Browsing by Subject "Climatic change"
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Item Essays in economic design : information, markets and dynamics(2011-05) Khan, Urmee, 1977-; Hayashi, Takashi, Ph D.; Stinchcombe, Maxwell; Peski, Marcin; Lieli, Robert P.; Zitkovic, GordanThis dissertation consists of three essays that apply both economic theory and econometric methods to understand design and dynamics of institutions. In particular, it studies how institutions aggregate information and deal with uncertainty and attempts to derive implications for optimal institution design. Here is a brief summary of the essays. In many economic, political and social situations where the environment changes in a random fashion necessitating costly action we face a choice of both the timing of the action as well as choosing the optimal action. In particular, if the stochastic environment possesses the property that the next environmental change becomes either more or less likely as more time passes since the last change (in other words the hazard rate of environmental change is not constant over time), then the timing of the action takes on special importance. In the first essay, joint with Maxwell B Stinchcombe, we model and solve a dynamic decision problem in a semi-Markov environment. We find that if the arrival times for state changes do not follow a memoryless process, time since the last observed change of state, in addition to the current state, becomes a crucial variable in the decision. We characterize the optimal policy and the optimal timing of executing that policy in the differentiable case by a set of first order conditions of a relatively simple form. They show that both in the case of increasing and decreasing hazard rates, the optimal response may be to wait before executing a policy change. The intuitive explanation of the result has to do with the fact that waiting reveals information about the likelihood of the next change occurring, hence waiting is valuable when actions are costly. This result helps shed new light on the structure of optimal decisions in many interesting problems of institution design, including the fact that constitutions often have built-in delay mechanisms to slow the pace of legislative change. Our model results could be used to characterize optimal timing rules for constitutional amendments. The paper also contributes to generalize the methodology of semi-Markov decision theory by formulating a dynamic programming set-up that looks to solve the timing-of-action problem whereas the existing literature looks to optimize over a much more limited set of policies where the action can only be taken at the instant when the state changes. In the second essay, we extend our research to situations, where the current choice of action influences the future path of the stochastic process, and apply it to the legal framework surrounding environmental issues, particularly to the ‘Precautionary Principle' as applied to climate change legislation. We represent scientific uncertainty about environmental degradation using the concept of 'ambiguity' and show that ambiguity aversion generates a 'precautionary effect'. As a result, justification is provided for the Precautionary Principle that is different from the ones provided by expected utility theory. This essay serves both as an application of the general theoretical results derived in the first essay and also stands alone as an analysis of a substantive question about environmental law. Prediction markets have attracted public attention in recent years for making accurate predictions about election outcomes, product sales, film box office and myriad other variables of interest and many believe that they will soon become a very important decision support system in a wide variety of areas including governance, law and industry. For successful design of these markets, a thorough understanding of the theoretical and empirical foundations of such markets is necessary. But the information aggregation process in these markets is not fully understood yet. There remains a number of open questions. The third essay, joint with Robert Lieli, attempts to analyze the direction and timing of information flow between prices, polls, and media coverage of events traded on prediction markets. Specifically, we examine the race between Barack Obama and Hillary Clinton in the 2008 Democratic primaries for presidential nomination. Substantively, we ask the following question: (i) Do prediction market prices have information that is not reflected in viii contemporaneous polls and media stories? (ii) Conversely, do prices react to information that appears to be news for pollsters or is prominently featured by the media? Quantitatively, we construct time series variables that reflect the "pollster's surprise" in each primary election, measured as the difference between actual vote share and vote share predicted by the latest poll before the primary, as well as indices that describe the extent of media coverage received by the candidates. We carry out Granger Causality tests between the day-to-day percentage change in the price of the "Obama wins nomination" security and these information variables. Some key results from our exercise can be summarized as follows. There seems to be mutual (two-way) Granger causality between prediction market prices and the surprise element in the primaries. There is also evidence of one-way Granger causality in the short run from price changes towards media news indices. These results suggest that prediction market prices anticipate at least some of the discrepancy between the actual outcome and the