nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒04‒14
thirteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Too Good to Be True? Three Economic Assessments of California Climate Change Policy By Stavins, Robert N.; Jaffe, Judson; Schatzki, Todd
  2. Environmentally oriented energy policy and stock returns : an empirical analysis By Oberndorfer, Ulrich; Ziegler, Andreas
  3. Voluntary Environmental Regulation in Developing Countries: Fad or Fix? By Blackman, Allen
  4. Emissions Trading and Profit-Neutral Grandfathering By Cameron Hepburn; John K.-H. Quah; Robert A. Ritz
  5. Endogenizing Technological Change: Matching Empirical Evidence to Modeling Needs By Pizer, William A.; Popp, David
  6. Promoting Energy Efficiency at HUD in a Time of Change - Report to Congress By HUD - PD&R
  8. Monétarisation des externalités de transport : un état de l'art By André de Palma; Néjia Zaouali
  9. Investment timing and optimal capacity choice for small hydropower projects By Bøckman, Thor; Fleten, Stein-Erik; Juliussen, Erik; Langhammer, Håvard; Revdal, Ingemar
  10. Awake the Sleeper Within: Releasing the Energy of Stifled Domestic Commerce! By Nadeem Ul Haque
  11. Long-term growth prospects for the Russian economy By Roland Beck; Annette Kamps; Elitza Mileva
  12. Utilities reforms and corruption in developing countries By Antonio Estache; Ana Goicoechea; Lourdes Trujillo
  13. Does Oil Corrupt? Evidence from a Natural Experiment in West Africa By Pedro C. Vicente

  1. By: Stavins, Robert N.; Jaffe, Judson; Schatzki, Todd
    Abstract: California’s Global Warming Solutions Act of 2006 limits California’s greenhouse gas (GHG) emissions in 2020 to their 1990 level. Global climate change is a pressing environmental problem, and the best possible public policies will be required to address it. Therefore, analyses of prospective policies must themselves be of high quality, so that policymakers can reasonably rely on them when making the critical decisions they inevitably will face. In 2006, three studies were released indicating that California can meet its 2020 target at no net economic cost — raising questions about whether opportunities truly exist to substantially reduce emissions at no cost, or whether studies reaching such conclusions may simply severely underestimate costs. This paper provides an evaluation of these three California studies. We find that although opportunities may exist for some no-cost emission reductions, these California studies substantially underestimate the cost of meeting California’s 2020 target. The studies underestimate costs by omitting important components of the costs of emission reduction efforts, and by overestimating offsetting savings that some of those efforts yield through improved energy efficiency. In some cases, the studies focus on the costs of particular actions to reduce emissions, but fail to consider the effectiveness and costs of policies that would be necessary to bring about such actions. While quantifying the full extent of the resulting cost underestimation is beyond the scope of our study, the underestimation is clearly economically significant. A few of the identified flaws individually lead to underestimation of annual costs on the order of billions of dollars. Hence, these studies do not offer reliable estimates of the cost of meeting California’s 2020 target. Better analyses are needed to inform policymakers. While the Global Warming Solutions Act of 2006 sets a 2020 emissions target, critical policy design decisions remain to be made that will fundamentally affect the cost of California’s climate policy. For example, policymakers must determine emission targets for the years before and after 2020, the emission sources that will be regulated to meet those targets, and the policy instruments that will be employed. The California studies do not directly address the cost implications of these and other policy design decisions, and their overly optimistic findings may leave policymakers with an inadequate appreciation of the stakes associated with decisions that lie ahead. As such, California would benefit from studies that specifically assess the cost implications of alternative policy designs.Nonetheless, a careful evaluation of the California studies highlights some important policy design lessons that apply regardless of the extent to which no-cost emission reduction opportunities actually exist. In particular, policies should be designed to account for uncertainty regarding emission reduction costs, much of which will not be resolved before policies must be enacted. Also, consideration of the different market failures that lead to excessive GHG emissions makes clear that to reduce emissions cost-effectively, policymakers should adopt a market-based policy (such as a cap-and-trade system) as the core policy instrument. The presence of specific market failures that may lead to some no-cost emission reduction opportunities suggests the potential value of additional policies that act as complements, rather than alternatives, to a market-based policy. However, to develop complementary policies that efficiently target such no-cost opportunities, policymakers need better information than currently exists regarding the specific market failures that bring about those opportunities.
