The Unassuming Economist

From the IMF’s latest report on Senegal:

“The natural resource landscape in Senegal has changed substantially following significant oil and gas discoveries between 2014 and 2017. This paper estimates the macroeconomic impact of these discoveries and discusses potential fiscal frameworks for managing related revenues. Pre-production investment (2019-2021) will lead to an increase in the current account deficit, but this will be followed by a boost to exports as hydrocarbon production comes online (2022 onwards). Discoveries are important but will not lead to a major transformation of the economy, with hydrocarbons expected to make up not more than 5 percent of GDP. Fiscal revenues would average about 1.5 percent of GDP over a 25-year period and about 3 percent of GDP when production peaks. Given the relatively small gains in revenue, staff recommends a fiscal framework that allows for an initial draw down of government resources to finance large up-front investment needs, followed by an appropriate target level of the non-resource primary balance which is to serve as a medium-term fiscal anchor. Issues related to managing the volatility of resource revenues are also discussed.”

From a new paper by Tarek Atalla, Simona Bigerna and Carlo Andrea Bollino:

“In the global carbon policy debate, pricing is considered to be a key instrument to achieving the desired levels of emissions reductions.

The Pigouvian tax is theoretically the best solution to tax carbon emissions, in order to achieve emissions reduction through financial investment, but it has not proved to be politically viable. A Pigouvian tax sets out to correct negative externalities, or consequences for society – such as the consequences of climate change – by levying additional taxes. However, from the viewpoint of the private sector, such taxation imposes a deadweight loss with respect to the original private equilibrium. This generates political resistance that may impede achieving the theoretical optimal solution.

Most international policy meetings since the Kyoto Protocol agreement have resulted in lukewarm commitments from developed economies and strong resistance from emerging economies over the fair economic allocation of the burden associated with the various calls for emissions reduction. This kind of situation suggests the need for alternative formulations, in the realm of what economists call ‘second-best options,’ to tackle the issue of realistically financing alternative policies.

This paper considers alternative policy formulation aimed at funding investment for climate policies, based on the principle of minimizing deadweight losses associated with taxation and on consumer preferences. (A deadweight loss is the added burden placed on consumers and suppliers when the market equilibrium is altered because of tax, for example. It results when supply and demand are out of equilibrium.)

The policy proposal we examine here is a Ramsey allocation, which aims at designing an economically optimal taxation scheme for financing climate mitigation investments. A Ramsey pricing policy, applied to energy prices, would mean that efficient taxation should be inversely proportional to the consumer (household) energy demand elasticity of the individual country. In other words, the more inelastic a country’s consumer energy demand, the higher the efficient taxation should be in that country. The overall taxation scheme is optimal because it minimizes the deadweight loss.

This strategy is not aimed at directly reducing emissions, and hence energy consumption. It can, in a more general way, help to assist with providing efficient funding for a wider range of policies, such as carbon sequestration, alternative fuels, energy efficiency, and the earth’s albedo enhancing. In this framework, notice that carbon sequestration and artificially enhancing the earth’s albedo represent technological solutions aimed at reducing carbon dioxide (CO2) concentration and adding sunlight reflecting aerosol in the soil
or stratosphere, thereby cooling the climate in a different way than reducing carbon emissions (NAS 1992). The strategy makes explicit use of household preferences, as expressed through their energy demand behavior, econometrically estimated at the world level.

A Ramsey allocation can be integrated into the general principle of mutual cooperation that motivates climate agreements, as it reflects a common but differentiated burden of all parties.”

From a new IMF working paper by Bertrand Gruss and Suhaib Kebhaj:

“This paper presents a comprehensive database of country-specific commodity price indices for 182 economies covering the period 1962-2018. For each country, the change in the international price of up to 45 individual commodities is weighted using commodity-level trade data. The database includes a commodity terms-of-trade index which proxies the windfall gains and losses of income associated with changes in world price as well as additional country-specific series, including commodity export and import price indices. We provide indices that are constructed using, alternatively, fixed weights (based on average trade flows over several decades) and time-varying weights (which can account for time variation in the mix of commodities traded and the overall importance of commodities in economic activity). The paper also discusses the dynamics of commodity terms of trade across country groups and their influence on key macroeconomic aggregates.”

A new working paper by Nida Cakir Melek, Michael Plante, Mine K. Yucel:

“We examine the implications of the U.S. shale oil boom for the U.S. economy, trade balances, and the global oil market. Using comprehensive data on different types of crude oil, and a two-country general equilibrium model with heterogenous oil and refined products, we show that the shale boom boosted U.S. real GDP by 1 percent and improved the oil trade balance as a share of GDP by more than 1 percentage points from 2010 to 2015. The boom led to a decline in oil and fuel prices, and a dramatic fall in U.S. light oil imports. In addition, we find that the crude oil export ban, which was in place during a large part of this boom, was a binding constraint, and would likely have remained a binding constraint thereafter had the policy not been removed at the end of 2015.”

Below is a preliminary list of papers that will presented at this year’s AEA Annual Meeting on January 4-6 in Atlanta, Georgia.

