nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒11‒03
nine papers chosen by
Roger Fouquet
Imperial College, UK

  1. The Time-Inconsistency of Alternative Energy Policy By Agnes d'Artigues; Jacques Percebois; Thierry Vignolo
  2. Spot Price Modeling and the Valuation of Electricity Forward Contracts: the Role of Demand and Capacity By Alvaro Cartea; Pablo Villaplana Conde
  3. Oil and the Great Moderation By Antón Nákov; Andrea Pescatori
  4. The Resource Curse: A Corporate Transparency Channel By Durnev, Artyom; Guriev, Sergei
  5. The economics of U.S. ethanol import tariffs with a consumption mandate and tax credit By de Gorter, Harry; Just, David R.
  6. The economics of a biofuel consumption mandate and excise-tax exemption: An empirical example of U.S. ethanol policy By de Gorter, Harry; Just, David R.
  7. Macroeconomic and distributional consequences of energy supply shocks in Nigeria By Adeola F. Adenikinju; Niyi Falobi
  8. Estrutura económica, intensidade energética e emissões de CO2: Uma abordagem Input-Output By Luís Cruz; Eduardo Barata
  9. The Incidence of a U.S. Carbon Tax: A Lifetime and Regional Analysis By Kevin A. Hassett; Aparna Mathur; Gilbert E. Metcalf

  1. By: Agnes d'Artigues; Jacques Percebois; Thierry Vignolo
    Abstract: Time-inconsistency can arise when a government attempts to convince private sector to use a particular alternative energy (gas, green electricity...) rather than petroleum products. By introducing taxes and feed-in prices, a government would encourage firms and households to switch to an alternative energy rather than use petroleum products. However, even if a government is in favor of increasing alternative energy consumption, it can benefit from considerable financial resources resulting from petroleum product consumption. As a result of these conflicting issues, the private sector may not find the alternative energy policy credible, which prevents the government to implement a socially efficient policy.
    Keywords: energy policy; time inconsistency; alternative energy
    JEL: E62 Q42 Q48
    Date: 2007
  2. By: Alvaro Cartea (School of Economics, Mathematics & Statistics, Birkbeck); Pablo Villaplana Conde
    Abstract: We propose a model where wholesale electricity prices are explained by two state variables: demand and capacity. We derive analytical expressions to price forward contracts and to calculate the forward premium. We apply our model to the PJM, England and Wales, and Nord Pool markets. Our empirical findings indicate that volatility of demand is seasonal and that the market price of demand risk is also seasonal and positive, both of which exert an upward (seasonal) pressure on the price of forward contracts. We assume that both volatility of capacity and the market price of capacity risk are constant and find that, depending on the market and period under study, it could either exert an upward or downward pressure on forward prices. In all markets we find that the forward premium exhibits a seasonal pattern. During the months of high volatility of demand, forward contracts trade at a premium. During months of low volatility of demand, forwards can either trade at a relatively small premium or, even in some cases, at a discount, i.e. they exhibit a negative forward premium.
    Keywords: power prices, demand, capacity, forward premium, forward bias, market price of capacity risk, market price of demand risk, PJM, England and Wales, Nord Pool
    Date: 2007–11
  3. By: Antón Nákov (Banco de España); Andrea Pescatori (Federal Reserve Bank of Cleveland)
    Abstract: We assess the extent to which the great US macroeconomic stability since the mid-1980s can be accounted for by changes in oil shocks and the oil share in GDP. To do this we estimate a DSGE model with an oil-producing sector before and after 1984 and perform counterfactual simulations. We nest two popular explanations for the Great Moderation: (1) smaller (non-oil) real shocks; and (2) better monetary policy. We find that the reduced oil share accounted for as much as one-third of the inflation moderation, and 13% of the growth moderation, while smaller oil shocks accounted for 11% of the inflation moderation and 7% of the growth moderation. This notwithstanding, better monetary policy explains the bulk of the inflation moderation, while most of the growth moderation is explained by smaller TFP shocks.
