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on Energy Economics |
| By: | Blanchard, Olivier J; Galí, Jordi |
| 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 labour markets, and (d) improvements in monetary policy. We conclude that all four have played an important role. |
| Keywords: | Great Moderation; Monetary policy credibility; Real wage rigidities; Sticky Prices |
| JEL: | E32 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6631&r=ene |
| By: | Elekdag, Selim; Lalonde, Rene; Laxton, Doug; Muir, Dirk; Pesenti, Paolo |
| Abstract: | We develop a five-region version (Canada, a group of oil exporting countries, the United States, emerging Asia and Japan plus the euro area) of the Global Economy Model (GEM) encompassing production and trade of crude oil, and use it to study the international transmission mechanism of shocks that drive oil prices. In the presence of real adjustment costs that reduce the short- and medium-term responses of oil supply and demand, our simulations can account for large endogenous variations of oil prices with large effects on the terms of trade of oil-exporting versus oil-importing countries (in particular, emerging Asia), and result in significant wealth transfers between regions. This is especially true when we consider a sustained increase in productivity growth or a shift in production technology towards more capital- (and hence oil-) intensive goods in regions such as emerging Asia. In addition, we study the implications of higher taxes on gasoline that are used to reduce taxes on labour income, showing that such a policy could increase world productive capacity while being consistent with a reduction in oil consumption. |
| Keywords: | DSGE models; Oil prices; World economy |
| JEL: | E66 F32 F47 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6700&r=ene |
| By: | Hernando Zuleta |
| Abstract: | We formulate and solve a model of factor saving technological improvement considering three factors of production: labor, capital and energy. The productive activities have three main characteristics: first, in order to use capital goods fi rms need energy; second, there are two sources of energy: non-exhaustible and exhaustible; third, capital goods can be of different qualities and the quality of these goods can be changed along two dimensions -reducing the need of energy or changing the source of energy used in the production process. The economy goes through three stages of development after industrialization. In the first, fi rms make use of exhaustible energy and the efficiency in the use of energy is constant. In the second stage, as the price of energy grows the efficiency in its use is increased. In the third stage, the price of exhaustible sources is so high that fi rms have incentives to use non-exhaustible sources of energy. During this stage the price of energy is constant. In this set up, the end of the oil age has level effects on consumption and output but it does not cause the collapse of the economic system. |
| Date: | 2008–02–29 |
| URL: | http://d.repec.org/n?u=RePEc:col:000092:004593&r=ene |
| By: | Guriev, Sergei; Kolotilin, Anton; Sonin, Konstantin |
| Abstract: | In this paper we study nationalizations in the oil industry around the world in 1960-2002. We show, both theoretically and empirically, that governments are more likely to nationalize when oil prices are high and when political institutions are weak. We consider a simple dynamic model of the interaction between a government and a foreign oil company. The government cannot commit to abstain from expropriation and the company cannot commit to pay high taxes. Even though nationalization is inefficient it does occur in equilibrium when oil prices are high. The model's predictions are consistent with the panel analysis of a comprehensive dataset on nationalizations in the oil industry since 1960. Nationalization is more likely to happen when oil prices are high and the quality of institutions is low even when controlling for country fixed effects. |
| Keywords: | nationalization; oil industry; property rights |
| JEL: | D23 L33 L71 P48 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6755&r=ene |
| By: | de Frutos, Maria-Angeles; Fabra, Natalia; Von der Fehr, Nils-Henrik M |
| Abstract: | Motivated by the regulatory debate in electricity markets, we seek to understand how market design affects market performance through its impact on investment incentives. For this purpose, we study a two-stage game in which firms choose their capacities under demand uncertainty prior to bidding into the spot market. We analyse a number of different market design elements, including (i) two commonly used auction formats, the uniform-price and discriminatory auctions, (ii) price-caps and (iii) bid duration. We find that, although the discriminatory auction tends to lower prices, this does not imply that investment incentives at the margin are poorer; indeed, under reasonable assumptions on the shape of the demand distribution, the discriminatory auction induces (weakly) stronger investment incentives than the uniform-price format. |
