Browsing by Subject "Q58"

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  • Leppänen, Simo; Solanko, Laura; Kosonen, Riitta (2015)
    BOFIT Discussion Papers 27/2015
    Published in Environmental and Resource Economics, Volume 67, Issue 1, May 2017: 67–92 as "The Impact of Climate Change on Regional Government Expenditures: Evidence from Russia"
    This paper explores the implications of climate change for government expenditures. Using a rich sub-national dataset for Russia covering 1995–2009, we estimate the impacts of changes in climatic conditions through short-term variation and medium-term changes in average regional temperatures and precipitation. We show a strong and robust negative (but non-linear) relation between regional budget expenditures and population-weighted temperature. The results indicate that an increase in temperature results in a decrease in public expenditures and that the magnitude of this effect diminishes the warmer the region. Further, our results suggest that the benefits from warming accumulate and that adaptation measures could help leverage those benefits. The estimated decreases in regional government expenditure are, however, quite small. It should be noted that our results are estimated for a scenario of mild temperature increase (1–2 °C). Larger temperature increases are likely to have dramatic consequences e.g. from loss of permafrost and methane release that are impossible to predict with available historical data.
  • Itkonen, Juha (2017)
    Bank of Finland Research Discussion Papers 20/2017
    We model a network of linked permit markets to examine efficiency and dependencies between the markets in a competitive equilibrium. Links enable the participants of one emissions trading system to use the permits of another system. To improve the cost-efficiency of the international policy architecture, the Paris climate agreement set out a framework for linking local policies. International trade in permits reduces costs by merging markets, but in a large network it is generally not obvious which markets end up linked in the equilibrium. Also, indirect links might allow foreign regulators to undermine domestic policy outcomes. We apply graph theory to study dependencies between markets and to determine how the network is partitioned into separate market areas. Our main theorem characterizes the dependency structure of the equilibrium in an exogenous trading network. We show that markets merge when they are connected by a particular pattern of links. The results help to identify potential sources of both cost reductions and foreign interference, and to secure the efficiency of climate change policies.
  • Lintunen, Jussi; Vilmi, Lauri (2013)
    Bank of Finland Research Discussion Papers 24/2013
    This paper studies the cyclical properties of optimal emission taxes and emissions using a real business cycle model with a stock pollutant. We derive conditions for the procyclicality of optimal emission tax and show that the tax is in typical conditions procyclical. The possibility of a countercyclical behavior of the emission tax increases if 1) the pollution is short-lived and the emission transfer into environmental damages rapidly 2) emissions are countercyclical, 3) marginal damages are strongly increasing and 4), in disutility case, the marginal utility of consumption increases with the increase in the intensity of the harmful environmental process. In the climate change context we show that the optimal carbon tax is procyclical irrespectively on the production technology. Instead, the technology is a key determinant of the cyclicality of the emissions. The optimal carbon tax correlates almost fully with the consumption and as a rule-of thumb, it could be indexed to the consumption level of the economy. The relative scale of tax deviations relative to the consumption deviations is determined by the inverse of the intertemporal elasticity of substitution. Comparison between the optimal emission tax and an optimally set constant emission tax shows that the constant tax leads to very slightly higher emissions but the general economic effects are next to negligible. JEL classification: E32, Q54, Q58 Keywords: optimal emission tax, cyclical properties
  • Lintunen, Jussi; Vilmi, Lauri (2021)
    Environmental and Resource Economics
    Published in BoF DP 23/2013.
    We prove that under the most typical circumstances optimal emission prices are procyclical, i.e., prices should be lower during recessions. The procyclicality is more likely when emissions propagate very slowly into environmental damage. A prime example of such process is CO2 emissions. We show that carbon prices should be closely linked to the fuctuations of the marginal utility of consumption, which implies relatively modest magnitude of carbon price fuctuations. Our fndings imply that climate policies should focus on setting the carbon price to the optimal growth path level and give carbon price fuctuations only a secondary role. Opposite to the carbon price, the cyclicality of optimal emissions depends on the production technology in the energy sector, and may become countercyclical in future if the technology mix becomes less fossil dependent.
  • Leppänen, Simo; Solanko, Laura; Kosonen, Riitta (2017)
    Environmental and Resource Economics May 2017
    Published in BOFIT Discussion Paper 27/2015.
    This paper explores an almost untouched topic in the fast-growing climate econometrics literature—the implications of climate change for government expenditures. Using a rich sub-national dataset for Russia covering 1995–2009, we estimate the impacts of changes in climatic conditions through short-term variation and medium-term changes in average regional temperatures and precipitation. We show a strong and robust negative (but non-linear) relation between regional budget expenditures and population-weighted temperature. The results indicate that an increase in temperature results in a decrease in public expenditures and that the magnitude of this effect diminishes the warmer the region. Further, our results suggest that the benefits from warming accumulate and that adaptation measures could help leverage those benefits. The estimated decreases in regional government expenditure are, however, quite small. In mild warming scenarios, according to our estimates Russia saves roughly USD 3–4 billion in regional government expenditures between 2000 and the 2020s without undertaking adaptation measures, depending on the scenario. It should be noted that our results are estimated for a scenario of mild temperature increase (1–2 ∘C). Larger temperature increases are likely to have dramatic consequences e.g. from loss of permafrost and methane release that are impossible to predict with available historical data.