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on Regulation |
| By: | Carsten Helm (University of Oldenburg, Department of Economics); Mathias Mier (ifo Institute, Munich) |
| Abstract: | We consider an economy in which competitive firms use three technologies for electricity production: pollutive fossils, intermittent renewables like wind or solar, and storage. We determine optimal subsidies for renewables and storage capacities when carbon pricing is imperfect. This policy is efficient for low market shares of intermittent renewables in the energy system, but it turns inefficient once there are sucient renewables to partly displace fossil electricity production at times of high availability. Moreover, the subsidy scheme is substantially more complex than a first-best Pigouvian tax. The optimal renewable subsidy is always positive but tends to decrease as electricity production becomes less reliant on fossils. The optimal storage subsidy even changes its sign. It is usually negative as long as fossils contribute to lling the storage, but turns positive if fossils are used only during times of low availability of renewables. This is because more storage capacity reduces the price during times of destorage, but raises it when electricity is taken from the market to fill the storage. This has countervailing effects on firms' incentives to invest in fossil capacities, and these effects are more pronounced the higher the round-trip effciency losses during a storage cycle. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:old:dpaper:413&r=reg |
| By: | Vivek Ghosal; Andreas Stephan; Jan F. Weiss |
| Abstract: | Using a unique plant-level dataset we examine total factor productivity (TFP) growth and its components, related to efficiency change and technical change. The data we use is from Sweden and for their pulp and paper industry, which is heavily regulated due to its historically large contribution to air and water pollution. Our paper contributes to the broader empirical literature on the Porter Hypothesis, which posits a positive relationship between environmental regulation and “green” TFP growth of firms. Our exercise is innovative as Sweden has a unique regulatory structure where the manufacturing plants have to comply with plant-specific regulatory standards stipulated at the national level, as well as decentralized local supervision and enforcement. Our key findings are: (1) prudential regulation limits expansion of plants with high initial pollution; (2) regulation, however, is not conducive to plants’ “green” technical change, which provides evidence against the recast version of the Porter Hypothesis; (3) decentralized command-and-control regulation is prone to regulatory bias, entailing politically motivated discriminatory treatment of plants with otherwise equal characteristics. |
| Keywords: | pollution, environmental regulations, plant-specific regulation, decentralized regulation, enforcement, political-economy, Porter Hypothesis, TFP, productivity, efficiency, technical change, pulp and paper industry |
| JEL: | D24 L51 L60 Q52 Q53 Q58 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7255&r=reg |
| By: | Onno Kuik (IVM, VU Amsterdam); FrŽdŽric Branger (CIRED); Philippe Quirion (CIRED, CNRS) |
| Abstract: | Pioneering domestic environmental regulation may foster the creation of new eco-industries. These industries could benefit from a competitive advantage in the global market place. This article examines empirical evidence of the impact of domestic renewable energy policies on the export performance of renewable energy products (wind and solar PV). We use a gravity model of international trade with a balanced dataset of 49 (for wind) and 40 (for PV) countries covering the period 1995-2013. The stringency of renewable energy policies are proxied by installed capacities. Our econometric model shows evidence of competitive advantage positively correlated with domestic renewable energy policies, sustained in the wind industry but brief in the solar PV industry. We suggest that the reason for the dynamic difference lies in the underlying technologies involved in the two industries. |
| Keywords: | Competitive Advantage, Gravity Model, Wind Industry, Solar PV Industry, Green Growth |
| JEL: | F14 K32 Q42 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:fae:wpaper:2018.12&r=reg |
| By: | Steve Dahlke |
| Abstract: | This paper analyzes the market impacts of expanding California's centralized electricity market across the western United States and provides the first statistical assessment of this issue. Using market data from 2015-2018, I estimate the short-term effects of increasing regional electricity trade between California and neighboring states on prices, emissions, and generation. Consistent with economic theory, I find negative price impacts from regional trade, with each 1 gigawatt-hour (GWh) increase in California electricity imports associated with an average 0.15 dollar decrease in CAISO price. The price effect yields significant consumer savings well in excess of implementation costs required to set up a regional market. I find a short-term decrease in California carbon dioxide emissions associated with trading that is partially offset by increased emissions in neighboring regions. Specifically, each 1 GWh increase in regional trade is associated with a net 70-ton average decrease in CO2 emissions across the western U.S. A small amount of increased SO2 and NOx emissions are also observed in neighboring states associated with increased exports to California. This implies a small portion (less than 10 percent) of electricity exports to California are supplied by coal generation. This study identifies substantial short-term monetary benefits from market regionalization for California consumers. It also shows that California's cap and trade program is relatively effective in limiting the carbon content of imported electricity, even absent a regional cap on CO2. The conclusions suggest efforts to reduce trade barriers should move forward in parallel with strong greenhouse gas policies that cap emissions levels across the market region. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1810.04759&r=reg |