| Keywords: | electricity; investment; market design; regulatory reform; uniform price and discriminatory auctions |
| JEL: | D44 L10 L5 L94 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6626&r=ene |
| By: | Guido Pepermans; Bert Willems |
| Abstract: | This paper looks at the potential effect of partial ownership on the generation and the transmission sector of electricity markets. Ideally, in liberalized electricity markets, transmission is separated from generation. The transmission sector is a natural monopoly operated by a regulated transmission firm, while the generation sector is open for competition. This paper assumes that the transmission firm is not very well regulated and behaves strategically, that there is oligoplistic competition in generation, and that one of the generators, the incumbent, owns part of the transmission firm. We then study the effect of this partial ownership in a numerical model which is calibrated on the Belgian market. The model captures two kinds of partial ownership interactions: passive ownership, where the generation firm simply cashes its share of the transmission firm’s profit without having a direct impact on its decision process, and active ownership, where the generator has a direct influence on the transmission firm’s decision process. It is shown that ownership of the network operator by the incumbent generator reduces double marginalization (= welfare improving) but also reduces entry in the generation market (= welfare decreasing). |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0503&r=ene |
| By: | andrés M. Alonso; Carolina Garcia-Martos; Julio Rodriguez; Maria Jesus Sanchez |
| Abstract: | Year-ahead forecasting of electricity prices is an important issue in the current context of electricity markets. Nevertheless, only one-day-ahead forecasting is commonly tackled up in previous published works. Moreover, methodology developed for the short-term does not work properly for long-term forecasting. In this paper we provide a seasonal extension of the Non-Stationary Dynamic Factor Analysis, to deal with the interesting problem (both from the economic and engineering point of view) of long term forecasting of electricity prices. Seasonal Dynamic Factor Analysis (SeaDFA) allows to deal with dimensionality reduction in vectors of time series, in such a way that extracts common and specific components. Furthermore, common factors are able to capture not only regular dynamics (stationary or not) but also seasonal one, by means of common factors following a multiplicative seasonal VARIMA(p,d,q)×(P,D,Q)s model. Besides, a bootstrap procedure is proposed to be able to make inference on all the parameters involved in the model. A bootstrap scheme developed for forecasting includes uncertainty due to parameter estimation, allowing to enhance the coverage of forecast confidence intervals. Concerning the innovative and challenging application provided, bootstrap procedure developed allows to calculate not only point forecasts but also forecasting intervals for electricity prices. |
| Keywords: | Dynamic factor analysis, Bootstrap, Forecasting, Confidence intervals |
| JEL: | C32 C53 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wsrepe:ws081406&r=ene |
| By: | Bert Willems |
| Abstract: | This paper studies the market power of generators in the electricity market when transmission capacity is scarce. We consider a simple world of two generators providing electricity to their consumers through a single transmission line. In the literature, different Cournot equilibrium concepts have been developed. This paper applies these concepts and explains the implicit assumptions on the behavior of the System Operator made in those papers. We show that these implicit assumptions are not realistic. For an alternative role of the System Operator, we solve the Cournot equilibrium and compare the outcome. Furthermore, we show that the axiomatic equilibrium concept of Smeers and Wei (1997) is linked with the model of Oren (1997) and can also be defined as a Nash Equilibrium. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0024&r=ene |
| By: | Rajeev Dhawan; Karsten Jeske; Pedro Silos |
| Abstract: | We study how total factor productivity (TFP), energy prices, and the Great Moderation are linked. First we estimate a joint stochastic process for the energy price and TFP and establish that until the second quarter of 1982, energy prices negatively affected productivity. This spillover has since disappeared. Second, we show that within the framework of a dynamic stochastic general equilibrium model, the disappearance of this energy-productivity spillover generates the significantly lower volatility of output and its components. Specifically, the change in the joint stochastic process accounts for close to 70 percent of the moderation in output volatility. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2008-11&r=ene |
| By: | Reilly, John; Paltsev, Sergey |
