Market-based Tools Research Articles

Pricing Options on Water in Texas

Freshwater scarcity is a growing concern in Texas and the issues that surround it are expected to grow in the coming years. As climate change impacts the variability of precipitation patterns, some of the most useful tools to help allocate this precious, limited resource may be the tools that are most adaptable in the face of growing uncertainty. While market mechanisms are budding in the state, another market-based tool can create opportunities for efficient water allocation among stakeholders: the water option. An option is a financial product that provides a vehicle to interested parties (buyers and sellers) to create a contract that formalizes the terms of the possible future delivery of water. In cash markets for resources, the exchange of cash and the resource happens when the trade is made; in options markets, the flexibility of delivery is amplified considerably, making them useful for mitigating risk. The buyer of the contract is securing the right—not the obligation—to buy a specific amount of a resource, by a specific time, for a defined price and has the ability to decide if and when the contract gets exercised over the term of the contract. This work discusses the utility of these contracts and outlines a method to price them.

Overcoming barriers for the adoption of Local Energy and Flexibility Markets: A user-centric and hybrid model

To achieve the European climate targets and the Paris Agreements, at least 65% of the electricity needs to be generated from renewable energy sources by 2030. This requires a significant increase of distributed energy resources, posing a challenge for distribution system operators to integrate them into existing hierarchical grids. The concept of Local Flexibility Markets has recently gained attention as a market-based tool to tackle this challenge, making use of demand side flexibility. In this paper a Delphi method has been performed, showing that there are still numerous barriers in place preventing a widespread adoption of such markets in Europe. The main obstacles for market participants refer to standardisation issues. Based on that, a hybrid market model has been developed, comprising elements of a Local Flexibility Market and a Local Energy Market. To activate demand side flexibility from local energy transactions, spatio-temporally varying price signals are introduced, reflecting the constraints of the distribution grid. The paper shows, that this novel market approach helps to overcome relevant standardisation issues, but also certain barriers regarding end-users’ lifestyles, which is because prices are comprehensible signals that can motivate end-users to participate. Moreover, a set of numerical examples is provided to illustrate the monetary benefits that could be gained by consumers and prosumers in the proposed hybrid market model. The examples show that the major share of the cost savings result from local energy trading, but the hybrid market model is also able to accumulate additional smaller revenues from providing flexibility. Finally, the systematic approach of characterising the market model in this paper offers a valuable framework for other researchers to map their ideas among existing approaches of Local Energy and Flexibility Markets.

The portrayal of forest certification in national and state newspapers of the United States

Forest certification has emerged as a market-based tool to safeguard the sustainability of the world's forests. Since media can shape public opinion, this study examines media treatment of forest certification in the United States, the world's largest producer and consumer of forest products. This study utilizes 309 print and digital newspaper articles published in the United States between 1989 and 2019 to evaluate which aspects of certification are highlighted, which are favored, and how these vary by region. We found that coverage of forest certification is overwhelmingly positive at both the regional (85%) and national (90.7%) levels. Environmental themes are most discussed nationally (48.8%) and regionally (36%), but thematic emphasis differs regionally. Although the Forest Steward Council is the most covered certification scheme at the national level, the Sustainable Forestry Initiative certification scheme prevails in southern media outlets. The focus of articles related to the American Tree Farm System (ATFS) is mostly sociocultural. This was expected as the ATFS focuses on certifying forestlands of family forest landowners in the United States. Our findings suggest newspaper coverage of forest certification is geographically heterogeneous, with regions establishing their preferred themes and schemes. This research will better situate forest certification as a tool for sustainable forest management in the United States.

