nep-ene New Economics Papers
on Energy Economics
Issue of 2008‒01‒05
nineteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. LIBERALIZATION AND REGULATION IN THE EU ENERGY MARKET By Ilie, Livia; Horobet , Alexandra; Popescu , Corina
  2. European carbon prices fundamentals in 2005-2007: the effects of energy markets, temperatures and sectorial production By Emilie Alberola; Julien Pierre Chevallier; Benoît Chèze
  3. First Evidence of Asymmetric Cost Pass-Through of EU Emissions Allowances: Examining Wholesale Electricity Prices in Germany By Georg Zachmann; Christian von Hirschhausen
  4. Arbitrage free cointegrated models in gas and oil future markets By Grégory Benmenzer; Emmanuel Gobet; Céline Jérusalem
  5. Are there oil currencies? The real exchange rate of oil exporting countries By Maurizio Michael Habib; Margarita Manolova Kalamova
  6. The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s? By Olivier J. Blanchard; Jordi Galí
  7. Forecasting electricity spot market prices with a k-factor GIGARCH process. By Abdou Kâ Diongue; Dominique Guégan; Bertrand Vignal
  8. Oil market structure, network effects and the choice of currency for oil invoicing By Elitza Mileva; Nikolaus Siegfried
  9. The gas chain : influence of its specificities on the liberalisation process By Carine Swartenbroekx
  10. European carbon prices and banking restrictions: evidence from phase I (2005-2007) By Emilie Alberola; Julien Pierre Chevallier
  11. Direct Energy: Evolving a New Role for IT By Gibson, Cyrus F.
  12. Gasoline content regulation as a trade barrier: do boutique fuels discourage fuel imports? By Adriana Z. Fernandez; Robert W. Gilmer; Jonathon L. Story
  13. Reductions in Ozone Concentrations Due to Controls on Variability in Industrial Flare Emissions in Houston, Texas By Junsang Nam; Mort Webster; Yosuke Kimura; Harvey Jeffries; William Vizuete; David T. Allen
  14. Club Convergence in Carbon Dioxide Emissions By Ekaterini Panopoulou and Theologos Pantelidis
  15. When is Mighty Gazprom Good for Russia? By Marina Tsygankova
  16. The Effect of Variability in Industrial Emissions on Ozone Formation in Houston, Texas By Mort Webster; Junsang Nam; Yosuke Kimura; Harvey Jeffries; William Vizuete; David T. Allen
  17. The behavior of stock returns in the Asia-Pacific mining industry following the Iraq war By Viviana Fernández
  18. Conservation: From Voluntary Restraint to a Voluntary Price Premium By Matthew Kotchen; Michael Moore
  19. Principal-agent Incentives, Excess Caution, and Market Inefficiency: Evidence From Utility Regulation By Severin Borenstein; Meghan Busse; Ryan Kellogg

  1. By: Ilie, Livia; Horobet , Alexandra; Popescu , Corina
    Abstract: Competition ensures competitive prices. In this respect, the liberalisation of the EU energy markets is a must. The regulatory framework for the energy markets should be properly designed and implemented by the member states in order to ensure enough competition. This paper aims to analyse the status quo of the EU energy markets in terms of regulatory framework and degree of competition and to recommend improvements of the system in order to balance the issues of competition, energy security and environment protection in the EU energy markets.
    Keywords: Energy market; regulation; competition; energy security; climate change
    JEL: K2 L5 Q4
    Date: 2007–10
  2. By: Emilie Alberola; Julien Pierre Chevallier; Benoît Chèze
    Abstract: This article aims at characterizing the daily price fundamentals of European Union Allowances (EUAs) traded since 2005 as part of the Emissions Trading Scheme (ETS). First, the presence of two structural changes on April, 2006 following the disclosure of 2005 verified emissions and on October, 2006 following the European Commission announcement of stricter Phase II allocation allow to isolate distinct fundamentals evolving overtime. The results extend previous literature by showing that spot prices react not only to other energy markets and temperatures, but also to economic activity within the main sectors covered by the EU ETS such as proxied by sectoral production indices. Besides, the sub-period decomposition of the pilot phase gives a better grasp of institutional and market events that drive allowance price changes.
