nep-ene New Economics Papers
on Energy Economics
Issue of 2005‒10‒29
six papers chosen by
Roger Fouquet
Imperial College, UK

  1. Oil Prices and the World Economy By Ray Barrell; Olga Pomerantz
  2. The Nature of Power Spikes: a regime-switch approach By Jong, C. de
  3. "China's Energy Dilemma" By Haider A Khan
  4. The climate change challenge and transitions for radical changes in the European steel industry By Christophe Rynikiewicz
  5. Production and Abatement Distortions under Noisy Green Taxes By Feng, Hongli; Hennessy, David A.
  6. Economic and Environmental Co-benefits of Carbon Sequestration in Agricultural Soils: Retiring Agricultural Land in the Upper Mississippi River Basin By Kling, Catherine L.; Feng, Hongli; Kurkalova, Lyubov; Gassman, Philip W.

  1. By: Ray Barrell; Olga Pomerantz
    Abstract: Oil prices have been associated with bouts of inflation and economic instability over the last 30 years, and they have been rising in recent months. We argue that the inflationary consequences of a rise in oil prices depend upon the policy response of the monetary authorities. They can ameliorate the short term impacts on output, but only at the cost of higher inflation. In the short term the size and distribution of output effects from an increase in oil prices depends on the intensity of oil use in production and on the speed at which oil producers spend their revenue. In the medium term higher oil prices change the terms of trade between the OECD and the rest of the world and hence reduce the equilibrium level of output in the OECD. In this paper we first discuss oil market developments and survey previous studies on the impacts of increases in oil prices. We then use our model, NiGEM, to evaluate the impact of temporary and permanent oil price increases on the world economy under various policy responses, and also analyse the impact of a decline in the speed of oil revenue recycling.
    Date: 2004–07
  2. By: Jong, C. de (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Due to its non-storable nature, electricity is a commodity with probably the most volatile spot prices, exemplified by occasional spikes. Appropriate pricing, portfolio, and risk management models have to incorporate these characteristics, and the spikes in particular. We investigate the nature of power spikes in a number of different markets. We test what time-series model is best able to capture the dynamics of these disruptive spot prices. We use regime-switching models to infer whether the price spikes should be treated as abnormal and independent deviations from the ?normal? price dynamics or whether they form an integral part of the price process. We test the time-series models on day-ahead markets in Europe and the US. We find that regimeswitch models are better able to capture the market dynamics than a GARCH(1,1) or Poisson jump model. We also find clear differences between the markets and attribute part of the differences to the share of hydro-power in the total supply stack: hydro-power serves as an indirect means to store electricity, which has a dampening effect on spikes.
    Keywords: Power Prices,;Spot Markets;Regime-switches;Volatility;Spikes;Risk;
    Date: 2005–10–14
  3. By: Haider A Khan (Department of Economics, University of Denver)
    Abstract: PRC's energy dependence is growing and has become a major concern for both economic and national security policymakers in that country. The ambitious goal of modernization of the economy along the lines of the other newly industrialized economies(NIEs) of Asia has succeeded only too well, and it is difficult to reorient economic priorities. If examined rigorously, such an economic strategic assumption can be seen to entail the goal of creating further technological capabilities. In particular, China seems to be firmly committed to the creation of a largely self-sustaining innovation system as part of a knowledge-based economy of the future . Such innovation systems, called positive feedback loop innovation systems or POLIS have been created by advanced countries, and NIEs such as South Korea and Taiwan are proceeding to create these as well. But this will add to its energy burden and further dependence on the US as the power which controls the key sea lanes. Only a strategic reorientation to building a self-sustaining POLIS and appropriate regional cooperation institutions can lead to the way out of the current dilemma for China.
    Date: 2005–10
  4. By: Christophe Rynikiewicz (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - - CNRS : FRE2664 - Université Pierre Mendès-France - Grenoble II)
    Abstract: Cet article vise à identifier les transitions technologiques en cours dans la sidérurgie européenne. Les limites actuelles du système socio-technique centré autour du haut-fourneau, impliquent en effet des changements dans les modes production, de distribution et de consommation d'acier. L'agenda évolue de la recherche de process plus propre (« cleaner production ») vers des innovations de système. Les technologies radicales ULCOS (Ultra Low CO2 Steelmaking) doivent répondre à la modification de l'environnement de sélection mais leur adoption et diffusion dépendra fortement du niveau de la contrainte « carbone » et des fondamentaux identifiés par l'économie industrielle et l'approche évolutionniste.<br />Les experts du secteur ont aussi identifié le besoin d'un agenda de recherche dédié aux modes de consommation de matériaux à long terme. L'évolution du contenu en matériaux et énergie des infrastructures, produits et services (mobilité, logement, chauffage, éclairage…) est fortement susceptible d'évoluer, en particulier dans le cadre de contraintes « carbone » fortes. L'approche « PSS » ou « product-service-system » dans le transport et la construction peut devenir une opportunité pour la sidérurgie du 21eme siècle.
    Keywords: changement climatique;eco-efficacité;industrie sidérurgique;innovation
    Date: 2005–10–20
  5. By: Feng, Hongli; Hennessy, David A.
    Abstract: Pigouvian taxes are typically imposed in situations where there is imperfect knowledge on the extent of damage caused by a producing firm. A regulator imposing imperfectly informed Pigouvian taxes may cause the firms that should (should not) produce to shut down (produce). In this paper we use a Bayesian information framework to identify optimal signal-conditioned taxes in the presence of such losses. The tax system involves reducing (increasing) taxes on firms identified as causing high (low) damage. Unfortunately, when an abatement decision has to be made, the tax system that minimizes production distortions also dampens the incentive to abate. In the absence of wrong-firm concerns, a regulator can solve the problem by not adjusting taxes for signal noise. When wrong-firm losses are a concern, the regulator has to trade off losses from distorted production incentives with losses from distorted abatement incentives. The most appropriate policy may involve a combination of instruments.
    Keywords: conditioning; heterogeneity; informativeness; Pigouvian tax; signaling
    Date: 2005–10–20
  6. By: Kling, Catherine L.; Feng, Hongli; Kurkalova, Lyubov; Gassman, Philip W.
    Abstract: This study investigates the carbon sequestration potential and co-benefits from policies aimed at retiring agricultural land in the Upper Mississippi River Basin, a large, heavily agricultural area. We extend the empirical measurement of co-benefits from the previous focus on environmental benenfits to include economic transfers. These transfers have often been mentioned as a co-benenfit, but little empirical work measruring the potential magnitude of these transfers has previously been undertaken. We compare and contrast five targeting schemes, each based on maximizing different physical environmental measures, including carbon sequestration, soil erosion, nitrogen runoff, nitrogen leaching, as well as the area enrolled in the program. In each case, the other environmental benefits and economic transfers are computed. We find that the geographic distribution of co-benefits (including economic transfers) varies significantly with the benefit targeted, implying that policy design related to targeting can have very important implications for both environmental condition and income distributions in sub-regions.
    Keywords: carbon sequestration, co-benefits, co-effects, economic transfers, environmental benefits targeting, Upper Mississippi River Basin
    Date: 2005–10–17

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.