Price Floor Research Articles

The pros and cons of a global carbon tax at a single rate

Abstract During 2021, the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) and the World Trade Organization (WTO), though differently, supported the idea that to effectively tackle climate change, it is necessary to introduce a global price on carbon emissions. Generally, a single-rate Global Carbon Tax (GCT) for all carbon emissions would probably be the best mechanism to tax carbon emissions while still favouring trading relationships globally within a WTO-compliant environment. However, implementing a single-rate GCT is extremely complicated. The IMF has proposed the establishment of an International Carbon Price Floor (ICPF), but it has recognized that to work the ICPF needs multiple carbon price minima according to the considered countries’ category of development level. This article, which is divided into seven sections, reflects on the idea of introducing a GCT. Section 1 briefs the introduction. Section 2 explains what the main reason is for putting a price on carbon emissions and clarifies how the two most important price-setting mechanisms, ie an ETS and a carbon tax, work. Section 3 explains how to set the carbon tax rate. Section 4 analyses the IMF’s GCT proposal. Section 5 discusses the benefits of a GCT, especially if based on a single tax rate. Section 6 reviews what, at least in the short term, the three main obstacles to the implementation of a single-rate GCT are. Section 7 concludes.

Analysis of floor price trend of raw coffee in Nepal

Nepalese coffee industry has passed a long way of production, processing and marketing. Coffee as a high value crop with floor price helped farmers to sustain their production. This study reviews the historic approaches of floor price fixation system and its trend using secondary data of National Tea and Coffee Development Board (NTCDB). The floor prices were averaged and converted into Green Bean Equivalent (GBE) units and analysed in different time zones. It was found that the floor price fixation system has been changing over years. The floor price was roughly based on transportation cost in earlier years. Grading-based price fixation of fresh cherry came into practice during 2002/03-2005/06. Eventually, more precise and practicable floor price measures were introduced for different quality grades, which was practiced for almost a decade from 2006/07 to 2014/15. Starting from 2015/16, previous approach was slightly modified based on organic certification which is still in practice. Moreover, it was found that the price of raw coffee has increased notably over years. While the price index of raw coffee in 1994/95 was merely 26.37, it has increased by more than nine times to 243.12 in 2021/22. Since higher priced raw coffee will not make it competitive in the global market, the floor price should be adjusted based on international market trend, considering macroeconomic parameters as well.

Impact of alcohol policy changes on substance-affected patients attending an emergency department in the Northern Territory with police.

Assess the impact of Northern Territory alcohol policy changes to ED utilisation at Royal Darwin-Palmerston Regional Hospitals. Interrupted time series analysis explored trends in monthly ED attendance numbers and the proportion self-discharging prior to policy changes (September 2016 to August 2017) and after three sequential interventions; the Banned Drinker Register, introduced September 2017, system changes to the sobering shelter, January 2018, and the minimum unit floor price (MUFP), October 2018. A targeted cohort of attendances transported by police as an alternative to the sobering shelter or police watch-house when there is a medical concern was selected as they are likely impacted by all policy changes. Police transported 1176 patients on 2070 occasions from September 2016 to March 2019. There was a downward trend in monthly attendances across the study period, with no significant change attributable to the Banned Drinker Register, a significant step decrease with the sobering shelter changes (P=0.002), and a significant gradual decrease following the MUFP (P=0.025). This represented an immediate decrease of 3.82 attendances per month/10 000 residents following the sobering shelter changes and a gradual decrease of 0.92 attendances/10 000 residents after the MUFP. Rates of self-discharge were high, 45% in the pre-intervention phase, decreasing to 28% following the MUFP but this trend did not reach significance with any intervention. The sequential introduction of broad sweeping alcohol policy changes introduced by the Northern Territory government was associated with significant reductions in ED utilisation. The proximity of the introduction of interventions creates difficulties identifying individual policy influence.

Pricing strategy for household energy-saving option (HESO): A novel option-based intervention for promoting household energy efficiency

Household energy-saving interventions are essential in reducing energy consumption in residential buildings. One of the effective interventions is Household Energy-Saving Option (HESO). However, the pricing strategy of this innovative intervention has not been explored. This study aims to establish a feasible valuation strategy for HESO to facilitate the application of market-based energy-saving interventions among households. This study first provides a pricing strategy of HESO from a market zero-profit perspective. It continues by developing a price cap and floor for HESO's market price. The theoretical pricing model was validated by a field experiment consisting of two-tiered HESO trading among 67 households in Singapore. The results revealed decisive implications for both environmental policymakers and HESO suppliers. Policymakers are suggested to launch HESO in countries or regions with stable and relatively high electricity prices and low discount rates. HESO suppliers may choose to adjust rewards and duration accordingly when the market price deviates from the zero-profit equilibrium price of HESO. The valuation strategy of HESO also helps quantitative estimation of households' perceived value of HESO.

