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on Energy Economics |
| By: | Tooraj Jamasb; Michael Pollitt |
| Abstract: | The energy market liberalisation process in Europe is increasingly focused on electricity market integration and related cross border issues. This signals that the liberalisation of national electricity markets is now closer to the long-term objective of a single European energy market. The interface between the national electricity markets requires physical interconnections and technical arrangements. However, further progress towards this objective also raises important issues regarding the framework within which the integrated market is implemented. This paper reviews the progress towards a single European electricity market. We then discuss the emerging issues of market concentration, investments, and security of supply as well as some aspects of market design and regulation that are crucial for dynamic performance of a single European market. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0502&r=ene |
| By: | Xiaoyu Shi; Karen R. Polenske |
| Abstract: | Since the start of its economic reforms in 1978, China's energy prices relative to other prices have increased. At the same time, its energy intensity, i.e., energy consumption per unit of Gross Domestic Product (GDP), has declined dramatically, by about 70%, in spite of increases in energy consumption. Is this just a coincidence? Or does a systematic relationship exist between energy prices and energy intensity? In this study, we examine whether and how China’s energy price changes affect its energy intensity trend during 1980-2002 at a macro level. We conduct the research by using two complementary economic models: the input-output-based structural decomposition analysis (SDA) and econometric regression models and by using a decomposition method of own-price elasticity of energy intensity. Findings include a negative own-price elasticity of energy intensity, a price-inducement effect on energyefficiency improvement, and a greater sensitivity (in terms of the reaction of energy intensity towards changes in energy prices) of the industry sector, compared to the overall economy. Analysts can use these results as a starting point for China's energy and carbon emission forecasts, which they traditionally conduct in China without accounting for energy-intensity changes. In addition, policy implications may initiate new thinking about energy policies that are needed to conserve China's energy resources and reduce carbon emissions. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0606&r=ene |
| By: | Paul L. Joskow |
| Abstract: | Evidence from the U.S. and some other countries indicates that organized wholesale markets for electrical energy and operating reserves do not provide adequate incentives to stimulate the proper quantity or mix of generating capacity consistent with mandatory reliability criteria. A large part of the problem can be associated with the failure of wholesale spot market prices for energy and operating reserves to rise to high enough levels during periods when generating capacity is fully utilized. Reforms to wholesale energy markets, the introduction of well-design forward capacity markets, and symmetrical treatment of demand response and generating capacity resources to respond to market and institutional imperfections are discussed. This policy reform program is compatible with improving the efficiency of spot wholesale electricity markets, the continued evolution of competitive retail markets, and restores incentives for efficient investment in generating capacity consistent with operating reliability criteria applied by system operators. It also responds to investment disincentives that have been associated with volatility in wholesale energy prices, limited hedging opportunities and to concerns about regulatory opportunism. |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0609&r=ene |
| By: | Wiepke Wissema |
| Abstract: | This paper describes the construction of the Irish Social Accounting Matrix for the year 1998. Treatment of taxation, margins and import data is described in detail. The SAM is disaggregated to create seven separate energy industries and commodities using various data sources. Emissions data are made consistent with the SAM and are disaggregated by commodity and industry or agent. |
| Keywords: | Social Accounting Matrix, Integrated Economic and Environmental Accounts |
| Date: | 2006–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp170&r=ene |
| By: | Matti Liski; Juan-Pablo Montero |
| Abstract: | We consider a market for storable pollution permits in which a large agent and a fringe of small agents gradually consume a stock of permits until they reach a long-run emissions limit. The subgame-perfect equilibrium exhibits no market power unless the large agent’s share of the initial stock of permits exceeds a critical level. We then apply our theoretical results to a global market for carbon dioxide emissions and the existing US market for sulfur dioxide emissions. We characterize competitive permit allocation profiles for the carbon market and find no evidence of market power in the sulfur market. |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0516&r=ene |
| By: | Juan-Pablo Montero |
