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on Energy Economics |
| By: | Newbery, D. |
| Abstract: | The UK and other EU countries are concerned to deliver secure, sustainable and affordable electricity, to meet challenging targets for decarbonisation and renewable energy. The UK Government has consulted and concluded that the present electricity market arrangements will not deliver all three goals, and has proposed a major Electricity Market Reform (EMR). This article describes the reasons for, and the nature of, the EMR, pointing to the need for further market and institutional reforms. |
| JEL: | Q48 Q42 L94 |
| Date: | 2011–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1154&r=ene |
| By: | Paul L. Joskow |
| Abstract: | Economic evaluations of alternative electric generating technologies typically rely on comparisons between their expected life-cycle production costs per unit of electricity supplied. The standard lifecycle cost metric utilized is the “levelized cost” per MWh supplied. This paper demonstrates that this metric is inappropriate for comparing intermittent generating technologies like wind and solar with dispatchable generating technologies like nuclear, gas combined cycle, and coal. Levelized cost comparisons are a misleading metric for comparing intermittent and dispatchable generating technologies because they fail to take into account differences in the production profiles of intermittent and dispatchable generating technologies and the associated large variations in the market value of the electricity they supply. Levelized cost comparisons overvalue intermittent generating technologies compared to dispatchable base load generating technologies. These comparisons also typically overvalue wind generating technologies compared to solar generating technologies. Integrating differences in production profiles, the associated variations in the market value of the electricity at the times it is supplied, and the expected life-cycle costs associated with different generating technologies is necessary to provide meaningful economic comparisons between them. This market-based framework also has implications for the appropriate design of procurement auctions created to implement renewable energy procurement mandates, the efficient structure of production tax credits for renewable energy, incentives for and the evaluation of electricity storage technologies and the evaluation of the additional costs of integrating intermittent generation into electric power networks. |
| Keywords: | levelized cost comparisons; production profiles; intermittent generating technologies; design of procurement auctions |
| Date: | 2011–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/45&r=ene |
| By: | Erik Delarue; Leonardo Meeus; Ronnie Belmans; William D'haeseleer; Jean-Michel Glachant |
| Abstract: | If Europe is serious about climate change, it has to reduce its overall greenhouse gas emissions by 80% by 2050, thereby effectively going to a (near-) zero carbon energy and thus, electricity system. The European Climate Foundation, Eurelectric, and the International Energy Agency have consequently published a study elaborating on the final goal of this transition. The studies project scenarios of how such a (near-) zero electricity system would look like and provide recommendations on the policies needed to guide the transition. In this paper, we observe that these studies tell a tale with many similarities. In spite of increased energy efficiency, the electricity demand is projected to increase substantially, with up to 50% from today towards 2050, due to shifts from other sectors towards electricity. This demand will be supplied by a minimum of 40% electricity generation by RES, with the remainder being filled up with nuclear and fossils with CCS. The importance of grid reinforcement, expansion, and planning in this context is emphasized in all three studies. While all three studies further recommend relying on the EU ETS for the transition, the European Climate Foundation and the International Energy Agency consider continuing with targets for RES in combination with a more harmonized EU RES support scheme. |
| Keywords: | European Energy Policy; Electric power generation; decarbonization |
| Date: | 2011–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/03&r=ene |
| By: | Friedrich Kunz; Christian von Hirschhausen; Dominik Möst; Hannes Weigt |
| Abstract: | This paper, which examines the impacts of phasing out nuclear power in Germany, is the first to include an analysis of energy supply security and critical line flows in both the German and Central European electricity networks. The technical-economic model of the European electricity market, ELMOD, is used to simulate alternative power plant dispatch, imports, exports, and network use for a representative winter day. The results suggest that the shutdown of Germany’s nuclear plants will result in higher net imports, especially from the Netherlands, Austria, and Poland, and that electricity generation from fossil fuels will increase slightly in Germany and in Central Europe. We find that no additional imports will come from nuclear plants since they are already fully utilized in the merit order, and that electricity prices will rise on average by a few Euros per MWh. We conclude that closing the seven nuclear power plants within the government’s moratorium will cause no significant supply security issues or network constraints and an eventual full phase-out seem to be possible due to the completion of several new conventional power plants now under construction. Finally, we suggest that a nuclear phase-out in Germany within the next 3-7 years will not undermine security of supply and network stability in Germany and Central Europe. |
| Keywords: | electricity; Germany |
| Date: | 2011–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/32&r=ene |
| By: | Alby, Philippe; Dethier, Jean-Jacques; Straub, Stéphane |
| Abstract: | Many developing countries are unable to provide their industrial sector with reliable electric power and many enterprises have to contend with insufficient and unreliable electricity supply. Because of these constraints, enterprises often opt for self-generation even though it is widely considered a second best solution. This paper develops a theoretical model of investment behavior in remedial infrastructure when physical constraints are present. It then tests econometrically implications from this model using a large sample of enterprises from 87 countries from the World Bank enterprise survey database. After showing that these constraints have non-linear effects according to the natural degree of reliance on electricity of an industrial sector and on firm size, the paper draws differentiated policy recommendations. Credit constraints appear to be the priority in sectors very reliant on electricity to spur entry and convergence to the technological frontier while, in other sectors, firms would benefit more widely from marginal improvements in electrical supply. |
