nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒07‒07
nineteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Interaction of European Carbon Trading and Energy Prices By Derek W. Bunn; Carlo Fezzi
  2. The european energy system in the context of long term climate policies By Patrick Criqui; Silvana Mima; Alban Kitous
  3. European gas market : stakes and perspectives By Catherine Locatelli; Silvana Mima
  4. Market Reform, Regional Energy and Popular Representation: Evidence from Post-Soviet Russia By Theocharis N. Grigoriadis; Benno Torgler
  5. A Global Land Use and Biomass Approach to Reduce Greenhouse Gas Emissions, Fossil Fuel Use and to Preserve Biodiversity By Arthur Riedacker
  6. Climate Change, Mortality, and Adaptation: Evidence from Annual Fluctuations in Weather in the US By Olivier Deschênes; Michael Greenstone
  7. On the Design of Global Refunding and Climate Change By Hans Gersbach; Ralph Winkler
  8. Modeling Linkages Between Climate Policy and Land Use: An Overview By Edwin van der Werf; Sonja Peterson
  9. The Guy at the Controls: Labor Quality and Power Plant Efficiency By James B. Bushnell; Catherine Wolfram
  10. Measuring Potential Gains from Mergers among Electricity Distribution Companies in Turkey using a Non-Parametric Model By Necmiddin Bagdadioglu; Catherine Waddams Price; Thomas Weyman-Jones
  11. The development of the Norwegian Petroleum Innovation System: A historical overview By Ole Andreas Engen
  12. Should We Drill in the Arctic National Wildlife Refuge? An Economic Perspective By Matthew J. Kotchen; Nicholas E. Burger
  13. The Environmental Kuznets Curve in a World of Irreversibility By Fabien Prieur
  14. Introducing Competition and Deregulating the British Domestic Energy Markets: a Legal and Economic Discussion By Michael Harker; Catherine Waddams Price
  15. Is Russia's Growth a 'Flash in the Pan'? By Daniel Berkowitz; Yadiviga Semikolenova
  16. Long-run Determinants of Pollution: A Robustness Analysis By Michael Lamla
  17. Analysis of the Hydrocarbon Sector in Bolivia: How are the Gas and Oil Revenues Distributed? By Christian Velasquez-Donaldson
  18. Democracy and the curse of natural resources By Esther Hauk; Antonio Cabrales
  19. Urban Transport Policies and the Environment: Evidence from Italy By Marco Percoco

  1. By: Derek W. Bunn (London Business School); Carlo Fezzi (University of East Anglia)
    Abstract: This paper addresses the economic impact of the EU Emission Trading Scheme for carbon on wholesale electricity and gas prices. Specifically, we analyse the mutual relationships between electricity, gas and carbon prices in the daily spot markets in the United Kingdom. Using a structural co-integrated VAR model, we show how the prices of carbon and gas jointly influence the equilibrium price of electricity. Furthermore, we derive the dynamic pass-trough of carbon into electricity price and the response of electricity and carbon prices to shocks in the gas price.
    Keywords: Carbon Emission Trading, Energy Markets, Structural VECM
    JEL: Q48 L94 C32
    Date: 2007–06
  2. By: Patrick Criqui (LEPII - Laboratoire d'économie de la prospective et de l'intégration internationale - [CNRS : FR2664] - [Université Pierre Mendès-France - Grenoble II]); Silvana Mima (LEPII - Laboratoire d'économie de la prospective et de l'intégration internationale - [CNRS : FR2664] - [Université Pierre Mendès-France - Grenoble II]); Alban Kitous (Enerdata S.A.)
