Fenner School Seminar: 12th November

I'm giving a seminar at the Fenner School on November 12th. It will be an expanded version of the presentation I'm giving at ANZSEE in Darwin. Here is the abstract:

Modelling Global Trends in Energy Efficiency

This seminar reports on ongoing research in the CERF Environmental Economics Research Hub funded project: “Modelling the Global Diffusion of Energy Efficiency and Low-Carbon Technology”. The environmental Kuznets curve has been a popular simple model of the relationship between economic growth and environmental quality. It is plagued, however, by significant econometric issues and explains relatively little about the differences in emissions between countries. The between estimator is a simple consistent estimator of long-run coefficients in panel data that avoids these issues and performs well in real world situations. I apply the between estimator to both environmental Kuznets curves for carbon and sulfur emissions and a more sophisticated production frontier model of energy efficiency. The latter model explains differences in energy efficiency across countries in terms of differences in input and output mix, climate, and differences in the level of energy efficiency technology. The residuals from this model are the underlying trends in energy efficiency technology in each country. In the final part of the presentation I will show how a social choice model can be used to explain differences in environmental technology across countries.

Drew Jones' TED Talk

Cool graphics (via Climate Progress) showing the relation between various emissions scenarios and atmospheric concentrations of greenhouse gases:



The results of my poll said that emissions would be the same in 2050 as today. You can see the results of continuing that until 2100 at around 9:20 in the video - 600ppm in 2100. Certainly better than supposed business as usual but still way too high. But I think that even if emissions in 2050 were similar to today they would come down strongly in the second half of the 21st century.

Energy Use per Capita

Yesterday I showed you a chart of energy intensity vs. GDP per capita. There didn't seem to be much relationship in that data. Today we have energy use per capita and GDP per capita:



Here there is a clear relationship. Unfortunately, for environmental Kuznets curve advocates it is pretty linear. Energy use is a first order proxy for environmental impact. For example, solar energy might be cleaner than fossil fuel energy but collecting solar energy requires taking up space (and views) to collect the energy and something environmentally disruptive is going to be done with that energy. First it is taken out of the natural ecosystem and second it is directed to moving matter around in other ways. There is no free lunch. Economic activity has environmental impact. Of course there are more disruptive and less disruptive activities and energy sources but they are all disruptive.

So don't worry about calculating "ecological footprints", just look at energy use.

Energy Intensity

Now I've put my database together we can have a first look at the data:



Energy intensity is energy in terms of kilogrammes of oil equivalent per dollar of GDP using purchasing power parity adjusted exchange rates in 2005 prices. There are 3663 data points. There certainly doesn't seem to be any simple relationship between the level of income and energy intensity. On the other hand we can see some clear downward trends in energy intensity in individual countries. The goal of my project is mainly to explain the differences between countries that we see here though not ignoring the causes of changes in energy intensity within countries.

UN vs. World Bank Data

I've finally put together the main database for my Environmental Economics Research Hub project on energy efficiency and carbon emissions. I have full data on energy use (by fuel), structure of the economy, GDP, investment, schooling, climate, emissions etc. for 99 countries for the period 1971 to 2007. For my 2002 paper on explaining sulfur emissions I only managed to put together data for 64 countries (for only 18 years), so I'm pretty happy with that.

Initially, I was going to use the World Bank Development Indicators for the economic structure data. However, this data has lots of missing years for many countries. I then discovered that the UN has freely downloadable data for 1970-2007 for most member countries. This data is split into seven industrial sectors vs. only four for the World Bank data. In the end, I am not using any data from the WDI in the first stage of this project.

IEA Data at the National Library of Australia

International Energy Agency data is essential for serious global energy research but is very expensive. The full database costs E1400 ($A2,400) per year. If you only need a small amount of data you can purchase a "datacard" but it's still expensive. In my previous position at RPI I purchased data when necessary using research grants. But Paul Burke told me that the National Library of Australia has a subscription to the data and that as long as you go in person to the library you can download anything you want for free. So I went there yesterday and downloaded all the data I need. You can get to the data from the SourceOECD website and select "IEA Databases" from the pulldown menu. Visiting different libraries to access data sources used to be a big part of the kind of research I do but with electronic access I don't find myself doing too much of it anymore...

