nep-ene New Economics Papers
on Energy Economics
Issue of 2006‒04‒08
thirteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. The relationship between regulation and competition policy for network utilities By David Newbery
  2. Gas thin markets:insights from bargaining and networks models By Matteo Maria GALIZZI
  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. Prediction Markets in Theory and Practice By Wolfers, Justin; Zitzewitz, Eric
  5. The distributional incidence of residential water and electricity subsidies By Abdullah, Roohi; Wodon, Quentin; Foster, Vivien; Halpern, Jonathan; Komives, Kristin
  6. Energy and Carbon Dynamics at Advanced Stages of Development: An Analysis of the U.S. States, 1960–1999 By Aldy, Joseph E.
  7. On the Costs of Policies to Reduce Greenhouse Gases from Passenger Vehicles By Parry, Ian W.H.
  8. Efficient Abatement in Separated Carbon Markets: A Theoretical and Quantitative Analysis of the EU Emissions Trading Scheme By Sonja Peterson
  9. Are Absolute Emissions Better for Modeling? It's All Relative By Fischer, Carolyn
  10. Implementing greenhouse gas trading in Europe: lessons from economic literature and international experiences By Catherine Boeamare; Philippe Quirion
  11. Amplifying effects of land-use change on future atmospheric CO2 levels By Vincent Gitz; Philippe Ciais
  12. North-South Climate Change Negotiations:<br />a Sequential Game with Asymmetric Information By Alexandro Caparros; Jean-Christophe Pereau; Tarik Tazdait
  13. Satisfaction with Democracy and the Environment in Western Europe – a Panel Analysis By Alexander F. Wagner; Friedrich Schneider

  1. By: David Newbery
    Abstract: Should regulation of potentially competitive elements of network utilities be left with sector regulators or solely subject to normal competition laws? Britain evolved licenses for network activities overseen by regulators while the EU places more emphasis on making sector regulation consistent with competition law. The paper discusses the appropriateness of the competition law approach for telecoms and electricity. Post-modern utilities like telecoms, in which facilities-based competition is possible, lend themselves to the approach laid out in the Communications Directives, and its application to mobile call termination is discussed. Electricity, where collective dominance is more likely, does not fit comfortably into this approach. Instead, licence conditions retain advantages where it may be necessary to modify market rules in a timely and well-informed manner, as exemplified by the English Electricity Pool.
    Keywords: Regulation, competition policy, telecommunications, electricity, market power
    JEL: G18 L94 L96
    Date: 2006–02
  2. By: Matteo Maria GALIZZI
    Abstract: Several results from bargaining and networks microeconomic litera ture are presented and their main insights and applications to bi lateral market power and price formation in gas thin markets are discussed. Bargaining models encompass the bilateral Rubinstein negotiations, bargaining between a single seller and two buyer, b oth symmetric and heterogeneous and negotiations in bilateral oli gopolies. Models of price formation both in fixed and in endogeno usly formed buyers-sellers networks are also discussed.
    Keywords: Gas Industry, Bargaining, Networks, Thin markets
  3. By: Anne Neumann; Christian von Hirschhausen
    Abstract: In this paper, we analyze structural changes in long-term contracts in the international trade of natural gas. Using a unique data set of 262 long-term contracts between natural gas producers and importers, we estimate the impact of different institutional, structural and technical variables on the duration of contracts. We find that contract duration decreases as the market structure of the industry develops to more competitive regimes. Our main finding is that contracts that are linked to an asset specific investment are on average four years longer than those who are not.
    Keywords: asset specificity, econometric analysis, long-term contracts, natural gas
    Date: 2006–02
  4. By: Wolfers, Justin; Zitzewitz, Eric
    Abstract: Prediction Markets, sometimes referred to as 'information markets', 'idea futures' or 'event futures', are markets where participants trade contracts whose payoffs are tied to a future event, thereby yielding prices that can be interpreted as market-aggregated forecasts. This article summarizes the recent literature on prediction markets, highlighting both theoretical contributions that emphasize the possibility that these markets efficiently aggregate disperse information, and the lessons from empirical applications which show that market-generated forecasts typically outperform most moderately sophisticated benchmarks. Along the way, we highlight areas ripe for future research.
