nep-ene New Economics Papers
on Energy Economics
Issue of 2006‒05‒13
nine papers chosen by
Roger Fouquet
Imperial College, UK

  1. India's Firewood Crisis Re-examined By van 't Veld, Klaas; Narain, Urvashi; Gupta, Shreekant; Chopra, Neetu; Singh, Supriya
  2. How Can Renewable Portfolio Standards Lower Electricity Prices? By Fischer, Carolyn
  3. Pricing Multiple Interruptible-Swing Contracts By Marcelo G. Figueroa
  4. An Empirically Based Model of the Supply Schedule in Day-Ahead Electricity Markets By Sandro Sapio
  5. A Paradox of Plenty? Rent Distribution and Political Stability in Oil States By Matthias Basedau; Wolfram Lacher
  6. Risk-Adjusted Forecasts of Oil Prices By Patrizio Pagano; Massimiliano Pisani
  7. How Should Heavy-Duty Trucks Be Taxed? By Parry, Ian W.H.
  8. Energy Conservation in the United States: Understanding its Role in Climate Policy By Gilbert E. Metcalf
  9. The income-pollution relationship and the role of income distribution Evidence from Swedish household data By Brännlund, Runar; Ghalwash, Tarek

  1. By: van 't Veld, Klaas; Narain, Urvashi (Resources for the Future); Gupta, Shreekant; Chopra, Neetu; Singh, Supriya
    Abstract: Households in rural India are highly dependent on firewood as their main source of energy, partly because non-biofuels tend to be expensive. The prevailing view is therefore that, when faced with shortages of firewood in the village commons, such households, and especially the women in them, have to spend more and more time searching for firewood and eventually settle for poorer-quality biomass such as twigs, branches and dry leaves. Using data from a random sample of rural households in the Indian state of Madhya Pradesh, we come to very different conclusions, however. We find that households in villages with degraded forests do not spend longer hours searching for firewood, but instead switch to either using firewood from private trees or to using agricultural waste for fuel. In the long run, moreover, households respond to the firewood shortage by altering the mix of private trees on their land in favor of firewood, as opposed to fruit, trees. We find also that, Joint Forest Management, a government program initiated in the 1990s, is having a positive impact on the firewood economy.
    Keywords: firewood crisis, time allocation, fuel switching, JFM, India
    JEL: O13 O18 Q23 Q42
    Date: 2006–05–01
  2. By: Fischer, Carolyn (Resources for the Future)
    Abstract: Some studies of renewable portfolio standards find that regulations increase generation costs; others find that reduced demand for nonrenewable energy sources lowers natural gas prices and that electricity prices follow. This paper presents reasoning for why these predictions can vary in the direction as well as in the magnitude of their effects. The driving factors are the relative elasticities of electricity supply from both fossil and renewable energy sources. The availability of other baseload generation is another factor, whereas demand elasticity influences only the magnitude of the price effects, not the direction of those effects.
    Keywords: portfolio standards, natural gas, renewable energy, climate change
    JEL: Q4 Q5 H2
    Date: 2006–05–05
  3. By: Marcelo G. Figueroa (School of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: In this article we price a multiple-interruptible contract for the electricity market in England and Wales under a mean-reverting jump-di®usion model with seasonality. We do so by combining forward contracts with a swing option which can be exercised a pre-speci¯ed number of times. We price this swing option by means of an extension of the Least-Squares Monte Carlo methodology for American options. We additionally compute the lower and upper bounds for this contract. For the computation of the lower bound we provide a semi-analytical formula which reduces greatly the required computational time.
    Keywords: Energy derivatives, electricity market, Least-Squares Monte Carlo, swing options.
    Date: 2006–06
  4. By: Sandro Sapio
    Abstract: The first part of this paper establishes some new pieces of evidence on the dynamics of prices and volumes in wholesale electricity day-ahead markets (NordPool, APX, Powernext). The growth of prices is more strongly autocorrelated than the growth of volumes; it is more more heavy-tailed; and its conditional standard deviation decays like the reciprocal of the price level (1/P scaling). In the second part of the paper, it is shown that a linear supply function with stochastic intercept and constant slope suffices to explain the 1/P scaling. Furthermore, this model allows to decompose price fluctuations in an exogenous demand effect and a strategically-driven supply effect. In light of this model, the heavier tails of price growth and its stronger autocorrelation structure are due to persistent and intermittent strategic moves by suppliers, related to expected demand growth.
    Keywords: Electricity Markets, Supply Curve, Subbotin Distribution, Fat Tails, Scaling, Demand Effect, Supply Effect.
    Date: 2006–05–08
  5. By: Matthias Basedau (GIGA Institute of African Affairs); Wolfram Lacher (School of Oriental and African Studies, University of London)
