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on Regulation |
| By: | Oskar Lecuyer (OCCR,University of Bern); Philippe Quirion (CNRS, CIRED) |
| Abstract: | We study the interactions between a CO2 emissions trading system (ETS) and renewable energy subsidies under uncertainty over electricity demand and energy costs. We first provide evidence that uncertainty has generated over-allocation (defined as an emissions cap above business-as-usual emissions) during at least part of the history of most ETSs in the world. We then develop an analytical model and a numerical model applied to the European Union electricity market in which renewable energy subsidies are justified only by CO2 abatement. We show that in this context, when uncertainty is small, renewable energy subsidies are not justified, but when it is big enough, these subsidies increase expected welfare because they provide CO2 abatement even in the case of over-allocation. The source of uncertainty is important when comparing the various types of renewable energy subsidies. Under uncertainty over electricity demand, renewable energy costs or gas prices, a feed-in tariff brings higher expected welfare than a feed-in premium because it provides a higher subsidy when it is actually needed i.e. when the electricity price is low. Under uncertainty over coal prices, the opposite result holds true. These results shed new light on the ongoing switch from feed-in tariffs to feed-in premiums in Europe. |
| Keywords: | Willingness to pay, Social capital, Environmental protection, Ordered logistic regression, Sweden |
| JEL: | Q28 Q48 Q58 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:fae:wpaper:2016.14&r=reg |
| By: | Carsten Helm (University of Oldenburg, Department of Economics); Mathias Mier (University of Oldenburg, Department of Economics) |
| Abstract: | When the supply of intermittent renewable energies like wind and solar is high, the electricity price is low. Conversely, prices are high when their supply is low. This reduces the profit potential in renewable energies and, therefore, incentives to invest in renewable capacities. Nevertheless, we show that perfect competition and dynamic pricing lead to efficient choices of renewable and fossil capacities, provided that external costs of fossils are internalized by an appropriate tax. We also investigate some properties of electricity markets with intermittent renewables and examine the market diffusion of renewables as their capacity costs fall. We show that the intermittency of renewables causes an S-shaped diffusion pattern, implying that a rapid build-up of capacities is followed by a stage of substantially slower development. While this pattern is well known from the innovation literature, the mechanism is new. Moreover, the S-shaped pattern is followed by another acceleration phase towards the end of the diffusion process. We also find that technology improvements such as better storage capabilities have substantial effects not only on the speed of market penetration, but also on its pattern. Finally, fluctuations of energy prices rise with the share of renewables. If regulators respond with a price cap, this leads to a faster market diffusion of renewables. |
| Keywords: | renewable energies, peak-load pricing, intermittent energy sources, technology diffusion, price caps, energy transition |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:old:dpaper:389&r=reg |
| By: | Saglam, Ismail |
| Abstract: | Baron and Myerson (BM) (1982)propose an incentive-compatible, individually rational and ex-ante socially optimal direct-revelation mechanism to regulate a monopolistic firm with unknown costs. We show that their mechanism is not ex-post Pareto dominated by any other feasible direct-revelation mechanism. However, there also exist an uncountable number of feasible direct-revelation mechanisms that are not ex-post Pareto dominated by the BM mechanism. To investigate whether the BM mechanism remains in the set of ex-post undominated mechanisms when the Pareto axiom is slightly weakened, we introduce the epsilon-Pareto dominance. This concept requires the relevant dominance relationships to hold in the support of the regulator's beliefs everywhere but at a set of points of measure epsilon, which can be arbitrarily small. We show that a modification of the BM mechanism which always equates the price to the marginal cost can epsilon-Pareto dominate the BM mechanism at uncountably many regulatory environments, while it is never epsilon-Pareto dominated by the BM mechanism at any regulatory environment. |
| Keywords: | Monopoly; Regulation; Asymmetric Information; Pareto Efficiency |
| JEL: | D82 L51 |
| Date: | 2016–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:71090&r=reg |
| By: | Catherine Leining (Motu Economic and Public Policy Research); Suzi Kerr (Motu Economic and Public Policy Research) |
| Abstract: | The New Zealand Emissions Trading Scheme (NZ ETS) is the New Zealand government’s cornerstone policy instrument for meeting New Zealand’s climate change responsibilities. The New Zealand system was designed based on strong linkages to international carbon markets. Understanding how these have affected the New Zealand market is critical both for policymakers in New Zealand and designers of international emissions trading schemes who are considering linkages. We adapt Pizer and Yates' 2013 model of a linked tradable permit systems to conditions in the NZ ETS. We compare the model with price and surrender data and find that the international linkage works as expected. When New Zealand is a buyer of units and linking is certain, NZU prices are roughly equal to the Kyoto unit price. When the New Zealand government announces that New Zealand will de-link – no longer allowing any international units – prices diverge and New Zealand participants meet almost all current obligations with Kyoto units, saving their NZUs for the delinked future. |
| Keywords: | New Zealand Emissions Trading Scheme (NZ ETS), Emissions trading, linked tradable permit market, Kyoto units, Certified Emission Reductions (CERs), Emission Reduction Units (ERUs), greenhouse gas, carbon markets. |
| JEL: | Q54 Q58 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:mtu:wpaper:16_06&r=reg |
| By: | Gibbons, Steve; Lyytikainen, Teemu; Overman, Henry G; Sanchis-Guarner, Rosa |