    Date: 2007–03–23
  2. By: Oberndorfer, Ulrich; Ziegler, Andreas
    Abstract: This paper analyzes the effect of environmental regulation on stock returns (as a measure of economic performance) for German energy corporations. By using event study methodology, we consider the last minute victory of the acting government in the 2002 German federal elections to the Lower House of Parliament (Bundestag). The government coalition consisted of Social Democrats and the Green party and was generally associated with a paradigm shift in environmental and particularly energy policy towards the promotion of renewable energies and a phasing out of nuclear energy. In contrast, the opposing Christian Democrats and Liberal party signaled different priorities in line with traditional energy policy. Compared with other environmental event studies, we include insights from modern empirical finance and therefore also apply the Fama-French three-factor model to estimate the abnormal daily and monthly stock returns. The main estimation results of the empirical analysis imply (1) no evidence of a general negative impact of the 2002 Bundestag elections on stock returns for traditional utilities and (2) a positive albeit transitory short-run effect for the entire group of renewable energy corporations. We conclude that the 2002 Bundestag elections and therefore stringent environmental regulation had at least no general negative effect on the economic performance of energy corporations. One reason for this could be that the compliance costs of the government’s environmentally oriented energy policy were lower for traditional utilities than expected.
    Keywords: Environmental regulation, Energy policy, Nuclear energy, Renewable energies, Event study, CAPM, Market model, Three-factor model
    JEL: G12 G14 Q42 Q48
    Date: 2006
  3. By: Blackman, Allen (Resources for the Future)
    Abstract: Hamstrung by weak institutions that undermine conventional environmental regulatory tools, policymakers in developing countries are increasingly turning to voluntary approaches. Yet the evaluative literature on the topic is thin. To help fill this gap, we review arguments for and against the use of voluntary regulation in developing countries and present three case studies: a series of agreements negotiated between regulators and leather tanners in Guanajuato, Mexico; a national environmental audit program in Mexico; and a national public disclosure program in Indonesia. Admittedly few in number, these case studies nevertheless suggest that although voluntary environmental regulation in developing countries is a risky endeavor, it is by no means doomed to failure. The risks can be minimized by emphasizing the dissemination of information about pollution and pollution abatement options and by avoiding voluntary tools in situations where regulatory and nonregulatory pressures for improved environmental performance are weak and where polluters can block quantified targets, individual sanctions for noncompliance, and other widely accepted prerequisites of effective initiatives.
    Keywords: voluntary regulation, environment, developing country, Mexico, Indonesia
    JEL: Q28 O13
    Date: 2007–03–16
  4. By: Cameron Hepburn; John K.-H. Quah; Robert A. Ritz
    Abstract: This paper examines the amount of grandfathering needed for an emissions trading scheme (ETS) to have a neutral impact on firm profits. We provide a simple formula to calculate profit-neutral grandfathering in a Cournot model with firms of different sizes and a general demand function. Using this formula, we obtain estimates of profit-neutral grandfathering for the electricity, cement, newsprint and steel industries. Under the current EU ETS, firms obtain close to full grandfathering; we show that while this may still leave some firms worse off, others have probably benefitted substantially. We find no evidence that any industry as a whole could be worse off with full grandfathering. We also show that the common presumption that a higher rate of cost pass-through lowers profit-neutral grandfathering is unreliable
    Keywords: Emissions Trading, Emissions Permits, Grandfathering Firm Profits, Cost Pass-Through, Market Structure
    JEL: D43 H23 Q58
    Date: 2006
  5. By: Pizer, William A. (Resources for the Future); Popp, David
    Abstract: Technologies to reduce significantly fossil-fuel emissions currently are unavailable or only available at high cost. In light of this, the amount of research on the pace, direction, and benefits of environmentally friendly technological change has grown dramatically in recent years. This research includes empirical estimates of these effects and modeling exercises designed to simulate endogenous technological change in response to climate policy. Unfortunately, few attempts have been made to connect these two streams of research. This paper attempts to bridge that gap, reviewing both the empirical and modeling literature on technological change. Our goal is to provide an agenda for how both empirical and modeling research in these areas can move forward in a complementary fashion. In doing so, we discuss how models used for policy evaluation can better capture empirical phenomena and how empirical research can better address the needs of models used for policy evaluation.
