nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒08‒08
nineteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. The Economy-wide Impact of Controlling Energy Consumption in Indonesia: An Analysis Using a Social Accounting Matrix Framework By Djoni Hartono; Budy P. Resosudarmo
  2. Impacts of the German Support for Renewable Energy on Electricity Prices, Emissions and Profits : An Analysis Based on a European Electricity Market Model By Thure Traber; Claudia Kemfert
  3. Climate Change, Energy Demand and Market Power in a General Equilibrium Model of the World Economy By Roberto Roson; Francesco Bosello; Enrica De Cian
  4. First Evidence of Asymmetric Cost Pass-through of EU Emissions Allowances : Examining Wholesale Electricity Prices in Germany By Georg Zachmann; Christian von Hirschhausen
  5. Ground Source Heat Pump Systems in Canada: Economics and GHG Reduction Potential By Hanova, Jana; Dowlatabadi, Hadi; Mueller, Lynn
  6. A Cost-Index Approach to Valuing Investment In "Far Into The Future" Environmental Technology By Macauley, Molly K.; Shih, Jhih-Shyang
  7. Climate Change: National and Local Policy Opportunities in China By Fei Teng; Alun Gu
  8. The role of environmental and technology policies in the transition to a low-carbon energy industry By Christoph Heinzel; Ralph Winkler
  9. Comparative Analysis of the Development of the United States and European Union Biodiesel Industries, A By Miguel Carriquiry
  10. Comparative Analysis of the Development of the United States and European Union Biodiesel Industries, A By Carriquiry, Miguel A.
  11. Fees in an Imperfect World: An Application to Motor Vehicle Emissions By Ando, Amy; Harrington, Winston; McConnell, Virginia D.
  12. An Even Sterner Review: Introducing Relative Prices into the Discounting Debate By Sterner, Thomas; Persson, U. Martin
  13. Consumers’ Attitudes on Services of General Interest in the EU: Accessibility, Price and Quality 2000-2004 By Carlo Fiorio; M. Florio; S. Salini; P. Ferrari
  14. Imalat Sanayi, Madencilik ve Tasocakçiligi ve Enerji Gaz ve Su Sektörlerine Ait ISIC Revize 2-Revize 3 Veri Siniflandirma Sistemlerine Iliskin dönüsüm oranlarinin Hesaplanmasi By Ensar Yesilyurt
  15. Are African Electricity Distribution Companies Efficient? Evidence from the Southern African Countries By Antonio Estache; Beatriz Tovar; Lourdes Trujillo
  16. Oil shocks and external adjustment By Martin Bodenstein; Christopher J. Erceg; Luca Guerrieri
  17. Potential Infrastructure Constraints on Current Corn-Based and Future Biomass Based U.S. Ethanol Production By Ginder, Roger
  18. 'Building on our own abilities' : Suriname's State Oil Company as a development agent. By Hout, Wil
  19. "Duality-Based Analysis of Residential Gas Demand under Decreasing Block Rate Pricing" By Koji Miyawaki; Yasuhiro Omori

  1. By: Djoni Hartono; Budy P. Resosudarmo
    Abstract: Escalating oil prices and the need to control carbon emissions sound the alarm for Indonesia to reduce or be more efficient in its energy use. To create an incentive for society to be more energy efficient, they need to understand the full consequences of adopting more efficient energy use strategies toward their incomes. This paper aims to analyse the impact on the economy of energy policies aiming to reduce and to improve the efficiency of energy use, particularly on the income of various household groups. This paper will, first, construct a Social Accounting Matrix for Indonesia with detailed energy sectors and, second, utilise various multiplier analyses to observe and understand the impact of these energy policies.
    Keywords: Energy economics, government policy, technological change, social accounting matrix
    JEL: Q43 Q48 E64 O21
    Date: 2007
  2. By: Thure Traber; Claudia Kemfert
    Abstract: Effects of renewable support legislation on electricity prices have been analyzed with a plethora of models. However, these models neglect at least one of the following aspects which we take into account in our analysis: oligopolistic market behavior of dominant firms, emission trading, restricted electricity trade and production capacities, and effects on producer prices and firm profits. In this paper we use the electricity market model EMELIE and decompose the impact of the feed-in of renewable energy in Germany into two effects: a substitution effect triggered by the displacement of conventional sources and a permit price effect induced via the ETS. We find that the renewable support increases consumer prices slightly by 0.1 Eurocent/kWh, while the producer price decreases by 0.4 Eurocent/kWh. In addition, emissions from electricity generation in Germany are reduced by 32 Mt CO2, but are hardly altered if we consider the European electricity sector in total. Finally, the profits of most firms are significantly reduced by the support policy unless the firms combine relatively carbon intensive production equipment with a loose connection to the German grid.
