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on Regulation |
| By: | Fell, Harrison; Linn, Joshua (Resources for the Future); Munnings, Clayton (Resources for the Future) |
| Abstract: | A variety of renewable electricity policies to promote investment in wind, solar, and other types of renewable generators exist across the United States. The federal renewable energy investment tax credit, the federal renewable energy production tax credit, and state renewable portfolio standards are among the most notable. Whether the benefits of promoting new technology and reducing pollution emissions from the power sector justify these policies’ costs has been the subject of considerable debate. We argue in this paper that the debate is misguided because it does not consider two important interactions between renewable electricity generators and the rest of the power system. First, the value of electricity from a renewable generators depends on the generation and investment it displaces. Second, a large increase in renewable generation can reduce electricity prices, increasing consumption and emissions from fossil generators, and offsetting some of the environmental benefits of the policies. Two policy conclusions follow. First, existing renewable electricity policies can be redesigned to promote investment in the highest-value generators, which can greatly reduce the cost of achieving a given emissions reduction. Second, subsidies financed out of general tax revenue reduce emissions less than subsidies financed by charges to electricity consumers. |
| Keywords: | renewable portfolio standard, production tax credit, investment tax credit, feed-in tariff, clean energy standard, cost-effectiveness, intermittency, wind energy, solar energy |
| JEL: | Q40 Q54 L94 |
| Date: | 2012–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-12-54&r=reg |
| By: | Sue Mialon; Samiran Banerjee |
| Abstract: | We provide a new model of platform competition on the Internet and analyze the effect of last-mile access charges on market outcomes. Consumers subscribe to two vertically related platforms, an Internet service provider (ISP) and a content network platform (CNP), to reach content providers (CPs). CPs interact with consumers via CNPs. Local ISPs provide an essential input: the internet connection for consumers and the last-mile access for the CNPs. The effects of access regulation that lowers the ISPs' last-mile access charges depend on (i) how much consumers value the network services, (ii) how much an increase in the Internet price lowers CNPs' fees from CPs, and (iii) the elasticities of consumer demand for the Internet with respect to price and network externality. When consumers' valuation of the network services is very high, the market for Internet connection is fully covered and access regulation unambiguously improves welfare since it lowers the fees for CPs without affecting consumer demand. When consumers' valuation is very low, access regulation does not have any impact because ISPs optimally set the access charge at zero. When consumers' valuation is moderate and the CNPs' fee reduction in response to a higher Internet price is large, access regulation lowers not only the fees from CPs but also consumer Internet prices. Hence, the "seasaw principle" between consumer Internet price and access charge breaks down in this case, and access regulation unambiguously improves welfare for consumers and CPs. On the other hand, if CNPs' fee adjustment is minimal, access regulation induces a higher consumer internet price and the welfare implication of access regulation is ambiguous. Access regulation improves welfare in this case if consumer demand responds more to the change in network externality than the change in price. |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:emo:wp2003:1201&r=reg |
| By: | Beasley, Blair (Resources for the Future); Morris, Daniel (Resources for the Future) |
| Abstract: | Several different economic models have been applied to try to understand how new regulations by the U.S. Environmental Protection Agency (EPA) could impact coal-fired generation in the United States as well as the electricity system as a whole. This paper provides an overview of many of the key studies and the models used to analyze the potential impacts of EPA’s rules. The regulations surveyed include the Cross-State Air Pollution Rule (CSAPR), the Mercury and Air Toxics Standards (MATS), the proposed Clean Water Act (CWA) Section 316(b) rule, and the proposed Coal Combustion Residuals (CCR) rule. The models generally agree that these regulations will result in coal plant retirements, though there is far less agreement on how much generation may retire. Assumptions about the price of natural gas and the expected stringency of regulations play a key role in determining modeling results. The models provide useful guidance for policymakers when considering the potential impact of EPA regulation. |
| Keywords: | Clean Air Act, electricity, EPA regulation, modeling, power plant retirement |
| JEL: | C69 L51 Q47 Q48 Q52 |
| Date: | 2012–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-12-52&r=reg |
| By: | Walls, Margaret (Resources for the Future) |
| Abstract: | Residential buildings are responsible for approximately 20 percent of U.S. energy consumption, and single-family homes alone account for about 16 percent. Older homes are less energy efficient than newer ones, and although many experts have identified upgrades and improvements that can yield significant energy savings at relatively low, or even negative, cost, it has proved difficult to spur most homeowners to make these investments. In this study, I analyze the energy and carbon dioxide (CO2) impacts from three policies aimed at improving home energy efficiency: a subsidy for the purchase of efficient space heating, cooling, and water heating equipment; a loan for the same purchases; and efficiency standards for such equipment. I use a version of the U.S. Energy Information Administration’s National Energy Modeling System, NEMS-RFF, to compute the energy and CO2 effects and standard formulas in economics to calculate the welfare costs of the policies. I find that the loan is quite cost-effective but provides only a very small reduction in emissions and energy use. The subsidy and the standard are both more costly but generate emissions reductions seven times larger than the loan. The subsidy promotes consumer adoption of very high-efficiency equipment, whereas the standard leads to purchases of equipment that just reach the standard. The discount rate used to discount energy savings from the policies has a large effect on the welfare cost estimates. |
| Keywords: | energy efficiency, building retrofits, welfare costs, cost-effectiveness |