On energy and everything else

• United States Internal Migration Networks, Energy Use, and Emissions – Paper
• Too Much Energy: The Perverse Effect of Low Energy Price – Paper
• Are Energy Executives Rewarded For Luck? – Paper
• United States Internal Migration Networks, Energy Use, and Emissions – Paper
• Structural Approach to Dynamic Energy Pricing and Consumer Welfare – Presentation
• Smart Thermostats, Social Information, and Energy Conservation: Distributional Evidence from a Field Experiment – AEA
• Quantifying Negative Externalities of Energy Infrastructure Using Wellbeing and Hedonic Price Data: Evidence from Biogas Plants – AEA
• Air Conditioning and Global Energy Consumption – AEA
• The Internal and External Costs of Renewable Intermittency – AEA
• The Interplay between Renewables and Hydrocarbons in the Energy Transition – AEA
• Innovation, Openness, and Energy Demand – AEA

On carbon, gas, oil, and shale

• Fracking, farmers, and rural electrification in India – Paper
• Effects of Severance Tax on Economic Activity: Evidence from the Oil Sector – Paper and Presentation
• Oil for Food? Oil Spills and Agricultural Productivity – Paper
• Welfare Gains from Market Insurance: The Case of Mexican Oil Price Risk – Paper
• Business Cycles and Innovation Cycles in the Upstream Oil & Gas Industry: Surviving the Ups and Downs – Presentation
• Learning Where to Drill: Drilling Decisions and Geological Quality in the Haynesville Shale – Paper and Presentation
• Shale Gaz Extraction in the United States: Perspectives from Geo-Located Twitter Conversations and Academic Publications – Presentation
• Relinquishing Riches: Auctions Versus “Wild West” Negotiations in Texas Oil and Gas Leasing – AEA
• Nonlinear Causal Relationship between Shale Oil Price and Employment in the United States: Evidence from a Nonlinear ARDL Approach – AEA
• The Potential for Peak Oil Demand – AEA
• Station Heterogeneity and the Dynamics of Retail Gasoline Prices  – AEA
• Bidding and Drilling Under Uncertainty: Identification and Estimation of Contingent Payment Auctions – AEA

On electricity

• Imperfect Markets Versus Imperfect Regulation in United States Electricity Generation – Paper
• Does Electrification Cause Industrial Development? Grid Expansion and Firm Turnover in Indonesia – Paper
• Do Reward and Reprimand Policies Reduce Electricity Distribution Losses? – Paper
• Optimization of a Prototype Electric Power System: Legacy Assets and New Investments – Paper and Presentation
• Dynamic Competition and Arbitrage in Electricity Markets: The Role of Financial Traders – Paper
• Ramping Up Renewable Energies: The Role of Ramping Cost and Electricity Storage – AEA
• Private and Social Costs of Misallocation in Indian Electricity Supply – AEA
• Testing for Market Efficiency with Transaction Costs: An Application to Financial Trading in Wholesale Electricity Markets – AEA

On electric vehicles

• Adoption of Electric Vehicles: Manufacturers’ Incentive and Government Policy – Paper
• Long-Term Transportation Electricity Use Considering the Effect of Autonomous-Vehicles: Estimates & Policy Observations – Paper
• Electric vehicles and residential energy consumption: An indirect rebound effect – AEA

On energy and policy

• Would Energy Tax Policy Significantly Influence the Diffusion Rate of The Renewable Energy Portfolio in The United States? – Paper and Presentation
• Impacts of Renewable Fuel Policy with Sentiment on the Energy and Agricultural Markets: A Vine Copula-based ARMA-GJR-GARCHX Model – Paper
• Using Emissions Trading Schemes to Reduce Heterogeneous Distortionary Taxes: the case of Recycling Carbon Auction Revenues to support Renewable Energy – Paper and Presentation
• Getting More of Something Without Subsidizing It: Impact of Time-of-Use Electricity Pricing on Residential Energy Efficiency and Solar Panel Adoption – AEA

On climate change and policy

• Market Power in Coal Shipping and Implications for U.S. Climate Policy – Paper
• Global Cost Estimates of Forest Climate Mitigation with Albedo: A New Integrative Policy Approach – Paper
• Unilateral Action under an Emissions Cap – Paper
• Climate Change Legislation and Social Values: Do They Complement or Substitute Each Other in Reducing Carbon Emissions? – AEA

On climate change and everything else

• Energy Efficiency and Directed Technical Change: Implications for Climate Change Mitigation – Paper
• Climate Risks of Sales Forecasts: Evidence from Satellite Readings of Soil Moisture – Paper and Presentation
• Climate Change Induced Inter-Province Migration in Iran – Paper
• Climate Finance under Conflicts and Renegotiations: A Dynamic Contract Approach – Paper
• Estimating the Impacts of Changes in Weather Circadian Rhythms on French Agricultural Production – Paper
• Heat and Learning – Paper
• Expectations and Adaptation to Environmental Risks – Paper
• Moving to Floodplains: The Unintended Consequences of the National Flood Insurance Program on Population Flows – Paper
• Salvation or Commodification? The Role of Money and Markets in Global Ecological Preservation – Paper
• Carbon Risk – Paper and Presentation
• Climate Change and Flood Beliefs: Evidence from New York Real Estate – Paper
• Climate Risks of Sales Forecasts: Evidence from Satellite Readings of Soil Moisture – Paper and Presentation
• The Effect of Local Pollution on the Cognitive Productivity of Judges: A Case Study of the Mexican Judiciary – AEA
• Creating comfort in a warming world: The role of smart thermostats – AEA
• Modeling System Complexity in the Context of Geopolitics Related to Climate Change – AEA
• Do Common-Pool Resources Help Insure Household Food Security from Climate Shocks? – AEA
• Malthus in Africa? Positive and Preventive Checks on Population in a Changing Climate – AEA
• Adaptation to Environmental Change: Agriculture and the Unexpected Incidence of the Acid Rain Program – AEA
• Ramping Up Renewable Energies: The Role of Ramping Cost and Electricity Storage – AEA
• Climate shocks, lake drying and children’s cognitive skills and violent behavior: Evidence from Chad – AEA
• A New Approach to Measuring Climate Change Impacts and Adaptation – AEA
• Learning, Adaptation and Climate Uncertainty: Evidence from Indian Agriculture – AEA