nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒09‒16
thirteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Marginal Cost Pricing in Hydro-Thermal Power Industries: Is a Capacity Charge Always Needed? By M. Soledad Arellano; Pablo Serra
  2. Incorporating Undesirable Outputs into Malmquist TFP Index: Environmental Performance Growth of Chinese Coal-Fired Power Plants By Yang, H.; Pollitt, M.
  3. Do not ask what you can do for the oil industry but what can oil indutry do for you By Paunić, Alida
  4. The role of oil prices and the real exchange rate in Russia's economy By Rautava , Jouko
  5. Cournot Versus Supply Functions: What does the Data Tell us? By Willems, B.R.R.; Rumiantseva, I.; Weigt, H.
  6. The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s? By Olivier J. Blanchard; Jordi Galí
  7. Review of environmental, economic and policy aspects of biofuels By Zilberman, David; Rajagopal, Deepak
  8. Climate Policy and the Optimal Extraction of High- and Low-Carbon Fossil Fuels By Edwin van der Werf; Sjak Smulders
  9. International Energy R&D Spillovers and the Economics of Greenhouse Gas Atmospheric Stabilization By Valentina Bosetti; Carlo Carraro; Emanuele Massetti; Massimo Tavoni
  10. Distinguishing Weak and Strong Disposability among Undesirable Outputs in DEA: The Example of the Environmental Efficiency of Chinese Coal-Fired Power Plants By Yang, H.; Pollitt, M.
  11. The Impact of Climate Change on the Profitability of Site Specific Technologies By Finger, Robert; Gerwig, Claude N.
  13. Measuring the economic impact of climate change on Ethiopian agriculture : Ricardian approach By Deressa, Temesgen Tadesse

  1. By: M. Soledad Arellano; Pablo Serra
    Abstract: This paper explores marginal cost pricing in hydro-thermal power industries. As in standard peak-load pricing for all-thermal electric systems, pricing consists of an energy charge and a capacity charge. However, the marginal cost of hydro generation now includes the value of water, which is determined endogenously. In turn, the capacity charge equals the marginal cost of increasing capacity which depends on the costs of both technologies and on the plant factor of hydro plants relative to the system’s load factor. Moreover, if the cost advantage of the hydro technology is sufficiently high, then the optimal total installed capacity is larger than the system’s maximum demand and henceforth the optimal capacity charge equals zero. JEL Codes: L11, L13, L51, L94.
    Date: 2007
  2. By: Yang, H.; Pollitt, M.
    Abstract: In this article we examine the effects of undesirable outputs on the Malmquist TFP indices. Our empirical work uses an unbalanced panel which covers 796 utility and non-utility coal-fired power plants in China during 1996-2002. In order to meet the requirement of a balanced panel for calculating the Malmquist indices, an innovative fake unit approach has been introduced. Our final results show that (1) the growth of the Chinese electricity heavily depends upon an increase of resource input; and (2) huge potential remains with regards to the efficiency improvement and emissions control in Chinese coal-fired power plants. Key words: Malmquist indicies, total factor productivity, Chinese electricity, power plant efficiency.
    JEL: D24 L94
    Date: 2007
  3. By: Paunić, Alida
    Abstract: Strong more than doubled crude oil price rise from 2002 to 2007 brought significant profits to oil companies worldwide. Rising revenues, profits and increasing shareholders wealth are consequence of this favorable situation. Being non renewable resource, unequally distributed, responsible for many crises, wars, environmental pollutions, weapon trading, GDP fall, rising unemployment, interest rates and reaching its peak production point in the world of increasing gasoline demand, higher environmentally standards, global worming, natural catastrophes, constrained refining capacity forces us to ask: is the rising wealth to small number of shareholders only we should expect? Paper examines oil companies and their contribution to promote social developments, clean energy, behave as good tax subject , closely work with government and various institutions to advance environmentally friendly world.
    Keywords: energy; oil; non renewable
    JEL: Q40 Q30
    Date: 2005–03–06
  4. By: Rautava , Jouko (BOFIT)
    Abstract: Most people seem to think that Russia's economy and fiscal situation are still crucially tied up with international oil prices and the exchange rate of the rouble, although this view has recently been challenged by some analysts. Empirical research on this topic is, however, scanty. In this paper, the impact of international oil prices and the real exchange rate on Russia's economy and fiscal policy is analysed using VAR methodology and cointegration techniques. The research period covered is 1995:Q1 - 2001:Q3. The results indicate that in the long run a 10% permanent increase (decrease) in international oil prices is associated with a 2.2% growth (fall) in the level of Russian GDP. Respectively, a 10% real appreciation (depreciation) of the rouble is associated with a 2.4% decline (increase) in the level of output. These long-run equilibrium relationships also have a significant impact on short-run dynamics through an error-correction mechanism. The estimation results confirm also a strong dependence of fiscal revenues on output and oil price fluctuations. Estimated parameters and diagnostic statistics do not indicate that Russia's dependence on oil and the real exchange rate would somehow have weakened in recent years.