| Abstract: | *Chapter 8 of the forthcoming book "Economic Analysis of Land Use in Global Climate Change Policy," edited by Thomas W. Hertel, Steven Rose, and Richard S.J. Tol. We describe an approach for incorporating biomass energy production and competition for land into the MIT Emissions Prediction and Policy Analysis (EPPA) model, a computable general equilibrium model of the world economy. We examine multiple scenarios where greenhouse gas emissions are abated or not. The global increase in biomass energy use in a reference scenario (without climate change policy) is about 30 EJ/year by 2050 and about 180 EJ/year by 2100. This deployment is driven primarily by a world oil price that in the year 2100 is over 4.5 times the price in the year 2000. In the scenarios of stabilization of greenhouse gas concentrations, the global biomass energy production increases to 50-150 EJ/year by 2050 and 220-250 EJ/year by 2100. The estimated area of land required to produce 180-250 EJ/year is about 1 Gha, which is an equivalent of the current global cultivated area. In the USA we find that under a stringent climate policy biofuels could supply about 55% of USA liquid fuel demand, but if the biofuels were produced domestically the USA would turn from a substantial net exporter of agricultural goods ($20 billion) to a large net importer ($80 billion). The general conclusion is that the scale of energy use in the USA and the world relative to biomass potential is so large that a biofuel industry that was supplying a substantial share of liquid fuel demand would have very significant effects on land use and conventional agricultural markets. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gta:workpp:2607&r=ene |
| By: | Bosetti, Valentina; Carraro, Carlo; Massetti, Emanuele |
| Abstract: | Most analyses of the Kyoto flexibility mechanisms focus on the cost effectiveness of "where" flexibility (e.g. by showing that mitigation costs are lower in a global permit market than in regional markets or in permit markets confined to Annex 1 countries). Less attention has been devoted to "when" flexibility, i.e. to the benefits of allowing emission permit traders to bank their permits for future use. In the model presented in this paper, banking of carbon allowances in a global permit market is fully endogenised, i.e. agents may decide to bank permits by taking into account their present and future needs and the present and future decisions of all the other agents. It is therefore possible to identify under what conditions traders find it optimal to bank permits, when banking is socially optimal, and what are the implications for present and future permit prices. We can also explain why the equilibrium rate of growth of permit prices is likely to be larger than the equilibrium interest rate. Most importantly, this paper analyses the efficiency and distributional consequences of allowing markets to optimally allocate emission permits across regions and over time. The welfare and distributional effects of an optimal intertemporal emission trading scheme are assessed for different initial allocation rules. Finally, the impact of banking on carbon emissions, technological progress, and optimal investment decisions is quantified and the incentives that banking provides to accelerate technological innovation and diffusion are also discussed. Among the many results, we show that not only does banking reduce abatement costs, but it also increases the amount of GHG emissions abated in the short-term. It should therefore belong to all emission trading schemes under construction. |
| Keywords: | Banking; Climate Policy; Emission Trading; Flexibility |
| JEL: | C72 H23 Q25 Q28 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6652&r=ene |
| By: | Costa, Ionara (UNU-MERIT); Doranova, Asel (UNU-MERIT); Eenhoorn, Geert-Jan (World Wide Recycling) |
| Abstract: | This paper analyses the participation of firms without GHG emission liabilities as technology providers in CDM and JI projects, the flexibility mechanisms of the Kyoto Protocol. It argues that the motivations for those firms to engaging in CDM and JI projects is based on market stimuli beyond those related to the emission market itself. Instead, their motivations are largely associated with search for new markets where their technological resources and expertise can be exploited. The analysis is based on three firms from the Dutch waste management industry. These cases suggest that the Kyoto's mechanisms compensate to some extent the weakness of the underdeveloped waste management sector in developing and transition economies. |
| Keywords: | Waste Management Industry, Kyoto Protocol, International Expansion, Firm-specific advantages |
| JEL: | L19 L22 L59 L98 Q28 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2008020&r=ene |
| By: | Eickhout, Bas; van Meijl, Hans; Tabeau, Andrzej; Stehfest, Elke |
