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on Regulation |
| By: | Jeddi, Samir (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Sitzmann, Amelie (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)) |
| Abstract: | Adequately designed prices are essential to achieve efficient coordination between the electricity network and market participants. However, consumer prices comprise several, possibly distorting price components. In an analytical model, we examine different regulatory settings, consisting of alternative spot market pricing schemes and network tariff designs in a dynamic context. While a setting with zonal pricing and fixed network tariffs achieves the highest welfare, a deviation of either the pricing scheme or the network tariff design leads to inefficiencies. However, we show that two inefficiently designed price components can be better than one, especially if network tariffs correct for the static inefficiency of the pricing scheme. Besides the network tariff design, network operators must pay attention to the allocation of network costs. It affects spatial price signals and, therefore, the dynamic allocation of investment decisions. Considering these decisions in a dynamic framework increases the requirements for the configuration of network tariffs, especially with volume-based network tariffs. |
| Keywords: | Network tariffs; network regulation; market design; pricing schemes; dynamic consistency; spatial investment incentives |
| JEL: | D47 D61 L51 L94 Q41 |
| Date: | 2021–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:ris:ewikln:2021_001&r=all |
| By: | Hiroaki Ino (Kwansei Gakuin University); Norimichi Matsueda (Kwansei Gakuin University); Toshihiro Matsumura (The University of Tokyo) |
| Abstract: | This study investigates how the introduction of a competitor affects the behavior of an incumbent electricity producer who is a former local monopolist. We especially focus on its implications for the incumbent's capacity choice between two different electric power sources: one technology with a relatively high production cost (peak-load technology), which is represented by gas-fired power generation, and the other with a relatively high capacity-building cost (base-load technology), which is represented by nuclear power generation. We assume that the entrant does not have access to the latter technology and also that demand fluctuates over time, as is typically the case with an electricity market. Surprisingly, the introduction of a competitor increases the capacity of nuclear power generation if and only if the nuclear technology is sufficiently inefficient. This result also implies that the introduction of a competitor competition tends to decrease the nuclear capacity when the level of carbon tax, which tends to raise the relative production cost of gas-fired power generation, is sufficiently high. |
| Keywords: | ;technology choice, carbon-free energy, carbon tax, deregulation, demand uncertainty, capacity commitment, imperfect competition |
| JEL: | Q41 Q42 L13 L43 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:223&r=all |
| By: | Guy Meunier; Jean-Pierre Ponssard (X - École polytechnique) |
| Abstract: | Summary: Hydrogen is a possible alternative to the internal combustion engine, alongside battery-powered vehicles, in the context of reducing greenhouse gas emissions associated with transport activities. The costs associated with hydrogen vehicles are currently high, even when considering the greenhouse gas emissions and other pollutants avoided by their use. Efforts to reduce these costs, which will determine the social and environmental desirability of hydrogen vehicles, face two challenges : the high cost of refueling, linked to the crucial problem of coordination between development of the vehicle fleet and refueling infrastructure; and high purchase prices, which may decrease when sufficient quantities generate experience effects. This policy brief argues that each of these two handicaps calls for a specific policy design : at a local level for coordination between actors, and at a European level to generate sufficient volumes. The example of hydrogen-powered urban buses offers a telling illustration of these issues.. Key points: The growing importance of the hydrogen sector has been encouraged by various initiatives in France. These initiatives are based on the idea of a regional ecosystem : around a city, a network of local communities, or even a department or a region. The example of hydrogen buses shows that the abatement costs induced by this technology are still too high. The problem lies both in the price of the vehicles and the supply of fuel. Reducing the costs associated with the supply of fuel requires the resolution of coordination problems linked to network effects, which calls for a response at the local level. Achieving vehicle purchase prices low enough to be competitive requires a European approach, which alone makes it possible to reach significant volumes. |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03019425&r=all |