Integrating Social Entrepreneurship Literature Through Teaching

As boundaries between the business and social sectors dissolve, social entrepreneurship has emerged as a phenomenon that bridges two worlds previously divided. Now, social entrepreneurs embrace market-based tools to address society’s greatest challenges. Coinciding with the growth of the sector, students and researchers have sought to understand development, growth strategies, and the practical challenges related to social entrepreneurship. In turn, universities have bolstered social entrepreneurship education by creating academic offerings that emphasize business, social impact, and innovation. Still, social entrepreneurship education remains in its infancy. Courses are as varied as the field itself, and instructors routinely rely on their professional backgrounds and networks to develop curricula that explore the field’s multifaceted character. Thus, social entrepreneurship courses are diverse across disciplines, and the academic literature theorizing the phenomenon is similarly emergent. As social entrepreneurship courses combine theoretical insights with experiential learning in a myriad of ways, aligning theoretical insights with necessary core competencies presents a challenge. To address this dilemma, we highlight the importance of employing theory-driven concepts to develop core competencies in social entrepreneurship students. In doing so, we review key threshold concepts in the social entrepreneurship literature and suggest how instructors might link theoretical insights to practical skill sets.

Urban planning and the market of development rights in Italy: learning from Milan

In recent years, the influence of neoliberal principles has led to an experimental application of new market-oriented approaches in the field of urban studies, in order to achieve different objectives of public interest, from the compensation of land use restrictions to the acquisition of areas for public services. Also in Italy, the use of equalization and non-financial compensation mechanisms has been influenced by internationally consolidated models, such as the Transfer of Development Rights programs (TDR). The key issue concerns the legal autonomy of development rights from land ownership, allowing their trade in the municipal market and thus, in theory, balancing private and public benefits. The scientific debate focuses on the several opportunities, in terms of planning effectiveness and flexibility, but also envisages the risk to generate unfairness, deregulation and other speculations. The paper aims to assess the positive and negative impacts of a generalized use of TDR in the urban governance and in the real estate market, adopting a case study research method. The experience of Milan has been investigated, analyzing the municipal registry of development rights. The results highlight strengths and weaknesses of the market of development rights application, in particular the risk of encouraging real estate speculation, in the same way as financial markets. Conclusions suggest the need of a more effective integration of market-based tools in the planning and regulatory framework, avoiding that their uncontrolled use could weaken the role of public authority in the local government.

Induced Effect of Environmental Regulation on Green Innovation: Evidence from the Increasing-Block Pricing Scheme.

With increasing constraints on resources and the environment, it is of great practical importance to discover and utilize the induced effect of green technology through market-based tools, in order to simultaneously realize economic development and ecological sustainability. Based on unique patent data from 1999 to 2013, this paper examines the induced effect of China’s increasing-block electricity pricing scheme (IBP) on energy-efficient patents and checks whether the effect is neutral or biased. Furthermore, the quality of the induced patents is identified. The results reveal that increased green innovation is strongly related to the IBP scheme. In addition, the induced effect is biased towards green technology such that, apart from autonomous technological advances, the biased effect of IBP induced two more energy-efficient patents per hundred technological patents. However, the quality of the induced innovation is relatively low: compared to high-quality inventions, low-quality utility models showed greater and more significant growth due to the IBP. Our paper provides quantitative insight into the impact of the IBP and indicates that a reasonable pricing scheme can benefit both the environment and the economy.

A comparison of the technical efficiency of Aquaculture Stewardship Council certified shrimp farms to non-certified farms

Aquaculture will play an increasingly important role in the global seafood supply as fisheries harvests have plateaued. Shrimp are a highly valuable aquaculture commodity which are produced largely for global trade. The Aquaculture Stewardship Council's shrimp certification standard is meant to serve as a market-based tool that rewards the better actors in the industry for improved performance in areas like technical efficiency, social responsibility, and traceability. The goal of this study was to compare production methodology and efficiency of farms currently certified to the ASC shrimp standard to non-certified farms from recent field surveys in the same geographical areas. Certified farms were statistically larger on average (four times larger in Latin America and 10 times larger in Asia). While farms in Asia operate at higher production intensities, no differences were seen due to certification status. No differences were seen in the FCR of farms in Asia, but ASC farms in Latin America had the higher average FCRs than non-certified farms (1.80 vs. 1.33). ASC farms in Asia used drastically less water exchange and were more energy efficient than other farms as well. These findings were used to make recommendations for the ASC standard and certification standards in general, including a greater emphasis on requirements for limits on efficiency-based metrics beyond reporting the outcome of the calculation.

