nep-ene New Economics Papers
on Energy Economics
Issue of 2008‒06‒13
twenty papers chosen by
Roger Fouquet
Imperial College, UK

  1. Hot Issue and Burning Options in Waste Management: A Social Cost Benefit Analysis of Waste-to-Energy in the UK. By Jamasb, T.; Kiamil, H.; Nepal, R.
  2. Electrifying Integration: Electricity Production And The South-East Europe Regional Energy Market By Hooper, E.; Medvedev, A.
  3. Modelling the costs of non-conventional oil: A case study of Canadian bitumen By Méjean, A.; Hope, C.
  4. Wide and Narrow Approaches in Climate Change Policies: The Case of Spain By Miguel Rodríguez; Xavier Labandeira
  5. Financing Capture Ready Coal-Fired Power Plants In China By Issuing Capture Options By Liang, X.; Reiner, D.; Gibbins, J.; Li, J.
  6. Modelling the Energy Demand of Households in a Combined Top Down/Bottom Up Approach By Kurt Kratena; Ina Meyer; Michael Wüger
  8. Carbon Labelling and Low Income Country Exports: An Issues Paper By Brenton, Paul; Edwards-Jones, Gareth; Jensen, Michael
  9. Promoting clean technologies: The energy market structure crucially matters By Théophile T. Azomahou; Raouf Boucekkine; Phu Nguyen-Van
  10. Oil Price Shocks, Macroeconomics Stability and Welfare in a Small Open Economy By Deren Unalmis, Ibrahim Unalmis and Derya Filiz Unsal
  11. Rural Electrification in India: Economic and Institutional aspects of Renewables By Cust, J.; Singh, A.; Neuhoff, K.
  12. Incorporating GHG Emission Costs in the Economic Appraisal of Projects Supported by State Development Agencies By Richard S. J. Tol; Seán Lyons
  13. Localized Innovation, Localized Diffusion and the Environment: An Analysis of CO2 Emission Reductions by Passenger Cars, 2000-2007 By Los, Bart; Verspagen, Bart
  14. Privatising national oil companies: Assessing the impact on firm performance By Wolf, C.; Pollitt, M.G.
  15. Are Daily and Weekly Load and Spot Price Dynamics in Australia’s National Electricity Market Governed by Episodic Nonlinearity? By Phillip Wild; Melvin J. Hinich; John Foster
  16. How to Determine whether Regional Markets are Integrated? Theory and Evidence from European Electricity Markets By Georg Gebhardt; Felix Höffler
  17. A Moral Approach to Global Warming Policy By Seo, S. Niggol
  18. Productivity and Efficiency of US Gas Transmission Companies: A European Regulatory Perspective By Jamasb, T.; Pollitt, M.G.; Triebs, T.
  19. Transmission expansion in Argentina 5: the Regional Electricity Forum of Buenos Aires Province By Littlechild, S.C.; Ponzano, E.A.
  20. A Carbon Tax for Ireland By Richard S. J. Tol; Tim Callan; Thomas Conefrey; John Fitz Gerald; Seán Lyons; Laura Malaguzzi Valeri; Susan Scott

  1. By: Jamasb, T.; Kiamil, H.; Nepal, R.
    Abstract: The growing stream of municipal solid waste requires a sustainable waste management strategy. Meanwhile, addressing climate change and security of energy supply concerns require increased use of low-carbon and domestic sources of energy. This paper assesses the economic and policy aspects of waste management options focusing on waste to energy (WtE). We conclude that high levels of WtE and recycling are compatible as waste treatment options. We also present a social cost-benefit analysis of waste management scenarios for the UK focusing on specific waste management targets and carbon price. The results indicate that meeting the waste management targets of the EU Directive are socially more cost effective than the current practice. The cost effectiveness improves substantially with higher carbon prices. The findings show that WtE can be an important part of both waste management strategy and renewable energy policy. However, achieving the full potential of WtE requires development of heat delivery networks.
    Keywords: Electricity, renewable energy, waste to energy (WtE), waste management, municipal solid waste (MSW).
