nep-ene New Economics Papers
on Energy Economics
Issue of 2007‒11‒10
sixteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Optimal Energy Investment and R&D Strategies to Stabilise Greenhouse Gas Atmospheric Concentrations By Bosetti, Valentina; Carraro, Carlo; Massetti, Emanuele; Tavoni, Massimo
  2. Long term trends in resource exergy consumption and useful work supplies in the UK, 1900-2000 By Benjamin Warr; Heinz Schandl; Robert U. Ayres
  3. What Do We Learn from the Price of Crude Oil Futures? By Alquist, Ron; Kilian, Lutz
  4. The clean development mechanism versus international permit trading: the effect on technological change By Cathrine Hagem
  5. The Resource Curse: A Corporate Transparency Channel By Art Durnev; Sergei Guriev
  6. ACTUAL CONCERNS OF ENERGY MANAGEMENT IN U.E. SPACE By Petrescu, Ion; Stefanescu, Camelia; Iancu, Iulian
  7. Optimal Dispatch in Electricity Markets By Vladimir Kazakov; Anatoly M. Tsirlin
  8. India's Great Vulnerability: Energy Insecurity By Rakesh Ahuja;
  9. Are Pollution Permits a Cure for Unregulated Growth Diseases ? By Alain Jean-Marie; Philippe Fabien Prieur; Philippe Mabel Tidball
  10. Inflow Uncertainty in Hydropower Markets By Petter Vegard Hansen
  11. Environmental policy negotiations, transboundary pollution and lobby groups in small open economies By Persson, Lars
  12. Análisis de la distribución de las emisiones de CO2 a nivel internacional mediante la adaptación del concepto y las medidas de polarización By Juan Antonio Duro Moreno; Emilio Padilla Rosa
  13. Understanding the Lack of Competition in Natural Gas Markets: The Impact of Storage Ownership and Upstream Competition By Michal Mravec
  14. Tradable driving rights in urban areas: their potential for tackling congestion and traffic-related pollution By Charles Raux
  15. Revisiting the Price Elasticity of Gasoline Demand By Alfredo A. Romero
  16. Les Techniques thermiques : Pyrolyse - Thermolyse et Gazéification By André Fontana

  1. By: Bosetti, Valentina; Carraro, Carlo; Massetti, Emanuele; Tavoni, Massimo
    Abstract: The stabilisation of GHG atmospheric concentrations at levels expected to prevent dangerous climate change has become an important, global, long-term objective. It is therefore crucial to identify a cost-effective way to achieve this objective. In this paper we use WITCH, a hybrid climate-energy-economy model, to obtain a quantitative assessment of some cost-effective strategies that stabilise CO2 concentrations at 550 or 450 ppm. In particular, this paper analyses the energy investment and R&D policies that optimally achieve these two GHG stabilisation targets (i.e. the future optimal energy mix consistent with the stabilisation of GHG atmospheric concentrations at 550 and 450 ppm). Given that the model accounts for interdependencies and spillovers across 12 regions of the world, optimal strategies are the outcome of a dynamic game through which inefficiency costs induced by global strategic interactions can be assessed. Therefore, our results are somehow different from previous analyses of GHG stabilisation policies, where a central planner or a single global economy are usually assumed. In particular, the effects of free-riding incentives in reducing emissions and in investing in R&D are taken into account. Technical change being endogenous in WITCH, this paper also provides an assessment of the implications of technological evolution in the energy sector of different stabilisation scenarios. Finally, this paper quantifies the net costs of stabilising GHG concentrations at different levels, for different allocations of permits and for different technological scenarios. In each case, the optimal long-term investment strategies for all available energy technologies are determined. The case of an unknown backstop energy technology is also analysed.
    Keywords: climate policy; energy R&D; investments; stabilisation costs
    JEL: H4 O3 Q4
    Date: 2007–11
  2. By: Benjamin Warr; Heinz Schandl; Robert U. Ayres (CSIRO Sustainable Ecosystems, Australia)
    Abstract: Our aim is to explain historical economic growth in the UK economy by introducing an empirical measure for useful work derived from natural resource energy inputs into an augmented production function. To do this, we estimate the long-term (1900-2000) trends in resource exergy supply and conversion to useful work in the United Kingdom. The exergy resources considered included domestic consumption of coal, crude oil and petroleum products, natural gas, nuclear and renewable resources (including biomass). All flows of exergy were allocated to an end use such as providing heat, light, transport, human and animal work and electrical power. For each end-use we estimated a time dependent efficiency of conversion from exergy to useful work. The 3-factor production function (of capital, labour and useful work) is able to reproduce the historic trajectory of economic growth without recourse to any exogenous assumptions of technological progress or total factor productivity. The results indicate that useful work derived from natural resource exergy is an important factor of production.