    Keywords: Value of a statistical life (VSL), compensating wage differentials, work accidents, job changes
    Date: 2007
  3. By: Roberto Roson (Fondazione Eni Enrico Mattei and Ca' Foscari University); Francesco Bosello (Fondazione Eni Enrico Mattei and University of Milan); Enrica De Cian (Fondazione Eni Enrico Mattei and School of Advanced Studies in Venice)
    Abstract: Future energy demand will be affected by changes in prices and income, but also by other factors, like temperature levels. This paper draws upon an econometric study, disentangling the contribution of temperature in the determination of the annual regional demand for energy goods. Combining estimates of temperature elasticities with scenarios of future climate change, it is possible to assess variations in energy demand induced (directly) by the global warming. We use this information to simulate a change in the demand structure of households in a CGE model of the world economy, in a set of assessment exercises. The changing demand structure triggers a structural adjustment process, influencing trade flows, regional competitiveness of industries and regions, and welfare. We also consider the possible existence of imperfect competition in the energy markets, analyzing the impact of changes in energy demand with an alternative model version, in which energy industries are modeled as Cournot oligopolies.
    Keywords: Climate Change, Energy, Computable General Equilibrium Models, Imperfect Competition
    JEL: D58 F12 Q43 Q54
    Date: 2007–07
  4. By: Georg Zachmann; Christian von Hirschhausen
    Abstract: This paper applies the literature on asymmetric price transmission to the emerging commodity market for EU emissions allowances (EUA). We utilize an error correction model and an autoregressive distributed lag model to measure the relationship between CO2 price changes and the development of wholesale electricity prices. Using data from the German market for electricity and EUAs, we find that the rising prices of EUAs have a stronger impact on wholesale electricity prices than falling prices -- the first empirical evidence of asymmetric cost passthrough for these new allowances.
    Date: 2007
  5. By: Hanova, Jana; Dowlatabadi, Hadi; Mueller, Lynn
    Abstract: Climate stabilization requires greenhouse gas reductions (GHG) in excess of 60 percent. Ground source heat pumps (GSHPs) hold the promise of meeting heating and cooling loads much more efficiently than conventional technologies. The economic viability of their widespread adoption depends on the costs of energy. Their impact on GHG reduction depends on fuel choices both in electricity generation and on customers’ premises. In this paper, we provide a systematic assessment of the GHG reduction potential across Canada of GSHPs and the economic cost of achieving this reduction. Using province-level data on household fuel choices and energy use, we find that GSHP systems offer significant GHG reductions, as well as savings in operation and maintenance costs. However, high capital costs continue to limit market diffusion. We conclude with a review of the geological suitability of the five largest urban centers in Canada for GSHP installation. This analysis shows GSHPs to hold significant potential for substantial GHG reductions in Canada at a cost savings relative to conventional alternatives, with time horizons as short as seven years.
    Keywords: conservation, GHG mitigation, residential energy
    JEL: Q40 Q41 Q52
    Date: 2007–05–29
  6. By: Macauley, Molly K. (Resources for the Future); Shih, Jhih-Shyang (Resources for the Future)
    Abstract: Governments investing in long-lead technology development programs face considerable uncertainty as to whether the investment eventually will “pay off” for the taxpayer. This paper offers a framework to inform long-lead technology investment. We extend the theory of quality-adjusted cost indices to develop a conceptually rigorous, but data parsimonious, means of estimating consumer benefits from a new technology. We apply this model to a possible future electricity generation technology, space solar power (SSP). The United States, Japan, and other governments have begun investing in SSP but lack the benefit of a relevant economic context for informed decisions. We frame and analyze the economic relationship between SSP and competing electricity generation technologies with respect to direct costs, environmental externalities, and reliability. We also explicitly incorporate uncertainty and consider differences in the resource endowments available to electricity markets by considering four distinct world geographic regions.
