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on Energy Economics |
| By: | Kangni Kpodar; Moataz El-Said; David Coady; Paulo A. Medas; David Newhouse; Robert Gillingham |
| Abstract: | With the recent jump in world oil prices, the issue of petroleum product pricing has become increasingly important in developing countries. Reflecting a reluctance of many governments to pass these price increases onto energy users, energy price subsidies are absorbing an increasing share of scarce public resources. This paper identifies the issues that need to be discussed when analyzing the fiscal and social costs of fuel subsidies. Using examples from analyses recently undertaken for five countries, it also identifies the magnitude of consumer subsidies and their fiscal implications. The results of the analysis show that-in all of these countries-energy subsidies have significant social and fiscal costs and are badly targeted. |
| Keywords: | Energy prices , subsidies , welfare distribution , household survey data , |
| Date: | 2006–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/247&r=ene |
| By: | Daniel Leigh; Moataz El-Said |
| Abstract: | This paper looks at the fiscal cost and distributional impact of implicit fuel price subsidies in Gabon, where fuel prices have remained largely unchanged since 2002. Using estimated implicit import parity prices, we evaluate the total fiscal cost of the subsidies at 3.2 percent of non-oil GDP in 2005-more than total public health expenditures. We also analyze the distribution of the subsidies using household survey data and find that the bulk of the subsidies benefit higher-income households. Finally, we suggest use of a number of existing programs to provide a more targeted and cost-effective means of protecting the real incomes of lower-income households from the effects of energy price increases. |
| Keywords: | Fuel-price subsidies , Gabon , income distribution , |
| Date: | 2006–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/243&r=ene |
| By: | Robert Gagné (IEA, HEC Montréal); Simon van Norden (IEA, HEC Montréal); Bruno Versaevel |
| Abstract: | We analyse the effects of a price floor on price wars (or deep price cuts) in the retail market for gasoline. Bertrand supergame oligopoly models predict that price wars should last longer in the presence of price floors. In 1996, the introduction of a price floor in the Quebec retail market for gasoline serves as a natural experiment with which to test this prediction. We use a Markov Switching Model with two latent states to simultaneously identify the periods of price-collusion/price-war and estimate the parameters characterizing each state. Results support the prediction that price floors reduce the intensity of price wars but increase their expected duration. |
| Keywords: | price regulation, oligopoly supergame, Markov switching model, gasoline |
| JEL: | L13 L81 C32 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:iea:carech:0612&r=ene |
| By: | Paolo Dudine; Luzmaria Monasi; Joerg Zeuner; James John; Mark Lewis; Helaway Tadesse |
| Abstract: | This paper examines the impact of the 2003-05 oil price increase on the balance of payments positions and IMF financing needs of low-income country oil importers. It finds that stronger exports reflecting favorable global conditions, a compression of oil import volumes due to the pass-through of world prices to domestic consumers, and a large increase in capital inflows helped low-income countries cope with the oil price shock. Preliminary data suggest that reductions in oil import volumes have not harmed growth. While fiscal balances generally improved, quasi-fiscal liabilities may be building. Lower demand for IMF assistance may reflect broader trends, but further oil price increases could put pressure on additional countries in 2006 and beyond. |
| Keywords: | Oil , oil shock , balance of payments , adjustment , fiscal , quasi-fiscal , pass-through , low-income country , IMF financing , Oil , Low income developing countries , Balance of payments , Oil prices , Use of Fund resources , |
| Date: | 2006–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/171&r=ene |
| By: | Michele Cavallo; Tao Wu |
| Abstract: | We develop two measures of exogenous oil-price shocks for the period 1984 to 2006 based on market commentaries on daily oil-price fluctuations. Our measures are based on exogenous events that trigger substantial fluctuations in spot oil prices and are constructed to be free of endogenous and anticipatory movements. We find that the dynamic responses of output and prices implied by these measures are "well behaved." We also find that the response of output is larger than the one implied by a conventional measure of oil-price shocks proposed in the literature. |
| Keywords: | Petroleum products - Prices ; Petroleum industry and trade |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2006-28&r=ene |
| By: | Rina Bhattacharya; Dhaneshwar Ghura |
| Abstract: | This paper investigates the linkages between oil and growth in Congo, where there appears to be no evidence of direct spillover effects. The empirical results suggest however that political instability has a negative effect on non-oil growth, and that the presence of oil could have fueled political instability by being associated with weakening institutions. The results also show that fiscal discipline is beneficial for growth. In addition, there are strong linkages between world oil prices and the real effective exchange rate, with movements in the latter having important indirect repercussions for growth. |
| Keywords: | oil , conflicts , economic growth , Oil , Congo, Republic of , Economic growth , Real effective exchange rates , |