The potential of carbon neutral labeling to engage coffee consumers in climate change mitigation

Carbon neutral labeling of food products is a market-based approach to reduce carbon footprints in the agri-food sector. To better understand consumers’ preferences and attitudes towards a carbon neutral label on globally traded agri-food products, the willingness to pay (WTP) of German consumers for a carbon neutral label on specialty coffee was examined. A discrete choice experiment was conducted in Germany, where coffee is often sold with multiple labels or claims, in order to examine the WTP for alternative combinations of a carbon neutral label with either a Fair Trade label or a claim of direct trade coffee sourcing. Choice data were analyzed using random parameter logit models which determined a positive WTP for the carbon neutral label. This estimate exceeds the corresponding marginal costs of certification and the marginal social cost of carbon, yet it is relatively lower than the estimated WTP for the Fair Trade label and the direct trade claim. A positive synergy effect on utility was also determined for the combination of a carbon neutral label and a direct trade claim. If no additional information was provided, consumers often perceived coffee as a “natural product” that does not generate any greenhouse gas emissions. Thus, awareness-building policies are needed to make carbon neutral labels an effective market-based tool to reduce greenhouse gas emissions in the agri-food sector.

Cost-effectiveness of small scale biomass supply chain and bioenergy production systems in carbon credit markets: A life cycle perspective

Numerous tools and policies are being developed to promote and incentivize the development and deployment of clean fuel technologies. Carbon emission trading is known as one of the most effective market-based tools to control the generation of carbon emissions. Evaluating the best scenarios to deploy, clean energy solutions must include technology, supply chain, carbon emission and investments analyses. There is still a debate about the feasibility and sustainability of bioenergy scenarios for the different markets. Adapting life cycle assessment (LCA) and techno-economic analysis (TEA) tools, this study compared the cost-effectiveness of four bio-based energy generation pathways with a diesel-based power generation as the baseline scenario within the context of Canadian remote and rural communities. This analysis provides a ranking of these bioenergy pathways and highlights the potential carbon offsets and credits of the bio-based pathways in comparison with the baseline scenario. Additional tools including multi-criteria decision making (MCDM) are required to provide a complete decision-making platform.

An Integrated Multi-Product Inventory Model for a Two-Echelon Supply Chain under Cap-and-Trade Mechanism

Currently many companies are interested in reduction of the carbon emissions associated with their supply chain activities such as transportation and operations. Operational decisions, such as modifications in order quantities could an effective way in reducing carbon emissions in the supply chain. Cap-and-trade regulation, sometimes called emissions trading, is a market-based tool to limit greenhouse gas emissions. Under cap-and-trade regulation, emission credits are allocated to the firms and the firms trades emissions under cap-and-trade schemes. In this paper, we propose a single-manufacturer single-buyer two-echelon supply chain problem under the cap-and-trade mechanism incorporating the carbon emissions caused by transportation and warehousing activities where a single manufacturer produces a family of items in order to deliver a family of items to a single buyer at a fixed interval of time for effective implementation of Just-In-Time (JIT) Purchasing. An integrated multi-product lot-splitting model of facilitating multiple shipments in small lots between buyer and manufacturer is developed in a JIT Purchasing environment. Also, an iterative heuristic algorithm is developed to derive the common order interval, the number of intervals for each product and the number of shipments between the buyer and the manufacturer during the common interval. A numerical example is given to illustrate the savings in reduction of total cost and carbon emissions by the inventory model incorporating cap-and-trade mechanism compared to the classical inventory model. The proposed inventory model could be useful for the practical solution of two-echelon supply chain inventory problem under cap-and-trade mechanism.