    Keywords: energy, environment, technological change, cost indices, space technology
    JEL: O3 Q2 Q4
    Date: 2007–06–21
  7. By: Fei Teng (Tsinghua University); Alun Gu (Tsinghua University)
    Abstract: Climate Change poses a wide range of potentially very severe threats in China. This aggravates the existing vulnerability of China and is one of the big challenges faced by the Chinese government. Adaptation programmes and projects are being developed and implemented at national and local level. As China is engaged in heavy investment in infrastructure development as a consequence of the rapid process of development and urbanization, mainstreaming adaptation into such development process is a priority for China. China has also made positive contributions to reducing greenhouse gas emissions through participations in the CDM under the Kyoto Protocol framework. Although mitigation is not a priority at national or local level, it has been integrated into national and local development plans explicitly. This paper addresses the following questions: What is the policy space for climate change mitigation and adaptation policy at national and local level and what is already being done? The three case studies at local level - Beijing, Guangdong and Shanghai – presented here, highlight the local benefits in terms of local pollution of integrating mitigation policies into local development. However, financial constraints usually prevent such a positive policy integration. National policies and international cooperation aiming at bridging the financial gap and promoting technology transfer would help in integrating local pollution control and mitigation efforts in China today.
    Keywords: Climate Change, Local Policy, National Policy, Mitigation, Local Pollution
    JEL: H7 Q54 Q56 O53
    Date: 2007–07
  8. By: Christoph Heinzel (Department of Economics, Dresden University of Technology); Ralph Winkler (Center of Economic Research (CER-ETH) at ETH Zurich)
    Abstract: In a dynamic general equilibrium model we study the interplay between gradual and structural change in the transition to a low-carbon energy industry. We focus on the welfare-theoretic consequences of diverging social and private rates of time preference and a time-to-build feature in capital accumulation. Both features are particularly important in the transformation of energy systems. We show that only a combination of environmental and technology policies can achieve a socially optimal transition. We thus provide a new reason for environmental regulation to be complemented by technology policy such as a non-distortionary investment subsidy.
    Keywords: environmental and technology policy, social vs. individual rates of time preference, time to build, gradual vs. structural technological change, energy industry
    JEL: H23 Q48 H43
    Date: 2007
  9. By: Miguel Carriquiry
    Abstract: Worldwide production of biodiesel is growing at a rapid pace. Arguably, the European Union (EU) is the global leader in biodiesel production, but the United States has recently expanded its production. The growth of the biodiesel industry in both regions has been fueled by a series of government-provided financial incentives. However, the timing of the growth and incentive provisions, the nature of the main incentives, and the market conditions differ across regions. This article provides a comparative analysis of the EU and U.S. biodiesel industries, highlighting market and policy aspects that are leading to a rapid but distinct growth.
    Keywords: biodiesel, biodiesel industry, biodiesel quality, biofuels, energy security, rapeseed oil, rapeseed methyl ester, soybean oil, soydiesel, ultra low sulfur diesel.
    Date: 2007–07
  10. By: Carriquiry, Miguel A.
    Abstract: Worldwide production of biodiesel is growing at a rapid pace. Arguably, the European Union (EU) is the global leader in biodiesel production, but the United States has recently expanded its production. The growth of the biodiesel industry in both regions has been fueled by a series of government-provided financial incentives. However, the timing of the growth and incentive provisions, the nature of the main incentives, and the market conditions differ across regions. This article provides a comparative analysis of the EU and U.S. biodiesel industries, highlighting market and policy aspects that are leading to a rapid but distinct growth.
    Keywords: biodiesel, biodiesel industry, biodiesel quality, biofuels, energy security, rapeseed oil, rapeseed methyl ester, soybean oil, soydiesel, ultra low sulfur diesel.
    Date: 2007–07–27
  11. By: Ando, Amy; Harrington, Winston (Resources for the Future); McConnell, Virginia D. (Resources for the Future)
    Abstract: This paper compares an emissions fee on measured vehicle emissions rates to a mandatory regulation that requires all vehicles to maintain emissions below a minimum standard. We model the motorist’s decision under the fee policy and simulate the fee and regulatory policies using data from an emissions inspection program that includes test and repair information for more than 50,000 vehicles. Under ideal conditions with perfect information and no subsidies, the fee on emissions rates performs substantially better than the regulatory policy. When more realistic modeling of available information and market conditions are included, there is little difference in the cost and effectiveness of the fee and regulatory programs. In particular, we find that the ability of the polluter to assess the emissions and cost outcomes of is critical importance for the performance of the fee policy.
