nep-ene New Economics Papers
on Energy Economics
Issue of 2004‒12‒20
eight papers chosen by
Roger Fouquet
Imperial College, UK

  1. Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency By Kira Markiewicz; Nancy L. Rose; Catherine Wolfram
  2. A Joint Estimation of Price-Cost Margins and Sunk Capital - Theory and Evidence from the European Electricity Industry By Roeger, Werner; Warzynski, Frédéric
  3. Better safe than sorry? Reliability policy in network industries By CPB
  4. Oil price developments: drivers, economic consequences and policy responses By Anne-Marie Brook; Robert Price; Douglas Sutherland; Niels Westerlund; Christophe André
  5. Productivity Trends in the Coal Mining Industry in Canada By Jeremy Smith
  6. Report on Productivity Trends in Selected Natural Resource Industries in Canada By Centre for the Study of Living Standards
  7. A Generalized Hybrid Approach to Controlling Emissions By Mandell, Svante
  8. Economic, Environmental and International Trade Effects of the EU Directive on Energy Tax Harmonization By Michael Kohlhaas; Katja Schumacher; Jochen Diekmann; Dieter Schumacher; Martin Cames

  1. By: Kira Markiewicz; Nancy L. Rose; Catherine Wolfram
    Abstract: Although the allocative efficiency benefits of competition are a tenet of microeconomic theory, the relation between competition and technical efficiency is less clear. Neoclassical models of profit-maximization subsume static cost-minimizing behavior regardless of market competitiveness, but traditional cost-of-service regulation may mitigate incentives for cost-minimization, and agency models of managerial behavior suggest possible scope for competition to influence cost-reducing effort choices. This paper explores the empirical effects of competition on technical efficiency in the context of electricity industry restructuring. Restructuring programs adopted by many U.S. states made utilities residual claimants to cost savings and increased their exposure to competitive markets. Using data on annual generating plant-level input demand, we find that municipally-owned plants, whose owners were for the most part unaffected by restructuring, experienced the smallest efficiency gains over the past decade, while investor-owned utility plants in restructured states significantly reduced their nonfuel operating expenses and employment. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach.
    JEL: L11 L43 L51 L94 D24
    Date: 2004–12
  2. By: Roeger, Werner (European Commission); Warzynski, Frédéric (Department of Economics, Aarhus School of Business)
    Abstract: In this paper, we propose a new methodology to jointly estimate market power and the importance of sunk capital extending the work of Hall (1988) and Roeger (1995). We then apply this new technique to the European electricity industry using firm level data for the period 1994-1999, and analyze the impact of the 1996 European directive to liberalize electricity markets. We find that the average price cost margin has declined from 0.29 in 1994 to 0.22 in 1999. Moreover, the magnitude of the decline is linked to firm size: the largest firms have experienced a larger percentage fall. The variable cost parameter has increased from 0.36 in 1994 to 0.56 in 1999. The main reason of the change is the switch of the relationship between real labor productivity and the share of variable capital. Our results therefore document a more competitive electricity market and a more flexible and more efficient use of capital.
    Keywords: market power; fixed capital; liberalization; electricity market
    JEL: D24 D40 L94
    Date: 2004–12–10
  3. By: CPB
    Abstract: This report develops a roadmap for reliability policy in network industries. Based on economic theory, we analyse the relationship between reliability and various types of government policy: privatisation, liberalisation, regulation, unbundling, and 'commitment policy'. We let government policy depend on (1) the feasibility of competition between networks, (2) contractibility of reliability, and (3) the relation between profit maximisation and public interests. We test this roadmap on the basis of the empirical literature and case studies on electricity, natural gas, drinking water, wastewater, and railways.
    Keywords: reliability; network; networks; network industry; network industries; government policy; privatisation; privatization; liberalisation; liberalization; regulation; electricity; natural gas; water; railways
    JEL: L15 L22 L51 L33 L92 L L95 L98
    Date: 2004–12
  4. By: Anne-Marie Brook; Robert Price; Douglas Sutherland; Niels Westerlund; Christophe André
    Abstract: This paper analyses the factors influencing the price of oil and its likely evolution over the next quarter century. It begins by investigating the fundamental forces shaping long-term oil price developments, highlighting the importance of growth-led demand for oil, particularly that emanating from fast-growing, energy-intensive developing countries, and the implications of increasingly geographically concentrated oil reserves. The paper presents oil price projections to 2030 and examines the sensitivity of the projections to the assumptions about growth and non-OPEC supply. While certain combinations of factors could lead to a significantly higher oil price, the projections also suggest that the optimal strategy of resource-rich oil producers would be to prevent it rising too far. The paper then documents short-term influences on the oil price, which peaked at $50 a barrel in 2004, and notes that they have probably led to asignificant departure from the long-run equilibrium price which could persist for some time. Finally, the paper assesses the effects of higher oil prices on OECD-area economic activity and inflation. It argues that these effects have diminished over time, but that monetary policy should remain vigilant in preventing second-round effects on inflation. At the same time, fiscal policy should remain orientated towards longterm goals while structural policies should assist in the development of greater transparency in oil markets. <P> Evolution des prix du pétrole: moteurs, conséquences économiques et ajustement des politiques <P> Ce document analyse les facteurs qui influencent le prix du pétrole et son évolution probable au cours du prochain quart de siècle. Il examine d’abord les déterminants fondamentaux de l’évolution des prix du pétrole à long terme, en