Hydrogen-based steel production and global climate protection: An empirical analysis of the potential role of a European cross border adjustment mechanism

The European Union's aim to become climate neutral by 2050 necessitates ambitious efforts to reduce carbon emissions. Large reductions can be attained particularly in energy intensive sectors like iron and steel. In order to prevent the relocation of such industries outside the EU in the course of tightening environmental regulations, the establishment of a climate club jointly with other large emitters and alternatively the unilateral implementation of an international cross-border carbon tax mechanism are proposed. This article focuses on the latter option choosing the steel sector as an example. In particular, we investigate the financial conditions under which a European cross border mechanism is capable to protect hydrogen-based steel production routes employed in Europe against more polluting competition from abroad. By using a floor price model, we assess the competitiveness of different steel production routes in selected countries. We evaluate the climate friendliness of steel production on the basis of specific GHG emissions. In addition, we utilize an input-output price model. It enables us to assess impacts of rising cost of steel production on commodities using steel as intermediates. Our results raise concerns that a cross-border tax mechanism will not suffice to bring about competitiveness of hydrogen-based steel production in Europe because the cost tends to remain higher than the cost of steel production in e.g. China. Steel is a classic example for a good used mainly as intermediate for other products. Therefore, a cross-border tax mechanism for steel will increase the price of products produced in the EU that require steel as an input. This can in turn adversely affect competitiveness of these sectors. Hence, the effects of higher steel costs on European exports should be borne in mind and could require the cross-border adjustment mechanism to also subsidize exports.

Analisis Biaya dan Strategi Pengembangan Tanaman Pala

This study aimed to identify internal and external factors in the development of clove farming This research was conducted in Lilibooi village with the reason that this location is one of the central production of clove in West Leihitu District, Central Maluku Regency The sampling method used in this research was simple random sampling. The determination of samples used the Slovin formula, with a total sample of 65 respondents. The results showed that the development of clove farming carried out by farmers included internal factors such as production, income, expenditure, and revenue, while external factors such as technology and natural conditions. The development strategy of clove in Lilibooi village is 1. Optimally utilizing government support and extension workers in clove farming, 2. Making land effective, 3. Increasing the role of extension workers and agricultural institutions in transferring clove farming technology, 4. Opening up to living in groups, 5. Utilizing the existing clove collectors, 6. Setting the floor price and ceiling price, 7. Increasing clove value-added, and 8. Exchange ideas with other farmers.

Alcohol Price Floors and Externalities: The Case of Fatal Road Crashes

AbstractIn May 2018, Scotland introduced a minimum unit price on alcohol. We examine the impact of this policy on traffic fatalities and drunk driving accidents. Using administrative data on the universe of vehicle collisions in Britain and a range of quasi‐experimental modeling approaches, we do not find that the policy had an effect on road crash deaths and drunk driving collisions. The results are robust to several sensitivity exercises. There is no evidence of effect heterogeneity by income and other predictors of alcohol consumption or cross‐border effects. A brief discussion of the policy implications of our findings is provided.

Border carbon adjustments: rationale, design and impact

AbstractThis paper assesses the rationale, design and impact of border carbon adjustments (BCAs). Large disparities in carbon pricing between countries raise concerns about competitiveness and emissions leakage. BCAs are potentially the most effective domestic instrument for addressing these challenges – but design details are critical. For example, limiting coverage of the BCA to energy‐intensive, trade‐exposed industries facilitates administration, and initially benchmarking BCAs on domestic emissions intensities would ease the transition for trading partners with emission‐intensive production. It is also important to consider how to apply BCAs across countries with different approaches to the mitigation of emissions, and the treatment of exports. BCAs alone do not solve the free‐rider problem in carbon pricing, but might ease it, and be a step towards an effective international carbon price floor.

Carbon price floors and low-carbon investment: A survey of German firms

Introducing a price floor in emissions trading schemes (ETS) theoretically stabilizes expectations on future carbon prices and thus fosters low-carbon investment. Yet, ex post evidence on high carbon prices is scant and the relevance of carbon pricing for investment decisions is frequently contested. We provide empirical ex ante evidence on how a price floor in the EU ETS would impact the size and portfolio of energy firms’ investments. Analyzing survey responses of high-level managers in 113 German energy and industry companies, we find that the level of the price floor is crucial. A low price floor trajectory only provides insurance against downward price fluctuations and would leave investments largely unchanged except for industries receiving electricity price compensation, which reduce their investments. A high floor, significantly increasing the price level beyond current expectations, leads to higher investment by the majority of firms, especially by green firms, while investment in fossil energy would partially be abolished. Our studies implies that price floors can be important design components of ETS. However, policymakers need to ensure that they are at sufficiently high levels to affect investment decisions in a meaningful way.

