Person:
Strand, Jon

Development Research Group, World Bank

Fields of Specialization

environmental economics; energy economics; economics of climate change

Departments

Development Research Group, World Bank

Last updated January 31, 2023

Biography

Jon Strand, a Norwegian national, is Extended Term Consultant in the Development Research Group in the World Bank, where he covers environmental and energy economics, focusing on climate-related issues. He also holds a chair as professor of economics, University of Oslo. Main recent topics for research have been non-market valuation; natural resource and energy issues for developing countries; and environmental policy including environmental taxation and climate policy. He has consulted the OECD, the Inter-American Development Bank, and Norwegian government agencies on environmental policy matters. During 2005-2008, he served as the IMF’s environmental economist.

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Now showing 1 - 10 of 42

Political Economy Aspects of Fuel Subsidies : A Conceptual Framework

(World Bank, Washington, DC, 2013-03) Strand, Jon

While notoriously inefficient, fuel subsidies are widespread, and in many cases politically stable. This paper discusses and models various political economy aspects of fuel subsidies, focusing on gasoline and kerosene. Both economic and political are considered to explain differences in subsidies, with particular focus on democratic and autocratic governments. A political process is modeled whereby a promise of low fuel prices is used in democracies to attract voters, and in autocracies to mobilize support among key groups. Subsidies to fuels are viewed as either easier to observe, easier to commit to, easier to deliver, or better targeted at core groups, than other public goods or favors offered by rulers. Easier commitment and delivery than for regular public goods can explain the high prevalence of such policies in autocracies, and also in young democracies where the capacity to commit to or deliver complex public goods is not yet fully developed. The analysis provides a framework for empirical testing and verification.
Strategic Climate Policy with Offsets and Incomplete Abatement : Carbon Taxes Versus Cap-and-Trade

(Elsevier, 2013-04-02) Strand, Jon

This paper provides a first analysis of a “policy bloc” of fossil fuel importers which implements an optimal climate policy, faces a (non-policy) fringe of other fuel importers, and an exporter bloc, and purchases offset from the fringe. We compare a carbon tax and a cap-and-trade scheme for the policy bloc, in either case accompanied by an efficient offset mechanism for reducing emissions in the fringe. The policy bloc is shown to prefer a tax over a cap, since only a tax reduces the fuel export price and by more when the policy bloc is larger. Offsets are also more favorable to the policy bloc under a tax than under a cap. The optimal offset price under a carbon tax is below the tax rate, while under a cap and free quota trading the offset price must equal the quota price. The domestic carbon and offset prices are both higher under a tax than under a cap when the policy bloc is small. When the policy bloc is larger, the offset price can be higher under a cap. Fringe countries gain by mitigation in the policy bloc, more under a carbon tax since the fuel import price is lower.
Emissions Trading with Offset Markets and Free Quota Allocations

(World Bank, Washington, D.C., 2012-11) Rosendahl, Knut Einar ; Strand, Jon

This paper studies interactions between a "policy bloc's" emissions quota market and an offset market where emissions offsets can be purchased from a non-policy "fringe" of countries (such as for the Clean Development Mechanism under the Kyoto Protocol). Policy-bloc firms enjoy free quota allocations, updated according to either past emissions or past outputs. Both overall abatement and the allocation of given abatement between the policy bloc and the fringe are then inefficient. When the policy-bloc quota and offset markets are fully integrated, firms buying offsets from the fringe, and all quotas and offsets, must be traded at a single price; the policy bloc will either not constrain the offset market whatsoever, or ban offsets completely. These cases occur when free allocation of quotas is less (very) generous, and the offset market delivers large (small) quota amounts. Governments of policy countries would instead prefer to buy offsets directly from the fringe at a price below the policy-bloc quota price. The offset price is then below the marginal damage cost of emissions and the quota price in the policy bloc is above the marginal damage cost. This is also inefficient as the policy bloc, acting as a monopsonist, purchases too few offsets from the fringe.
Dynamic Climate Policy with Both Strategic and Non-Strategic Agents : Taxes Versus Quantities