| Abstract: | I study the advantages of pollution permit markets over traditional standard regulations when the regulator has incomplete information on firms’ emissions and costs of production and abatement (e.g., air pollution in large cities). Because the regulator only observes each firm’s abatement technology but neither its emissions nor its output, there are cases in which standards can lead to lower emissions and, hence, welfare dominate permits. If permits are optimally combined with standards, in many cases this hybrid policy converges to the permits-alone policy but (almost) never to the standards-alone policy. |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0414&r=ene |
| By: | Dmitri Perekhodtsev; Lester Lave |
| Abstract: | In order to preserve stability of electricity supply generators must provide ancillary services in addition to energy production. Hydroelectric resources have significant ancillary service capability because of their dynamic flexibility. This paper suggests a solution for optimal bidding for hydro units operating in simultaneous markets for energy and ancillary services by estimating water shadow price from operating parameters of the hydro unit, expectations on prices of energy and ancillary services, and water availability. The model implications are illustrated on a numerical example of a hydro unit operating in markets of New York Independent System Operator. Participation in ancillary services market increases or decreases water shadow price depending on water availability. As a result of participation in ancillary services markets, a unit with water availability given by a capacity factor of 0.6 increases the value of existing generating capacity by 25% and nearly doubles the value of incremental generating capacity. |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0603&r=ene |
| By: | Joshua Linn |
| Abstract: | This paper investigates the link between factor prices, technology and factor demands. I estimate the effect of price-induced technology adoption on energy demand in the U.S. manufacturing sector, using plant data from the Census of Manufactures, 1963-1997. I compare the energy efficiency of entrants and incumbents to measure the effect of technology adoption on the demand for energy. A 10 percent increase in the price of energy causes technology adoption that reduces the energy demand of entrants by 1 percent. This elasticity has two implications: first, technology adoption explains a statistically significant but relatively small fraction of changes in energy demand in the 1970s and 1980s; and second, technology adoption can reduce the long run effect of energy prices on growth, but by less than previous research has found. |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0612&r=ene |
| By: | R.S. Eckaus |
| Abstract: | As oil prices rose in 2004, a large part of the blame was laid at the feet of the emerging colossus of the East. Newspaper stories wrote of the, “surging,” and, “insatiable demand,” coming from China, describing it as the, “engine of oil demand growth,”1 and explaining the change, "More than a billion Chinese are joining the oil market…. How can prices go down?”2 There were moderately dissenting voices, e.g., from a professional at the International Energy Agency, "It is neither fair nor accurate to blame China for most of the rise in oil prices.3 The measured increases in China’s international oil imports are based on international data and are quite real and not related to the probable overestimates of China’s overall rate of economic expansion. The very high growth rates of Chinese oil imports in 2004 and previous years are shown in Table 1. The implied growth rates are so high as to be almost unbelievable. From the fourth quarter of 2003 to the third quarter of 2004, there was a 30 per cent increase in crude oil imports. Such a high growth rate is not the way economies, in general, actually behave or, in particular, the manner in which the Chinese economy has functioned in the past, even in the course of its remarkable expansion. Yet the growth is real, so how can it be explained? That is the puzzle! |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0422&r=ene |
| By: | Miguel Herce; John E. Parsons; Robert C. Ready |
| Abstract: | Oil prices are very volatile. But much of this volatility seems to reflect short-term, transitory factors that may have little or no influence on the price in the long run. Many major investment decisions should be guided by a model of the long-term price of oil and its dynamics. Data on futures prices can be used to filter out the short-term volatility and recover a time series of the latent, long-term price of oil. We test a leading model known as the 2-factor or short-term, long-term model. While the generated latent price variable is clearly an improvement over the raw spot oil price series, we also find that (1) the generated long-term price series still contains some of the short-term volatility, and (2) a naïve use of a long-maturity futures price as a proxy for the long-term price successfully filters out a large majority of the short-term volatility and so may be convenient alternative to the more cumbersome model. |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0605&r=ene |
| By: | Michael Pollitt |
| Abstract: | Chile was the first country in the world to implement a comprehensive reform of its electricity sector in the recent period. Among developing countries only Argentina has had a comparably comprehensive and successful reform. This paper traces the history of the Chilean reform, which began in 1982, and assesses its progress and its lessons. We conclude that the reform has been very successful. We suggest lessons for the generation, transmission and distribution sectors, as well as the economic regulation of electricity and the general institutional environment favourable to reform. We note that while the initial market structure and regulatory arrangements did give rise to certain problems, the overall experience argues strongly for the private ownership and operation of the electricity industry. |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0416&r=ene |