    JEL: Q01 Q28 Q42
    Date: 2008–01
  2. By: Hooper, E.; Medvedev, A.
    Abstract: The paper provides an overview of the generation of electricity in 10 countries in South East Europe during 1995-2004. Using the latest available statistics the potential of the nascent integration of the electricity markets in South East Europe is explored. We conduct a cross-country analysis of electricity production based on different types of fuel used. The region has a low level of gasification combined with few nuclear power generation facilities, while some countries heavily rely on hydro electric generation. Differences in countries’ resource endowment and the possibility of intertemporaral substitution between electricity generated from various fuels could stimulate a regional trade in electricity. Such trade could displace a proportion of the required investment in the construction of generation facilities, as an alternative to nationally independent energy policies. Finally, we consider the environmental impact of electricity generation, and identify some of the key trade-offs between different policy objectives.
    Keywords: Electricity, Generation, ECSEE
    JEL: L94 Q40 R12
    Date: 2008–01
  3. By: Méjean, A.; Hope, C.
    Abstract: High crude oil prices, uncertainties about the consequences of climate change and the eventual decline of conventional oil production raise the issue of alternative fuels, such as non-conventional oil and biofuels. This paper describes a simple probabilistic model of the costs of non-conventional oil, including the role of learning-by-doing in driving down costs. This forward-looking analysis quantifies the effects of both learning and production constraints on the costs of supplying alternative fuels. The results show large uncertainties in the future costs of supplying synthetic crude oil from bitumen deposits, with a 90% confidence interval of $7 to $11 in 2025, and $6 to $13 in 2050. The influence of each parameter on the supply costs is examined, with the minimum supply cost, the learning rate, and the depletion curve exponent having the largest influence. Over time, the influence of the learning rate on the supply costs decreases, while the influence of the depletion curve exponent increases.
    Keywords: Climate change; Non-conventional oil; Exhaustible resources; Technological change; Uncertainty
    JEL: C15 Q55 Q42 Q32
    Date: 2008–02
  4. By: Miguel Rodríguez; Xavier Labandeira
    Abstract: This paper deals with the effects of emissions trading, a standard economic instrument to control greenhouse gas emissions, in a particular country. After distributing the Kyoto-mandated allocation among member states, the European Commission introduced a rather conventional emissions trading scheme in 2005. The extent of application of the market is limited, with only certain sectors being subject to it (mostly industries), and tradable permits are freely allocated. Both facts have important consequences in efficiency and distributional terms, also raising (normative) concerns on the actual and desirable regulatory approximation. The paper mainly focuses on the (positive) efficiency and distributional effects of the EU emissions trading system, with the use of a static general equilibrium model for the Spanish economy, also incorporating some hypothetical simulations (broader scope of the market, carbon taxation). The results indicate that the narrow scope of the EU emission trading market generates efficiency costs and relevant distributional effects.
    Date: 2007–12
  5. By: Liang, X.; Reiner, D.; Gibbins, J.; Li, J.
    Abstract: ‘Capture Ready’ is a design concept enabling fossil fuel plants to be retrofitted more economically with carbon dioxide capture and storage (CCS) technologies, however financing the cost of capture ready can be problematic, especially in the developing world. We propose that fossil fuel plants issue tradable Capture Options to acquire financing. The Capture Option concept could move CCS forward politically in countries such as China, speed up CCS technology development, help Capture Ready investors diversify risk, and offer global warming investors an alternative investment opportunity. As a detailed case study, we assess the value of a Capture Option and Capture Ready plant for a 600 MW supercritical pulverized coal power plant in China, using a cash flow model with Monte-Carlo simulations. The gross value of Capture Ready varies from CNY3m ($0.4m) to CNY633m ($84.4m) at an 8% discount rate and the Capture Option is valued at CNY113m ($15.1m) to CNY1255m ($167.3m) for two of the four scenarios analyzed.
    Keywords: Capture Option, Capture Ready, Carbon Capture and Storage, Climate Change, Coal-fired Electricity, China.
    JEL: O1 O3 Q5
    Date: 2007–12
  6. By: Kurt Kratena (WIFO); Ina Meyer (WIFO); Michael Wüger (WIFO)
    Abstract: This paper deals with integrating elements of a bottom-up model of energy demand into a top-down model of total private consumption. The bottom-up elements are represented by the energy efficiency embodied in household appliances. The top-down model describes demand for energy and non-energy commodities in an AIDS demand system. In this model households do not directly demand energy, but energy services (hours of washing, miles of driving). These services are measured via the service price defined as the relationship between the energy price and energy efficiency. Therefore an increase in energy efficiency leads to a decrease in the service price and, thereby, increases demand for services which compensates for parts of the energy savings due to efficiency improvements ("rebound effect"). The model presented can be used to derive different feedbacks (rebound effects) from efficiency changes on energy demand and to quantify the role of efficiency improvements in reducing energy demand and emissions from households.