| By: | Gugler, Klaus; Heim, Sven; Janssen, Maarten C. W.; Liebensteiner, Mario |
| Abstract: | We study how consumer search affects pricing in markets with incumbents and entrants using panel data on German electricity retail markets. Consumers observe the baseline price of the incumbent and decide whether or not to search. Incumbent providers can price discriminate between searching and loyal consumers. Empirically we show that local incumbents increase their baseline rate while entrants decrease their tariffs if consumer search increases. Moreover, the incumbent price discriminates more strongly in markets with more consumer search. Using a theoretical model, we show that these pricing patterns are consistent with the strategic interaction of profit-maximizing firms. |
| Keywords: | Search,Price Dispersion,Price Discrimination,Electricity |
| JEL: | D43 D83 L11 L13 Q40 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:18042&r=reg |
| By: | Nyathikala, Sai Amulya Nyathikala; Jamasb, Tooraj; Llorca, Manuel; Kulshrestha, Mukul Kulshrestha |
| Abstract: | Network utilities across the world are subject to regulation and political scrutiny. In developing countries, managing the trade-offs between socioeconomic and environmental objectives in public water and energy utilities is particularly challenging. These industries share important underlying technical and economic features. Therefore, many economic, governance, and policy lessons are transferable across these sectors. In India, the water sector suffers from mounting financial losses, lack of access, and poor quality of service. There is a dearth of literature on the multi-faceted nature of utility performance related to water utilities. We examine the socioeconomic and environmental aspects of urban water supply in India. We use a stochastic frontier analysis approach and distance functions to analyse the performance of 304 urban water supply utilities in three Indian states during the period 2010-2015. The results suggest that incentive-based economic reform and regulation would help the utilities improve their performance. More specifically measures to improve cost recovery, billing efficiency and reduce losses would help the utilities to enhance service delivery, expand coverage and induce efficiency in the sector. The results also show the dependence of water utilities on groundwater sources which is unsustainable in the long run. We highlight the need for designing economic incentives to improve the performance of utilities and enable them to achieve social and sustainability objectives. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:oeg:wpaper:2018/04&r=reg |
| By: | DorothŽe CHARLIER (USMB IREGE); Sond s KAHOULI (UniversitŽ Bretagne Occidentale AMURE) |
| Abstract: | The residential energy demand is growing steadily and the trend is expected to continue in the near future. At the same time, under the impulse of economic crises and environmental and energy policies, many households have experienced reductions in real income and higher energy prices. In the residential sector, the number of fuel-poor households is thus expected to rise. A better understanding of the determinants of residential energy demand, in particular of the role of income and the sensitivity of households to changes in energy prices, is crucial in the context of recurrent debates on energy efficiency and fuel poverty. We propose a panel threshold regression (PTR) model to empirically test the sensitivity of French households to energy price fluctuations Ð as measured by the elasticity of residential heating energy prices Ð and to analyze the overlap between their income and fuel poverty profiles. The PTR model allows to test for the non-linear effect of income on the reactions of households to fluctuations in energy prices. Thus, it can identify specific regimes differing by their level of estimated price elasticities. Each regime represents an elasticity-homogeneous group of households. The number of these regimes is determined based on an endogenously PTR-fixed income threshold. Thereafter, we analyze the composition of the regimes (i.e. groups) to locate the dominant proportion of fuel-poor households and analyse their monetary poverty characteristics. Results show that, depending on the income level, we can identify two groups of households that react differently to residential energy price fluctuations and that fuel-poor households belong mostly to the group of households with the highest elasticity. By extension, results also show that income poverty does not necessarily mean fuel poverty. In terms of public policy, we suggest focusing on income heterogeneity by considering different groups of households separately when defining energy efficiency measures. We also suggest paying particular attention to targeting fuel-poor households by examining the overlap between fuel and income poverty. |