| Abstract: | This paper estimates the impact of new road infrastructure on employment and productivity using plant level longitudinal data for Britain. Exposure to transport improvements is measured through changes in accessibility, which is calculated at a detailed geographical scale from changes in minimum journey times along the road network. These changes are induced by the construction of new road link schemes. We deal with the potential endogeneity of scheme location by identifying the effects of changes in accessibility from variation across wards close to the scheme. We find substantial positive effects on employment and numbers of plants for small-scale geographical areas (electoral wards). In contrast, for firms already in the area we find negative effects on employment coupled with increases in output per worker and wages. A plausible interpretation is that new transport infrastructure attracts transport intensive firms to an area, but with some cost to employment in existing businesses. |
| Keywords: | accessibility; employment; productivity; transport |
| JEL: | D24 O18 R12 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11239&r=reg |
| By: | Loy, Jens-Peter; Glauben, Thomas; Weiss, Christoph |
| Abstract: | We estimate cost pass-through rates based on data for store-level retail prices and wholesale costs. The data allows us to identify heterogeneity in cost pass-through across retailers and relate it to underlying explanatory factors such as retailer market power, measures of consumer search and menu costs. Results from a threshold-errorcorrection- model clearly provide empirical support for the ‘rockets and feathers’ phenomenon. In contrast to much of the literature which explains the ‘rockets and feathers’ phenomenon as a result of retailers’ market power, we find contrary find that the degree of asymmetry between costs and prices is negatively related to a measure of market power. |
| Keywords: | Asymmetric Cost Pass-Through, Market Power, Menu Costs, Search Costs, Milk, Food Retailing, Germany, Agricultural and Food Policy, Consumer/Household Economics, C32, D21, L11, L81, |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae15:212156&r=reg |
| By: | Kannika Thampanishvong (Thailand Development Research Institute) |
| Keywords: | Information, household, electricity consumption, Thailand |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:eep:pbrief:pb20160428&r=reg |
| By: | Alberto Bagnai (Department of Economics, Gabriele d'Annunzio University); Christian Alexander Mongeau Ospina (Italian Association for the Study of Economic Asymmetries) |
| Abstract: | Building on the well-established “rockets and feathers” literature, and on the recently developed nonlinear autoregressive distributed lag (NARDL) modelling, we investigate the asymmetries in gasoline pricing on a comprehensive sample of monthly data from twelve Eurozone countries running from 1994:1 to 2014:12. The empirical results feature two robust patterns. Firstly, while the effects of exchange rate variations display a positive asymmetry (i.e., devaluations have a greater impact with respect to revaluations), crude price variations induce negative asymmetry (i.e., reductions in the price of crude oil have a greater impact than price rises). Secondly, the positive asymmetry to exchange rate changes is much stronger in core Eurozone countries. The negative asymmetry with respect to crude oil prices confirms the results of recent empirical research and theoretical models. |
| Keywords: | asymmetric cointegration, asymmetric price adjustment, pass-through, gasoline price, European gasoline market, signaling. |
| JEL: | C22 D43 D82 E31 L71 Q41 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:ais:wpaper:1602&r=reg |
| By: | Fried, Stephie; Novan, Kevin; Peterman, William B. |
| Abstract: | This paper examines the non-environmental welfare effects of introducing a revenue- neutral carbon tax policy. Using a life cycle model, we find that the welfare effects of the policy differ substantially for agents who are alive when the policy is enacted compared to those who are born into the new steady state with the carbon tax in place. Consistent with previous studies, we demonstrate that, for those born in the new steady state, the welfare costs are always lower when the carbon tax revenue is used to reduce an existing distortionary tax as opposed to being returned in the form of lump-sum payments. In contrast, during the transition, we find that rebating the revenue with a lump sum transfer is less costly than using the revenue to reduce the distortionary labor tax. Additionally, we find that the tax policy is substantially more regressive over the transition than in the steady state, regardless of what is done with the revenue. Overall, our results demonstrate that estimates of the non-environmental welfare costs of carbon tax policies that are based solely on the long-run, steady state outcomes may ultimately paint too rosy of a picture. Thus, when designing climate policies, policymakers must pay careful attention to not only the long-run outcomes, but also the transitional welfare costs and regressivity of the policy. |
| Keywords: | Carbon taxation ; overlapping generations |
| JEL: | E62 H21 H23 |
| Date: | 2016–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2016-38&r=reg |
| By: | Matthew T. Cole (Department of Economics, California Polytechnic State University); Ronald Davies (School of Economics, University College Dublin); Todd Kaplan (Department of Economics, University of Exeter) |
| Abstract: | Discrimination against foreign bidders in procurement auctions has typically been achieved by price preferences, that is, a policy of accepting a range of higher prices from a domestic firm over a lower price from a foreign firm. We demonstrate that in the bidding game, each level of protection via a price preference can be achieved by an equivalent tariff. When government welfare depends only on net expenditures, this equivalence carries over to the government's decision. As such, agreements to eliminate price preferences may be unsuccessful unless accompanied by tariff limitations. On the other hand, if tariff collection is costly, then even without tariff limits banning price preferences lowers protection and increases global welfare. |
| Keywords: | Government Procurement, Tariffs, Price Preference |
| JEL: | F13 H57 F12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cpl:wpaper:1601&r=reg |