nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒07‒27
seven papers chosen by
Roger Fouquet
Imperial College, UK

  1. Lost in Transmission? Stock Market Impacts of the 2006 European Gas Crisis By Oberndorfer, Ulrich; Ulbricht, Dirk
  2. Incorporating Both Undesirable Outputs and Uncontrollable Variables into DEA: the Performance of Chinese Coal-Fired Power Plants By Yang, H.; Pollitt, M.
  3. Inflation-output gap trade-off with a dominant oil supplier By Anton Nakov; Andrea Pescatori
  4. The Feasibility of Further Ethanol Expansion By Gagnon, Jeffrey
  5. Greenhouse Gas Reductions under Low Carbon Fuel Standards? By Stephen P. Holland; Christopher R. Knittel; Jonathan E. Hughes
  6. On the Design of Global Refunding and Climate Change By Gersbach, Hans; Winkler, Ralph
  7. Developing Supra-European Emissions Trading Schemes: An Efficiency and International Trade Analysis By Alexeeva-Talebi, Victoria; Anger, Niels

  1. By: Oberndorfer, Ulrich; Ulbricht, Dirk
    Abstract: Around the turn of the year 2005/2006, the Russian freezing of natural gas exports to the Ukraine led to a European gas crisis. Using event study technique, we first investigate whether the Russian announcement of suspension of gas deliveries, this suspension itself as well as its withdrawal, had an effect on unsystematic volatility of European energy stocks. Secondly, we measure event effects on stock returns, taking volatility into account. Our results suggest that the announcement of the crisis and therefore a rise of Western Europe’s energy cost and risk tended to increase market expectations with respect to energy-related firms. In contrast, market uncertainty increased when Russia reopened its valves. One reason for these findings could be windfall profits of energy-related companies due to increasing resource and electricity prices. The existence of event-induced volatility confirms our methodological approach in order to test for abnormal returns.
    Keywords: energy security, event study, gas crisis
    JEL: G14 Q41 Q43
    Date: 2007
  2. By: Yang, H.; Pollitt, M.
    Abstract: There are two difficulties in doing an objective evaluation of the performance of decision-making units (DMUs). The first one is how to treat undesirable outputs jointly produced with the desirable outputs, and the second one is how to treat uncontrollable variables, which often capture the impact of the operating environment. Given difficulties in both model construction and data availability, very few published papers simultaneously consider the above two problems. This article attempts to do so by proposing six DEA-based performance evaluation models based on a research sample of the Chinese coal-fired power plants. The finding of this paper not only contributes for the performance measurement methodology, but also has policy implications for the Chinese coal-fired power sector.
    Keywords: Data envelopment analysis, performance measurement, technical efficiency, electricity
    Date: 2007–07
  3. By: Anton Nakov (Banco de España; Universitat Pompeu Fabra); Andrea Pescatori (Universitat Pompeu Fabra)
    Abstract: An exogenous oil price shock raises inflation and contracts output, similar to a negative productivity shock. In the standard New Keynesian model, however, this does not generate a tradeoff between inflation and output gap volatility: under a strict inflation targeting policy, the output decline is exactly equal to the efficient output contraction in response to the shock. We propose an extension of the standard model in wich the presence of a dominant oil supplier (OPEC) leads to inefficient fluctuations in the oil price markup, reflecting a dynamic distortion of the economy´s production process. As a result, in the face of oil sector shocks, stabilizing inflation does not automatically stabilize the distance of output from first-best, and monetary policymarkers face a tradeoff between the two goals.
    Keywords: oil shocks, inflation-output gap tradeoff, dominant firm
    JEL: E31 E32 E52 Q43
    Date: 2007–07
  4. By: Gagnon, Jeffrey
    Abstract: Over the course of the last few years ethanol production has expanded at an incredible pace, putting strain on corn markets and transportation systems throughout the Midwest. Driven by the government subsidy and profit possibilities, firm entry rates have spiked. Previous to 2006-2007 the ethanol industry had been consuming feedstock dedicated to export, so little effect was felt by food markets. After 2007 ethanol’s demand for corn will begin to weigh on food markets as reduced supply drives up prices. Corn supply is fast becoming a binding constraint to the ethanol’s growth rate. The feasibility of its further expansion hinges upon the growth and technological advances of corn production, along with the ability of the industry to function profitably without the subsidy.
    Keywords: ethanol; biofuel; corn
    JEL: Q11 Q42
    Date: 2007–06–10
  5. By: Stephen P. Holland; Christopher R. Knittel; Jonathan E. Hughes
    Abstract: A low carbon fuel standard (LCFS) seeks to reduce greenhouse gas emissions by limiting a fuel producer's carbon emissions per unit of output. California has launched an LCFS for transportation fuels; others have called for a national LCFS. We show that this policy decreases production of high-carbon fuels but increases production of low-carbon fuels. The net effect of this may be an increase in carbon emissions. The LCFS cannot be first best, and the best LCFS may reduce social welfare. We simulate the outcomes of a national LCFS, focusing on gasoline and ethanol as the high- and low-carbon fuels. For a broad range of parameters, we find that the LCFS is unlikely to increase CO2 emissions. However, the surplus losses from the LCFS are likely to be quite large ($80 to $760 billion annually for a national LCFS reducing carbon intensities by 10 percent), energy prices are likely to increase, and the average carbon cost ($307 to $2,272 per ton of CO2 for the same LCFS) can be much larger than damage estimates. We describe an efficient policy that achieves the same emissions reduction at a much lower surplus cost ($16 to $290 billion) and much lower average carbon cost ($60 to $868 per ton of CO2).
    JEL: H23 L51 L71 L91 Q42 Q52 Q53 Q58
    Date: 2007–07
  6. By: Gersbach, Hans; Winkler, Ralph
    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.
    Keywords: climate change mitigation; global refunding scheme; international agreements; self-enforcing mechanisms
    JEL: H23 H41 Q54
    Date: 2007–07
  7. By: Alexeeva-Talebi, Victoria; Anger, Niels
    Abstract: Given the coexistent EU priorities concerning the competitiveness of European industries and international emissions regulation at the company level, this paper assesses the efficiency and competitiveness implications of linking the EU Emissions Trading Scheme (ETS) to emerging trading schemes outside Europe. Currently, countries like Canada, Japan or Australia are contemplating the set up of domestic ETS with the intention of linking up to the European scheme. While a stylized partial-market analysis suggests that the integration of trading systems is always beneficial in efficiency terms, our applied general equilibrium approach shows that the aggregate welfare impacts of linking the EU ETS are rather limited. We further find that the trade-based competitiveness effects of linking the European ETS crucially depend on the linked trading system: Although EU economy-wide competitiveness varies only moderately across linking scenarios, the sectoral decomposition of these aggregate effects shows that European industries are much more sensitive to the linking constellation. Similarly, the incentives for non-EU regions to join the European system display considerable heterogeneity. A stricter allowance allocation within domestic ETS can, however, substantially improve the overall prospects for establishing supra-European emissions trading schemes.
    Keywords: Emissions Trading, EU ETS, Linking, Competitiveness, CGE model
    JEL: D58 H21 H22 Q48
    Date: 2007

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