    Keywords: pollution fees, emissions control, vehicle pollution, inspection and maintenance
    JEL: Q52 Q53 Q58
    Date: 2007–06–06
  12. By: Sterner, Thomas; Persson, U. Martin
    Abstract: The Stern Review has had a major influence on the policy discussion on climate change. One reason is that the report has raised the estimated cost of unmitigated climate damages by an order of magnitude compared to most earlier estimates, leading to a call for strong and urgent action on climate change. Not surprisingly, severe criticism has been levied against the report by authors who think that these results hinge mainly on the use of a discount rate that is too low. Here we discuss the Ramsey rule for the discount rates and its implications for the economics of climate change. While we find no strong objections to the discounting assumptions adopted in the Stern Review, our main point is that the conclusions reached in the review can be justified on other grounds than by using a low discount rate. We argue that nonmarket damages from climate change are probably underestimated and that future scarcities that will be induced by the changing composition of the economy and climate change should lead to rising relative prices for certain goods and services, raising the estimated damage of climate change and counteracting the effect of discounting. We build our analysis on earlier research (Hoel and Sterner 2007) that has shown that the Ramsey discounting formula is somewhat modified in a two-sector economy with differential growth rates. Most importantly, such a model is characterized by changing relative prices, something that has major implications for a correct valuation of future climate damages. We introduce these results into a slightly modified version of the DICE model (Nordhaus 1994) and find that taking relative prices into account can have as large an effect on economically warranted abatement levels as can a low discount rate.
    Keywords: discounting, relative prices, Ramsey, climate damage
    JEL: H43 Q32 Q54
    Date: 2007–07–09
  13. By: Carlo Fiorio (University of Milan); M. Florio (University of Milan); S. Salini (University of Milan); P. Ferrari (University of Milan)
    Abstract: The research question addressed by this paper is a simple one: are European consumers happy with the services provided by the utilities after two decades of reforms? We focus on electricity, gas, water, telephone in the EU 15 Member States. The variables we analyse are consumers’ satisfaction with accessibility, price and quality, as reported in three waves of Eurobarometer survey, 2000-2002-2004, comprising around 47,000 observations. We use ordered logit models to analyze the impact of privatization and regulatory reforms, as represented by an OECD dataset, controlling for individual and country characteristics. Our results do not support a clear association between consumers’ satisfaction and a standard reform package of privatization, vertical disintegration, liberalization.
    Keywords: Consumers’ Satisfaction, Gas, Electricity, Telephone, Water, Eurobarometer
    JEL: L94 L95 L96 L50
    Date: 2007–01
  14. By: Ensar Yesilyurt (Department of Economics, Pamukkale University)
    Abstract: (This paper is in Turkish) Long term data are important in terms of scientific researches that have economic and statistical applications have got meaningful results. But differences which occur in International Standard Industrial Classification (ISIC) system, especially for many variants, prevent long term data from being formed. In other words, because of revise-2 and revise-4 not having a complete harmony, data can not be used efficiently. Revise-3 system has been used in Turkey since 1993. Thus especially for sectoral based (4-dijit) studies, for example, a twenty-year series can not be owned. In other words, either data after the 1993 or those before 1993 can only be used. This prevents some economic realities being analyzed and some economic realities being learned. This study presents a proposal in solving this problem. By using eight and nine digit data in revise-2 and revise-3, four digit transformation ratios are calculated. The data sets that are used for this purpose are the production values that belong to manufacturing industry, mining and stone quarry and energy, oil and water sectors. By using obtained ratios a data set that is classified according to revise-2 (revise-3) could be transformed into revise-3 (revise-2).
    Keywords: ISIC, Revise 2, Revise 3, Transformation ratio, Manufacturing Industry, Mining Industry, Energy, Gas and Water, Revize-2, Revize-3, Dönüþüm oraný, Ýmalat Sanayi, Madencilik ve Taþocakçýlýðý, Enerji, Gaz ve Su
    JEL: C1 C4
    Date: 2007–06
  15. By: Antonio Estache; Beatriz Tovar; Lourdes Trujillo (Department of Economics, City University, London and DAEA, Universidad de Las Palmas de Gran Canaria)
    Abstract: This paper is a first attempt at documenting economic efficiency levels in Africa’s electricity distribution, their evolution and the sources of this evolution. The analysis is based on a sample of 12 operators providing services in the 12 countries members of the Southern Africa Power Pool. We focus on the changes in total factor productivity (TFP) of the largest operators in each country between 1998 and 2005. We then rely on a DEA decomposition to identify the sources of the changes in TFP. The results suggest fairly comparable levels of efficiency in the region and performance levels and evolution quite independent of the degree of vertical integration, the presence of a private actor or the main sources of energy supply. The analysis suggest that although the companies have not made significant improvements during the period of analysis in using their capital and human assets, they have done much better in adopting better technologies and better commercial practices. No clear correlation could be associated with the adoption of reforms during the last decade and data limitations impede a more refined assessment of the impact of reforms on efficiency at this stage.