Experimental Study on Installation of Solar Panel above Industrial Junction House

Abstract: For promoting Renewable Energy (RE) sources, Government (state and / or central) has set targets of Renewable Power called as RPO (Renewable Power Obligations) to be fulfilled by all obligated entities. Steel industry is also an obligated entity as it consumes power from its own captive sources. To meet the RPO set targets as per Odisha Electricity Regulatory Commission (OERC) Gazette circular (2015), obligated entities will be required to generate and consume RE power from solar source and non-solar renewable sources a fixed percentage of total annual consumption in kilowatt-hours (kWh) generated from captive power sources (CPP). In case, they are not able to meet this requirement, they have to purchase Renewable Energy Certificate (REC) as traded open in the Indian Energy Exchange (IEX) with floor price of solar REC, Rs. 3.5 per kWh.

Investment Incentives in Tradable Emissions Markets with Price Floors

Concerns about cost containment and price volatility have led regulators to include price controls in many cap-and-trade markets. We study how these controls affect firms’ incentives to invest in the adoption of abatement technologies in a model with abatement cost uncertainty. Price floors increase investment incentives because they raise the expected benefits from lowering abatement costs. We also report a market experiment that features abatement cost uncertainty and the opportunity for cost-reducing investment, with and without a price floor. Consistent with the theoretical model, investment is significantly greater with the price floor in place. Emissions permit prices also respond as predicted to abatement investments and emissions shocks. In particular, prices are only responsive to investment and shocks when the price floor is not implemented.

Carbon contracts-for-difference: How to de-risk innovative investments for a low-carbon industry?

SummaryThe shift to climate neutrality requires new process technologies for energy-intensive industries, such as steel, chemicals, or cement. A variety of technology options exist – but they face the challenges of (i) first-of-kind costs, (ii) higher operation and investment costs, and (iii) insufficient and uncertain carbon prices, which partly stem from political uncertainty. Existing innovation policy instruments and carbon policies such as price floors can only partly address these challenges. Project-based carbon contracts-for-difference (CCfDs) guarantee investors a fixed carbon price over the contract duration, thus de-risking such investments from political and market uncertainty, and allowing governments to set carbon prices above current levels. Here we show for a case study in the steel sector that carbon mitigation costs can be reduced by up to 27% and that owing to high incremental operation costs, price floors of 79% of the CCfD price would be needed for projects to achieve bankability.

On the Impact of an Intermediary Agent in the Ultimatum Game

Delegating bargaining to an intermediary agent is common practice in many situations. The proposer, while not actively bargaining, sets constraints on the intermediary agent’s offer. We study ultimatum games where proposers delegate bargaining to an intermediary agent by setting boundaries on either end of the offer. We find that after accounting for censoring, intermediaries treat these boundaries similarly to a nonbinding proposer suggestion. Specifically, we benchmark on a nonbinding setting where the proposer simply states the offer they would like to have made. We find that specifying a constraint on the intermediary has the same effect as the benchmark suggestion once censoring is accounted for. That is, giving an agent a price ceiling or price floor is treated, by the agent, the same as expressing a direct price wish, as long as the constraint is not binding. We discuss the implications of these findings in terms of the importance of communication and the role of constraints in bargaining with intermediaries.

The effects of “nonbinding” price floors

Governments often impose price floors to protect sellers against low prices in markets characterized by uncertainty. Hard floors arise in grain and currency markets whenever the government acquisitions at the support price are unconstrained. Soft floors arise whenever such acquisitions are subject to a binding constraint. An important special case of a soft floor arises in cap-and-trade programs when the permit auction has a reserve price. Such an auction is equivalent to one with no reserve price combined with a government program to acquire at the reserve price up to the amount auctioned. Using a unified approach, we investigate a novel characteristic of such floors. Although seemingly “nonbinding,” such floors can influence the new equilibrium price. Whether inserted below or above the laissez-faire price, they can result in a new price strictly exceeding the floor—a phenomenon we dub “action at a distance.” We explain it theoretically and illustrate with simulations.

