IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v83y2019icp208-216.html
   My bibliography  Save this article

Increasing returns to scale in energy-intensive sectors and its implications on climate change modeling

Author

Listed:
  • Yang, Zili

Abstract

Increasing returns to scale (IRS) phenomena are widely present in economies, and integrated assessment models (IAMs) for climate change generally assume constant returns to scale (CRS). This paper studies the connection between IRS in energy-intensive sectors and the regions' attitude towards climate change. In a model of detrimental (negative) externality, we proved that if some agents' activities related to externality generation exhibit IRS, their optimal target in the efficient externality provision can be very close to their inefficient non-cooperative Cournot-Nash equilibrium position. The numerical simulations in this paper confirm the analytical conclusion. The analytical results point out the potential biases of IAMs under the CRS assumption and provide a better explanation of difficulties in international climate negotiations. Finally, the paper offers some policy suggestions on climate negotiation in the presence of IRS.

Suggested Citation

  • Yang, Zili, 2019. "Increasing returns to scale in energy-intensive sectors and its implications on climate change modeling," Energy Economics, Elsevier, vol. 83(C), pages 208-216.
    • Handle: RePEc:eee:eneeco:v:83:y:2019:i:c:p:208-216
    DOI: 10.1016/j.eneco.2019.06.011
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988319301987
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2019.06.011?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Werner Antweiler & Daniel Trefler, 2002. "Increasing Returns and All That: A View from Trade," American Economic Review, American Economic Association, vol. 92(1), pages 93-119, March.
    2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    3. Jonathan Kohler, Michael Grubb, David Popp and Ottmar Edenhofer, 2006. "The Transition to Endogenous Technical Change in Climate-Economy Models: A Technical Overview to the Innovation Modeling Comparison Project," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 17-56.
    4. Otto, Vincent M. & Löschel, Andreas & Reilly, John, 2008. "Directed technical change and differentiation of climate policy," Energy Economics, Elsevier, vol. 30(6), pages 2855-2878, November.
    5. Unruh, Gregory C., 2000. "Understanding carbon lock-in," Energy Policy, Elsevier, vol. 28(12), pages 817-830, October.
    6. Lessmann, Kai & Kornek, Ulrike & Dellink, Rob & Emmerling, Johannes & Eyckmans, Johan & Nagashima, Miyuki & Weikard, Hans-Peter & Yang, Zili, 2014. "The Stability and Effectiveness of Climate Coalitions: A Comparative Analysis of Multiple Integrated Assessment Models," Climate Change and Sustainable Development 163598, Fondazione Eni Enrico Mattei (FEEM).
    7. Hana Nielsen, 2018. "Technology and scale changes: The steel industry of a planned economy in a comparative perspective," Economic History of Developing Regions, Taylor & Francis Journals, vol. 33(2), pages 90-122, May.
    8. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    9. World Bank, 2009. "Geography in Motion: World Development Report 2009 (excerpt)," Transnational Corporations Review, Ottawa United Learning Academy, vol. 1(3), pages 40-46, September.
    10. Peters, Irene & Ackerman, Frank & Bernow, Stephen, 1999. "Economic theory and climate change policy," Energy Policy, Elsevier, vol. 27(9), pages 501-504, September.
    11. Victor Ginsburgh & Michiel Keyzer, 2002. "The Structure of Applied General Equilibrium Models," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262571579, April.
    12. Paul M. Romer, 1994. "The Origins of Endogenous Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 3-22, Winter.
    13. Waschik, Robert, 2015. "Differentiated products, increasing returns to scale and heterogeneous firms in a CGE model of the Australian coal sector," Energy Economics, Elsevier, vol. 51(C), pages 521-529.
    14. Babiker, Mustafa H., 2005. "Climate change policy, market structure, and carbon leakage," Journal of International Economics, Elsevier, vol. 65(2), pages 421-445, March.
    15. Boyd, Gale A, 1987. "Factor Intensity and Site Geology as Determinants of Returns to Scalein Coal Mining," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 18-23, February.
    16. Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-676, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xu, Xin & Huang, Shupei & Lucey, Brian M. & An, Haizhong, 2023. "The impacts of climate policy uncertainty on stock markets: Comparison between China and the US," International Review of Financial Analysis, Elsevier, vol. 88(C).
