nep-ene New Economics Papers
on Energy Economics
Issue of 2008‒09‒13
seventeen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Addressing Climate Change with a Comprehensive U.S. Cap-and-Trade System By Robert N. Stavins
  2. Oil intensities and oil prices : evidence for Latin America By Alaimo, Veronica; Lopez, Humberto
  3. Impact of Revised CO2 Growth Projections for China on Global Stabilization Goals By Geoffrey J. Blanford; Richard G. Richels; Thomas F. Rutherford
  4. The Impact of a Carbon Tax on Economic Growth and Carbon Dioxide Emissions in Ireland By Thomas Conefrey; John Fitz Gerald; Laura Malaguzzi Valeri; Richard S. J. Tol
  5. Employment Impacts of EU Biofuels Policy: Combining Bottom-up Technology Information and Sectoral Market Simulations in an Input-output Framework By Neuwahl, Frederik; Löschel, Andreas; Mongelli, Ignazio; Delgado, Luis
  6. Crude Oil and Stock Markets: Stability, Instability, and Bubbles By J. Isaac Miller; Ronald Ratti
  7. Designing an electricity tax system in presence of international regulations and multiple public goals: An empirical assessment By Geir H. Bjertnæs, Taran Fæhn, Jørgen Aasness
  8. Transportation fuel use, technology and standards: The role of credibility and expectations By Eskeland, Gunnar S.; Mideksa, Torben K.
  9. Technological Uncertainty and Cost-effectiveness of CO2 Emission Trading Schemes By Löschel, Andreas; Otto, Vincent M.
  10. The diversity of design of TSOs By Vincent Rious; Jean-Michel Glachant; Yannick Perez; Philippe Dessante
  11. Fiscal policy instruments for reducing congestion and atmospheric emissions in the transport sector : a review By Timilsina, Govinda R.; Dulal, Hari B.
  12. Mineral-rich countries and dutch disease : understanding the macroeconomic implications of windfalls and the development prospects-the case of Equatorial Guinea By Toto Same, Achille
  13. Coalition Formation and the Ancillary Benefits of Climate Policy By Michael Finus; Dirk T.G. Rübbelke
  14. Risk Aversion, Time Preference, and the Social Cost of Carbon By David Anthoff; Richard S. J. Tol; Gary W. Yohe
  15. Can planners control competitive generators? By Contreras, Javier; Krawczyk, Jacek; Zuccollo, James
  16. The Curse of Raw Materials? By Gøril Bjerkhol Havro; Javier Santiso
  17. Grenelle de l’environnement, climat et énergie : un an après By Alain Grandjean; Patrick Criqui

  1. By: Robert N. Stavins (Harvard University)
    Abstract: There is growing impetus for a domestic U.S. climate policy that can provide meaningful reductions in emissions of CO2 and other greenhouse gases. I describe and analyze an up- stream, economy-wide CO2 cap-and-trade system which implements a gradual trajectory of emissions reductions (with inclusion over time of non-CO2 greenhouse gases), and includes mechanisms to reduce cost uncertainty. Initially, half of the allowances are allocated through auction and half through free distribution, with the share being auctioned gradually increasing to 100 percent over 25 years. The system provides for linkage with emission reduction credit projects in other countries, harmonization over time with effective cap-and-trade systems in other countries and regions, and appropriate linkage with actions taken in other countries, in order to establish a level playing field among domestically produced and imported products.
    Keywords: Cap-and-Trade System, Carbon Dioxide, Greenhouse Gas Emissions, Global Climate Change, Carbon Taxes
    JEL: Q54 Q28 Q38 Q48 Q58
    Date: 2008–09
  2. By: Alaimo, Veronica; Lopez, Humberto
    Abstract: Crude oil prices have dramatically increased over the past years and are now at a historical maximum in nominal terms and very close to it in real terms. It is difficult to argue, at least for net oil importers, that higher oil prices have a positive impact on welfare. In fact, the negative relationship between oil prices and economic activity has been well documented in the literature. Yet, to the extent that higher oil prices lead to lower oil consumption, it would be possible to argue that not all the effects of a price increase are negative. Climate change concerns have been on the rise in recent years and fossil fuel consumption is generally viewed as one of the main causes behind it. Thus this paper explores whether higher oil prices contribute to lowering oil intensities (that is, oil consumption per unit of gross domestic product). The findings show that following an increase in oil prices, OECD countries tend to reduce oil intensity. However, the same result does not hold for Latin America (and more generally for middle-income countries) where oil intensities appear to be unaffected by oil prices. The paper also explores why this is so.
