nep-ene New Economics Papers
on Energy Economics
Issue of 2006‒02‒26
twelve papers chosen by
Roger Fouquet
Imperial College, UK

  1. Equilibrium Exhaustible Resource Price Dynamics By Murray Carlson; Zeigham Khoker; Sheridan Titman
  2. How to Sustain Growth in a Resource Based Economy?: The Main Concepts and their Application to the Russian Case By Rudiger Ahrend
  3. Long-Term Contracts and Asset Specificity Revisited : An Empirical Analysis of Producer-Importer Relations in the Natural Gas Industry By Anne Neumann; Christian von Hirschhausen
  4. A Strategic Model of European Gas Supply (GASMOD) By Franziska Holz; Christian von Hirschhausen; Claudia Kemfert
  5. The Economic Costs of the Iraq War: An Appraisal Three Years After the Beginning of the Conflict By Linda Bilmes; Joseph Stiglitz
  6. Efficiency Analysis of East European Electricity Distribution in Transition : Legacy of the Past ? By Astrid Cullmann; Jürgen Apfelbeck; Christian von Hirschhausen
  7. Characterizations of long-run producer optima and the short-runapproach to long-run market equilibrium: a general theory withapplications to peak-load pricing By Anthony Horsley; Andrew J Wrobel
  8. Modelling long-run scenarios By Jean-Charles Hourcade
  9. Endogenous technology and tradable emission quotas By Golombek, Rolf; Hoel, Michael
  10. Rent sharing in the Clean Development Mechanism<br />The Case of the Tahumanu Hydroelectric Project in Bolivia By Sandrine Mathy; Christophe De Gouvello; Pierre Mollon
  11. Comment intégrer les pays en développement dans des politiques climatiques basées sur un système de quotas d'émissions ? By Sandrine Mathy
  12. Environmental federalism : a panacea or Pandora ' s box for developing countries? By Wollscheid, Jim R.; Mani, Muthukumara; Fredriksson, Per G.

  1. By: Murray Carlson; Zeigham Khoker; Sheridan Titman
    Abstract: We develop equilibrium models of an exhaustible resource market where both prices and extraction choices are determined endogenously. Our analysis highlights a role for adjustment costs in generating price dynamics that are consistent with observed oil and gas forward prices as well as with the two-factor prices processes that were calibrated in Schwartz and Smith (2000). Stochastic volatility aries in our two-factor model as a natural consequence of production for oil and natural gas prices. Differences between the endogenous price processes considered in earlier papers can generate significant differences in both financial and real option values.
    JEL: Q4 G1
    Date: 2006–02
  2. By: Rudiger Ahrend
    Abstract: In recent years economists have come to see rich natural resource endowments as a ?curse? or ?precious bane? that inevitably undermines development and slows economic growth. Resource-based development undeniably involves important risks. Nonetheless, the resource curse - if it exists - is at least no fatalité, as the examples of Australia, Canada and the Scandinavian countries demonstrate. This paper argues that the serious challenges posed by resource-dependence, which include an increased vulnerability to external shocks, the risk of ?Dutch disease?, and the risk of developing specific institutional pathologies, can be overcome, or at least very substantially mitigated, if accompanied by the right economic policies. It then analyses in detail what these ?right? economic policies are, and how to set up economic and political framework conditions to facilitate their successful implementation. The paper thereafter looks specifically at Russia as a prominent example of a resource-based economy. It investigates briefly the main drivers of Russian growth in recent years, and makes specific recommendations that would help the Russian economy to sustain high growth. <P>Comment soutenir la croissance dans une économie fondée sur l'exploitation des ressources naturelles ? Ces dernières années les économistes ont commencé à envisager la dotation en ressources naturelles comme une "malédiction" qui inévitablement mine le développement économique et freine la croissance. Le développement économique fondé sur l'exploitation des ressources naturelles comporte sans aucun doute des risques importants. Cependant, la malédiction des ressources -- si elle existe -- n'est pas toujours une fatalité, comme le montre les exemples de l'Australie, du Canada et des pays scandinaves. Cet article soutient que les défis sérieux posés par une forte dépendance envers les ressources naturelles - comme une vulnérabilité accrue aux chocs externes, le risque d'un "syndrome néerlandais" et le risque de développer des pathologies institutionnelles spécifiques - peuvent être maîtrisés, ou au moins très sensiblement amoindris, s'ils s'accompagnent de politiques économiques adéquates. L'article analyse en détail ces politiques économiques "adéquates", et comment mettre en place un cadre politique et économique qui facilite l'implémentation réussie de ces politiques. Le cas de la Russie est ensuite étudié comme un important exemple d'une économie fondée sur l'exploitation des ressources naturelles. L'article examine brièvement les principaux moteurs de la croissance de ces dernières années, et formule des propositions qui pourraient aider la Russie à maintenir une croissance forte.