    Keywords: Carbon Emissions Trading, Market Price Fundamentals, EU ETS
    JEL: Q40 Q48 Q54
    Date: 2007
  3. By: Georg Zachmann; Christian von Hirschhausen
    Abstract: This paper applies the literature on asymmetric price transmission to the emerging commodity market for EU emissions allowances (EUA). We utilize an error correction model and an autoregressive distributed lag model to measure the relationship between CO2 price changes and the development of wholesale electricity prices. Using data from the German market for electricity and EUAs, we find that the rising prices of EUAs have a stronger impact on wholesale electricity prices than falling prices -- the first empirical evidence of asymmetric cost pass-through for these new allowances.
    Date: 2007–09
  4. By: Grégory Benmenzer (LJK - Laboratoire Jean Kuntzmann - CNRS : UMR5224 - Université Joseph Fourier - Grenoble I - Université Pierre Mendès-France - Grenoble II - Institut Polytechnique de Grenoble); Emmanuel Gobet (LJK - Laboratoire Jean Kuntzmann - CNRS : UMR5224 - Université Joseph Fourier - Grenoble I - Université Pierre Mendès-France - Grenoble II - Institut Polytechnique de Grenoble); Céline Jérusalem (LJK - Laboratoire Jean Kuntzmann - CNRS : UMR5224 - Université Joseph Fourier - Grenoble I - Université Pierre Mendès-France - Grenoble II - Institut Polytechnique de Grenoble)
    Abstract: In this article we present a continuous time model for natural gas and crude oil future prices. Its main feature is the possibility to link both energies in the long term and in the short term. For each energy, the future returns are represented as the sum of volatility functions driven by motions. Under the risk neutral probability, the motions of both energies are correlated Brownian motions while under the historical probability, they are cointegrated by a Vectorial Error Correction Model. Our approach is equivalent to defining the market price of risk. This model is free of arbitrage: thus, it can be used for risk management as well for option pricing issues. Calibration on European market data and numerical simulations illustrate well its behavior.
    Keywords: future prices;natural gas; crude oil; cointegration; Vectorial Error Correction Model; arbitrage free modelling
    Date: 2007–12–20
  5. By: Maurizio Michael Habib (European Central Bank, Directorate General International and European Relations, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Margarita Manolova Kalamova (Social Science Research Center Berlin (WZB), Reichpietschufer 50, D-10178 Berlin, Germany.)
    Abstract: This paper investigates whether the real oil price has an impact on the real exchange rates of three main oil-exporting countries: Norway, Russia and Saudi Arabia. We create our measure of the real effective exchange rates for Norway and Saudi Arabia (1980-2006) and for Russia (1995-2006), testing if real oil prices and productivity differentials against 15 OECD countries influence exchange rates. In the case of Russia it is possible to establish a positive long-run relationship between the real oil price and the real exchange rate. However, we find virtually no impact of the real oil price on the real exchange rates of Norway and Saudi Arabia. The diverse exchange rate regimes cannot help in explaining the different empirical results on the impact of oil prices across countries, which instead may be due to other policy responses, namely the accumulation of net foreign assets and their sterilisation, and specific institutional characteristics. JEL Classification: F31, C22.
    Keywords: Real exchange rate, oil price, purchasing power parity, terms of trade, oil exporting countries.
    Date: 2007–12
  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.
    Date: 2007–08
  7. By: Abdou Kâ Diongue (Université Gaston Berger de Saint-Louis); Dominique Guégan (Centre d'Economie de la Sorbonne); Bertrand Vignal (EDF)
    Abstract: In this article, we investigate conditional mean and variance forecasts using a dynamic model following a k-factor GIGARCH process. We are particularly interested in calculating the conditional variance of the prediction error. We apply this method to electricity prices and test spot prices forecasts until one month ahead forecast. We conclude that the k-factor GIGARCH process is a suitable tool to forecast spot prices, using the classical RMSE criteria.