    Abstract: The future of the European energy system will strongly depend on a future world energy context that will be dominated by two key challenges. The first challenge corresponds to the necessity of meeting the energy needs of a growing population in Asia, South America and Africa, while some key energy resources – oil and natural gas – enter in a process of increasing scarcity. The second challenge results from the need to rapidly adjust the structure of the world energy system in order to meet the tightening constraints induced by the will to limit anthropogenic climate change. Both issues are clearly strategic for Europe as on the one hand the Union will have to master a growing import dependency from the international markets and neighbouring regions, and as on the other hand it intends to take the lead on the international scene for climate change mitigation policies.<br />Analyses of world long term energy scenario show that the growing scarcity on hydrocarbon supply will not solve the climate change problem as it will rather result in increased coal consumption. Conversely seriously addressing the climate change challenge will imply lower fossil fuel consumption, allow an extension of oil and gas reserves and lead to a real double dividend in terms of sustainability: by climate change mitigation and by reduced tensions and risks of crises on the oil and gas markets. Similarly, ambitious GHG abatement scenarios for Europe will allow limiting the Union's import dependency, which is of course one key element of overall security. Thus, addressing the fossil fuel emissions abatement issue clearly appears as a top priority on the agenda. In this paper we focus on what GHG emissions mitigation policies mean for the European energy system within a global framework
    Date: 2007–06–27
  3. By: Catherine Locatelli (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II]); Silvana Mima (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: World reserves of natural gas are abundant and expected to increase up to 2050. World gas production is projected to more than double between 2000 and 2050. However, regional disparities in gas reserves and production costs are expected to modify the regional gas supply pattern in 2050: about half of the total gas production will originate from the CIS and the Middle East.<br />Important uncertainties remain on the EU27 gas demand and supply in the long term. For example, on one hand, the enlargement of the EU modifies the landscape. The question of the penetration of the natural gas in the energy balance is for a “new entrant” an important aspect of their energy policy. On the other hand, the liberalisation of the EU gas market may have important consequences on the strategies of gas producers like Russia.
    Date: 2007–06–27
  4. By: Theocharis N. Grigoriadis; Benno Torgler
    Abstract: This article investigates the relative impact of regional energy production on the energy voting choices of State Duma deputies between 1994 and 2003, controlling for other factors such as party affiliation, electoral mandate, committee membership and socio-demographic parameters. We apply Poole’s optimal classification method of roll call votes using an ordered probit model to explain energy market reform in the first decade of Russia’s democratic transition. Our main finding is that the gas production factor is inter temporally important in the formation of the deputies’ legislative choices and shows Gazprom’s strategic position in the post-Soviet Russian economy. The oil production factor is variably significant in the two first Dumas, when the main legislative debates on oil privatization occur. The energy committee membership tends to consistently explain pro-reform voting choices. The pro-and anti-reform poles observed in our Poole-based single dimensional scale are not necessarily connected with liberal and state-oriented policies respectively.
    Keywords: energy regulation, market reform, energy resources, roll call votes, legislative politics, State Duma, Russia
    JEL: Q40 D72 K23 P27 P37 P31 R11
    Date: 2007–06–28
  5. By: Arthur Riedacker (INRA Unité Mona)
    Abstract: As average growth consumptions per capita and world population will continue to grow, the promotion of sustainable developments during the next half a century implies to take into account environmental aspects, local potentialities and futures changes in population as well climatic, economic and social factors. At the global level, land and fossil fuel availability per capita, capacity of absorption of greenhouse gas emissions are considered the most important environmental factors. Whereas at local levels are to be considered preservation or improvement of soil fertility, of water regimes, of quality of air, soil and water. Biodiversity must be taken into account at both levels to cope also with climate change. But as underlined by IPCC lead authors, up to now there is no tool available to deal with these issues in a comprehensive and adequate manner. A new tool, presented here, the Integrated Environmental Assessment (IEA) has therefore been developed. It takes into account all actions, from the sun to final services, in three stages: solar energy bioconversion and phytomass production at I; conversion of phytomass and non renewable resources into final products and waste disposal at II ; arrangement of products to meet final needs, such as nutrition, housing mobility etc. at III. IEAs start at the global level with the “GIEA” , the results of which are then to be confronted with constraints at local levels from “LIEAs”. This new tool can be used to identify impacts of technological changes in land management and to compare alternative practices better than with LCAs. It was used to analyze environmental impacts of technological changes between 1950 and 2000 in France, in wheat production at stage I. It appeared that not only yields, but also the primary mitigation potential (PMP) per hectare have been multiplied by 4, whereas the net primary energy gain per ha has been multiplied by 3.2. Besides this, 14,5 Mha (the area of the French forest about a quarter of France) land use change could be avoided; in the case of deforestation this would have led to the emission of more than 4 billion tons of CO2. Lessons are drawn from the past and for the next fifty years: In developed and industrialized countries, alternative managements of land and increased use of non food phytomass can and should be envisaged. In Sub-Saharan Africa population is expected to double during the next 50 years and soil fertility is drastically decreasing; agricultural practices are no longer sustainable. If no changes appear in agriculture, forests and GHG emission from deforestation as well as biodiversity are threatened by further and inevitable land use change. Increasing yields per hectare should therefore become the priority; it would at the same time increase food security, improve mitigation and adaptation to climate change, help to combat deforestation and desertification, better preserve biodiversity, and ultimately also allow more bioenergy production: This would improve the food security and at the same time help to achieve the objectives of the three main UN environmental conventions and of the UN Millennium Goal.
