nep-ene New Economics Papers
on Energy Economics
Issue of 2008‒07‒30
fifteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Impact of Biofuel Production on World Agricultural Markets: A Computable General Equilibrium Analysis By Birur, Dileep; Hertel, Thomas; Tyner, Wally
  2. Carbon sequestration and the forest sector: Implementing an additional project based on wood products in the construction sector By Jean-Jacques MALFAIT (GREThA UMR CNRS 5113); Guillaume PAJOT (Macaulay Institute)
  3. A semiparametric factor model for electricity forward curve dynamics By Szymon Borak; Rafał Weron
  4. The European Carbon Market In Action: Lessons From The First Trading Period. Interim Report By Frank Convery; Christian De Perthuis; Denny Ellerman
  5. Exhaustible Resources, Technology Transition, And Endogenous Fertility in an Overlapping – Generations Model By Nguyen Manh Hung; Nguyen Van Quyen
  6. The Effects of Interactions between Federal and State Climate Policies By Meghan McGuinness; A. Denny Ellerman
  7. Market Power and Electricity Market Reform in Northeast China By Xiaochun Zhang; John E. Parsons
  8. The Diversity of Design of TSOs By Vincent Rious; Jean-Michel Glachant; Yannick Perez; Philippe Dessante
  9. Carbon sequestration in forestry: rotation lengths, wood products and carbon storage optimisation (In French) By Jean-Jacques MALFAIT (GREThA UMR CNRS 5113); Guillaume PAJOT (Macaulay Institute)
  10. How Compatible is Perfect Competition with Transmission Loss Allocation Methods? By Jing Dai; Yannick Phulpin; Vincent Rious; Damien Ernst
  11. Resource Intensive Production and Aggregate Economic Performance By Ian Keay
  12. Corruption, Development and the Curse of Natural Resources By Shannon Pendergast; Judith Clarke; G. Cornelis van Kooten
  13. Nonlinear Cointegration Analysis and the Environmental Kuznets Curve By Hong, Seung Hyun; Wagner, Martin
  14. Oil Futures Prices in a Production Economy With Investment Constraints By Leonid Kogan; Dmitry Livdan; Amir Yaron
  15. La question de l’équité dans l’allocation initiale des permis d’émission dans le cadre des politiques de prévention du changement climatique : Une étude quasi-expérimentale By Elodie Brahic; Jean-Michel Salles

  1. By: Birur, Dileep; Hertel, Thomas; Tyner, Wally
    Abstract: This paper introduces biofuels sectors as energy inputs into the GTAP data base and to the production and consumption structures of the GTAP-Energy model developed by Burniaux and Truong (2002), and further modified by McDougall and Golub (2008). We also incorporate Agro-ecological Zones (AEZs) for each of the land using sectors in line with Lee et al. (2005). The GTAP-E model with biofuels and AEZs offers a useful framework for analyzing the growing importance of biofuels for global changes in crop production, utilization, commodity prices, factor use, trade, land use change etc. We begin by validating the model over the 2001-2006 period. We focus on six main drivers of the biofuel boom: the hike in crude oil prices, replacement of MTBE by ethanol as a gasoline additive in the US, and subsidies for ethanol and biodiesel in the US and EU. Using this historical simulation, we calibrate the key elasticities of energy substitution between biofuels and petroleum products in each region. With these parameter settings in place, the model does a reasonably good job of predicting the share of feedstock in biofuels and related sectors in accordance with the historical evidence between 2001 and 2006 in the three major biofuel producing regions: US, EU, and Brazil. The results from the historical simulation reveal an increased production of feedstock with the replacement of acreage under other agricultural crops. As expected, the trade balance in oil sector improves for all the oil exporting regions, but it deteriorates at the aggregate for the agricultural sectors.
    Date: 2008
  2. By: Jean-Jacques MALFAIT (GREThA UMR CNRS 5113); Guillaume PAJOT (Macaulay Institute)
    Abstract: The aim of the paper is to analyse the implementation of a climate change mitigation strategy for the forest sector. We suggest a strategy based on an increased storage capacity in wood products. An additional resource is provided by recycling and a reallocation of timber usages. In the first part of the paper, the additionality notion (“Kyoto meaning”) is discussed (environmental and economic aspects). Then a case study is conducted on the “Landes de Gascogne forest”. The project is assessed on the basis of additional carbon storage and on the basis of avoided emissions, as wood can replace CO2 intensive materials (concrete, steel). Results will be useful in view of the discussions dealing with the post 2012 Kyoto period and the possible inclusion of wood products in the carbon stocks.
