nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒06‒11
eleven papers chosen by
Roger Fouquet
Imperial College, UK

  1. China's Carbon Emissions 1971-2003 By Chunbo Ma; David I. Stern
  2. Carbon Tax and Investment in Low-Carbon Technology in a Model of Co-ordination Failure By Geethanjali Selvaretnam; Kannika Thampanishvong
  3. Modelling wind in the electricity sector By Neuhoff, K.; Cust, J.; Keats, K
  4. SEED Paper 5: Socio-Ecological Regime Transitions in Austria and the United Kingdom By Fridolin Krausmann; Heinz Schandl; Rolf?Peter Sieferle
  5. A Note on US Royalty Relief, Rent Sharing and Offshore Oil Production By Paul Hallwood
  6. Oil Price Movements and the Global Economy: A Model-Based Assessment By Selim Elekdag; René Lalonde; Douglas Laxton; Dirk Muir; Paolo Pesenti
  7. Effectiveness of Regulatory Structure in the Power Sector of Pakistan By Afia Malik
  8. Can proactive fuel economy strategies help automakers mitigate fuel price risk? By McManus, Walter
  9. The link between gasoline prices and vehicle sales:economic theory trumps conventional Detroit wisdom By McManus, Walter
  10. Forecasting technology costs via the Learning Curve – Myth or Magic? By Alberth, S.
  11. Les vertus environnementales et économiques de la participation des citoyens au marché de permis d’émission : Une alternative efficiente à la compensation volontaire des émissions de CO2 By ROUSSE O.

  1. By: Chunbo Ma (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA); David I. Stern (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)
    Abstract: A number of previous studies on China's carbon emissions have mainly focused on two facts: 1) the continuous growth in emissions up till the middle of the 1990s; 2) the recent stability of emissions from 1996 to 2001. Decomposition analysis has been widely used to explore the driving forces behind these phenomena. However, since 2002, China's carbon emissions have resumed their growth at an even greater rate. This paper investigates China's carbon emissions during 1971-2003, with particular focus on the role of biomass, and, the fall and resurgence in emissions since the mid-1990s. We use an extended Kaya identity and the well-established logarithmic mean Divisia index (LMDI I) method. Carbon emissions are decomposed into effects of various driving forces. We find that: (1) A shift from biomass to commercial energy increases carbon emissions by a magnitude comparable to that of the increase in emissions due to population growth; (2) The technological effect and scale effect due to per capita GDP growth are different in the pre-reform period versus the post-reform period; (3) The positive effect of population growth has been decreasing over the entire period; (4) The fall in emissions in the late 1990s and resurgence in the early 2000s may be overstated due to inaccurate statistics. The rapid growth since the early 2000s, therefore, may not indicate a "new trend"; (5) Carbon emissions exhibit a correlation of 0.99 with coal consumption, which points to explicit policy suggestions.
    JEL: Q43 Q25
    Date: 2007–06
  2. By: Geethanjali Selvaretnam; Kannika Thampanishvong
    Keywords: carbon tax, climate change, low-carbon technology, coordination failure, global games.
    JEL: N5 Q3 D7 D8
  3. By: Neuhoff, K.; Cust, J.; Keats, K
    Abstract: We represent hourly, regional wind data and transmission constraints in an investment planning model calibrated to the UK and test sensitivities of least cost expansions to fuel and technology prices. Thus we can calculate the value of transmission expansions to the system. We represent limited public acceptance of wind and regional network constraints by maximum built rates per region and year. Thus we calculate the marginal value of improved planning and grid connection regimes. It is likely that some constraints will remain. Market designs that do not allow for regional differentiation to reflect transmission and planning constraints can increase overall costs to consumers.
    Keywords: Investment planning model, wind power, constraint land, Network constraints.