| By: | Joshua Linn |
| Abstract: | Recent environmental regulations have used market incentives to reduce compliance costs and improve efficiency. In most cases, the Environmental Protection Agency (EPA) selects an emissions cap using the predicted costs of reducing pollution. The EPA and other economists have used a "bottom-up" approach to predict the costs of such regulations, which forecast how every affected firm will respond. It is uncertain whether firms rely on the same predictions in making their compliance decisions. This paper uses stock prices to compare the predictions of the bottom-up studies with those of the affected firms. I focus on a recent tradable permit program, the Nitrogen Oxides Budget Trading Program (NBP). Started in 2004, the NBP requires electric generators in the Midwest and East to reduce their emissions or purchase permits from other firms. I compare utilities’ stock prices with the prices that would have occurred in the absence of the new regulation. I make this comparison by exploiting variation in the location of generators owned by utilities; the control group consists of utilities without any generators in the NBP. I estimate that investors expected the program to reduce profits by about $2 billion per year (2000 dollars). Investors expected the NBP to primarily affect coal generators, which have larger baseline emission rates than other fossil fuel generators. These results agree with previous studies that used the bottom-up approach. |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0611&r=ene |
| By: | Peter Cramton; Steven Stoft |
| Abstract: | This paper compares market designs intended to solve the resource adequacy (RA) problem, and finds that, in spite of rivalrous claims, the most advanced designs have nearly converged. The original dichotomy between approaches based on long-term energy contracts and those based on short-term capacity markets spawned two design tracks. Long-term energy contracts led to call-option obligations which provide marketpower control and the ability to strengthen performance incentives, but this approach fails to replace the missing money at the root of the adequacy problem. Hogan’s (2005) energy-only market fills this gap. On the other track, the short-term capacity markets (ICAP) spawned long-term capacity market designs. In 2004, ISO New England proposed a short-term market with hedged performance incentives essentially based on high spot prices. In 2005, we developed for New England a forward capacity market, with load obligated to purchase a target level of capacity covered by an energy call option. The two tracks have now converged on two conclusions: (1) High real-time energy prices should provide performance incentives. (2) High energy prices should be hedged with call options. We argue that two more conclusions are needed: (3) Capacity targets rather than high and volatile spot prices should guide investment, and (4) Long-term physically based options should be purchased in a forward market for capacity. The result will be that adequacy is maintained, performance incentives are restored, market power and risks are reduced from present levels, and prices are hedged down to a level below the present price cap. |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0607&r=ene |
| By: | Paul L Joskow |
| Abstract: | Over the last twenty years several network industries that evolved historically as either private or state-owned regulated vertically integrated monopolies have been privatized, restructured, and some vertical segments deregulated. These industries include telecommunications, natural gas, electric power, and railroads. The reform program typically involves the vertical separation (ownership or functional) of potentially competitive segments, which are gradually deregulated, from remaining vertical segments that are assumed to have natural monopoly characteristics and continue to be subject to price, network access, service quality and entry regulations. In several countries, an important part of the reform agenda has included the introduction of “incentive regulation” mechanisms for the remaining regulated segments as an alternative to traditional “cost of service” or “rate of return” regulation. The expectation was that incentive regulation mechanisms would provide more powerful incentives for regulated firms to reduce costs, improve service quality in a cost effective way, stimulate (or at least not impede) the introduction of new products and services, and stimulate efficient investment in and pricing of access to regulated infrastructure services. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0514&r=ene |
| By: | Richard Green |
| Abstract: | Economists know how to calculate optimal prices for electricity transmission. These are rarely applied in practice. This paper develops a thirteen node model of the transmission system in England and Wales, incorporating losses and transmission constraints. It is solved with optimal prices, and with uniform prices for demand and for generation, re-dispatching when needed to take account of transmission constraints. Moving from uniform prices to optimal nodal prices could raise welfare by 1.5% of the generators’ revenues, and would be less vulnerable to market power. It would also send better investment signals, but create politically sensitive regional gains and losses. |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0420&r=ene |