    Keywords: Great Moderation, oil shocks, Bayesian estimation, counterfactual simulations
    JEL: E32 E52 Q43
    Date: 2007–10
  4. By: Durnev, Artyom; Guriev, Sergei
    Abstract: We propose and investigate a new channel through which the resource curse - a stylized fact that countries rich in natural resources grow slower - operates. Predatory governments are more likely to expropriate corporate profits in natural-resource industries when the price of resources is higher. Corporations whose profits are more dependent on the price of resources can mitigate the risk of expropriation by reducing corporate transparency. Lower transparency, in turn, leads to inefficient capital allocation and slower economic growth. Using a panel of 72 industries from 51 countries over 16 years, we demonstrate that the negative effect of expropriation risk on corporate transparency is stronger for industries that are especially vulnerable to expropriation, in particular, for industries whose profits are highly correlated with oil prices. Controlling for country, year, and industry fixed effects, we find that corporate transparency is lower in more oil price-dependent industries when the price of oil is high and property rights are poorly protected. Furthermore, corporate growth is hampered in oil price-sensitive industries because of less efficient capital allocation driven by adverse effects of lower transparency.
    Keywords: Autocracy; Expropriation; Industry Growth; Investment Efficiency; Oil Reserves; Property rights; Resource Curse; Transparency and Disclosure
    JEL: G15 G18 K42 L7 O43
    Date: 2007–10
  5. By: de Gorter, Harry; Just, David R.
    Abstract: This paper analyzes the impact of an ethanol import tariff in conjunction with a consumption mandate and tax credit. A tax credit alone acts as a subsidy to ethanol producers, equally benefiting exporters like Brazil. If an import tariff is imposed to offset the tax credit, world prices of ethanol decline by less than the tariff (unless oil prices are unaffected). Eliminating the tariff with a tax credit in place results in a significant gain to exporters like Brazil but eliminating the tax credit too reduces the initial benefits to Brazil of the tariff reduction substantially. The results change however if there is “water” in the tax credit. Then exporters benefit much more with the elimination of both the tariff and tax credit compared to a situation of both policies in place. If only a mandate was in place, exporters like Brazil again benefit as much as domestic ethanol producers do. Eliminating the tariff with a mandate results in an increase in domestic ethanol prices (even if oil prices do not change) because more domestic supply is required to maintain the mandate. The tariff therefore has a smaller negative impact on world ethanol prices with a mandate compared to a tax credit. A tax credit with a binding mandate is a subsidy to fuel consumers and only indirectly benefits ethanol producers if ethanol prices increase due to increased demand for ethanol with the increase in fuel consumption). Therefore, eliminating the tax credit with a binding mandate has little effect on market prices of ethanol – domestic and foreign producers alike benefit very little with a tax credit in this situation. Brazil would much prefer the elimination of the tax credit and the so-called offsetting import tariff when a mandate is binding. Hence, the protective effects of an import tariff are not additive with either a tax credit or the price premium due to a mandate.
    Keywords: biofuels; mandate; tax credit; ethanol; tariff
    JEL: Q42 F13 Q18 Q17
    Date: 2007–10–24
  6. By: de Gorter, Harry; Just, David R.
    Abstract: This paper develops a general framework to evaluate the effects on agricultural and gasoline markets of a consumption mandate and excise-tax exemption, the two most prominent public biofuel policies. Although market prices for biofuels increase under each policy, consumer fuel prices always decline with a tax exemption and increase with a mandate except under special circumstances when oil supply is inelastic relative to the supply of biofuels. A tax exemption alone is a biofuel consumption subsidy but most of the benefits go to biofuel producers because biofuels are a small share of total fuel consumption. Fuel consumers benefit indirectly to the extent gasoline prices decline with increased biofuel production. With a binding mandate in place, the tax exemption acts as a subsidy to fuel consumers instead. Biofuel producers only gain indirectly with the increased biofuel demand resulting from the increase in total fuel consumption. Most of the market effects are due to the mandate with the tax exemption only exacerbating the biofuel price increase and causing an increase in the oil price but a decrease in the consumer fuel price. An important implication is that the effects of each policy are not additive when used in combination. To illustrate the complexity and importance of the interaction between biofuel mandates and tax exemptions, we calibrate a stylized empirical model of the U.S. ethanol market. The results confirm the theoretical findings, including the special case of a mandate reducing consumer prices. The model is well suited to form a basis for evaluating the social benefits of the mandate versus the tax exemption in reducing local pollution, global warming and reliance on oil, and in enhancing farm incomes, reducing tax costs of farm subsidies and promoting rural development.