    Keywords: Russian economy; fiscal policy; oil; real exchange rate; VAR; cointegration
    Date: 2007–09–11
  5. By: Willems, B.R.R.; Rumiantseva, I.; Weigt, H. (Tilburg University, Center for Economic Research)
    Abstract: The liberalization of the electricity sector increases the need for realistic and robust models of the oligopolistic interaction of electricity firms. This paper compares the two most popular models: Cournot and the Supply Function Equilibrium (SFE), and tests which model describes the observed market data best. Using identical demand and supply specifications, both models are calibrated to the German electricity market by varying the contract cover of firms. Our results show that each model explains an identical fraction of the observed price variation. We therefore suggest using Cournot models for short term analysis, as more market details, such as network constraints, can be accommodated. As the SFE model is less sensitive to the choice of the calibration parameters, it might be more appropriate for long term analysis, such as the study of a merger.
    Keywords: supply function equilibrium;Cournot competition;electricity markets
    JEL: L94 L13 C72 D43
    Date: 2007
  6. By: Olivier J. Blanchard; Jordi Galí
    Abstract: We characterize the macroeconomic performance of a set of industrialized economies in the aftermath of the oil price shocks of the 1970s and of the last decade, focusing on the differences across episodes. We examine four different hypotheses for the mild effects on inflation and economic activity of the recent increase in the price of oil: (a) good luck (i.e. lack of concurrent adverse shocks), (b) smaller share of oil in production, (c) more flexible labor markets, and (d) improvements in monetary policy. We conclude that all four have played an important role.
    Keywords: Great moderation, supply shocks, stagflation, monetary policy, real wage rigidities
    JEL: E20 E32 E52
    Date: 2007–08
  7. By: Zilberman, David; Rajagopal, Deepak
    Abstract: The world is witnessing a sudden growth in production of biofuels, especially those suited for replacing oil like ethanol and biodiesel. This paper synthesizes what the environmental, economic, and policy literature predicts about the possible effects of these types of biofuels. Another motivation is to identify gaps in understanding and recommend areas for future work. The analysis finds three key conclusions. First, the current generation of biofuels, which is derived from food crops, is intensive in land, water, energy, and chemical inputs. Second, the environmental literature is dominated by a discussion of net carbon offset and net energy gain, while indicators relating to impact on human health, soil quality, biodiversity, water depletion, etc., have received much less attention. Third, there is a fast expanding economic and policy literature that analyzes the various effects of biofuels from both micro and macro perspectives, but there are several gaps. A bewildering array of policies - including energy, transportation, agricultural, trade, and environmental policies - is influencing the evolution of biofuels. But the policies and the level of subsidies do not reflect the marginal impact on welfare or the environment. In summary, all biofuels are not created equal. They exhibit considerable spatial and temporal heterogeneity in production. The impact of biofuels will also be heterogeneous, creating winners and losers. The findings of the paper suggest the importance of the role biomass plays in rural areas of developing countries. Furthermore, the use of biomass for producing fuel for cars can affect access to energy and fodder and not just access to food.
    Keywords: Energy Production and Transportation,Environmental Economics & Policies,Renewable Energy,Transport Economics Policy & Planning,Energy and Environment
    Date: 2007–09–01
  8. By: Edwin van der Werf (Kiel Institute for the World Economy); Sjak Smulders (University of Calgary and Tilburg University)
    Abstract: We study how restricting CO2 emissions affects resource prices and depletion over time. We use a Hotelling-style model with two non-renewable fossil fuels that differ in their carbon content (e.g. coal and natural gas) and in addition are imperfect substitutes in final good production. We show that an economy facing a CO2 flow-constraint may substitute towards the relatively dirty input. As the economy tries to maximise output per unit of emissions it is not only carbon content that matters: productivity matters as well. With an announced constraint the economy first substitutes towards the less productive input such that more of the productive input is available when constrained. Preliminary empirical results suggest that it is cost-effective to substitute away from dirty coal to cleaner oil or gas, but to substitute from natural gas towards the dirtier input oil.