| Date: | 2006–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/185&r=ene |
| By: | Alonso Segura |
| Abstract: | This paper documents the protracted process of shaping the rules governing oil operations in São Tomé and Príncipe. It analyzes the institutional framework for oil sector development, which applies Milton Friedman's permanent income hypothesis to the management of oil resources. São Tomé and Príncipe is the first country in Africa to adopt this rule. Finally, the paper offers a preliminary quantitative analysis of the impact of oil sector development on government consumption and savings. It shows that the country's oil wealth could be significant, which would enable sustainable government consumption and intergenerational equity through a gradual buildup of the Permanent Fund for Future Generations. |
| Keywords: | Sao Tome and Principe , oil resources , permanent income hypothesis , fiscal rules , Oil , Sao Tome and Principe , Oil revenues , |
| Date: | 2006–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/183&r=ene |
| By: | Matteo Manera (University of Milan-Bicocca and Fondazione Eni Enrico Mattei); Elisa Scarpa (Banca Intesa) |
| Abstract: | In this paper we discuss a simple econometric strategy for pricing and hedging illiquid financial products, such as the Japanese crude oil cocktail (JCC) index, the most popular OTC energy derivative in Japan. First, we review the existing literature for computing optimal hedge ratios (OHR) and we propose a critical classification of the existing approaches. Second, we compare the empirical performance of different econometric models (namely, regression models in price-levels, price first differences, price returns, as well as error correction and autoregressive distributed lag models) in terms of their computed OHR using monthly data on the JCC over the period January 2000-January 2006. Third, we illustrate and implement a procedure to cross-hedge and price two different swaps on the JCC: a one-month swap and a three-month swap with a variable oil volume. We explain how to compute a bid/ask spread and to construct the hedging position for the JCC swap. Fourth, we evaluate our swap pricing scheme with backtesting and rolling regression techniques. Our empirical findings show that it is not necessary to use sophisticated econometric techniques, since the price level regression model permits to compute a more reliable optimal hedge ratio relative to its competing alternatives. |
| Keywords: | Hedging Models, Cross-Hedging, Energy Derivatives, Illiquid Financial Products, Commodity Markets, JCC Price Index |
| JEL: | G13 G15 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.130&r=ene |
| By: | Elobeid, Amani; Tokgoz, Simla; Hayes, Dermot J.; Babcock, Bruce A.; Hart, Chad E. |
| Abstract: | The ongoing growth of corn-based ethanol production raises some fundamental questions about what impact continued growth will have on U.S. and world agriculture. Estimates of the long-run potential for ethanol production can be made by calculating the corn price at which the incentive to expand ethanol production disappears. Under current ethanol tax policy, if the prices of crude oil, natural gas, and distillers grains stay at current levels, then the break-even corn price is $4.05 per bushel. A multi-commodity, multi-country system of integrated commodity models is used to estimate the impacts if we ever get to $4.05 corn. At this price, corn-based ethanol production would reach 31.5 billion gallons per year, or about 20% of projected U.S. fuel consumption in 2015. Supporting this level of production would require 95.6 million acres of corn to be planted. Total corn production would be approximately 15.6 billion bushels, compared to 11.0 billion bushels today. Most of the additional corn acres come from reduced soybean acreage. Wheat acreage would expand because of higher prices and increased demand for feed wheat. Corn exports and production of pork and poultry would all be reduced in response to higher corn prices and increased utilization of corn by ethanol plants. These results should not be viewed as a prediction of what will eventually materialize. Rather, they indicate a logical end point to the current incentives to invest in corn-based ethanol plants. |
| Keywords: | biofuels, commodity markets, corn price, energy markets, ethanol. |
| Date: | 2006–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12692&r=ene |
| By: | Valentina Bosetti (Fondazione Eni Enrico Mattei); Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Marzio Galeotti (Fondazione Eni Enrico Mattei); Emanuele Massetti (Fondazione Eni Enrico Mattei); Massimo Tavoni (Fondazione Eni Enrico Mattei) |
| Abstract: | The need for a better understanding of future energy scenarios, of their compatibility with the objective of stabilizing greenhouse gas concentrations, and of their links with climate policy, calls for the development of hybrid models. Hybrid because both the technological detail typical of Bottom Up (BU) models and the long run dynamics typical of Top Down (TD) models are crucially necessary. We present WITCH – World Induced Technical Change Hybrid model – a neoclassical optimal growth model (TD) with energy input detail (BU). The model endogenously accounts for technological progress, both through learning curves affecting prices of new vintages of capital and through R&D investments. In addition, the model captures the main economic interrelationships between world regions and is designed to analyze the optimal economic and environment policies in each world region as the outcome of a dynamic game. This paper provides a detailed description of the WITCH model, of its baseline, and of the model calibration procedure. |
