Reyer Gerlagh

Corruption, Democracy, and Environmental Policy: An Empirical Contribution to the Debate

Theoretical and empirical studies have shown that democracy and corruption influence environmental policies. In this article, the authors empirically analyze the relative importance of these determinants of environmental policy. When these variables are jointly included as explanatory variables in a multiple regression analysis, the authors found that corruption stands out as a substantial and significant determinant of environmental policies, while proxies for democracy have an insignificant impact. Nevertheless, democracy could affect environmental policy stringency given that countries with a history of democratic rule tend to be less corrupted. The authors argue that improving environmental quality following increasing income is less probable in developing countries with institutional disarray. Finally, and more optimistically, when considering the results in the context of institutions and growth, the authors conclude that there is scope for reaping a double dividend, when institutional improvements and reductions in corruption induce higher economic growth rates and stricter environmental policies.

Endogenous technical change in environmental macroeconomics

This special issue contains five papers presented at the Workshop on the “Economic Modelling of Environmental Policy and Endogenous Technological Change”, held at the Royal Netherlands Academy of Arts and Sciences in Amsterdam from 16 to 17 November 2000. The Workshop was organized by the Fondazione Eni Enrico Mattei (Carlo Carraro), the International Institute for Applied Systems Analysis (Ger Klaassen) and the Institute for Environmental Studies of the (Vrije) University of Amsterdam (Reyer Gerlagh and Bob van der Zwaan). It was financially supported by the European Science Foundation and the Industrial Transformation Project of the International Human Dimensions Programme. The aim of the workshop was to understand how environmental policies affect the development of economic and environmental variables, through a shift in the rate of technological change. A wide range of topics was covered, each examining the economic modelling of environmental policy—notably vis-a-vis global warming and energy savings—in a context of endogenous technological change. The workshop counted some 35 participants, from a dozen of European countries, as well as the US, and was organised around the presentation and discussion of 15 contributed papers. A selection of these papers were considered to be of both scientific and policy-relevant interest, while contributing new elements to the academic literature on the environment and technical change. These articles appear in this special issue.

A measure of sustainable national income for the Netherlands

Abstract We present calculations on the sustainable national income (SNI) indicator, first proposed by Hueting, which corrects net national income (NNI) for the costs to bring back environmental resource use to a ‘sustainable’ level. Using an applied general equilibrium (AGE) model specifying 27 production sectors, we calculate different variants of SNI for the Netherlands in 1990, given a set of pre-determined sustainability standards. The AGE model is extended with emissions and abatement cost curves, based on large data sets for nine environmental themes. The model combines the advantages of a top-down approach (the AGE model) with the information of a bottom-up approach (the environmental data and data on emissions reductions costs). The presented numerical results show that in 1990 Dutch SNI is about 50% below NNI, though many uncertainties are still present in the data and the model. The enhanced greenhouse effect is the most expensive environmental theme.

The effects of ageing and an environmental trust fund in an overlapping generations model on carbon emission reductions

Most currently employed Integrated Assessment Models for climate change are of a dynastic nature. They employ the Ramsey rule linking the interest rate, economic growth, and the rate of pure time preference. This paper argues that, although a dynastic framework might be convenient for economic analysis, it is restrictive and can be misleading. Overlapping Generations models, which do not employ the Ramsey rule, are more flexible and may give results different from those derived from dynastic models. With the Integrated Assessment Model ALICE 2.0, it is shown how various assumptions on demographic change and public institutions can affect the interest rate, thereby influencing the efficient greenhouse gas emission reductions. It is concluded that dynastic Integrated Assessment Models are in many respects inappropriate for providing policy makers with quantitative figures about the costs of carbon dioxide emissions and their desirable reduction levels.

Efficiency of conservationist measures: An optimist viewpoint

Abstract We consider an economy with a consumer good, capital, a natural resource that provides amenity values, and heterogeneous overlapping generations. We compare a benchmark grandfathering policy that ensures efficiency through privatization with a policy of enforced resource conservation. It is shown that (i) conservationist measures do not cause any Pareto inefficiency, irrespective of whether they pass a cost–benefit test. Moreover, it is shown that (ii) there exist Pareto optimal allocations that can only be reached through resource conservation, and not through competitive markets, irrespective of compensating income transfers. Finally, (iii) equivalence is demonstrated between strict resource conservation and non-dictatorship of the present generations over future generations as formalized in Chichilniskys ‘sustainable welfare function’. The results are shown to hold in both a first-best and a second-best setting.