| By: | Jean-Michel Glachant; François Lévêque |
| Abstract: | The European Union’s “internal energy market” remains a work in progress. It is even possible its construction were to stall. Given current political, institutional and business conditions in Europe, there are no guarantees that the dynamics of this construction will not dissipate, as in the United States, or that the internal market will not fracture into “national blocks” that may be permanent or persist for a long time. This is exactly what this paper seeks to avoid. It suggests priority actions and secondary improvements to sustain the dynamics of construction of the internal market, from today to the few coming years. It tries too to explain the underlying rationale for these recommendations by describing several aspects of the present state of the construction of the internal market and what factors are blocking or unblocking its progress. A main constraint has guided our thinking and writing of this paper. We have excluded the issuance of a new package of European directives and regulations to push for stronger convergence in the construction of the EU internal energy market. In fact, such an event is low likely. By contrast, we have counted on two levers: the conscientious applying of the provisions of the second directive and companion regulations, and the promoting of reinforced regional cooperation agreements that will lead to the voluntary opening of some domestic markets to regional “mini internal markets”. We believe and try to demonstrate that thank to these levers a minimal but sufficient dynamics of construction can be fostered. The identified priority actions will allow to progress without precluding further policy changes at a later date. Then the length of the phase is defined by the expected life of the current College of European Union Commissioners, that is until 20091. The paper is divided into 5 sections. Each section corresponds to priorities to improve a critical factor: 1- national market designs, 2- EU internal market design, 3- industry structure, 4- TSOs, and 5- regulators. Each section will indicate what makes this factor a key for the building of the internal market and what are the priority or secondary actions which could be useful to keep constructing an EU electricity single market from 2005 to 2009. Note that this paper does not cover all the areas of the European energy policy. Other topics representing core interests of the European Union and the 25 Member States, such as “Security of Supply” and “Sustainability of European Energy Regime”, have not been treated in this paper. They deserve further investigation and analysis. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0515&r=ene |
| By: | Xavier Labandeira; José M. Labeaga; Miguel Rodríguez |
| Abstract: | Sharp price fluctuations and increasing environmental and distributional concerns, among other issues, have led to a renewed academic interest in energy demand. In this paper we estimate, for the first time in Spain, an energy demand system with household microdata. In doing so, we tackle several econometric and data problems that are generally recognized to bias parameter estimates. This is obviously relevant, as obtaining correct price and income responses is essential if they may be used for assessing the economic consequences of hypothetical or real changes. With this objective, we combine data sources for a long time period and choose a demand system with flexible income and price responses. We also estimate the model in different sub-samples to capture varying responses to energy price changes by households living in rural, intermediate and urban areas. This constitutes a first attempt in the literature and it proved to be a very successful choice. |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0501&r=ene |
| By: | Paul L. Joskow |
| Abstract: | This paper examines a number of issues associated with alternative analytical approaches for evaluating investments in electricity transmission infrastructure and alternative institutional arrangements to govern network operation, maintenance and investment. The economic and physical attributes of different types of transmission investments are identified and discussed. Alternative organizational and regulatory structures and their attributes are presented. The relationships between transmission investments driven by opportunities to reduce congestion and loss costs and transmission investment driven by traditional engineering reliability criteria are discussed. Reliability rules play a much more important role in transmission investment decisions today than do economic investment criteria as depicted in standard economic models of transmission networks. These models fail to capture key aspects of transmission operating and investment behavior that are heavily influenced by uncertainty, contingency criteria and associated engineering reliability rules. I illustrate how the wholesale market and transmission investment frameworks have addressed these issues in England and Wales (E&W) since 1990 and in the PJM Regional Transmission Organization (RTO) in the U.S. since 2000. I argue that economic and reliability-based criteria for transmission investment are fundamentally interdependent. Ignoring these interdependencies will have adverse effects on the efficiency of investment in transmission infrastructure and undermine the success of electricity market liberalization. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0504&r=ene |