    Keywords: Kyoto Protocol, carbon sequestration, additionality, avoided emissions, life lengths, modelling, wood products, forest sector
    JEL: L73 Q23 Q54
    Date: 2008
  3. By: Szymon Borak; Rafał Weron
    Abstract: In this paper we introduce the dynamic semiparametric factor model (DSFM) for electricity forward curves. The biggest advantage of our approach is that it not only leads to smooth, seasonal forward curves extracted from exchange traded futures and forward electricity contracts, but also to a parsimonious factor representation of the curve. Using closing prices from the Nordic power market Nord Pool we provide empirical evidence that the DSFM is an efficient tool for approximating forward curve dynamics.
    Keywords: power market, forward electricity curve, dynamic semiparametric factor model
    JEL: C51 G13 Q40
    Date: 2008–07
  4. By: Frank Convery; Christian De Perthuis; Denny Ellerman
    Abstract: The European Union Emissions Trading Scheme (EU ETS) is the largest greenhouse gas market ever established. The European Union is leading the world's first effort to mobilize market forces to tackle climate change. A precise analysis of the EU ETS's performance is essential to its success, as well to that of future trading programs. The research program "The European Carbon Market in Action: Lessons from the First Trading Period," aims to provide such an analysis. It was launched at the end of 2006 by an international team led by Frank Convery, Christian de Perthius and Denny Ellerman. This interim report presents the researchers' findings to date. It was prepared after the research program's second workshop, held in Washington DC in January 2008. The first workshop was held in Paris in April 2007. Two additional workshops will be held in Prague in June 2008 and in Paris in September 2008. The researchers' complete analysis will be published in the beginning of 2009.
    Date: 2008–03
  5. By: Nguyen Manh Hung (Département économique, Université Laval, Cité Universitaire, Ste Foy, Québec, Canada G1K 7P4); Nguyen Van Quyen (Département de science économique, Université d'Ottawa, 55 Laurier E, Ottawa, Ontario, Canada, K1N)
    Abstract: The paper presents a synthesis of the economics of exhaustible resources and that of endogenous fertility in an overlapping-generations model. Renewable energy is produced by a backstop, while the consumption good is produced from energy – provided by the backstop or from a stock of fossil fuels – and labor. Along the equilibrium path, we show that the stock of fossil fuels might or might not have been completely depleted. Under the first possibility, the forward-looking competitive equilibrium can be computed recursively from the steady state of the economy. This is however no longer possible under the second possibility where the part of the resource stock left in situ serves as the oil bubble. In this case, long run equilibrium indeterminacy arises with a continuum of possible steady states. Also, the dynamic convergence to a steady state is far from being simply monotone, and might exhibit cyclical behavior, such as damped oscillation, limit cycles, etc.
    Keywords: Exhaustible Resources, Endogenous Fertility, Overlapping Generations, Complex Dynamics
    JEL: J13 O41 Q30
    Date: 2008
  6. By: Meghan McGuinness; A. Denny Ellerman
    Abstract: In the absence of a federal policy to cap carbon emissions many states are moving forward with their own initiatives, which currently range from announcements of commitments to reduce greenhouse gases to a regional multi-state cap-and-trade program slated to begin in 2009. While federal legislation is expected in the next few years, it is unclear how such legislation will define the relationship between a federal cap and trade program and other state regulations. Assuming the introduction of a cap-and-trade program at the federal level, this paper analyzes the economic and environmental impacts of the range of possible interactions between the federal program and state programs. We find that the impacts of interaction depend on relative stringency of the federal and state program and overlap in source coverage. Where state programs are both duplicative of and more demanding than the federal cap, the effect is entirely redistributive of costs and emissions, with in-state sources facing higher marginal abatement costs. Also, differing marginal abatement costs among states create economic inefficiencies that make achievement of the climate goal more costly than it need be. These redistributive effects and the associated economic inefficiency are avoided under either federal preemption of duplicative state programs or a ‘carve out’ of state programs from the federal cap with linkage to the federal allowance market.