Selling the Safe City? The Politics of Certification and the case of Purple Flag Sweden

In recent years, bureaucratic and market-based tools such as certifications have become common tools for addressing complex, gendered and power-related issues such as discrimination, gender equality and, in this case, safety. Drawing on a discursive understanding of policy and politics, this paper examines how safety in public space is being addressed and given meaning in nine Swedish cities, working with a safetycertification entitled ‘the Purple Flag’. Our analysis shows that in the work with PurpleFlag, safety is represented as a technical problem, requiring a standardised method, and as a tool for growth, focusing on the commercial potential of safety for the city. These representations position the safety worker as mainly administrative and competitive, while the recipients of safety become visitors and consumers. Purple Flag also gears local safety measures towards urban business areas, rather than towards places with high levels of crime or unsafety, and primarily target those disturbing the order of the market in the city centre as problematic. Our conclusion is that the method of certification creates major difficulties for politicising safety and instead enables an “economisation of the political”,producing safety for the urban market rather than for urban citizens.

On the Evolution on Chinese Environmental Law and Governance

In 1997, William Alford and Yuanyuan Shen published an article entitled Limits of Law in Addressing China’s Environmental Dilemma (“Limits of Law”) in Stanford Environmental Law Review. Alford and Shen wrote this article in the early to mid-1990s at a time of rapid, yet still relatively newfound, legal construction in China. They observed that “the Chinese state has increasingly turned to public, positive law to address important concerns,” as if the development were still somewhat of a surprise. The chaos and lawlessness of the Cultural Revolution, once praiseworthy to some, had given away to active and energetic efforts to experiment with all manner of governance reforms, including the reconstruction of a comprehensive legal system. But, as the title of the Alford/Shen article suggested, these efforts at rebuilding law faced strong political, economic, social and legal headwinds that limited the usefulness of law in achieving environmental goals. Over the last decade or so, China has dramatically increased the political priority of a particular vision of sustainable development (what official Party rhetoric has called “the construction of ecological civilization” 生态文明建设). But China’s particular approach to achieving “eco-civilization” remains inadequately understood. Eco-civilization reforms are state-led, technocratic, and focused on “top-down design” (顶层设计). At the same time, reforms have incorporated transparency, public participation, and market-based tools to varying (but in most respects still limited) degrees. These reforms have also emerged so quickly and in such volume that scholars and researchers have struggled to determine their actual performance in practice. This brief essay identifies the reform activities that have accompanied the eco-civilization push and identifies issues raised by the direction of Chinese environmental reform.

Blockchain Technology for Environmental Compliance: Towards A 'Choral' Approach

Blockchain technology is increasingly attracting the attention of governments and public institutions around the world. As a distributed ledger that is tamper resistant and available as a multiplicity of copies constantly updated in real time, it has the potential to profoundly innovate the way in which public registers are kept, enabling improved data management and faster data sharing. Above all, that technology heralds a potential withdrawal from the scene of the State and public authorities in general, by making it possible to certify the completion of particular activities or compliance with certain formal requirements without involving a centralized administrator or an independent third party. This Article examines the impact that blockchain technology could have on monitoring compliance with environmental regulations, rendering the process much more efficient thanks to its greater involvement of various non-public actors, including regulated entities and the general public. Specifically, blockchain allows for “dispersed” checks to ensure that environmental data have been submitted on time and are complete; this is in turn a prerequisite for subsequent checks, including substantive ones, into their accuracy as well as more effective enforcement of environmental law. At the same time, the technology lays the groundwork for the active involvement by regulated entities and the general public in the creation of public databases, giving rise to a system which I will refer to as “notarized transparency” within which environmental information is already reliable at the time it is created and can be more easily shared. This Article argues that the blockchain has the potential to reconfigure environmental protection according to a multi-polar logic, preventing (or at rate significantly reducing) instances of corruption, maladministration and regulatory capture. In this regard, it paves the way for a form of “choral participation” in the protection of the environment that is capable of generating higher levels of environmental compliance and transcending the juxtaposition between command-and-control and market-based tools. Under the entirely innovative approach thereby brought about, dynamic forces within society become directly involved both in the performance of functions that have previously fallen within the purview of public agencies as well as in reconfiguring certain traditional market mechanisms in innovative and potentially more effective terms.

