Alan Ingham

Can adaptation and mitigation be complements

It is often claimed that mitigation of greenhouse gases and adaptation to climate change are complementary strategies. If this means that it will usually be optimal to use both mitigation and adaptation to deal with climate change; and that a perceived increase in the damages caused by climate change should require an increase in both mitigation and adaptation, then simple economic analysis would support such an interpretation. However, complementarity has a more technical meaning in economics, which implies if the costs of mitigation fell, then the optimal response would be to increase the level of both mitigation and adaptation. We develop a range of economic models to explore the relationship between mitigation and adaptation; and show that in general adaptation and mitigation will be substitutes. We also find that it is possible for complementarity to occur in the special case where adaptation costs depend on the amount of mitigation.

Market-based instruments for reducing CO2 emissions: The case of UK manufacturing

Abstract In this paper we present the case for using a carbon tax to control CO2 emissions, and illustrate the implications for the UK manufacturing sector using a vintage model of energy demand. We show that tax rates are very sensitive to assumptions about economic growth and the target to be achieved for emissions reduction. We also compute the economic cost of reducing CO2 emissions and show that, for a target date of 2010, these are rather modest, and do not display any critical level of reductions at which costs escalate sharply. However, costs do rise dramatically if we try to achieve the same cumulative reduction in emissions but delay taking any action till 1995 or 2000. The use of a vintage model is important for deriving these conclusions.

The market for sulphur dioxide permits in the USA and UK

Economists have long recognised that many environmental problems are due to the absence of property rights and markets. Further, they have argued that the creation of markets in environmental goods will lead to the attainment of optimal levels of pollution at minimum cost compared to the use of standards, or command and control methods. Environmental policy and control has often been in the hands of engineers and scientists, and, because they have usually thought in terms of desirable quantities for the levels of emission of pollutants rather than costs and benefits, perhaps too much emphasis has been placed on the standards approach. Economists have therefore stressed the advantages of market approaches to pollution control ever more strongly using arguments and models of some simplicity to drive the message home. However, because of this, there is the danger that the market approach is being oversold in comparison to what it can do in practice when the assumptions of the simplified models may not apply.

Carbon Taxes and Energy Markets

In this paper we shall consider the likely impact of a carbon tax of the type proposed by the EC (1990) on energy markets. There are a number of aspects involved in assessing such an impact. At the simplest level we can begin by asking what impact a carbon tax would have on the consumer and producer prices for fossil fuels, and more generally for all sources of energy. Even to answer this apparently simple question is non-trivial. As a first cut at the problem we could begin by assuming that there is a single world government that is imposing a global carbon tax. This will act to drive up the consumer prices of fossil fuels and drive down the producer prices of fossil fuels and the first question is what is the likely size of such effects; in particular, to what extent does our putative world government need to take account of the reduction in producer prices when calculating the carbon tax required to achieve a particular level of CO2 emissions reduction. To answer such questions we are essentially investigating the elasticities of supply and demand for fossil fuels, taking account of cross elasticities of demand.