    Keywords: household energy demand, rebound effects, efficiency of appliances
    Date: 2008–05–21
  7. By: Juan P. Chousa,; Artur Tamazian; Krishna Chaitanya Vadlamannati
    Abstract: The paper investigates whether the decline in environmental quality in BRIC economies is due to high energy consumption level which is a resultant of rapid economic growth. We answer this using environmental, macroeconomic and financial variables along with Kyoto Protocol indicators based on panel data from 1992 to 2004.
    Keywords: CO2 Emissions, Energy Consumption, Economic Growth, BRIC economies.
    JEL: Q40 Q41 Q43 O13 O14
    Date: 2008–02–01
  8. By: Brenton, Paul; Edwards-Jones, Gareth; Jensen, Michael
    Abstract: In response to growing concerns over climate change, consumers and firms in developed countries are considering their carbon footprint. Carbon labelling is being explored as a mechanism for greenhouse gas emission reduction primarily by private actors. This paper discusses the carbon accounting activities and carbon labelling schemes that are being developed to address these concerns with a view to their impact on small stakeholders, especially low income countries. This discussion centres on transportation, and the common presumption that products produced locally in the country of consumption will have an advantage in terms of carbon emissions, and on size. Exports from low income countries typically depend on long distance transportation and are produced by relatively small firms and tiny farms who will find it difficult to participate in complex carbon labelling schemes. However, the popular belief that trade by definition is problematic since it necessitates transportation, which is a major source of emissions, is generally not true. The scientific evidence shows that carbon efficiencies elsewhere in the supply chain may more than offset the emissions associated with transportation. Indeed, the effective inclusion of low income countries in labelling schemes may offer important opportunities for carbon emission reductions due to their favourable climactic conditions and their current use of low energy intensive production techniques. The disadvantages of small size can be reduced by carbon labelling schemes that use innovative solutions to low cost data collection and certification.
    Keywords: carbon labelling; exports; low income countries;
    JEL: F18 Q56
    Date: 2008–05–31
  9. By: Théophile T. Azomahou (UNU-MERIT, Maastricht University, The Netherlands); Raouf Boucekkine (UCLouvain, Belgium; and University of Glasgow, UK); Phu Nguyen-Van (THEMA-CNRS, Université de Cergy-Pontoise, France)
    Abstract: We develop a general equilibrium vintage capital model with embodied energy-saving technological progress and an explicit energy market to study the impact of investment subsidies on investment and output. Energy and capital are assumed to be complementary in the production process. New machines are less energy consuming and scrapping is endogenous. It is shown that the impact of investment subsidies heavily depends on the structure of the energy market, the mechanism explaining this outcome relying on the tight relationship between the lifetime of capital goods and energy prices via the scrapping conditions inherent to vintage models. In particular, under a free entry structure for the energy sector, investment subsidies boost investment, while the opposite result emerges under natural monopoly if increasing returns in the energy sector are not strong enough.
    Keywords: Energy-saving technological progress; vintage capital; energy market; natural monopoly; investment subsidies
    JEL: E22 O40 Q40
    Date: 2008
  10. By: Deren Unalmis, Ibrahim Unalmis and Derya Filiz Unsal
    Abstract: Since the beginning of 2000s the world economy has witnessed a sub-stantial increase in oil prices, which is seen to be an important source of economic fluctuations, causing high inflation, unemployment and low or negative growth rates. Recent experience, however, has not validated this view. Despite rising oil prices, world output growth has been strong, and although inflation has recently been increasing, it is relatively much lower compared with the 1970s. This paper focuses on the causes of oil price increases and their macroeconomic effects. Different from most of the recent literature on the subject, which understands the price of oil to be an exogenous process, we model the price of oil endogenously within a dynamic stochastic general equilibrium (DSGE) framework. Specifically, using a new Keynesian small open economy model, we analyse the effects of an increase in the price of oil caused by an oil supply shock and an oil demand shock. Our results indicate that the effects of an oil demand shock and an oil supply shock on the small open economy are quite different. In addition, we investigate the sensitivity of the general equilibrium outcomes to the degrees of oil dependence and openness, as well as the strength of the response of monetary policy authority to the inflation. Finally, we evaluate the welfare implications of alternative monetary policy regimes.
