nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒08‒27
eleven papers chosen by
Roger Fouquet
Imperial College, UK

  1. Carbon Sequestration in Forest Ecosystems as a Strategy for Mitigating Climate Change By G. Cornelis van Kooten; Susanna Laaksonen-Craig; Yichuan Wang
  3. Economics of Forest Ecosystem Carbon Sinks: A Review By G. Cornelis van Kooten; Brent Sohngen
  4. The Potential for Wind Energy Meeting Electricity Needs on Vancouver Island By Ryan Prescott; G. Cornelis van Kooten; Hui Zhu
  5. Wind Integration into Various Generation Mixtures By Jesse Maddaloni; Andrew Rowe; G. Cornelis van Kooten
  6. Municipal aggregation and retail competition in the Ohio energy sector By Littlechild, S.
  7. Industry Compensation and the Costs of Alternative Environmental Policy Instruments By A. Lans Bovenberg; Lawrence H. Goulder; Mark R. Jacobsen
  8. Restructuring Electricity Markets when Demand is Uncertain: Effects on Capacity Investments, Prices and Welfare By Anette Boom; Stefan Buehler
  9. Profit Sharing Between Governments and Multinationals in Natural Resource Extraction: Evidence From a Firm-Level Panel By Margaret S. McMillan; Andrew R. Waxman
  10. Industrial Development and the Innovation System of the Ethanol Sector in Brazil By Ueki, Yasushi
  11. Petroleum Import Prices and Poverty: A General Equilibrium Analysis for Lao PDR By Peter Warr

  1. By: G. Cornelis van Kooten; Susanna Laaksonen-Craig; Yichuan Wang
    Abstract: Under Kyoto, forestry activities can be used to create CO2 offset credits, which are earned by storing carbon in forest ecosystems and wood products. CO2 emissions could also be mitigated by delaying deforestation, which accounts for one-quarter of anthropogenic CO2 emissions. Non-permanent carbon offsets from forest activities are difficult to compare with each other and with mitigation strategies because they differ in how long they prevent CO2 from entering the atmosphere. We expand in comprehensive fashion on earlier work comparing carbon mitigation activities according to how long they lower atmospheric CO2 levels. The duration problem is modeled and meta-regression analysis with 1047 observations from 68 studies is used to determine whether duration leads to inconclusive results between uptake costs and carbon sequestration. Regression results are used to estimate potential costs of carbon uptake via forestry activities for various scenarios. It turns out that forestry activities are competitive with emissions reduction in tropical and, perhaps, boreal regions, but certainly not in Europe.
    Keywords: climate change, carbon offset credits from forestry activities, meta-regression analysis
    JEL: Q54 R15 Q23 Q27
    Date: 2007–07
  2. By: Gary W. Yohe; Richard S.J. Tol (Economic and Social Research Institute, Dublin, Ireland)
    Abstract: We discuss the implication of Weitzman's Dismal Theorem for climate policy and climate research.
    Keywords: climate change, uncertainty
    JEL: Q54
    Date: 2007–08
  3. By: G. Cornelis van Kooten; Brent Sohngen
    Abstract: Carbon terrestrial sinks are seen as a low-cost alternative to fuel switching and reduced fossil fuel use for lowering atmospheric CO2. In this study, we review issues related to the use of terrestrial forestry activities to create CO2 offset credits. To gain a deeper understanding of the confusing empirical studies of forest projects to create carbon credits under Kyoto, we employ meta-regression analysis to analyze conditions under which forest activities generate CO2-emission reduction offsets at competitive ‘prices’. In particular, we examine 68 studies of the costs of creating carbon offsets using forestry. Baseline estimates of costs of sequestering carbon are some US$3–$280 per tCO2, indicating that the costs of creating CO2-emission offset credits through forestry activities vary wildly. Intensive plantations in the tropics could potentially yield positive benefits to society, but in Europe similar projects could cost as much as $195/tCO2. Indeed, Europe is the highest cost region, with costs in the range of $50-$280 per tCO2. This might explain why Europe has generally opposed biological sinks as a substitute for emissions reductions, while countries rush to finance forestry sector CDM projects. In Canada and the U.S., carbon sequestration costs range from a low of about $2 to nearly $80 per tCO2. One conclusion is obvious: some forestry projects to sequester carbon are worthwhile undertaking, but certainly not all.