    Keywords: Conditional mean, conditional variance, forecast, electricity prices, GIGARCH process.
    JEL: C53
    Date: 2007–11
  8. By: Elitza Mileva; Nikolaus Siegfried
    Abstract: A recurring theme in recent years in the debate on the international role of currencies has been the possiblity of pricing oil in euro. This paper contributes to these debates by providing a detailed review of the empirical evidence regarding the market for crude oil and current oil invoicing practices. It introduces a network effect model to identify the conditions under which a parallel invoicing in different currencies would be possible. The paper also includes a simulation designed to illustrate the dynamics of the currency choice of oil invoicing.
    Date: 2007–12
  9. By: Carine Swartenbroekx (National Bank of Belgium, Microeconomic Information Department)
    Abstract: Like other network industries, the European gas supply industry has been liberalised, along the lines of what has been done in the United Kingdom and the United States, by opening up to competition the upstream and downstream segments of essential transmission infrastructure. The aim of this first working paper is to draw attention to some of the stakes in the liberalisation of the gas market whose functioning cannot disregard the network infrastructure required to bring this fuel to the consumer, a feature it shares with the electricity market. However, gas also has the specific feature of being a primary energy source that must be transported from its point of extraction. Consequently, opening the upstream supply segment of the market to competition is not so obvious in the European context, because, contrary to the examples of the North American and British gas markets, these supply channels are largely in the hands of external suppliers and thus fall outside the scope of EU legislation on the liberalisation and organisation of the internal market in gas. Competition on the downstream gas supply segment must also adapt to the constraints imposed by access to the grid infrastructure, which, in the case of gas in Europe, goes hand in hand with the constraint of dependence on external suppliers. Hence the opening to competition of upstream and downstream markets is not "synchronous", a discrepancy which can weaken the impact of liberalisation. Moreover, the separation of activities necessary for ensuring free competition in some segments of the market is coupled with major changes in the way the gas chain operates, with the appearance of new markets, new price mechanisms and new intermediaries. Starting out from a situation where gas supply was in the hands of vertically-integrated operators, the new regulatory framework that has been set up must, on the one hand, ensure that competitive forces can be given free rein, and, on the other hand, that free and fair competition helps the gas chain to operate coherently, at lower cost and in the interests of consumers, for whom the stakes are high as natural gas is an important input for many industrial manufacturing processes, even a "commodity" almost of basic necessity.
    Keywords: network industries, gas industry, gas utility, liberalisation, regulation, deregulation, market structure, European gas supply, oligopoly, OPEG
    JEL: D23 D43 L13 L43 L95 L97
    Date: 2007–11
  10. By: Emilie Alberola; Julien Pierre Chevallier
    Abstract: The price of European Union Allowances (EUAs) has been declining at far lower levels than expected during Phase I (2005-2007). Previous literature identifies among its main explanations over-allocation concerns, early abatement efforts in 2005 and possibly decreasing abatement costs in 2006. We advocate low allowance prices may also be explained by banking restrictions between 2007 and 2008 which undermine the ability of the EU ETS to provide an efficient price signal. Based on a Hotelling-type analysis, our results suggest EUA prices do not reflect adequately abatement costs. We also give evidence that the French ban on banking and the expected allowance scarcity at the end of Phase I computed by the Ellerman-Parsons ratio contribute to the explanation of low EUA prices. This situation may be interpreted as a sacrifice of the temporal flexibility offered to industrials in Phase I to give a chance to correct design inefficiencies and achieve an efficient price pattern leading to effective abatement efforts in Phase II.
    Keywords: Carbon emissions trading, EU ETS, Banking, Borrowing, Hotelling rule, Ellerman-Parsons ratio.