    JEL: O21 L94 C60 D62
    Date: 2007–02
  4. By: Fridolin Krausmann (Institute for Social Ecology, University of Klagenfurt, Austria); Heinz Schandl (CSIRO Sustainable Ecosystems, Australia); Rolf?Peter Sieferle (Department of History, University of St. Gallen, Switzerland)
    Abstract: We employ the concepts of socio-ecological regime and regime transition to better understand the biophysical causes and consequences of industrialization. For two case studies, the United Kingdom and Austria, we describe two steps in a major transition from an agrarian to an industrial socio-ecological regime and the resulting consequences for energy use, land use and labour organization. As the first step, the coal based industrial regime co-existed with an agricultural sector remaining within the bounds of the old regime. In the second step, the oil/electricity based industrial regime, agriculture was integrated into the new pattern and the socio-ecological transition had been completed. Industrialization offers answers to the input and growth related sustainability problems of the agrarian regime but creates new sustainability problems of a larger scale. While today?s industrial societies are stabilizing their resource use, albeit at an unsustainable level, large parts of the global society are in the midst of the old industrial transition. This poses severe problems for global sustainability.
    Keywords: socio-ecological regimes, metabolic profiles, transition, social metabolism, energy flows, land use, labour, industrialization, United Kingdom, Austria
    JEL: N5 O3 O5 Q1 Q4
    Date: 2007–05
  5. By: Paul Hallwood (University of Connecticut)
    Abstract: This paper offers an economic analysis explaining why royalty relief under US Federal legislation is expensive in terms of revenue foregone, but is largely ineffective in increasing US offshore oil production. Repeal of royalty relief is therefore justified.
    Keywords: oil taxation, royalty relief, offshore oil
    JEL: Q48
    Date: 2007–04
  6. By: Selim Elekdag; René Lalonde; Douglas Laxton; Dirk Muir; Paolo Pesenti
    Abstract: We develop a five-region version (Canada, an oil exporter, the United States, emerging Asia and Japan plus the euro area) of the Global Economy Model (GEM) encompassing production and trade of crude oil, and use it to study the international transmission mechanism of shocks that drive oil prices. In the presence of real adjustment costs that reduce the short- and medium-term responses of oil supply and demand, our simulations can account for large endogenous variations of oil prices with large effects on the terms of trade of oil-exporting versus oil-importing countries (in particular, emerging Asia), and result in significant wealth transfers between regions. This is especially true when we consider a sustained increase in productivity growth or a shift in production technology towards more capital- (and hence oil-) intensive goods in regions such as emerging Asia. In addition, we study the implications of higher taxes on gasoline that are used to reduce taxes on labor income, showing that such a policy could increase world productive capacity while being consistent with a reduction in oil consumption.
    Keywords: Economic models; Inflation and prices; International topics
    JEL: E66 F32 F47
    Date: 2007
  7. By: Afia Malik (Pakistan Institute of Development Economics, Islamabad.)
    Abstract: This paper is an attempt to study the regulatory environment in the electricity sector of Pakistan. NEPRA, a regulatory authority was formed in 1997 to protect consumer interests in the area of electricity provision, and to ensure an efficient and competitive environment for the electricity generators and distributors, but it has so far not been able to achieve anything. The power sector (dominated by WAPDA and KESC) is still affected by institutional and organisational weaknesses, with inefficient and non-optimal tariffs, high line losses, and high level of corruption. It has been found weak administrative governance in NEPRA in the form of lack of autonomy, resulting in the overall institutional inability to carry out the desired functions effectively. In addition, NEPRA is lacked in professional expertise to supervise and control the power sector and establish a rational and equitable pricing regime.
    Keywords: Electricity, NEPRA, Pakistan, Reforms, Regulation
    JEL: G38 L33 L43 L51 Q48
    Date: 2007
  8. By: McManus, Walter
    Abstract: Detroit automakers have opposed mandated improvements in fuel economy since legislation was first proposed in the 1970’s. Their opposition is based, among other considerations, on the assumption that their customers value fuel economy only when fuel prices are high. This paper presents the findings of our on-going research that strongly refutes this assumption. Using data on sales, prices, and attributes of vehicles in 2005, we find that consumers are willing to pay, on average, $578 per MPG for higher fuel economy. At the price of gasoline prevailing in 2005, $2.30 per gallon, the $578 per MPG that consumers are willing to pay for fuel economy implies that consumers put more weight in choosing vehicles on future fuel savings than most analysts (including ourselves) had thought. The paper incorporates these new data-driven estimates of the value of fuel economy into an automotive market simulation model that has three components: a consumer demand function that predicts consumers’ vehicle choices as functions of vehicle price, fuel price, and vehicle attributes (the new estimates of the value of fuel economy are used to set the parameters of the demand function); an engineering and economic evaluation of feasible fuel economy improvements by 2010; and a game theoretic analysis of manufacturers’ competitive interactions. Using our model, we estimated the market shares and profits of automakers in 128 separate scenarios defined by alternative plausible values for the price of fuel and consumers’ discount rates. Under the fuel price risks and the competitive risks that automakers face, our analysis concludes that a proactive strategy of pursuing fuel economy improvements— above and beyond what is required by law—would increase annual profits for Ford ($0.5 billion to $1.4 billion), GM ($0.2 billion to $0.5 billion, and DaimlerChrysler ($0.1 billion). Even if the uncertainty over fuel price were removed, all three automakers would increase profits by pursuing fuel economy improvements, though the gains are smaller with fuel at $2.00/gallon.
