nep-ene New Economics Papers
on Energy Economics
Issue of 2006‒09‒30
thirteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. The R&D drop in European utilities. Should we care about it? By Sterlacchini, Alessandro
  2. Time-differentiated pricing and direct load control of residential electricity consumption By Torgeir Ericson
  3. Customer Risk from Real-Time Retail Electricity Pricing: Bill Volatility and Hedgability By Severin Borenstein
  4. The importance of volatility in inflow in a deregulated hydro-dominated power market By Torstein Bye, Annegrete Bruvoll and Finn Roar Aune
  5. Removing policy based comparative advantage for energy intensive production. Necessary adjustments of the real exchange rate and industry structure By Torstein Bye, Erling Holmøy and Kim Massey Heide
  6. Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand By Jonathan E. Hughes; Christopher R. Knittel; Daniel Sperling
  7. Behaviors and housing inertia are key factors in determining the consequences of a shock in transportation costs By François Gusdorf; Stéphane Hallegatte
  8. Energy resources in South Asia: The last frontier? By Kuntala Lahiri-Dutt
  9. Les enjeux de la la dépendance pétrolière de la Chine By Sadek Boussena; Catherine Locatelli
  10. Les enjeux de la réorganisation du secteur pétrolier russe : vers un nouveau modèle privé-public ? By Catherine Locatelli
  11. Collective Voluntary Agreements and the Production of Less Polluting Products By Rasha Ahmed; Kathleen Segerson
  12. Taking up the Slack: Lessons from a Cap-and-Trade Program in Chicago By Evans, David A.; Kruger, Joseph A.
  13. Poverty reduction, climate change mitigation and adaptation : the need for intermediate public policies harnessing technology appropriation By Christophe Rynikiewicz; Anne Chetaille

  1. By: Sterlacchini, Alessandro
    Abstract: By using accounting data from the largest utility companies of Europe, this note illustrates the recent R&D performance in energy and telecommunication. Although not all the companies under consideration behaved symmetrically, most of them reduced substantially their R&D investment. Over the period 2000-05, their total R&D expenditures at current prices decreased by 33%, while their R&D intensity (on sales) diminished from 1.1 to 0.7%. In discussing the above findings, it is argued that a drop of this size is hardly justifiable and weakens the EU economy in a non-negligible manner.
    Keywords: R&D performance; energy and telecommunication utilities
    JEL: O38 L97 O32
    Date: 2006–09–18
  2. By: Torgeir Ericson (Statistics Norway)
    Abstract: Time-of-use and real-time spot pricing tariffs in conjunction with direct load control of water heaters was offered to residential electricity consumers in a large-scale demand response experiment. Hourly data from the experiment on consumption, temperature, wind, and hours of daylight comprise a large panel data set, which are analysed with a fixed effects regression model. Price responses are estimated for three customer groups, which differ with respect to their choices of tariffs and requests for direct load control. The results indicate differing responses between the groups depending on their tariff combination.
    Keywords: Time-differentiated pricing; TOU; direct load control
    JEL: D10 Q41
    Date: 2006–06
  3. By: Severin Borenstein
    Abstract: One of the most critical concerns that customers have voiced in the debate over real-time retail electricity pricing is that they would be exposed to risk from fluctuations in their electricity cost. The concern seems to be that a customer could find itself consuming a large quantity of power on the day that prices skyrocket and thus receive a monthly bill far larger than it had budgeted for. I analyze the magnitude of this risk, using demand data from 1142 large industrial customers, and then ask how much of this risk can be eliminated through various straightforward financial instruments. I find that very simple hedging strategies can eliminate more than 80% of the bill volatility that would otherwise occur. Far from being complex, mystifying financial instruments that only a Wall Street analyst could love, these are simple forward power purchase contracts, and are already offered to retail customers by a number of fully-regulated utilities that operate real-time pricing programs. I then show that a slightly more sophisticated application of these forward power purchases can significantly enhance their effect on reducing bill volatility.
    JEL: L51 L94
    Date: 2006–09
  4. By: Torstein Bye, Annegrete Bruvoll and Finn Roar Aune (Statistics Norway)
    Abstract: In 2002/2003, the Nordic hydro-dominated power market faced a short-term supply shock. In autumn, precipitation and inflow were unusually low. As a result, there were record high prices in the following winter. Questions were raised whether the deregulated market creates sufficient incentives to invest in new production and transmission capacity to secure supply when overall inflow fails. One fear is that the market could break down when precipitation and inflow fails during the whole year, which is more probable than a short-term extreme inflow failure. We apply a market model to simulate the market effects with two events: i) an overall inflow shortage 25 per cent lower than normal, and ii) a seasonally biased inflow shortage, as happened in 2002/03. The 25 per cent low inflow scenario shows that significantly higher price effects are likely to occur in the Nordic power market in the future than in the past. However, the price effects are less than one would expect when compared to 2002/03, but prices remain higher for a longer period of time. The simulations do not indicate any problems in the functioning of the market within these scenarios.