    Date: 2008–05
  7. By: Xiaochun Zhang; John E. Parsons
    Abstract: The Northeast region of China has been used as a testing ground for creation of a functioning wholesale electric power market. We describe the ownership structure of the generation assets for those plants participating in the trial operation of the Northeast China Regional Electricity Market and also for the region as a whole and for each of the provinces making up the region. We calculate the 4-firm Concentration Ratio (CR4) and the Hirschman-Herfindahl Index (HHI). In general, we find that the current ownership structure is relatively concentrated. Arguably, this is a troublesome obstacle to instituting some form of competitive bidding in the wholesale power market, and this may be one factor in the poor outcome of the trial operation.
    Date: 2008–01
  8. By: Vincent Rious; Jean-Michel Glachant; Yannick Perez; Philippe Dessante
    Abstract: It is puzzling today to explain diversity and imperfection of actual transmission monopoly designs in competitive electricity markets. We argue that transmission monopoly in competitive electricity markets has to be analysed within a Wilson (2002) modular framework. Applied to the management of electricity flows, at least three modules make the core of transmission design: 1° the short run management of network externalities; 2° the long run management of network investment; and 3° the coordination of neighboring Transmission System Operators for cross border trade. In order to tackle this diversity of designs of TSOs, we show that for each of these modules, three different basic ways of managing them are possible. Among the identified twenty seven options of organisation, we define an Ideal TSO. Second, we demonstrate that 1°monopoly design differs from this Ideal TSO and cannot handle these three modules irrespective of the “institutional” definition and allocation of property rights on transmission; while 2°definition and allocation of property rights on transmission cannot ignore the existing electrical industry and transmission network structure: they have to complement each other to be efficient. Some conclusions for regulatory issues of transmission systems operators are derived from this analysis of network monopoly organisation.
    Date: 2008–05
  9. By: Jean-Jacques MALFAIT (GREThA UMR CNRS 5113); Guillaume PAJOT (Macaulay Institute)
    Abstract: The aim of the paper is to analyse the impact of rotation lengths on carbon storage in the forest, but also on carbon storage in wood products. The software Co2Fix has been used to undertake the simulations. A case study has been conducted on the “Landes de Gascogne” forest. On a long time scale, the analysis shows that carbon storage in wood products is significant. The study also shows that the implementation of long rotations although it allows to increase forests carbon stocks reduces timber production, and is not finally the best strategy. Results will be useful in view of the discussions dealing with the post 2012 Kyoto period and the possible inclusion of wood products in the carbon stocks.
    Keywords: Kyoto Protocol, wood products, carbon sequestration, modelling, rotation lengths, forest sector
    JEL: L73 Q23 Q54
    Date: 2008
  10. By: Jing Dai (SUPELEC-Campus Gif - SUPELEC); Yannick Phulpin (SUPELEC-Campus Gif - SUPELEC); Vincent Rious (SUPELEC-Campus Gif - SUPELEC); Damien Ernst (Université de Liège - Université de Liège)
    Abstract: This paper addresses the problem of transmission loss allocation in a power system where the generators, the demands and the system operator are independent. We suppose that the transmission losses are exclusively charged to the generators, which are willing to adopt a perfectly competitive behavior. In this context, their offers must reflect their production costs and their transmission loss costs, the latter being unknown beforehand and having to be predicted. We assume in this paper that the generators predict their loss costs from the past observations by using a weighted average of their past allocated costs. Under those assumptions, we simulate the market dynamics for different types of transmission loss allocation methods. The results show that the transmission loss allocation scheme can lead to a poorly efficient market in terms of social welfare.
    Keywords: Transmission loss allocation;agent-based simulation; market efficiency;electricity market
    Date: 2008–05–28
  11. By: Ian Keay (Queen's University)
    Abstract: The main objective of this paper is to determine whether specialization in resource intensive production had a positive impact on the performance of the aggregate Canadian economy over the 1970-2005 period. Specialization is simply measured as the proportion of aggregate employment, the aggregate fixed capital stock, and G.N.P. that may be attributed to Canada's energy, fishing, forestry, and mining industries. Direct contributions to intensive, or per capita performance are measured in terms of the resource industries' profitability, productivity, and capital intensity. Indirect contributions to economic performance are measured in terms of spill overs, or linkages to other non-resource intensive industries through raw material price advantages and demand generation. The possibility that resource intensive production may have been crowding out other sectors in the economy through input price inflation or currency appreciation is also investigated. Based on the evidence, I argue that Canada's resource industries were making a substantial positive impact on aggregate economic performance after 1970, but this conclusion depends on the inclusion of the energy industries in resource sector.