    Keywords: Oil price, small open economy, demand and supply shocks
    JEL: C68 E12 F41 F42
    Date: 2008–05
  11. By: Cust, J.; Singh, A.; Neuhoff, K.
    Abstract: The paper assesses the demand for rural electricity services and contrasts it with the technology options available for rural electrification. Decentralised Distributed Generation can be economically viable as reflected by case studies reported in literature and analysed in our field study. Project success is driven by economically viable technology choice; however it is largely contingent on organisational leadership and appropriate institutional structures. While individual leadership can compensate for deployment barriers, we argue that a large scale roll out of rural electrification requires an alignment of economic incentives and institutional structures to implement, operate and maintain the scheme. This is demonstrated with the help of seven case studies of projects across north India.
    Keywords: Rural Electrification, Distributed Generation, Renewable Energy, India.
    JEL: D23 L94 Q42
    Date: 2007–12
  12. By: Richard S. J. Tol (Economic and Social Research Institute (ESRI)); Seán Lyons (Economic and Social Research Institute (ESRI))
    Abstract: This paper sets out a methodology for updating an economic appraisal model to ensure that it takes appropriate account of costs arising from greenhouse gas emissions. While the analysis is based on the appraisal model used in Ireland, it should be broadly applicable to circumstances in any EU Member State; indeed, many features will be relevant in any jurisdiction subject to a carbon tax or participating in a carbon permit trading system.
    Date: 2008–06
  13. By: Los, Bart (Groningen Growth and Development Centre, and University of Groningen); Verspagen, Bart (UNU-MERIT, and Maastricht University)
    Abstract: We investigate technological change with regard to CO2 emissions by passenger cars, using a Free Disposal Hull methodology to estimate technological frontiers. We have a sample of cars available in the UK market in the period 2000 – 2007. Our results show that the rates of technological change (frontier movement) and diffusion (distance to frontier at the car brand level) differ substantial between segments of the car market. We conclude that successful policies should be aimed at diffusion of best-practice technology, and take account of the different potential for further progress between different segments of the market (e.g., diesel and gasoline engines, and small vs. large engines).
    Keywords: CO2 emissions by cars, technological change, diffusion of innovations
    JEL: Q55 O31 O33
    Date: 2008
  14. By: Wolf, C.; Pollitt, M.G.
    Abstract: This study empirically investigates the impact of privatisation on firm performance in the global oil and gas industry, where questions of resource control have regained widespread attention. Using a dataset of 60 public share offerings by 28 National Oil Companies it is shown that privatisation is associated with comprehensive and sustained improvements in performance and efficiency. Over the seven-year period around the initial privatisation offering, return on sales increases by 3.6 percentage points, total output by 40%, capital expenditure by 47%, and employment intensity drops by 35%. Many of our observed performance improvements are already realised in anticipation of the initial privatisation date, accrue over time, and level off after the initial ownership change rather than accelerate. Details of residual government ownership, control transfer, and size and timing of follow-on offerings provide limited incremental explanatory power for firm performance, except for employment intensity. Based on these results partial privatisations in the oil sector might be seen to capture a significant part of the performance improvement associated with private capital markets without the selling government having to cede majority control.
    Keywords: Privatisation, ownership, corporate performance, anticipation, oil and gas industry
    JEL: C23 G32 L33 L71 M20 Q40
    Date: 2008–02
  15. By: Phillip Wild; Melvin J. Hinich; John Foster (School of Economics, The University of Queensland)
    Abstract: In this article, we use half hourly spot electricity prices and load data for the National Electricity Market (NEM) of Australia for the period from December 1998 to February 2008 to test for episodic nonlinearity in the dynamics governing daily and weekly cycles in load and spot price time series data. We apply the portmanteau correlation, bicorrelation and tricorrelation tests introduced in Hinich (1996) to the time series of half hourly spot prices and load demand from 7/12/1998 to 29/02/2008 using a FORTRAN 95 program. We find the presence of significant third and fourth order (non-linear) serial dependence in the weekly load and spot price data in particular, but to a much more marginal extent, in the daily data.