| By: | Odolinski, Kristofer (Swedish National Road & Transport Research Institute (VTI)); Lidén, Tomas (Swedish National Road & Transport Research Institute (VTI)) |
| Abstract: | In this paper we estimate the impact of line capacity utilisation on the marginal cost of rail infrastructure renewals. Previous studies are mainly concerned with deterioration costs caused by traffic. This paper contributes to the literature, showing that increased line capacity utilisation can – in addition to higher deterioration costs – generate increased costs for carrying out a renewal project and/or more frequent renewals, where the latter can be motivated by efforts to curb expected delays. A top-down econometric approach is used on a Swedish dataset comprising information on renewal costs for track, electric installations, signalling, telecommunication, and other installations such as barriers, fencing and lubrication equipment. The results are relevant for rail infrastructure managers, especially in Europe where directives by the EU stipulate that track access charges are to be based on direct costs in order to contribute to an efficient use of the infrastructure. |
| Keywords: | Marginal cost; Capacity utilisation; Renewal; Rail infrastructure; Access charging |
| JEL: | H54 L92 R48 |
| Date: | 2021–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:vtiwps:2021_001&r=all |
| By: | Jonathan Colmer; Ralf Martin; Mirabelle Muûls; Ulrich J. Wagner |
| Abstract: | In theory, market-based regulatory instruments correct market failures at least cost. However, evidence on their efficacy remains scarce. We evaluate the European Union Emissions Trading Scheme (EU ETS) - the world's first and largest market-based climate policy. Using administrative data on almost 4,000 French manufacturing firms, we estimate that the EU ETS induced regulated firms to reduce carbon dioxide emissions by 8-12% compared to unregulated firms after the Pilot phase, a necessary condition for climate change mitigation. These reductions account for 26% of the concurrent decline in aggregate industrial emission in France. We do not estimate any negative effects on the scale of production; instead we find that firms reduced the emissions intensity of value added by making targeted investments. We find no evidence that firms outsourced production to unregulated firms or markets. Collectively, these findings suggest that the EU ETS induced global emissions reductions, a necessary and sufficient condition for mitigating climate change. |
| Keywords: | climate, externalities & environmental regulation, trade and environment |
| JEL: | Q58 H23 F18 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1728&r=all |
| By: | Espinola-Arredondo, Ana (Washington State University); Stathopoulou, Eleni (University of Leicester); Munoz, Felix (Washington State University) |
| Abstract: | This paper examines green alliances between environmental groups and polluting firms, which have become more common in the last decades, and analyzes how they a¤ect policy design. We first show that the activities of regulators and environmental groups are strategic substitutes, giving rise to free-riding incentives on both agents. Nonetheless, we find that the presence of the environmental group alone yields no welfare bene?t, as firms have no incentives to alter their abatement decisions when they do not face regulation. Therefore, the introduction of environmental groups yields a welfare gain when firms are already subject to regulation, suggesting that the former cannot completely replace environmental policy. |
| Keywords: | Abatement; Emission fees; R&D disruptive e¤ects; Equilibrium pro?les; Spillovers |
| JEL: | H23 L12 Q58 |
| Date: | 2019–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:wsuwpa:2019_001&r=all |
| By: | Abajian, Alexander; Pretnar, Nick |
| Abstract: | Residential solar panels in the United States (U.S.) are inefficiently distributed in terms of optimizing solar-electrical production. Controlling for local solar electricity generation potential (insolation), the residential solar share of electrical consumption is relatively higher in cloudier locales like the Pacific Northwest and Northeast than it is in sunnier areas like the Western U.S. and Florida. Rebates designed to increase residential solar adoption in places like Florida and Texas with relatively low solar-electrical shares are ineffective and may lead to net decreases in the residential solar share if housing and electrical consumption are complementary. This is because electrical consumption increases faster in response to a decline in effective residential solar prices than actual demand for panels themselves, thus driving down the solar share despite additional installations. Through the lens of a county-level structural model of demand for housing, electricity, and solar panels, we find that this phenomenon is especially prevalent in locales with high demand for cooling services (e.g., air conditioning, refrigeration, etc.) due to high numbers of cooling degree days. Inability to effectively store solar-produced electricity may be to blame. Our results thus suggest that future policies should subsidize nascent battery technologies in place of direct solar-panel installation rebates if the goal is to increase the residential solar share of electrical consumption. |
