nep-ene New Economics Papers
on Energy Economics
Issue of 2008‒04‒29
fifteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. An evolutionary perspective on the economics of energy consumption: the crucial role of habits. By Kevin Marechal
  2. Energy security with a high external dependence: the strategies of Japan and South Korea By Bustelo, Pablo
  3. Biofuels for all? Understanding the Global Impacts of Multinational Mandates By Hertel, Thomas; Tyner, Wally; Birur, Dileep
  4. Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry, The By Du, Xiaodong; Hayes, Dermot J.
  5. The Indirect Land Use Impacts of U.S. Biofuel Policies: The Importance of Acreage, Yield, and Bilateral Trade Responses By Keeney, Roman; Hertel, Thomas
  6. Oil sector and the petroleum industry in Iraq between the painful reality and future prospects By Alrubaie, falah.K.Ali
  7. Oil and the U.S. macroeconomy: an update and a simple forecasting exercise By Kevin L. Kliesen
  8. Gasoline prices jump up on Mondays: An outcome of aggressive competition? By Foros, Øystein; Steen, Frode
  9. Hartwick's rule and maximin paths when the exhaustible resource has an amenity value By Antoine D'Autume; Katheline Schubert
  10. Oil Price Shocks, Rigidities and the Conduct of Monetary Policy: Some Lessons from a New Keynesian Perspective By Romain Duval; Lukas Vogel
  11. Composition of Electricity Generation Portfolios, Pivotal Dynamics and Market Prices By Albert Banal-Estanol; Augusto Rupérez-Micola
  12. Pumping Water to Compete in Electricity Markets By CRAMPES Claude; MOREAUX Michel
  13. Optimal Nonlinear Pricing, Bundling Commodities and Contingent Services By Marion PODESTA; Jean-Christophe POUDOU
  14. On Environmental Subsidy/Tax Policy with Heterogeneous Consumers: An Application of an Environmentally Differentiated Duopoly Model By Tsuyoshi Toshimitsu
  15. Should the regulator allow citizens to participate in tradable permits markets? By Olivier ROUSSE

  1. By: Kevin Marechal (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and CEESE, Université Libre de Bruxelles.)
    Abstract: The climate change issue imposes us not only to change the way we produce and convert energy but also to modify current energy consumption patterns. A substantial body of literature has shown that our behaviour is often guided by habits. The existence of habits - not fully conscious forms of behaviour - is important as it contradicts rational choice theory. Their presence thus calls for the setting of new instruments as it is difficult to expect consumers to be capable of exercising control over their consumption of energy in reaction to given incentives. This is further increased in our perspective where the current carbon-based Socio-Technical Systems constraints and shapes consumers’ choices through structural, cultural, social and institutional forces. Habits being potentially “counterintentional”, they can be considered as a form of behavioural lock-in that may explain continued increase of energy consumption. Policies should thus specifically address the performance context of habits.
    Keywords: Habits, Evolutionary Economics, Energy consumption, Lock-in
    JEL: D11 Q40 Q54
    Date: 2008–04
  2. By: Bustelo, Pablo
    Abstract: Besides China, Northeast Asia includes other important energy consumers: Japan and South Korea. These OECD-member economies are highly dependent on imports (which account for more than 80% of domestic consumption in both cases), especially of oil and natural gas, and their energy security has been subjected to considerable threats in recent years. This paper briefly reviews the energy situation and prospects of both countries. It also presents an analysis of Tokyo’s and Seoul’s strategic responses to the (perceived o real) worsening of their energy security, in which the strenghts and weaknesses of each approach are highlighted. Finally, the paper lists some of the lessons that other highly energy import-dependent economies might extract from the experience of Japan and South Korea.