latest round of polls before the election. Nevertheless, prices also seem to be driven partly by election results, suggesting that there is an element of the pollster’s surprise that is genuine news for the market as well.Item Essays on the optimal policy response to climate change(2011-05) Kaufman, Noah; Wiseman, Thomas E., 1974-; Dusansky, Richard; Chiburis, Richard; Williams, Roberton C.; Palmer, Karen L.Unchecked anthropogenic climate change has the potential to destroy human lives and wealth on an unprecedented scale. This dissertation analyzes from an economic perspective various public policy options to correct the market failures caused by climate change. The widespread adoption of environmentally friendly consumer products can reduce the impacts of climate change. The first chapter analyzes various methods of encouraging the market performance of these products. I build a model of observational learning in which a "green" consumer good enters a market to challenge an established "dirty" product. Among other results, I provide conditions for when financial incentives or informational campaigns should be more effective at encouraging the market performance of green products. I also provide a discussion and an empirical analysis of the performance of compact fluorescent light bulbs in the U.S. residential market, and compare the findings to the predictions of the theoretical model. The second chapter provides a critic of the macroeconomic models economists have used to determine optimal climate change abatement policies. I build a model that can incorporate more realistic ranges of uncertainty for both the occurrence of catastrophic events and societal risk aversion than economists have used in the past. Numerical simulations are then used to calculate a range of risk premiums, the magnitude of which display that previous calculations of optimal carbon dioxide taxes are too imprecise to support any particular policy recommendation. Government-backed energy-efficiency programs have become popular as components of local and national strategies to combat climate change. The effectiveness of such policies hinges on whether they provide the appropriate incentives to both energy consumers and program implementers. The third chapter analyzes evaluations of California's energy-efficiency programs to assess their effectiveness at improving our understanding of the programs' performance and providing a check on utility incentives to overstate energy savings. We find, among other results, that evaluations are useful tools to achieve both of these goals because the programs largely did not meet their energy-savings projections, and the utility savings estimates are systematically higher than the third-party savings estimates of the evaluations.Item Regional–local coordination of non-motorized transportation : an exploration of two regions(2011-05) Dohm, Diane Annette; Paterson, Robert G.; Zhang, MingThis research report explores two regions, Denver and Minneapolis, by describing and analyzing their regional and local coordination efforts with respect to non-motorized transportation. The report is comprised of a literature review on the MPO institutional framework and governance, description and analysis of each region including levels of relationships between the MPO, State DOT, local governments and advocacy groups, as well as a comparison of both regions leading to the findings, lessons learned, and research implications. Specifically, this research seeks to understand how different levels of government work together, how the regional relationships assist in creating and implementing plans, how relationships with advocacy groups affect planning, and how climate change goals are integrated into non-motorized transportation planning.Item Understanding the plume dynamics and risk associated with CO₂ injection in deep saline aquifers(2011-05) Gupta, Abhishek Kumar; Bryant, Steven L.; Rochelle, Gary T.Geological sequestration of CO₂ in deep saline reservoirs is one of the ways to reduce its continuous emission into the atmosphere to mitigate the greenhouse effect. The effectiveness of any CO₂ sequestration operation depends on pore volume and the sequestration efficiency of the reservoir. Sequestration efficiency is defined here as the maximum storage with minimum risk of leakage to the overlying formations or to the surface. This can be characterized using three risk parameters i) the time the plume takes to reach the top seal; ii) maximum lateral extent of the plume and iii) the percentage of mobile CO₂ present at any time. The selection among prospective saline reservoirs can be expedited by developing some semi-analytical correlations for these risk parameters which can be used in place of reservoir simulation study for each and every saline reservoir. Such correlations can reduce the cost and time for commissioning a geological site for CO₂ sequestration. To develop such correlations, a database has been created from a large number of compositional reservoir simulations for different elementary reservoir parameters including porosity, permeability, permeability anisotropy, reservoir depth, thickness, dip, perforation interval and constant pressure far boundary condition. This database is used to formulate different correlations that relate the sequestration efficiency to reservoir properties and operating conditions. The various elementary reservoir parameters are grouped together to generate different variants of gravity number used in the correlations. We update a previously reported correlation for time to hit the top seal and develop new correlations for other two parameters using the