    Keywords: climate change, Kyoto Protocol, meta-regression analysis, carbon-uptake costs, forest sinks
    JEL: Q2 Q25 H43 C19
    Date: 2007–04
  4. By: Ryan Prescott; G. Cornelis van Kooten; Hui Zhu
    Abstract: In this paper, an in-depth analysis of power supply and demand on Vancouver Island is used to provide information about the optimal allocation of power across ‘generating’ sources and to investigate the economics of wind generation and penetrability into the Island grid. The methodology developed can be extended to a region much larger than Vancouver Island. Results from the model indicate that Vancouver Island could experience blackouts in the near future unless greater name-plate capacity is developed. While wind-generated energy has the ability to contribute to the Island’s power needs, the problem with wind power is its intermittency. The results indicate that wind power may not be able to prevent shortfalls, regardless of the overall name-plate capacity of the wind turbines. Further, costs of reducing CO2 emissions using wind power are unacceptably large, perhaps more than $100 per t CO2, although this might be attributable to the mix of power sources making up the Island’s grid.
    Keywords: Economics of wind power, grid system modeling, operations research
    JEL: Q40 Q42 Q50
    Date: 2006–11
  5. By: Jesse Maddaloni; Andrew Rowe; G. Cornelis van Kooten
    Abstract: A load balance model is used to quantify the economic and environmental effects of integrating wind power into three typical generation mixtures. System operating costs over a specified period are minimized by controlling the operating schedule of existing power generating facilities for a range of wind penetrations. Unlike other studies, variable generator efficiencies, and thus variable fuel costs, are taken into account, as are the ramping constraints on thermal generators. Results indicate that system operating cost will increase by 15% to 110% (pending generation mixture) at a wind penetration of 100% of peak demand. Results also show that some mixtures will exhibit cost reductions on the order of 13% for moderate wind penetrations and high wind farm capacity factors. System emissions also decrease by 13% to 32% (depending on generation mixture) at a wind penetration of 100%. This leads to emission abatement costs in the range of $65 per tonne-CO2e for coal dominated mixtures, but $450 per tonne-CO2e for hydro dominated mixtures. For natural gas dominated mixtures, the introduction of wind power may well be beneficial overall.
    Keywords: Wind power integration, generation mixtures, emissions cost
    JEL: Q40 Q42 Q50
    Date: 2007–07
  6. By: Littlechild, S.
    Abstract: Ohio allows communities to vote to aggregate the loads of individual consumers (unless they opt out) in order to seek a competitive energy supplier. Over 200 communities have voted to do this for electricity. By 2004 residential switching reached 69% in Cleveland territory (95% from municipal aggregation) but by 2006 had fallen to 8%. Savings are now small, but customer acquisition costs are low and the cost to consumers is negligible. Aggregation and retail competition have been thwarted by Rate Stabilization Plans holding incumbent utility prices below cost since 2006. In the Ohio gas sector, rate regulation has not discouraged aggregation and competition, but market prices falling below municipally negotiated rates can be politically embarrassing. How municipal aggregation would fare against individual choice in a market conducive to retail competition is an open question, but the policy deserves consideration elsewhere. Key words: Municipal aggregation, retail competition, electricity, gas, Ohio, regulation.