| Keywords: | Fuel poverty, Residential energy demand, Price elasticity, Income elasticity, Panel threshold regression |
| JEL: | C23 C24 C26 Q43 Q48 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:fae:wpaper:2018.11&r=reg |
| By: | Andrea Bastianin; Paolo Castelnovo; Massimo Florio |
| Abstract: | Proxies for regulatory reforms based on categorical variables are increasingly used in empirical evaluation models. We surveyed 63 studies that rely on such indices to analyze the effects of entry liberalization, privatization, unbundling, and independent regulation of the electricity, natural gas, and telecommunications sectors. We highlight methodological issues related to the use of these proxies. Next, taking stock of the literature, we provide practical advice for the design of the empirical strategy and discuss the selection of control and instrumental variables to attenuate endogeneity problems undermining identification of the effects of regulatory reforms. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1810.03348&r=reg |
| By: | Dakpogan, Arnaud; Smit, Eon |
| Abstract: | The current study has assessed the losses of GDP caused by electricity losses in Benin over the period 1980-2014. The technique used was the Autoregressive Distributive Lags (ARDL). Results showed that in the long run Benin loses 0.16% of its GDP on average because of electricity losses. Benin is a country which faces important losses of electricity. A financing mechanism of the cost associated with reduction of electricity losses has been proposed in the national policy framework for electricity. By investigating the gain in GDP resulting from a reduction in electricity losses, the current study has assessed the feasibility of such mechanism, and thus contributes to the advancement of energy efficiency policy in Benin. |
| Keywords: | Electricity losses, GDP, financing mechanism, national policy framework, efficiency, Benin. |
| JEL: | Q43 Q48 |
| Date: | 2018–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89545&r=reg |
| By: | Paul Neetzow; Roman Mendelevitch; Sauleh Siddiqui |
| Abstract: | Distributed photo-voltaic (PV) generation is one of the pillars of energy transitions around the world, but its deployment in the distribution grid requires costly reinforcements and expansions. Prosumage - consisting of a household-level PV unit coupled with a battery storage system - has been proposed as an effective means to facilitate the integration of renewable energy sources and reduce distribution grid stress. However, tapping its full potential requires regulatory interventions; otherwise, system costs could rise despite increasing flexibility. We analyze the effectiveness of different policy schemes to mitigate the need for distribution capacity expansion by incentivizing beneficial storage operation. Our novel top-down modeling approach allows analyzing effects on market prices, storage dispatch, induced distribution grid requirements, system costs, and distributional implications. Numerical results for German power system data indicate that required distribution grid requirements can be reduced through simple feed-in policies. A uniform limit on maximum grid feed-in can leave distribution system operators better off, even if they fully compensate prosumage households for foregone revenue. Policies imposing more differentiated limits at the regional level result in only marginal efficiency improvements. Complete self-sufficiency (autarky) is socially undesirable, as it confines important balancing potential and can increase system costs despite adding storage. |
| Keywords: | Residential storage, renewable integration, distribution system operator, prosumage, policy, multi-level games, MPEC |
| JEL: | C61 L94 Q41 Q42 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1766&r=reg |
| By: | Ren\'e A\"id; Dylan Possama\"i; Nizar Touzi |
| Abstract: | Despite the success of demand response programs in retail electricity markets in reducing average consumption, the literature shows failure to reduce the variance of consumers' responses. This paper aims at designing demand response contracts which allow to act on both the average consumption and its variance. The interaction between the producer and the consumer is modelled as a Principal-Agent problem, thus accounting for the moral hazard underlying demand response programs. The producer, facing the limited flexibility of production, pays an appropriate incentive compensation in order to encourages the consumer to reduce his average consumption and to enhance his responsiveness. We provide closed-form solution for the optimal contract in the case of linear energy valuation. Without responsiveness incentive, this solution decomposes into a fixed premium for enrolment and a proportional price for the energy consumed, in agreement with previously observed demand response contracts. The responsiveness incentive induces a new component in the contract with payment rate on the consumption quadratic variation. Finally, under the optimal contract with optimal consumer behaviour, the resulting consumption volatility may decrease as required, but it may also increase depending on the risk aversion parameters of both actors. This agrees with standard risk sharing effects. The calibration of our model to publicly available data of a large scale demand response experiment predicts a significant increase of responsiveness under our optimal contract, a significant increase of the producer satisfaction, and a significant decrease of the consumption volatility. The stability of our explicit optimal contract is justified by appropriate sensitivity analysis. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1810.09063&r=reg |