    Keywords: Volatile power markets; deregulated power markets; security of supply
    JEL: C61 D41 Q41
    Date: 2006–09
  5. By: Torstein Bye, Erling Holmøy and Kim Massey Heide (Statistics Norway)
    Abstract: National and international expansion of transmission networks and diminishing returns to scale in hydropower capacity expansion has raised the opportunity cost of electricity. The resulting changes in comparative advantage between industries have in many countries been counteracted by government assistance to energy intensive industries. A good example is the implicit electricity price subsidies offered to energy intensive manufacturing in Norway through the state owned power company Statkraft. We use firm data to assess the share of firms that will survive in the long run when these subsidies are removed, highlighting that large cost heterogeneity within the industries may imply diminishing returns to scale at the industry level. This feature is incorporated in a multisectoral CGE model, which is used to estimate the equilibrium adjustments of the industry structure and relative prices of removing the subsidies. Such a policy will lead to a less specialised industry structure and reduces gross trade. The positive public budget effect allows the government to cut other taxes, which fuels the real exchange rate depreciation necessary to meet the national budget constraint.
    Keywords: Industry policy; Comparative advantage; Structural change
    JEL: D21 E23 E27 E62 F13 F18 F41 F43
    Date: 2006–07
  6. By: Jonathan E. Hughes; Christopher R. Knittel; Daniel Sperling
    Abstract: Understanding the sensitivity of gasoline demand to changes in prices and income has important implications for policies related to climate change, optimal taxation and national security, to name only a few. While the short-run price and income elasticities of gasoline demand in the United States have been studied extensively, the vast majority of these studies focus on consumer behavior in the 1970s and 1980s. There are a number of reasons to believe that current demand elasticities differ from these previous periods, as transportation analysts have hypothesized that behavioral and structural factors over the past several decades have changed the responsiveness of U.S. consumers to changes in gasoline prices. In this paper, we compare the price and income elasticities of gasoline demand in two periods of similarly high prices from 1975 to 1980 and 2001 to 2006. The short-run price elasticities differ considerably: and range from -0.034 to -0.077 during 2001 to 2006, versus -0.21 to -0.34 for 1975 to 1980. The estimated short-run income elasticities range from 0.21 to 0.75 and when estimated with the same models are not significantly different between the two periods.
    JEL: D12 L91 Q31 Q41 R40 R41
    Date: 2006–09
  7. By: François Gusdorf (CIRED - Centre international de recherche sur l'environnement et le développement - [CIRAD : UMR56][CNRS : UMR8568] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Nationale du Génie Rural des Eaux et des Forêts]); Stéphane Hallegatte (CIRED - Centre international de recherche sur l'environnement et le développement - [CIRAD : UMR56][CNRS : UMR8568] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Nationale du Génie Rural des Eaux et des Forêts])
    Abstract: This paper investigates the consequences of a sudden increase in transportation costs when households behaviors and buildings inertia are accounted for. A theoretical framework is proposed, capturing the interactions between behaviors, transportation costs and urban structure. It is found that changes in households consumption and housing choices reduce significantly the long-term adverse effects of a shock in transportation costs. Indeed, the shock translates, over the long-run, into a more concentrated housing that limits households utility losses and maintains landowners' income. But, because of buildings inertia, the shock leads first to a long transition, during which the adjustment is constrained by a suboptimal housing-supply structure. Then, households support larger losses than in the final stage, though lower than with no adjustment at all, and landowners experience a large decrease in their aggregate income and an important redistribution of wealth. Negative transitional effects grow as the shock becomes larger. Thus, behaviors and buildings inertia are key factors in determining the vulnerability to transportation price variability and to the introduction of climate policies. Our policy conclusions are that: (i) if a long-term increase in transportation costs is unavoidable because of climate change or resource scarcity, a smooth change, starting as early as possible, must be favored; and (ii) fast-growing cities of the developing world can reduce their future vulnerability to shocks in transportation costs through the implementation of policies that limit urban sprawl.
    Keywords: City, Housing, Transportation
    Date: 2006–09–20
  8. By: Kuntala Lahiri-Dutt
    Abstract: Between 1992 and 2002, energy consumption in South Asia went up by 64%, accounting for 4.1% of world energy consumption (up from 2.8% in 1991). This unprecedented growth occurred mainly in the modern/commercial energy sector, and is attributed to economic and population growth. This paper describes how ensuring energy security to the millions of people will be a major challenge for South Asian nations. The challenge is not only due to the limited reserves of natural resources within the jurisdiction of countries, but also to the fact that a large number of people are without access to reliable sources of energy. It is clear that the countries will increasingly adopt import policies that necessitate intra-regional cooperation. However, the geopolitical reality also implies that the conventional boundaries in South Asia will become more flexible. The countries will also use various ‘supply-side’ strategies — as against the demand-side approach that has characterized the energy policies so far — to meet the increased needs. However, with regard to governing the energy supply, this paper argues that the nations would also need to explore alternatives beyond the state and market options and encourage and support innovative community initiatives that provide crucial energy support to a large number of rural people.
