Climate change is one of the most critical global environmental challenges of our time. Many studies indicate that carbon dioxide is the main cause of global warming that is driving climate change. Source:

World CO 2 by Sector in 2008 Source: International Energy Agency (IEA) CO 2 from electricity sector is about 32% of the overall total which is the highest by sector.

Plutonium Seeping From Japan's Nuclear Plant Plutonium Seeping From Japan's Nuclear Plant Source: BOISE weekly (30 March 2011) Nuclear power involves issues of safety and radioactive waste management.

Growth in World Net Electricity Generation and Total World Electricity Consumption, Growth in World Net Electricity Generation and Total World Electricity Consumption, Source: Energy Information Administration (EIA) Electricity surplus is expected to account for one third of electricity generation by 2035.

Figure 3: Number of People Without Access to Electricity in The Reference Scenario (Millions) Figure 3: Number of People Without Access to Electricity in The Reference Scenario (Millions) Source: International Energy Agency (IEA) 22 percent of the world's population did not have access to electricity in 2008

Increase electricity supply for excess demand countries Provide an economic gain for excess supply countries Decrease levels of CO2 emissions from electricity generation Electricity Trade Benefits

International Electricity Trade Burtraw et al. (2001) Their paper demonstrates that the means of allocating allowances is extremely important to the efficiency and cost of achieving carbon reductions Pomeda and Camacho (2003) Support that innovation is presented as a mechanism to enhance electricity market efficiency Scheepers et al. (2003) Technological innovations will lead towards electricity generation through renewable energies, and this decreases CO2 emissions

Reduction of Social Cost by International Trade Source:

“This study examines whether electricity co-operation regarding import and export can reduce CO 2 emissions.” Research Question

ImportImport DemandDemand GenerationGeneration ExportExport ? co 2 Conceptual Framework Distribution Loss Taxes Subsidies Sequestration Technologies Energy Policies Regulations International agreements Economy Demography Weather or Season Demand Response Interruptibles

Panel Data Analysis determines coefficients of CO 2 function. - Pooled Ordinary Least Squares - Fixed Effects (First differences & Within) - Random Effects The main goal of this study is to compare electricity generation and electricity trade to determine which provides lower CO 2 emissions. Panel Data Analysis determines coefficients of CO 2 function. - Pooled Ordinary Least Squares - Fixed Effects (First differences & Within) - Random Effects The main goal of this study is to compare electricity generation and electricity trade to determine which provides lower CO 2 emissions. Econometric Methodology

ln (CO 2it ) = α + β 1 ln (GC it )+ β 2 ln (M it )+ β 3 ln (X it )+ u it CO 2 is Carbon Dioxide from electricity generation GC is electricity generation for country Mis electricity import X is electricity export u it is the error term assumed to be independent over i: countries, t: time (year) u it = μ i + ε it where μ i denotes the unobservable individual-specific effect ε it denotes the remainder distribution. CO 2 Function (Model 1)

ln (CO 2it ) = α + β 1 ln (GE it )+ β 2 ln (T it )+ u it CO 2 is Carbon Dioxide from electricity GE is total electricity generation T is total electricity trade u it is the error term assumed to be independent over i: countries, t: time (year) u it = μ i + ε it where μ i denotes the unobservable individual-specific effect ε it denotes the remainder distribution. CO 2 Function (Model 2)

Data Set

ELECTRICITY CO-OPERATION AND DECARBONISATION

Appropriate Estimation Models of Panel Data Analysis for Model 1 notes: Standard errors in ( ) and *** significant at 1% level. Model 1: World AsiaMiddle EastAfrica North America Latin America Europe Australia FD WI POLSREFDPOLS Generation for country 0.549*** (0.009) 0.994*** (0.031) 0.597*** (0.013) 0.362*** (0.015) 1.400*** (0.040) 0.450*** (0.019) 0.495*** (0.027) 1.859*** (0.058) Import 0.022*** (0.004) *** (0.022) 0.034*** (0.010) 0.032*** (0.006) *** (0.026) 0.031*** (0.005) 0.030*** (0.010). Export *** (0.004) (0.025) 0.041*** (0.012) 0.021*** (0.007) *** (0.012) *** (0.006) ** (0.009) (0.004) (0.017) *** (0.118) *** (0.122) *** (0.355) *** (0.184) 0.002*** (0.010) *** (0.638) F-Statistics ***364.43***760.56***526.78*** *** *** (3) *** Observations

Result of CO 2 Function (Model 1)

Appropriate Estimation Models of Panel Data Analysis for Model 2 notes: Standard errors in ( ), *** significant at 1% level and * significant at 10% level. Model 2: World AsiaMiddle EastAfrica North America Latin America Europe Australia FD WIREPOLSREFDPOLS Total generation 0.545*** (0.008) 0.908*** (0.032) 0.600*** (0.013) 0.368*** (0.016) 1.407*** (0.029) 0.427*** (0.022) 0.491*** (0.028) 1.859*** (0.058) Total trade 0.010*** (0.004) 0.118*** (0.019) 0.044*** (0.009) 0.038*** (0.006) *** (0.020) * (0.007) (0.011) (0.004) (0.017) *** (0.118) *** (0.185) *** (0.268) *** (0.203) (0.009) *** (0.638) F-Statistics ***522.78*** *** ***200.10*** (2) *** *** Observations