    Keywords: event futures; forecasting; futures; information aggregation; information markets; prediction markets
    JEL: C53 D8 G14
    Date: 2006–03
  5. By: Abdullah, Roohi; Wodon, Quentin; Foster, Vivien; Halpern, Jonathan; Komives, Kristin
    Abstract: Subsidies to residential utility customers are popular among policymakers, utility managers, and utility customers alike, but they are nonetheless the subject of much controversy. Utility subsidies are seen as a way to help make utility service affordable for poor households and as an alternative mechanism for income redistribution. These arguments in favor of subsidies are countered by serious concerns about their adverse effects on consumer behavior, utility operations, and the financial health of utilities. Both the affordability and redistributive arguments for subsidies are based on the presumption that poor households benefit disproportionately from water and electricity subsidies, that they are well-targeted to the poor. The authors test this assumption by examining the extent to which the poor benefit from con sumption and connection subsidies for water and electricity services. Their analysis of a wide range of subsidy models from around the developing world shows that the most common form of utility subsidy-quantity-based subsidies delivered through the tariff structure-are highly regressive. Geographically targeted or means-tested subsidies do better, and in many cases have a progressive incidence, but large numbers of poor households remain excluded. Low levels of coverage and metering severely limit the effectiveness of consumption subsidy schemes to reach the poor. Simulations suggest that connection subsidies are an attractive alternative for low coverage areas, but only if utilities have the means and motivation to extend network access to poor households and only if those households choose to connect.
    Keywords: Economic Theory & Research,Town Water Supply and Sanitation,Tax Law,Urban Water Supply and Sanitation,Energy Production and Transportation
    Date: 2006–04–01
  6. By: Aldy, Joseph E. (Resources for the Future)
    Abstract: This paper explores the relationships among economic development, energy consumption, and carbon dioxide (CO2) emissions by focusing on a set of advanced economies, the U.S. states. Energy consumption and emissions grew 50–60 percent on average over the 1960–1999 period. The states’ per capita energy consumption and emissions have grown on average 2 percent annually as income and population growth have outpaced improvements in energy intensity of output and carbon intensity of energy. The energy consumption income elasticity is positive but decreasing in income, although energy production takes an inverted-U shape, reflecting the electricity imports among high income states. The standard CO2 measure, corresponding to energy production, is characterized by an inverted-U environmental Kuznets curve. Adjusting emissions for interstate electricity trade yields an emissions–income relationship that peaks and plateaus. The carbon intensity of energy declines in income for total energy consumption and the industrial, residential, and commercial sectors.
    Keywords: Engel curve, environmental Kuznets curve, cubic spline, Kaya identity
    JEL: Q43 Q54 Q56
    Date: 2006–03–24
  7. By: Parry, Ian W.H. (Resources for the Future)
    Abstract: Energy models suggest that the cost of reducing carbon emissions from the transportation sector is high relative to other sectors, such as electricity generation. However, this paper shows that taxes to reduce passenger vehicle emissions produce large net benefits, rather than costs, when account is taken of: (a) their impact on reducing non-carbon externalities from passenger vehicle use, and (b) interactions with the broader fiscal system. Both of these considerations also strengthen the case for using a tax-based approach to reduce emissions over fuel economy regulation, while fiscal considerations strengthen the case for taxes over (non-auctioned) emissions permits.
    Keywords: carbon policies, passenger vehicles, externalities, welfare costs
    JEL: Q54 R48 H23
    Date: 2006–03–24
  8. By: Sonja Peterson
    Abstract: The European Emissions Trading Scheme for CO2 established in 2005 is the world's largest emissions trading scheme. Since it covers only some sectors of the European economies it can nevertheless not ensure that the Kyoto targets are reached at minimal cost. This paper first analyzes the conditions for cost efficiency in the current separated carbon markets accounting also for the possibilities of purchasing international carbon credits from outside the EU. A computable general equilibrium model is then used to assess the cost efficiency of current EU climate strategies. Finally, based both on the theoretical as well as the quantitative analysis, recommendations are derived for a better allocation of the reduction burden between the sectors participating in emissions trading, those that do not participate and international carbon purchases.
    Keywords: emissions trading, allocation, efficiency, separated markets
    JEL: H21 D61 Q48 D58
    Date: 2006–03
  9. By: Fischer, Carolyn (Resources for the Future)
    Abstract: Some environmental policies focus on emissions intensity rather than total emissions, or they try to mitigate the regulatory impact on the final product market. To analyze the effects of these policies, or to evaluate the distributional effects of any regulation on consumers and producers, output must be incorporated explicitly into an economic model of abatement, separately from the emissions variable. This provides two options. Traditionally, total emissions and output are the independently controlled variables, leaving emissions intensity as endogenously determined. Alternatively, one can make emissions intensity and output the control variables, leaving total emissions as the endogenously determined variable. One is the dual of the other and the problems are equivalent, but the latter method offers more transparency for examining intensity-based policies. This note shows how the intensity-based model fits into the traditional context.