    Keywords: Greenhouse Gas Emission, Fossil Fuel, Biodiversity
    JEL: Q23 Q27
    Date: 2007–06
  6. By: Olivier Deschênes; Michael Greenstone
    Abstract: This paper produces the first large-scale estimates of the US health related welfare costs due to climate change. Using the presumably random year-to-year variation in temperature and two state of the art climate models, the analysis suggests that under a "business as usual" scenario climate change will lead to an increase in the overall US annual mortality rate ranging from 0.5% to 1.7% by the end of the 21st century. These overall estimates are statistically indistinguishable from zero, although there is evidence of statistically significant increases in mortality rates for some subpopulations, particularly infants. As the canonical Becker-Grossman health production function model highlights, the full welfare impact will be reflected in health outcomes and increased consumption of goods that preserve individuals' health. Individuals' likely first compensatory response is increased use of air conditioning; the analysis indicates that climate change would increase US annual residential energy consumption by a statistically significant 15% to 30% ($15 to $35 billion in 2006 dollars) at the end of the century. It seems reasonable to assume that the mortality impacts would be larger without the increased energy consumption. Further, the estimated mortality and energy impacts likely overstate the long-run impacts on these outcomes, since individuals can engage in a wider set of adaptations in the longer run to mitigate costs. Overall, the analysis suggests that the health related welfare costs of higher temperatures due to climate change are likely to be quite modest in the US.
    JEL: H4 I10 I12 I18 Q41 Q51 Q53 Q54 Q58
    Date: 2007–06
  7. By: Hans Gersbach (Center of Economic Research (CER-ETH) at ETH Zurich); Ralph Winkler (Center of Economic Research (CER-ETH) at ETH Zurich)
    Abstract: We design a global refunding scheme as a new international approach to address climate change. A global refunding system allows each country to set its carbon emission tax, while aggregate tax revenues are partially refunded to member countries in proportion to the relative emission reductions they achieve within a given period, compared to some given baseline emissions. In a simple model we show that a suitably designed global refunding scheme is self-enforcing and achieves the social global optimum.
  8. By: Edwin van der Werf (Kiel Institute for the World Economy); Sonja Peterson (Kiel Institute for the World Economy)
    Abstract: Agriculture and forestry play an important role in emitting and storing greenhouse gases. For an efficient and cost-effective climate policy it is therefore important to explicitly include land use, land use change, and forestry (LULUCF) in economy-climate models. This paper gives an overview and assessment of existing approaches to include land use, land-use change, and forestry into climate-economy models or to link economy-climate models to land-use models.
    Keywords: Climate Change, Climate Policy, Modeling, Land Use
    JEL: Q23 Q24 Q25 Q42
    Date: 2007–05
  9. By: James B. Bushnell; Catherine Wolfram
    Abstract: This paper examines the impact of individual human operators on the fuel efficiency of power plants. Although electricity generation is a fuel and capital intensive enterprise, anecdotal evidence, interviews, and empirical analysis support the hypothesis that labor, particularly power plant operators, can have a non-trivial impact on the operating efficiency of the plant. We present evidence to demonstrate these effects and survey the policies and practices of electricity producing firms that either reduce or exacerbate fuel efficiency differences across individual plant operators.