    Date: 2006
  9. By: Sadek Boussena (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II]); Catherine Locatelli (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: La croissance des importations pétrolières chinoises met au 1er plan la question de sa dépendance énergétique par les autorités chinoises. Celle-ci passe par une présence active de la Chine sur la scène énergétique internationale (diversification des sources, des approvisionnements, rôle des compagnies pétrlières chinoises, etc.).
    Keywords: Dépendance énergétique ; importations ; pétrole ; Chine
    Date: 2006–09–19
  10. By: Catherine Locatelli (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: Cet article porte sur l'analyse de la réorganisation du secteur pétrolier en Russie. Il montre que l'on s'oriente vers une hybridation des modes de gouvernance publics et privés dans l'industrie. Celle-ci peut s'analyser comme une tentative de sortie du blocage institutionnel dans lequel la privatisation a enfermé le secteur pétrolier.
    Keywords: restructuration ; industrie pétrolière ; Russie
    Date: 2006–09–20
  11. By: Rasha Ahmed (University of Connecticut); Kathleen Segerson (University of Connecticut)
    Abstract: Recently, some industries have collectively agreed not to produce models that do not meet an energy efficiency (and hence an environmental) standard. This paper presents a simple model that can be used to examine a voluntary collective agreement to limit or completely eliminate the low efficiency model of a given product (e.g., a low efficiency washing machine). We show that, when there is competition between firms, a collective agreement to limit or even eliminate production of the polluting model can actually increase profits for all firms in the industry. This suggests that a collective agreement of this type might actually be beneficial to firms, while at the same time improving environmental quality. However, the implicit enforcement that comes from the public nature of the commitment is necessary to ensure this outcome. This suggests that, by promoting such agreements, policymakers may be able to achieve substantial environmental gains with relatively little inducement. The impact on social welfare will then depend on whether these gains are sufficiently large to offset consumer losses from reductions in product variety and the associated price increases.
    Keywords: Voluntary agreements, collective agreements, energy/fuel efficiency
    JEL: Q48 Q58
    Date: 2006–07
  12. By: Evans, David A. (Resources for the Future); Kruger, Joseph A.
    Abstract: The Emissions Reduction Market System (ERMS), an emissions-trading program for volatile organic materials (VOMs) in Chicago, Illinois, has been characterized by emissions significantly below the annual allocation of emission allowances, allowance prices much lower than predicted, limited trading, and emission allowances that expire unused. Essentially, it appears that a fundamental prerequisite for a tradable allowance program is missing—there is no scarcity of allowances. We evaluate a variety of hypotheses that may explain why the ERMS cap does not appear to be affecting abatement behavior and identify three that contributed to the lack of scarcity in the ERMS program: (1) a baseline process that inflated the cap; (2) hazardous air pollutant regulations that contributed to VOM reductions at some sources; and (3) numerous facility shutdowns. We conclude that the ERMS experience illustrates the inherent unpredictability of economic, regulatory, and other factors when setting an emissions target; a conclusion that resonates with the recent experience of the European Union Emissions Trading Scheme. This argues for gathering reliable emissions data, developing sophisticated emissions projections, and making transparent assumptions about the impacts of other policies and regulations during the program planning and design phase. However, even with all these attributes, it is still difficult to anticipate every possible outcome. Thus, it is desirable to have robust mechanisms to address the uncertainties of emissions-trading markets and to make midcourse corrections if necessary. Finally, we offer some comments on how to think about the results of ERMS versus a hypothetical command and control program that might have been designed to reach the same environmental outcome.
    Keywords: emissions-trading, ERMS, European Union, climate change
    JEL: Q53 Q58
    Date: 2006–07–25
  13. By: Christophe Rynikiewicz (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II]); Anne Chetaille (GRET Pôle Politiques Publiques et Régulations Internationales - [GRET])
    Abstract: A growing attention is given to identify workable approaches, bringing together both goals of climate change mitigation and adaptation and poverty alleviation. Challenges are numerous. Developing countries vulnerability to climate change is high. While access to energy is considered as a key priority for developing countries needs, the climate change constraint would appeal for development paths to be less intensive in greenhouse gases.<br />In this paper, we question the science and technology contribution to resilience in current international policy debate on poverty reduction and sustainable development. Secondly, key principles are defined to ensure an effective contribution of technology to addressing the challenges of leapfrogging. In particular, the ability to associate the stakeholders, define basic needs is fundamental in any technological transitions. Thirdly, we present the IMPACT Network's methodology and case studies that provide an original framework to design intermediate public policies, integrating multiple priorities in local and national strategies. This approach may help creating the enabling environments for technology development.
    Keywords: Climate vulnerability ; inequalities alleviation ; appropriate technologies ; intermediate public policies ; poverty ; adaptation
    Date: 2006–09–19

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