| By: | M.A. Adelman; G.C. Watkins |
| Abstract: | Introduction. A working paper entitled “Oil and Natural Gas Reserve Prices 1982-2002: Implications for Depletion and Investment Cost” was published in October 2003 (cited hereafter as Adelman & Watkins [2003]). Since then we have obtained data for 2003 and estimated oil and natural gas reserve prices for that year. We have also revised our previous estimates of reserve prices for 2001. This addendum paper reports on the nature and significance of the results for 2003 and the revisions to 2001. We have also extended the analysis by adding two new features. First is the expression of reserve prices in real terms – previously we had only reported nominal prices. Second, we have estimated levelized or constant field prices that appear to underlie reserve prices, for each year. We refer to these as planning prices. Previously we had only published estimated growth rates in field prices from levels prevailing for a given year, congruent with our estimates of reserve prices. Section 1 of this Addendum paper highlights the 2003 results. Section 2 discusses the revisions for year 2001. Section 3 outlines the nature of the analytical extensions, presents the results, and discusses what they show. Concluding remarks are in Section 4. Adelman & Watkins [2003] included an extensive set of tables in Appendices. The revisions to all these tables to include 2003 and revised 2001 data are attached here as Appendices. This paper is to be read in conjunction with, not as a substitute for, Adelman & Watkins [2003]: analysis and description in the 2003 paper is not repeated here. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0513&r=ene |
| By: | John Deutch |
| Abstract: | Government support of innovation – both technology creation and technology demonstration – is desirable to encourage private investors to adopt new technology. In this paper, I review the government role in encouraging technology innovation and the success of the Department of Energy (DOE) and its predecessor agencies in advancing technology in the energy sector. The DOE has had better success in the first stage of innovation (sponsoring R&D to create new technology options) than in the second stage (demonstrating technologies with the objective of encouraging adoption by the private sector). I argue that the DOE does not have the expertise, policy instruments, or contracting flexibility to manage successfully technology demonstration, and that consideration should be given to establishing a new mechanism for this purpose. The ill-fated 1980 Synthetic Fuels Corporation offers an interesting model for such a mechanism. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0509&r=ene |
| By: | Yinhua Mai |
| Abstract: | Computable general equilibrium models have been widely applied in analysing the effects of removing tariffs. However, not nearly as much effort has been devoted to their application on investment liberalisation that is increasingly an integral part of trade liberalisation agreements. The Monash-Multi-Country (MMC) model is developed to meet such policy needs. The MMC model is an advanced dynamic CGE model with bilateral investment flows between countries/regions modelled explicitly at an industry level. This paper describes the model structure and data of the MMC model. Its application is illustrated by a simulation of a potential investment liberalisation in China's oil industry. |
| Keywords: | China, oil industry, investment liberalisation, CGE modelling |
| JEL: | D58 F15 F21 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:cop:wpaper:g-150&r=ene |
| By: | Nancy L. Rose; Kira Markiewicz; Catherine Wolfram |
| Abstract: | Although the allocative efficiency benefits of competition are a tenet of microeconomic theory, the relation between competition and technical efficiency is less well understood. Neoclassical models of profit-maximization subsume static cost-minimizing behavior regardless of market competitiveness, but agency models of managerial behavior suggest possible scope for competition to influence cost-reducing effort choices. This paper explores the empirical effects of competition on technical efficiency in the context of electricity industry restructuring. Restructuring programs adopted by many U.S. states made utilities residual claimants to cost savings and increased their exposure to competitive markets. We estimate the impact of these changes on annual generating plant-level input demand for non-fuel operating expenses, the number of employees and fuel use. We find that municipally-owned plants, whose owners were for the most part unaffected by restructuring, experienced the smallest efficiency gains over the past decade. Investor-owned utility plants in states that restructured their wholesale electricity markets had the largest reductions in nonfuel operating expenses and employment, while investorowned plants in nonrestructuring states fell between these extremes. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach. |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0418&r=ene |
| By: | R. F. Kosobud; H.H. Stokes; C.D. Tallarico; B.L. Scott |
