nep-ene New Economics Papers
on Energy Economics
Issue of 2008‒08‒31
eleven papers chosen by
Roger Fouquet
Imperial College, UK

  1. Promoting renewable electricity generation in imperfect markets: price vs. quantity policies By Reinhard Madlener; Weiyu Gao; Ilja Neustadt; Peter Zweifel
  2. A CGE Analysis of the Economic Impact of Output-Specific Carbon Tax on the Malaysian Economy By Jaafar , Abdul Hamid; Al-Amin, Abul Quasem; Siwar, Chamhuri
  3. Being rich in energy resources – a blessing or a curse By Schubert, Samuel R.
  4. A U.S. Cap-and-Trade System to Address Global Climate Change By Stavins, Robert
  5. A Lindahl Solution to International Emissions Trading By Yukihiro Nishimura
  6. Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade By Brian C. Murray; Richard G. Newell; William A. Pizer
  7. Netback pricing as a remedy for the Russian gas deficit By Marina Tsygankova
  8. Reaping the Benefits of Stronger Competition in Network Industries in Germany By Nicola Brandt
  9. Giving Green to Get Green: Incentives and Consumer Adoption of Hybrid Vehicle Technology By Gallagher, Kelly Sims; Muehlegger, Erich
  10. When to Pollute, When to Abate? Intertemporal Permit Use in the Los Angeles NOx Market By Stephen P. Holland; Michael Moore
  11. Effect of the European Union Emission Trading Scheme (EU ETS) on companies: Interviews with European companies By Seiji Ikkatai; Daiske Ishikawa; Kengo Sasaki

  1. By: Reinhard Madlener (Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University); Weiyu Gao (Shanghai Development Research Center); Ilja Neustadt (Socioeconomic Institute, University of Zurich); Peter Zweifel (Socioeconomic Institute, University of Zurich)
    Abstract: The search for economically e±cient policy instruments designed to promote the diffusion of renewable energy technologies in liberalized markets has led to the introduction of quota-based tradable `green' certificate (TGC) schemes for renewable electricity. However, there is a debate about the pros and cons of TGC, a quantity control policy, compared to guaranteed feed-in tariffs, a price control policy. In this paper we contrast these two alternatives in terms of cost effectiveness and social welfare, taking into account that electricity markets are not perfectly competitive.
    Keywords: Tradable green certificates, Renewable portfolio standard, Quota target, Feed-in tariff, Cournot duopoly
    JEL: Q42 Q48
    Date: 2008–07
  2. By: Jaafar , Abdul Hamid; Al-Amin, Abul Quasem; Siwar, Chamhuri
    Abstract: Environmental pollution is an emerging issue in many developing countries and its mitigation is increasingly being integrated into national development policies. One approach to mitigate the problem is by implement pollution control policies in the form of pollution tax or clean technology incentives. Empirical studies for developed countries reveal that imposition of an carbon tax would decrease CO2 emissions significantly and do not dramatically reduce economic growth. However, the same result may not apply for small-open developing countries such as Malaysia. The objective of this study is to quantify the impact of pollution tax on the Malaysian economy under the backdrop of trade liberalization. To examine the economic impact and effectiveness of carbon tax, a single-country, static Computable General Equilibrium model for Malaysia is constructed. The model is extended to incorporate output-specific carbon tax elements. Three simulations were carried out using a Malaysian 2000 Social Accounting Matrix. The first simulation examines the impact of halving the baseline tariff and export duty while the second solely focused on the impact of output-specific carbon tax. The third simulation combines both former scenarios. The model results indicate that the Malaysian economy is not sensitive to further liberalization. The reason could be attributed to the fact that Malaysian export duty is already low. Additionally, simulation results also indicate that while imposition of carbon tax reduces carbon emission, it also results in lower GDP and trade.
    Keywords: Trade; Air Emission; Environmental General Equilibrium; Malaysian Economy
    JEL: F00 C68 F1
    Date: 2008–08–15
  3. By: Schubert, Samuel R.
    Abstract: “Being rich in energy resources – a blessing or a curse” finds that an energy resource curse plagues many EU supplier states. This in turn directly affects Europe’s energy supply security and threatens to engulf Europe in unwanted hostilities at home and abroad. The study addresses seven issues including the evidence suggesting that a curse exists among Europe’s external energy suppliers, active programs to limit that risk, the significance of economic diversification, the applicability of dividend programs, the link between corruption and security of energy supplies, additional possible actions of the Union, and further threats posed by resource cursed countries. It establishes a definitive links between corruption and supply security, poor transparency, and inequality, and proves that a low level of economic diversification is a reliable indicator for the existence of the curse. It also finds that there are examples of excellence in recovering from and even converting the curse to a blessing. In looking at the policy instruments available to the Union, the study determines that the Union does have the technical expertise and financial means to restructure political and economic systems and strengthen public administrations and institutions and found that Europe’s successful implementation of similar past programs could be taken, at least in part, as models for future efforts. Finally, the study recommends the controversial approach of conditionality in the use of aid and finds that the Union should legislate standards for the reporting and auditing of energy exports and imports at home and abroad.