| Keywords: | Climate Policy, Hybrid Modelling, Integrated Assessment, Technological Change, Energy Mix. |
| JEL: | O33 O41 Q43 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:46_06&r=ene |
| By: | Jérémy Laurent-Lucchetti (IEA, HEC Montréal); Andrew Leach (IEA, HEC Montréal) |
| Abstract: | We propose a model of climate change consistent with four principal stylized facts. First, the benefits and costs of climate change mitigation policies are not evenly distributed across generations. Second, capital accumulation is not determined jointly with emissions policy, but rather as a choice made by self-interested economic agents. Third, most research and development activity in the energy sector is undertaken by private firms. Fourth, significant imperfections exist in the market for technology. The model is calibrated to match global trends in GWP, energy production, and investment in research and development, and is used for the evaluation of policies including research and development subsidies and carbon taxes. |
| Keywords: | Alternative energy sources; climate change; technological change; research and development; induced innovation. |
| JEL: | J24 J61 C23 C35 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:iea:carech:0602&r=ene |
| By: | Jordi Roca; Monica Serrano (Universitat de Barcelona) |
| Abstract: | The relationships between economic growth and environmental pressures are complex. Since the early nineties, the debate on these relationships has been strongly influenced by the Environmental Kuznets Curve hypothesis, which states that during the first stage of economic development environmental pressures increase as per capita income increases, but once a critical turningpoint has been reached these pressures diminish as income levels continue to increase. However, to date such a delinking between economic growth and emission levels has not happened for most atmospheric pollutants in Spain. The aim of this paper is to analyse the relationship between income growth and nine atmospheric pollutants in Spain. In order to obtain empirical outcomes for this analysis, we adopt an input-output approach and use NAMEA data for the nine pollutants. First, we undertake a structural decomposition analysis for the period 1995-2000 to estimate the contribution of various factors to changes in the levels of atmospheric emissions. And second, we estimate the emissions associated with the consumption patterns of different groups of households classified according to their level of expenditure. |
| Keywords: | environmental kuznets curve, income growth, atmospheric pollution, input-output analysis, spain |
| JEL: | Q51 C67 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bar:bedcje:2006164&r=ene |
| By: | Giovanni Bella (University of Cagliari) |
| Abstract: | The Environmental Kuznets Curve (EKC) hypothesis is one of the most debated economic issues. Despite its fascinating appeal for any policy maker, neither theoretical nor certain empirical evidence has been found to clean up all doubt. The aim of this paper is to present an economy where environmental quality and polluting emissions do enter the maximisation problem, and provide a transitional dynamics analysis to pursue a new different version of the EKC, depending on the level of development finally achieved. |
| Keywords: | Environmental Quality, Endogenous Economic Growth, Sustainable Development |
| JEL: | O41 Q01 Q32 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.129&r=ene |
| By: | Massimiliano Mazzanti (University of Ferrara); Antonio Musolesi (CERIS DSE CNR); Roberto Zoboli (CERIS DSE CNR) |
| Abstract: | This paper investigates the EKC curves for CO2 emissions in a panel of 109 countries during the period 1959-2001. The length of the series makes the application of a heterogeneous estimator suitable from an econometric point of view. The results, based on the hierarchical Bayes estimator, show that different EKC dynamics are associated with the different sub samples of countries considered. On average, more industrialized countries show an EKC evidence in quadratic specifications, which are nevertheless probably evolving into an N shape, emerging from cubic specifications. Less developed countries consistently show that CO2 emissions still rise positively with income, though some signals of an EKC path arise. |
| Keywords: | Environmental Kuznets Curve, CO2 Emissions, Bayesian Approach, Heterogeneous Panels |
| JEL: | C23 Q25 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.121&r=ene |
| By: | Szymon Borak; Wolfgang Härdle; Stefan Trück; Rafal Weron |
| Abstract: | In January 2005 the EU-wide CO2 emissions trading system (EU-ETS) has formally entered into operation. Within the new trading system, the right to emit a particular amount of CO2 becomes a tradable commodity - called EU Allowances (EUAs) - and affected companies, traders and investors will face new strategic challenges. In this paper we investigate the nature of convenience yields for CO2 emission allowance futures. We conduct an empirical study on price behavior, volatility term structure and correlations in different CO2 EUA contracts. Our findings are that the market has changed from initial backwardation to contango with significant convenience yields in future contracts for the Kyoto commitment period starting in 2008. A high fraction of the yields can be explained by the price level and volatility of the spot prices. We conclude that the yields can be interpreted as market expectation on the price risk of CO2 emissions allowance prices and the uncertainty of EU allocation plans for the Kyoto period. |