| Keywords: | subsidies, environmental subsidy, environmental economics, electricity, energy utilities, renewable energy, solar energy, neighborhood characteristics, diffu- sion, spatial pricing, industrial geography |
| JEL: | H23 Q42 R23 |
| Date: | 2021–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:105481&r=all |
| By: | Pauline Affeldt; Tomaso Duso; Klaus Gugler; Joanna Piechucka |
| Abstract: | An increasing body of empirical evidence is documenting trends toward rising concentration, profits, and markups in many industries around the world since the 1980s. Two major criticisms of these studies is that concentration and market shares are poorly measured at the national industry level while firm level revenues are a poor indicator of product sales. We use a novel database that identifies over 20,000 product/geographic antitrust markets affected by over 2,000 mergers scrutinized by the European Commission between 1995 and 2014. We show that concentration, as measured by the market-specific post-merger HHI, is larger than reported in the extant literature (at least) by a factor of ten. We also show that concentration has increased over time on average. Yet, there is a great deal of heterogeneity across geographic markets and within broader industries. In a regression analysis that exploits this within-industry variation, we show that barriers to entry are unambiguously positively related to concentration irrespective of time periods, sectors of activity, and geographical market dimension analyzed. Strict past merger enforcement negatively correlates with concentration. Yet, this effect is stronger in the earlier decade (1995-2004) than subsequently. Intangibility of investments consistently displays positive correlation with concentration only for EU wide and worldwide services markets. In contrast, the correlation is negative in national markets. This underscores the importance of the large heterogeneity present in concentration developments across markets. |
| Keywords: | concentration, HHI, market definition, entry barriers, mergers, merger control, intangibles |
| JEL: | L24 L44 K21 O32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8866&r=all |
| By: | Krekel, Christian; Rechlitz, Julia; Rode, Johannes; Zerrahn, Alexander |
| Abstract: | Although there is strong support for renewable energy plants, they are often met with local resistance. We quantify the externalities of renewable energy plants using well-being data. We focus on the example of biogas, one of the most frequently deployed technologies besides wind and solar. To this end, we combine longitudinal household data with novel panel data on more than 13,000 installations in Germany. Identification rests on a spatial difference-in-differences design exploiting exact geographical coordinates of households, biogas installations and wind direction and intensity. We find limited evidence for negative externalities: impacts are moderate in size and spatially confined to a radius of 2,000 metres around plants. We discuss implications for research and regional planning, in particular minimum setback distances and potential monetary compensations. |
| Keywords: | renewables; biogas; externalities; social acceptance; wellbeing; spatial analysis; economic geography |
| JEL: | C23 Q42 Q51 R20 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:108526&r=all |
| By: | Indranil Chakraborty; Fahad Khalil; Jacques Lawarree |
| Abstract: | Unlike standard auctions, we show that competitive procurement may optimally limit competition or use inefficient allocation rules that award the project to a less efficient firm with positive probability. Procurement projects often involve ex post moral hazard after the competitive process is over. A procurement mechanism must combine an incentive scheme with the auction to guard against firms bidding low to win the contract and then cutting back on effort. While competition helps reduce the rent of efficient firms, it exacerbates the problem due to moral hazard. If allocative efficiency is a requirement, limiting the number of participants may be optimal. Alternatively, the same incentives can be optimally provided using inefficient allocation rules. |
| Keywords: | competitive procurement, auctions, moral hazard |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8863&r=all |
| By: | Boris C. Boonstra; Cornelis W. Oosterlee |
| Abstract: | Storage of electricity has become increasingly important, due to the gradual replacement of fossil fuels by more variable and uncertain renewable energy sources. In this paper, we provide details on how to mathematically formalize a corresponding electricity storage contract, taking into account the physical limitations of a storage facility and the operational constraints of the electricity grid. We give details of a valuation technique to price these contracts, where the electricity prices follow a structural model based on a stochastic polynomial process. In particular, we show that the Fourier-based COS method can be used to price the contracts accurately and efficiently. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2101.02917&r=all |