| Keywords: | Infrastructure, Electricity, Industrial structure |
| JEL: | H54 L94 L16 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:24947&r=ene |
| By: | Akcura, E. |
| Abstract: | Consumers constantly make decisions on the goods and services they purchase, in most cases with incomplete information. Many products that are available in stores, in catalogues, or over the internet are not presented with a full list of attributes or technical specifications. Lack of information is most apparent in non-market goods such as utility service attributes. This paper examines information effects on consumers' willingness to pay (WTP) for a number of electricity and water attributes using two contingent valuation surveys administered in the UK. The attributes considered include WTP for a carbon cleaner electricity fuel mixture as well as increasing security of supply. The results indicate that the quantity and complexity of information can potentially lead individuals to ignore the information presented. The relevance of the attribute to the respondent is found to be a significant motivator in the processing of the information presented. The survey data also reveal a number of socio-economic, attitudinal and behavioural factors that affect WTP for the attributes considered. |
| Date: | 2011–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1156&r=ene |
| By: | S. Mustafa Durakoglu |
| Abstract: | Turkey has been going through a liberalization process in its electricity market over the last decade. So far, the regulatory content of the market reforms has been in the center of attention in the literature, to the negligence of regulatory governance. However, recent studies, which applied the theoretical insights of new institutional economics to utilities regulation, have demonstrated that political endowments of the country draw the boundaries to which extent such regulatory content can be effectively implemented. In line with these studies, this paper adopts an institutional approach and attempts to identify the political endowments of Turkey in order to further analyze whether the market reforms succeeded in bringing about sufficient checks to cure the institutional problems. In other words, the paper takes a picture of the overall regulatory arena. The results show that the current regulatory structure, especially government-regulator relations, fails to meet good regulatory governance criteria. The paper also provides some policy suggestions. |
| Keywords: | electricity regulation; regulatory governance; institutions |
| Date: | 2011–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/08&r=ene |
| By: | Adrien de Hauteclocque; Yannick Perez |
| Abstract: | This paper first reviews some of the main contributions of the new institutional economics to the analysis of the process of competitive transformation of network industries. It shows that neoinstitutional analysis is complementary to the microeconomics of rational pricing, since it accounts for the decisive role of an institutional framework adapted to new transactions. It emphasizes the importance of the political reform process, which draws on the conditions of attractiveness and feasibility to define an initial reorganization of property rights in these industries. The paper then analyzes in this light some of the main challenges ahead for electricity regulation: the question of investment in generation capacities and the link to long term contracts, the regulation of wholesale market power, the support to Renewable Energy Sources for Electricity (RES-E) and the design of new regulatory authorities. |
| Keywords: | Electricity Markets; New Institutional Economics; Law & Economics |
| Date: | 2011–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/21&r=ene |
| By: | Malgorzata Sadowska |
| Abstract: | The European Commission has launched a number of antitrust investigations against the major energy incumbents in the aftermath of the energy sector inquiry. Most of them have already been settled under Article 9 of the EC Regulation 1/2003 and the undertakings offered far-reaching, sometimes structural, commitments. This article studies the 2008 investigation into price manipulation in the German electricity wholesale market. In spite of no convincing evidence and flaws in the assessment, the Commission was able to negotiate from E.ON substantial capacity divestments. The Commission is straightforward about using antitrust rules to open up energy markets. Sector inquiries, commitment procedure and structural remedies allow for a quick intervention, flexible problem-solving and bring about decisive changes in the energy market setting. However, harnessing antitrust for the purpose of energy liberalization policy has an adverse impact on competition enforcement itself. First, it leads to a number of ‘weak’ cases, based on far-fetched arguments. Second, it results in remedies which are not tailored to the abuse at issue, but are in line with a wider objective of energy market liberalization, and as an outcome of negotiations, further swayed by the firm’s own interest in the ultimate shape of the commitment package. |
| Keywords: | energy policy; competition law; Germany |
| Date: | 2011–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/34&r=ene |
| By: | Dierk Bauknecht |
| Abstract: | Smart Grids require innovations in the electricity networks, mainly on the level of the distributed system operator (DSO). A main objective is to increase the share of distributed generation (DG) connected to that network level, but also to enable load management on the demand side. This paper analyses network innovations in the context of the regulatory framework, namely incentive regulation. It is structured as follows: The first section examines how cost-based and price-based regulatory schemes influence RD&D by regulated companies. This is followed by a discussion of various regulatory instruments to stimulate innovation. The third section provides a more general discussion of the pros and cons of promoting network innovations via network regulation. |
| Keywords: | incentive regulation; price-based regulation; cost-based regulation; Rd&D; network innovations |
| Date: | 2011–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/02&r=ene |
| By: | Silvester van Koten |
| Abstract: | When building a cross-border transmission line (a so-called interconnector) as a for-profit (merchant) project, where the regulator has required that capacity allocation be done non-discriminatorily by explicit auction, the identity of the investor can affect the profitability of the interconnector project and, once operational, the resulting allocation of its capacity. Specifically, when the investor is a generator (hereafter the integrated generator) who also can use the interconnector to export its electricity to a distant location, then, once operational, the integrated generator will bid more aggressively in the allocation auctions to increase the auction revenue and thus its profits. As a result, the integrated generator is more likely to win the auction and the capacity is sold for a higher price. This lowers the allocative efficiency of the auction, but it increases the expected ex-ante profitability of the merchant interconnector project. Unaffiliated, independent generators, however, are less likely to win the auction and, in any case, pay a higher price, which dramatically lowers their revenues from exporting electricity over this interconnector. |