| Abstract: | The Chicago cap-and-trade approach to regulating stationary source VOC emissions in the Chicago ozone non-attainment area is a pioneering program that could set a precedent for other urban areas troubled by high ozone concentrations. It holds out the promise of cost-effectiveness, innovation stimulation, and flexibility compared with traditional regulation. To appraise this program design and evaluate these objectives, this study analyzes four years of data since the inception of the program in 2000. The data reveal that while emissions are far below the cap, there are unexpectedly large banks, startling expirations, and low prices of tradable permits, all inconsistent with an effective market. We find that the market as designed has been constrained from reaching its objectives by the continuance and extension of an underlying layer of traditional regulation, and to a lesser extent by over-allotment of tradable permits. That is, traditional regulation and over-allotment, combined with a market design calling for a small reduction in emissions from baseline and a one-year limit on banking, explain the incongruous outcomes recorded in the market. This study explores the evolution of this particular market design and presents statistical evidence in support of the hypothesis that the performance of a cap-and-trade market is very sensitive to design features when combined with other regulatory measures. The study concludes that the market as presently designed falls far short of achieving cost effectiveness, innovation stimulation, and flexibility. The policy recommendations include that the cap be significantly tightened, perhaps in a series of steps, and the banking horizon be extended to three years or more. Such redesign should enable the cap-and-trade approach to assume its proper role in helping to achieve the new eight-hour standard for ozone concentrations. |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0419&r=ene |
| By: | Paul L. Joskow |
| Abstract: | The transition to competitive wholesale and retail markets for electricity in the U.S. has been a difficult and contentious process. This paper examines the progress that has been made in the evolution of wholesale and retail electricity market institutions. Various indicia of the performance of these market institutions are presented and discussed. Significant progress has been made on the wholesale competition front but major challenges must still be confronted. The framework for supporting retail competition has been less successful, especially for small customers. Empirical evidence suggests that well-designed competitive market reforms have led to performance improvements in a number of dimensions and have benefited customers through lower retail prices. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0512&r=ene |
| 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. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0610&r=ene |
| By: | Paul L. Joskow |
| Abstract: | This paper provides an overview of the development of electric power transmission access, pricing and investment policies in the U.S. over the last 15 years and evaluates the current state of those policies. Pre-liberalization transmission access and pricing policies are reviewed since more recent policies have evolved from them. FERC’s efforts to ensure that transmission owning utilities provide non-discriminatory access and pricing to wholesale transmission customers, culminating in Order 888 and 889 are discussed. These rules did not respond to problems created by a highly balkanized transmission system and only partially responded to problems caused by common ownership and operation of transmission networks with generating and marketing businesses in the same regions. These problems motivated FERC to seek to create Regional Transmission Organizations (RTO) meeting a long list of criteria related to governance, network consolidation, network operations, transmission pricing and investment as reflected in Order 2000. The slow pace of “voluntary” reform following Order 2000 led FERC to issue a proposed Standard Market Design Rule (SMD) which provided more detailed prescriptions for wholesale market design, network operations, regional planning, resource adequacy, and transmission investment. The SMD rule confronted enormous resistance from groups of utilities and states that have not embraced an electricity sector liberalization agenda. However, many of the provisions of the SMD are being implemented by the RTOs and ISOs in the Northeast and Midwest. PJM’s market rules and transmission pricing, planning and investment policies are reviewed as an articulation of FERC’s RTO and SMD visions. |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0417&r=ene |
| By: | Ralph Turvey |
| Abstract: | This paper is about one aspect of Britain’s electricity trading system, its advantages and its weaknesses concerning the incentives it provides or fails to provide for the location of generation. (Similar considerations apply to the location of loads, though these are less responsive to locational influences exerted by the trading system). |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0604&r=ene |
| By: | Olivier Deschenes; Michael Greenstone |