    Keywords: biofuels; mandate; tax exemption; ethanol
    JEL: Q42 Q18 Q17 F17
    Date: 2007–10–24
  7. By: Adeola F. Adenikinju; Niyi Falobi
    Abstract: In spite of its vast oil endowments, Nigeria continues to experience sporadic domestic oil supply shortages. These oil shortages manifest in regular queues at fuel stations that are often empty and in thriving parallel markets that sprout all over the country. The shortages have resulted in huge economic and non-economic costs to the economy. This study investigates the causes of the shortages and provides quantitative estimates of the economic costs to the Nigerian economy using a survey and a computable general equilibrium (CGE) model. The findings from this study show very clearly that oil sector supply shocks are costly both directly and indirectly. Oil supply shocks result in lower real GDP, higher average prices and greater balance of payment deficits. Other macroeconomic variables such as private consumption, investment, government revenue and employment also decline. In addition, the distributional impact of the quantitative energy supply shocks is higher for poor households than rich households. We also find that the sectoral impacts are mixed, often depending on the oil intensity of the sector. Finally, our survey results show that many economic agents on the demand side are willing to pay higher prices if that will guarantee a stable oil supply. Few players in the market chain benefit from supply disruptions, while consumers and the poor bear the main burden of these shocks.
    Date: 2006–12
  8. By: Luís Cruz (GEMF and Faculdade de Economia, Universidade de Coimbra); Eduardo Barata (GEMF and Faculdade de Economia, Universidade de Coimbra)
    Abstract: Este trabalho explora a metodologia Input-Output como uma alternativa válida para estudar interacções entre energia, ambiente e actividades económicas, tendo por desígnio a obtenção de resultados susceptíveis de apoiar estratégias e políticas que respeitem e promovam uma gestão equilibrada da dinâmica que caracteriza as relações entre disponibilidade de energia, protecção ambiental e crescimento económico, num contexto marcado pelos princípios do Protocolo de Quioto e pelas regras do Comércio Europeu de Licenças de Emissão. As ligações entre os diferentes ramos de actividade, a produção e o consumo de energia e a correspondente emissão de CO2 em Portugal são estudadas com recurso ao desenvolvimento de um modelo Input-Output integrado com modelos satélite de fluxos de energia e de CO2 (resultantes da queima de combustíveis fósseis). São estimados coeficientes energéticos e de emissão de CO2 por actividade económica, assim como as necessidades de energia e as emissões correspondentes.
    Keywords: análise Input-Output, energia, emissões de CO2, Portugal
    JEL: C67 D57 Q32 Q43
    Date: 2007
  9. By: Kevin A. Hassett; Aparna Mathur; Gilbert E. Metcalf
    Abstract: This paper measures the direct and indirect incidence of a carbon tax using current income and two measures of lifetime income to rank households. Our two measures of lifetime income are current consumption and adjusted or "lifetime" consumption. The use of the adjusted lifetime measure for consumption is intended to correct for long-run predictable swings in behavior. Our results suggest that in general, carbon taxes appear to be more regressive when income is used as a measure of economic welfare, than when consumption (current or lifetime) is used to measure incidence. Further, the direct component of the tax, in any given year, is significantly more regressive than the indirect component. In fact, for 1987, the indirect component of the tax is actually mildly progressive, as the higher deciles tend to pay a larger fraction of their consumption in carbon taxes. Finally we observe a shift over time with the direct component of carbon taxes becoming larger in relation to the indirect component. These effects have mostly offset each other, and the overall distribution of the total tax burden has not changed much over time.
    JEL: H2 Q4 Q54
    Date: 2007–10

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