    Keywords: Resource Dependence, Spill Overs, Crowding Out, Resource Based Growth
    JEL: O13 N52
    Date: 2008–07
  12. By: Shannon Pendergast; Judith Clarke; G. Cornelis van Kooten
    Keywords: natural resource curse, petroleum resources, unbalanced panels and GMM estimation
    JEL: O12 Q32 Q34 O43 O47
    Date: 2008–07
  13. By: Hong, Seung Hyun (Department of Economics, Concordia University, Montreal, Quebec, Canada); Wagner, Martin (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)
    Abstract: Recent years have seen a growing literature on the environmental Kuznets curve (EKC) that resorts in a large part to cointegration techniques. The EKC literature has failed to acknowledge that such regressions involve unit root nonstationary regressors and their integer powers (e.g. GDP and GDP squared), which behave differently from linear cointegrating regressions. Here we provide the necessary tools for EKC analysis by deriving estimation and testing theory for cointegrating equations including stationary regressors, deterministic regressors, unit root nonstationary regressors and their integer powers. We consider fully modified OLS estimation, specification tests based on augmented and auxiliary regressions, as well as a sub-sample KPSS type cointegration test. We present simulation results illustrating the performance of the estimators and tests. In the empirical application for CO2 and SO2 emissions for 19 early industrialized countries over the period 1870-2000 we find evidence for an EKC in roughly half of the countries.
    Keywords: Integrated process, Nonlinear transformation, Fully modified estimation, Nonlinear cointegration analysis, Environmental Kuznets curve
    JEL: C12 C13 Q20
    Date: 2008–07
  14. By: Leonid Kogan; Dmitry Livdan; Amir Yaron
    Abstract: We document a new stylized fact regarding the term-structure of futures volatility. We show that the relationship between the volatility of futures prices and the slope of the term structure of prices is non-monotone and has a "V-shape". This aspect of the data cannot be generated by basic models that emphasize storage while this fact is consistent with models that emphasize investment constraints or, more generally, time-varying supply-elasticity. We develop an equilibrium model in which futures prices are determined endogenously in a production economy in which investment is both irreversible and is capacity constrained. Investment constraints affect firms' investment decisions, which in turn determine the dynamic properties of their output and consequently imply that the supply-elasticity of the commodity changes over time. Since demand shocks must be absorbed either by changes in prices, or by changes in supply, time-varying supply-elasticity results in time-varying volatility of futures prices. Estimating this model, we show it is quantitatively consistent with the aforementioned "V-shape" relationship between the volatility of futures prices and the slope of the term-structure.
    Date: 2008–04
  15. By: Elodie Brahic; Jean-Michel Salles
    Abstract: Bien que le changement climatique soit un problème global, il n’affecte pas les pays de façon identique et la mise en oeuvre de politiques de limitation des émissions impliquera pour chaque pays des efforts et des conséquences différents. Le problème est celui de la légitimité des dotations initiales. Les pays diffèrent par leur démographie, leur niveau de développement ou leur capacité d’adaptation, et l’objectif de cet article est de savoir si l’allocation initiale des permis d’émission négociables initiée à Kyoto peut et doit être utilisée afin de corriger certaines de ces inégalités. Pour analyser ces enjeux, cet article propose une exploration expérimentale : il va s’agir de tester les préférences éthiques d’agents face à différents systèmes d’allocation initiale des permis d’émission. Le Protocole de Kyoto stipulant que les Parties ont des « responsabilités communes mais différenciées », nous portons un intérêt tout particulier au courant éthique post-welfariste dont l’ambition est d’intégrer la notion de responsabilité dans les problèmes d’allocation d’une ressource. Pour identifier les variables qui doivent être intégrées dans le système d’allocation des permis, nous testons l’axiome de récompense naturelle à travers un test direct et un test indirect. Les variables étudiées sont la population, le PIB par habitant, le coût marginal de réduction des émissions et le niveau initial d’émission. Au final, les sujets considèrent que pour être équitable, le système d’allocation doit tenir compte des différences observées entre les pays sur ces variables, mais le degré et le sens de la compensation peuvent varier selon les situations.
    Date: 2008–07

This nep-ene issue is ©2008 by Roger Fouquet. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.