| Abstract: | *Chapter 9 of the forthcoming book "Economic Analysis of Land Use in Global Climate Change Policy," edited by Thomas W. Hertel, Steven Rose, and Richard S.J. Tol. The goal of this Chapter is to study the complex interaction between agriculture, economic growth and the environment, given future uncertainties. We combine economic concepts and biophysical constraints in one consistent modeling framework to be able to quantify and analyze the long-term socio-economic and environmental consequences of different scenarios. Here, we present the innovative methodology of coupling an economic and a biophysical model to combine state of the art knowledge from economic and biophysical sources. First, a comprehensive representation of the agricultural and land markets is required in the economic model. Therefore we included a land demand structure to reflect the degree of substitutability of types of land-use types and we included a land supply curve to include the process of land conversion and land abandonment. Secondly, the adapted economic model (LEITAP) is linked to the biophysical-based integrated assessment model IMAGE allowing to feed back spatially and temporarily varying land productivity to the economic framework. Thirdly, the land supply curves in the economic model are parameterized by using the heterogeneous information of land productivity from IMAGE. This link between an economic and biophysical model benefits from the strengths of both models. The economic model captures features of the global food market, including relations between world regions, whereas the bio-physical model adds geographical explicit information on crop growth within each world region. An illustrative baseline analyses shows the environmental consequences of the default baseline and a sensitivity analyses is performed with regard to the land supply curve. Results indicate that economic and environmental consequences are very dependent on whether a country is land scarce or land abundant. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gta:workpp:2608&r=ene |
| By: | Ronneberger, Kerstin; Berrittella, Maria; Boselle, Francesco; Tol, Richard |
| Abstract: | *Chapter 12 of the forthcoming book "Economic Analysis of Land Use in Global Climate Change Policy," edited by Thomas W. Hertel, Steven Rose, and Richard S.J. Tol. In this paper the global agricultural land use model KLUM is coupled to an extended version of the computable general equilibrium model (CGE) GTAP in order to consistently assess the integrated impacts of climate change on global cropland allocation and its implications for economic development. The methodology is innovative as it introduces dynamic economic land-use decisions based also on the biophysical aspects of land into a state-of the-art CGE; it further allows the projection of resulting changes in cropland patterns at a spatially explicit level. A convergence test and illustrative future simulations underpin the robustness analysis and serve to highlight the potential of the coupled system. Reference simulations with the uncoupled models emphasize the impact and relevance of the coupling; the results of coupled and uncoupled simulations can differ by several hundred percent. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gta:workpp:2611&r=ene |
| By: | Golub, Alla; Hertel, Thomas; Sohngen, Brent |
| Abstract: | *Chapter 10 of the forthcoming book "Economic Analysis of Land Use in Global Climate Change Policy," edited by Thomas W. Hertel, Steven Rose, and Richard S.J. Tol. The goal of this work is to investigate land-use change at the global scale over the long run - particularly in the context of analyzing the fundamental drivers behind land-use related GHG emissions. For this purpose, we identify the most important drivers of supply and demand for land. On the demand side, we begin with a dynamic general equilibrium (GE) model that predicts economic growth in each region of the world, based on exogenous projections of population, skilled and unskilled labor and technical change. Economy-wide growth is, in turn, translated into consumer demand for specific products using an econometrically estimated, international cross-section, demand system that permits us to predict the pattern of future consumer demands across the development spectrum. This is particularly important in the fast-growing, developing countries, where the composition of consumer demand is changing rapidly. These countries also account for an increasing share of global economic growth and greenhouse gas emissions. Consumer demand is translated into derived demands for land through a set of sectoral production functions that differentiate the demand for land by Agro-Ecological Zone (AEZ). |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gta:workpp:2609&r=ene |
| By: | Lee, Huey-Lin; Hertel, Thomas; Rose, Steven; Avetisyan, Misak |
| Abstract: | *Chapter 4 of the forthcoming book "Economic Analysis of Land Use in Global Climate Change Policy," edited by Thomas W. Hertel, Steven Rose, and Richard S.J. Tol |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gta:workpp:2603&r=ene |
| By: | Monfreda, Chad; Ramankutty, Navin; Hertel, Thomas |