newly created database. A correlation for percentage of trapped CO₂ is also developed using a previously created similar database. We find that normalizing all risk parameters with their respective characteristic values yields reasonable correlations with different variants of gravity number. All correlations confirm the physics behind plume movement in a reservoir. The correlations reproduce almost all simulation results within a factor of two, and this is adequate for rapid ranking or screening of prospective storage reservoirs. CO₂ injection in saline reservoirs on the scale of tens of millions of tonnes may result in fracturing, fault activation and leakage of brine along conductive pathways. Critical contour of overpressure (CoP) is a convenient proxy to determine the risk associated with pressure buildup at different location and time in the reservoir. The location of this contour varies depending on the target aquifer properties (porosity, permeability etc.) and the geology (presence and conductivity of faults). The CoP location also depends on relative permeability, and we extend the three-region injection model to derive analytical expressions for a specific CoP as a function of time. We consider two boundary conditions at the aquifer drainage radius, constant pressure or an infinite aquifer. The model provides a quick tool for estimating pressure profiles. Such tools are valuable for screening and ranking sequestration targets. Relative permeability curves measured on samples from seven potential storage formations are used to illustrate the effect on the CoPs. In the case of a constant pressure boundary and constant rate injection scenario, the CoP for small overpressures is time-invariant and independent of relative permeability. Depending on the relative values of overall mobilities of two-phase region and of brine region, the risk due to a critical CoP which lies in the two-phase region can either increase or decrease with time. In contrast, the risk due to a CoP in the drying region always decreases with time. The assumption of constant pressure boundaries is optimistic in the sense that CoPs extend the least distance from the injection well. We extend the analytical model to infinite-acting aquifers to get a more widely applicable estimate of risk. An analytical expression for pressure profile is developed by adapting water influx models from traditional reservoir engineering to the "three-region" saturation distribution. For infinite-acting boundary condition, the CoP trends depend on same factors as in the constant pressure case, and also depend upon the rate of change of aquifer boundary pressure with time. Commercial reservoir simulators are used to verify the analytical model for the constant pressure boundary condition. The CoP trends from the analytical solution and simulation results show a good match. To achieve safe and secure CO₂ storage in underground reservoirs several state and national government agencies are working to develop regulatory frameworks to estimate various risks associated with CO₂ injection in saline aquifers. Certification Framework (CF), developed by Oldenburg et al (2007) is a similar kind of regulatory approach to certify the safety and effectiveness of geologic carbon sequestration sites. CF is a simple risk assessment approach for evaluating CO₂ and brine leakage risk associated only with subsurface processes and excludes compression, transportation, and injection-well leakage risk. Certification framework is applied to several reservoirs in different geologic settings. These include In Salah CO₂ storage project Krechba, Algeria, Aquistore CO₂ storage project Saskatchewan, Canada and WESTCARB CO₂ storage project, Solano County, California. Compositional reservoir simulations in CMG-GEM are performed for CO₂ injection in each storage reservoir to predict pressure build up risk and CO₂ leakage risk. CO₂ leakage risk is also estimated using the catalog of pre-computed reservoir simulation results. Post combustion CO₂ capture is required to restrict the continuous increase of carbon content in the atmosphere. Coal fired electricity generating stations are the dominant players contributing to the continuous emissions of CO₂ into the atmosphere. U.S. government has planned to install post combustion CO₂ capture facility in many coal fired power plants including W.A. Parish electricity generating station in south Texas. Installing a CO₂ capture facility in a coal fired power plant increases the capital cost of installation and operating cost to regenerate the turbine solvent (steam or natural gas) to maintain the stripper power requirement. If a coal-fired power plant with CO₂ capture is situated over a viable source for geothermal heat, it may be desirable to use this heat source in the stripper. Geothermal brine can be used to replace steam or natural gas which in turn reduces the operating cost of the CO₂ capture facility. High temperature brine can be produced from the underground geothermal brine reservoir and can be injected back to the reservoir after the heat from the hot brine is extracted. This will maintain the reservoir pressure and provide a long-term supply of hot brine to the stripper. Simulations were performed to supply CO₂ capture facility equivalent to 60 MWe electric unit to capture 90% of the incoming CO₂ in WA Parish electricity generating station. A reservoir simulation study in CMG-GEM is performed to evaluate the feasibility to recycle the required geothermal brine for 30 years time. This pilot study is scaled up to 15 times of the original capacity to generate 900 MWe stripping system to capture CO₂ at surface.