    Keywords: exergy, energy, efficiency, economic growth, United Kingdom
    JEL: Q43 O11
    Date: 2007–09
  3. By: Alquist, Ron; Kilian, Lutz
    Abstract: Based on a two-country, two-period general equilibrium model of the spot and futures markets for crude oil, we show that there is no theoretical support for the common view that oil futures prices are good predictors of the spot price in the mean-squared error sense; yet under certain conditions there is support for the view that oil futures prices are unbiased predictors. Our empirical analysis documents that futures-based forecasts are biased and typically inferior to simple and easy-to-use forecasting methods such as the no-change forecast. This does not mean that there is no useful information in oil futures prices. We demonstrate that fluctuations in the oil futures basis are larger and more persistent than fluctuations in the basis of foreign exchange futures. Within the context of our theoretical model, this anomaly can be explained by the marginal convenience yield of oil inventories. We show that increased uncertainty about future oil supply shortfalls causes the basis to decline and precautionary demand for crude oil to increase, resulting in an immediate increase in the real spot price that is not necessarily associated with an accumulation of oil inventories. Our main result is that the negative of the basis may be viewed as an index of fluctuations in the price of crude oil driven by precautionary demand for oil. Our empirical analysis of this index provides independent evidence of how shifts in market expectations about future oil supply shortfalls affect the spot price of crude oil. Such expectation shifts have been difficult to quantify, yet have been shown to play an important role in explaining oil price fluctuations. Our empirical results are consistent with related evidence in the literature obtained by alternative methodologies.
    Keywords: basis; crude oil; expectations; forecasting; futures market; precautionary demand; spot market; spread
    JEL: C53 D51 G13 G15
    Date: 2007–11
  4. By: Cathrine Hagem (Statistics Norway)
    Abstract: The clean development mechanism of the Kyoto Protocol may induce technological change in developing countries. As an alternative to the clean development mechanism regime, developing countries may accept a (generous) cap on their own emissions, allow domestic producers to invest in new efficient technologies, and sell the excess emission permits on the international permit market. The purpose of this article is to show how the gains from investment, and hence the incentive to invest in new technology in developing countries, differ between the two alternative regimes. We show that the difference in the gains from investment depends on whether the producers in developing countries face competitive or noncompetitive output markets, whether the investment affects fixed or variable production costs, and whether producers can reduce emissions through means other than investing in new technology.
    Keywords: Climate Policy; Technology Adoption; Emission Trading; Clean Development Mechanism; Technological Change; Cournot Competition
    JEL: L13 Q54
    Date: 2007–11
  5. By: Art Durnev (Desautels Faculty of Management, McGill University); Sergei Guriev (CEFIR, New Economic School and CEPR)
    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: Resource Curse, Oil Reserves, Expropriation, Autocracy, Transparency and Disclosure, Investment Efficiency, Industry Growth
    JEL: G18 L7 G15 G38 K42 O43
    Date: 2007–10
  6. By: Petrescu, Ion; Stefanescu, Camelia; Iancu, Iulian
    Abstract: If in seventy the green energy was considered a utopia and treated as a dream of scientists, the situation was changed over the years and the vision of “a future of regenerable energy” has become a subject of debate. Durable development of energetic sector and capitalization at a superior level of efficiency of all sources of energy, inclusive of the regenerables one, can insure the continuity and quality of providing the energy in European economy, with keeping the protections norms of environment.
    Keywords: durable development; green energy; energetical policy; sources of regenerables energy; management of regenerable energy.
    JEL: M20
    Date: 2007–11–06
  7. By: Vladimir Kazakov (School of Finance and Economics, University of Technology, Sydney); Anatoly M. Tsirlin
    Abstract: The problem of calculating the optimal dispatch and prices in a single-period electricity auction in a wholesale electricity market is considered here. The novel necessary and sufficient conditions of optimality for this problem are derived and computational algorithms for solving these conditions are constructed.