    Keywords: endogenous technological change, climate change, CGE modeling
    JEL: Q55 Q28 O3 D58
    Date: 2007–03–31
  6. By: HUD - PD&R
    Abstract: The report presents HUD's energy strategy for public and assisted housing. Promoting Energy Eficiency at HUD in a Time of Change, as required under Section 154 of the Energy Policy Act of 2005, describes a comprehensive, Departmentwide strategy that HUD is implementing to reduce energy costs in public and assisted housing as well as through HUD's formula and competitive grant programs.
    JEL: O31
    Date: 2006–08–08
  7. By: Karen Mayor; Richard S.J. Tol (Economic and Social Research Institute, Dublin)
    Abstract: We use a model of domestic and international tourist numbers and flows to estimate the impact of the recent and proposed changes in the Air Passenger Duty (APD) of the United Kingdom. We find that the recent doubling of the APD has the perverse effect of increasing carbon dioxide emissions, albeit only slightly, because it reduces the relative price difference between near and far holidays. Tourist arrivals in the UK would fall slightly. Tourist arrivals from the UK would fall in the countries near to the UK, and this drop would be only partly offset by displaced tourists from the UK. Tourist numbers in countries far from the UK would increase. The proposal of the Conservative Party to exempt the first 2,000 miles (for UK residents) would decrease emissions by roughly the same amount as abolishing the APD altogether – but tourist arrivals in the UK would not rise. These results are reversed if we assume that domestic holidays and foreign holidays are close substitutes. If the same revenue were raised with a carbon tax rather than a boarding tax, emissions would fall with higher taxes.
    Keywords: International tourism, carbon dioxide emissions, boarding tax, United Kingdom
    JEL: L83 L93 Q54
    Date: 2007–04
  8. By: André de Palma (Université de Cergy-Pontoise et Ecole Nationale des Ponts et Chaussées.); Néjia Zaouali (Laboratoire Thema, 33 boulevard du port 95011, Cergy-Pontoise cedex, France.)
    Abstract: In this paper we suggest a literature review on valuation of transport externalities during the last ten years. In the first part, we will tackle again with the concept of externalities as well as the approaches which have been used in the economic literature so that to study them. In the second part, we will assess the studies on monetary evaluation of external costs (congestion, atmospheric pollution, noise and accidents) at the international level. Then, we will have a critique on the results that were published by various writers.
    Keywords: externalities, valuation, the State-of-the Art
    JEL: H23 Q51 R41
    Date: 2007
  9. By: Bøckman, Thor; Fleten, Stein-Erik; Juliussen, Erik; Langhammer, Håvard; Revdal, Ingemar
    Abstract: This paper presents a method for assessing small hydropower projects that are subject to uncertain electricity prices. We present a real options-based method with continuous scaling, and we find that there is a unique price limit for initiating the project. If the current electricity price is below this limit it is never optimal to invest, but above this limit investment is made according to the function for optimal size. The connection between the real option and the physical properties of a small hydropower plant is dealt with using a spreadsheet model that performs a technical simulation of the production in a plant, based on all the important choices for such a plant. The main results of the spreadsheet are simulated production size and the investment costs, which are in turn used for finding the value of the real option and the price limit. The method is illustrated on three different Norwegian small hydropower projects.