    Keywords: Japan; South Korea; energy system; energy dependence; energy security; energy policy and strategy; international rivalry and cooperation
    JEL: Q48 O53 Q40
    Date: 2008–04–14
  3. By: Hertel, Thomas; Tyner, Wally; Birur, Dileep
    Abstract: The recent rise in world oil prices, coupled with heightened interest in the abatement of greenhouse gas emissions, has led to a sharp increase in domestic biofuels production around the world. Previous authors have devoted considerable attention to the impacts of these policies on a country-by-country basis. However, there are also strong interactions among these programs, as they compete in world markets for feedstocks and ultimately for a limited supply of global land. In this paper, we evaluate the interplay between two of the largest biofuels programs, namely the renewable fuel mandates in the US and the EU. We examine how the presence of each of these programs influences the other, and also how their combined impact influences global markets and land use around the world. We begin with an analysis of the origins of the recent bio-fuel boom, using the historical period from 2001-2006 for purposes of model validation. This was a period of rapidly rising oil prices, increased subsidies in the EU, and, in the US, there was a ban on the major competitor to ethanol for gasoline additives. Our analysis of this historical period permits us to evaluate the relative contribution of each of these factors to the global biofuel boom. We also use this historical simulation to establish a 2006 benchmark biofuel economy from which we conduct our analysis of future mandates. Our prospective analysis of the impacts of the biofuels boom on commodity markets focuses on the 2006-2015 time period, during which existing investments and new mandates in the US and EU are expected to substantially increase the share of agricultural products (e.g., corn in the US, oilseeds in the EU, and sugar in Brazil) utilized by the biofuels sector. In the US, this share could more than double from 2006 levels, while the share of oilseeds going to biodiesel in the EU could triple.
    Date: 2008
  4. By: Du, Xiaodong; Hayes, Dermot J.
    Abstract: Using pooled regional time-series data and panel data estimation, we quantify the impact of monthly ethanol production on monthly retail regular gasoline prices. This analysis suggests that the growth in ethanol production has caused retail gasoline prices to be $0.29 to $0.40 per gallon lower than would otherwise have been the case. The analysis shows that the negative impact of ethanol on gasoline prices varies considerably across regions. The Midwest region has the biggest impact, at $0.39/gallon, while the Rocky Mountain region had the smallest impact, at $0.17/gallon. The results also indicate that ethanol production has significantly reduced the profit margin of the oil refinery industry. The results are robust with respect to alternative model specifications.
    Keywords: crack spread, crude oil prices, ethanol, gasoline prices.
    Date: 2008–04–24
  5. By: Keeney, Roman; Hertel, Thomas
    Abstract: Recent work has highlighted agricultural land conversion as a significant debit in the greenhouse gas accounting of ethanol as an alternative fuel. This work has at the same time sparked considerable debate on the role of crop yield growth as a means of avoiding rapid land conversion. We examine the agricultural land use impacts of mandate driven ethanol demand increases in the United States in a formal economic equilibrium framework which allows us to examine the importance of yield price relationships. We find that the standard assumption of trend yield growth is likely restrictive for analysis of equilibrium response to significant demand increases for fuel feedstocks. Furthermore, we identify both the acreage response and bilateral trade specification of a multi-country model as important sources of variability (in terms of parametric uncertainty) in predicting global land use change from the biofuels boom.
    Date: 2008
  6. By: Alrubaie, falah.K.Ali
    Abstract: Iraq today is a group of oil states funny and melodramatic paradox at the same time, despite what this country owned by huge oil reserves, has failed so far, the administration of the Gaza crude oil production to reach operational productivity to a level equivalent to the possibility of reserves. Also a petroleum industry is not less tragic, do believe that the country was one of the first oil-producing countries in the world and its national experience high over the rest of the region in the oil industry, we see today importer of petroleum products and has a disastrous deficit in those derivatives. Result of the terrorist operations and security turmoil that occurred after the American occupation in April 2003, oil refineries stopped working at full capacity, or half of their capacities sometimes, and led to a situation of almost total deficit of supplies of oil derivatives, forcing the government to rely on the import of those products of the neighboring countries. that those conditions can be met only by the presence of a strong government has a clear economic vision for the future of the oil industry in Iraq, and the results of the study showed that the future developments in the oil sector will remain linked to the fate of the development process and the reconstruction of the Iraqi economy, which in turn linked, the extent of success in the national reconciliation and the formulation of the national Iraqi political project based on democracy, development and national interest of common interests and away from the narrow ethnic and sectarian Without achieving those goals, it will be difficult to get the petroleum industry and the Iraqi economy of this long dark tunnel. After solving this problem will be easy to start in the implementation of actions required to complete the process of reconstruction which includes the reconstruction and rehabilitation of the oil fields and installations and re-establish the infrastructure destroyed in Iraq, an end to corruption and smuggling common in several regions, the dimensions of the petroleum industry on the impacts and political pressures, the founding National Oil Company as an interference in a federal Conventions regarding the operations of oil sector development and use of natural gas on a large scale in the broader economic sectors, as well as new refining capacities to meet the needs of domestic consumption and for export , Encourage Iraqi private sector and expanding its role in the petroleum industry, accelerating the issuance of oil and gas law , Act as legislation gives federal oil trust in the possibility of foreign investment in the oil and gas sector a necessity that should be met for the advancement of the oil sector suffering.
