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For many decades, Uzbekistan has been one of the largest cotton producers in the world.
The irrigation water needed for these high production levels has been delivered by the massive
diversion of the Amu Darya and Syr Darya rivers, which naturally flowed into the Aral Sea. This
diversion for agriculture was the main cause of the rapid decline of the Aral Sea, which is at only 10% of its original size today. The traditional method of irrigation, which relies on simple open canal systems, is highly inefficient for managing the region's critical and limited water resource. It has been qualitatively estimated, for example, that irrigation water lost to evaporation and system inefficiencies is quite large. With the future availability of water at risk for agriculture in Central Asia, primarily due to the loss of glacial volume from global warming, along with declines in seasonal snowpack, it is clear that new approaches to water management are needed. Any serious efforts to restore the Aral Sea and its ecological services would also reduce supplies of irrigation water for Uzbekistan. While regional conflict over water is unlikely, it must be considered since Uzbekistan is a downstream country among several that rely on the Amu Darya and Syr Darya rivers for most of their water supplies. To insure against these risks to cotton poduction and the underlying economy, better irrigation technologies are needed across Uzbekistan. However, these technologies can be quite expensive, especially given that water is still nearly free. In this case study we explore the use of real options nalysis (ROA) to look for optimal investment strategies in efficient irrigation technologies in light of variable climate and policy uncertainties.

We look to the literature on short‐term cost models, long‐term models based on endogenous growth, and long‐term models that assume induced technical change, in order to demonstrate the current understanding of costs, which is the focus of the debate on abating climate change. Using these insights as well as other results—like the role of ancillary benefits and the lack of a relationship between decarbonization and economic growth—our contribution to this debate will be to help policy makers understand how economic analyses are conducted and how they should be used in the subsequent political discussions. (JEL Q52, Q54, Q58)

To those working on climate change it is obvious that energy policy should be influenced by climate change considerations. The question that this paper seeks to answer is, to what extent do they influence policy and what contribution can a careful analysis of the costs and benefits of climate change options have on the formulation of that policy. We seek to understand this by looking in some detail at energy policy formulation in Russia. To do so it is necessary to look at the whole set of issues that determine energy policy. These include energy security, macroeconomic and uncertainty factors, local environmental issues and social issues. The analysis has been carried out for a specific case – that of the RF, where energy policy is currently under formulation to 2010. Two options have been looked at: a "High Coal" option, where there would be a substantial change in fuel mix away from gas to coal; and a "High Gas" option where the current fuel mix is retained and the increase in demand is met from all sources in proportion to current use. The analysis shows that, at international prices for fuels, the "High Coal" option is attractive. However, when we include the potential decline of price for natural gas in the European market, the relative preference for this option drops dramatically but it still remains the preferred option. When, account is also taken of the carbon benefits of the High Gas option, using plausible values for carbon, the attraction of the High Coal option is further reduced but not altered. When finally account is taken of the health associated with the lower use of coal in the High Gas option, the preference can be reversed but it requires a critical value for the health benefits. This critical value – at around $3,000 for a life year lost -- is plausible for the RF, if anything the actual value is probably higher. What the analysis shows is the need for a careful evaluation of the different factors determining energy policy. Among these is climate change. It is not the critical factor but it can be an important one. Perhaps more important are the environmental benefits that go with the lower carbon High Gas options.

ABSTRACTThis study uses a global climate-energy-economy model to investigate potential implications of linking credits from reducing emissions from deforestation and forest degradation in developing countries to a global carbon market, focusing on reducing emissions from deforestation (RED) and effects on energy technology innovation. Integrating RED into a global carbon market lowers the estimated total costs of a policy to achieve 535 ppmv of CO2-equivalent concentrations in 2100 by up to 25 per cent. Alternatively, a global RED program could enable additional reductions of about 20 ppmv by 2100 with no added costs compared with an energy-sector-only policy. The results indicate that market linkage of RED induces modest reductions in clean energy innovation overall but slightly enhances development of particular technologies, including carbon capture and storage. We also find that RED in combination with credit banking encourages greater mitigation in the near term, enhancing flexibility to potentially tighten emission targets at lower cost in response to future information.