The Unassuming Economist

From a new IMF working paper by  Ian Parry, Dirk Heine, Kelley Kizzier, and Tristan Smith:

“The International Maritime Organization (IMO) announced in April 2018 a target of cutting greenhouse gas (GHG) emissions from the sector by 50 percent below 2008 levels by 2050
and subsequent meetings of the IMO will develop a strategy for making headway on this commitment. This paper seeks to inform dialogue about the possibility of a carbon tax as a
key element of GHG mitigation policy for international maritime transport. The paper discusses the case for the tax over alternative mitigation instruments, options for the practical
design issues, and then presents estimates of the impacts of carbon taxation and other instruments from an analytical model of the maritime sector.”

From LSE Business Review:

“Climate change is a key financial challenge of the 21st century, and is likely to transform our economies, write Emanuele Campiglio, Yannis Dafermos, Pierre Monnin, Josh Ryan-Collins, Guido Schotten and Misa Tanaka.

Climate change poses risks to the financial system. Yet our understanding of these risks is still limited. As we explain in a recent paper, central banks and financial regulators could contribute to the development of methodologies and modelling tools for assessing climate-related financial risks. If it becomes clear that these risks are substantial, central banks should consider taking them into account in their operations. Both central banks and financial regulators might also consider supporting a low-carbon transition in a more active way so as to contribute to the reduction of these risks.

What are the climate-related financial risks?

Climate change is likely to increase the severity and frequency of extreme events such as floods, heat waves and hurricanes. These events, combined with the incremental changes in climate, can lead to property damages, lower productivity and severe economic disruptions that could result in financial losses. Such losses could destabilise both the insurance sector and the banking system. These are the so-called physical risks.

But the potential impact of climate change on financial stability moves beyond the physical risks. The transition to a low-carbon economy itself might potentially cause severe disruptions and losses for the companies with business models that rely directly or indirectly on fossil fuels. And this could harm not only the banks that have provided loans to these companies, but also the financial investors that have bought stocks and bonds issued by them. A tightening of energy efficiency standards could also affect broader financial exposures, including mortgage lending. These are the so-called transition risks.

Both the physical and the transition risks are potentially significant for the financial sector. And the financial losses that they might cause could be substantially exacerbated because of the highly interconnected global financial system.

Assessing climate risks: what are the challenges?” 

Continue reading here.

From an IMF working paper by Ian Parry, Victor Mylonas, and Nate Vernon:

“Following submission of greenhouse gas (GHG) mitigation commitments or pledges (by 190 countries) for the 2015 Paris Agreement, policymakers are considering specific actions for their implementation. To help guide policy, it is helpful to have a quantitative framework for understanding: i) the main impacts (on GHGs, fiscal balances, the domestic environment, economic welfare, and distributional incidence) of emissions pricing; ii) trade-offs between pricing and other (commonly used) mitigation instruments; and iii) why/to what extent needed policies and their impacts differ across countries. This paper provides an illustrative sense of this information for G20 member countries (which account for about 80 percent of global emissions) under plausible (though inevitably uncertain) projections for future fuel use and price responsiveness. Quantitative results underscore the generally strong case for (comprehensive) pricing over other instruments, its small net costs or often net benefits (when domestic environmental gains are considered), but also the potentially wide dispersion (and hence inefficiency) in emissions prices implied by countries’ mitigation commitments.”

 

A new paper from the King Abdullah Petroleum Studies and Research Center finds that:

“This paper identifies key determinants that appear to shape OPEC’s quota strategy and implementation. Using econometric estimations, it examines the factors that seem to most influence members’ adherence to their production commitments in the short term and what drives the organization’s quota decisions and level of compliance in the longer term

Key findings:

• Global oil market indicators such as oil price, global crude oil demand, six-month global demand projections, and the output of non-OPEC producers primarily drive OPEC’s quota decisions. Macroeconomic indicators, such as global gross domestic product growth and inflation, appear to play an insignificant role.

• The sampled OPEC member countries have different drivers of oil production. The output of the Gulf Cooperation Council countries and Iran is significantly affected by OPEC’s quotas and their reaction to the compliance levels of other OPEC members.

• The national oil production of Algeria, Nigeria and Venezuela appears to be primarily driven by a portfolio of economic, financial and political indices.

• Exogenous shocks impact OPEC quota levels and production. These mostly include country-specific shocks which can be external (e.g., sanctions) or domestic (crises, strikes or military conflicts). The impact of such events, however, is usually alleviated on the OPEC level, indicating the organization’s ability to balance its aggregate supply.”

From a new post by Timothy Taylor:

“There is a certain kind of environmentalist who seems unable to acknowledge any good news about the environment, because it might create complacency about remaining issues. I’m not a fan of this approach. When successes are denied, credibility diminishes. And if there’s never been an environmental success to celebrate, I’m more likely to be discouraged about the future than energized. In that spirit, here are some figures from an Environment Protection Agency annual report, Our Nation’s Air.”

“This figure shows the decline in what are often called the “criteria” air pollutants. The horizontal line shows the U.S. National Ambient Air Quality Standards. At a national level, all of the pollutants are below the dashed line. The percentages in the upper right corner of the figure show the decline in the concentration of each category of air pollution since 1990s.”