| Abstract: | We thank the late David Bradford for initiating a conversation that motivated this paper. Our admiration for David’s brilliance as an economist was only exceeded by our admiration for him as a human being. We are grateful for the especially valuable criticisms from David Card and two anonymous referees. Hoyt Bleakley, Tim Conley, Tony Fisher, Michael Hanemann, Enrico Moretti, Marc Nerlove, and Wolfram Schlenker provided insightful comments. We are also grateful for comments from seminar participants at Maryland, Princeton, Yale, the NBER Environmental Economics Summer Institute, and the “Conference on Spatial and Social Interactions in Economics” at the University of California-Santa Barbara. Anand Dash, Elizabeth Greenwood, Barrett Kirwan, Nick Nagle, and William Young, provided outstanding research assistance. We are indebted to Shawn Bucholtz at the United States Department of Agriculture for generously generating weather data for this analysis from the Parameterelevation Regressions on Independent Slopes Model. Finally, we acknowledge The Vegetation/Ecosystem Modeling and Analysis Project and the Atmosphere Section, National Center for Atmospheric Research for access to the Transient Climate database, which we used to obtain regional climate change predictions. Greenstone acknowledges generous funding from the American Bar Foundation. |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0601&r=ene |
| By: | Joseph J. Doyle, Jr.; Krislert Samphantharak |
| Abstract: | Despite the considerable attention paid to the theory of tax incidence, there are surprisingly few estimates of the pass-through rate of sales taxes on retail prices. This paper estimates the effect of a suspension and subsequent reinstatement of the gasoline sales tax in Illinois and Indiana on retail prices. Earlier laws set the timing of the reinstatements, providing plausibly exogenous changes in the tax rates. Using a unique dataset of daily gasoline prices at the station level, retail gas prices are found to drop by 3% following the elimination of the 5% sales tax, and increase by 4% following the reinstatements, compared to neighboring states. Some evidence also suggests that the tax reinstatements are associated with higher prices up to an hour into neighboring states, which provides some evidence on the size of the geographic market for gasoline. Effects across different competitive environments are considered as well. |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0517&r=ene |
| By: | A. Denny Ellerman |
| Abstract: | As a person whose life began in England and ended in North America and who maintained academic affiliations in the United Kingdom, Canada and the U.S., Campbell Watkins had a fine appreciation for the subtle differences that mark the two sides of the North Atlantic. He embodied the cross-fertilization that trans-Atlantic exchanges imply and I have no doubt that that was one of the reasons the IAEE received so much of his attention and benefited so grandly from it. This essay concerns one of those trans-Atlantic exchanges and one of which Campbell would have enjoyed the irony: An American innovation that goes to Europe and becomes bigger than anything yet seen in North America. The transplant is the cap-and-trade form of emissions trading and the European application is the European Union CO2 Emissions Trading Scheme (EU ETS). More specifically, this paper focuses on a particular feature of the allocation process in the European variant, the endowment of new entrants with allowances and the forfeiture of allowances when facilities are closed. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0613&r=ene |
| By: | A. Denny Ellerman; Juan-Pablo Montero |
| Abstract: | This paper provides an empirical evaluation of the efficiency of allowance banking (i.e., abating more in early periods in order to abate less in later periods) in the nationwide market for sulfur dioxide (SO2) emission allowances that was created by the U.S. Acid Rain Program. We develop a model of efficient banking, select appropriate parameter values, and evaluate the efficiency of observed temporal pattern of abatement based on aggregate data from the first eight years of the Acid Rain Program. Contrary to the general opinion that banking in this program has been excessive, we find that it has been reasonably efficient. We also show that this optimal banking program is robust to the errors in expectation that characterized the early years of this program; however, this property is due to design features that are unique to the U.S. Acid Rain Program. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0505&r=ene |
| By: | Henrekson, Magnus (Research Institute of Industrial Economics); Edquist, Harald (SNS) |
| Abstract: | This study consists of an examination of productivity growth following three major technological breakthroughs: the steam power revolution, electrification and the ICT revolution. The distinction between sectors producing and sectors using the new technology is emphasized. A major finding for all breakthroughs is that there is a long lag from the time of the original invention until a substantial increase in the rate of productivity growth can be observed. There is also strong evidence of rapid price decreases for steam engines, electricity, electric motors and ICT products. However, there is no persuasive direct evidence that the steam engine producing industry and electric machinery had particularly high productivity growth rates. For the ICT revolution the highest productivity growth rates are found in the ICT-producing industries. We suggest that one explanation could be that hedonic price indexes are not used for the steam engine and the electric motor. Still, it is likely that the rate of technological development has been much more rapid during the ICT revolution compared to any of the previous breakthroughs. |
| Keywords: | Electrification; General purpose technologies; ICT revolution; Productivity growth; Steam power |
| JEL: | N10 O10 O14 O40 |
| Date: | 2006–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0665&r=ene |
| By: | Stephen Ryan |