    2. Zhiyuan Gao & Lianqing Li & Yu Hao, 2024. "Financial risk under the shock of global warming: Evidence from China," Business Strategy and the Environment, Wiley Blackwell, vol. 33(2), pages 335-351, February.
    3. Xiaozhen Wang & Binbin Liao & Li Cheng & Jingyi Li & Xuanyadong Yang & Xiaolei Wang, 2024. "Energy Price Distortions and Urban Carbon Emission Efficiency: Evidence from China’s Energy-Intensive Sectors," Sustainability, MDPI, vol. 16(21), pages 1-20, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Holger Breinlich & Elsa Leromain & Dennis Novy & Thomas Sampson, 2021. "Import liberalization as export destruction? Evidence from the United States," CEP Discussion Papers dp1779, Centre for Economic Performance, LSE.
    2. Rahel Aichele, 2013. "Trade, Climate Policy and Carbon Leakage - Theory and Empirical Evidence," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 49.
    3. Karyne B. Charbonneau, 2019. "The Impact of a Trade War: Assessment of the Current Tariffs and Alternative Scenarios," Staff Analytical Notes 2019-20, Bank of Canada.
    4. Xiang, Hongjin & Kuang, Yanxiang & He, Hongbo & Yao, Shujie, 2022. "Could tariffs reduce overcapacity and environmental pollution? Evidence from China’s adjustment of tariffs on coal," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 129-144.
    5. Stephen J. Redding & David E. Weinstein, 2017. "Aggregating from Micro to Macro Patterns of Trade," NBER Working Papers 24051, National Bureau of Economic Research, Inc.
    6. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2018. "Global Firms," Journal of Economic Literature, American Economic Association, vol. 56(2), pages 565-619, June.
    7. Thibault Fally & James Sayre, 2018. "Commodity Trade Matters," 2018 Meeting Papers 172, Society for Economic Dynamics.
    8. Paul S. Segerstrom & Ignat Stepanok, 2018. "Learning How To Export," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(1), pages 63-92, January.
    9. Stefano Bolatto & Massimo Sbracia, 2016. "Deconstructing the Gains from Trade: Selection of Industries vs Reallocation of Workers," Review of International Economics, Wiley Blackwell, vol. 24(2), pages 344-363, May.
    10. Gabriel J. Felbermayr & Mario Larch & Wolfgang Lechthaler, 2013. "Unemployment in an Interdependent World," American Economic Journal: Economic Policy, American Economic Association, vol. 5(1), pages 262-301, February.
    11. Maemir, H. & Ziesemer, T., 2014. "Multinational production and trade in an endogenous growth model with heterogeneous firms," MERIT Working Papers 2014-038, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    12. David H. Autor & David Dorn & Gordon H. Hanson & Jae Song, 2014. "Trade Adjustment: Worker-Level Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1799-1860.
    13. Bloom, Nick & Manova, Kalina & Teng Sun, Stephen & Van Reenen, John & Yu, Zhihong, 2018. "Managing trade: evidence from China and the US," LSE Research Online Documents on Economics 88703, London School of Economics and Political Science, LSE Library.
    14. Marc Melitz & Stephen Redding, 2013. "Firm Heterogeneity and Aggregate Welfare," Working Papers hal-03473900, HAL.
    15. Esposito, Federico, 2022. "Demand risk and diversification through international trade," Journal of International Economics, Elsevier, vol. 135(C).
    16. Impullitti, Giammario & Licandro, Omar & Rendahl, Pontus, 2022. "Technology, market structure and the gains from trade," Journal of International Economics, Elsevier, vol. 135(C).
    17. Bolatto, Stefano & Moramarco, Graziano, 2023. "Gains from trade and their quantification: Does sectoral disaggregation matter?," International Economics, Elsevier, vol. 174(C), pages 44-68.
    18. repec:hal:journl:dumas-00905755 is not listed on IDEAS
    19. David Atkin & Benjamin Faber & Marco Gonzalez-Navarro, 2018. "Retail Globalization and Household Welfare: Evidence from Mexico," Journal of Political Economy, University of Chicago Press, vol. 126(1), pages 1-73.
    20. Joseph S. Shapiro & Reed Walker, 2018. "Why Is Pollution from US Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade," American Economic Review, American Economic Association, vol. 108(12), pages 3814-3854, December.
    21. Michel Fouquin & Jules Hugot, 2016. "Back to the Future: International Trade Costs and the Two Globalizations," Vniversitas Económica, Universidad Javeriana - Bogotá, vol. 0(0), pages 1-35, August.

    More about this item

    Keywords

    Increasing returns to scale; The social optimum; The Cournot-Nash equilibrium; IAMs; Climate negotiation;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:83:y:2019:i:c:p:208-216. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.