(World Bank, Washington, DC, 2013-10) Karp, Larry ; Siddiqui, Sauleh ; Strand, Jon

This paper studies a dynamic game where each of two large blocs, of fossil fuel importers and exporters respectively, sets either taxes or quotas to exercise power in fossil-fuel markets. The main novel feature is the inclusion of a "fringe" of non- strategic (emerging and developing) countries which both consume and produce fossil fuels. Cumulated emissions over time from global fossil fuel consumption create climate damages which are considered by both the strategic importer and the non-strategic countries. Markov perfect equilibria are examined under the four combinations of trade policies and compared with the corresponding static games where climate damages are given (not stock-related). The main results are that taxes always dominate quota policies for both the strategic importer and exporter and that "fringe"countries bene?t from a tax policy as compared with a quota policy for the strategic importer, as the import fuel price then is lower, and the strategic importer's fuel consumption is also lower, thus causing fewer climate damages.
Valuing Global Public Goods : A European Delphi Stated Preference Survey of Population Willingness to Pay for Amazon Rainforest Preservation

(World Bank, Washington, DC, 2013-10) Navrud, Ståle ; Strand, Jon

The Amazon Rainforest is a global public good. As such, and given that 15 percent of the original Amazon forest area has already been lost, households worldwide might be willing to pay to reduce or avoid additional losses. A full elicitation of global preferences for valuing preservation of the current forest, using stated-preference population surveys, would be costly and time consuming. Alternatively, this paper uses a Delphi stated-preference technique in which 48 European environmental valuation experts were asked to provide "best guesses" on the possible outcomes of population surveys in their own countries and Europe as a whole. The expert judgments indicate willingness to pay in Europe for preserving the current Amazon Rainforest of about 28 Euro per household per year on average; a slightly lower value is inferred for a plan that allows a 10 percent future reduction from the current rainforest area. The income elasticity of experts' stated willingness to pay with respect to per-capita income in their own countries is in the range 0.5-0.8. These findings indicate that Delphi studies might be used more widely as a tool for global benefit transfer.
How Much is the Amazon Worth? The State of Knowledge Concerning the Value of Preserving Amazon Rainforests

(World Bank, Washington, DC, 2013-10) May, Peter H. ; Silveira Soares-Filho, Soares-Filho ; Strand, Jon

This paper surveys the current state of knowledge concerning the value of the Amazon rainforest, including a survey of work to date to quantify changes in economic values when the rainforest cover changes. The focus is on local and regional impacts of forest loss or protection, including both gross values of forest protection and opportunity costs of converting the forest to other uses including agriculture. Important gross value items surveyed are timber and non-timber product extraction from a sustainably maintained rainforest; local values of eco-tourism; biological resources including bio-prospecting; a range of hydrological impacts including watershed protection, hydropower production, and changes in rainfall patterns; and impacts of forest fires and their control. Mapping such values in geographical space is of high value for implementing efficient and effective (Reducing Emissions from Deforestation and Forest Degradation ) programs for protecting the remaining forest. The current data basis for such mapping is found to be quite weak and in need of improvement for all value elements.
"Revenue Management" Effects Related to Financial Flows Generated by Climate Policy

(Washington, DC: World Bank, 2010) Strand, Jon

This paper discusses possible macroeconomic implications for low-income countries of increased revenue inflows that may follow from implementing certain global greenhouse gas mitigation policies. Such revenue sources include revenue from emissions offset mechanisms, direct investments, and financial transfers that form parts of possible future mitigation treaties. In the short run such revenue will come mainly from offset markets and donor-sponsored programs, with some additional financial inflows due to foreign direct investments. In the longer run, comprehensive global cap-and-trade or carbon tax schemes could provide a potentially much larger revenue flow to many low-income countries. The author argues that the macroeconomic implications of such flows are manageable in the short run, but the larger revenues resulting from global emissions schemes could overwhelm this capacity and lead to a number of potential macroeconomic management problems.
Climate Cost Uncertainty, Retrofit Cost Uncertainty, and Infrastructure Closedown : A Framework for Analysis