    JEL: Q28 Q52 Q58
    Date: 2007
  11. By: Gibson, Cyrus F.
    Keywords: IT-enabled change, IT governance, IT and senior executive leadership,
    Date: 2007–11–30
  12. By: Adriana Z. Fernandez; Robert W. Gilmer; Jonathon L. Story
    Abstract: This paper examines the impact of Clean Air Act Amendments of 1990 (CAAA) environmental regulations on U.S. motor gasoline import patterns. Following the damage to U.S. petroleum refining infrastructure from hurricanes Katrina and Rita, the federal government provided temporary relief for several weeks from so-called boutique fuel specifications designed to improve air quality in certain regions of the country. These temporary waivers increased marketers’ ability to sell gasoline originally destined for specific regional markets into a greater number of markets. We hypothesize that these same waivers also encouraged gasoline imports more than increased prices would have alone. We test our hypothesis using two analyses. The first consists of a simple transfer function analysis designed to separate price effects (and thus effects of refinery closures) from the effects of regulatory relief. The second analysis consists of a natural experiment comparing the primary recipient of regulatory relief—the Gulf Coast gasoline market— to the rest of the United States. Both analyses suggest that the CAAA-related specifications prevent a substantial amount of gasoline imports from entering the United States under normal circumstances.
    Date: 2007
  13. By: Junsang Nam; Mort Webster; Yosuke Kimura; Harvey Jeffries; William Vizuete; David T. Allen
    Abstract: High concentrations of ozone in the Houston/Galveston area are associated with industrial plumes of highly reactive hydrocarbons, mixed with NOx. The emissions leading to these plumes can have significant temporal variability, and photochemical modeling indicates that the emissions variability can lead to increases and decreases of 10-50 ppb, or more, in ozone concentrations. Therefore, in regions with extensive industrial emissions, accounting for emission variability can be important in accurately predicting peak ozone concentrations, and in assessing the effectiveness of emission control strategies. This work compares the changes in ozone concentrations associated with two strategies for reducing flare emissions in Houston, Texas. One strategy eliminates the highest emission flow rates, that occur relatively infrequently, and a second strategy reduces emissions that occur at a nearly constant level. If emission variability is accounted for in air quality modeling, these control scenarios are predicted to be much more effective in reducing the expected value of daily maximum ozone concentrations than if similar reductions in the mass of emissions are made and constant emissions are assumed. The change in the expected value of daily maximum ozone concentration per ton of emissions reduced, when emissions variability is accounted for, is 5-10 times the change predicted when constant (deterministic) inventories are used.
    Date: 2007–08
  14. By: Ekaterini Panopoulou and Theologos Pantelidis
    Abstract: We examine convergence in carbon dioxide emissions among 128 countries for the period 1960-2003 by means of a new methodology introduced by Phillips and Sul (Econometrica, 2007). Contrary to previous studies, our approach allows us to examine for evidence of club convergence, i.e. identify groups of countries that converge to different equilibria. Our results suggest convergence in per capita CO2 emissions among all the countries under scrutiny in the early years of our sample. However, there seems to be two separate convergence clubs in the recent era that converge to different steady states. Interestingly, we also find evidence of transitioning between the two convergence clubs suggesting either a slow convergence between the two clubs or a tendency for some countries to move from one convergence club to the other.
    Date: 2007–12–10
  15. By: Marina Tsygankova (Statistics Norway)
    Abstract: In the late 1990s, several proposals for a structural reform that would bring competition and market prices to the Russian gas industry were intensely debated. Splitting up Russian gas monopolist Gazprom into several producing companies was a considered option. In this paper, I examine theoretically and numerically how a split-up of Gazprom would affect Russian national welfare. Results show that under the current gas market structures in Europe and Russia, the split-up of Gazprom’s monopoly might not be beneficial for Russia. The market share of Russia in the European market is important in determining whether Gazprom’s dominance is supported under the national welfare criteria.