soulignant l’importance de la demande pétrolière alimentée par la croissance, en particulier celle émanant des pays en développement à forte intensité d’énergie et en expansion rapide, ainsi que les conséquences de la concentration géographique croissante des réserves pétrolières. Le document présente des prévisions des prix du pétrole jusqu’à l’horizon 2030 et évalue leur sensibilité aux hypothèses concernant la croissance et l’offre hors OPEP. Tandis que certaines combinaisons de facteurs pourraient se traduire par un prix du pétrole nettement plus élevé, les prévisions montrent aussi que pour les producteurs pétroliers dotés d’abondantes réserves la stratégie optimale consisterait à empêcher une hausse excessive des cours. L’étude décrit ensuite les influences de court terme sur le prix du pétrole, qui a culminé à 50 dollars le baril en 2004, et constate que ces facteurs ont probablement entraîné une rupture significative par rapport au prix d’équilibre de long terme qui pourrait persister pendant quelque temps. Enfin, le document évalue les effets de la hausse des prix du pétrole sur l’activité économique et l’inflation dans la zone de l’OCDE. Il en ressort que ces effets se sont atténués au fil du temps, mais que la politique monétaire devrait rester vigilante de manière à éviter les répercussions sur l’inflation. Parallèlement, la politique budgétaire devrait rester axée sur des objectifs de long terme, tandis que les politiques structurelles devraient contribuer à une plus grande transparence des marchés pétroliers.
    Keywords: crude oil; energy; market structure
    JEL: L13 Q41 Q43 Q48
    Date: 2004–12–08
  5. By: Jeremy Smith
    Abstract: The purpose of this report is to uncover the factors behind what has been a very strong productivity performance from the coal mining industry in Canada over the past four decades. It is found that real price movements have had a substantial impact on productivity growth in the coal mining industry in Canada. The real price of coal increased sharply in the 1970s due to higher demand caused by the oil price shock. This increased the profitability of sites of marginal quality and thereby lead to operations on less productive sites than those in production at that point. This had the effect of lowering the average productivity of the overall industry. However, since the 1970s, the real price of coal has fallen steadily, reversing this effect and hence contributing to the high productivity growth of the 1980s and 1990s. Another factor in this impressive productivity performance, at least in the 1980s, was the gradual closing of underground coal mines and the concentration of production on open surface mines. Surface mines typically have higher levels of labour productivity than underground mines, so this effect reinforced the price effect in increasing the average productivity of the industry. The 1990s saw the computerization of several stages of the production process, from site planning to extraction. Despite having the image of an old-fashioned industry, the coal mining industry in Canada is actually among the most intensive users of advanced technologies, and this certainly appears to have contributed to the industry’s strong productivity performance as well.
    Keywords: COal Mining, Coal Industry, Mining, Mining Industry, Canada, Productivity, Productivity Growth
    JEL: L71 J24 D24
    Date: 2004–10
  6. By: Centre for the Study of Living Standards
    Abstract: The purpose of this report is to shed light on the dynamics and determinants of productivity growth in nine selected natural resource industries and in the overall natural resource sector in Canada. This report provides a concise review of the findings of a detailed analysis undertaken by the Centre for the Study of Living Standards for Natural Resources Canada. The importance of productivity growth is reviewed, and observations are made on the contribution of natural resource industries to aggregate productivity growth; brief summaries on productivity and its determinants are presented for each of the nine industries; and the findings are synthesized into lessons for the natural resource sector as a whole. Some of the main findings are that: natural resource industries contribute disproportionately to aggregate productivity growth in Canada, with labour productivity levels twice as high as the total economy on average, and labour productivity growth one and one half times as rapid as total economy labour productivity growth; capital deepening is a key driver of labour productivity growth in natural resource industries, and high levels of capital intensity explain the high levels of labour productivity in natural resource industries; technological advance is another important driver of labour productivity growth in natural resource industries, and has also increased the importance of human capital; the earth sciences industries make a significant contribution to productivity growth in natural resource industries by providing innovative exploration and development services; and price trends play a large role in the productivity performance of many natural resource industries by determining the quality of deposit that is profitable to be exploited.
    Keywords: Forestry, Mining, Electricity, Oil and Gas, Oil, Gas, Paper Products, Wood Products, Coal Mining, Gold Mining, Diamond Mining, Forest Products, Earth Sciences, Geomatics, Productivity, Human Capital, Capital Intensity, Natural Resources, Exploration
    JEL: L71 L72 L73 O47 O51 J24 D24 O30 E62
    Date: 2004–10
  7. By: Mandell, Svante (Dept. of Economics, Stockholm University)
    Abstract: This paper examines the optimal instrument choice to control emissions under uncertainty. A hybrid regulation mechanism is developed that contains cap-and-trade, emissions taxes and socalled safety valves as special cases. This makes it possible to examine optimal policy choice and the resulting efficiency losses for each instrument. It is shown that the hybrid regulation mechanism in efficiency terms is weakly superior to the other instruments. The model is also used to study optimal response to non-optimal policy implementations.
    Keywords: Emissions tax; Emissions trading; Safety valve; Ranking; Uncertainty
    JEL: H23 Q28 Q58
    Date: 2004–11–10
  8. By: Michael Kohlhaas; Katja Schumacher; Jochen Diekmann; Dieter Schumacher; Martin Cames

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