(World Bank, Washington, DC, 2010-02) Strand, Jon ; Miller, Sebastian

Large and energy-intensive infrastructure investments with long life times have substantial implications for climate policy. This study focuses on options to scale down energy consumption and carbon emissions now and in the future, and on the costs of doing so. Two ways carbon emissions can be reduced post-investment include retrofitting the infrastructure, or closing it down. Generally, the presence of bulky infrastructure investments makes it more costly to reduce emissions later. Moreover, when expected energy and environmental costs are continually rising, inherent biases in the selection processes for infrastructure investments lead to excessive energy intensity in such investments. Thus great care must be taken when choosing the energy intensity of the infrastructure at the time of investment. Simulations indicate that optimally exercising the retrofit option, when it is available, reduces ex ante expected energy consumption relative to the no-option case. Total energy plus retrofit costs can also be substantially reduced, the more so the larger is ex ante cost uncertainty. However, the availability of the retrofit option also leads to a more energy intensive initial infrastructure choice; this offsets some, but usually not all, of the gains from options for subsequent retrofitting.
Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels

(World Bank, Washington, DC, 2010-01) Strand, Jon

This paper develops a global model of climate policy, focusing on the choice between tax and cap-and-trade solutions. The analysis assumes that the world can be split into two regions, with two fuels that both lead to carbon emissions. Region A consumes all fuels, and is responsible for defining and implementing climate policy. Region B produces all of fuel 1 (oil), while fuel 2 (interpreted as coal, natural gas, or renewables) is both produced and consumed in region A. The paper studies three model variants. All involve full policy coordination in each country block, but no coordination across blocks; and all involve an optimal producer tax on fuel 1 by region B. In model 1, region A sets two fuel consumption taxes, one for each fuel. The optimal region A tax on fuel 1 then exceeds the Pigou level as defined by the region; the tax set on fuel 2 is Pigouvian. The presence of a second fuel in region A reduces region B s optimal tax on fuel 1. In model 2, region A sets a common carbon tax, which is lower (higher) for fuel 1 (2) than in model 1. In model 3, region A sets a carbon emissions cap. This enhances region B s strategic position via the trade-off between fuels 1 and 2 in region A, following from the cap. In realistic cases, this leaves region A strategically weaker under a cap policy than under a tax policy, more so the less carbon-intensive the local fuel (2) is. In conclusion, a fuel-consuming and importing region that determines a climate policy will typically prefer to set a carbon tax, instead of setting a carbon emissions cap. The main reason is that a tax is more efficient than a cap at extracting rent from fuel (oil) exporters.
"Green Stimulus," Economic Recovery, and Long-Term Sustainable Development

(World Bank, Washington, DC, 2010-01) Strand, Jon ; Toman, Michael

This paper discusses short-run and long-run effects of "green stimulus" efforts, and compares these effects with "non-green" fiscal stimuli. Green stimulus is defined here as short-run fiscal stimuli that also serve a "green" or environmental purpose in a situation of "crisis" characterized by temporary under-employment. A number of recently enacted national stimulus packages contain sizeable "green" components. The authors categorize effects according to their a) short-run employment effects, b) long-run growth effects, c) effects on carbon emissions, and d) "co-benefit" effects (on the environment, natural resources, and for other externalities). The most beneficial "green" programs in times of crisis are those that can stimulate employment in the short run, and lead to large "learning curve" effects via lower production costs in the longer term. The overall assessment is that most "green stimulus" programs that have large short-run employment and environmental effects are likely to have less significant positive effects for long-run growth, and vice versa, implying a trade-off in many cases between short-run and long-run impacts. There are also trade-offs for employment generation in that programs that yield larger (smaller) employment effects tend to lead to more employment gains for largely lower-skilled (higher-skilled) workers, so that the long-term growth effects are relatively small (large). Ultimately, the results reinforce the point that different instruments are needed for addressing different problems.