter. Figure 3(a) shows that coal is the dominant fuel in the regions with large fossil reserves, except for the Middle East and Russia (in Russia, reserves of gas and hard coal are essentially equal). For the fossil-fuel-rich countries, the domestic fuels represent a very high value with large investments along their supply chain and associated with important local and regional social path dependency (job opportunities, workforce skills, knowledge etc.). For the EU as a whole, Canada, Germany, Brazil and Japan, the picture is di ﬀ erent, since they hold fewer or far fewer domestic fossil fuel reserves, with Germany having some lignite deposits and the EU having a mix of mainly natural gas and lignite. Brazil has some oil and lignite and Japan has hardly any fossil fuels at all, as well as not so favourable conditions for domestic RES-energy. Thus, the potential economic value of the fossil fuel reserves is much lower in these countries than for the above-mentioned fossil-fuel-rich regions (Figure 3(b)). Nevertheless, it should be emphasized that although the absolute value is modest, the value to local economies can be signi ﬁ cant, as for instance in the eastern parts of Germany where large lignite reserves are located. Similarly, Poland, which has lignite and hard coal reserves, generates most of its electricity from coal. 10 Also Canada is often associated with fossil fuels as being an important part of the economy, but this
On the other hand, our analysis of global sulphur production cannot account for unpredictable major discoveries of new ore fields and/or the implementation of new extractions techniques, that might noticeably improve the reserves availability as well as the production rate, though probably at higher economic and energetic costs. Such occurrences may introduce an additional logistic function in figure 6.3a and a corresponding further bell shaped curve in figure 6.3b. This means that both the date of maximum production, as well as the last useful year for the stratospheric injections under the assumption of using no more that 10% of world annual production may move forward in time. Nevertheless, it seems very unlikely that both new discoveries and new extraction techniques might increase the URR of sulphur by, let us say, a factor of two or more. By performing a trial and error robustness analysis of the logistic fit of global sulphur availability, it turns out that the date of peak production may shift in time by a couple of years at most, very unlikely more. This means that, in a very optimistic hypothesis, the ultimate useful date for stratospheric injections may be delayed by five to ten years at most (i.e. shift to 2025-2030).
challenges are addressed. Fossil fuel combustion is the biggest contributor to carbon emissions and other greenhouse gas (GHG) emissions, and thus the principal cause of climatechange. Cites are where the human and industrial activity that produces GHG emissions is most concentrated, and account for up to 75 percent of total emissions (UNEP 2015). Cities are also adversely affected by the effects of climatechange given that over 80 percent of cities are located on coasts and rivers, making them susceptible to sea level rise, floods and extreme weather events (IPCC 2014, UN 2014, WHO 2014). Energy systems also play a vital role in urban infrastructures, and thus sustaining the material welfare and prosperity of societies worldwide. However, recent research suggests that we cannot burn the fossil fuels we have if we are to limit significant climatechange. A third of oil reserves, half of gas reserves and over 80 per cent of current coal reserves should remain unused from 2010 to 2050 in order to meet the target of 2 °C (McGlade and Ekins 2015). As a result cities are facing a growing need to move to energy independence. This adds another dimension to sustainable energy strategy-making in cities, where renewables and other low-carbon technologies can offer attractive options for city-based power generation and supply, bringing economic, social and environmental incentives in addition to helping tackle climatechange (The Global Commission on the Economy and Climate, 2014).
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Widespread public awareness of global warming is a relatively recent thing. During the teaching careers of the authors of this activity, the emphasis has changed from discussing the probability that the world was heading towards another ice age to the exact opposite. The concern about resources of oil, natural gas and coal was that they would run out within a few decades (in the context of the decline of industry unless resources were conserved), and not because of any warming effect that their combustion might be having.
We noted earlier that ‘at a certain point increasing energy consumption does not appear to contribute to gains in well-being [ 73 ]. Therefore a focus on other maintaining and attaining other means of well-being may help partially decouple the energy-well-being relationship, and could provide avenues to maintain well-being whilst mitigating climatechange [ 52 ].’ Our framework outlines the current means and capabilities we depend on to attain well-being. However, these capabilities need not be tied to fossil fuels permanently. Many of these capabilities could instead be ensured by more inclusive solutions, for example, improvements in accessible public infrastructure, such as replacing roads with trams and bus lanes, utilising industrial heat through combined heat and power plants, mandating energy e ﬃciency measures in new homes and subsidising retro ﬁts in inclusive and equitable ways. An awareness of the potential well-being conﬂicts CCM could cause is paramount in guiding the for- mation of well-being enhancing responses to climatechange. Viewing these CCM and FFDE use in relation to well-being as done through the tensions triangle will help avoid the separation of these issues.