| Keywords: | electricity markets; regulation; cross-border electricity transmissions; vertical integration; asymmetric auctions; bidding behavior |
| Date: | 2011–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/10&r=ene |
| By: | Silvester van Koten; Andreas Ortmann |
| Abstract: | We try to better understand the comparative advantages of structural and behavioral measures of deregulation in electricity markets, an eminent policy issue for which the experimental evidence is scant and problematic. In the present paper we investigate theoretically and experimentally the effects of the introduction of a forward market on competition in electricity markets. We compare this scenario with the best alternative, reducing concentration by adding one more competitor by divestiture. Our work contributes to the literature by introducing more realistic cost configurations, teasing apart number and asset effect, and studying numbers of competitors that reflect better the market concentration in the European electricity industries. Our experimental data suggest that introducing a forward market has a positive effect on the aggregate supply in markets with two or three major competitors, configurations typical for both the newly accessed and the old European Union member states. Introducing a forward market also increases efficiency. Our data furthermore suggest, in contrast to previous findings, that the effects of introducing a forward market is stronger than adding one more competitor both in markets with two, and particularly three, producers. Our data thus suggest that the behavioral measure of introducing a forward market is more effective than the structural measure of adding one more competitor by divestiture. Thus competition authorities should, in line with EU law, focus on the behavioral measure of introducing, or at least facilitating the emergence of, forward markets rather than on the structural measure of lowering market concentration by divestiture. |
| Keywords: | economics experiments; market power; competition; forward markets; EU electricity market |
| Date: | 2011–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/07&r=ene |
| By: | Adrien de Hauteclocque; Kim Talus |
| Abstract: | Ensuring access to a truly ‘European’ energy grid for every consumer and supplier in the European Union is a core objective of the single market project. From the first wave of liberalization directives up until the ‘draft’ framework guidelines of September 2010 on capacity allocation and congestion management being prepared by ERGEG on behalf of the new Agency for the Cooperation of Energy Regulators (ACER), the objective of the access regime in both sector is similar: to creating capacity to compete. The objective of this paper is to review and compare from a legal point of view the evolution of the EU access regime in the electricity and gas sectors. We find strong similarities for two otherwise very different sectors, as well as an influence of the electricity regime on the gas regime. The sector-specific regulatory regime, supported by the use of competition law, organises a market design in both sectors based as much as possible on short-term capacity allocation with a liquid secondary trading platforms. The imposition of UIOLI mechanisms and an increased focus on firmness of capacity is certainly the way forward but implementation still is an issue. The right portfolio of capacity durations that are to be proposed by TSOs also remains an open question. The specific features of these two commodities result however in slightly different results in practice. In electricity, the development of market coupling initiatives creates new regulatory challenges but price convergence is now in sight. In gas, the progress has been slower and efficiently functioning spot markets are yet to emerge. |
| Keywords: | access regime; electricity; gas; European Union; competition law; framework guidelines |
| Date: | 2011–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/09&r=ene |
| By: | Anne Neumann; Karsten Neuhoff |
| Abstract: | Decarbonisation of energy and transport infrastructure requires significant private sector investments. The natural gas industry has demonstrated such large scale private sector infrastructure investment over the last decades, typically using long-term contractual arrangements. Are therefore institutional frameworks necessary that facilitate long-term contracting or provide regulation reassuring about future resource streams associated with low-carbon infrastructure - or do factors idiosyncratic to natural gas explain the prevalence of long-term contracts in natural gas infrastructure investment? We identify four reasons for the use of long-term contracting arrangements. The transformation of the natural gas industry and regulatory structure has gradually reduced the rational for three of these reasons, suggesting that remaining rational, securing of revenue streams to finance investments has become the main motivation for the use of long-term contracts. This rational is not idiosyncratic to the natural gas industry, and thus suggests that long-term contracting can also play a significant role in facilitating low-carbon infrastructure investment. We furthermore discuss the role of institutional frameworks necessary for long-term contracting, and identify the significant role governments have been playing in sharing the counterparty risk inherent in long-term contracts. |
| Keywords: | Investment, low-carbon economy, natural gas |
| JEL: | L78 O13 Q58 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1154&r=ene |
| By: | Jean-Michel Glachant |
| Abstract: | The discussion on a target model for European gas network access started at the 18th Madrid Forum in 2010. This model shall provide a unifying vision on the future layout of the European gas market architecture. That vision shall assist all stakeholders in implementing the 3rd EU energy market package on the internal gas market in a consistent way. Here is my proposal for the European gas target model termed MECO-S Model. It is a "Market Enabling, Connecting and Securing Model" describing an end-state of the gas market to be achieved over time. It rests on three pillars that share a common foundation, being that economical investments in pipelines are realized: Pillar 1: Structuring network access to the European gas grid in a way that enables functioning wholesale markets; Pillar 2: Fostering short- and mid-term price alignment between the functioning wholesale markets by tightly connecting the markets; Pillar 3: Enabling the establishment of secure supply patterns to the functioning wholesale markets. |
