What is fair? Meeting a national emission reduction target in an experimental setting
Kerri Brick and Martine Visser
In this paper, we use a one-shot public goods framework with heterogeneous groups and a climate change framing to analyse the public good-dichotomy between social welfare and individual incentives. Using a variant of the standard Voluntary Contribution Mechanism (VCM), we examine the cooperative behaviour of different player-types in meeting a national emission reduction target when players can invest in mitigation or continue with business-as-usual.
The experiment consists of four treatments: the standard VCM, a VCM with communication opportunities and two VCM variants which specify minimum contributions to the public good and sanction free-riding. We find that voluntary cooperation results in insufficient cooperation in the context of meeting a national target. With the introduction of communication, cooperation is significantly improved, indicating that stakeholder participation is important in facilitating compliance. With the introduction of taxation, cooperation in the context of meeting the target is near universal. Importantly, we find that tax crowds out contributions in excess of the target.
Estimating the demand elasticity for electricity by sector in South Africa
Roula Inglesi and James Blignaut
This paper analyses electricity consumption patterns in South Africa in an attempt to understand and to identify the roots of the current electricity supply crisis. This is done by investigating various economic sectors’ responses to price changes using panel data for the period 1993-2004. Positive and significant price elasticities over this period were found for the transport (rail) and commercial sectors while there are positive but small responses to price changes in the agriculture and mining sectors. Only the industrial sector responded to changes in electricity prices according to theory, namely illustrating negative demand elasticities. These results explain, in part, the current electricity crisis.
Given the historic low level of electricity prices in conjunction with a real price decline, i.e. price increases lower than the inflation rate, there was no incentive to reduce electricity consumption and/or to be efficient. This result supports the notion that prices do have an important signalling effect in the economy. Hence, they should be considered not only from an economic growth or social vantage point, but also from a supply and technocratic perspective, that includes environmental factors such as CO2 emissions. Prices cannot be determined without considering the system-wide implications thereof.
Modelling the impact of CO2 taxes in combination with the Long Term Mitigation Scenarios on emissions in South Africa using a dynamic computable general equilibrium model.
A dynamic computable general equilibrium (CGE) model is used to analyse the impact on the economy of taxes on CO2 emissions combined with the Long Term Mitigation Scenarios. A sales tax is used to model the impact of a CO2 tax. The mitigation scenarios modelled include structural shifts (for example switching from coal-fired electricity plants to nuclear power stations), changes in energy efficiency and changes in investment required. The extent of the structural shifts, changes in energy efficiency and investment required differs from scenario to scenario. The results for the mitigation scenarios indicate that the mitigation scenarios have a positive impact on GDP when investment is large. Although economic activity initially declines due to improved energy efficiency, it is followed by a period of economic expansion as lower prices increases output in most industries – this is especially the case when it is combined with higher investment. When CO2 taxes are levied the economic impact is again positive if this is combined with either tax relief or reinvestment of the additional tax revenue. The scenarios have varied impact on labour, in general employment for semi- and unskilled labour rise if investment is higher. In most scenarios the demand for energy declines, especially for coal and petroleum. However, the demand for electricity increases if investment rises significantly. When the mitigation scenarios is combined with a CO2 tax the results indicate that the CO2 tax is effective in reducing output of CO2 producing industries as it changes the relative price of the commodities produced by these industries. However, the sales tax is distortionary as it introduces price wedges in the economy while consumers may end up paying large portions of the tax. A CO2 tax may not be the most appropriate tool to achieve the desired results considering the economic development objectives of South Africa. However, when combined with the LTMS framework its negative impact is negated by higher investment and GDP growth.