Snorre Kverndokk

An Economic Model of Moral Motivation

In this paper, we present an economic model of moral motivation. Consumers prefer regarding themselves as socially responsible individuals. Voluntary contributions to public goods are motivated by this preference. The self-image as socially responsible is determined by a comparison of ones actual behavior against an endogenous moral ideal. Public policy influences voluntary contributions through its effects on relative prices and budget or time constraints, but also indirectly through the policys effect on the moral ideal. This implies that economic incentives may have adverse effects on contributions. We present survey data on recycling behavior and voluntary community work, which is consistent with the model predictions.

Depletion of fossil fuels and the impacts of global warming

This paper combines the theory of optimal extraction of exhaustible resources with the theory of greenhouse externalities, to analyse problems of global warming when the supply side is considered. The optimal carbon tax will initially rise but eventually fall when the externality is positively related to the stock of carbon in the atmosphere. It is shown that the tax will start falling before the stock of carbon in the atmosphere reaches its maximum. If, on the other hand, the greenhouse externality depends on the rate of change in the atmospheric stock of carbon, the evolution of the optimal carbon tax is more complex. It can even be optimal to subsidise carbon emissions to avoid future rapid changes in the stock of carbon, and therefore future damages. If the externality is related to the stock of carbon in the atmosphere and there exists a non-polluting backstop technology, it will be optimal to extract and consume fossil fuels even when the price of fossil fuels is equal to the price of the backstop. The total extraction is the same as when the externality is ignored, but in the presence of the greenhouse effect, it will be optimal to slow the extraction and spread it over a longer period.

Optimal climate policy under the possibility of a catastrophe

This paper concerns optimal emissions of greenhouse gases when catastrophic consequences are possible. A numerical model is presented which takes into account both continuous climate-feedback damages as well as the possibility of a catastrophic outcome. The uncertainty in the model concerns whether or not a future catastrophe will occur. However, the welfare losses imposed by such an outcome are assumed known to the decision-maker. An important result is that the possibility of a climate catastrophe is a major argument for greenhouse gas abatement even in absence of continuous damage. Special attention is given to analyses on the probability of a catastrophe and the pure rate of time preferences, and the implicit values of these parameters are calculated if the Rio stabilisation target is assumed to be optimal. Finally, the expected value of perfect information about the probability of the arrival of a catastrophe is estimated.

Can a Carbon Permit System Reduce Spanish Unemployment

This paper analyses whether recycling revenues from carbon emission permit auctions can reduce unemployment in the Spanish economy. Spains deviation from EUs intermediate emission goals is more serious than for most other EU countries, and the unemployment is also well above the EU average. We use a CGE model that includes a matching model with two types of labour, and which allows for different pricing rules and returns-to-scale assumptions. We find that abatement reduces unemployment due to beneficial impacts of recycling the revenue from permit sales. Unemployment is more effectively abated when revenues are used to reduce labour taxes rather than indirect taxes. Contrary to other studies of Europe, we find that the best option is to reduce payroll taxes on skilled labour. This reform is the most successful both in increasing demand and in dampening the supply response to rising wages. All the recycling schemes also generate dividends in terms of welfare, but none offset the abatement costs entirely.

Profitability of Different Instruments in International Climate Policies

This article discusses how different climate policy instruments such as CO2 taxes and renewable energy subsidies affect the profitability of fossil fuel production, given that a fixed global climate target shall be achieved in the long term. Within an intertemporal framework, the model analyses show that CO2 taxes reduce the short-term profitability to a greater extent than technology subsidies, since the competition from CO2-free energy sources does not become particularly noticeable until decades later. Due to e.g. discounting of future revenues, most fossil fuel producers therefore prefer subsidies to their competitors above CO2 taxes. However, this conclusion does not apply to all producers. Oil producers outside OPEC lose the most on the subsidising of CO2-free energy, while CO2 taxes only slightly reduce their profits. This is connected to OPECs role in the oil market, as the cartel chooses to reduce its extraction significantly in the tax scenario. The results seem to be consistent with observed behaviour of important players in the climate negotiations.