| Abstract: | The typical cost analysis of an environmental regulation consists of an engineering estimate of the compliance costs. In industries where fixed costs are an important determinant of market structure this static analysis ignores the dynamic effects of the regulation on entry, investment, and market power. I evaluate the welfare costs of the 1990 Amendments to the Clean Air Act on the US Portland cement industry, accounting for these effects through a dynamic model of oligopoly in the tradition of Ericson and Pakes (1995). Using a recently developed two-step estimator, I recover the entire cost structure of the industry, including the distribution of sunk entry costs and adjustment costs of investment. I find that the Amendments have significantly increased the sunk cost of entry. I solve for the Markov perfect Nash equilibrium (MPNE) of the model and simulate the welfare effects of the Amendments. A static analysis misses the welfare penalty on consumers, and obtains the wrong sign on the welfare effects on incumbent firms. |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0510&r=ene |
| By: | Erich J. Muehlegger |
| Abstract: | Since 1999, gasoline prices in California, Illinois and Wisconsin have spiked occasionally well above gasoline prices in nearby states. In May and June 2000, for example, gasoline prices in Chicago rose twenty eight cents per gallon to $2.13, while prices nationally rose only nine to $1.73. Several qualitative studies identify unique gasoline formulations in California, Illinois and Wisconsin as crucial factors related to regional price spikes. This paper provides the first quantitative estimates of two distinct effects of state-level gasoline content regulations in California, Illinois and Wisconsin: (i) the effect of increased production costs associated with additional refining necessary to meet content criteria, and (ii) the effect of incompatibility between these blends and gasoline meeting federal reformulated gasoline (RFG) standards. Using a structural model based on the production optimization problem of refiners, I simulate wholesale prices for jet fuel, diesel and four blends of gasoline in each geographic market. I then specify a counterfactual in which gasoline in the three states only met federal RFG requirements. Using a constructed dataset of refinery outages, I am able to separately identify each effect. Using a similar methodology, I also estimate the effect of two other factors thought to increase gasoline prices, (i) changes in refinery ownership and (ii) limited expansion of domestic refining capacity. Point estimates for the effect of increased refining costs are 4.5, 3.0 and 2.9 cents per gallon in California, Illinois and Wisconsin. The effect of incompatibility with federal RFG criteria, conditional on an in-state refinery outage, is 4.8, 6.6 and 7.1 cents per gallon in California, Illinois and Wisconsin. Controlling for the magnitude of local outages in these areas, I estimate that 72, 92 and 91 percent of price spikes created by local refinery outages could be mitigated by compatibility with federal RFG standards. I find that changes in refinery ownership in the late 1990’s increase prices by 1.4 to 1.5 cpg in Illinois and Wisconsin and by 0.73 cents per gallon in California. A five-percent increase in domestic refining capacity reduces prices 3.7 to 3.8 cents per gallon in Illinois and Wisconsin and 4.3 cents per gallon in California. |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0421&r=ene |
| By: | Elobeid, Amani; Tokgoz, Simla |
| Abstract: | We analyze the impact of trade liberalization and removal of the federal tax credit in the United States on U.S. and Brazilian ethanol markets using a multi-market international ethanol model calibrated on 2005 market data and policies. The removal of trade distortions induces a 23.2 percent increase in the price of world ethanol on average between 2006 and 2015 relative to the baseline. The U.S. domestic ethanol price decreases by 14.1 percent, which results in a 7.5 percent decline in production and a 3.2 percent increase in consumption. The lower domestic price leads to a 2.5 percent rise in the share of fuel ethanol in gasoline consumption. U.S. net ethanol imports increase by 192.8 percent. Brazil responds to the higher world ethanol price by increasing its production by 8.8 percent on average. Total ethanol consumption in Brazil decreases by 3.2 percent and net exports increase by 61.9 percent relative to the baseline. The higher ethanol price leads to a 4.7 percent increase in the share of sugarcane used in ethanol production. The removal of trade distortions and 51¢ per gallon tax credit to refiners blending ethanol induces a 22.5 percent increase in the world ethanol price. |
| Keywords: | biofuels, ethanol, renewable fuels, trade liberalization. |
| Date: | 2006–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12652&r=ene |
| By: | Paul L. Joskow |
| Abstract: | This chapter provides a comprehensive overview of the theoretical and empirical literature on the regulation of natural monopolies. It covers alternative definitions of natural monopoly, regulatory goals, alternative regulatory institutions, price regulation with full information, regulation with imperfect and asymmetric information, and topics on the measurement of the effects of price and entry regulation in practice. The chapter also discusses the literature on network access and pricing to support the introduction of competition into previously regulated monopoly industries. |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:mee:wpaper:0508&r=ene |