| Abstract: | *Chapter 2 of the forthcoming book "Economic Analysis of Land Use in Global Climate Change Policy," edited by Thomas W. Hertel, Steven Rose, and Richard S.J. Tol |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gta:workpp:2601&r=ene |
| By: | Sands, Ronald; Kim, Man-Keun |
| Abstract: | *Chapter 7 of the forthcoming book "Economic Analysis of Land Use in Global Climate Change Policy," edited by Thomas W. Hertel, Steven Rose, and Richard S.J. Tol. The Agriculture and Land Use (AgLU) model was developed at Pacific Northwest National Laboratory to assess the impact of a changed climate or a climate policy on land use, carbon emissions from land use change, production of field crops, and production of biofuels. The level of analysis to date is relatively aggregate, at the global or national scale, but the model captures important interactions such as endogenous land use change in response to a climate policy and international trade in agricultural and forest products. This paper describes exploratory efforts to extend the conceptual framework, including geographical disaggregation of land within the United States, improving the dynamics of the forestry sector, valuing carbon in forests, and land requirements for biofuel crops. Conceptual development is done within a single-country, steady-state version of AgLU. Land use is simulated with carbon prices from zero to $200 per t-C, with forests, biofuels, and food crops competing simultaneously for land. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gta:workpp:2606&r=ene |
| By: | Sohngen, Brent; Golub, Alla; Hertel, Thomas |
| Abstract: | *Chapter 11 of the forthcoming book "Economic Analysis of Land Use in Global Climate Change Policy," edited by Thomas W. Hertel, Steven Rose, and Richard S.J. Tol |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gta:workpp:2610&r=ene |
| By: | Hertel, Thomas; Lee, Huey-Lin; Rose, Steven; Sohngen, Brent |
| Abstract: | *Chapter 6 of the forthcoming book "Economic Analysis of Land Use in Global Climate Change Policy," edited by Thomas W. Hertel, Steven Rose, and Richard S.J. Tol |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gta:workpp:2605&r=ene |
| By: | Rose, Steven; Lee, Huey-Lin |
| Abstract: | *Chapter 5 of the forthcoming book "Economic Analysis of Land Use in Global Climate Change Policy," edited by Thomas W. Hertel, Steven Rose, and Richard S.J. Tol |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gta:workpp:2604&r=ene |
| By: | Stef Proost; Kurt Van Dender |
| Abstract: | In this paper we compare the effectiveness and welfare effects of alternative fuel efficiency, environmental and transport policies for a given urban area. The urban transport activities are represented as a set of interrelated markets, one for each mode of transport and type of vehicle. For each market, four different marginal external costs are computed in the present equilibrium: air pollution, accidents, noise and congestion. The gap between marginal social costs and prices shows that congestion and unpaid parking are the dominant sources of inefficiencies. Air pollution costs are significant as well. The effects of a typical air quality policy (regulation of car emission technology) and two typical fuel based policies (minimum fuel efficiency policy and fuel taxes) are compared with the effects of three alternative transport policies (full external cost pricing, cordon pricing, parking charges). Regulation of emission technology and of fuel efficiency do not necessarily lead to welfare gains, whereas transport pricing policies yield substantial gains for the urban area under study. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces9831&r=ene |
| By: | Marc Chesney (University of Zurich and Swiss Finance Institute); Luca Taschini (University of Zurich) |
| Abstract: | Market mechanisms are increasingly being used as a tool for allocating somewhat scarce but unpriced rights and resources, such as air and water. Tradable permits have emerged as the most cost–effective measure leading to the emergence of both nationwide (SO2) and supranational (CO2) emission permits markets. By means of the dynamic optimization of companies which are covered by such environmental regulations, we develop an endogenous model for the emission permit spot price dynamics that also accounts for the presence of asymmetric information. In the model, the companies are characterized by exogenous pollution processes that, in the short term, are the underlying of the permit price dynamics. An extensive numerical exercise is carried out for the CO2 permit price in the European market. We introduce for the first-time in the current literature a CO2 option pricing model comparison. The option pricing method can be used for hedging purposes and for pricing CO2-linked projects and investments. |
| Keywords: | Asymmetric Information, Emission Allowances, Endogenous Price Dynamics, Environmental Finance. |
| JEL: | C02 C61 C63 C65 G13 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp0802&r=ene |