Production over the period to 2013 will be predominantly determined by the plants currently in operation and under construction, since it typically takes a minimum of four years to build a new liquefaction facility. Even if Final Investment Decisions (FID) are made in 2010 for plants currently at the planning stage the earliest they will begin to contribute to supply is 2014. Global LNG production looks set for a record increase of around 40mtpa (53bcm) in 2010 as new trains commissioned in 2009 build-up to full capacity and additional trains come on stream. The rate of increase will slow over the following three years because of fewer commitments to the construction of new capacity between 2006 and 2008. Production in 2013 is expected to reach 272mt (359bcm), 50% above the level in 2009. This represents an annual growth rate of 10.7% over the period 2009 to 2013, significantly faster than the 7.7% recorded between 1980 and 2009. Beyond 2014 the expansion of global LNG supply will depend on the rate at which new liquefaction capacity is commissioned. As Table 5 shows, a similar amount of new capacity is being planned as is in operation and under construction. The total planned capacity shown in Table 5 excludes some of the more speculative projects in Russia, Iran and Alaska. There is considerable uncertainty over just how many of the planned projects will be developed and when they might come on stream. Furthermore, more projects will almost certainly be added as new reserves are discovered by exploration companies, who are increasingly focussing on drilling for natural gas. However, FIDs on new liquefaction capacity have slowed since 2006 through a combination of escalating costs, a shortage of qualified people, governments prioritising domestic gas use over LNG exports and more challenging locations for the construction of new plants. In particular, the decline in prices since mid-2008 which has not been matched, as yet, by a fall in costs has put the economic viability of some planned projects under significant pressure. This is especially the case in the Atlantic Basin where market-based prices (see below) have fallen further than oil-indexed prices in the Pacific Basin.
Climatechange is happening and it is caused largely by human activity. Its impacts are beginning to be felt and will be worsen in the decades ahead unless we take action. The increasing rate of global warming—courtesy of carbon dioxide and other green house gas emissions from human activities—have led to climatic changes and environmental degradation, which in turn have resulted to great challenges in relation to diseases and human health. Many diseases which were previously unknown in certain climatic zones are now finding their way to such areas, due to changes in the weather conditions. Further, many diseases that had been thought extinct are reemerging in areas with altered climatic conditions that favor their comeback. It is therefore important that stakeholders and decision makers at industrial, government and international policy levels come up with strin- gent and workable means of cutting down on green house gases emission to combat the spread of global warm- ing effects, and the resultant climatechange, which has produced devastating impacts especially among poorer nations. Further, there should be increased funding of adaptation and coping programs and projects in affected areas to minimize the impacts on human health and curtail the spread of diseases.
Reducing greenhouse gas emissions without reducing economic growth requires advances in technology (which reduce the emissions intensity of industrial production) and/or policy measures to promote structural change (which shift the composition of production in favour of less polluting industries). Moreover, both methods of mitigating the effect of the gases must inevitably proceed in an environment of structural change driven by a variety of other economic forces. This paper introduces new economic modelling which permits an analysis of the effects of mitigation policy on employment that is firmly located within the historical structure of the economy, and within its likely future development in the medium term. Specifically, the paper investigates the imposition of a tax on the employment of labour by each industry in proportion to the emissions per hour of employment in the industry. In this approach, the extent to which the job of a particular worker can be considered to be “green” depends on the industry in which he/she works and not on his/her occupation or skill level. The effects of imposing the tax are reported as deviations from the current CEDEFOP medium-term employment forecasts for the European Union. The analysis uses a CGE labour market extension to the macro-econometric E3ME model. The tax is assumed to be returned to producers in such a way that aggregate employment remains constant, so the focus of the analysis is on the structural, rather than the secular, implications of mitigation policy for employment growth.
Hoel (1991) and Golombek & Hoel (2004) show that with marginally decreasing benefits from abatements, one country caring more about the environment may induce the other one to abate less in equilibrium. In their paper, an increase in the environmental sensibility of a developed country always increases the investment in technology, as this country directly benefits from the investment for the additional abatements that it provides. Our case is different. Instead of measuring the impact of a change in preferences, we measure the impact of a change in the level of spillovers. If spillovers increase, the developed country has the opportunity to impose more of the climatechangemitigation burden on the developing country. As Propositions 1 and 2 show, this might result in lower investment in technology by the developed country, and a net loss for the developing country.