    Keywords: Climate Policy, Non-Renewable Resources, Input Substitution
    JEL: O13 Q31 Q43
    Date: 2007–08
  9. By: Valentina Bosetti (Fondazione Eni Enrico Mattei); Carlo Carraro (Fondazione Eni Enrico Mattei, University of Venice, CEPR, CESifo and CMCC); Emanuele Massetti (Fondazione Eni Enrico Mattei, Catholic University of Milan and CMCC); Massimo Tavoni (Fondazione Eni Enrico Mattei, Catholic University of Milan and CMCC)
    Abstract: It is widely recognized that technological change has the potential to reduce GHG emissions without compromising economic growth; hence, any better understanding of the process of technological innovation is likely to increase our knowledge of mitigation possibilities and costs. This paper explores how international knowledge flows affect the dynamics of the domestic R&D sector and the main economic and environmental variables. The analysis is performed using WITCH, a dynamic regional model of the world economy, in which energy technical change is endogenous. The focus is on disembodied energy R&D international spillovers. The knowledge pool from which regions draw foreign ideas differs between High Income and Low Income countries. Absorption capacity is also endogenous in the model. The basic questions are as follows. Do knowledge spillovers enhance energy technological innovation in different regions of the world? Does the speed of innovation increase? Or do free-riding incentives prevail and international spillovers crowd out domestic R&D efforts? What is the role of domestic absorption capacity and of policies designed to enhance it? Do greenhouse gas stabilization costs drop in the presence of international technological spillovers? The new specification of the WITCH model presented in this paper enables us to answer these questions. Our analysis shows that international knowledge spillovers tend to increase free-riding incentives and decrease the investments in energy R&D. The strongest cuts in energy R&D investments are recorded among High Income countries, where international knowledge flows crowd out domestic R&D efforts. The overall domestic pool of knowledge, and thus total net GHG stabilization costs, remain largely unaffected. International spillovers, however, are also an important policy channel. We therefore analyze the implication of a policy mix in which climate policy is combined with a technology policy designed to enhance absorption capacity in developing countries. Significant positive impacts on the costs of stabilising GHG concentrations are singled out. Finally, a sensitivity analysis shows that High Income countries are more responsive than Low Income countries to changes in the parameters and thus suggests to focus additional empirical research efforts on the former.
    Keywords: Climate Policy, Energy R&D, International R&D Spillovers, Stabilization
    JEL: H0 H2 H3
    Date: 2007–07
  10. By: Yang, H.; Pollitt, M.
    Abstract: Different from traditional efficiency research and previous studies considering undesirable outputs, this paper proposes models which distinguish weak and strong disposability features among various undesirable outputs based on the technical nature of the undesirable outputs. The paper illustrates the approach using a research sample covering 582 base-load Chinese coal-fired power plants in 2002. Our final results show that (1) imposing the technically correct disposability features on undesirable outputs makes a significant difference to the final efficiency evaluation. This suggests the necessity of properly distinguishing disposability features among undesirable outputs in efficiency models; (2) compared to their US and European counterparts, Chinese power plants relatively waste more resources. This suggests a great urgency for the Chinese electricity industry to improve its efficiency in coal-fired electricity generation sector. Key words: Economics: input-output analysis; Environment; Government: energy policies; Industries: electric; Statistics: nonparametric.
    JEL: D24 L94
    Date: 2007
  11. By: Finger, Robert; Gerwig, Claude N.
    Abstract: Site Specific Technologies (SST) can reduce environmental pollution caused by common agricultural practice. Using a case study for corn yields, we investigate the impact of climate change (CC) on profitability of SSTs. We find CC to increase spatial variability of soils with respect to optimal input application and yield variability. This leads, ceteris paribus, to higher incentives for SST adoption in the future.
    Keywords: Climate Change; Site Specific Technologies; Adaptation; Crop Production Function
    JEL: Q54 Q01 Q12 O13 O31
    Date: 2007–09
  12. By: Vicent Alcantara Escolano (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: El objetivo de estas páginas, que es parte de una investigación más amplia, es el desarrollo de un primer análisis de las relaciones entre la estructura productiva de la economía española y las emisiones de CO2, el más importante de los gases de efecto invernadero, a la atmósfera. Después de exponer la metodología utilizada, que permite la utilización conjunta en análisis expost, como el que nos ocupa, de los multiplicadores de oferta y demanda, se obtienen resultados relevantes que permiten un estudio detallado de las mencionadas relaciones. Posteriormente se determinan los sectores
    Keywords: Input-output, emisiones de CO2, sectores clave en la emisión, multiplicadores de demanda y producción.
    JEL: C67 Q40 Q43
    Date: 2007–07
  13. By: Deressa, Temesgen Tadesse
    Abstract: This study uses the Ricardian approach to analyze the impact of climate change on Ethiopian agriculture and to describe farmer adaptations to varying environmental factors. The study analyzes data from 11 of the country ' s 18 agro-ecological zones, representing more than 74 percent of the country, and survey of 1,000 farmers from 50 districts. Regressing of net revenue on climate, household, and soil variables show that these variables have a significant impact on the farmers ' net reven ue per hectare.The study carries out a marginal impact analysis of increasing temperature and changing precipitation across the four seasons. In addition, it examines the impact of uniform climate scenarios on farmers ' net revenue per hectare. Additionally, it analyzes the net revenue impact of predicted climate scenarios from three models for the years 2050 and 2100. In general, the results indicate that increasing temperature and decreasing precipitation are both damaging to Ethiopian agriculture. Although the analysis did not incorporate the carbon fertilization effect, the role of technology, or the change in prices for the future, significant information for policy-making can be extracted.
    Keywords: Environmental Economics & Policies,Climate Change,Crops & Crop Management Systems,Global Environment Facility,Common Property Resource Development
    Date: 2007–09–01

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