| Keywords: | internal gas market; gas network access; gas security of supply; Third energy package |
| Date: | 2011–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/38&r=ene |
| By: | Sergio Ascari |
| Abstract: | It is generally believed that the American model is not suitable for Europe, yet North America is the only large and working competitive gas market in the world. The paper shows how its model could be adapted as a target for market design within the European institutional framework. It starts from analysis of the main peculiar economic features of the gas transportation industry, which should underpin any efficient model. After the Third Package is properly implemented the EU will share several building blocks of the American model: effective unbundling of transportation and supply; regulated tariffs which, for long distance transportation, are in fact largely related to capacity and distance; investments based mostly on industry’s initiative and resources, and the related decisions are increasingly made after open and public processes. Yet Europe needs to harmonize tariff regulation criteria, which could be achieved through a monitoring process. National separation of main investment decisions should be overcome, possibly by organising a common platform where market forces and public authorities interact with private suppliers to require existing and develop new capacity, whereas industry competitively offers its solutions. Such platform would allow for long term capacity reservation, subject to caps and congestion management provisions. Auctions and possibly market coupling would play an important role in the allocation of short term capacity but a limited one in long term. Market architecture and the organisation of hubs would also be developed mostly by market forces under regulatory oversight. The continental nature of the market suggests a likely concentration of trading in a very limited number of main markets, whereas minor markets would have a limited role and would be connected to major ones, with price differences reflecting transportation costs and market conditions. Excessive interference or pursuit of political goals in less than transparent ways involves the risk of slower liquidity development and higher market fragmentation. With this view as a background, regulatory work aimed at completing the European market should be based on ensuring the viability of interconnections between current markets and on the establishment of common platforms and co-ordinated tariff systems, fostering the conditions for upstream and transportation capacity development. |
| Keywords: | Hubs; infrastructure; target model; network tariffs; gas market design; capacity allocation |
| Date: | 2011–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/39&r=ene |
| By: | Havranek, Tomas; Irsova, Zuzana; Janda, Karel |
| Abstract: | One of the most frequently examined statistical relationships in energy economics has been the price elasticity of gasoline demand. We conduct a quantitative survey of the estimates of elasticity reported for various countries around the world. Our meta-analysis indicates that the literature suffers from publication selection bias: insignificant or positive estimates of the price elasticity are rarely reported, although implausibly large negative estimates are reported regularly. In consequence, the aver- age published estimates of both short- and long-run elasticities are exaggerated twofold. Using mixed effects multilevel meta-regression, we show that after correction for publication bias the average long-run elasticity reaches -0:31 and the average short-run elasticity only -0:09. |
| Keywords: | gasoline demand, price elasticity, meta-analysis, publication selection bias, Agricultural and Resource Economics |
| Date: | 2011–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:agrebk:2248189&r=ene |
| By: | Cremer, Helmuth; Gahvari, Firouz; Ladoux, Norbert |
| Abstract: | This paper examines if an energy price shock should be compensated by a reduction in energy taxes to mitigate its impact on consumer prices. Such an adjustment is often debated and advocated for redistributive reasons. Our investigation is based on a model that characterizes second-best optimal taxes in the presence of an externality generated by energy consumption. Energy is used by households as a consumption good and by the productive sector as an input. We calibrate this model on US data and proceed to simulations of this empirical model. We assume that energy prices are subject to an exogenous shock. For different levels of this shock, we calculate the optimal tax mix including income, commodity and energy taxes. We show that optimal energy taxes are affected by redistributive consideration and that optimal energy tax is less than the Pigouvian tax (marginal social damage). The difference is an implicit subsidy representing roughly 10% of the Pigouvian price. Interestingly, the simulations show that an variation in the energy price only has an almost negligible effect on this percentage. In other words, even a very large oil price increase will only have a small effect on the optimal tax on energy. Nevertheless, it appears that the energy tax is used to mitigate the impact of the energy shock. However, this result is not explained by redistributive consideration but by the fact that the Pigouvian tax (rate) decreases as the price of energy increases. This is a purely arithmetic adjustment due to the fact that the marginal social dammage does not change. Consequently, the marginal dammage as a percentage of the energy price (which defines the Pigouvian tax rate) decreases as the price increases. |
| JEL: | H21 H23 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:24971&r=ene |
| By: | Julien Daubanes (ETH Zurich, Switzerland); Pierre Lasserre (Université du Québec à Montréal, Canada) |