    Keywords: economic growth, croissance économique, transition, transition, fiscal policy, politique budgétaire, monetary policy, politique monétaire, Russia, Russie, capital flight, natural resources, dutch disease, resource curse, oil, diversification, ressources naturelles, syndrome néerlandais, malédiction des ressources, pétrole, diversification
    JEL: E6 O1 O52 P2 Q43
    Date: 2006–02–09
  3. By: Anne Neumann; Christian von Hirschhausen
  4. By: Franziska Holz; Christian von Hirschhausen; Claudia Kemfert
  5. By: Linda Bilmes; Joseph Stiglitz
    Abstract: This paper attempts to provide a more complete reckoning of the costs of the Iraq War, using standard economic and accounting/ budgetary frameworks. As of December 30, 2005, total spending for combat and support operations in Iraq is $251bn, and the CBO's estimates put the projected total direct costs at around $500bn. These figures, however, greatly underestimate the War's true costs. We estimate a range of present and future costs, by including expenditures not in the $500bn CBO projection, such as lifetime healthcare and disability payments to returning veterans, replenishment of military hardware, and increased recruitment costs. We then make adjustments to reflect the social costs of the resources deployed, (e.g. reserve pay is less than the opportunity wage and disability pay is less than forgone earnings). Finally, we estimate the effects of the war on the overall performance of the economy. Even taking a conservative approach and assuming all US troops return by 2010, we believe the true costs exceed a trillion dollars. Using the CBO's projection of maintaining troops in Iraq through 2015, the true costs may exceed $2 trillion. In either case, the cost is much larger than the administration's original estimate of $50-$60bn. The costs estimated do not include those borne by other countries, either directly (military expenditures) or indirectly (the increased price of oil). Most importantly, we have not included the costs to Iraq, either in terms of destruction of infrastructure or the loss of lives. These would all clearly raise the costs significantly.
    JEL: H5
    Date: 2006–02
  6. By: Astrid Cullmann; Jürgen Apfelbeck; Christian von Hirschhausen
  7. By: Anthony Horsley; Andrew J Wrobel
    Abstract: This is a new formal framework for the theory of competitive equilibrium and its applications.Our "short-run approach" means the calculation of long-run producer optimaand general equilibria from the short-run solutions to the producer's profit maximizationprogramme and its dual. The marginal interpretation of the dual solution means that itcan be used to value the capital and other fixed inputs, whose levels are then adjustedaccordingly (where possible). But short-run profit can be a nondifferentiable function ofthe fixed quantities, and the short-run cost is nondifferentiable whenever there is a rigidcapacity constraint. Nondifferentiability of the optimal value requires the introductionof nonsmooth calculus into equilibrium analysis, and subdifferential generalizations ofsmooth-calculus results of microeconomics are given, including the key Wong-Viner EnvelopeTheorem. This resolves long-standing discrepancies between "textbook theory"and industrial experience. The other tool employed to characterise long-run produceroptima is a primal-dual pair of programmes. Both marginalist and programming characterizationsof producer optima are given in a taxonomy of seventeen equivalent systemsof conditions. When the technology is described by production sets, the most usefulsystem for the short-run approach is that using the short-run profit programme andits dual. This programme pair is employed to set up a formal framework for long-rungeneral-equilibrium pricing of a range of commodities with joint costs of production.This gives a practical method that finds the short-run general equilibrium en route tothe long-run equilibrium, exploiting the operating policies and plant valuations that mustbe determined anyway. These critical short-run solutions have relatively simple formsthat can greatly ease the fixed-point problem of solving for equilibrium, as is shownon an electricity pricing example. Applicable criteria are given for the existence of theshort-run solutions and for the absence of a duality gap. The general analysis is speltout for technologies with conditionally fixed coefficients, a concept extending that of thefixed-coefficients production function to the case of multiple outputs. The short-run approachis applied to the peak-load pricing of electricity generated by thermal, hydro andpumped-storage plants. This gives, for the first time, a sound method of valuing thefixed assets-in this case, river flows and the sites suitable for reservoirs.