    Keywords: Malmquist productivity, electricity, efficiency
    Date: 2007–06
  16. By: Martin Bodenstein; Christopher J. Erceg; Luca Guerrieri
    Abstract: This paper investigates how oil price shocks affect the trade balance and terms of trade in a two country DSGE model. We show that the response of the external sector depends critically on the structure of financial market risk-sharing. Under incomplete markets, higher oil prices reduce the relative wealth of an oil-importing country, and induce its nonoil terms of trade to deteriorate, and its nonoil trade balance to improve. The magnitude of the nonoil terms of trade response hinges on structural parameters that affect the divergence in wealth effects across oil importers and exporters, including the elasticity of substitution between oil and other inputs in production, and the discount factor. By contrast, cross-country wealth differences effectively disappear under complete markets, with the implication that oil shocks have essentially no effect on the nonoil terms of trade or the nonoil trade balance.
    Date: 2007
  17. By: Ginder, Roger
    Abstract: Rapid growth in fuel ethanol production in the U.S. will create pressure on infrastructure both in the near term and the longer term. Currently the vast majority of fuel ethanol produced is grain based with corn based feedstocks dwarfing the quantity of all other grain feedstocks. In the future it is expected that biomass based ethanol production will also develop using crop residues and other cellulosic feedstocks including switchgrass, woody plants and woodchip by-products from lumbering activities. Public and private investments are now being made in research and development for both crop residue and other biomass based feedstocks for ethanol production. Several pilot projects for plant scale production are already in progress. This paper will: (a) Summarize some of the major impacts rapid growth in the corn based ethanol (CE) production is now having on infrastructure in the Midwestern corn producing states. (b) Examine some of the likely infrastructure needs that might be expected to occur as a consequence of the future development of biomass based ethanol (BE) production.
    Date: 2007–07–27
  18. By: Hout, Wil
    Abstract: This paper analyses the conditions under which the Surinamese State Oil Company (Staatsolie) has been consolidated, not only as a firm oriented at the production of oil, but also as a development agent. Staatsolie's chances to success seemed rather slim at its creation in the beginning of the 1980s, mainly because of the non-developmental, patrimonial character of Surinamese politics and the nature of Suriname's state, which has traditionally been oriented toward patronage and clientelism. The analysis documents the origins of Staatsolie and focuses on its commitment to the acquisition and further development of technological and managerial expertise. At present, Staatsolie ranks among the most successful companies in Suriname and its contributions to the economy of this small middle-income country are considerable. The success of Staatsolie's attempt to become a development agent is attributed, in particular, to the company's double strategy. The internal part of this strategy, derived from the management vision and ideological commitment of the company's leadership, was aimed at developing technological and management skills. The external part of the strategy was aimed at steering away from political influences on the company and playing out politically the formal-legal position of the firm in the petroleum sector. After 25 years of Staatsolie, it is argued that the factors that were responsible for the company's success may turn out to be the main challenges for the years ahead.
    Keywords: rent-seeking, oil industry, patrimonial politics, Latin America, Suriname
    Date: 2007
  19. By: Koji Miyawaki (Graduate School of Economics, University of Tokyo); Yasuhiro Omori (Faculty of Economics, University of Tokyo)
    Abstract: This paper discusses a novel estimation method for the residential gas demand function in Japan where the price per unit decreases as the demand exceeds certain thresholds. Such a price system is known as decreasing block rate pricing. The demand function under decreasing block rate pricing is derived by using the well-known discrete/continuous choice approach. However, because of the nonconvex budget set, the conventional approach imposes highly nonlinear constraints on the model parameters, thus making the maximization of the likelihood function under such constraints difficult to implement. To overcome this difficulty, we first apply the duality relationship in consumer theory, and approximate the conditional expenditure in order to linearize these nonlinear constraints. Then, we adopt a Bayesian approach with the Markov chain Monte Carlo simulation in order to estimate the model parameters under linear constraints. Our proposed method is illustrated by a numerical example and is adopted to analyze the demand for residential gas in Japan.
    Date: 2007–08

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