    Keywords: emissions intensity, emissions standards, environmental tax, pollution, tradable emissions permits
    JEL: Q5
    Date: 2004–06–01
  10. By: Catherine Boeamare (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]); Philippe Quirion (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: The European Commission (2001a) has recently presented a directive proposal to the European Parliament and Council in order to implement a greenhouse gas emission trading scheme. If this proposal survives the policy process, it will create the most ambitious trading system ever implemented. However the legislative process is an opportunity for various interest groups to amend environmental olicies which, as a result, generally deviate further from what economic literature proposes. A close look at implemented emission trading schemes, stressing their discrepancies with economic literature requests, is thus useful to increase the chances of forthcoming emission trading schemes to go through the political process.<br />We thus review ten emission trading systems, that are either implemented or at an advanced stage of the policy process. We draw attention to major points to be aware of when designing an emission trading system: sectoral and spatial coverage, permits allocation, temporal flexibility, trading organisation, monitoring, enforcement, compliance, and the harmonisation vs. subsidiarity issue.<br />The aim is to evaluate how far experiences in emission trading move away from theory and why. We then provide some lessons and recommendations on how to implement a greenhouse gas emission trading program in Europe. We identify some pros of<br />the Commission proposal (spatial and sectoral coverage, temporal flexibility, trading organisation, compliance rules), some potential drawbacks (allocation rules, monitoring and enforcement) and items on which further guidance is needed (monitoring and allocation rules). Lastly, the European Commission should devote prominent attention to the U.S. NOX Ozone Transport Commission budget program, as the only example of integration between the federal and state levels.
    Keywords: Emission trading; climate change policy; policy-making and implementation
    Date: 2006–03–29
  11. By: Vincent Gitz (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]); Philippe Ciais (LSCE - Laboratoire des sciences du climat et de l'environnement - - [CNRS : UMR1572][CEA] - [] - [])
    Abstract: We constructed a model to analyze the interactions between land-use change and atmospheric CO2 during the recent past and for the future. The primary impact of the conversion of forested lands to cultivated lands is to increase atmospheric CO2, via losses of biomass and soil carbon to the atmosphere. This increase is likely to continue in the next decades, but its magnitude can vary according to each land-use scenario. We show that this first-order effect is further amplified by the correlated diminution of terrestrial sinks, because when croplands replace forests, the turnover time of excess carbon in the biosphere decreases, and hence the sink capacity of terrestrial ecosystems decreases. This effect acts to further increase by up to 100 ppm the CO2 level reached by 2100, and it is of<br />the same order of magnitude, although smaller, than climate-carbon feedbacks. Uncertainties on the magnitude of this land-use induced effect are large, because of uncertainties in the sink role of terrestrial ecosystems in the future and because of uncertainties inherent to the modeling of land-use induced carbon emissions. Such an extra rise in atmospheric CO2 is however partially offset by the ocean reservoir and by sinks operating over undisturbed, pristine ecosystems, suggesting that conserving pristine forests with long turnover times might be efficient in mitigating the greenhouse effect
    Keywords: land-use change; carbon cycle; future scenarios
    Date: 2006–03–30
  12. By: Alexandro Caparros (IEG - Department of Economics, Institute of Economics and Geography (IEG), - - [Spanish Council for Scientific Research (CSIC)] - [] - []); Jean-Christophe Pereau (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]); Tarik Tazdait (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 article determines the conditions under which theSouthern countries should act together, or separately, while negotiating with the North about climate change policy and about the conditions for future Southern engagement. The paper models the international negotiations with complete and with asymmetric information in a dynamic framework. Results show that, depending on their characteristics, the different players can obtain benefits delaying the moment of the agreement.
    Keywords: Bargaining theory; Asymmetric information; Climate change;International cooperation.
    Date: 2006–03–29
  13. By: Alexander F. Wagner; Friedrich Schneider
    Abstract: We construct a panel of satisfaction with democracy (SWD) and economic, institutional, and environmental variables for 1990-2001 for fifteen European countries. In this sample, controlling for a number of factors, we find that average SWD is higher where (1) there exists an energy / CO2 tax, where (2) government expenditures on the environment are higher, where (3) certain environmental regulations like packaging rules are in place, and (4) where the government puts in place environmental offices or other official bodies charged with addressing environmental concerns. We also find that, on the environmental quality side, (5) more cars on the roads, (6) less unleaded fuel, and (7) higher pesticide use intensity all decrease SWD.
    Keywords: satisfaction with democracy, environment
    JEL: K32 P16 Q21 Q28
    Date: 2006

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