    JEL: J24 L51 L94 M54
    Date: 2007–07
  10. By: Necmiddin Bagdadioglu (Department of Public Finance, Hacettepe University and Centre for Competition Policy, University of East Anglia); Catherine Waddams Price (Centre for Competition Policy, University of East Anglia); Thomas Weyman-Jones (Department of Economics, Loughborough University)
    Abstract: Turkish electricity reform is entering a new phase through the Turkish Government's proposal to create 21 new distribution companies, 18 of them through merger. Two aspects of merger analysis are the operational cost savings and the potential production efficiency gains. This paper concentrates on the second aspect and uses a recently developed methodology to assess the potential effect of these mergers and whether these mergers are efficiency enhancing. This is performed by comparing the actual efficiency levels of observed distribution companies with the merger of proposed aggregated companies. The model is calibrated on panel data from 1999 to 2003 which include measures of physical capital and labour inputs, as well as customer and energy related outputs. The results indicate potential for considerable efficiency gains from the proposed mergers.
    Keywords: Efficiency and productivity analysis, data envelopment analysis, electricity distribution
    JEL: G34 C14 L5 L94
    Date: 2006–09
  11. By: Ole Andreas Engen (University of Stavanger)
    Abstract: This paper addresses the development of the Norwegian Petroleum Innovation System. The characteristics of the Norwegian Petroleum Innovation System were on the one hand the increasing ability to solve bottlenecks connected to production and operation on the Norwegian shelf, and on the other a gradual learning process which enabled a large portion of Norwegian participation in the petroleum business. While the initial phase of the petroleum development of Norway in the sixties was characterised by an absorptive capacity of receiving new technology, the building of Norwegian competence in the seventies and eighties was in certain respects directly shaped by public policy in order to participate. With the Condeep design it became possible to speak of an independent Norwegian petroleum industry. The development of Norwegian producer and supplier companies signified that petroleum activity in Norway was entering a new phase. In the R/D System of Norway petroleum education and research were introduced at several levels. Due to new cost efficient technologies introduced in the nineties, we may say that the adjustment was concluded by the beginning of 21st century. The Norwegian oil and gas actors perceived themselves ready to fully participate in the international system of energy producers.
    Date: 2007–07
  12. By: Matthew J. Kotchen; Nicholas E. Burger
    Abstract: This paper provides model-based estimates of the value of oil in Alaska's Arctic National Wildlife Refuge (ANWR). The best estimate of economically recoverable oil in the federal portion of ANWR is 7.06 billion barrels of oil, a quantity roughly equal to US consumption in 2005. The oil is worth $374 billion ($2005), but would cost $123 billion to extract and bring to market. The difference, $251 billion, would generate social benefits through industry rents of $90 billion as well as state and federal tax revenues of $37 billion and $124 billion, respectively. A contribution of the paper is the decomposition of the benefits between industry rents and tax revenue for a range of price and quantity scenarios. But drilling and development in ANWR would also bring about environmental costs. These costs would consist largely of lost nonuse values for the protected status of ANWR's natural environment. Rather than estimate these costs and conduct a benefit-cost analysis, we calculate the costs that would generate a breakeven result. We find that the average breakeven willingness to accept compensation to allow drilling in ANWR ranges from $582 to $1,782 per person, with a mean estimate of $1,141.
    JEL: Q3 Q4 Q5
    Date: 2007–07
  13. By: Fabien Prieur (GREQAM and INRA-LAMETA)
    Abstract: We develop an overlapping generations model where consumption is the source of polluting emissions. Pollution stock accumulates with emissions but is partially assimilated by nature at each period. The assimilation capacity of nature is limited and vanishes beyond a critical level of pollution. We first show that multiple equilibria exist. More importantly, some exhibit irreversible pollution levels although an abatement activity is operative. Thus, the simple engagement of maintenance does not necessarily suffice to protect an economy against convergence toward a steady state having the properties of an ecological and economic poverty trap. In contrast with earlier related studies, the emergence of the environmental Kuznets curve is no longer the rule. Instead, we detect a sort of degenerated Environmental Kuznets Curve that corresponds to the equilibrium trajectory leading to the irreversible solution.