| By: | Gersbach, Hans; Riekhof, Marie-Catherine |
| Abstract: | Innovation clusters that combine public basic research and applied research performed by private firms may be needed for greater technological advances to slow down climate change. We use a multi-country model with emissions permit trade to examine how international climate policy can induce countries to create such clusters. We allow for a varying degree of cooperation between the countries, represented by different carbon price targets. We find that a minimal carbon price is needed to attract applied research firms, but countries may nevertheless fail to invest in basic research. We construct a mechanism that can overcome this barrier and that can induce the first-best creation of innovation clusters. The mechanism involves a combination of few permits given to the country with the lowest costs for basic research, fair burden-sharing and maximal grandfathering. |
| Keywords: | International permit markets,Carbon prices,Innovation clusters,Basic research,Applied R&D,Climate change mitigation,Externalities |
| JEL: | H23 Q54 O32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc18:181611&r=reg |
| By: | Lionel Nesta (Observatoire français des conjonctures économiques); Elena Verdolini (Fondazione Eni Enrico Mattei (FEEM), Milan); Francesco Vona (Observatoire français des conjonctures économiques) |
| Abstract: | With the striking exception of the USA, countries around the world are committed to the implementation of stringent targets on anthropogenic carbon emissions, as agreed in the Paris Climate Agreement. Indeed, for better or for worse, the transition towards decarbonisation is a collective endeavour, with the main challenge being a technological one. The path from a fossil-based to a sustainable and low-carbon economy needs to be paved through the development and deployment of low-carbon energy technologies which will allow to sustain economic growth while cutting carbon emissions. [First paragraph] |
| Keywords: | Environment; Environmental policies; Sustainable development |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6o8q03d7el85vbvo8j8ee39br5&r=reg |
| By: | Lawrence H. Goulder; Marc A. C. Hafstead; GyuRim Kim; Xianling Long |
| Abstract: | This paper assesses the impacts across US household income groups of carbon taxes of various designs. We consider both the source-side impacts (reflecting how policies affect nominal wage, capital, and transfer incomes) and the use-side impacts (reflecting how policies alter prices of goods and services purchased by households). We apply an integrated general equilibrium framework with extended measures of the source- and use-side impacts that add up to the overall welfare impact. The distributional impacts depend importantly on the revenue recycling method and treatment of transfer income. In the absence of compensation targeted to particular income groups, use-side impacts tend to be regressive and source-side impacts progressive, with the progressive source-side impacts fully offsetting the regressive use-side impacts. Both types of impact are considerably larger under our more comprehensive welfare measures than under more conventional measures. The efficiency costs of targeted compensation to achieve distributional objectives depend critically on the recycling method and compensation target. These costs are an order of magnitude higher when the revenues that remain after compensation are used for corporate income tax cuts than when the remaining revenues are used in other ways. Efficiency costs rise dramatically when targeted compensation extends beyond the lowest income quintiles. |
| JEL: | D58 H23 Q52 Q54 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25181&r=reg |
| By: | Bothwell Nyoni (Innoventon and the Downstream Chemicals Technology Station, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University) |
| Abstract: | With escalating fears of climate change reaching irreversible levels, much emphasis has been recently placed on shifting to renewable sources of energy in supporting future economic livelihood. Focusing on South Africa, as Africa’s largest energy consumer and producer, our study investigates the short-run and long-run effects of renewable energy on economic growth using linear and nonlinear autoregressive distributive lag (ARDL) models. Working with data availability, our empirical analysis is carried out over the period of 1991 to 2016, and our results unanimously fail to confirm any linear or nonlinear cointegration effects of the consumption and production of renewable energy on South African economic growth. We view the absence of cointergation relations as an indication of inefficient usage of renewable energy in supporting sustainable growth in South Africa and hence advise policymakers to accelerate the establishment of necessary renewable infrastructure in supporting future energy requirements. |
| Keywords: | Renewable energy, economic growth, ARDL, nonlinear ARDL, South Africa, Sub-Sahara Africa (SSA). |
| JEL: | C13 C32 C52 Q43 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:mnd:wpaper:1833&r=reg |