nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒10‒13
thirteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. The Response of Business Fixed Investment to Changes in Energy Prices: A Test of Some Hypotheses About the Transmission of Energy Price Shocks By Edelstein, Paul; Kilian, Lutz
  2. The industrial impact of oil price shocks: Evidence from the industries of six OECD countries By Rebeca Jiménez-Rodríguez
  3. Extreme Value Analysis of Daily Canadian Crude Oil Prices By Feng Ren; David E. Giles
  4. What Drives Stock Market Development in the Middle East and Central Asia--Institutions, Remittances, or Natural Resources? By Andreas Billmeier; Isabella Massa
  5. Inter-Sectoral Linkages and Local Content in Extractive Industries and Beyond--The Case of Sao Tome and Principe By Ulrich H. Klueh; Alonso Segura; Walter Zarate; Gonzalo C. Pastor
  6. Integrated management of the Blue Nile Basin in Ethiopia: hydropower and irrigation modeling By Block, Paul J.
  7. Public spending and poverty reduction in an oil-based economy: the case of Yemen By Chemingui, Mohamed Abdelbasset
  8. School Buildings in Greece: The Bioclimatic Challenge and a Photovoltaic Pilot Project By Panagiotis Al. Patargias; Kalianou Angela; George Galanis; Marina Vassilopoulou; Maria Drosou; Christos Protogeropoulos
  9. The Welfare Economics of an Excise-Tax Exemption for Biofuels By de Gorter, Harry; Just, David R.
  10. Lock-in and the transition to hydrogen cars. When should governments intervene? By Mads Greaker and Tom-Reiel Heggedal
  11. Réduction des émissions de gaz à effet de serre dans une université : le défi d’impliquer tous les membres By Odile Blanchard
  12. Using Minimum Energy in Ireland’s Schools By John Dolan
  13. Notes(2) on a Thermodynamic Theory of Economics By John Bryant

  1. By: Edelstein, Paul; Kilian, Lutz
    Abstract: Changes in firms’ investment expenditures are considered one of the primary channels through which energy price shocks are transmitted to the economy. It is widely believed that the response of business fixed investment to energy price increases differs from its response to energy price decreases. We show that the apparent asymmetry in the estimated responses of business fixed investment in equipment and structures cannot be reconciled with standard theoretical explanations of asymmetric responses. Rather this evidence is an artifact (1) of the aggregation of mining-related expenditures by the oil, natural gas, and coal mining industry and all other expenditures, and (2) of ignoring an exogenous shift in investment caused by the 1986 Tax Reform Act. After controlling for these factors, formal statistical tests are unable to reject the assumption of symmetric responses to energy price shocks for all components of investment in structures. For nonresidential equipment there is weak statistical evidence of classical asymmetries in some components, but not in the aggregate. Once symmetry is imposed and mining-related expenditures are excluded, the estimated response of business fixed investment in equipment and structures tends to be small and mostly statistically insignificant. Historical decompositions show that energy price shocks have played a minor role in driving fluctuations in nonresidential fixed investment other than investment in mining. Our conclusions are largely robust to defining energy price shocks in terms of percent changes, large percent changes or net percent changes of energy prices; they are also robust to using alternative measures of energy prices and to weighting energy prices by the energy share in value added.
    Keywords: 1986 Tax Reform Act; Asymmetric responses; Equipment; Nonresidential fixed investment; Oil price shocks; Structures
    JEL: E22 E32 Q43
    Date: 2007–10
  2. By: Rebeca Jiménez-Rodríguez (University of Salamanca)
    Abstract: Most of the studies existing in theoretical and empirical understanding of the macroeconomic consequences of oil price shocks have been focused on US aggregate data. In contrast to these studies, this paper assesses empirically the dynamic effects of oil price shocks on the output of the main manufacturing industries in six OECD countries using an identified vector autoregression for each economy. The pattern of responses to an oil price shock by industrial output is diverse across the four European Monetary Union (EMU) countries under consideration (France, Germany, Italy, and Spain), but broadly similar in the UK and the US. Evidence on cross-industry heterogeneity of oil shock effects within the EMU countries is also reported. Moreover, our baseline results are quite robust with respect to changes in the number of lags, identification assumptions, and real oil price definition.
    Keywords: oil price shock, identified VAR, manufacturing industries
    JEL: E32 Q43
    Date: 2007–10
  3. By: Feng Ren (Department of Economics, University of Victoria); David E. Giles (Department of Economics, University of Victoria)
    Abstract: Crude oil markets are highly volatile and risky. Extreme value theory (EVT), an approach to modelling and measuring risks under rare events, has seen a more prominent role in risk management in recent years. This paper presents an application of EVT to the daily returns of crude oil prices in the Canadian spot market between 1998 and 2006. We focus on the peak over threshold method by analyzing the generalized Pareto-distributed exceedances over some high threshold. This method provides an effective means for estimating tail risk measures such as Value-at-Risk and Expected Shortfall. The estimates of risk measures computed under different high quantile levels exhibit strong stability across a range of the selected thresholds. At the 99th quantile, the estimates of VaR are approximately 6.3% and 6.8% for daily positive and negative returns, respectively.