Result of CO 2 Function (Model 2)

The MIT scenario (2008) of a linear Sea Level Rise (SLR) of 1 metre >>> loss $2 trillion in present value Susmita (2007) In this century, hundreds of millions of people in the developing world can expect displacement by SLR The highest efficiency usage of surplus electricity through trading >>> reduce CO 2 emissions in the atmosphere by about 11% (calculated from IEA data) Discussion

Electricity co-operation with regard to import and export is highly significant in decreasing CO 2 emissions. Such trade can have a positive impact on efficient management of decarbonisation of energy supply and be instrumental for governments in the fight against global warming. Conclusion

Thailand Flood 2011 Picture: GeoEye, National University of Singapore (NUS)

Acknowledgement

“If we live as if it matters and it doesn't mat ter, it doesn't matter. If we live as if it doesn't matter and it matters, then it matters. " Norman Myers quotes from an international conference on the environment

Pooled Ordinary Least Squares (POLS) Estimation y it represents the dependent variable x it represents observed variables z i represents unobserved variables ε it is an idiosyncratic error term Hence, it can be written in the regression model as and under the restriction

Fixed Effects: First Differences Estimation, and + The unobserved effect is removed by subtracting the observation + More efficient for nonstationary data - Intercept and any X variable that remains fixed for each individual will be removed from the model - n degrees of freedom are lost - results in autocorrelation if ε it satisfies the conditions of the regression

Fixed Effects: Within Estimation, and + The unobserved effect is removed by subtracting the observation - Intercept is constant, so it is removed from the model - is cancelled, hence the within estimator cannot estimate their effect

Random Effects Estimation In particular, RE estimator turns out to be equivalent to estimation of

Descriptive Statistics Dependent variables and independent variables are measured on different scales, Hence all variables are taken logarithms to interpret easier.

Panel Unit Root Tests Results notes: * Rejects at 5% level. Every continent is I(1) except for Africa which is I(0).

Panel Model Estimators Results (Model 1) Notes: Standard errors in ( ), *** significant at 1% level

Panel Model Estimators Results (Model 2) Notes: Standard errors in ( ), *** significant at 1% level, * significant at 10% level

Hausman Test Result notes: *** significant at 1% level and ** significant at 5% level.

Hausman Test Result notes: *** significant at 1% level and ** significant at 5% level.

Breusch-Pagan Lagrange multiplier (LM) Test Results Model 1 Breusch-Pagan Lagrange multiplier (LM) Test Results Model 1 notes: Standard errors in ( ) and *** significant at 1% level.

Breusch-Pagan Lagrange multiplier (LM) Test Results Model 2 Breusch-Pagan Lagrange multiplier (LM) Test Results Model 2 notes: Standard errors in ( ) and *** significant at 1% level.

Not surprisingly, following free trade theories, electricity export increases CO 2 emissions by only 0.01% which is much lower than for electricity generation (0.55%). This is because electricity trade reduces electricity cost (private and social) by increasing market efficiency and encourages innovation in electricity generation through competition resulting in less CO 2 production (Pomeda and Camacho, 2003). Discussion (2)

Furthermore, export countries do not usually use flue sources to generate electricity for export. For example, in 2009, USA imported 52,190,595 MWh of electricity from Canada (EIA, 2011), most of which came from Canadian hydroelectricity power at Niagara Falls. Another example is Électricité de France (EDF), the country's main electricity generation and distribution company, which manages the country's 59 nuclear power plants. Discussion (3)

Australia is an interesting case, not only because of no international electricity trade in this continent, but also other reasons. In Australia, mainly fossil fuels are used to generate electricity. In 2005, the largest source of emissions came mainly from electricity production (around 70%). Around 95% of electricity comes from fossil fuels with coal being the main source. After an extended promotion of green power (renewable electricity) only 7% of Australian households opted to pay more for electricity generated from renewable energy Discussion (4)

Obviously, it is impossible that electricity trade can be the highest efficiency (no electricity surplus) because there are some limitations. There are transmission and distribution losses, hence if the distance between trading partners is too far, electricity import will be more expensive than domestic generation, making trade impossible. Discussion (5)

The difficulty of storing electricity is a major force behind the significant growth in electricity trading (Lucia and Schwartz, 2002 and Geman and Roncoroni, 2006), since electricity needs to be available at the time the energy is required. As a result, the larger the area containing electricity producers (export countries) and consumers (import countries) for international trade, the more successful is the balance between demand and supply. Discussion (6)

Electricity ranks as a special commodity since it is vital to the running of every economy. Because of this, countries trading in electricity require a high level of mutual trust. Electricity import and export involves more than just buying and selling - it is founded on co-operation.. Discussion (7)