    Keywords: Resource Curse; Oil Curse; Energy Security; Energy Policy; EU; European Union; Foreign Policy; Development Policy;
    JEL: F52 F0 Q33 O1 Q38 N55 H56 E31 Y1 F59 E6 H2 F51 Q4 Q34 N50 Q32 L71 C19 F43 F35 L78 O2 F14 H10 N54 F50 A13 L13 L3 O57 F53 F41
    Date: 2007–01–31
  4. By: Stavins, Robert (Harvard U and Resources for the Future)
    Abstract: The need for a domestic U.S. policy that seriously addresses climate change is increasingly apparent. A cap-and-trade system is the best approach in the short to medium term. Besides providing certainty about emissions levels, cap-and-trade offers an easy means of compensating for the inevitably unequal burdens imposed by climate policy; it is straightforward to harmonize with other countries’ climate policies; it avoids the current political aversion in the United States to taxes; and it has a history of successful adoption in this country. The paper proposes a specific cap-and-trade system with several key features, including an upstream cap on CO2 emissions, with gradual inclusion of other greenhouse gases, a gradual downward trajectory of emissions ceilings over time, to minimize disruption and allow firms and households time to adapt, and mechanisms to reduce cost uncertainty. Initially, half of the program’s allowances would be allocated through auctioning and half through free distribution, primarily to those entities most burdened by the policy. This should help limit potential inequities while bolstering political support. The share distributed for free would phase out over twenty-five years. The auctioned allowances would generate revenue that could be used for a variety of worthwhile public purposes. The system would provide for linkage with international emissions reduction credit arrangements, harmonization over time with effective cap-and-trade systems in other countries, and appropriate linkage with other actions taken abroad that maintains a level playing field between imports and import-competing domestic products.
    Date: 2007–10
  5. By: Yukihiro Nishimura (Yokohama National University and Queen's University)
    Abstract: We consider international negotiations on the level of global pollution, and examine the Lindahl solution which determines the distribution of the pollution permits with unanimous agreement. We show various properties to clarify difficulties to achieve a Pareto efficient allocation as an agreement. The Lindahl solution may result in an unfair allocation, and it does not belong to the $\gamma$-core as in other solutions based on emissions trading. On the other hand, we provide mechanisms that implement the Lindahl solution as the subgame-perfect equilibrium. We also consider the market with region-specific prices as a device to induce second-best Pareto efficient allocations.
    Keywords: International emissions trading, Global externality, Lindahl equilibrium, Efficiency, Equity, Core, Implementability, Second-best analysis
    JEL: Q54 D61 D62 D63 D78 H87 Q58
    Date: 2008–08
  6. By: Brian C. Murray; Richard G. Newell; William A. Pizer
    Abstract: On efficiency grounds, the economics community has to date tended to emphasize price-based policies to address climate change -- such as taxes or a "safety-valve" price ceiling for cap-and-trade -- while environmental advocates have sought a more clear quantitative limit on emissions. This paper presents a simple modification to the idea of a safety valve: a quantitative limit that we call the allowance reserve. Importantly, this idea may bridge the gap between competing interests and potentially improve efficiency relative to tax or other price-based policies. The last point highlights the deficiencies in several previous studies of price and quantity controls for climate change that do not adequately capture the dynamic opportunities within a cap-and-trade system for allowance banking, borrowing, and intertemporal arbitrage in response to unfolding information.
    JEL: D8 L51 Q54 Q58
    Date: 2008–08
  7. By: Marina Tsygankova (Statistics Norway)
    Abstract: This descriptive study discusses the effects of increases in domestic gas prices on the Russian gas market. Domestic natural gas prices have remained below their long-run marginal cost for more than a decade since Russia’s movement toward a market economy in 1991. As a result, the ability of the Russian gas sector to meet future growing demand from domestic and foreign consumers has come under question. In an attempt to avoid gas shortages in the future, Russian government wishes to introduce netback pricing of natural gas after 2011. Netback pricing refers to the process of equalizing the gas price in Russia to the gas price in Europe after adjusting for export taxes, transportation costs, and transit tariffs. The paper concludes that netback pricing can help Russia to avoid a gas deficit. However, the gas supply in Russia will remain tight until 2011. The downside of netback pricing is that it increases the ability of Gazprom to strengthen its control over the Russian gas industry.