Linking Emissions Trading Schemes: Economic Valuation of a Joint China–Japan–Korea Carbon Market

Linking carbon emissions trading systems across countries has become an important tool for global emission reduction. The three high-emission Asian countries, China, Japan, and South Korea (ROK), all have initiated carbon trading and published ambitious Intended Nationally Determined Contribution targets. Since 2016, the three countries have discussed establishing a long-term unified market for carbon emissions trading, and have sought a scheme for such exchange. This study aimed to investigate whether linking the carbon emissions trading systems of these three countries could potentially achieve more ambitious emission reduction targets. A dynamic energy-environmental version of the Global Trade Analysis Project model was used to simulate carbon market linkages across the three countries. The results indicated that a linked China–Japan–ROK carbon market would be highly cost-effective, have positive economic benefits for all three countries, and improve the carbon market’s liquidity and transaction scale. Under a scenario with no carbon market linking, the economic losses in China, Japan, and ROK would be $51.55 billion, $13.55 billion, and $74.19 billion, respectively. Meanwhile, with carbon trading linking, the losses would be reduced to $47.08 billion, $5.37 billion, and $9.10 billion, respectively. Therefore, a joint China–Japan–ROK carbon market could greatly promote the adoption of market-based tools for emission reduction.

Market-based tools for a plastic waste reduction policy in agriculture: A case study in the south of Italy

The 2018 European Strategy for Plastics in a Circular Economy identifies a set of actions to reduce plastic waste in the EU in the near future. To implement this strategic view, appropriate policy tools need to be identified within Member Countries. The present work aims at investigating farmers’ attitudes towards the use of traditional market-based tools (i.e. subsidies and tax-credits) as well as other initiatives such as a pay-back mechanism under an Extended Producer Responsibility (EPR) to reduce plastic waste in agriculture.We analyse the case of the province of Foggia, an area which is recognised as being the largest plain in southern Italy. We consider a survey of 1,783 farmers and a multinomial regression model to infer on the probability of adopting the above policy tools.Key results suggest that the choice of each policy tool would be affected by the type of plastic waste generated. In particular, plastic packaging and plastic films would be likely to affect the probability to opt for a subsidy. In contrast, other types of plastic waste mainly generated by cereal crops activities (e.g. plastic bags and bottles for fertilisers and chemicals) would favour the adoption of a tax-credit mechanism. As for other aspects, horticulture production and the proximity to a collection site for waste disposal would increase the probability of adopting an EPR policy to contribute to plastic waste reduction.

A provincial lateral carbon emissions compensation plan in China based on carbon budget perspective.

Inter-provincial lateral carbon compensation (IPLCC) is considered as a market-based tool to achieve the goal of carbon emission mitigation from the national level as well as contribute to fair development rights of various provinces. However, empirical research on lateral carbon compensation is still insufficient at the provincial level. Therefore, the improved carbon budget method is proposed to construct a provincial carbon budget accounting and evaluate the level of provincial lateral carbon compensation. The findings are concluded as follows: (1) Carbon emission and absorption in China have experienced rapid growth in the period of 2005-2015. (2) There exists an obvious spatial difference in the provincial carbon budget. The amount of provincial carbon emissions is high in the east and low in the west, while the provincial carbon absorption is high in the northeast and southwest and low in the other regions. (3) 30 Provinces in China can be classified into three types, namely those that have to pay for lateral carbon compensation, those that should be refunded, and those in relative equilibrium. (4) Whether a province should pay for or be refunded from lateral carbon compensation is related to the development level of the secondary industry. (5) Inter-provincial lateral carbon compensation will play a significant role in the top-level design of total carbon emission controlling across different provinces in China. Finally, three policy implications are proposed, including constant promotion of the decoupling of provincial economic development and carbon emissions, formulation of accounting standards and methods for lateral carbon compensation, and adoption of multiple lateral carbon compensation methods.