    Abstract: Resource curse theory claims that resource abundance encourages violent conflict. A study of 37 oil-producing developing countries, however, reveals that oil states with very high levels of oil revenue are remarkably stable. An analysis of the ways in which governments spend oil revenues identifies two distinct types of rentier systems – the large-scale distributive state and the patronage-based system – which are strongly linked to instability or its absence. However, some deviant cases, such as Equatorial Guinea and Gabon, illustrate the need for further research. Apparently, the notion of a “paradox of plenty” has neglected rentier mechanisms that avoid conflict.
    Keywords: Resource Curse, Paradox of Plenty, Oil, Rentier State, Violent Conflict, Political Stability, Developing World
    JEL: N5 N50 O13
    Date: 2006–04
  6. By: Patrizio Pagano (Bank of Italy, Economic Research Department); Massimiliano Pisani (Bank of Italy, Economic Research Department)
    Abstract: This paper documents the existence of a significant forecast error on crude oil futures, particularly evident since the mid-1990s, which is negative on average and displays a non-trivial cyclical component (risk premium). We show that the forecast error on oil futures could have been explained in part by means of real-time US business cycle indicators, such as the degree of utilized capacity in manufacturing. An out-of-the-sample prediction exercise reveals that futures which are adjusted to take into account this time-varying component produce significantly better forecasts than those of the unadjusted futures and random walk, particularly at horizons of more than 6 months.
    Keywords: Oil, Forecasting, Futures
    JEL: E37 E44 G13 Q4
    Date: 2006–03
  7. By: Parry, Ian W.H. (Resources for the Future)
    Abstract: This paper develops and implements an analytical framework for estimating optimal taxes on the fuel use and mileage of heavy-duty trucks, accounting for external costs from congestion, accidents, pavement damage, noise, energy security, and local and global pollution. The analysis allows for endogenous fuel economy, increased auto travel (and externalities) in response to reduced truck congestion, and it distinguishes driving by truck type and region. We estimate the optimal (second-best) diesel fuel tax is $1.12 per gallon, and implementing it increases welfare by $1.34 billion per annum. However, optimizing over both fuel and mileage taxes, and differentiating mileage taxes by vehicle type and region, yields progressively higher welfare gains. The most efficient tax structure involves a diesel fuel tax of 69 cents per gallon and charges on trucks that vary between 7 and 20 cents per mile; implementing this tax structure yields welfare gains of $2.06 billion.
    Keywords: truck tax, diesel tax, external costs, welfare gains
    JEL: Q54 R48 H23
    Date: 2006–04–27
  8. By: Gilbert E. Metcalf
    Abstract: Efforts to reduce carbon emissions significantly will require considerable improvements in energy intensity, the ratio of energy consumption to economic activity. Improvements in energy intensity over the past thirty years suggest great possibilities for energy conservation: current annual energy consumption avoided due to declines in energy intensity since 1970 substantially exceed current annual domestic energy supply. While historic improvements in energy intensity suggest great scope for energy conservation in the future, I argue that optimistic estimates of avoided energy costs due to energy conservation are likely biased downward. I then analyze a data set on energy intensity in the United States at the state level between 1970 and 2001 to disentangle the key elements of energy efficiency and economic activity that drive changes in energy intensity.
    Date: 2006
  9. By: Brännlund, Runar (Department of Economics, Umeå University); Ghalwash, Tarek (Department of Economics, Umeå University)
    Abstract: The main purpose of this study is to analyze the relationship between pollution and income at household level. The study is motivated by the recent literature emphasizing the importanceof income distribution for the aggregate relation between pollution and income. The main findings from previous studies are that if the individual pollution-income relationship is nonlinear, then aggregate pollution for, say, a whole country, will depend not only on average income, but also on how income is distributed. To achieve our objective we formulate a model for determining the choice of consumption of goods in different types of household. Furthermore we link the demand model to emission functions for the various goods. The theoretical analysis shows that without imposing very restrictive assumptions on preferences and the emission functions, it is not possible to determine a priori the slope or the curvature of the pollution-income relation. The empirical analysis shows that, given the model used, thepollution-income relation has a positive slope in Sweden and is strictly concave for all three pollutants under study (CO2, SO2, NOx), at least in the neighborhood of the observed income for an average household. Further, the results show that the curvature of the relation differs between different types of households. We also show that altering the prevailing income distribution, holding average income constant, will affect aggregate emissions in the sense that an equalization of incomes will give rise to an increase in emissions. One implication is then that the development of aggregate pollution due to growth depends not only on the income level, but also on how growth is distributed.
    Keywords: Household demand; Environmental Kuzents curve; Environmental emissions; Income distribution
    JEL: D12 Q53 Q56
    Date: 2006–05–05

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