Gilles Saint‑Paul

Gives a somewhat more modest response to the British internal critics of mainstream economics than John Cochrane did to Paul Krugman. Maybe that's because he is a European? :)

Ranking Economists by Blog Popularity

The Eastern Economic Journal is publishing a paper about ranking economists by blog popularity. That's not something I want to catch on too fast! :) Reasonably popular blogs like Environmental Economics, Core Economics, and John Quiggin rank between 400,000 and 900,000 in Alexa rank. I have a long way to go.

Response to Paul Krugman

Via John Quiggin, a response to Paul Krugman.

ANU's 21 Future Fellows

ANU won 21 ARC Future Fellowships, second only to the University of Melbourne which won 25. ANU has now published the list of the future fellows and their research topics. I am surprised that all but one of them (Thomas Huber) is already a member of the academic staff of ANU. I would have expected to see more people who wanted to use the fellowship to come to work at ANU from other institutions.

EERH Research Reports Join RePEc

Everything is now complete and debugged and the Environmental Economics Research Hub Reports are now included in the RePEc database. The papers will be included in the IDEAS and EconPapers search engines and other RePEc services.

This will provide much greater visibility for our working paper series in the worldwide economics community. RePEc has around 21,000 registered members and even more users. The RePEc database currently catalogs 3/4 million working papers and journal articles and has more than half a million items downloaded and more than 2 million abstracts viewed each month.

I strongly recommend all economists who are not yet members of RePEc to register. Registered members have searchable profiles online and receive monthly reports on downloads of their papers and other ranking statistics. In order for downloads to be included in your RePEc ranking, readers must download the paper through one of the RePEc services. I recommend always providing links to your papers (like this) through RePEc services when referring to them online.

Penn World Table vs. World Development Indicators

Today, we had a presentation from Prasada Rao of University of Queensland on the theory of constructing international comparisons of income. He also covered some more practical aspects concerning the recent new international price comparison benchmark - ICP 2005. As everyone knows, the prices of identical goods vary across countries as exemplified by the Big Mac Index. But actually constructing more serious indices using baskets of many goods is very hard. The most recent estimates for China reduced estimated GDP per capita in China by around 40% compared to previous projections based on earlier benchmark studies. The reason was that the benchmark study conducted price comparisons only in the regions of 11 major cities, which has been argued to result in an artificially high price level on the basis that the price of many goods may be cheaper in smaller cities and the countryside. Higher estimated prices mean that a given US Dollar value of GDP is actually really worth less than if prices had been estimated to be lower in China. An alternative explanation put forward by Peter Warr was that projections of the inflation in the prices of non-traded goods in China that had been used before the new study were wrong. It's likely that both arguments are correct to some degree.

So what data should applied researchers use at the moment? The latest World Development Indicators is based on the 2005 benchmark survey and with the exception of the issues with the Chinese data is probably superior to previous estimates. But the data (on PPP) only go back to 1980 and they just use the economic growth rate in local currency units to project back from the 2005 benchmark. The Penn World Table Version 6.3 does not yet use the 2005 survey results. They promise to bring out Version 7.0 incorporating those results by the end of 2009. PWT data go as far back as 1950 in some cases. Given this I'm going to be using PWT data where possible in my current work.

The Garnaut Review One Year On

Ross Garnaut gave a presentation to a totally full theatre at Manning Clark Centre at ANU yesterday evening, reviewing his Review and the responses to it in the last year. From what he said he pretty much anticipated what would happen especially regarding the lobbying by business for free permit allocations (after all he's chairman of a mining company himself). Still he said that the government's allocation of compensation followed no principle whatsoever. He didn't address the delays in implementation and oddly no-one asked about that either. He did say the legislation "could be passed in a joint sitting of Parliament". That was typical indirect Garnaut humour. Another good one was that "some of Frontier Economics' other work is very good".

I found myself agreeing on all points he raised except one - the idea that business as usual emissions will rise faster than the most emissions intensive IPCC scenarios in the long-run. I don't buy that intuitively but I haven't got hard evidence to back up my position yet. My current research is meant to address that issue.