    Keywords: Oil sector and the petroleum industry in Iraq Oil sector and the petroleum industry in Iraq
    JEL: Q43
    Date: 2005–03–02
  7. By: Kevin L. Kliesen
    Abstract: Recently, some analysts and economists had warned that the U.S. economy faces a much higher risk of falling into a recession should the price of oil rise to $100 per barrel or more. In February 2008, spot crude oil prices closed above $100 per barrel for the first time ever, and they have since climbed even further. Meanwhile, according to some surveys of economists, there is a high probability that a recession in the United States began in late 2007 or early 2008. Although the findings in this paper are consistent with the view that the U.S. economy has become much less sensitive to large changes in oil prices, a simple forecasting exercise reveals that a permanent increase in the price of crude oil to $150-per barrel-by the end of 2008 would have a significant negative effect on the growth rate of real GDP in the short run. However, the exercise also predicts such an increase in oil prices would have minimal effect on future inflation.
    Keywords: Petroleum products - Prices ; Economic conditions
    Date: 2008
  8. By: Foros, Øystein; Steen, Frode
    Abstract: This paper examines Norwegian gasoline pump prices using daily station-specific observations from March 2003 to March 2006. Whereas studies that have analyzed similar price cycles in other countries find support for the Edgeworth cycle theory (Maskin and Tirole, 1988), we demonstrate that Norwegian gasoline price cycles involve a form of coordinated behavior. We also show that gasoline prices follow a fixed weekly pattern, with prices increasing significantly every Monday at noon, and that gasoline companies appear to use the recommended price as a coordination device with a fixed link between the retail and recommended prices. Moreover, the weekly pattern changed in April 2004; whereas Thursday had been the high-price day, Monday now became the high-price day. The price–cost margin also increased significantly after the weekly pattern changed in April 2004.
    Keywords: gasoline; intertemporal price discrimination; price coordination
    JEL: D40 L11 L42
    Date: 2008–04
  9. By: Antoine D'Autume (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I); Katheline Schubert (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I)
    Abstract: This paper studies the maximin paths of the canonical Dasgupta-Heal-Solow model when the stock of natural capital is a direct argument of well-being, besides consumption. Hartwick's rule then appears as an efficient tool to characterize solutions in a variety of settings. We start with the case without technical progress. We obtain an explicit solution of the mmaximin problem in the case where production and utility are Cobb-Douglas. When the utility function is CES with a low elasticity of substitution between consumption and natural capital, we show taht it is optimal to preserve forever a critical level of natural capital, determined endogeneously. We then study how technical progress affects the optimal maximin paths, in the Cobb-Douglas utility case. On the long run path of the economy capital, production and consumption grow at a common constant rate, while the resource stock decreases at a constant rate and is therefore completely depleted in the very long run. A higher amenity value of the resource stock leads to faster economic growth, but to a lower long run rate of depletion. We then develop a complete analysis of the dynamics of the maximin problem when the sole source of well-being is consumption, and provide a numerical resoultion of the model with resource amenity. The economy consumes, produces and invests less in the short run if the resource has an amenity value than if doesn't whereas it is the contrary in the medium and long runs. However, and without surprise, the resource stock remains for ever higher with resource amenity than without.
    Keywords: Exhaustible resources, sustainability, Hartwick's rule.