| JEL: | L94 L95 Q40 |
| Date: | 2012–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-12-47&r=reg |
| By: | Linn, Joshua (Resources for the Future); Mastrangelo, Erin; Burtraw, Dallas (Resources for the Future) |
| Abstract: | The Clean Air Act has assumed the central role in US climate policy, directing the development of regulations governing greenhouse gas emissions from existing coal-fired power plants. This paper examines the operation of coal-fired generating units over 25 years to estimate the marginal costs and potential magnitude of emissions reductions from improving their efficiency. We find that a 10 percent increase in coal prices causes a 0.2 to 0.5 percent heat rate reduction, broadly consistent with engineering assessments. We also find that coal prices have a significant effect on utilization. The results are used to compare cost-effectiveness of alternative policies. |
| Keywords: | efficiency, regulation, greenhouse gas, carbon dioxide, coal, performance standards |
| JEL: | L94 Q54 |
| Date: | 2013–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-13-05&r=reg |
| By: | Gillingham, Kenneth; Palmer, Karen (Resources for the Future) |
| Abstract: | The failure of consumers to make seemingly cost-effective investments in energy efficiency is commonly referred to as the energy efficiency gap. We review the most recent literature relevant to the energy efficiency gap and in particular discuss what the latest insights from behavioral economics might mean for the gap. We find that engineering studies may overestimate the size of the gap by failing to account for all costs and neglecting particular types of economic behavior. Nonetheless, empirical evidence suggests that market failures such as asymmetric information and agency problems affect efficiency decisions and contribute to the gap. Behavioral anomalies have been shown to affect economic decisionmaking in a variety of other contexts and are being increasingly cited as an explanation for the gap. The relative contributions of the various explanations for the gap differ across energy users and energy uses. This heterogeneity poses challenges for policymakers, but also could help elucidate when different policy interventions will most likely be cost-effective. If behavioral anomalies can be more cleanly linked to energy efficiency investments, then policymakers will face new challenges in performing welfare analysis of energy efficiency policies. |
| Keywords: | energy efficiency, market failures, behavioral failures |
| JEL: | Q38 Q41 |
| Date: | 2013–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-13-02&r=reg |
| By: | Federico Boffa; Stefano Clò; Alessio D'Amato |
| Abstract: | We compare a carbon tax and a cap and trade mechanism in their propensity to induce carbon-reducing technological adoption, when investments are undertaken under uncertainty. In our setting, risk-neutral firms affect the variance and the correlation of the shocks they are exposed to through their technological choice,making uncertainty endogenous. We find that uncertainty associated with a given technology always impacts expected profits under a carbon tax, while under a cap and trade this is the case only as long as the shocks are not correlated across the firms; if,instead, shocks are perfectly correlated,uncertainty has no impact on profits. As a result, we show that, while under a carbon tax, initially symmetric firms tend to have symmetric strategies in equilibrium (either of adoption, or non adoption), a cap and trade system might also induce asymmetric adoption. Finally, we discuss several policy applications of our work, including an analysis of the effects of combining feed-in tariffs with carbon tax or cap and trade. |
| Keywords: | carbon tax, cap and trade, technology adoption, endogenous uncertainty |
| JEL: | L5 Q58 O33 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:itt:wpaper:2013-5&r=reg |
| By: | Richard S.J. Tol (Department of Economics, University of Sussex, UK; Institute for Environmental Studies, Department of Spatial Economics, Vrije Universiteit, Amsterdam, The Netherlands); Muireann Lynch (Electricity Research Centre, University College, Dublin, Ireland); Aonghus Shortt (Electricity Research Centre, University College, Dublin, Ireland); Mark O’Malley (Electricity Research Centre, University College, Dublin, Ireland) |
| Abstract: | We employ Monte Carlo analysis to determine the distribution of returns for various electricity generation technologies. Costs and revenues for each technology are arrived by means of a sophisticated unit commitment and economic dispatch algorithm. The results show that small amounts of coal investment along with high investment in advanced CCGT can reduce the risk of baseload-only portfolios, while flexible generation technologies appear on the efficient frontier when all technology types are considered. Diversification incentives regarding operational considerations dominate over incentives to diversify between fuel types |
| Keywords: | Power generation, mean-variance portfolio |
| JEL: | Q40 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:sus:susewp:4012&r=reg |
| By: | Framstad, Nils Christian; Strand, Jon |
| Abstract: | Energy-intensive infrastructure may tie up fossil energy use and carbon emissions for a long time after investments, making the structure of such investments crucial for society. Much or most of the resulting carbon emissions can often be eliminated later, through a costly retrofit. This paper studies the simultaneous decision to invest in such infrastructure, and retrofit it later, in a model where future climate damages are uncertain and follow a geometric Brownian motion process with positive drift. It shows that greater uncertainty about climate cost (for given unconditional expected costs) then delays the retrofit decision by increasing the option value of waiting to invest. Higher energy intensity is also chosen for the initial infrastructure when uncertainty is greater. These decisions are efficient given that energy and carbon prices facing the decision maker are (globally) correct, but inefficient when they are lower, which is more typical. Greater uncertainty about future climate costs will then further increase lifetime carbon emissions from the infrastructure, related both to initial investments, and to too infrequent retrofits when this emissions level is already too high. An initially excessive climate gas emissions level is then likely to be worsened when volatility increases. |
| Keywords: | Climate Change Mitigation and Green House Gases,Climate Change Economics,Transport Economics Policy&Planning,Energy Production and Transportation,Environmental Economics&Policies |
| Date: | 2013–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6430&r=reg |