    Keywords: Overlapping Generations, Irreversible Pollution, Poverty Trap, Environmental Kuznets Curve
    JEL: Q56 D62 D91
    Date: 2007–05
  14. By: Michael Harker (Centre for Competition Policy, University of East Anglia); Catherine Waddams Price (Centre for Competition Policy, University of East Anglia)
    Abstract: In this article we chart the development of competition and deregulation of the British retail energy markets, explaining the evolution of competitive constraints when consumers are introduced to supplier choice for the first time. In the context of rising real energy prices for consumers, and continued market power on the part of the incumbents, we address the question of whether the control of pricing practices through the ex post provisions of the general competition law is sufficient to protect consumers. We also explore the issue of whether reliance solely on these provisions is desirable given the uncertainty which surrounds the application of the Chapter II prohibition (governing abuse of dominance), specifically in respect of price discrimination in final markets. We conclude that the outcome of the liberalisation experiment in terms of delivering benefits for consumers is unclear.
    Keywords: Energy markets, deregulation, monopoly, competition, dominance, market power, consumer switching, switching behaviour, price rebalancing, ex post and ex ante regulation
    JEL: K21 K23 I38 L12 L41 L51 L94 L95
    Date: 2006–11
  15. By: Daniel Berkowitz; Yadiviga Semikolenova
    Abstract: Russia’s impressive growth record since 2000 is driven largely by high world oil prices (Desai, 2006). This rapid growth, however, may be a “flash in the pan†because high oil prices enable the Russian government to engage in rent-seeking and to postpone deep restructuring (Berglöf, et al, 2003). We use detailed crude oil shipping export data in 2003 and 2005 to test for whether the Russian federal government has used its control over exports primarily to extract rents or to promote efficiency. If the government is engaged in rent seeking, this is suggestive that growth since 2000 is a “flash in the panâ€. But, if the government has restructured its regulation of crude oil exports, then there is reason to be more optimistic. We find that by 2005 the Russian federal government promotes efficient oil exporting. Moreover, in 2005 economic criteria including transport cost, production costs and productivity are more important determinants of export access than at the beginning of the Putin administration in 1999.
    Date: 2007–06
  16. By: Michael Lamla (KOF Swiss Economic Institute, ETH Zurich)
    Abstract: This paper examines how robust economic, political, and demographic variables are related to water and air pollution. Employing Bayesian Averaging of Classical Estimates (BACE) for a cross section of up to 74 countries, 33 variables and 3 proxies for air and water pollution over a period from 1980 to 1995 we confirm the Environmental Kuznets Curve hypothesis, highlight the relevance of effcient production technologies and underline the role of political and demographic variables.