    Keywords: general equilibrium, fixed-input valuation, nondifferentiable joint costs,Wong-Viner Envelope Theorem, public utility pricing
    JEL: C61 D24 D46 D58 L94
    Date: 2005–05
  8. By: Jean-Charles Hourcade (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Nationale du Génie Rural des Eaux et des Forêts;Ecole Nationale des Ponts et Chaussées)
    Abstract: This paper intends to draw overall lessons from a long-term study on CO2 emission in France, a country with a rather low energy/GDP ration and in which transition to non-fossil based production of electricity has been achieved. More generally, it points out the importance of possible bifurcation effects, and draws methodological and policy implications from these statements. It discusses modelling approaches to the linkages between energy and the rest of economy, and addresses the issue of difficulties in cost assessment analysis in the presence of several baseline scenarios. Finally, it proposes a more encompassing definition of no regrets policies.
    Keywords: Long-run scenarios; Modelling; CO2 emissions
    Date: 2006–02–17
  9. By: Golombek, Rolf (The Ragnar Frisch Centre for Economic Research); Hoel, Michael (Dept. of Economics, University of Oslo)
    Abstract: We study an international climate agreement that assigns emission quotas to each participating country. Unlike the simplest models in the literature, we assume that abatement costs are affected by R&D activities undertaken in all firms in all countries, i.e. abatement technologies are endogenous. In line with the Kyoto agreement we assume that the international climate agreement does not include R&D policies. We show that for a secondbest agreement, marginal costs of abatement should exceed the Pigovian level. Moreover, marginal costs of abatement differ across countries in the second-best quota agreement with heterogeneous countries. In other words, the second-best outcome cannot be achieved if emission quotas are tradable.
    Keywords: Climate policy; international climate agreements; emission quotas; technology spillovers
    JEL: H23 O30 Q20 Q25 Q28
    Date: 2006–02–17
  10. By: Sandrine Mathy (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Nationale du Génie Rural des Eaux et des Forêts;Ecole Nationale des Ponts et Chaussées); Christophe De Gouvello (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Nationale du Génie Rural des Eaux et des Forêts;Ecole Nationale des Ponts et Chaussées); Pierre Mollon (EDF - Electricité de France)
    Abstract: The Clean Development Mechanism (CDM) of the Kyoto Protocol, aims to minimise the cost of Annex B countries' commitments to reduce emissions, but also to limit the risk that the Developing Countries unquestionable right to develop will offset the Annex B countries efforts: the CDM should promote faster progress along a less polluting development path.<br />Beyond political principles, the pertinent players have to be incorporated into the decision making process of future CDM. The issues for host country include attracting the investment capacity, by taking advantage of the additional incentive created by CDM certificates. For private investors, the objective is to maximise the sum of commercial revenues plus CDM carbon income.<br />This paper examines potential CDM project opportunities in the power sector. The Tahumanu project consists of building a hydroelectric power plant instead of subsidized diesel plants in the Bolivian Pando Province. Simulations show that it offers a realistic illustration of possible set up and arrangements of CDM projects with the host country.
    Keywords: Bolivia; power sector; GHG emission reductions; private sector; decision process; carbon rent
    Date: 2006–02–20
  11. By: Sandrine Mathy (CIRED - Centre International de Recherche sur l'Environnement et le Développement - - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Nationale du Génie Rural des Eaux et des Forêts;Ecole Nationale des Ponts et Chaussées)
    Abstract: Les politiques climatiques ne seront pas acceptées par les pays en développement tant qu'elles seront perçues comme une contrainte supplémentaire sur leur développement. La répartition du fardeau imposée par le changement climatique sur ces pays doit donc être perçue comme équitable. Cependant, la diversité des métriques envisageables pour juger du caractère équitable d'une allocation de quotas compromet la possibilité d'aboutir à un accord. Par contre, un système de permis d'émissions négociables induit des transferts compensatoires qui peuvent être importants et aider à la mise en place d'un ensemble de quotas et de mesures d'accompagnement visant la levée de barrières au développement.
    Keywords: politiques climatiques; développement; équité; politiques domestiques
    Date: 2006–02–20
  12. By: Wollscheid, Jim R.; Mani, Muthukumara; Fredriksson, Per G.
    Abstract: This paper provides new empirical evidence to the debate on the optimal locus of power over environmental policymak ing in developing countries. The authors develop a simple lobby group model with mobile capital. The model predicts that a decentralized institutional structure leads to weaker environmental policy due to more intensive lobbying by capital owners and workers. They test this prediction using novel cross-sectional developing country data. The results are consistent with the prediction of the model, in particular for air pollution policies. The authors also find that the effect of decentralization declines with a greater degree of trade openness. They believe this is the first developing country evidence on the environmental policy effects of federalism.
    Keywords: Environmental Economics & Policies,Economic Theory & Research,Banks & Banking Reform,Environmental Governance,Green Issues
    Date: 2006–02–01

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