    Date: 2008
  16. By: Georg Gebhardt; Felix Höffler (Department of Econmics, University of Munich, Ludwigstr. 28 (Rgb), D-80539 Munich; Chair of Regulatory Economics, WHU - Otto Beisheim School of Management - Burgplatz 2, 56179 Vallendar , Germany)
    Abstract: Prices may differ between regional markets if transport capacities are limited. We develop a new approach to determine to which extent such differences stem from limited participation in cross-border trader rather than from bottlenecks. We derive a theoretical integration benchmark for the typical case where transportation markets clear before the product markets, using Grossman's (1976) notion of a rational expectations equilibrium. We compare the benchmark to data from European electricity markets. The data reject the integration hypothesis: Capacity prices contain too little information about spot price dierential; this indicates that well informed traders do not engage in cross-border trade.
    Keywords: Market integration, electricity markets, interconnector, competition policy, rational expectations equilibrium
    JEL: G14 D84 L94
    Date: 2008–05
  17. By: Seo, S. Niggol
    Abstract: This paper examines a widespread public belief on designing a global climate policy, that is, climate change is a moral issue and should be approached with an ethical standpoint. In this paper, I pose a question of whether a global public goods such as the control of greenhouse gases can be provided efficiently with the adoption of an ethical standard. This paper finds that a global climate policy cannot rely on ethics. The main reasons are existing knowledge gaps in climate change science and economics, heterogeneous economic agents and asymmetric information among them, and the economic reality of winners and losers from the implementation of a climate policy. For a policy to work individuals should be forced to pay an optimal carbon tax regardless of one being ethical or selfish. I relate the discussions to the examples of ‘faith based initiative’, ‘voluntary approach’, and ‘zero discounting’ analysis.
    Keywords: Climate Change, Global Public Goods, Carbon Tax, Morality.
    JEL: Q5 Q54
    Date: 2008–04–07
  18. By: Jamasb, T.; Pollitt, M.G.; Triebs, T.
    Abstract: On both sides of the Atlantic the regulation of gas transmission networks has undergone major changes since the early 1990’s. Whereas in the US the long-standing regime of cost-plus regulation was complemented by increasing pipe-to-pipe competition, most European countries moved towards incentive regulation complemented by market integration. We study the impact of US regulatory reform using a Malmquist-based productivity analysis for a panel of US interstate companies. Results are presented for changes in productivity, as well as for several convergence tests. The results indicate that taking productivity and convergence as performance indicators, regulation has been rather successful, in particular during a period where overall demand was flat. Lessons for European regulators are twofold. First, the US analysis shows that benchmarking of European transmission operators would be possible if data were available. Second, our results suggest that, in the long-run, market integration and competition are alternatives to the current European model.
    Keywords: Natural gas transmission; utility regulation; data envelopment analysis; total factor productivity; convergence
    JEL: L51 L95 O57 D24
    Date: 2008–03
  19. By: Littlechild, S.C.; Ponzano, E.A.
    Abstract: This paper supplements analyses of Argentine transmission expansions at the federal level by looking at experience in Buenos Aires province. A Regional Electricity Forum of distribution companies has drawn up and begun to implement a ten-year transmission expansion plan. Contrary to previous fears, getting agreement between the members on investment and cost sharing has not been unduly problematic. More challenging was getting approval of the provincial government on funding. Deferring tariff reductions and using the revenues for investment facilitated the process, and now some innovative financing arrangements are underway. Again contrary to some previous suggestions, the controversial Area of Influence method was extended rather than replaced. This overcame concerns about free-riding. Progress and investment have been severely curtailed by the economic crisis in 2001 and subsequent federal government policy. The arrangements nonetheless appear to be working well, and to be conducive to more efficient transmission expansion. This confirms that it is practicable and advantageous to allow users rather than the transmission company or the regulator to propose and determine transmission investment, even in a meshed rather than radial system. An appropriate regulatory framework is needed to approve that part of the total budget to paid by distribution business consumers, but this does not require the regulator to lead or monitor the detail of the process.
    Keywords: Argentina, electricity, transmission, regulation.
    JEL: L33 L51 L94 L98
    Date: 2007–12
  20. By: Richard S. J. Tol (Economic and Social Research Institute (ESRI)); Tim Callan (Economic and Social Research Institute (ESRI)); Thomas Conefrey (Economic and Social Research Institute (ESRI)); John Fitz Gerald (Economic and Social Research Institute (ESRI)); Seán Lyons (Economic and Social Research Institute (ESRI)); Laura Malaguzzi Valeri (Economic and Social Research Institute (ESRI)); Susan Scott (Economic and Social Research Institute (ESRI))
    Date: 2008–06

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