| Abstract: | Optimum commodity taxation theory asks how to raise a given amount of tax revenue while minimizing distortions. We reexamine Ramsey’s inverse elasticity rule in presence of Hotelling-type non-renewable natural resources. Under standard assumptions borrowed from the non-renewable-resource-extraction and from the optimum-commodity-taxation literatures, a non-renewable resource should be taxed in priority whatever its demand elasticity and whatever the demand elasticity of regular commodities. It should also be taxed at a higher rate than other commodities having the same demand elasticity and, while the tax on regular commodities should be constant, the resource tax should vary over time. There are two basic ways to alleviate resource supply limitations; one is to produce reserves for subsequent extraction; the other one is to rely on imports. When the generation of reserves by exploration is determined by the net-of-tax rents derived during the extraction phase, reserves become a conventional form of capital and royalties tax its income; our results contradict Chamley’s conclusion that capital should not be taxed at all in the very long run. When the economy is autarkic, in the absence of any subsidy to reserve discoveries, the optimal tax rate on extraction obeys an inverse elasticity rule almost identical to that of a commodity whose supply is perfectly elastic. As a matter of fact, there is a continuum of optimal combinations of reserve subsidies and extraction taxes, irrespective of whether taxes are applied on consumption or on production. When the government cannot commit, extraction rents are completely expropriated and subsidies are maximum. In general the optimum Ramsey tax not only causes a distortion of the extraction path, as happens when reserves are given, but also distorts the level of reserves developed for extraction. When that distortion is the sole effect of the tax, it is determined by a rule reminiscent of the inverse elasticity rule applying to elastically-supplied commodities. In an open economy, Ramsey taxes further acquire an optimum-tariff dimension, capturing foreign resource rents. For countries that import the resource, the result that domestic resource consumption is to be taxed at a higher rate than conventional commodities having the same demand elasticity emerges reinforced. |
| Keywords: | Optimum commodity taxation, Inverse elasticity rule, Non-renewable resources, Hotelling resource, Supply elasticity, Demand elasticity, Capital income taxation. |
| JEL: | Q31 Q38 H21 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:11-151&r=ene |
| By: | Mathy, Sandrine; Fink, Meike; Bibas, Ruben |
| Abstract: | Seven long-term prospective studies representing the energy trajectories consistent with a Factor Four, i.e. a 75% reduction of greenhouse gases emissions in 2050 in France have been identified. We analyze their methodology and the high dispersion of results. Then we discuss the role of scenario-making. Among them, only one of the scenarios achieves the Factor Four, thereby showing the limitations of these studies. On the methodological side, the engineering models used appear as black boxes, each using their own technological hypotheses and not readily understandable by the non-specialist. Therefore, exchanges between modelers, economists, technologists, sociologists and representatives of the civil society are a key factor for these scenario elaboration as their legitimacy stems from social and politic appropriation of scientific results. |
| Keywords: | factor Four ; technology Economy models ; carbon price ; climatic policies ; energy mix ; methodology ; energy scenarios ; emissions ; greenhouse gases |
| JEL: | D7 D78 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32112&r=ene |
| By: | Hassan Suleiman; Zahid Muhammad |
| Abstract: | In this study the long-run relationship between real oil price, real effective exchange rate and productivity differentials is examined using annual data for Nigeria over the period 1980 to 2010. We aim to investigate whether oil price fluctuations and productivity differentials affect the real effective exchange rate. The empirical results suggest that whereas real oil price exercise a significant positive effect on the real exchange rate in the long run. Productivity differentials exercise a significant negative influence on the real exchange rate. The study noted that, the real exchange rate appreciation of 2000-2010 was driven by oil prices. The findings of this study have important implications for exchange rate policy and are relevant to many developing economies where oil exports constitute a significant share of their exports. |
| Keywords: | Exchange rate, oil price, Nigerian economy |
| JEL: | F31 C22 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2011:i:072&r=ene |
| By: | Kohlin, Gunnar; Sills, Erin O.; Pattanayak, Subhrendu K.; Wilfong, Christopher |
| Abstract: | This report reviews the literature on the links between energy access, welfare, and gender in order to provide evidence on where gender considerations in the energy sector matter and how they might be addressed. Prepared as a background document for the 2012 World Development Report on Gender Equality and Development, and part of the Social Development Department's ongoing work on gender and infrastructure, the report describes and evaluates the evidence on the links between gender and energy focusing on: increased access to woodfuel through planting of trees and forest management; improved cooking technologies; and access to electricity and motive energy. The report's main finding is that energy interventions can have significant gender benefits, which can be realized via careful design and targeting of interventions based on a context-specific understanding of energy scarcity and household decision-making, in particular how women's preferences, opportunity cost of time, and welfare are reflected in household energy decisions. The report focuses on the academic peer-reviewed literature and, although it applies fairly inclusive screening criteria when selecting the evidence to consider, finds that the evidence on many of the energy-gender linkages is often limited. There is thus a clear need for studies to evaluate interventions and identify key design elements for gender-sensitive project design. |
| Date: | 2011–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5800&r=ene |
| By: | Estrada, Francisco; Tol, Richard S. J.; Gay-García, Carlos |
| Abstract: | This paper revises some relevant aspects of The Economics of Climate Change in Mexico (ECCM), one of the most important documents for supporting national decisionmaking regarding the climate change international negotiations. In addition to pointing out some important methodological inadequacies, this paper shows that the ECCM's main results are questionable. Even though this study was inspired on the Stern Review and benefited from the support of original members of the Stern team, the ECCM is not consistent with the world portrayed in the Stern Review in many aspects, particularly regarding the importance of climate change impacts. The estimates of the costs of climate change for Mexico are so low that can hardly be considered to be consistent with the previous studies that have been reported in the literature concerning regional and global scales. Furthermore, it is shown that the document's main conclusion is not supported even by the estimates of the costs of the impacts of climate change and of the mitigation strategies that are presented in it. It is argued that this document has important deficiencies that do not make it adequate for supporting decision-making. In addition, the ECCM has inspired other reports regarding the economics of climate change in Central and Latin America, and as is shown here, their results are also questionable. This raises further reasons for concern because these national documents are building a regional view of what climate change could imply for Latin America that severely underestimates the importance of this phenomenon. |
