Wednesday, November 03, 2010

The Role of Carbon Offsets in Climate Policy: Theory and Practice

A call for papers for a conference at Cornell on the role of carbon offsets in climate policy.

Verification, leakage and permanence are important obstacles to the effective use of carbon offsets and this is an important policy issue.

I have my doubts on how effective carbon offsets will be given these difficulties. the post below on fraud in the EU carbon trading market gives pause for thought.

This is a timely conference. The forestry and agricultural sectors in the US in particular have powerful friends and the distributional impact will be important - unless this is fully understood there may be unintended consequences.


The Role of Carbon Offsets in Climate Policy: Theory and Practice [PDF]

A Conference at Cornell University, May 13-15, 2011

It is now recognized that Carbon Offsets should play a major role in Climate Policy, by providing cost-effective reductions in greenhouse gas (GHG) emissions and sequestering carbon. However, there are many challenges associated with the production of offsets, including its verification, as well as issues related to additionality, leakage and permanence. At the same time, there is also a need to guide the design of public policies that will regulate the market for carbon offsets.

Yet the challenges of implementing carbon offsets and the role that carbon offsets can play in climate policy is under-researched:

(i) There is insufficient theoretical work that integrates the various challenges associated with the production of offsets – leakage, additionality, permanence - in a unified framework; the potential interactions between these challenges need to be analyzed in depth;

(ii) There is limited empirical evidence of the magnitudes of leakage and additionality associated with various carbon offset projects for different countries;

(iii)There is virtually no work on the effectiveness of various public policies that regulate the market for carbon offsets, through standards (e.g. quality or quantity limits), or other ‘mechanism-design’ type policies;

(iv)The interactions between cap-and-trade systems, voluntary consumption of offsets, and the production of carbon offsets needs to be better understood. Specifically, potential unintended emissions or welfare consequences need to be identified and measured. And the voluntary consumption of offsets remains under researched;

(v) The distributional impacts associated with the production of carbon offsets needs to be better understood, especially for the agriculture and forestry sectors.

With this background, Cornell University will host a major international conference
– “The Role of Carbon Offsets in Climate Policy: Theory and Practice” – May 13-15, 2011. The conference organizers are Antonio Bento and Ravi Kanbur of the Dyson School of Applied Economics and Management, Cornell University.

The conference will discuss theoretical, empirical and policy-oriented papers. The suggested topics include, but are not limited to, the issues (i)-(v) highlighted above.

The organizers invite the submission of completed papers or substantive abstracts (3-5 pages) by December 15, 2010. Submissions should be sent electronically to Decisions will be communicated by January 15, 2011.
Participants who can use their own funds to cover part or all of the cost of their participation are requested to do so. The conference will provide accommodation and economy class travel for one presenter per paper accepted for those who do not have funding. Please indicate with your submission what funding you need.


Tuesday, November 02, 2010

Fraud, missing traders and the emissions market

Some readers maybe more surprised that others that there was fraud on the European carbon allowances market.

I am pleased that someone has looked at this issue using "forensic econometric methods" which sound fun to use (although seemingly difficult to understand).

It sounds good but I am still unclear how this works - I will have to read the paper.


Marius-Cristian Frunza, Dominique Guegan and Fabrice Thiebaut

Purpose – The aim of this paper is to show evidence and to quantify with forensic econometric methods the impact of the missing trader fraud on European carbon allowances markets. This fraud occurred mainly between the end of 2008 and the beginning of 2009. In this paper we explore the financial mechanisms of the fraud and the impact on the market behaviour as well as the consequences on its econometric features.

Design/methodology/approach – In a previous work (Frunza and Gu├ęgan, 2010), we showed that the European carbon market is strongly influenced by fundamentals factors as oil, energy, gas, coal and equities. Therefore, we calibrated Arbitrage Pricing Theory-like models. These models enabled us to quantify the impact of each factor on the market. In this study, we focused more precisely on spot prices quoted on Paris based Bluenext market over 2008 and 2009. We observed during this period a significant drop in performances and robustness of our model and a reduced sensitivity of carbon prices to fundamentals.

Findings – Therefore, we identify the period where the market was driven by missing trader fraud movements and we were able to measure the value of this fraud. Soon after governments passed a law that cut the possibility of fraud occurrence the performance of the model improved rapidly. We estimate the impact of the VAT extortion on the carbon market at 1.3 billion euros.

Originality/value – This paper is the first study that attempts to prove and quantify scientifically the missing trader fraud on emission markets.


Health effects of climate change

When writing an environmental economics paper one always needs to provide motivation and there is nothing better than some scary numbers on the health and mortality impacts of climate change.

These numbers are real and it is important that as economists we try to relate economics to the real world. I have used the WTO quote before and will probably do so again.

This new working paper by Grasso, Maera, Chiabai and Markandya provides a good survey of the literature.

The Health Effects of Climate Change: A Survey of Recent Quantitative Research [PDF]

In recent years there has been a large scientific and public debate on climate change and its direct as well as indirect effects on human health. According to World Health Organization (WHO, 2006), some 2.5 million people die every year from non-infectious diseases directly attributable to environmental factors such as air pollution, stressful conditions in the workplace, exposure to chemicals such as lead, and exposure to environmental tobacco smoke. Changes in climatic conditions and climate variability can also affect human health both directly and indirectly, via changes in biological and ecological processes that influence the transmission of several infectious diseases (WHO, 2003). In the past fifteen years a large amount of research on the effects of climate changes on human health has addressed two fundamental questions (WHO, 2003). First, can historical data be of some help in revealing how short-run or long-run climate variations affect the occurrence of infectious diseases? Second, is it possible to build more accurate statistical models which are capable of predicting the future effects of different climate conditions on the transmissibility of particularly dangerous infectious diseases? The primary goal of this paper is to review the most relevant contributions which have directly tackled those questions, both with respect to the effects of climate changes on the diffusion of non-infectious and infectious diseases. Specific attention will be drawn on the methodological aspects of each study, which will be classified according to the type of statistical model considered. Additional aspects such as characteristics of the dependent and independent variables, number and type of countries investigated, data frequency, temporal period spanned by the analysis, and robustness of the empirical findings are examined.