Overlapping generations versus infinitely-lived agent: the case of global warming

This chapter demonstrates that results from climate change models using the OLG approach can depend significantly on various economic and social conditions. Thereby, policy recommendations derived from OLG models can prove rather different from those resulting from conventional ILA models. This chapter presents the integrated assessment OLG model for the analysis of global warming ALICE 1.2, which allows for modeling a flexible interest rate and for incorporating various assumptions on demographic change and public institutions designed for the protection of the environment. Thus, ALICE 1.2 is particularly appropriate for providing policy makers with quantitative figures about the desirable and feasible reduction levels of carbon dioxide emissions.

Path-dependence in a Ramsey model with resource amenities and limited regeneration

This paper studies a Ramsey optimal control economy with one consumer good, extended to include several non-renewable resources with amenity value. The steady-state equilibria of this economy are shown to form a continuum. Selection of the steady state to which the economy converges depends on the initial resource stocks. Hence, unlike the usual Ramsey models, our model exhibits path-dependency, and postponement in the introduction of resource e:ciency policies has long-term e;ects. If the resource is renewable, with a limited regeneration function, the continuum becomes a turnpike. That is, optimal paths move along it towards the unique steady state. The results also hold when there are several consumers. ? 2003 Elsevier B.V. All rights reserved.

Are the economic costs of (non-)stabilising the atmosphere prohibitive? A comment

In a recent paper in this journal, Azar and Schneider present carbon abatement costs as a few years delay in an increasing path of welfare and they suggest the adoption of stricter abatement policies to avoid climate change. We show that the same argument can be used to derive the opposite conclusion. In most studies, not only abatement costs, but also climate change costs represent a small loss in future welfare. The reason for this is the implicit assumption of perfect long-term substitutability between man-made and environmental goods that many of these models adopt. We argue that, instead of downplaying the costs of abatement measures, we should try to better understand the substitutability possibilities between man-made and environmental goods, that is, the character of long-term costs of climate change.

Discounting and Sustainability in Applied IAMs

Since the potential climate change caused by antropogenic greenhouse gas (GHG) emissions has been recognized as a major environmental problem, a number of applied Integrated Assessment Models (IAMs) have been developed to advise policy makers as to the optimal GHG emissions reduction levels and the supporting prices of present GHG emissions, e.g. CETA (Peck and Teisberg, 1992), DICE (Nordhaus, 1994), MERGE (Manne and Richels, 1995), MERGE-II (Manne et al., 1995) and RICE (Nordhaus and Yang, 1996). Most of the IAMs are of the dynastic, or Ramsey (1928), type, in which there is a central planner who maximizes a welfare measure that aggregates utilities over generations. The calculated allocation of goods thus follows from the rules for the welfare distribution over generations. In an alternative so-called overlapping generations (OLG) framework, the dynamic allocation is primarily determined by the distribution of property rights over generations. There has been much analysis of the dynastic model, and the analysis has led to much debate on the use of different welfare functions (Azar and Sterner, 1996). In this paper, we will argue that the dynastic mechanism of welfare distribution is unrealistic and misleading. Its prevalent use in IAMs has led to unnecessary controversies between researchers who advocate efficient and those who advocate sustainable resource use.

Offshore CCS and ocean acidification: a global long-term probabilistic cost-benefit analysis of climate change mitigation

Public fear over environmental and health impacts of CO2 storage, or over potential leakage of CO2 from geological reservoirs, is among the reasons why over the past decade CCS has not yet been deployed on a scale large enough so as to meaningfully contribute to mitigate climate change. Storage of CO2 under the seabed moves this climate mitigation option away from inhabited areas and could thereby take away some of the opposition towards this technology. Given that in the event of CO2 leakage through the overburden in the case of sub-seabed CCS, the ocean could function as buffer for receiving this greenhouse gas, instead of it directly being emitted into the atmosphere, offshore CCS could also address concerns over the climatic impacts of CO2 seepage. We point out that recent geological studies provide evidence that to date CO2 has been safely stored under the seabed. Leakage for individual offshore CCS operations could thus be unlikely from a technical point of view, if storage sites are well chosen, well managed and well monitored. But we argue that on a global longterm scale, for an ensemble of thousands or millions of storage sites, leakage of CO2 could take place in certain cases and/or countries for e.g. economic, institutional, legal or safety-cultural reasons. In this paper we investigate what the impact could be in terms of temperature increase and ocean acidification if leakage occurs at a global level, and address the question what the relative roles could be of on- and offshore CCS if mankind desires to divert the damages resulting from climate change. For this purpose, we constructed a top-down energy-environment-economy model, with which we performed a probabilistic Monte-Carlo cost-benefit analysis of climate change mitigation with on- and offshore CCS as specific CO2 abatement options. One of our main conclusions is that, even under conditions with non-zero (permille/year) leakage for CCS activity globally, both onshore and offshore CCS should probably – on economic grounds at least - still account for anywhere between 20 % and 80 % of all future CO2 abatement efforts under a broad range of CCS cost assumptions.