    Keywords: OR in Energy; Real Options; Continuous Scaling; Project Evaluation; Hydropower
    JEL: Q25 Q4 G13
    Date: 2006–06–11
  10. By: Nadeem Ul Haque (Pakistan Institute of Development Economics, Islamabad)
    Abstract: Policy in Pakistan has been fairly path-dependant, placing a higher weight on export promotion and domestic industrialisation development than on domestic commerce. Yet domestic commerce is growing rapidly, and quite possibly is the largest sector in the economy. This paper argues that a more holistic policy, with no favourites, that allows for all sectors to grow leads to better long-term economic results. A vibrant domestic commerce sector is the core of the economy facilitating intermediation between supply and demand, entrepreneurial development, risk-taking, innovation, and competitive markets. Such an economy moves beyond commodity exports to brand name, process, and capital exports, all of which command a higher rate of return. Pakistan could therefore achieve a higher and a more sustainable growth rate by adopting a more balanced growth strategy
    Keywords: Commercial policy
    JEL: G0
    Date: 2006
  11. By: Roland Beck (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Annette Kamps (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Elitza Mileva
    Abstract: This paper provides an assessment of Russia’s long-term growth prospects. In particular, it addresses the question of the medium- and long-term sustainability of the country’s currently high growth rates. Starting from the notion that Russia’s fast economic expansion in recent years has benefited from a number of singular factors such as the unprecedented rise in oil prices, the paper presents new evidence on Russia’s oil price dependency using a Vector Error Correction Model (VECM) framework. The findings indicate that the positive impact of rising oil prices on Russia’s GDP growth has increased in recent years, but tends to be buffered by an appreciation of the real effective exchange rate which is stimulating imports. Additionally, there is empirical confirmation that growth in the service sector – a symptom usually associated with the Dutch disease phenomenon – is mainly a result of the transition process. Finally, the paper provides an overview of the relevant factors that are likely to affect Russia’s growth performance in the future. JEL Classification: O43, O 47, O51, O11, O14.
    Keywords: Russia, economic growth.
    Date: 2007–03
  12. By: Antonio Estache; Ana Goicoechea; Lourdes Trujillo (Department of Economics, City University, London and DAEA, Universidad de Las Palmas de Gran Canaria)
    Abstract: This paper shows empirically that “privatization” in the energy, telecommunications and water sectors, and the introduction of independent regulators in those sectors, have not always had the expected effects on access, affordability or quality of services. It also shows that corruption leads to adjustments in the quantity, quality, and price of services consistent with the profit-maximizing behaviour that one would expect from monopolies in the sector. Finally, our results suggest that privatization and the introduction of independent regulators have, at best, only partial effects on the consequences of corruption for access, affordability and quality of utilities services.
    Date: 2007–04
  13. By: Pedro C. Vicente
    Abstract: This paper explores an oil discovery natural experiment to assess the role of natural resources in determining corruption. We argue that an anticipated oil boom may increase corruption by boosting the value attributed by an elite to being in power when the actual oil exploration begins. We test this proposition by analyzing the impact of the oil discovery announcements that took place in 1997-99 in Sao Tome and Principe (West Africa). For this objective we conducted purposedly-designed household surveys on perceived corruption in the public services/sector. These were carried out in Sao Tome and Principe and in Cape Verde, a control West African country sharing strong cultural ties and important contemporary economic/political shocks. The unique survey instrument was retrospective and used personal histories to elicit memories from the respondents. Urban subjects, public officials, and respondents with higher reported experience with the services/issues at stake are used as internal treatment groups. Comparisons are also made with corresponding groups in Cape Verde. In addition, the regressions control for well-known `good old times` bias: this is done by using data from direct questions on optimism and from the inclusion of a `placebo` period (when no major occurrence had arisen). We conclude that a clear increase in perceived corruption has occurred in Sao Tome and Principe in recent years, ranging from 21 to 38% of the subjective scale. Consistently with our theoretical mechanism, which underlines the importance of being in power when the oil boom occurs, these effects are most robust in vote buying, education, and state jobs.
    Keywords: Corruption, Influence, Political Economy, Natural Resources, Oil, West Africa
    JEL: D73 O13 O55 P16
    Date: 2007

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