    Keywords: optimal dispatch; electricity market; nonlinear programming; non-convex problems; dynamic programming
    Date: 2007–10–01
  8. By: Rakesh Ahuja;
    Date: 2007
  9. By: Alain Jean-Marie; Philippe Fabien Prieur; Philippe Mabel Tidball
    Abstract: We consider an OLG model with emissions arising from production and potential irreversible pollution. Pollution control goes through a system of permits and private agents can also maintain the environment. In this setting, we prove that there exist multiple equilibria. Due to the possible irreversibility of pollution, the economy can be dragged into both environmental and poverty traps. First, we show that choosing a global quota on emissions at the lowest level beyond a critical threshold is a means to avoid the two types of traps. Next, we analyze the impact of a political reform on other equilibria. When the agents do not engage in maintenance, a fall in the quota implies a reduction of pollution but is detrimental to capital accumulation while, in the other case, it procures a double dividend.
    Date: 2007–10
  10. By: Petter Vegard Hansen (Statistics Norway)
    Abstract: In order to analyse the consequences of uncertainty for prices and efficiency in a hydropower system, we apply a two-period model with uncertainty in water inflow. We study three different market structures, perfect competition, monopoly and oligopoly and stress the importance of the shape of the demand function under different distributions of water inflow. The uncertainty element creates possibilities of exercising market power depending on the distribution of uncertainty among producers. The introduction of thermal power into the hydropower market has an impact on the residual demand function, which is important for the hydropower producers' possibilities of exercising market power.
    Keywords: hydropower; uncertainty; electricity; thermal power; demand functions; monopoly; duopoly
    JEL: D40 Q11 Q41 L10
    Date: 2007–10
  11. By: Persson, Lars (Department of Economics, Umeå University)
    Abstract: This paper analyzes the consequences of lobby group activity for policy outcomes in economies with transboundary pollution and international environmental policies. In our framework, international environmental policies are characterized as pollution taxes determined in a negotiation between two countries. We find, among other things, that the presence of local lobbying tends to reduce the level of pollution taxes. We also find that an increase in the environmental concern (i.e. stronger preferences for a clean environment) may reduce the pollution tax in both countries. It is also possible that increased environmental concern in one country reduces the pollution tax in the other country.
    Keywords: transboundary pollution; lobbying; taxes; pollution; Nash bargain; negotiations; environmental policy
    JEL: D62 F18 H21 H23 H70
    Date: 2007–11–02
  12. By: Juan Antonio Duro Moreno (Departament d'Economia, Universitat Rovira i Virgili); Emilio Padilla Rosa (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: La medida de la polarización está ligada a la inestabilidad potencial -la aparición de grupos con intereses opuestos- generada por una situación de distribución específica. Esta investigación analiza la distribución internacional de las emisiones de CO2 per cápita a través de la adaptación del concepto y las medidas de polarización. La descripción agrupada más interesante que se deriva del análisis de polarización es la de dos grupos. Estos grupos coinciden ampliamente con los países del Anexo B del Protocolo de Kyoto y los que no lo son, lo que podría indicar la capacidad del análisis de polarización para explicar la generación de grupos en el mundo real. El análisis muestra una reducción significativa en la polarización internacional de las emisiones de CO2 per cápita entre 1971 y 2001. Esto se explica en gran parte por el aumento en las emisiones experimentado por China e India. Una reducción en la polarización puede implicar una reducción en la dificultad de alcanzar acuerdos. No obstante, la polarización no ha cambiado mucho desde 1995 o 1997 (año en que tuvieron lugar las negociaciones de Kyoto), lo que podría indicar que la polarización de la distribución de emisiones entre países es aún uno de los factores importantes llevando a la dificultad en alcanzar nuevos acuerdos respecto a las políticas globales de
    Keywords: acuerdos internacionales; distribución internacional de CO2; emisiones de CO2; formación de grupos de países; polarización
    JEL: D39 Q43 Q56
    Date: 2007–11
  13. By: Michal Mravec
    Abstract: Motivated by the failure of competition to emerge after the natural gas market in the Czech Republic was liberalized, I explore the impact of natural gas storage ownership and upstream competition on the downstream level. I extend standard Cournot models to understand current and likely future developments, paying particular attention to the impact of market liberalization on a country characterized by a lack of domestic production, limited foreign upstream competition, and highly concentrated (and bundled) control over an essential input in the production of the final product: gas storage. I show that the upstream producer may practice his market power to capture some of the benefits of liberalization and increase the wholesale price, which hinders the desired decline of the end-user price in the long run. This pricing change in turn makes the entry of new players in the transition period more difficult. I furthermore analyze three prominent storage structure scenarios and conclude that higher consumer welfare can be reached only in the case of regulated storage access.