| By: | Michele Catalano (Prometeia); Lorenzo Forni (Prometeia and University of Padova); Emilia Pezzolla (Prometeia) |
| Abstract: | How much the transition out of greenhouse gas emissions will cost to the economy? Current available estimates differ widely. This reflects different methodologies and assumptions adopted by different studies, combined with the inherent uncertainty related to forecasting future greenhouse gas emissions and temperature increases. This paper takes a different approach. In addition to replicating business as usual scenarios, we assume as given widely-used mitigation scenarios for future carbon emissions (as the Paris agreement path for example), and then back out the combinations of fiscal tools (especially carbon price measures and tax incentives for green investments) that can minimize the transition costs. To this end the paper extends the work done in Catalano et al. [2019] by using a global overlapping generations model in the spirit of Kotlikoff et al. [2019] combined with a climate module. The results show that the estimated economic costs of the carbon transition vary significantly depending on the fiscal tools used to reduce greenhouse gas emissions. Due to adjustment costs in the production structure, the world economy would minimize the potential transition costs if sustained by debt financed investment policies. |
| Keywords: | Climate, Global Warming, Government Policy, International Economics, Fiscal Policies and Behavior of Economic Agents |
| JEL: | Q54 Q58 F0 H2 H3 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0265&r=all |
| By: | Chen, Jiaqi; Lee, Sang-Ho; Muminov, Timur |
| Abstract: | This study considers a (partially privatized) semi-public firm in a mixed duopoly and examines the welfare effects of discriminatory output subsidies under R&D competition. We find that the government grants higher subsidies to the private firm than to the semi-public firm, which induces the private firm to invest more in R&D and to produce a higher output than the semi-public firm. We also show that optimal subsidy rates are higher (lower) than uniform subsidy rates for a sufficiently high (low) degree of privatization, which could decrease (increase) social welfare. This finding sharply contrasts to the case that the committed discriminatory output subsidy always yields the highest welfare compared to non-committed cases. |
| Keywords: | mixed ownership; time-consistency; discriminatory output subsidies; R&D competition |
| JEL: | D4 L1 L3 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:105015&r=all |
| By: | Jens-Uwe Franck; Martin Peitz |
| Abstract: | The article addresses the role market definition can play for EU competition practice in the platform economy. The focus is on intermediaries that bring together two (or more) groups of users whose decisions are interdependent and which therefore are commonly referred to as “two-sided platforms”. We address challenges to market definition that accompany these cross-group network effects, assess current practice in a number of cases with the European Commission and Member States’ competition authorities, and provide guidance on how practice is to be adapted to properly account for the economic forces shaping markets with two-sided platforms. Owing to the complementarities of services provided to the user groups the platforms cater to, the question arises whether and when a single market can be defined that encompasses both sides. We advocate a multi-markets approach that takes account of cross-market linkages, acknowledges the existence of zero-price markets, and properly accounts for the homing behaviour of market participants. |
| Keywords: | antitrust law, EU competition practice, market definition, market power, Market Definition Notice, two-sided platforms, digital markets, network effects, matching platforms, zero-price markets, homing decisions, SSNIP test |
| JEL: | K21 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_259&r=all |
| By: | Edward J Oughton; Niccol\`o Comini; Vivien Foster; Jim W Hall |
| Abstract: | In recognition of the transformative opportunities that broadband connectivity presents, the United Nations Broadband Commission has committed the international community to accelerate universal access across the developing world. However, the cost of meeting this objective, and the feasibility of doing so on a commercially viable basis, are not well understood. This paper compares the global cost-effectiveness of different infrastructure strategies for the developing world to achieve universal 4G or 5G mobile broadband. Utilizing remote sensing and geospatial infrastructure simulation, least-cost network designs are developed for eight representative low and middle-income countries (Malawi, Uganda, Kenya, Senegal, Pakistan, Albania, Peru and Mexico), the results