Price and Carbon Emissions Limitations

["Adrian Boucher"]

Hi Agus

In response to your request for info on the energy-price emmissions
issue, you may find the following helpful:


Ingham, A I (1995): "Responses of energy demand in UK manufacturing to
the energy price increases of 1973 and 1979-80", in T Barker, et al
(Eds): Global Warming and Energy Demand, London, Routledge.

Ingham A I, A Maw and A M Ulph (1990): "Empirical measures of carbon
taxes" Oxford Review of Economic Policy.

Ingham and Ulph have published a number of papers in this area, but
use their own estimation/simulation routine, based on a vintage
modelling approach developed from work by Fuss M A (1977): "The
structure of technology over time: A model for testing the putty-clay
approach", Econometrica, 45 (8), November, 1797-1821.

It would be great if these ideas were rendered more comprehensible by
adopting the SD approach and modelling with more visually oriented
packages such as STELLA/VenSim/PowerSim.
Is there any interest in this approach?

Best wishes


Adrian


Adrian Boucher
Director
NatWest Financial Literacy Centre
Centre for Education & Industry
University of Warwick
Coventry
CV4 7AL
UK
Tel: +44 1203 524 234
Fax: +44 1203 523 617
e-mail: adrian.boucher@csv.warwick.ac.uk
URL: http://www.warwick.ac.uk/WWW/faculties/ ... index.html

["Agus P. Sari"]

I am building a Computable General Equilibrium -- Using GAMS -- to
analyze the impact of different emission limitations between
industrialized and developing countries. My understanding is that the
price of energy-intensive (thus, emissions-intensive) products in the
industrialized countries (or "international") price will go up. This
price increase will encourage developing countries to produce more of
these products for exports. The result is that emissions that are limited
in the industrialized countries will occur eventually in the developing
countries.

The most often cited price of emission reduction in the industrialized
countries is $100 per ton of carbon (for example, William Clines books).
I would like to ask how I can translate this amount into the percentage
increase in international price of energy-intensive goods. Of course, I
would expect this has to do with the global energy-intensity and the
elasticity of substitution between energy-intensive and
non-energy-intensive processes and products.

Any hints?

Thank you.

_____________________________________________________________________________

Agus P. Sari Energy and Resources Group
apsari@violet.berkeley.edu University of California at Berkeley
14 Whitmore Place Apt # 17 310 Barrows Hall
Oakland, CA 94611 Berkeley, CA 94720-3050
(510)-654-2091 (510)-42-6886, 642-8829
Fax. (510)-642-1640

"For time; people are always lost, except those who remind each other
to believe and to be motivated; to do positive things; to help each other
in truth; and help each other in patience." -- The Time (Koran)
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[MITtfiddam@aol.com]

This is a reply from Tom Fiddaman at MIT to Agus Sari who is looking at the
market for permits to release carbon dioxide.

You might look at the following article, if you havent already seen it:

Luiz Pinuelli Rosa and Mauricio Tiomno Tolmasquin
An analytical model to compare energy-efficiency indices and CO2 emissions in
developed and developing countries.
Energy Policy 21(3) March 1993

This article doesnt address trade issues, but it does discuss the shift of
energy-intensive industries to developing countries.

A note on GAMS:

I took a brief look at GAMS at one time when I was planning to reproduce
Nordhaus DICE model of climate change. My assessment was that, while it was
good for optimization and general- equilibrium type problems, its lousy for
building complex dynamic models with behavioral decision rules.
Disequilibrium and behavior play a crucial role in trade and the shift of
energy intensive industries, so I would at least consider switching to a tool
(like vensim) with a simulation/SD/structural focus but which still provides
some optimization capability.

More specifically, its hard to document and diagram a model in GAMS, and the
code is somewhat incomprehensible to the casual observer. Worse, GAMS is
fundamentally rooted in discrete-time; this leads to discrete-time thinking,
and GAMS models Ive looked at tended to be plagued with DT error and
stock-flow ambiguities.

You should take these comments with a grain of salt, since Im not a GAMS
user, and unfamiliarity breeds contempt. Id be happy if someone could update
or challenge my assessment of GAMS.

- Tom Fiddaman

Id be happy to discuss this more, but its best if you reach me at:
tomfid@mit.edu

[apsari@violet.berkeley.edu (Agus]

>This is a reply from Tom Fiddaman at MIT to Agus Sari who is looking at the
>market for permits to release carbon dioxide.

Tom, thank you for your response, and for the article you mentioned. I have
developed the model in GAMS, and while I am open to other tools (I have also
used Mathematica and Stella, although for this purpose they are too slow), I
will probably stick to it for now. I have found it quite straightforward and
easy to get familiar with, although, I agree that it is difficult to
diagram. To crunch large database, however, I havent seen any other that
works as fast as it.

It seems, though, people have misunderstood my question. As part of a bigger
model, I only would like to know the impact of carbon dioxide emissions
control in the committed countries (Listed in Annex-I in the Climate
Convention) on the price of energy-intensive products in those countries.
For example, if the emissions control is undertaken as carbon-tax, it will
increase the price of energy, which in turn will increase the price of
energ-intensive products (basic metal, steel, chemical, etc.). To what
extent the price of energy-intensive products increases due to emissions
control depends on (1) The carbon/energy intensity of the industries
producing these products; and (2) The price elasticity.

Carbon Emissions Control ---> Price of Energy ---> Price of Energy Intensive
Products

It will be very helpful to get a sensitivity analysis on how much (in
percentage) the price of enenrgy-intensive products will go up due to a
percentage increase of emissions control, for example. I flipped through
Nordhaus and Cline, and found only the first arrow, i.e., carbon emissions
stabilization to 4 GT would lead to about 30 percent of gasoline price etc.
>From there to the price of energy-intensive products, however, is still missing.

If anybody could come up with ideas, leads to articles, that would be very
helpful.
____________________________________________________________________________

Agus P. Sari Energy and Resources Group
14 Whitmore Place Apt#. 17 University of California, Berkeley
Oakland, CA 94611 310 Barrows Hall, Berkeley, CA 94720-3050
(510)-654-2091 (510)-642-6886, -642-8829
apsari@violet.berkeley.edu Fax: (510)-642-1085

Check us out:
www.sdn.or.id/pelangi
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=

[gbackus@boulder.earthnet.net]

For Agus Sari:

The Europeans take GHG much more seriously than does the US. Cambridge
Econometrics Ltd. (Terry Barker, CEO) out of the UK has been looking at the
feedback impacts of this problem for years in the UK and for the European
Commission. They use I/O with cointegration. (Cointegration could be viewed as a
perverse form of SD that uses the equation form but goes "a-theoretical" when
"fitting the equation" to data. Problem is that they have made outrageoulsy
accurate forecasts for decades with the method.

You can see some of the papers from the last GHG conference at www.risoe.dk. A
starting paper by Barker and myself is at www.risoe.dk/sys/backus.html. The
paper is useless but the biblio may be helpful.

George Backus Email: gbackus@boulder.earthnet.net
Policy Assessment Corporation phone: (303) 467-3566; fax: (303) 467-3576
14604 West 62nd Place Denver, Colorado 80004, USA