    Keywords: Energy Production and Transportation,Oil Refining&Gas Industry,Markets and Market Access,Energy Demand,Environment and Energy Efficiency
    Date: 2008–06–01
  3. By: Geoffrey J. Blanford (Electric Power Research Institute); Richard G. Richels (Electric Power Research Institute); Thomas F. Rutherford (Centre for Energy Policy and Economics)
    Abstract: Recent growth in carbon dioxide emissions from China’s energy sector has exceeded expectations. In a major US government study of future emissions released in 2007 (1), participating models appear to have substantially underestimated the near-term rate of increase in China’s emissions. We present a recalibration of one of those models to be consistent with both current observations and historical development patterns. The implications of the new specification for the feasibility of commonly discussed stabilization targets, particularly when considering incomplete global participation, are profound. Unless China’s emissions begin to depart soon from their (newly projected) business-as-usual path, stringent stabilization goals may be unattainable. The current round of global policy negotiations must engage China and other developing countries, not to the exclusion of emissions reductions in the developed world and possibly with the help of significant financial incentives, if such goals are to be achieved. It is in all nations’ interests to work cooperatively to limit our interference with the global climate.
    Keywords: Energy-Economy Modeling, China, Economic Growth Rates, Energy Intensity, International Climate Policy
    JEL: Q48 H23 O13
    Date: 2008–09
  4. By: Thomas Conefrey (Economic and Social Research Institute (ESRI)); John Fitz Gerald (Economic and Social Research Institute (ESRI)); Laura Malaguzzi Valeri (Economic and Social Research Institute (ESRI)); Richard S. J. Tol (Economic and Social Research Institute (ESRI))
    Abstract: This paper analyses the medium-term effects of a carbon tax on growth and CO2 emissions in Ireland, a small open economy. We find that a double dividend exists if the carbon tax revenue is recycled through reduced income taxes. If the revenue is recycled by giving a lump-sum transfer to households, a double dividend is unlikely. We also determine that a greater incidence of the carbon tax falls on capital than on labour. When combined with a decrease in income tax, there is a clear shift of the tax burden from labour to capital. Finally, most of the effect on the economy is due to changes in the competitiveness of the manufacturing and market services sectors. These results hold even if we allow changes in energy prices to have an enhanced (detrimental) effect on Ireland’s competitiveness.
    Keywords: carbon tax; Ireland; double dividend; tax incidence
    JEL: H23 Q54
    Date: 2008–08
  5. By: Neuwahl, Frederik; Löschel, Andreas; Mongelli, Ignazio; Delgado, Luis
    Abstract: This paper analyses the employment consequences of policies aimed to support biofuels in the European Union. The promotion of biofuel use has been advocated as a means to promote the sustainable use of natural resources and to reduce greenhouse gas emissions originating from transport activities on the one hand, and to reduce dependence on imported oil and thereby increase security of the European energy supply on the other hand. The employment impacts of increasing biofuels shares are calculated by taking into account a set of elements comprising the demand for capital goods required to produce biofuels, the additional demand for agricultural feedstock, higher fuel prices or reduced household budget in the case of price subsidisation, price effects ensuing from a hypothetical world oil price reduction linked to substitution in the EU market, and price impacts on agro-food commodities. The calculations refer to scenarios for the year 2020 targets as set out by the recent Renewable Energy Roadmap. Employment effects are assessed in an input-output framework taking into account bottom-up technology information to specify biofuels activities and linked to partial equilibrium models for the agricultural and energy sectors. The simulations suggest that biofuels targets on the order of 10-15% could be achieved without adverse net employment effects. In diesem Papier werden die Beschäftigungswirkungen der Förderung von Biokraftstoffen in der Europäischen Union untersucht. Die Förderung von Biokraftstoffen wird mit der nachhaltigen Nutzung natürlicher Ressourcen, der Reduktion von Treibhausgasemissionen im Transportsektor und der Verminderung der Erdölabhängigkeit und damit einhergehender erhöhter Energiesicherheit in Europa begründet. Bei der Quantifizierung der Beschäftigungseffekte der Biokraftstoffförderung in Europa wurden verschiedene Effekte berücksichtigt: gesteigerte Nachfrage nach Agrarerzeugnissen und Kapitalgütern zu Herstellung von Biokraftstoffen, höhere Kraftstoffpreise, Preisrückgänge auf dem Rohölmarkt infolge der Substitutionseffekte des Biokraftstoffeinsatzes und Preissteigerungen bei Agrarprodukten und Lebensmitteln. Dazu wird ein Input-Output Modell um die Biokraftstofferzeugung erweitert und mit Partialmodellen des Agrar- und Energiesektors gekoppelt. Als besonders wichtige Faktoren für potentielle Beschäftigungseffekte haben sich die Entwicklung einer auf den Weltmärkten führenden EU Biokraftstoffindustrie und der abschwächende Effekte der Biokraftstoffe auf den Ölpreis erwiesen. Die Simulationen legen nahe, dass sich die verschiedenen positiven und negativen Effekte weitgehend kompensieren und ein Biokraftstoffanteil von 10 – 15 Prozent ohne signifikant negative Beschäftigungseffekte erzielt werden kann.