    Keywords: Russia; natural gas; netback price; supply shortage; deficit
    JEL: D40 L11 Q31 Q38
    Date: 2008–08
  8. By: Nicola Brandt
    Abstract: The potential to strengthen productivity growth and enhance consumer welfare through more competition is large in the energy and railway sectors. Establishing stronger vertical separation between network access provision and potentially competitive services will be the main challenge for Germany going forward. In particular, it will be a crucial point in designing the envisaged privatisation of state stakes in the railway sector market incumbent Deutsche Bahn AG. In the energy sector, concentration in the wholesale market is another crucial issue that Germany will need to tackle, including by fostering market integration with neighbouring countries as well as market entry of newcomers. A more systematic approach to tendering unprofitable transport services will be key in the railway sector. This Working Paper relates to the 2008 Economic Survey of Germany ( <P>Récolter les fruits de l'accroissement de la concurrence dans les industries de réseau <BR>L'accroissement de la concurrence présente dans les secteurs énergétique et ferroviaire un fort potentiel de croissance accrue de la productivité et du bien-être des consommateurs. Le principal défi que doit relever l'Allemagne dans un proche avenir est l'affirmation plus marquée d'une séparation verticale entre les services d'accès aux réseaux et les services potentiellement concurrentiels. Il sera en particulier crucial de préparer la privatisation envisagée par l'État des participations qu'il détient dans Deutsche Bahn AG, opérateur historique du secteur ferroviaire. Dans le secteur de l'énergie, la concentration du marché de gros est un autre point essentiel que l'Allemagne devra traiter, notamment en favorisant l'intégration du marché avec les pays voisins et l'entrée de nouveaux acteurs. Dans le rail, il sera essentiel d'opter pour le recours plus systématique à des appels d'offres en matière de services de transport non rentables. Ce document de travail se rapporte à l’Étude économique de l’Allemagne 2008 (
    Keywords: network industries, industrie de réseau, Germany, Allemagne, consumption tax, corporate tax, electricity and gas markets, railways, tax expenditures, tax progressivity, marché de l’électricité et du gaz, chemins de fer
    JEL: L92 L94 L95
    Date: 2008–08–05
  9. By: Gallagher, Kelly Sims (Harvard U); Muehlegger, Erich
    Abstract: Federal, state and local governments use a variety of incentives to induce consumer adoption of hybrid-electric vehicles. We study the relative efficacy of state sales tax waivers, income tax credits and non-tax incentives and find that the type of tax incentive offered is as important as the value of the tax incentive. Conditional on value, we find that sales tax waivers are associated a seven-fold greater increase in hybrid sales than income tax credits. In addition, we estimate the extent to which consumer adoption of hybrid-electric vehicles (HEV) in the United States from 2000-2006 can be attributed to government incentives, changing gasoline prices, or consumer preferences for environmental quality or energy security. After controlling for model specific state and time trends, we find that rising gasoline prices are associated with higher hybrid sales, although the effect operates entirely through sales of the hybrid models with the highest fuel economy. In total, we find that tax incentives, rising gasoline prices and social preferences are associated with 6, 27 and 36 percent of high economy hybrid sales from 2000-2006.
    Date: 2008–02
  10. By: Stephen P. Holland; Michael Moore
    Abstract: Intertemporal tradability allows an emissions market to reduce abatement costs. We study intertemporal trading of nitrogen oxides permits in the RECLAIM program in Southern California. A theoretical model captures the program's key intertemporal features: two overlapping permit cycles, two compliance cycles for facilities, and tradable permits. We characterize the competitive equilibrium; show that it is cost effective; and demonstrate the firms' incentive to delay abatement, i.e., to trade intertemporally. Using model extensions to explore market design issues, an arbitrage condition implies that the equilibrium is invariant to overlapping compliance cycles, but depends crucially on overlapping permit cycles. We empirically investigate intertemporal trading of permits using panel data on RECLAIM facilities for 1994-2006. Facilities undertake trading by using a considerable proportion of permits of the opposite cycle. We econometrically test two theoretical propositions -- delayed abatement and trading across cycles -- with a difference-in-differences estimator. The results neither contradict nor provide conclusive support of the theory.
    JEL: L5 Q5
    Date: 2008–08
  11. By: Seiji Ikkatai (Institute of Economic Research, Kyoto University); Daiske Ishikawa (Institute of Economic Research, Kyoto University); Kengo Sasaki (Institute of Economic Research, Kyoto University)
    Abstract: We visited Belgian and Dutch companies that are covered by EU ETS in November 2007, in order to conduct interviews regarding the impact of the scheme and the resultant performance of these companies. The problems of the EU ETS that emerge from this interview are as follows: ‡@ the redundancy of emission allowance dampens the incentive to reduce the emission of CO2, ‡A the allocation scheme fails to consider inter-industrial and/or inter-district fairness, and ‡B since the duration of the National Allocation Plan is too short and highly uncertain, it is difficult to implement a long-term reduction investment plan. As European company officers pointed out, the current EU ETS has several problems. However, the recent political debate on the EU ETS seems to have entered a new dimension toward the second period of the National Allocation Plan. For instance, the cap of CO2 emission in the second period has tightened in comparison with the case in the first period, when the allowance excessive. Furthermore, in January 2008, the European Union set the goal of reducing emission by 20% from the 1990 level, by the year 2020. Moreover, the EU intends to introduce the complete auction of emission allowance after the year 2013 excluding the sector that is expected to experience serious leakage problems. The current EU ETS can be regarded as a CO2 reduction scheme in transition. The policy makers of the Japanese government should behold and draw upon the experiences of the European Union in order to implement appropriate policy measures against global warming in Japan.
    Date: 2008–08

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