Diskonteringsratens rolle i samfundsøkonomiskevurderinger og i fastsættelsen af CO2-skadesomkostninger: En analyse af den samfundsøkonomiske tilgang i lyset af klimaforandringer med Ingeniørforeningens Energiplan 2030 som case

Kirsten Sophie Hasberg, Peder Andersen (Hovedvejleder)

Publikation: Bog/antologi/afhandling/rapportRapportForskning

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Abstract

This thesis analyses how the theory on discounting and valuation of CO2 damage costs can be made operational and be implemented in the socioeconomic assessment of renewable energy plans.

Using a literature survey, the theoretical background is thoroughly assessed in chapter 2: The descriptive and prescriptive approaches are analyzed, and the Ramsey rule and its components (the utility discount rate , the growth rate , the "multifunctional parameter" and the pure rate of time preference are discussed.
To attach the economic theory to the ethical considerations at its foundations, the welfare economic background is analyzed initially. The classical utilitarian background of the welfare economic tradition is discussed and compared to other moral philosophies, such as Kantianism.

With these basics well established, three central problems in discounting are identified in chapter 3:
• Problem 1: Intergenerational and geographic inequality
• Problem 2: Non-substitutability of natural capital
• Problem 3: Uncertainty
All three problems are attached to an ethical principle, namely
• The neutrality principle
• The sustainability principle
• The precautionary principle

The central sources for discussing problem 1 are Stern (2006), Azar og Sterner (1996), Azar (1999), Sælen et al. (2008), Johansson-Stenman and Tol (2001). The central problem is identified to be that aversion towards intergenerational inequality and geographic inequality are both determined by the parameter in the Ramsey equation. As long as determines both intergenerational inequality and geographic inequality, the model is under-specified.

Problem 2 is discussed on the basis of the models of Sterner og Persson (2008) and Krutilla and Fisher (1975). Although developed in timely distance, they both center around the establishment of relative prices which can take into account the non-substitutable natural goods. It is discussed whether relative prices can take account of irreversible / non-substitutable natural capital damages, and whether relative prices can be used as an argument for lower discount rates for certain types of projects.

Uncertainty is the third and very broad problem, which is narrowed down by focusing on three aspects of uncertainty only:
• Hyperbolic discounting, which arises under uncertainty about future growth. Hepburn (2008) and Cropper and Laibson (1999) are the key sources of the discussion.
• Option value, which arises under uncertainty in the investment decision.
A variety of option value concepts are presented: The option value when facing a investment irreversibility and a climate irreversibility (Fisher and Narain, 2000), the option value of renewable energy (Schimmelpfennig, 1995) and the option value, when there is uncertainty about threshold effects (Carpenter et. al., 1999)
• Endogenous and non-marginal uncertainty, which arises under the conditions of climate change. Here, two models are analyzed: Dietz (2006) and Tol (2003).

In chapter 4 the task is to apply the theoretical knowledge from the theories and models analyzed to a socioeconomic case study: The Energy Plan of the Danish Engineers' Association (IDA, 2006). The theoretical inputs from chapter 3 are quantified in the form of CO2 damage costs, which are around 10 times higher than current market price for CO2-quotas; however, the damage is possibly still underestimated, since no study takes account of all three problems discussed in chapter 3, but only takes account of one problem at a time. Six selected CO2 damage costs, covering different aspects of the three central problems, are applied to separate runs of the EnergyPlan model, resulting in a socioeconomic analysis of investing in a greener energy system.

As expected, the higher the damage costs of CO2, the higher the socioeconomic benefit of changing to the green energy system of the IDA Energy Plan. However, the results are driven by some unexpected mechanisms: The higher the CO2 damage cost included in the EnergyPlan run makes importing electricity more efficient than producing them domestically, where the high CO2 price must be paid. Hence, initially the domestic production is driven downwards, until bottlenecks in the transmission system limit electricity imports; then, the domestic production is driven upwards again. Because the high CO2 damage cost is modelled as being applicable only to the Danish production area, the production decisions are distorted in the model.

Hence, using CO2 damage costs in socioeconomic analysis can be useful as an illustration of the magnitude of the emission externality, but in a simulation tool as EnergyPlan, counterintuitive results might arise.
Research is still needed to combine the three central problems (intergenerational and geographic inequality, non-substitutability of natural capital, and uncertainty) in one Integrated Assessment Model to produce a CO2 damage estimate covering more than only one problematic aspect of climate change.

Bidragets oversatte titelThe role of discounting in socio-economic analysis and CO2 damage cost estimation. : An analysis of the socio-economic approach with the Energy plan 2030 of the Danish Engineers' Association as a case in the light of climate change
OriginalsprogDansk
StatusUdgivet - 18 dec. 2008
Udgivet eksterntJa

Emneord

  • Discounting
  • cost-benefit analysis
  • equity
  • climate change
  • energy policy
  • efficiency
  • socio-economic analysis
  • CO2 damage costs

Fingeraftryk

Dyk ned i forskningsemnerne om 'Diskonteringsratens rolle i samfundsøkonomiskevurderinger og i fastsættelsen af CO2-skadesomkostninger: En analyse af den samfundsøkonomiske tilgang i lyset af klimaforandringer med Ingeniørforeningens Energiplan 2030 som case'. Sammen danner de et unikt fingeraftryk.
  • The role of discounting in socio-economic analysis and CO2 damage cost estimation

    Hasberg, K. S. & Andersen, P., 2009, Collection of extended abstracts from International Conference on Energy, Environment and Health: Optimisation of Future Energy Systems 2010.

    Publikation: Bidrag til bog/antologi/rapport/konference proceedingKonferenceabstrakt i proceedingForskningpeer review

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