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The substantial booms and busts in agricultural prices marked by extreme events across commodities lead to heated debates about the effects of speculative trading on commodity price fluctuations. This study proposes a new approach to understanding extreme events and boom-bust processes in agricultural markets. Using weekly futures data for twelve indexed agricultural commodities during 2006 to 2016, we find that extreme price changes, located in the 10% tails of the distribution, cluster across agricultural markets. We then implement a multinomial logit model to investigate which factors are associated with the propagation of extreme events. Specifically, we disentangle three transmission conduits. (1) The macroeconomic conduit captures the possibility that the synchronized extreme price events are generated by business-cycle driven demand shifts mainly in emerging economies. (2) The financial conduit refers to potential links between extreme returns and the increasing flow of money from financial participants into agricultural futures markets. (3) Finally, the energy conduit accounts for possible spillover effects due to oil price shocks. Our results indicate an important role of managed money positions and oil prices while the real demand channel remains mostly insignificant. (C) 2017 Elsevier Ltd. All rights reserved.
The crises of both the climate and the biosphere are manifestations of the imbalance between human extractive, and polluting activities and the Earth’s regenerative capacity. Planetary boundaries define limits for biophysical systems and processes that regulate the stability and life support capacity of the Earth system, and thereby also define a safe operating space for humanity on Earth. Budgets associated to planetary boundaries can be understood as global commons: common pool resources that can be utilized within finite limits. Despite the analytical interpretation of planetary boundaries as global commons, the planetary boundaries framework is missing a thorough integration into economic theory. We aim to bridge the gap between welfare economic theory and planetary boundaries as derived in the natural sciences by presenting a unified theory of cost-benefit and cost-effectiveness analysis. Our pragmatic approach aims to overcome shortcomings of the practical applications of CEA and CBA to environmental problems of a planetary scale. To do so, we develop a model framework and explore decision paradigms that give guidance to setting limits on human activities. This conceptual framework is then applied to planetary boundaries. We conclude by using the realized insights to derive a research agenda that builds on the understanding of planetary boundaries as global commons.
All or nothing
(2020)
This paper develops a new perspective on stranded assets in climate policy using a partial equilibrium model of the energy sector. Political-economy related aspects are considered in the government's objective function. Lobbying power of firms or fiscal considerations by the government lead to time inconsistency: The government will deviate from a previously announced carbon tax which creates stranded assets. Under rational expectations, we show that a time-consistent policy outcome exists with either a zero carbon tax or a prohibitive carbon tax that leads to zero fossil investments - an "all-or-nothing" policy. Although stranded assets are crucial to such a bipolar outcome, they disappear again under time-consistent policy. Which of the two outcomes (all or nothing) prevails depends on the lobbying power of owners of fixed factors (land and fossil resources) but not on fiscal revenue considerations or on the lobbying power of renewable or fossil energy firms.
Beyond good faith
(2021)
The ambitious climate targets set by industrialized nations worldwide cannot be met without decarbonizing the building stock. Using Germany as a case study, this paper takes stock of the extensive set of energy efficiency policies that are already in place and clarifies that they have been designed “in good faith” but lack in overall effectiveness as well as cost-efficiency in achieving these climate targets. We map out the market failures and behavioural considerations that are potential reasons for why realized energy savings fall below expectations and why the household adoption of energy-efficient and low-carbon technologies has remained low. We highlight the pressing need for data and modern empirical research to develop targeted and cost-effective policies seeking to correct these market failures. To this end, we identify some key research questions and identify gaps in the data required for evidence-based policy.
Economists argue that land rent taxation is an ideal form of taxation as it causes no deadweight losses. Nevertheless, pure land rent taxation is rarely applied. This paper revisits the case of land taxation for developing countries. We first provide an up-to-date review on land taxation in development countries, including feasibility and implementation challenges. We then simulate land tax reforms for Rwanda, Peru, Nicaragua and Indonesia, based on household surveys. We find that (i) land taxes provide a substantial untapped potential for tax revenues at minimal deadweight losses; that (ii) linear land value taxes tend to put a high relative burden on poor households as land ownership is pervasive; (iii) non-linear tax schemes could avoid adverse effects on the poor; and that (iv) with technological advances, administrative costs of land taxes have reduced substantially and are outweighed by tax revenues and co-benefits of formalized land tenure. Enforcement and compliance remain, however, a key challenge.