Managing Relationships Between Restaurants and Food Delivery Platforms: Conflict, Contracts, and Coordination

Restaurant delivery platforms collect customer orders via the Internet, transmit them to restaurants, and deliver the orders to customers. They provide value to restaurants by expanding their markets, but critics claim they destroy restaurant profits by taking a percentage of revenues and generating congestion that negatively impacts dine-in customers. We consider these tensions using a model of a restaurant as a congested service system. We find that the predominant industry contract, in which the platform takes a percentage cut of each delivery order (a “commission”), fails to coordinate the system because the platform does not internalize its effect on dine-in revenues; this leads to prices that are too low, reducing the restaurant’s margins and leaving money on the table for both firms. Two commonly proposed remedies to this problem (commission caps and allowing the restaurant to set a price floor on the platform) can increase restaurant revenue but do not solve the coordination issue. We thus propose an alternative, practical coordinating contract that is a variation of the current industry standard: for each delivery order, the platform pays the restaurant a percentage revenue share and a fixed fee. We show that this contract, appropriately designed, coordinates the system, protects restaurant margins by ensuring a lower bound on its revenue per delivery order, and allocates revenue between the restaurant and the platform with a high degree of flexibility. This paper was accepted by Victor Martinez-de-Albeniz, operations management. Supplemental Material: The e-companion is available at https://doi.org/10.1287/mnsc.2022.4390 .

Assessing China’s provincial electricity spot market pilot operations: Lessons from Guangdong province

Aiming at improving the efficiency of power generation, China announced its plan to reform the electricity wholesale market. A focal point of the wholesale market reform is to introduce a stable and reliable electricity spot market. Using Guangdong’s spot market pilot operations as a case study, this article is the first to use rich ex-post market data to assess the efficacy of China's electricity spot market. To investigate the stability of the spot market, we estimate the relationship between prices and demand. We find the electricity supply curve is much steeper when demand approaches the capacity limit, suggesting the need to invest more thermal capacity to stabilize spot market prices (SMPs). To investigate the reliability of the spot market, we first estimate the market distortion caused by a price floor on SMPs, and we then examine whether local market power exists. The price floor on SMPs resulted in a welfare transfer from consumers to producers, the monetary value of which equals to 1.3% of the tradable value of the day-ahead market. We also find evidence of local market power in the east of Guangdong, suggesting the need to invest in more power lines connecting the west to the east.

Wage Price Floors and Sectoral Employment Outcomes in Ghana

Wage Price Floors and Sectoral Employment Outcomes in Ghana

Price Floors and Externality Correction*

Abstract We evaluate the impact of a price floor for alcohol introduced in Scotland in 2018, using a difference-in-differences strategy with England as a control group. We show that the policy led to the largest reductions in alcohol units purchased among the heaviest drinkers—the group who, at the margin, are likely to create the largest externalities from drinking. The price floor is well targeted at heavy drinkers because they buy a much greater fraction of their units from cheap products and switched away from these products strongly, with only limited substitution towards more expensive products. We show that if the marginal external cost of drinking is at least moderately higher for heavy than lighter drinkers, then a price floor outperforms an ethanol tax. However, more flexible tax systems can achieve similar reductions in externalities to the price floor, but avoid the large transfers from public funds to the alcohol industry that arise under the floor.

Do Certification Schemes Enhance Coffee Yields and Household Income? Lessons Learned Across Continents

While the market for sustainably certified products grows, the debate on whether smallholder farmers benefit from this certification movement is far from over. We present empirical findings across three continents. Identical household surveys were conducted among 738 smallholder coffee farmers organized in primary cooperatives in Ethiopia, India and Nicaragua. The comparative analysis which is based on the propensity score matching approach shows that the impacts of Fairtrade certification on coffee yields and income vary across countries. In Ethiopia, the coffee farmers from Fairtrade certified cooperatives fare worse than their non-certified counterparts both in coffee yield and income. In the Indian case study, the Fairtrade cooperative members have yield and price advantages over the non-certified farmers. This has in turn led to higher net revenue from coffee for certified farmers. In Nicaragua, coffee farmers from Fairtrade and double (Fairtrade-Organic) certified cooperatives also benefit in terms of net revenue but there is no statistically significant effect on yield and household income. A comparison of the Fairtrade minimum floor price and the weight-equivalent Fairtrade cooperative price in the three countries shows that Nicaraguan Fairtrade certified farmers have obtained a higher average price than the Fairtrade mandated minimum price, whereas in Ethiopia the certified farmers received a much lower price. In India, the certified average price was closer to the minimum floor price. We conclude that coffee cooperatives and the motivation and capability of their staff play a central role in training their member farmers about each aspect of coffee growing and certification.

The Effects of "Nonbinding" Price Floors: An Experimental Analysis

The Effects of "Nonbinding" Price Floors: An Experimental Analysis