Edwin van der Werf

Climate Policy and the Optimal Extraction of High- and Low-Carbon Fossil Fuels

We study how restricting CO2 emissions affcts resource prices and depletion over time.We use a Hotelling-style model with two nonrenewable fossil fuels that differ in their carbon content (e.g. coal and natural gas) and that are imperfect substitutes in final good production.We study both an unexpected constraint and an anticipated constraint.Both shocks induce intertemporal substitution of resource use.When emissions are unexpectedly restricted, it is cost-effective to use high-carbon resources relatively more (less) intensively on impact if this resource is relatively scarce (abundant).If the emission constraint is anticipated, it is cost-effective to use relatively more (less) of the low-carbon input before the constraint becomes binding, in order to conserve relatively more (less) of the high-carbon input for the period when climate policy is active in case the high-carbon resource is relatively scarce (abundant).

Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change

The increase in carbon dioxide emissions by some countries in reaction to an emission reduction by countries with climate policy (carbon leakage) is seen as a serious threat to unilateral climate policy. Using a two-country model where only one of the countries enforces an exogenous cap on emissions, this paper analyzes the effect of technical change that can be directed towards the clean or dirty input, on carbon leakage. We show that, as long as technical change cannot be directed, there will always be carbon leakage through the standard terms-of-trade effect. However, once we allow for directed technical change, a counterbalancing induced technology effect arises and carbon leakage will generally be lower. Moreover, we show that when the relative demand for energy is sufficiently elastic, carbon leakage may be negative: the technology effect induces the unconstrained region to voluntarily reduce its own emissions.

The Role of Standards in Eco-Innovation: Lessons for Policymakers

This article aims to help policymakers identify how standards can contribute to the effective and cost-efficient development and deployment of eco-innovations (innovations that reduce environmental impacts). To this end, we argue that the general perception among environmental economists that standards are a very simple form of command and control regulation is too limited. Environmental policy standards often allow for flexibility. Moreover, other types of standards are often relevant for induced innovation and diffusion. Our broad perspective enables us to identify some interesting and important economic aspects of standards, such as their contribution to the diffusion of technologies with network externalities and the extent to which they are substitutes or complements to (other) environmental policy instruments. Finally, we discuss conditions for the successful use of standards by governments to stimulate eco-innovation. (JEL: Q38, Q55, Q58)

The potential of REDD+ for carbon sequestration in tropical forests: Supply curves for carbon storage for Kalimantan, Indonesia

We study the potential of tropical multi-age multi-species forests for sequestering carbon in response to financial incentives from REDD+. The use of reduced impact logging techniques (RIL) allows a forest owner to apply for carbon credits whereas the use of conventional logging techniques (CL) does not. This paper is the first to develop a Hartman model with selective cutting in this setting that takes additionality of carbon sequestration explicitly into account. We apply the model using data for Kalimantan, Indonesia. RIL leads to less damages on the residual stand than CL and has lower variable but higher fixed costs. We find that a system of carbon credits through REDD+ has a large potential for carbon storage. Interestingly, awarding carbon credits to carbon stored in end-use wood products does not increase the amount of carbon stored and reduces Land Expectation Value. We also observe that the level of the carbon price at which it becomes optimal not to harvest depends on the interpretation of the steady state model.