| Keywords: | CO2 Emission Trading, Commodity Markets, Spot and Futures Prices, Convenience Yields. |
| JEL: | Q28 G13 C19 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2006-076&r=ene |
| By: | Gerhard Glomm (Indiana University Bloomington); Daiji Kawaguchi (Hitotsubashi University); Facundo Sepulveda (Universidad de Santiago de Chile) |
| Abstract: | This paper examines a revenue neutral green tax reform along the lines of the Double Dividend hypothesis. Using a dynamic general equilibrium model calibrated to the US economy, we find that increasing gasoline taxes and using the revenue to reduce capital income taxes does indeed deliver both types of welfare gains: from higher consumption of market goods (an efficiency dividend), and from a better environmental quality (a green dividend), even though in the new steady state environmental quality may worsen. We also find that, given the available evidence on how much households are willing to pay for improvements in air quality, the size of the green dividend is very small in absolute magnitude, and much smaller than the efficiency dividend. |
| Keywords: | Green taxes, Double Dividends, Capital Accumulation, Welfare |
| JEL: | E6 H2 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2006017&r=ene |
| By: | James Boyce; Matthew Riddle; Mark D Brenner |
| Abstract: | The introduction of carbon charges on the use of fossil fuels in China would have a progressive impact on income distribution. This outcome, which contrasts to the regressive distributional impact found in most studies of carbon charges in industrialized countries, is driven primarily by differences between urban and rural expenditure patterns. If carbon revenues were recycled on an equal per capita basis via a ‘sky trust,’ the progressive impact would be further enhanced: low-income (mainly rural) households would receive more in sky-trust dividends than they pay in carbon charges, and high-income (mainly urban) households would pay more than they receive in dividends. Thus a Chinese sky trust would contribute to both lower fossil fuel consumption and greater income equality. |
| Keywords: | carbon charges, fossil fuels, China, income distribution, carbon revenues, fuel consumption, income equality |
| JEL: | Q32 Q52 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp_brenner_riddle_boyce&r=ene |
| By: | Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Barbara Buchner (Fondazione Eni Enrico Mattei) |
| Abstract: | There are increasing signals that countries that negotiate on GHG emission control are unlikely to sign and ratify a single climate protocol, even though almost all countries have subscribed the UNFCCC convention that sets the framework of international climate cooperation. In addition to the US decision not to ratify the Kyoto Protocol, New Zealand and Australia recently led to the formation of a new alliance in which technological cooperation is the main tool to achieve GHG emission control. In the U.S., some States on the Eastern coast are negotiating to adopt emission reduction targets and to establish a permit market despite the opposition of the federal government. Cooperation on climate policy is also the objective of recent negotiations between ASEAN countries. Given this background, this paper aims at examining whether the aforementioned events are simply the noise of a political process leading to a global agreement on climate change control or are instead consistent with some basic economic incentives that are pushing countries towards the formation of two (or more) parallel climate blocs. To this aim, this paper uses a well known integrated assessment climate-economy model to evaluate the incentives to cooperation in climate negotiations for the main world countries. A game-theoretic framework is adopted to analyse a country’s incentive to belong to a climate coalition. In our setting, a given country can either join one of the existing climate coalitions or can propose a new one or can decide to free-ride on the other countries’ cooperative abatement effort. We then analyse the characteristics of the main possible outcomes and assess which outcomes are most likely to prevail in future negotiations, at least as far as economic incentives are concerned. |
| Keywords: | Agreements, Climate, Incentives, Negotiations, Policy |
| JEL: | C72 H23 Q25 Q28 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:45_06&r=ene |
| By: | Carlo Carraro (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | This paper comments and assesses “Fragmented Carbon Markets and Reluctant Nations: Implications for the Design of Effective Architectures”, a paper that David Victor presented at the international workshop on "Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World", organized by Joe Aldy and Rob Stavins at the J.F. Kennedy School of Government in May 2006. By analyzing Victor’s proposals for an effective climate agreement post 2012, this paper emphasizes the contribution that game-theoretical analyses have provided to the design of climate agreements. It therefore emphasizes how incentives and institutions play a crucial role in affecting the final outcome of negotiations on climate change control, and how incentives and institutions can be modified to achieve a better control of climate change. This paper also discusses a wider policy approach that can enhance the effectiveness of measures designed to address the climate change problem. |
| Keywords: | Agreements, Climate, Incentives, Negotiations, Policy |
| JEL: | C72 H23 Q25 Q28 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:49_06&r=ene |