    Keywords: automotive industry; automakers; fuel econnomy; willingness to pay; game theory; consumer demand for fuel economy; Corporate Average Fuel Economy
    JEL: Q59 L62
    Date: 2006–09–14
  9. By: McManus, Walter
    Abstract: This paper examines the link between fuel prices and sales of cars and trucks. U.S. automakers have long denied that such a link exists. One source of this false belief is an obsession with the crude count of units sold, equating Hummers with Minis. Another source is the conventional “wisdom” that Americans are unwilling to pay for fuel economy. The paper presents theoretical reasons and market evidence that refute Detroit’s conventional wisdom. American manufacturers’ reaction to rising fuel prices over the last few years revealed the shortcomings of the U.S. automakers’ recent product and powertrain strategies. The effect of rising fuel prices has, in effect, been offset by reducing prices of vehicles in inverse proportion to fuel economy. Thus, unit sales of large SUVs could be maintained, but their revenue (and profit) fell because vehicle prices were cut, directly or indirectly. The paper concludes with a few practical guidelines that business economists should use to prevent their companies from experiencing the recent massive losses experienced by the U.S. automobile industry.
    Keywords: automotive industry; fuel prices; vehicle sales; American automakers
    JEL: M21 L62
    Date: 2007–01
  10. By: Alberth, S.
    Abstract: To further our understanding of the effectiveness of learning or experience curves to forecast technology costs, a statistical analysis using historical data has been carried out. Three hypotheses have been tested using available data sets that together shed light on the ability of experience curves to forecast future technology costs. The results indicate that the Single Factor Learning Curve is a highly effective estimator of future costs with little bias when errors were viewed in their log format. However it was also found that due to the convexity of the log curve an overestimation of potential cost reductions arises when returned to their monetary units. Furthermore the effectiveness of increasing weights for more recent data was tested using Weighted Least Squares with exponentially increasing weights. This resulted in forecasts that were typically less biased than when using Ordinary Least Square and highlighted the potential benefits of this method.
    Keywords: Forecasting, Learning curves, Renewable energy
    JEL: D81 O30
    Date: 2007–02
  11. By: ROUSSE O.
    Abstract: L’objectif de ce papier est de présenter une solution permettant de satisfaire de manière « coût efficiente » la demande de dépollution des personnes physiques et morales disposées à payer pour réduire le niveau global d’émissions de gaz à effet de serre. Cette solution peut être résumée comme un service de dépollution fournit par l’Etat ou une ONG consistant à acheter et détruire des quotas d’émission de CO2. En d’autres termes, nous nous proposons de faciliter l’accès des pollués au marché de permis d’émission de CO2 en regroupant d’abord les demandes d’achat de nombreuses petites quantités de permis, puis en procédant au trading de gré à gré ou via une maison de courtage, et enfin en retirant pour toujours ces permis du marché. Avant d’aborder cette solution à proprement dit, nous présentons et critiquons d’un point de vu économique les initiatives de compensation des émissions de carbone (carbon offsetting) qui se multiplient depuis quelques mois. Cette présentation sert ensuite de support à la compréhension de notre alternative et de son intérêt.
    Keywords: marché de permis d’émission, participation des citoyens, compensation volontaire des émissions.
    JEL: Q5
    Date: 2007

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