Raphael Calel

Environmental Policy and Directed Technological Change: Evidence from the European Carbon Market

This paper investigates the impact of the EU Emissions Trading Scheme (EU ETS) on technological change. We exploit installations-level inclusion criteria to estimate the impact of the EU ETS on firms patenting. We find that the EU ETS has increased low-carbon innovation among regulated firms by as much as 10%, while not crowding out patenting for other technologies. We also find evidence that the EU ETS has not impacted patenting beyond the set of regulated companies. These results imply that the EU ETS accounts for nearly a 1% increase in European lowcarbon patenting compared to a counterfactual scenario.

Tall tales and fat tails: the science and economics of extreme warming

It has recently been highlighted that the economic value of climate change mitigation depends sensitively on the slim possibility of extreme warming. This insight has been obtained through a focus on the fat upper tail of the climate sensitivity probability distribution. However, while climate sensitivity is undoubtedly important, what ultimately matters is transient temperature change. A focus on transient temperature change stresses the interplay of climate sensitivity with other physical uncertainties, notably effective heat capacity. In this paper we present a conceptual analysis of the physical uncertainties in economic models of climate mitigation, leading to an empirical application of the DICE model, which investigates the interaction of uncertainty in climate sensitivity and the effective heat capacity. We expand on previous results exploring the sensitivity of economic evaluations to the tail of the climate sensitivity distribution alone, and demonstrate that uncertainty about the system’s effective heat capacity also plays a very important role. We go on to discuss complementary avenues of economic and scientific research that may help provide a better combined understanding of the physical and economic processes associated with a rapidly warming world.

On the Physics of Three Integrated Assessment Models

AbstractIntegrated assessment models (IAMs) are the main tools for combining physical and economic analyses to develop and assess climate change policy. Policy makers have relied heavily on three IAMs in particular—Dynamic Integrated model of Climate and the Economy (DICE), The Climate Framework for Uncertainty, Negotiation and Distribution (FUND), and Policy Analysis for the Greenhouse Effect (PAGE)—when trying to balance the benefits and costs of climate action. Unpacking the physics of these IAMs accomplishes four things. First, it reveals how the physics of these IAMs differ and the extent to which those differences give rise to different visions of the human and economic costs of climate change. Second, it makes these IAMs more accessible to the scientific community and thereby invites further physical expertise into the IAM community so that economic assessments of climate change can better reflect the latest physical understanding of the climate system. Third, it increases the visibility of the lin...

Market-Based Instruments and Technology Choices: A Synthesis

Market-based instruments are widely used to encourage innovation and investmentin cleaner technologies. Using a simple analytical framework and graphical representations, this paper provides a theoretical synthesis of the relationship between emissions prices/taxes and the firm�s optimal technology choice. This unified treatment incorporates the insights of a wide theoretical literature, as well as providing several new findings. Most surprisingly, perhaps, we identify circumstances in which a higher price of emissions actually reduces the incentive for investment in abatement technologies. We discuss the implications for environmental policy. The main conclusion is that a price on emissions invariably affects the type of abatement technologies firms invest in, so that the technological side of emissions abatement must always be considered in tandem with the design of the market-based instrument itself.

Improving cost-efficiency of conservation auctions with joint bidding

Most current models of conservation auctions are incompatible with the assessment that there are environmental externalities and synergies between bidders. Yet, conservation auctions are usually set up for the very purpose of addressing problems associated with environmental externalities. Clearly, these models do not tell the whole story, and they consequently fail to identify waste and inefficiency in these auctions. This paper shows how externalities between bidders can be incorporated into our models of conservation auctions and uses this framework to investigate the cost-efficiency of the uniform-price auction when neighbours can bid jointly. Allowing neighbours to bid jointly allows them to internalise these externalities, but also reduces the competitiveness of the auction. The net effect on cost-efficiency is ambiguous, so we show how simulation can be used as a practical tool to determine in what circumstances joint bidding can be expected to reduce the payments needed to secure a given amount of ecosystem services.