    Keywords: pollution; sensitivity analysis; BACE
    JEL: C52 O13 Q53
    Date: 2007–05
  17. By: Christian Velasquez-Donaldson (Heller School for Social Policy and Management, Brandeis University)
    Abstract: This report analyzes the importance of the hydrocarbon sector in Bolivia. The oil and gas sector currently represents a vital component of the Bolivian economy, accounting for 7 percent of the GDP in term of production and more than 30 percent of total government income. In addition, the hydrocarbon sector not only represents an important economic sector but also a political and social instrument for negotiations, mobilization and social participation. The hydrocarbon sector in Bolivia also plays a strategic geopolitical role in South America as it has the second largest reserves of natural gas in the region after Venezuela. However, the current Bolivian nationalization process has placed this privileged position of the country into question as Bolivia is trying to undo twenty years of neo-liberal policies with the adoption of more nationalistic policies, assuming the control of the sector and challenging the international community and the private sector to benefit its population. The report also exposes that the important hydrocarbon revenues are not evenly distributed across the country’s regions. The most important instruments of taxation, royalties and the IDH, are creating a disequilibrium implying that regions with large populations get considerably fewer resources than less populated regions. In addition, the current distribution system, which is based on political criteria with some regional notion of fairness, is discriminatory in the allocation of resources with out taking into account poverty criteria. In a poor country like Bolivia with a strong political framework on poverty alleviation, the lack of poverty criteria in the distribution system of such significant resources makes 1.5 million poor people from La Paz get fewer resources than 300 thousand poor people from Pando in terms of per capita distribution ($16 dollars per capita in La Paz vs. $600 dollars per capita in Pando). The report has found that the distribution system of the hydrocarbon revenues needs serious changes to be more efficient and accomplish the goal of poverty reduction. The current system of revenue allocation creates significant per capita inequalities between regions and exacerbates the regional dependency on central transfers that depends on exhaustible and unstable hydrocarbon production (92 percent of the prefecturas’ revenues and 66 percent of the municipalities’ revenues come from government transfers). In addition, the decentralization process of the country has several weaknesses. It does not allow local governments to create their own tributary policies and generate their own resources, with exception of municipalities that to some extent can administrate and collect two regional taxes defined by the central government. This disequilibrium has the potential to seriously threaten the unity of the country as a nation. This situation will encourage producing regions to push for a large degree of decentralization in order to take advantage of the enormous inflows of resources that the sector is generating. In addition, non-producing regions will push for a significant share of those large resources given the severe degree of poverty in the country. This leads to two important questions to ask; first, who owns the natural resources, producing regions or the central government, and second, how those revenues should be distributed? 3 In general, those questions are hard to answer and in most cases the answers have significant political notions. In this aspect, the report presents results of a hypothetical calculation in which we combine to some extent the notion that producing regions have the right to a share of the revenues as does the central government. Because producing regions have solid arguments to claim ownership, like natural heritage and social cost reimbursement, we found undesirable and unviable the idea of completely draining those resources from them. Nonetheless, the central government also has significant arguments to have a share of those revenues, like income stability, fiscal equilibrium and macroeconomic considerations. Therefore, we found it important that the central government should benefit from a share of the natural wealth. However, the results of the hypothetical exercise presented in this report have the objective of opening the debate and dialogue for needed changes in the Bolivian hydrocarbon distribution system rather than suggesting a definitive answer for a distribution system in Bolivia.
    Keywords: Hydrocarbons, Tributary System, Resources Allocation, Transfer System, Bolivia
    JEL: E62 D63 Q34 Q38
    Date: 2007–06
  18. By: Esther Hauk; Antonio Cabrales
    Abstract: We propose a theoretical model to explain empirical regularities related to the curse of natural resources. This is an explicitly political model which emphasizes the behavior and incentives of politicians. We extend the standard voting model to give voters political control beyond the elections. This gives rise to a new restriction into our political economy model: policies should not give rise to a revolution. Our model clarifies when resource discoveries might lead to revolutions, namely, in countries with weak institutions. Natural resources may be bad for democracy by harming political turnover. Our model also suggests a non-linear dependence of human capital on natural resources. For low levels of democracy human capital depends negatively on natural resources, while for high levels of democracy the dependence is reversed. This theoretical finding is corroborated in both cross section and panel data regressions.
    Keywords: Curse of natural resources, democracy, political game, revolution, human capital.
    JEL: D72 H52 O13
    Date: 2007–06–20
  19. By: Marco Percoco (Bocconi University)
    Abstract: The paper reviews urban transport policies in Italian cities and their impact on the concentration of NO2 and PM10. Using parametric and non-parametric techniques, it finds no significant effect of the policy actions currently implemented. Further, it finds evidence of a weak positive impact of plans adoption. These results are interpreted as evidence of positive externalities among actions. Finally, by also discussing case studies, the paper points out the absence of economic instruments and argues that significant welfare gains would derive from their adoption.
    Keywords: Urban Transport Policies, Traffic Externalities, Pollution Abatement
    JEL: Q53 R41
    Date: 2007–05

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