    Keywords: Russia; Natural gas; restructuring reform; market share; national welfare
    JEL: D43 L13 L11 L22
    Date: 2007–12
  16. By: Mort Webster; Junsang Nam; Yosuke Kimura; Harvey Jeffries; William Vizuete; David T. Allen
    Abstract: Ambient observations have indicated that high concentrations of ozone observed in the Houston/Galveston area are associated with plumes of highly reactive hydrocarbons, mixed with NOBxB, from industrial facilities. Ambient observations and industrial process data, such as mass flow rates for industrial flares, indicate that the VOCs associated with these industrial emissions can have significant temporal variability. To characterize the effect of this variability in emissions on ozone formation in Houston, data were collected on the temporal variability of industrial emissions or emission surrogates (e.g., mass flow rates to flares). The observed emissions variability was then used to construct region-wide emission inventories with variable industrial emissions, and the impacts of the variability on ozone formation were examined for two types of meteorological conditions, both of which lead to high ozone concentrations in Houston. The air quality simulations indicate that variability in industrial emissions has the potential to cause increases and decreases of 10-52 ppb (13-316%), or more, in ozone concentration. The largest of these differences are restricted to regions of 10-20 kmP2P, but the variability also has the potential to increase region wide maxima in ozone concentrations by up to 12 ppb.
    Date: 2007–08
  17. By: Viviana Fernández
    Abstract: In this article, we pursue to determine which mining firms have seen their stock returns become more sensitive to fluctuations in energy prices, over a time period predominated by the political turmoil caused by 9/11 and the subsequent invasion of Iraq. By resorting to wavelets and spatial statistics, we characterize the behavior of volatility and the degree of co-movement of the stock returns of ten leading mining firms operating in the Asia-Pacific region: Alcan Inc., Antofagasta, Barrick Gold Corp., BHP Billiton, International Nickel Ind., Peabody Energy, Phelps Dodge Corp, Rio Tinto plc., Teca Cominco Ltd., and Yanzhou Coal Mining Co.
    Date: 2007
  18. By: Matthew Kotchen; Michael Moore
    Abstract: This paper investigates how concern for the environment translates into predictable patterns of consumer behavior. Two types of behavior are considered. First, individuals who care about environmental quality may voluntarily restrain their consumption of goods and services that generate a negative externality. Second, individuals may choose to pay a price premium for goods and services that are more environmentally benign. A theoretical model identifies a symmetry between such voluntary restraint and a voluntary price premium that mirrors the symmetry between environmental policies based on either quantities (quotas) or prices (taxes). We test predictions of the model in an empirical study of household electricity consumption with introduction of a price-premium, green-electricity program. We find evidence of voluntary restraint and its relation to a voluntary price premium. The empirical results are consistent with the theoretical model of voluntary conservation.
    JEL: H23 Q3
    Date: 2007–12
  19. By: Severin Borenstein; Meghan Busse; Ryan Kellogg
    Abstract: Regulators and firms often use incentive schemes to attract skillful agents and to induce them to put forth effort in pursuit of the principals' goals. Incentive schemes that reward skill and effort, however, may also punish agents for adverse outcomes beyond their control. As a result, such schemes may induce inefficient behavior, as agents try to avoid actions that might make it easier to directly associate a bad outcome with their decisions. In this paper, we study how such caution on the part of individual agents may lead to inefficient market outcomes, focusing on the context of natural gas procurement by regulated public utilities. We posit that a regulated natural gas distribution company may, due to regulatory incentives, engage in excessively cautious behavior by foregoing surplus-increasing gas trades that could be seen ex post as having caused supply curtailments to its customers. We derive testable implications of such behavior and show that the theory is supported empirically in ways that cannot be explained by conventional price risk aversion or other explanations. Furthermore, we demonstrate that the reduction in efficient trade caused by the regulatory mechanism is most severe during periods of relatively high demand and low supply, when the benefits of trade would be greatest.
    JEL: L51 L95
    Date: 2007–12

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