Hans W. Gottinger

Econometric modelling, estimation and policy analysis of oil spill processes

This paper explores approaches to model specification suitable for empirical investigation of a stochastic oil spill model. We focus on the effects of economic incentive measures on the frequency of oil spills, spill size, and volume of oil spilled. We look into the relationships between parameters that describe the spill generation process and the enforcement effort, using data for the Black and Baltic Seas.

Stochastic models of oil spill processes

This paper models the occurrence of an environmental accident as a stochastic event. In particular, the situation of an oil spill is explored. Characteristics of the ship operator, and the different types of the ships operating environment determine a stochastic process governing the time patterns and size of spills. It is shown that both the time distribution of different types of oil spill and the distribution of spill size are affected by pollution control instruments such as fines, by enforcement effort, and by the alert level of the operating personnel.

Chapter 2: Economic models of optimal energy use under environmental constraints

The major purpose of this chapter is to contribute to better policy-making through improvements in models studying the economic impacts of the CO2 problem, and to show ways in which economic instruments can effectively be put to use to alleviate such a problem. This approach differs in at least one major aspect from common studies of the climate change problem. We focus on the analysis, control and optimisation of modelling forms rather than the collection and analysis of data. More concretely, we search for optimal fossil fuel use, research and technology policies rather than predicting the future.

Chapter 1: Issues of global environmental economics

The focus of this first chapter is to address and analyse some specific and unifying issues at the interface of energy use and environmental management from a global perspective. These issues will be examined at various instances throughout the book. We start from the fact that carbon dioxide (CO2) in the atmosphere affects the radiation balance of the Earth, and that increasing CO2 concentrations are expected to cause a warmer climate. We look into the suitability of energy resources, alone or in combination, to satisfy these global environmental constraints, and identify reasonable scenarios for environmentally benign energy futures.

Chapter 9: Uncertainty, value of information and greenhouse gas emissions

The concentration of greenhouse gases (GHG) in the atmosphere could be perceived as a non-degradable stock pollutant that causes unknown environmental costs. In view of designing commonly agreed (globally negotiated) regulatory strategies against a perceived but, on its scale, unknown threat, the problem is one of preserving regulatory options, and placing values on the preservation of such options before irreversible but uncertain damage can occur. We explore here an optimal regulatory regime in which regulating a non-degradable pollution stock, e.g. the accumulation of greenhouse gases in the atmosphere, would serve two purposes, as found in a more general context of resource economics by Conrad (1992): First, if environmental damage is unexpectedly higher in the future the level of ‘regret’ will be lower. Second, if environmental damage is unexpectedly lower, a low pollution stock today preserves the option of increasing the stock in the future. Such a design relates to problems of optimal stopping. This chapter develops a general formulation of the policy question, which can be conceived as an infinite horizon stochastic dynamic programme with learning (Bertsekas, 1976, Part II). This formulation clarifies the issues, but is mathematically hard to cope with. To provide more explicit guidance, we then take advantage of specific features of this problem to develop a simplified decision framework.

Chapter 8: Optimal economic growth when CO2 constraints are critical

Past analyses of optimal economic growth behaviour have neglected the constraints of fossil fuel production and the accumulation of atmospheric CO2 having a negative impact on production and productivity, as pursued in the more general context of Chapter 7. The factors of production have been assumed to be either self-regenerating (labour) or augmentable via production (capital) or technical progress. We explore the implications of accounting explicitly for the use of fossil fuel inputs (resources), constrained by a critical CO2 budget.

Chapter 6: A simple endogenous model of economic activity and climate change

One problem that is common to the existing research on future climate change is the neglect of the forces of the market mechanism. In order to model the dynamic interaction between economic activities and the climate system, a dynamic two-sector general equilibrium model is constructed. This chapter is organised as follows. Section 6.2 describes the economic and natural environment, and Section 6.3 studies the competitive equilibrium. Section 6.4 analyses the properties of the law of motion of the global temperature. Sections 6.5 and 6.6 consider the equilibrium time-path of temperature under different conditions based on the results obtained in Section 6.4. Section 6.7 investigates the conditions under which a climatic chaos occurs, and Section 6.8 offers concluding remarks.

Chapter 4: Long-term investment and endogenous technical progress: dynamic and vintage-type models

In this chapter, we set out to model the economic aspects of the CO2 problem under endogenous technical progress (Romer, 1990). Such models appear more natural and provide increased flexibility and realism for policy-making purposes. We begin with a comparison of the models with those developed in Chapter 2. The analysis considers possible long-run equilibrium solutions and possible approach paths to equilibrium. We present a solution for a constant, long-term growth path of the model and an examination of the effects of parameters on the ratio of ‘knowledge’ to capital and on the growth rate along this path.

Chapter 3: Uncertainty in economic models of optimal energy use

In the economics of non-renewable resources, the problem of eating the cake when its size is unknown constitutes an essential feature of uncertainty. Such a model was proposed by Gilbert (1979) and he obtained results that were both illuminating and suggestive. The problem of consuming an exhaustible resource when there is ignorance about its size is analytically equivalent to the more recent problem of CO2, that is generating fossil fuel emissions when the critical CO2 budget (where irreversibly the damage becomes infinite) is uncertain. It is also interesting to note that activities that reduce uncertainty, such as exploration in the former problem, correspond to the use of research in the latter. We will convert Gilbert’s model to the new problem context and show, in a social planning framework, that the treatment of uncertainty has significant impacts on policy choices regarding global CO2 emission limits. We will support such conclusions by a numerical treatment of an optimal control model on fossil fuel use where uncertainty is a major subject of sensitivity analysis.

Chapter 10: Decentralised control of greenhouse gas emissions: coordination and cooperation

In Chapter 2, we considered the difficulties of obtaining international cooperation in the control of CO2 emissions. The approach adopted in this chapter assumes there is an ‘empowered’ United Nations, as a principal, that coordinates its members (agents) toward a common goal, which makes this a team-like principal agent structure. We shall show that if at least two countries commit themselves to cooperative behaviour through a team they will arrive at optimal welfare for each of them. This is particularly true if one of them acts as principal, a group of countries or an empowered United Nations and the other as an agent, e.g. a smaller country, both of which have different information structures.