nep-ene New Economics Papers
on Energy Economics
Issue of 2005‒02‒13
six papers chosen by
Roger Fouquet
Imperial College, UK

  1. Oil and the Macroeconomy Since the 1970s By Barsky, Robert; Kilian, Lutz
  2. Bilateral Market Power and Vertical Integration in the Spanish Electricity Spot Market By Kühn, Kai-Uwe; Machado, Matilde
  3. Accounting for differences in choice opportunities in analyses of energy expenditure By Bente Halvorsen and Runa Nesbakken
  4. Demographic Transition Environmental Concern and the Kuznets Curve By J., AZNAR-MARQUEZ; Jose-Ramon, RUIZ-TAMARIT
  5. Non Catastrophic Endogenous Growth with Pollution and Abatment By J., AZNAR-MARQUEZ; José Ramon, RUIZ-TAMARIT
  6. Profitability of different instruments in international climate policies By Finn Roar Aune, Snorre Kverndokk, Lars Lindholt and Knut Einar Rosendahl

  1. By: Barsky, Robert; Kilian, Lutz
    Abstract: Increases in oil prices have been held responsible for recessions, periods of excessive inflation, reduced productivity and lower economic growth. In this Paper, we review the arguments supporting such views. First, we highlight some of the conceptual difficulties in assigning a central role to oil price shocks in explaining macroeconomic fluctuations, and we trace how the arguments of proponents of the oil view have evolved in response to these difficulties. Second, we challenge the notion that at least the major oil price movements can be viewed as exogenous with respect to the US macroeconomy. We examine critically the evidence that has led many economists to ascribe a central role to exogenous political events in modelling the oil market, and we provide arguments in favour of ‘reverse causality’ from macroeconomic variables to oil prices. Third, although none of the more recent oil price shocks has been associated with stagflation in the US economy, a major reason for the continued popularity of the oil shock hypothesis has been the perception that only oil price shocks are able to explain the US stagflation of the 1970s. We show that this is not the case.
    Keywords: oil shock; OPEC; recession; stagflation
    JEL: E31 E32
    Date: 2004–07
  2. By: Kühn, Kai-Uwe; Machado, Matilde
    Abstract: The Spanish electricity spot market is highly concentrated both on the seller and the buyer side. Furthermore, unlike electricity spot markets in other deregulated electricity systems, large buyers and sellers are typically vertically integrated. This allows both large net sellers and large net buyers to strategically influence the spot market price. We develop a supply function model of this market to analyse the impact of market power on prices and productive efficiency and use it empiricially to detect such bilateral market power. Our estimates suggest that market power has had little impact on spot market prices but that substantial productive inefficiencies may have arisen from the exercise of bilateral market power.
    Keywords: bilateral market power; electricity markets; market power test; supply function equilibirum; vertical integration
    JEL: L13 L41 L94
    Date: 2004–09
  3. By: Bente Halvorsen and Runa Nesbakken (Statistics Norway)
    Abstract: Zero expenditure poses several challenges when estimating demand systems. Zero expenditure on energy goods occur due to limited opportunity to consume the good or because the household chooses not to use all available equipment (corner solution). In this paper we develop a method to estimate an Almost Ideal Demand System (AIDS) of household energy demand simultaneously using a Maximum Likelihood approach. The multivariate density of energy expenditures depends on the consumption opportunity of the individual household. We model the choice of corner solutions by a stochastic Kuhn-Tucker condition, and distinguish between zero expenditure due to limited consumption opportunities and corner solutions by using a Double Hurdle model. We find that accounting for zero expenditure in the estimation has a significant effect on the estimated parameters. Assuming stochastic interdependence between expenditures on different energy goods within the household, in addition to accounting for zero expenditure, has only a minor effect on the estimated coefficients.
    Keywords: Residential energy consumption; AIDS model with full price index; zero expenditure; stochastic Kuhn-Tucker condition; double hurdle model; multivariate distribution.
    JEL: D12 Q41
    Date: 2004–12
    Abstract: In an endogenous growth model with pollution and abatement we characterize the socially optimal solution. We find that the rate of growth depends negatively on the weight of environmental care in utility and positively on the population growth rate. We also find a trade-off between growth and environmental quality beyond which an environmental Kuznets curve is derived in the long term. This one emerges from the implications of the demographic transition for the rate of population growth, and the accompanying variation in the willingness to pay for environmental quality as the economy develops.
    Keywords: Optimal Growth; Environment; Population Growth; Preferences
    JEL: C61 C62 O41 Q5
    Date: 2005–01–10
    Abstract: When there are pollution externalities the competitive equilibrium is not Pareto-optimal nor environmentally sustainable even if abatment activities are endogenously decided. In this paper we introduce the possibility of an ecological catastrophe like the one predicted by the global climate change, imposing the constraint of an upper-limit to the pollutants stock. We characterize this socially optimal soclution and study conditions for the sustainability of the balanced growth path. We find a trade-off between environmental quality and growth. The rate of growth depends negatively on the weight of environmental care in the utility function and positively on the population growth rate. We show that the emissions reduction recommended in the Kioto protocol is an appropriate policy to avoid the ecological catastrophe and ensure global efficiency and positive long-run growth.
    Keywords: Environment; Externalities; Optimal Growth, Ecological Catastrophe; Sustainability
    JEL: C61 C62 O41 Q5
    Date: 2005–01–18
  6. By: Finn Roar Aune, Snorre Kverndokk, Lars Lindholt and Knut Einar Rosendahl (Statistics Norway)
    Abstract: This article discusses how different climate policy instruments such as CO2 taxes and renewable energy subsidies affect the profitability of fossil fuel production, given that a fixed global climate target shall be achieved in the long term. Within an intertemporal framework, the model analyses show that CO2 taxes reduce the short-term profitability to a greater extent than technology subsidies, since the competition from CO2-free energy sources does not become particularly noticeable until decades later. Due to e.g. discounting of future revenues, most fossil fuel producers therefore prefer subsidies to their competitors above CO2 taxes. However, this conclusion does not apply to all producers. Oil producers outside OPEC lose the most on the subsidising of CO2-free energy, while CO2 taxes only slightly reduce their profits. This is connected to OPEC’s role in the oil market, as the cartel chooses to reduce its extraction significantly in the tax scenario. The results seem to be consistent with observed behaviour of important players in the climate negotiations.
    Keywords: Climate policy; Energy markets; Technological change
    JEL: Q32 Q42 O30 Q25
    Date: 2005–01

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