nep-ene New Economics Papers
on Energy Economics
Issue of 2005‒03‒06
six papers chosen by
Roger Fouquet
Imperial College, UK

  1. U.S. Pricing in Electricity Markets: a Mean Reverting Jump Diffusion Model with Seasonality By Alvaro Cartea; Marcelo Gustavo Figueroa
  2. Electricity Derivatives and the Spot Market in Italy. Mitigating Market Power in the Electricity Market By TERMINI VALERIA; CAVALLO LAURA
  3. Efficient consumption of revenues from natural resources – An application to Norwegian petroleum revenues By Q. Farooq Akram
  4. Boutique Fuels and Market Power By Ujjayant Chakravorty; Céline Nauges
  5. Environmental Kuznetz curves for CO2 : heterogeneity versus homogeneity By Vollebergh,Herman R.J.; Dijkgraag,Elbert; Melenberg,Bertrand
  6. The Dynamics of Carbon Sequestration and Alternative Carbon Accounting, with an Application to the Upper Mississippi River Basin By Feng, HongLi

  1. By: Alvaro Cartea (School of Economics, Mathematics & Statistics, Birkbeck College); Marcelo Gustavo Figueroa (School of Economics, Mathematics & Statistics, Birkbeck College)
    Abstract: In this paper we present a mean-reverting jump diffusion model for the electricity spot price. We obtain a closed-form solution for forward contracts and calibrate it to market data from England and Wales. Finally, based on the calibrated forward curve we present months, quarters, and seasons-ahead forward surfaces.
    Date: 2005–03
    Abstract: The increased uncertainty regarding electricity prices caused by the liberalization of the sector and the launch of wholesale spot electricity markets has led to the development of financial derivatives both in regulated and over-the-counter markets. The ability of the spot market to stimulate the economic efficiency and competitiveness of the energy sector depends crucially on its efficiency and liquidity. However, as the theoretical analyses developed after the Californian crisis show, the concentration of spot-market transactions in the day-ahead market in a non-competitive industry exposes electricity prices to excessive peaks and volatility. This is due to their higher exposure to the exercise of market power by the dominant producer as well as to contingent events. This paper argues that introducing a regulated market for standardized derivatives, while giving consumers a strategic role in the market, would contribute to solving the trade-off between the liquidity of the market and the stability of the system. Some interesting policy implications emerge
    Date: 2003–04
  3. By: Q. Farooq Akram (Norges Bank)
    Abstract: This paper addresses the so-called natural resource curse by devising a rule that can reduce macroeconomic costs associated with the consumption of revenues from natural resources. It assumes that such macroeconomic costs are mainly brought about by changes in the real exchange rate, which adjusts in order to maintain external balance. Thus it derives a consumption rule, denoted as the efficient consumption rate, that would make the behaviour of the real exchange rate mimic that of the real exchange rate in the absence of natural resources. Accordingly, growth of exports and imports of traditional goods and services, and implicitly the sectoral composition of the economy, become largely immune to the consumption of natural resources. The theoretical framework is applied to estimate and evaluate an efficient consumption rate for Norway’s sizeable petroleum revenues.
    Keywords: Natural resources, Dutch disease, real exchange rate.
    JEL: Q38 F17 F41 F47
    Date: 2005–03–01
  4. By: Ujjayant Chakravorty; Céline Nauges
    Abstract: The US Clean Air Act allows individual states to implement their own clean fuel programs to address local or regional air quality concerns. These regulations have led to a proliferation of fuel blends known as “boutique fuels.” For each of the three grades of gasoline, more than 15 types of boutique fuels are currently in use, leading to about 45 different fuel blends in use nationally. These fuels are costly to produce, but they also segment the market and increase the market power of refiners. Using measures that differentiate gasoline regulation in a given state from those in neighboring states, we find that both cost and market segmentation significantly affect wholesale gasoline prices. In particular, the greater the regulatory “distance” between a state and its neighboring states, the higher the wholesale price in that state. Simulations suggest that for some states regulating a single boutique fuel nationally may lead to a counter-intuitive outcome: gasoline prices may decline, even though a larger share of their market will be under regulation.
    Date: 2005–02
  5. By: Vollebergh,Herman R.J.; Dijkgraag,Elbert; Melenberg,Bertrand (Tilburg University, Center for Economic Research)
    Abstract: We explore the emissions income relationship for CO2 in OECD countries using various modelling strategies. Even for this relatively homogeneous sample, we find that the inverted-U-shaped curve is quite sensitive to the degree of heterogeneity included in the panel estimations. This finding is robust, not only across different model specifications but also across estimation techniques, including the more flexible non-parametric approach. Differences in restrictions applied in panel estimations are therefore responsible for the widely divergent findings for an inverted-U shape for CO2. Our findings suggest that allowing for enough heterogeneity is essential to prevent spurious correlation from reduced-form panel estimations. Moreover, this inverted U for CO2 is likely to exist for many, but not for all, countries.
    JEL: C33 Q50 Q50 O50
    Date: 2005
  6. By: Feng, HongLi
    Abstract: Carbon sequestration is a temporal process in which carbon is continuously being stored/released over time. Different methods of carbon accounting can be used to account for this temporal nature, including annual average carbon, annualized carbon, and ton-year carbon. In this paper, starting by exposing the underlying connections among these methods, we examine how the comparisons of sequestration projects are affected by these methods and the major factors affecting them. We explore the empirical implications for carbon sequestration policies by applying these accounting methods to the Upper Mississippi River Basin, a large and important agriculture area in the United States. We find that the differences are significant in terms of the location of land that might be chosen and the distribution of carbon sequestration over the area, although the total amount of carbon sequestered does not differ considerably across programs that use different accounting methods or different values of the major factors.
    Date: 2005–03–02

This nep-ene issue is ©2005 by Roger Fouquet. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.