    Keywords: Crude oil, daily returns, market volatility, extreme value analysis
    JEL: C46 G32 Q40
    Date: 2007–10–09
  4. By: Andreas Billmeier; Isabella Massa
    Abstract: In this paper, we assess the macroeconomic determinants of stock market capitalization in a panel of 17 countries in the Middle East and Central Asia, including both hydrocarbon-rich countries and economies without sizeable natural resource wealth. In addition to traditional variables, we include an institutional variable and remittances among the regressors. We find that (i) both institutions and remittances have a positive and significant impact on market capitalization; and (ii) both regressors matter, especially in countries without significant hydrocarbon sectors; whereas (iii) in resource-rich countries, stock market capitalization is mainly driven by the oil price.
    Keywords: Working Paper , Stock markets , Middle East and Central Asia , Natural resources , Oil prices , Workers remittances , Economic models ,
    Date: 2007–07–13
  5. By: Ulrich H. Klueh; Alonso Segura; Walter Zarate; Gonzalo C. Pastor
    Abstract: This paper attempts to offer specific inputs to the debate on local content promotion in the oil industry, using the specific case of São Tomé and Príncipe as point of reference. Our approach emphasizes inter-sectoral linkages and institutional pre-conditions for local content promotion. Based on an Input-Output description of the economy, we quantify the consistency between the prospective oil sector development and the growth of other sectors of the economy. We also assess a number of sectoral policies and "niche" activities within the oil industry that would maximize the local benefits from oil exploration.
    Date: 2007–09–07
  6. By: Block, Paul J.
    Abstract: "Ethiopia is at a critical crossroads with a large and increasing population, a depressed national economy, insufficient agricultural production, and a low number of developed energy sources. The upper Blue Nile basin harbors considerable untapped potential for irrigation and hydropower development and expansion. Numerous hydrologic models have been developed to assess hydropower and agricultural irrigation potential within the basin, yet often fail to adequately address critical aspects, including the transient stages of large-scale reservoirs, relevant flow retention policies and associated downstream ramifications, and the implications of stochastic modeling of variable climate and climate change. A hydrologic model with dynamic climate capabilities is constructed to assess these aspects. The model indicates that large-scale development typically produces benefit-cost ratios from 1.2-1.8 under historical climate regimes for the projects specified. Climate change scenarios indicate potential for small benefit-cost increases, but reflect possible significant decreases. Stochastic modeling of scenarios representing a doubling of the historical frequency of El Niño events indicates benefit-cost ratios as low as 1.0 due to a lack of timely water. An evaluation of expected energy growth rates reinforces the need for significant economic planning and the necessity of securing energy trade contracts prior to extensive development. A Ramsey growth model for energy development specifies project multipliers on total GDP over the 100-year simulation ranging from 1.7-5.2, for various climatologic conditions." Author's Abstract
    Keywords: Water resources development, Hydrologic model, Energy, Climate variability, Climate change, Irrigation,
    Date: 2007
  7. By: Chemingui, Mohamed Abdelbasset
    Abstract: "This study is part of a collaborative project between the International Food Policy Research Institute and the Arab Planning Institute in Kuwait on public policy and poverty reduction in the Arab region. The purpose of this paper is to assess the impact of an increase in public spending in priority areas on economic growth and poverty reduction in Yemen. To accomplish this objective, the study builds a dynamic Computable General Equilibrium model to provide a baseline scenario of changes in the economy and poverty levels in Yemen during the period 1998-2016. Alternative scenarios are then compared to isolate the specific impact of several policies on poverty. The scenarios assume an increase in public spending devoted to three priority areas (agriculture, education, and health), which affect the economy through an increase in sectoral or economy-wide technical factor productivity. Results of public spending experiments show that targeting increased amounts of public spending towards education and health services will generate more economic growth and poverty reduction than increasing public spending solely on the agricultural sector. However, when an oil sector is a prominent part of the economy, as in Yemen, additional public spending on health and education does not improve productivity in the oil sector. Therefore, spending on agriculture becomes the most important channel for poverty reduction and economic growth. While increasing public spending in priority areas appears to be the best solution available for the government to reduce poverty during the next decade, the road is still long for Yemen to be able to achieve its Millennium Development Goals for poverty reduction. Re-allocating public expenditures from defense to key sectors appears to be an additional option for reducing poverty, given the financial constraints facing Yemen. However, in the current context of terrorism concerns, it will be difficult to convince policy-makers to reduce spending on defense and security. Seeking additional resources from international donors seems to be the only option available to increase benefits from increased public spending in the priority areas identified and assessed in this study." from Authors' Abstract
    Keywords: Public investments, Poverty, economic growth,
    Date: 2007
  8. By: Panagiotis Al. Patargias; Kalianou Angela; George Galanis; Marina Vassilopoulou; Maria Drosou; Christos Protogeropoulos
    Abstract: Greece’s School Buildings Organisation (SBO) is developing bioclimatic pilot schemes which are yielding positive results. Bioclimatic action has been one of the principal priorities of Greek school infrastructure planning since 2004. Among the activities undertaken by SBO to use renewable energy sources in school buildings is a pilot project to design and install a photovoltaic system in a secondary school in Athens.
