The presence of nonzero conjectural variations in pollution abatement and output make emission taxes less effective with respect to reducing emissions. This has implications for the characterization of the optimal emission tax, particularly in an international context where there are large asymmetries in pollution intensities. A higher degree of collusion in output between polluting firms results in higher emissions taxes in the non-cooperative equilibrium. In contrast, a higher degree of collusion in abatement between polluting firms results in lower emissions taxes in the non-cooperative equilibrium. These results rely on the presence of nonzero conjectural variations and large asymmetries in pollution intensities across countries. The analysis is relevant to the design of international environmental policy, including cases where countries face increasing global competition and damages from rising global emissions.

The present article describes the main insights deriving from the papers collected in this special issue which jointly provide a ‘room with a view’ on some of the most relevant issues in climate policy such as: the role of uncertainty, the distributional implications of climate change, the drivers and applications of decarbonizing innovation, the role of emissions trading and its interactions with companion policies. While looking at different issues and from different angles, all papers share a similar attention to policy aspects and implications, especially in developing countries. This is particularly important to evaluate whether and to what extent the climate policies adopted thus far in developed countries can be replicated in emerging economies.

Weather shocks affect smallholder farmers and pastoralists in Sub-Saharan Africa unequally. Agricultural insurance has emerged as a safety net option to protect farmers’ welfare. However, in comparison to other regions, fewer African farmers and pastoralists have adopted agricultural insurance. This review synthesises broad recent literature on why insurance take-up has remained low and highlights six key themes, including: (1) product quality, (2) product design, (3) affordability, (4) information and education, (5) behavioural and sociocultural factors, and (6) the role of government in enabling markets. We shed light on how insurance uptake can be encouraged.

Environmental incentives are characterized by two distinct features: (1) a benefit-cost trade-off; and (2) private information about the trade-off. This suggests a degree of freedom of where to attach the private information, either to the benefit or the costs, as long as these choices imply the same behavior absent incentives (‘observation equivalent’). However, we show that different observation equivalent specifications can lead to different incentives. This is demonstrated for two cases: rainforest protection and contributions to a public good. Therefore, the choice of a private information parameter must be justified against observation equivalent alternatives.

Many Mediterranean-type climates around the world will face increased risks of wildfires as a consequence of climate change. In this study we consider the case of Portugal and estimate the impact of the increasing risk of forest fires on tourism. Using data for 278 municipalities for the 2000–2016 period, we find a considerable negative impact of burned areas on the number of tourist arrivals, both domestic and inbound. We go beyond the traditional impact analysis and provide predictions for 2030 and 2050. The estimated annual costs to the Portuguese economy due to the impact of burned areas in 2030 range between €17.03 and 24.18 million for domestic tourist arrivals and between €18.26 and 38.08 million for inbound ones. In 2050, those costs will increase at least fourfold. These findings underscore the importance of taking the forest fire risks into account when planning local investments.

This paper analyses the role that companion policies have had in the reduction of emissions regulated by the EU Emissions Trading System (EU ETS) and the related policy interactions, with a view to identifying relevant insights for China's forthcoming Emissions Trading System (ETS). The investigation rests on: (a) the observation of the EU's and China's ETSs and policy mixes; (b) economic theory concerning companion policies and ETS design; and (c) empirical ex-post evidence from the EU ETS. Three main conclusions emerge from the analysis. First, China's ETS, while not imposing a fixed cap on emissions, will not be immune to waterbed effects of companion policies. Second, the European experience stresses the importance of making explicit the objectives pursued by companion policies, and of balancing policies for innovation and policies for adoption of low-carbon technologies. Third, in the presence of a major market surplus, only permanent adjustments to allowance supply can be effective in raising prices.

Well-functioning factor markets play an important role in improving the performance of the agricultural sector. Our paper examines both technical and allocative efficiencies at the household level, with an application to a cross-section sample of rural households in three provinces of China in 2009. In a first step, we use nonparametric methods to estimate household efficiency. In a second step, we examine econometrically the role of land rental market and its linkages with household-level efficiencies. We find that participation in the land rental market does not affect technical efficiency but has large positive effects on allocative efficiency. This stresses the need to distinguish between technical efficiency and allocative efficiency in the analysis of land tenure issues. The improvements in allocative efficiency from land-leasing contribute to significant increases in household income in rural China.

