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Modeling the Cost of Climate Policy: Distinguishing Between Alternative Cost Definitions and Long-Run Cost Dynamics

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  • Mark K. Jaccard
  • John Nyboer
  • Crhis Bataille
  • Bryn Sadownik
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    Abstract

    Interest groups and experts debate the cost of greenhouse gas (GHG) reduction, and policy-makers do not know whom to believe. The confusion stems from differing definitions of costs and divergent assumptions about key uncertainties, especially the role of policy in influencing the long-run evolution of technologies and consumer preferences. Analysis could be more helpful to policy-makers by combining technological explicitness with behavioral realism in hybrid models. With such a model, we demonstrate how GHG reduction cost estimates vary depending on whether the analyst focuses just on the financial costs of technologies or combines this with other relevant components of consumer and business preferences, such as option value and consumers' surplus. We also show how this type of model can allow policy-makers to explore the uncertain relationship between policies and the evolution of technologies and preferences, which are critical factors in the long-run cost dynamics of GHG emission reduction. We explore these generic methodological issues with a case study of GHG reduction costs in Canada.

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    Bibliographic Info

    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume 24 (2003)
    Issue (Month): Number 1 ()
    Pages: 49-73

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    Handle: RePEc:aen:journl:2003v24-01-a03

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    References

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    Citations

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    Cited by:
    1. Verbruggen, Aviel & Fischedick, Manfred & Moomaw, William & Weir, Tony & Nadaï, Alain & Nilsson, Lars J. & Nyboer, John & Sathaye, Jayant, 2010. "Renewable energy costs, potentials, barriers: Conceptual issues," Energy Policy, Elsevier, vol. 38(2), pages 850-861, February.
    2. Katja Schumacher & Ronald D. Sands, 2006. "Where Are the Industrial Technologies in Energy-Economy Models?: An Innovative CGE Approach for Steel Production in Germany," Discussion Papers of DIW Berlin 605, DIW Berlin, German Institute for Economic Research.
    3. Murphy, Rose & Rivers, Nic & Jaccard, Mark, 2007. "Hybrid modeling of industrial energy consumption and greenhouse gas emissions with an application to Canada," Energy Economics, Elsevier, vol. 29(4), pages 826-846, July.
    4. Nic Rivers & Mark Jaccard, 2005. "Combining Top-Down and Bottom-Up Approaches to Energy-Economy Modeling Using Discrete Choice Methods," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 83-106.
    5. Mau, Paulus & Eyzaguirre, Jimena & Jaccard, Mark & Collins-Dodd, Colleen & Tiedemann, Kenneth, 2008. "The 'neighbor effect': Simulating dynamics in consumer preferences for new vehicle technologies," Ecological Economics, Elsevier, vol. 68(1-2), pages 504-516, December.
    6. Jotham Peters & Chris Bataille & Nic Rivers & Mark Jaccard, 2010. "Taxing Emissions, Not Income: How to Moderate the Regional Impact of Federal Environment Policy," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 314, November.
    7. Bob van der Zwaan & Reyer Gerlagh, 2008. "The Economics of Geological CO2 Storage and Leakage," Working Papers 2008.10, Fondazione Eni Enrico Mattei.
    8. Susana Silva & Isabel Soares & Carlos Pinho, 2011. "The impact of renewable energy sources on economic growth and CO2 emissions - a SVAR approach," FEP Working Papers 407, Universidade do Porto, Faculdade de Economia do Porto.
    9. Benjamin D. Leibowicz & Maria Roumpani & Peter H. Larsen, 2013. "Carbon Emissions Caps and the Impact of a Radical Change in Nuclear Electricity Costs," International Journal of Energy Economics and Policy, Econjournals, vol. 3(1), pages 60-74.
    10. Rivers, Nic & Jaccard, Mark, 2006. "Useful models for simulating policies to induce technological change," Energy Policy, Elsevier, vol. 34(15), pages 2038-2047, October.
    11. Dowlatabadi, Hadi & Oravetz, Matthew A., 2006. "US long-term energy intensity: Backcast and projection," Energy Policy, Elsevier, vol. 34(17), pages 3245-3256, November.
    12. Scandurra, Giuseppe & Romano, Antonio Angelo, 2011. "The investments in renewable energy sources: do low carbon economies better invest in green technologies?," MPRA Paper 34216, University Library of Munich, Germany.
    13. Antonio Angelo Romano & Giuseppe Scandurra, 2011. "The Investments in Renewable Energy Sources: Do Low Carbon Economies Better Invest In Green Technologies?," International Journal of Energy Economics and Policy, Econjournals, vol. 1(4), pages 107-115.
    14. Aviral Kumar Tiwari, 2011. "A structural VAR analysis of renewable energy consumption, real GDP and CO2 emissions: Evidence from India," Economics Bulletin, AccessEcon, vol. 31(2), pages 1793-1806.
    15. Horne, Matt & Jaccard, Mark & Tiedemann, Ken, 2005. "Improving behavioral realism in hybrid energy-economy models using discrete choice studies of personal transportation decisions," Energy Economics, Elsevier, vol. 27(1), pages 59-77, January.
    16. Chris Bataille, Mark Jaccard, John Nyboer and Nic Rivers, 2006. "Towards General Equilibrium in a Technology-Rich Model with Empirically Estimated Behavioral Parameters," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 93-112.

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