Gains from Cartelisation in the Oil Market

In this paper we ask whether OPEC still gains from cartelisation in the oil market despite low producer prices and a modest market share. We apply two intertemporal equilibrium models of the global oil market; one consisting of a cartel and a fringe, and one describing a hypothetical competitive market. Comparing the outcome of these models we conclude that there are positive cartelisation gains of about 18 per cent in the oil market. In comparison with what Pindyck (1978) found for the 1970s this may be considered as quite modest. Moreover, we study whether the cartelisation gains to OPEC are altered by different moves by non-OPEC producers or consumer countries. Generally, we find that the relative cartelisation gains are unchanged. One exception is exploration activities, where we find that a major increase in non-OPEC reserves could remove the cartelisation gains to OPEC completely. In this case, the OPEC-countries could find themselves better off without the cartel.

Stabilization of CO 2 concentrations: mitigation scenarios using the Petro model

How to stabilize the CO2 concentration in the atmosphere depends crucially on baseline assumptions of future economic growth, energy demand and supply technologies, etc. In this paper we investigate how different assumptions about the future affect the necessary global policy measures to reach specific concentration targets for CO2. This is done by constructing two contrasting baseline scenarios within an intertemporal model of fossil fuel markets. We find that the appropriate CO2 emission and concentration paths for a given concentration target are very dependent on the baseline. Moreover, the impact on oil wealth for OPEC and other oil producers of stabilizing CO2 concentrations depends significantly both on the baseline and on whether the target is reached through carbon taxes or autonomous technological change in carbon-free energy sources. Carbon leakage through changes in international fossil fuel prices is found to be negligible and possibly negative.

Mitigation costs, distributional effects, and ancillary benefits of carbon policies in the Nordic countries, the U.K., and Ireland

This paper provides a survey of top-downmodelling analyses of carbon (C) abatementmitigation costs, distributional effectsand ancillary benefits in the Nordiccountries, the U.K. and Ireland. Specialemphasis is placed on the effects ofrevenue recycling and tax exemptions.According to the analyses, modestemissions reductions can be met withoutsubstantial costs for the countriesstudied, and a strong double dividend isfound in some analyses. The gross domesticproduct (GDP) or welfare effects are mostlyin the range of –0.4 and 1.2 percent whenC emissions are reduced by 20–30 per cent.Lowest costs are obtained without taxexemptions and with tax revenues used toreduce distortionary taxes. Ancillarybenefits are mostly in the range35–80/MgC-1, i.e., about the same order ofmagnitude as the mitigation costs.Distributional effects are mostlyregressive, unless the tax revenues aredistributed in lump-sum fashion with equaltransfers to each household.

Linking Environmental and Innovation Policy

This paper addresses the timing and interdependence between innovation and environmental policy in a model of research and development (R&D). On a first-best path the environmental tax is set at the Pigouvian level, independent of innovation policy. With infinite patent lifetime, the R&D subsidy should be constant and independent of the state of the environment. However, with finite patent lifetime, optimal innovation policy depends on the stage of the environmental problem. In the early stages of an environmental problem, abatement research should be subsidized at a high level and this subsidy should fall monotonically over time to stimulate initial R&D investments. Alternatively, with a constant R&D subsidy, patents’ length should initially have a very long life-time but this should be gradually shortened. In a second-best situation with no deployment subsidy for abatement equipment, we find that the environmental tax should be high compared to the Pigouvian levels when an abatement industry is developing, but the relative difference falls over time. That is, environmental policies will be accelerated compared to first-best.

On adaptation and the demand for health

The purpose of this paper is to analyse the impacts of adaptation to failing health. This is done by integrating adaptation processes in a Grossman type of pure consumption model. Model simulations show that adaptation affects the health variables by lowering the incentives to invest in health, as well as smoothing the optimal health stock path over the life cycle. Whether or not the risk of mortality is an object of choice has important effects when studying adaptation, as well as for the joint development of the health variables.