Climate change is predicted to increase the frequency of extreme weather events, increasing the vulnerability of smallholder farmers dependent on rain-fed agriculture. We evaluate the extent to which farmers in Malawi suffer crop production losses due to extreme weather, and whether sustainable land management (SLM) practices help shield crop production losses from extreme events. We use a three period panel dataset where widespread floods and droughts occurred in separate periods, offering a unique opportunity to evaluate impacts using data collected immediately following these events. Results show that crop production outcomes were severely hit by both floods and droughts, with average losses ranging between 32–48 per cent. Legume intercropping provided protection against both floods and droughts, while green belts provided protection against floods. However, we find limited evidence that SLM adoption decisions are driven by exposure to weather shocks; rather, farmers with more productive assets are more likely to adopt.

Hydraulic fracturing (HF) has transformed the North American oil and gas industry, leading to increased consumer surplus and reduced carbon emissions. While HF may have similar potential for the developing world, adoption has been limited to date, plausibly because of perceptions of potential local costs and the need to develop technical proficiency. We empirically evaluate the incremental contribution of HF in the United States. We find considerable evidence of differences in application and productivity across operating firms and vertical pairings of firms, suggesting intellectual property and learning by doing may both play important roles. At the same time, secrecy regarding the chemical composition of fluids used in HF is a potential deterrent to its application for fear of local costs. Developing countries must accommodate these characteristics if adoption of HF is to help meet energy demands and achieve climate policy goals.

There is growing evidence that early life conditions are important for outcomes during adolescence, including cognitive development and education. Economic conditions at the time children enter school are also important. We examine these relationships for young adolescents living in a low-income drought-prone pastoral setting in Kenya using historical rainfall patterns captured by remote sensing as exogenous shocks. Past rainfall shocks measured as deviations from local long-term averages have substantial negative effects on the cognitive development and educational achievement of girls. Results for the effects of rainfall shocks on grades attained, available for both girls and boys, support that finding. Consideration of additional outcomes suggests the effects of rainfall shocks on education are due to multiple underlying mechanisms including persistent effects on the health of children and the wealth of their households, underscoring the potential value of contemporaneous program and policy responses to such shocks.

This paper contributes to the literature on the determinants of environmental standards by studying the role of income inequality and freedom of the press. Given that evidence of the environmental Kuznets curve has only been found for some countries, it is thus crucial to investigate whether other factors besides income per capita levels may be affecting countries' decisions to pass environmentally-friendly legislation. We investigate the effects that inequality and freedom of the press have on environmental stringency for a sample of OECD and BRIICS countries and a global sample of 82 countries using data over the period 1994–2015. We hypothesize that the more unequal a society is, and the greater the oppression of the press is, the less stringent environmental policies are. The results partially confirm our hypothesis. In particular, lack of press freedom is negatively correlated with environmental stringency, whereas inequality shows a non-linear effect only for non-high-income countries.

We study climate change policies using the novel pattern scaling approach of regional transient climate response in order to develop a regional economy–climate model under conditions of deep uncertainty. We associate welfare weights with regions and analyze cooperative outcomes derived by the social planner's solution at the regional scale. Recent literature indicates that damages are larger in low latitude (warmer) areas and are projected to become relatively even larger in low latitude areas than at temperate latitudes. Under deep uncertainty, robust control policies are more conservative regarding emissions and, when regional distributional weights are introduced, carbon taxes are lower in the relatively poorer region. Mild concerns for robustness are welfare improving for the poor region, while strong concerns have welfare cost for all regions. We show that increasing regional temperatures will increase resources devoted to learning, in order to reduce deep uncertainty.

Weather extremes which are accelerated by changing climate greatly decrease agricultural productivity, resulting in severe economic losses and losses of livelihood of the poorest marginal communities. The adoption of stress-tolerant rice varieties (STRVs) is recommended as a best technology fix for risk adaptation. Although STRVs provide better outcomes with no yield penalty, farmers' decisions to adopt new STRVs are influenced by a multitude of factors, most importantly information exposure. We used a sequential logit model to analyze the impact of information access and information quality on adoption decisions regarding STRVs in flood-risk areas. Over the years, we found that STRVs adoption has become scale neutral, but adopters have significantly higher access to information. The estimates showed that 48 per cent of the farmers having access to information decided to adopt STRVs. When information reaches 50 per cent of the rice farmers in flood-prone areas, the estimated additional annual income is US$235 million.

To guide investments in ecosystem-based adaptation (EbA) in developing countries, numerous stated preference valuation studies have been implemented to assess the value of ecosystem services. These studies increasingly use time payments as an alternative to money. There is limited knowledge, however, about how to convert time to money and how the type of payment affects willingness to pay (WTP). In this study, the results of choice experiments using time and money payments are compared in the context of EbA measures in Vietnam. Six, of which five individual-specific, conversion rates are applied. WTP estimates are found to be higher for time payments. Moreover, the type of payment vehicle as well as the conversion rate has substantial effect on mean WTP and WTP distributions. We discuss implications of these results for the conversion of time to money and the use of resulting WTP estimates in cost benefit analyses in developing countries.