    JEL: L33 L43 L51 L94 L98
    Date: 2007–08
  7. By: A. Lans Bovenberg; Lawrence H. Goulder; Mark R. Jacobsen
    Abstract: This paper explores how the costs of meeting given aggregate targets for pollution emissions change with the imposition of the requirement that key pollution-related industries be compensated for potential losses of profit from the pollution regulation. Using analytically and numerically solved equilibrium models, we compare the incidence and economy-wide costs of emissions taxes, fuel (intermediate input) taxes, performance standards and mandated technologies in the absence and presence of this compensation requirement. Compensation is provided either through lump-sum industry tax credits or industry-specific cuts in capital tax rates. We decompose the added costs from the compensation requirement into (1) an increase in "intrinsic abatement cost," reflecting a lowered efficiency of pollution abatement, and (2) a "lump-sum compensation cost" that captures the efficiency costs of financing the compensation. The compensation requirement affects these components differently and thus can alter the cost-rankings of policies. When compensation is provided through tax credits, the lump-sum compensation cost is higher under the emissions tax than under performance standards and mandated technologies -- a reflection of the emission tax's higher compensation requirements. If in this setting the required pollution reduction is modest, imposing the compensation requirement causes the emissions tax to become more costly than command and control policies. In contrast, if required abatement is extensive, the emissions tax emerges as the most cost-effective policy because its relatively low intrinsic abatement costs assume greater importance.
    JEL: H21 H23 Q58
    Date: 2007–08
  8. By: Anette Boom (Copenhagen Business School); Stefan Buehler (University of Zurich)
    Abstract: We examine the effects of restructuring electricity markets on capacity investments, retail prices and welfare when demand is uncertain. We study the following market configurations: (i) integrated monopoly, (ii) integrated duopoly with wholesale trade, and (iii) separated duopoly with wholesale trade. Assuming that wholesale prices can react to changes in retail prices (but not vice versa), we find that generators install sufficient capacity to serve retail demand in each market configuration, thus avoiding blackouts. Furthermore, aggregate capacity levels and retail prices are such that the separated (integrated) duopoly with wholesale trade performs best (worst) in terms of welfare.
    Keywords: electricity; investments; generating capacities; vertical integration; monopoly and competition
    JEL: D42 D43 D44 L11 L12 L13
    Date: 2007–08
  9. By: Margaret S. McMillan; Andrew R. Waxman
    Abstract: The "fairness" of negotiations between countries and resource extracting firms is subject to many accusations and counter-accusations and may be argued, in many instances, to impact the subsequent economic benefit to a host country from extraction. This paper examines the role of host country governance on the share of government take from extraction revenue. We attempt to disentangle a number of competing hypotheses regarding the relationship between governance and government take using panel data for US resource extracting multinational corporations (MNCs) operating abroad from the Bureau of Economic Analysis of the US Department of Commerce over 1982-1999. Using fixed effects regression, we find a statistically significant positive impact of institutional quality on government take. The nature of this relationship -- whether this represents the result of a "corruption premium" paid by US MNCs or the exploitation of poor governance in negotiating government take -- is not completely clear. The evidence presented does, however, indicate that potential forms of bargaining power other than institutional quality (e.g., outside options to the deal) do increase government take, indicating that bargaining power may nonetheless be an important factor.
    JEL: F23
    Date: 2007–08
  10. By: Ueki, Yasushi
    Abstract: The purpose of this paper is to analyze innovations and the innovation system and its dynamics in the ethanol sector in the State of São Paulo. More specifically, this paper focuses on the development process in the sector, the public policies taken to promote the sector, and the organizations and key players involved in these policies and their responses to unforeseeable changes in economic, social and technological environments. To this end, this paper takes an historical perspective and reviews data on the cultivation of sugar cane, the production of ethanol, and on sugar cane yields as indicators of the innovations achieved in the sector. The geographical distribution of these indicators is also examined. Next, several cases in Piracicaba and Campinas in the State of São Paulo are presented; these give us a more concrete idea of the processes involved in innovation and technology transfer. Based on these observations, the ethanol cluster and the innovation system of the State of São Paulo are discussed from the viewpoint of the flowchart approach to industrial cluster policy.
    Keywords: Industrial Agglomeration, Innovation, Sugar Cane, Sugar, Ethanol, Brazil, Technological innovations, Fuel, Research & development, Technology transfer
    JEL: Q16 Q42 R12
    Date: 2007–06
  11. By: Peter Warr
    Date: 2007–06

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