    Date: 2008–04
  10. By: Romain Duval; Lukas Vogel
    Abstract: The strong and sustained rise in oil prices observed in recent years poses a challenge to monetary policy and its ability to simultaneously achieve low inflation and stable output. Against this background, the paper studies monetary policy in a small open economy New Keynesian DSGE model including oil as a production input and a component of final demand. It investigates the performance of alternative price level definitions, notably headline and core CPI, in standard interest rate rules with respect to output and inflation stabilisation. The analysis puts special emphasis on the impact of price and real wage rigidity and their interaction on the policy trade-off induced by the oil price shock. While the degree of price rigidity alone is found to have little impact on the shock transmission and generates only small differences between alternative monetary strategies, the simulations suggest a more important role for real wage stickiness. Real wage stickiness triggers second round effects and complicates stabilisation whatever the policy rule. A focus on core inflation tends to limit the contraction of output in this context. The results also point to some interaction between nominal price and real wage rigidities. In the presence of real wage rigidity, greater price flexibility is found to be destabilising, as it amplifies the initial inflation effect of shocks, thereby triggering a stronger monetary policy response and a larger output effect. <P>Chocs pétroliers, rigidités et conduite de la politique monétaire : quelques leçons tirées d’une perspective néo-keynésienne <BR>La hausse forte et persistante des prix pétroliers au cours des années passées constitue un défi pour la politique monétaire et sa capacité à stabiliser simultanément l’inflation et la production. Dans ce contexte, ce document étudie le comportement de la politique monétaire dans un modèle DSGE néo-keynésien d’une petite économie ouverte, incluant le pétrole à la fois comme bien de consommation final et comme facteur de production. L’analyse met l’accent sur la performance de définitions alternatives de l’indice des prix, notamment des indices de prix courant et sous-jacent, dans des règles de politique monétaire courantes, en matière de stabilisation du niveau de production et de l’inflation. En particulier, l’analyse met en évidence l’impact des rigidités de prix et de salaire réel, ainsi que de leur interaction, sur l’arbitrage engendré par le choc pétrolier. Tandis que le degré de rigidité des prix seul a peu d’effet sur la transmission des chocs et n’engendre que des écarts mineurs entre différentes stratégies de politique monétaire, les simulations suggèrent un impact plus important de la rigidité des salaires réels. La rigidité des salaires réels entraîne des effets de second tour et complique la stabilisation quelle que soit la règle de politique monétaire. Cibler l’inflation sous-jacente tend à limiter la contraction du niveau de production dans ce contexte. En outre, les résultats suggèrent une interaction entre rigidité des prix nominaux et rigidité des salaires réels. Pour un degré de rigidité donné des salaires réels, une forte flexibilité des prix apparait déstabilisatrice car elle amplifie l’effet initial du choc sur l’inflation, ce qui amplifie la réaction de politique monétaire et, ce faisant, entraîne une variation plus forte du niveau de production.
    Keywords: monetary policy, politique monétaire
    JEL: E30 F41 Q43
    Date: 2008–04–08
  11. By: Albert Banal-Estanol; Augusto Rupérez-Micola
    Abstract: We use a simulation model to study how the diversification of electricity generation portfolios influences wholesale prices. We find that technological diversification generally leads to lower market prices but that the relationship is mediated by the supply to demand ratio. In each demand case there is a threshold where pivotal dynamics change. Pivotal dynamics pre- and post-threshold are the cause of non-linearities in the influence of diversification on market prices. The findings are robust to our choice of behavioural parameters and match close-form solutions where those are available.
    Keywords: Electricity, market power, simulations, technology diversification
    Date: 2007–11
  12. By: CRAMPES Claude; MOREAUX Michel
    Date: 2008–04
  13. By: Marion PODESTA; Jean-Christophe POUDOU
    Abstract: In this paper, we propose to analyze optimal nonlinear pricing when a firm offers in a bundle a commodity and a contingent service. The paper studies a mechanism design where all private information can be captured in a single scalar variable in a monopoly context. We show that to propose the package for commodity and service is less costly for the consumer, the firm has lower consumers rent than the situation where it sells their good and contingent service under an independent pricing strategy. In fact, the possibility to use price discrimination via the supply of package is dominated by the fact that it is costly for the consumer to sign two contracts. Bundling energy and a contingent service is a profitable strategy for a energetician monopoly practising optimal nonlinear tariff. We show that the rates of the energy and the contingent service depend to the optional character of the contingent service and depend to the degree of complementarity between commodities and services.
    Keywords: Bundling, Nonlinear pricing, Energy market
    JEL: D42 L12 Q4
    Date: 2008
  14. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: We apply a model of an environmentally differentiated duopoly to the analysis of environmental policy in the form of a subsidy/tax on consumers based on emission levels of products. More specifically, we consider environmental and welfare effects of subsidizing consumers who purchase environmental-friendly goods such as hybrid vehicles. Focusing on types of market coverage by heterogeneous consumers, we examine the issue in the cases of a Bertrand and a Cournot duopoly. In the case of full market coverage with a Bertrand duopoly, an environmental subsidy improves the environment and is socially optimal. However, in the case of partial market coverage, irrespective of mode of competition, the optimal policy depends on the magnitude of the marginal social valuation of environmental damage. That is, if the marginal social valuation of environmental damage is sufficiently large (small), an environmental tax (subsidy) is optimal. Furthermore, in the Bertrand duopoly case, the effect of subsidy on the environment is ambiguous, whereas in the Cournot duopoly case, the subsidy degrades the environment.
    Keywords: Environmentally differentiated product, Environmental subsidy/tax, Green market, Bertrand and Cournot duopoly
    JEL: D43 H23 L13
    Date: 2008–04
  15. By: Olivier ROUSSE
    JEL: Q50
    Date: 2008

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