    Keywords: environment, school building design, learning environment, educational buildings, energy savings
    Date: 2007–09
  9. By: de Gorter, Harry; Just, David R.
    Abstract: A general theory is developed to analyze the efficiency and income distribution effects of a biofuel consumer tax credit and the interaction effects with a price contingent farm subsidy. Using the U.S. ethanol market as a stylized example, ethanol prices rise above the gasoline price by the amount of the tax credit. Corn farmers therefore gain directly while gasoline consumers only gain from any reduction in world oil prices due to the extra ethanol production and domestic oil producers lose. Because increased ethanol production improves the terms of trade in both the export of corn and the import of oil, we determine the optimal tax credit and the conditions affecting it. Historically, the intercept of the ethanol supply curve is above the gasoline price. Hence, part of the tax credit is redundant and represents ‘rectangular’ deadweight costs. The tax credit reduces the tax costs of price supports but incurs tax costs itself and increases consumer costs of corn. Price supports eliminate, create, have no effect or have an ambiguous effect on rectangular deadweight costs, depending on whether there is ex ante or ex post water in the tax credit. There are situations where ethanol production occurs only because of price supports. A stylized empirical model of the U.S. corn market is calibrated to illustrate the welfare effects of a tax credit. Net social costs of the tax credit averaged $683 million. Rectangular deadweight costs averaged $1,056 mil., more than offsetting the improved terms of trade and reduced price contingent farm subsidies, and representing over 50 percent of the tax cost of the tax credit.
    Keywords: biofuels; tax exemption; rectangular deadweight costs; price subsidies; welfare economics
    JEL: Q18 Q42 Q17 F13
    Date: 2007–09
  10. By: Mads Greaker and Tom-Reiel Heggedal (Statistics Norway)
    Abstract: The density of fuel filling stations influences consumers' utility of private car transport. Thus, to the extent that different modes of private transport require different fuels, there may exist a network externality in the consumption of private transport. We investigate this in a formal model of the market for private transport. In the model there are two competing technologies; today's internal combustion engine based on fossil fuels, and tomorrow's hydrogen car. Due to the network externality there may exist several market equilibriums, of which one is likely to Pareto dominate the other(s). Thus, a lock-in situation is possible. On the other hand, if either the costs of establishing hydrogen filling stations is too high or the hydrogen car technology is still in its infancy, the only equilibrium is the current internal combustion engine equilibrium. Hence, apart from internalizing the environmental externality on gasoline cars, the government has no reasons to intervene before the technology is ripe. And even then, governments should take great care so as not to create a situation of excess momentum.
    Keywords: Lock-in; Path dependency; Hydrogen economy; Climate change policy
    JEL: L11 L15 L62 Q42
    Date: 2007–09
  11. By: Odile Blanchard (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - [CNRS : UMR5252] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: Les initiatives de maîtrise de l’énergie et de lutte contre le changement climatique se multiplient et prennent de l’ampleur dans les universités. Le Projet d’Université Citoyenne lancé depuis 2003 au sein de l’Université Pierre-Mendès-France (UPMF) à Grenoble, France, s’inscrit dans cette démarche. <br /><br />Divers outils d’analyse ont été créés, de nombreux audits et enquêtes ont été menés. Un plan d’actions est discuté, validé et régulièrement ajusté par un Comité de Pilotage. Les actions portent à la fois sur la quantification des émissions de gaz à effet de serre, la réduction des consommations d’énergies fossiles et sur la sensibilisation des étudiants et personnels de l’UPMF. <br /><br />Seuls quelques étudiants, enseignants et personnes des services administratifs sont impliqués actuellement dans le Projet. Le présent papier vise à explorer diverses voies qui peuvent amener chacun des membres de l’UPMF à s’engager dans des actions de réduction de leurs émissions de gaz à effet de serre sur leur lieu de travail ou d’études. <br /><br />La première partie expose succinctement les principales actions qui ont été menées jusqu’alors. La deuxième présente les acteurs actuels du Projet et leurs interactions. La troisième met à jour les motivations et les freins que les membres de l’université expriment par rapport à leur engagement dans des actions de réduction de leurs émissions de gaz à effet de serre. Enfin la dernière partie est consacrée aux options possibles pour lever ces barrières : comment transformer l’invitation / incitation à agir en action, et aussi comment transformer les attitudes en comportements ?
    Date: 2007–05–11
  12. By: John Dolan
    Abstract: This article explains how Ireland has incorporated low energy design into primary and post-primary schools and gives an overview of projects that have helped inform this approach.
    Keywords: educational buildings, energy management, energy savings, school infrastructure
    Date: 2007–09
  13. By: John Bryant (Vocat International)
    Abstract: This paper expands on points of a paper by the author, published earlier in 2007. Additional analyses are set out on the issue of the economic cycle and the boundary between products of economic value and flows of value between them.
    Keywords: Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy
    Date: 2007–10

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