Forest Certification: More Than a Market-Based Tool, Experiences from the Asia Pacific Region

Over the last 25 years, the global area of certified forests has grown rapidly and voluntary forest certification has become recognized as an effective tool to engage international markets in improving sustainability within forest management units. However, the bulk of this growth has occurred in North America, Northern Europe, Australia, and New Zealand, with relatively limited uptake in the tropics. Since its creation, forest certification has been largely understood as a “market-based” mechanism, in contrast to government-led policies and regulations. Through the experience of the Responsible Asia Forestry and Trade (RAFT) partnership in the Asia Pacific region, we find that the framing of forest certification as voluntary and market-based, and as a mechanism to overcome governance failure, has created an artificial dichotomy. In this dichotomy, voluntary certification and regulatory measures to promote sustainable forest management are conceived of and pursued largely independently. We argue that it is more constructive to view them as complementary approaches that share a common goal of increasing sustainability across the forestry sector. In practice, forest certification interacts with conventional governance institutions and mechanisms. Understanding these interactions and their implications, as well as additional possibilities for interaction, will help in realizing the full potential of forest certification.

The Contribution of Energy Taxes to Climate Change Policy in the European Union (EU)

Energy taxes are one of the main market-based tools directed toward mitigating climate change in the European Union (EU). Therefore, the aim of this article was to analyze whether energy taxes really contribute to the reduction of greenhouse gas (GHG) emissions and the successful implementation of climate change policy. Applying the Granger causality test on time series and using panel data analysis, the direct and indirect (via the reduction of fossil energy consumption (FEC) and energy intensity (EI), as well as the increase of renewable energy consumption (REN)) impacts of energy taxes on GHG emissions in EU countries were analyzed in the present study. The results showed that energy taxes did not Granger-cause fossil energy consumption, energy intensity, renewable energy consumption, and GHG emissions in almost all EU countries. Regarding the panel data analysis, the results showed that energy taxes did not, directly and indirectly, influence GHG emissions. Therefore, this paper shows that generally, energy tax policy in EU countries is ineffective. Thus, tax policy should be reformed and matched with an emissions trading system in seeking climate change mitigation.

Why do counties adopt transfer of development rights programs?

Transfer of development rights (TDR) programs are widely-used market-based tools for growth management efforts that seek to protect farmland, natural areas, and other open spaces threatened by development pressure. Yet, little is known about why local governments adopt, or do not adopt TDR. This study uses descriptive analysis and logistic regression modeling to identify local factors associated with the adoption of TDR by Florida counties from the 1970s to the 2010s. We find that counties that adopt TDR tend to be larger in size, with higher agricultural product sales, and voter-supported land conservation ballot measures. TDR adoption is also associated with home rule authority and a greater percentage of Republican voters, suggesting that market-based mechanisms are linked to both local ability to adopt innovative planning strategies, and to political conservatism. Overall, TDR appears to be a tool that developed counties use to rationalize growth across large areas.

Price premiums for eco-labelled seafood: effects of the MSC certification suspension in the Baltic Sea cod fishery

Certification programmes in fisheries have been introduced as a market-based tool for promoting sustainable fishing practices. While consumers appreciate the eco-labels by paying a price premium in the retail market, there is not much research on whether the premium transmits to the fishing industry. This paper adds to the literature by studying price premiums at port for the Swedish Baltic Sea cod fishery that had its Marine Stewardship Council (MSC) certification suspended in 2015. The result shows a price premium of around 11 per cent for small-size cod prior to the suspension of the certification, but no premium for larger cod.