ARC Future Fellowships

The results were announced of the first round of the ARC (Australian Research Council) Future Fellowships. These are fellowships tenable for 4 years at an Australian institution for "mid-career" researchers. 200 fellowships were awarded out of 975 proposals submitted. ANU got 21 of the fellowships, though its success rate of 26% was not a lot higher than average. Universities such as Deakin and Edith Cowan had a 0% success rate but Charles Sturt got 25%. Clearly it's riskier to apply to work outside a Go8 university, a major medical institute, or CSIRO (14% success rate). There were higher success rates for younger people asking for lower salaries, which is not surprising. 14% of applicants were foreign nationals and 8% returning Australians. The former had a slightly lower success rate and the latter a slightly higher success rate. There were slightly lower than average success rates in the humanities and social sciences and in environmental priorities...

Though, it is still not 100% certain that the scheme will run again (but this morning ANU Deputy-VC and former ARC staffer Mandy Thomas seemed confident it would and the ARC website says that it will) I am planning to apply in the coming round if it does and if I am eligible (I'm borderline for being "mid-career" but might be someone that Australia would like to retain here, having only recently come back from overseas and currently being on soft money). I have a draft proposal, which I've received plenty of feedback on. I will now work up some of the additional material on track record etc. required. If I don't use it for the Future Fellowship competition I'l turn it into an ARC Discovery Project proposal.

Krugman in the NYT Magazine

In case you haven't seen it yet, here is Paul Krugman's article on the state of macroeconomics from the New York Times Magazine.

Progress on "Hub" Project

My research project funded by the Environmental Economics Research Hub is about the international diffusion of energy efficiency technology at the macro-economic level.

The project has two main stages. In the first stage I estimate a function that explains energy intensity (=the amount of energy used in the economy/GDP) in terms of the level of inputs like capital, labor, and the various types of energy, the structure of the economy, and the state of technology. This part is very similar to my previous work on this topic published in Ecological Economics, Journal of Environment and Development, and Policy Studies Journal. Energy intensity is not a direct measure of energy efficiency technology because of the factors mentioned above. This approach controls for the confounding factors and produces a purer measure of technology. I have decided to adopt the "between estimator" to estimate this model after testing it on the environmental Kuznets curve model (that paper is now available as a Hub Research Report).

In the second stage of the project I am developing a dynamic growth model that should explain why technology varies across countries. I can now feed in data on energy efficiency and investment and the model tells me what the energy efficiency of current investment is (rather than of the installed capacity) and what the price of those current investment goods is:



Z is the energy efficiency of the installed capacity and z that of the new investment. The lower the number the less energy used and, therefore, the more efficient the capital goods are. The model produced z (and B) when I fed in Z. The price of capital goods is assumed to be q=B/z. The more efficient the capital goods the higher their price. This formulation has similar cost implications to the carbon emissions reduction function in Nordhaus' DICE model. I want to eventually get estimates of how the parameter B varies across countries. I am assuming that differences will largely reflect inefficiencies - similar to what Parente and Prescott call "Barriers to Riches". In their model barriers to trade and investment result in GDP being lower than it otherwise would be in poor countries. In my model, inefficiencies result in countries being more dirty than they would otherwise be.

I also computed the "shadow prices" of capital and energy efficiency that would mean that the choice of z was optimal contingent on B:



Lambda is the shadow price of the capital stock and mu that of energy efficiency. Yes, these results surprised me, and there may still be mistakes in the model. But then I realised: "Of course, the shadow price of energy efficiency is negative! The lower Z is the more efficient the economy is!" Increasing Z means reducing energy efficiency. That is bad, so its shadow price is negative.

This is a good check on the internal consistency of my model.

British Wages in the Early Modern Period

An interesting article about the welfare gains from the introduction of commodities like coffee and sugar in early modern Britain. The authors also argue that these gains lead to underestimation of the increase in wages in early modern Britain. I think they are right about the rising wages in Britain but a bit surprised that they think that that finding is new as Robert Allen makes the high wages in early modern, pre-industrial revolution Britain one of the key facts of his theory of the industrial revolution. Allen also discusses the role of new consumer goods in this period.

Archives Awaiting Activation

Hopefully, we'll be off this list very soon :) Just been ironing out some Mac/Unix file format glitches.