| Keywords: | Climate change/stern review/impacts/cost/Impacts of climate change |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp408&r=ene |
| By: | Vogt-Schilb, Adrien; Hallegatte, Stephane |
| Abstract: | This article investigates the use of expert-based Marginal Abatement Cost Curves (MACC) to design abatement strategies. It shows that introducing inertia, in the form of the"cost in time"of available options, changes significantly the message from MACCs. With an abatement objective in cumulative emissions (e.g., emitting less than 200 GtCO2 in the 2000-2050 period), it makes sense to implement some of the more expensive options before the potential of the cheapest ones has been exhausted. With abatement targets expressed in terms of emissions at one point in time (e.g., reducing emissions by 20 percent in 2020), it can even be preferable to start with the implementation of the most expensive options if their potential is high and their inertia significant. Also, the best strategy to reach a short-term target is different depending on whether this target is the ultimate objective or there is a longer-term target. The best way to achieve Europe's goal of 20 percent reduction in emissions by 2020 is different if this objective is the ultimate objective or if it is only a milestone in a trajectory toward a 75 percent reduction in 2050. The cheapest options may be sufficient to reach the 2020 target but could create a carbon-intensive lock-in and preclude deeper emission reductions by 2050. These results show that in a world without perfect foresight and perfect credibility of the long-term carbon-price signal, a unique carbon price in all sectors is not the most efficient approach. Sectoral objectives, such as Europe's 20 percent renewable energy target in Europe, fuel-economy standards in the auto industry, or changes in urban planning, building norms and infrastructure design are a critical part of an efficient mitigation policy. |
| Keywords: | Climate Change Mitigation and Green House Gases,Climate Change Economics,Environment and Energy Efficiency,Energy and Environment,Transport and Environment |
| Date: | 2011–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5803&r=ene |
| By: | Ralf Martin; Laure B. de Preux; Ulrich J. Wagner |
| Abstract: | We estimate the impacts of the Climate Change Levy (CCL) on manufacturing plants using panel data from the UK production census. Our identification strategy builds on the comparison of outcomes between plants subject to the CCL and plants that were granted an 80% discount on the levy after joining a Climate Change Agreement (CCA). Exploiting exogenous variation in eligibility for CCA participation, we find that the CCL had a strong negative impact on energy intensity and electricity use. We cannot reject the hypothesis that the tax had no detrimental effects on economic performance and on plant exit. |
| JEL: | D21 Q41 Q48 Q54 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17446&r=ene |
| By: | Di Cosmo, Valeria; Hyland, Marie |
| Abstract: | In this paper we use annual time series data from 1960 to 2008 to estimate the long run price and income elasticities underlying energy demand in Ireland. The Irish economy is divided into five sectors: residential, industrial, commercial, agricultural and transport, and separate energy demand equations are estimated for all sectors. Energy demand is broken down by fuel type, and price and income elasticities are estimated for the primary fuels in the Irish fuel mix. Using the estimated price and income elasticities we forecast Irish sectoral energy demand out to 2025. The share of electricity in the Irish fuel mix is predicted to grow over time, as the share of carbon intensive fuels such as coal, oil and peat, falls. The share of electricity in total energy demand grows most in the industrial and commercial sectors, while oil remains an important fuel in the residential and transport sectors. Having estimated the baseline forecasts, two different carbon tax scenarios are imposed and the impact of these scenarios on energy demand, carbon dioxide emissions, and government revenue is assessed. If it is assumed that the level of the carbon tax will track the futures price of carbon under the EU-ETS, the carbon tax will rise from ?21.50 per tonne CO2 in 2012 (the first year forecasted) to ?41 in 2025. Results show that under this scenario total emissions would be reduced by approximately 861,000 tonnesof CO2 in 2025 relative to a zero carbon tax scenario, and that such a tax would generate ?1.1 billion in revenue in the same year. We also examine a high tax scenario under which emissions reductions and revenue generated will be greater. Finally, in order to assess the macroeconomic effects of a carbon tax, the carbon tax scenarios were run in HERMES, the ESRI's medium-term macroeconomic model. The results from HERMES show that, a carbon tax of ?41 per tonne CO2 would lead to a 0.21 per cent contraction in GDP, and a 0.08 per cent reduction in employment. A higher carbon tax would lead to greater contractions in output. |
| Keywords: | CO2 emissions/Energy demand/Environmental tax/income distribution |
| JEL: | Q4 Q52 Q54 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp407&r=ene |
| By: | Francesco Gullì |
| Abstract: | Emissions trading is a “cap and trade” regulation aimed at reducing the cost of meeting environmental targets. This paper studies how this regulation interacts with energy and competition policies. Two vertically related and imperfectly competitive markets are investigated: 1) the electricity market (output market); 2) the market for natural gas (input market). The effect of energy policy is simulated by assuming that the supporting scheme is able to improve the competitiveness of the low carbon technologies which are able, at the same time, to increase security of supply. The effect of the competition policy is accounted for by assuming that firms try to meet a profit target rather than to maximize profits, because of the regulatory pressure exerted by the competition and sector-specific authorities. By using the dominant firm model (in both markets) and the auction approach (in the output market), the paper highlights a trade-off between these policies. Without regulatory pressure, the result is ambiguous. Together, environmental and energy policies can lead to an increase in market power and its effects, but this in turn not necessarily amplifies their performances. However the worst case, the absolute increase in pollution in the short-run, is excluded. With regulatory pressure, the environmental and energy policies may imply a decrease in market power and this in turn can lessen their performance. In addition, this time the absolute increase in pollution in the short-run is not only possible but even likely. However this unfavourable effect would happen only if the pollution price is sufficiently low, that is if the environmental policy is rather modest. From the policy implications point of view, the analysis suggests what follows. If the models used to estimate performances and costs of environmental and energy policies ignore the full role of imperfect competition (the impact on prices combined with the strategic use of power capacity), this may induce incorrect estimations of the cost of the public action or may lead to incorrect policy calibrations, depending on how the policy targets are set. Finally, although the results are based on a series of simple assumptions about the operation and the structure of energy markets, they seem to be enough robust. Nevertheless the paper suggests caution in extending to other market structures the outcome of the dominant firm model. |