from which form the basis for aggregation to the global level. To provide at least 2 Mbps per user, 4G is often the cheapest option, whereas a minimum 10 Mbps per user is cheapest with 5G non-standalone (NSA). The cost of meeting the UN Broadband Commission target of a minimum 10 Mbps per user is estimated at USD 1.4 trillion using 5G NSA, equating to approximately 0.5% of annual GDP for the developing world over the next decade. However, by creating a favorable regulatory environment, governments can bring down these costs by as much as three quarters to USD 0.5 trillion (approximately 0.2% of annual GDP) - and avoid the need for public subsidy. Providing governments make judicious choices, adopting fiscal and regulatory regimes conducive to lowering costs, broadband universal service may be within reach of most developing countries over the next decade. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2101.07820&r=all |
| By: | Micheli, Leonardo; Fernandez, Eduardo F.; Aguilera, Jorge T.; Almonacid, Florencia |
| Abstract: | The present study analyzes the soiling losses of a 1 MW system installed in the South of Spain. Both the Levelized Cost of Energy and the Net Present Value are used to compare the convenience of different mitigation strategies. It is found that also PV installations located in moderate regions, where the yearly soiling losses are limited to 3%, can suffer of a severe seasonal soiling, with power drops higher than 20%. In these conditions, an optimized cleaning schedule can be considerably beneficial from an economic perspective. For the given site, an optimal cleaning schedule generates a raise in profits up to 3.6% if one yearly cleaning is performed within a ± 31-day window in summer. The convenience of one and multiple cleaning strategies is investigated by considering variable electricity prices and cleaning costs. In addition, the impact of the module efficiency on the cleaning strategy is analyzed. It is found that an optimized cleaning schedule can enhance the benefits of installing high efficiency modules, as it increases the amount of energy recovered through each cleaning and, therefore, the profits. |
| Keywords: | Photovoltaic; Soiling; Performance Ratio; Cleaning; Economics |
| JEL: | Q4 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104104&r=all |
| By: | Maximilian Kellner; Marco Runkel |
| Abstract: | This paper analyzes the optimal level of public debt when taxes are used not only for funding public expenditures but also for correcting externalities from climate change. Taking into account externalities implies that the optimal policy deviates from tax smoothing. Provided cumulative marginal damages are larger from today’s than from tomorrow’s emissions, the internalization of externalities decreases [increases] optimal debt if tax rates are on the increasing [decreasing] side of the Laffer curve. The reversed holds if the cumulative marginal damages increase over time. Allowing for endogenous adaptation investments reduces the deviation from tax-smoothing, but nevertheless increases optimal debt. |
| Keywords: | environmental externality, public debt, tax smoothing |
| JEL: | H23 H63 Q54 Q58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8865&r=all |
| By: | Maximilian v. Ehrlich; Henry G. Overman |
| Abstract: | Spatial disparities in income levels and worklessness in the European Union are profound, persistent and may be widening. We describe disparities across metropolitan regions and discuss theories and empirical evidence that help us understand what causes these disparities. Increases in the productivity benefits of cities, the clustering of highly educated workers and increases in their wage premium all play a role. Europe has a long-standing tradition of using capital subsidies, enterprise zones, transport investments and other place-based policies to address these disparities. The evidence suggests these policies may have partially offset increasing disparities but are not sufficient to fully offset the economic forces at work. |
| Keywords: | place based policy, cities, European Union |
| JEL: | R11 R12 R13 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1726&r=all |
| By: | Lucas W. Davis |
| Abstract: | This paper uses fare changes in Mexico City, Guadalajara, and Monterrey to estimate the price elasticity of demand for urban rail transit. In two of the cases there is a significant fare increase (30%+), and in the third there is a 60-day fare holiday. Ridership responds sharply in the expected direction in all three cities, implying price elasticities which range across cities from -.23 to -.32. In addition, there is suggestive evidence that the temporary fare holiday led to a higher baseline level of ridership. These estimates are directly relevant for policymakers considering alternative pricing structures for urban rail. The paper discusses the relevant economic considerations and then shows how the estimated elasticities can be used to perform policy counterfactuals. |
| JEL: | H23 Q53 R41 R42 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28244&r=all |