Thomas Sterner

Analysing gasoline demand elasticities: a survey

This paper is a survey of studies on gasoline demand. Although there are very many dxerent studies in this

An Even Sterner Review - Introducing Relative Prices into the Discounting Debate

eld which sometimes appear to arrive at contradictory results, we find that with proper stratification of studies by model and data type much of the contict turns to consensus. In this survey we classtfy studies by data type and by ten d@erent categories of model and with the exception of estimates on seasonal data, which tend to be unstable, and of certain inappropriate model formulations, we find a fair degree of agreement concerning average short-run and even long-run income and price elasticities.

Discounting and distributional considerations in the context of global warming

By estimating that the cost of unmitigated climate damages is an order of magnitude higher than most earlier estimates, the Stern Review on the Economics of Climate Change has had a major influence on the policy discussion on climate change. Not surprisingly, severe criticism has been levied against the report, especially by those who claim that the Stern Reviews results hinge mainly on a discount rate that is too low. While we have no strong objections to the discounting assumptions adopted in the Stern Review, our main point in this article is that the conclusions reached in the Stern Review can be justified without using a low discount rate. We argue that nonmarket damages from climate change are probably underestimated and that future scarcities caused by the changing composition of the economy and climate change should lead to rising relative prices for certain goods and services. This will raise the estimated damage of climate change and modify as well as counteract the effect of discounting. We illustrate this effect using a slightly modified version of Nordhauss DICE model and show that taking relative prices into account can have as large an effect on economically warranted abatement levels as a low discount rate.

Household waste management in a Swedish municipality : determinants of waste disposal, recycling and composting

The economics of global warming is reviewed with special emphasis on how the cost depends on the discount rate and on how costs in poor and rich regions are aggregated into a global cost estimate. Both of these factors depend on the assumptions made concerning the underlying utility and welfare functions. It is common to aggregate welfare gains and losses across generations and countries as if the utility of money were constant, but it is not. If we assume that a e CO2-equivalent dlubling implies costs equal to 1.5% of the income in both high and low income countries, a pure rate of time preference equal to zero, and a utility function which is logarithmic in income, then the marginal cost of CO2 emissions is estimated at 260–590 USD/ton C for a time horizon in the range 300–1000 years, an estimate which is large enough to justify significant reductions of CO2 emissions on purely economic grounds. The estimate is approximately 50–100-times larger than the estimate made by Nordhaus in his DICE model and the difference is almost completely due to the choice of discount rate and the weight given to the costs in the developing world as well as a more accurate model of the carbon cycle. Finally, the sensitivity of the marginal cost estimate with respect to several parameters is analyzed.

Decomposition of changes in energy intensity: A comparison of the Divisia index and other methods☆

This paper analyzes waste disposal, recycling and composting in a municipality in southwest Sweden. In 1994, Varberg introduced a weight-based billing system for household waste charging 1 kr/kg of waste and at the same time recycling centers were set up and a ‘green shopping’ campaign was launched. This led to a significant reduction in waste collected and increased recycling. This study had access to actual measured data on waste disposal at the household level for a residential area called Tvååker, in addition to survey data for the same households. This makes it possible to carry out a more reliable and more detailed analysis than has been previously possible, particularly with respect to attitudinal variables. The most important determinants of each individual households waste were composting of kitchen waste, living area, age and attitudes concerning the difficulty of recycling various materials. Separate sections look at composting behaviour, at willingness to pay for sound waste management and for the sake of comparison three other municipalities are also studied. The main finding is that economic incentives, although important, are not the only driving force behind the observed reduction in municipal waste: Given the proper infrastructure that facilitates recycling, people are willing to invest more time than can be motivated purely by savings on their waste management bill.

Determining Benefits and Costs for Future Generations

Abstract The desirability of separating the effects of underlying shifts in the composition of the economy from changes in energy use patterns has been recognized by many researchers. The similarity between this decomposition of aggregate measures of energy intensity into its component parts and decomposition of aggregate output (cost) data into price and quantity indices is less well known. This paper makes some comparisons between energy intensity decomposition and the formulation of economic indices. We illustrate the useful properties of one particular index, the Divisia index in performing energy intensity decomposition.

Paying for Mitigation: A Multiple Country Study

The United States and others should consider adopting a different approach to estimating costs and benefits in light of uncertainty. In economic project analysis, the rate at which future benefits and costs are discounted relative to current values often determines whether a project passes the benefit-cost test. This is especially true of projects with long time horizons, such as those to reduce greenhouse gas (GHG) emissions. Whether the benefits of climate policies, which can last for centuries, outweigh the costs, many of which are borne today, is especially sensitive to the rate at which future benefits are discounted. This is also true of other policies, e.g., affecting nuclear waste disposal or the construction of long-lived infrastructure.

Should governments use a declining discount rate in project analysis

A contingent valuation study conducted in China, Sweden, and the United States was used to investigate citizens’ willingness to pay (WTP) for reducing CO2 emissions. We find that a majority of the respondents in all three countries believe that the mean global temperature has increased over the last 100 years and that humans are responsible for the increase. The share of Americans that believes these statements is smaller, and a relatively larger share of Americans also believes that nothing can be done to stop climate change. Sweden has the highest WTP, while China has the lowest. (JEL Q51, Q54)

Public Disclosure of Industrial Pollution: The PROPER Approach for Indonesia?

Should governments use a discount rate that declines over time when evaluating the future benefits and costs of public projects? The argument for using a declining discount rate (DDR) is simple: if the discount rates that will be applied in the future are uncertain but positively correlated, and if the analyst can assign probabilities to these discount rates, then the result will be a declining schedule of certainty-equivalent discount rates. There is a growing empirical literature that estimates models of long-term interest rates and uses them to forecast the DDR schedule. However, this literature has been criticized because it lacks a connection to the theory of project evaluation. In benefit-cost analysis, the net benefits of a project in year t (in consumption units) are discounted to the present at the rate at which society would trade consumption in year t for consumption in the present. With simplifying assumptions, this leads to the Ramsey discounting formula, which results in a declining certainty-equivalent discount rate if the rate of growth in consumption is uncertain and if shocks to consumption are correlated over time. We conclude that the arguments in favor of a DDR are compelling and thus merit serious consideration by regulatory agencies in the United States. (JEL: D61)

Economic policies for sustainable development

This paper evaluates the effectiveness of the Program for Pollution Control Evaluation and Rating (PROPER) in Indonesia. PROPER, the first major public disclosure program in the developing world, was launched in June 1995; though it collapsed in 1998 with the Asian financial crisis, it is currently being revived. There have been claims of success for this pioneering scheme, yet little formal and conclusive analysis has been undertaken. We analyze changes in emissions concentrations (mg/L) using panel data techniques with plant-level data for participating firms and a control group. The results show that there was indeed a positive response to PROPER, especially among firms with poor environmental compliance records. The response was immediate, and firms pursued further emissions reductions in the following months. The total estimated reductions in biochemical oxygen demand (BOD) and chemical oxygen demand (COD) were approximately 32 per cent.