| Keywords: | emissions trading; pollution; imperfect competition; energy policy |
| Date: | 2011–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/20&r=ene |
| By: | Farber, Daniel A |
| Abstract: | Cap and trade is controversial in part because of claims that it is unjust, an issue that was highlighted by recent litigation against California’s proposed carbon market. This essay considers an array of fairness issues relating to cap and trade. In terms of fairness to industry, the conclusion is that distributing free allowances overcompensates firms for the cost of compliance, assuming any compensation is warranted. Industry should not receive, in effect, ownership of the atmosphere at the expense of the public. Environmental justice advocates argue that cap-and-trade systems promote hotspots and encourage dirtier, older plants to continue operating to the detriment of some communities. Designers of cap-and-trade systems should be alert to possible hotspots, particularly in disadvantaged communities. Little reason exists, however, to believe that any such hotspots are systematically linked with disadvantage. Finally, any regulation of emissions raises costs, with a disproportionate impact on low-income consumers. This effect can be greatly ameliorated through adroit use of revenue from auctions. The bottom line is that fairness issues are not a deal-breaker for cap and trade, but do deserve thoughtful consideration in designing a system. |
| Keywords: | Administrative Law, Economics, Energy and Utilities Law, Environmental Law, Social Welfare, Administrative Law, Energy Law, Environmental Law, Law and Economics, Social Welfare Law |
| Date: | 2011–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:oplwec:2247937&r=ene |
| By: | Lemoyne de Forges, Sabine; Bibas, Ruben; Hallegatte, Stephane |
| Abstract: | This paper presents a dynamic model of the reinsurance market for catastrophe risks. The model is based on the classical capacity-constraint assumption. Reinsurers choose every year the quantity of risk they cover and the level of external capital they raise to cover these risks. The model exhibits time dependency and reproduces a market dynamics that shares many features with the real market. In particular, market price increases and reinsurance coverage decreases after large shocks, and a series of smaller losses may have a deeper impact than one larger loss. There is a significant oligopoly effect reducing reinsurance supply, and the market is segregated into strategic large actors that influence market prices and price-taker smaller firms. A regulation trade-off between market efficiency and resilience is identified and quantified: improving the ability of the market to cope with exceptional events increases the cost of reinsurance. This model provides an interesting basis to analyze further capacity needs for the insurance industry in view of growing worldwide exposure to catastrophic risks and climate change. |
| Keywords: | Markets and Market Access,Insurance&Risk Mitigation,Climate Change Economics,Debt Markets,Emerging Markets |
| Date: | 2011–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5807&r=ene |
| By: | Bruce Chapman (The Australian National University, Research School of Social Sciences (RSSS) - Economics Program; The Australian National University (ANU) - Crawford School of Economics and Government) |
| Abstract: | It is commonplace in Australian policy debate for groups presumed to be adversely affected by proposed policies to provide estimates of the undesirable consequences of change. A fashionable form relates to predictions of job losses for the group affected, usually accompanied by counter-claims made by the government of the day or other groups in favour of the policy. A highly public example of the above is the claim by the Minerals Council of Australia (MCA), based on work done in 2009 by Concept Economics (2009) that the then-planned Emissions Trading Scheme (ETS) would result in 23,510 fewer jobs in Australian mining than would otherwise be the case. A major background issue is that most economists would argue that any changes in the relative price of carbon-producing output must also be associated with offsetting increases in employment as a result of the higher level of activity in, for example, alternative energy production, and this is perhaps the critical point in the jobs debate concerning the consequences of policy reform. While we acknowledge this fact, the very large "job loss" figure might be a frighteningly large number for many observers, so we address the question: how many jobs is 23,510, really? Our research reports on findings using three different data series and methods to put into context the supposed jobs loss figure. The paper presents analyses of different data sets aimed at improving the understanding of, and putting into an aggregate economy context, the projected mining sector "job losses" as a result of the 2009 planned ETS. While the focus is on the ETS and mining, the illustrations apply to almost all public and political debate concerning the meaning of job loss projections from anticipated policy reform in an aggregate labour market context. It matters, for example, for the Murray Darling Basin Plan. We recognise that there are some weaknesses with respect to the data and methods used. Even so, a very clear and consistent message has come through. It is that the projected job losses from the ETS, particularly when considered over a 10 year time horizon, are in a statistical sense close to invisible with respect to employment and unemployment stocks, and trivial with respect to aggregate flows in the labour market. Also, it is apparently the case that with respect to mining sector employment the projected losses are a very small proportion of overall inflows to and outflows from mining. Further, it seems to be the case that those leaving mining periods of growth are not then entering a protracted period, and more likely any period at all, of unemployment. Our results should not be taken to mean that economic policy reform is costless to all employees who might be affected by sectoral changes in the labour market, and there remain clear roles for government to minimise the personal costs for those so disadvantaged. As well, the details of this research cannot be translated into precise analyses of the employment effects of the carbon price policy being developed by the current government. But the essential points concerning the size and meaning of mining sector employment effects should not be in dispute; the alleged "jobs losses" aspect of the climate change policy debate is not in any sense important to the overall discourse. |