    Keywords: Natural gas, liberalization, deregulation, successive oligopoly, monopoly, Czech Republic, gas storage.
    JEL: D42 D43 L11 L12 L13 L51
    Date: 2007–09
  14. By: Charles Raux (LET - Laboratoire d'économie des transports - CNRS : UMR5593 - Université Lumière - Lyon II - Ecole Nationale des Travaux Publics de l'Etat)
    Abstract: Congestion pricing as a transport demand management measure is difficult to implement because most of motorists expect a deterioration of their welfare. Tradable driving rights (TDR), that is allocating quotas of driving rights for free to urban inhabitants, could be a more acceptable alternative. This mechanism provides also a supplementary incentive to save whether trips or distance travelled by car, because of the possibility of selling unused rights. A complete system of TDR is designed in detail, aiming whether at reducing trips or vehicles-kilometres, in order to control congestion, or the same target modulated on the basis of the pollutant emission categories of vehicles in order to control atmospheric pollution. An assessment is carried out on the Lyon urban area, which points at some welfare distributive issues between motorists and the community, when compared with conventional congestion pricing.
    Keywords: transport demand management (TMD) ; tradable driving rights (TDR) ; automobile traffic ; congestion pricing ; air pollution ; urban areas ; Lyon (France)
    Date: 2007–11–05
  15. By: Alfredo A. Romero (Department of Economics, College of William and Mary)
    Abstract: In this document, we investigate the evolution of the income elasticity and the price elasticity of the demand for gasoline over the period 1975-2006. By using the Probabilistic Reduction Approach, we were able to model changes in mean heterogeneity and variance heterogeneity directly into the model. This method allowed us to determine the timing and the size of shifts in the elasticities. Our estimates are consistent with the current literature: there has been a shift in the price elasticity of gasoline demand. This shift, not present in the income elasticity, occurred almost at the beginning of the period of study. We use these estimates to compute several welfare measures. We also present a sketch of the relationship between a Monthly Fixed Effect panel data model and a Time Series Model with Monthly Dummy Variables.
    Keywords: Price Elasticity, Income Elasticity, Gasoline Demand, Time Heterogeneity, Dummy Variables, Monthly Fixed Effects Panel Data Models, Time Series Models, Compensating Variation, Deadweight Loss.
    JEL: D12 L91 Q31 Q41 C22 C23 C50
    Date: 2007–10–29
  16. By: André Fontana (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
    Abstract: La connaissance du déchet est primordiale si l’on souhaite déterminer le mode de traitement le mieux adapté en tenant compte des circonstances locales et avec l’objectif essentiel d’un développement durable. En effet, en fonction de la composition d’un déchet, le choix d’une valorisation matière ou énergie doit être effectué dans des conditions économiquement acceptables tout en respectant les contraintes environnementales. Le choix d’une technologie doit se faire en relation avec la situation locale (nature et dispersion des déchets en amont et marché pour les produits en aval). En tenant compte des revenus liés à l’élimination du déchet (tipping fee), et de la vente des produits à valeur ajoutée, il reste une marge pour le développement de technologies propres et économiquement viables. En tout état de cause, un tri préalable du déchet pour séparer les fractions valorisables séparément est hautement souhaitable. Pour faire le point, on présentera brièvement ci-dessous l’ensemble des techniques diponibles, autres que les techniques de pyrolyse et gazéification qui font l’objet de cette revue.
    Keywords: Déchets, valorisation matière, valorisation énergie, technologies, incinération, thermolyse, pyrolyse, gazéification, biométhanisation, compostage, oxydation par voie humide.
    Date: 2007–11

This nep-ene issue is ©2007 by Roger Fouquet. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.