Limiting global warming to well below 2 degrees C may pose threats to macroeconomic and financial stability. In an estimated Euro Area New Keynesian model with financial frictions and climate policy, we study the possible perils of a low-carbon transition and evaluate the role of monetary policy and financial regulation. We show that, even for very ambitious climate targets, transition costs are moderate along a timely and gradual mitigation pathway. Inflation volatility strongly increases for disorderly climate policy, demanding a strong monetary response by central banks. In reaction to an adverse financial shock originating in the fossil sector, a green quantitative easing policy can provide an effective stimulus to the economy, but its stabilizing properties do not significantly differ from those of market neutral asset purchase programs. A financial regulation, encouraging the decarbonization of the banks' balance sheets via ad hoc capital requirements, can significantly reduce the severity of a financial crisis, but prolongs the recovery phase. Our results suggest that the involvement of central banks in climate actions must be carefully designed to be in compliance with their mandate and to avoid unintended trade-offs.
Coal transitions - part 1
(2021)
A rapid coal phase-out is needed to meet the goals of the Paris Agreement, but is hindered by serious challenges ranging from vested interests to the risks of social disruption. To understand how to organize a global coal phase-out, it is crucial to go beyond cost-effective climate mitigation scenarios and learn from the experience of previous coal transitions. Despite the relevance of the topic, evidence remains fragmented throughout different research fields, and not easily accessible. To address this gap, this paper provides a systematic map and comprehensive review of the literature on historical coal transitions. We use computer-assisted systematic mapping and review methods to chart and evaluate the available evidence on historical declines in coal production and consumption. We extracted a dataset of 278 case studies from 194 publications, covering coal transitions in 44 countries and ranging from the end of the 19th century until 2021. We find a relatively recent and rapidly expanding body of literature reflecting the growing importance of an early coal phase-out in scientific and political debates. Previous evidence has primarily focused on the United Kingdom, the United States, and Germany, while other countries that experienced large coal declines, like those in Eastern Europe, are strongly underrepresented. An increasing number of studies, mostly published in the last 5 years, has been focusing on China. Most of the countries successfully reducing coal dependency have undergone both demand-side and supply-side transitions. This supports the use of policy approaches targeting both demand and supply to achieve a complete coal phase-out. From a political economy perspective, our dataset highlights that most transitions are driven by rising production costs for coal, falling prices for alternative energies, or local environmental concerns, especially regarding air pollution. The main challenges for coal-dependent regions are structural change transformations, in particular for industry and labor. Rising unemployment is the most largely documented outcome in the sample. Policymakers at multiple levels are instrumental in facilitating coal transitions. They rely mainly on regulatory instruments to foster the transitions and compensation schemes or investment plans to deal with their transformative processes. Even though many models suggest that coal phase-outs are among the low-hanging fruits on the way to climate neutrality and meeting the international climate goals, our case studies analysis highlights the intricate political economy at work that needs to be addressed through well-designed and just policies.
Das Klimaschutzgesetz hat einen Paradigmenwechsel eingeleitet: den Einstieg in eine CO2-Bepreisung als künftiges Leitinstrument der Klimapolitik. Auf den ersten Blick ist der CO2-Preis unter einer Fülle von Fördermaßnahmen und ordnungsrechtlichen Regelungen verschüttet, deren Wirksamkeit und Kosten höchst unsicher sind. Der CO2-Preis ist aber so angelegt, dass er langfristig das dominante Instrument einer europäisch harmonisierten Klimapolitik werden kann. Der angedeutete Paradigmenwechsel der deutschen Klimapolitik öffnet damit die Tür, die europäische und internationale Kooperation zu stärken. Dazu ist es aber notwendig, neben der europäischen auch die globale Klimapolitik neu auszurichten. Auch dort sollten sich die Verhandlungen statt auf nationale Mengenziele auf CO2-Preise konzentrieren. Die erforderliche Kooperation wird möglich, wenn die Regierungen Transferzahlungen strategisch und reziprok nutzen. So könnte die Effektivität der Klimapolitik erhöht werden und es ließen sich die entstehenden Verteilungskonflikte entschärfen.