| Keywords: | Mining employment, job flows, carbon pricing policies, unemployment |
| JEL: | E24 E27 E60 J20 J23 J60 Q48 Q54 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:crwfrp:1104&r=ene |
| By: | Christoph Böhringer, Carolyn Fischer, and Knut Einar Rosendahl (Statistics Norway) |
| Abstract: | Given the bleak prospects for a global agreement on mitigating climate change, pressure for unilateral abatement is increasing. A major challenge is emissions leakage. Border carbon adjustments and output-based allocation of emissions allowances can increase effectiveness of unilateral action but introduce distortions of their own. We assess antileakage measures as a function of abatement coalition size. We first develop a partial equilibrium analytical framework to see how these instruments affect emissions within and outside the coalition. We then employ a computable general equilibrium model of international trade and energy use to assess the strategies as the coalition grows. We find that full border adjustments rank first in global cost-effectiveness, followed by import tariffs and output-based rebates. The differences across measures and their overall appeal decline as the abatement coalition grows. In terms of cost, the coalition countries prefer border carbon adjustments; countries outside the coalition prefer output-based rebates. |
| Keywords: | emissions leakage; border carbon adjustments; output-based allocation |
| JEL: | Q2 Q43 H2 D61 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:664&r=ene |
| By: | Daniel H. Cole |
| Abstract: | Global governance institutions for climate change, such as those established by the United Nations Framework Convention on Climate Change and the Kyoto Protocol, have so far failed to make a significant impact on greenhouse gas emissions. Following the lead of Elinor Ostrom, this paper offers an alternative theoretical framework for reconstructing global climate policy in accordance with the polycentric approach to governance pioneered in the early 1960s by Vincent Ostrom, Charles Tiebout, and Robert Warren. Instead of a thoroughly top-down global regime, in which lower levels of government simply carry out the mandates of international negotiators, a polycentric approach provides for greater experimentation, learning, and cross-influence among different levels and units of government, which are both independent and interdependent. After exploring several of the design flaws of the existing set of global institutions and organizations for greenhouse gas mitigation, the paper explores how those global institutions and organizations might be improved by learning from various innovative policies instituted by local, state, and regional governments. The paper argues that any successful governance system for stabilizing the global climate must function as part of a larger, polycentric set of nested institutions and organizations at various governmental levels. |
| Keywords: | federalism |
| Date: | 2011–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0290&r=ene |
| By: | Leonardo Meeus; Erik Delarue |
| Abstract: | In the transition towards a decarbonized energy system, we need city authorities to lead by example as public actors, to govern the actions of the private urban actors as local policy makers, and to conceive and manage the implementation of an integrated approach as coordinators, which we introduce in this paper as three levels of city smartness. Local governments however have institutional disincentives to act, and if they do act, they are confronted with urban actors that are reluctant to follow. This paper analyzes how city pioneers in Europe have been able to overcome these disincentives thanks to a combination of local circumstances and interventions by higher levels of government. We categorize the state of the art instruments that have been used by higher levels of government into “tambourines”, “carrots”, and “sticks”, and reflect on how the state of the art could be improved. |
| Keywords: | cities; climate change; governance |
| Date: | 2011–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/04&r=ene |
| By: | Nicole Grunewald (Georg-August-Universität Göttingen / Germany); Inmaculada Martínez-Zarzoso (Georg-August-Universität Göttingen / Germany) |
| Abstract: | This paper assesses the impact of the Kyoto Protocol on CO2 emissions. With this aim a dynamic panel data model is estimated for a cross-section of 213 countries over the period 1960 to 2009. The model, based on a STIRPAT approach, also integrates the EKC approach and specifically considers the endogeneity of the policy variable. To sort out causality the number of financed CDM projects is used as an external instrument. The main results indicate that obligations from the Kyoto Protocol have a measurable reducing effect on CO2 emissions and indicate that a treaty often seen as "failed" in fact may be producing some non-trivial effects. |
| Keywords: | Environmental Kuznets Curve, Kyoto Protocol, panel data, Clean Development Mechanism |
| JEL: | Q54 Q56 |
| Date: | 2011–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:got:iaidps:212&r=ene |
| By: | Leonardo Meeus; Isabel Azevedo; Claudio Marcantonini; Jean-Michel Glachant; Manfred Hafner |
| Abstract: | The aim of this paper is to identify the main challenges regarding the achievement of a low-carbon energy system in the EU by 2050. We analyze the visions presented by stakeholders and existing strategies of member state to achieve this transition. The five main challenges identified are the following: 1// energy efficiency - to ensure ambitious energy savings; 2// GHG emissions - to go towards a nearly zero-carbon electricity system; 3// renewable energy - to push effective technologies into the market; 4// energy infrastructure - to ensure timely investment in the electricity transmission grid capacity across borders; 5// energy markets - to guarantee timely investment in electricity generation back-up capacity. We also find that member states are already pursuing different strategies in dealing with these challenges. This creates risks for a European energy policy fragmentation. It also opens new opportunities for cooperation among member states so that the European Commission could demonstrate how to produce European added value. |
| Keywords: | climate change; EU energy policy; 2050 energy system; decarbonization |
| Date: | 2011–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2011/11&r=ene |