This paper sets up a dynamic model to study the distributive effects of privatizing an open access resource. We show that with or without discounting, privatization is not always Pareto improving. We further derive conditions under which the poor are made worse off when private use rights are equally distributed compared to a situation with open access resource. These conditions imply that privatization is Pareto improving if the natural resource is sufficiently productive, inequality in alternative private project opportunities is low, and if there is no discounting. In addition, we show that once reduction in income from resource harvesting during the transition to a new steady state is accounted for, privatization is desirable for the poor only for very productive natural resources and low discount rates.

Environmental economics models are often too complex to be communicated in an illustrative manner. For this reason, this paper develops the Basic Climate Economic (BCE) model that features core elements of macroeconomic and climate economic modelling, while allowing for an illustrative examination of the development path. The BCE model incorporates fossil stock depletion, pollution stock accumulation, endogenous growth, and climate-induced capital depreciation. We first use graphical analysis to show the effects of climate change and climate policy on economic development. Intuition for the different model mechanisms, the functional forms, and the effects of different climate policies is provided. We then show the model equations in mathematical terms to derive closed-form solutions and to run model simulations relating to the graphical part. Finally, we compare our setup to other models of climate economics.

This study examines conservation effects of wildlife trade using demand and supply data from caged-bird markets in Sumatra, Indonesia. When consumers have a strong preference for species rarity, trade could result in wildlife overexploitation and species extinction. Results from a choice experiment show that buyers of caged birds indeed value species rarity. However, not all rare species are equally preferred. Species that are frequently traded lose their rarity value, even if rare in the wild. Analysis of time-series data collected from traders over a period of 20 months between 2013 and 2015 reveals an inelastic supply function for rare species, with market arrivals being insensitive to price changes. This may be due to a declining stock of rare species in the wild. Bird trade together with habitat loss can lead to extinction of a number of rare species in Indonesia. Several policy approaches on regulating caged-bird markets are discussed.

We study the welfare and energy poverty implications of energy price change scenarios in Indonesia. Our analysis extends previous analyses of energy price impacts at the household level in three ways. First, by employing a household energy demand system (QUAIDS), we are able to distinguish between first- and second-order welfare effects over the income distribution. Second, our results point to the ownership of energy-processing durables as another source of impact heterogeneity. Third, we extend the welfare analysis beyond the money-metric utility effects and look at energy poverty, which is understood as the absence of or imperfect access to reliable and clean modern energy services. The analysis indicates that energy prices may serve as an effective instrument to reduce energy use but also have important adverse welfare effects. The latter can, however, be mitigated by appropriate compensation policies.

This paper examines the impact of changes in agricultural land use on deforestation at the local level in the Tapajós Basin in the Brazilian Amazon. It uses exogenous variation in crop-to-beef relative prices to investigate the effects of pasture-to-cropland conversion on deforestation. The findings indicate that increases in crop-to-beef relative prices increase the rate of pasture-to-cropland conversion and reduce the rate of deforestation. The magnitude of the effects implies that land conversion reduced deforestation at the local level by 5,300 square kilometers from 2002 to 2012. This reduction is the equivalent of almost 15 per cent of the total deforestation observed in the region during this period. These results are consistent with a land use model in which cattle ranching and crop cultivation have different input-intensities and there is imperfect mobility of productive factors between municipalities. This model highlights the fact that changes in relative prices affect deforestation through its effect on input prices.

Most developing countries are increasingly depending on freshwater based aquaculture to supplement the declining catch from capture fisheries. Yet the competition between capture fisheries and cage culture for space, pollution generated by cage culture, and fish markets interaction effects are hardly conceptualized in a bioeconomic framework. Furthermore, the economic viability of cage culture depends on substantial investment thresholds, engendering foreign direct investment in the industry in developing countries. This paper develops a conceptual model for fresh-water-based aquaculture that accounts for these effects. We found that a Pigouvian tax (optimum ad valorem tax) that corrects the externalities depends on economic and biological parameters in both fisheries. Correcting for the externalities results in a reduction in aquaculture production but not optimum wild catch. Furthermore, with foreign capital in aquaculture, the Pigouvian tax equals the ratio of net to total benefit from aquaculture. Numerical values are used to illustrate the results.