    Keywords: Biofuels, Input-output, Employment
    Date: 2008
  6. By: J. Isaac Miller (Department of Economics, University of Missouri-Columbia); Ronald Ratti (Department of Economics, University of Missouri-Columbia)
    Abstract: We analyze the long-run relationship between the world price of crude oil and international stock markets over 1971:1-2008:3 using a cointegrated vector error correction model with additional regressors. We find a clear long-run relationship between these series for six OECD countries from 1971 until 1998, suggesting that stock market indices respond negatively to increases in the oil price. Up until December 1998, the statistically significant cointegrating coefficients for real stock market price and real oil price are close to -1 for France, Germany, U.K. and the U.S., and closer to -0.5 for Canada and Italy. After 1998, this negative long-run relationship appears to disintegrate. This finding supports a conjecture of change in the relationship between real oil price and real stock prices in the last decade compared to earlier years and the presence of several stock market bubbles and/or oil price bubbles since the turn of the century
    Keywords: crude oil, stock market prices, cointegrated VECM, structural stability, stock market bubble, oil price bubble
    JEL: C13 C32
    Date: 2008–08–20
  7. By: Geir H. Bjertnæs, Taran Fæhn, Jørgen Aasness (Statistics Norway)
    Abstract: The European competition rules restrict governments’ opportunity to differentiate terms of energy accessibility among firms and industries. This easily runs counter with regional and industrial goals of national energy policies. Norway levies a tax on use of electricity, but exempts main industrial usages. This analysis assesses alternative, internationally legal, designs of the system in terms of their effects on efficiency and distribution, including industrial objectives. Among the reforms we explore, removing the exemptions would be the most effective way of raising revenue, but it would be politically costly by deteriorating the competitiveness of today's favoured industries. An entire abolishment of the electricity tax, and replacing revenue by increased VAT, would generate a more equal distribution of standard of living and, at the same time, avoid the trade-off between efficiency and competitiveness.
    Keywords: Tax reform; Multiple policy goals; Computable general equilibrium model
    JEL: D31 D58 F15 H21 H23 J68 L52
    Date: 2008–09
  8. By: Eskeland, Gunnar S.; Mideksa, Torben K.
    Abstract: There is a debate among policy analysts about whether fuel taxes alone are the most effective policy to reduce fuel use by motorists, or whether to also use mandatory standards for fuel efficiency. A problem with a policy mandating fuel economy standards is the"rebound effect,"whereby owners with more efficient vehicles increase vehicle usage. If an important part of negative externalities from transport are associated with vehicle kilometers (accidents, congestion, road wear) rather than fuel consumption, the rebound effect increases negative externalities. Taxes and standards should be mutually supportive because fuel taxes often meet political resistance. Over time, fuel efficiency standards can reduce political resistance to fuel taxes. Thus, by raising fuel efficiency standards now, politicians may be able to pursue higher fuel tax paths in the future. Another argument in support of fuel efficiency standards and similar policies is that standards to a greater extent than taxes can be announced in advance and still be credible and change the behavior of inventors, firms, and other agents in society. A further argument is that standards can be used with greater force and commitment through international coordination.
    Keywords: Transport Economics Policy&Planning,Transport and Environment,Environmental Economics&Policies,Energy Production and Transportation,Oil Refining&Gas Industry
    Date: 2008–08–01
  9. By: Löschel, Andreas; Otto, Vincent M.
    Abstract: This paper studies implications of uncertainty about the arrival date of a competitive CO2 backstop technology for the design of cost-effective CO2 emission trading schemes. For this purpose, we develop a dynamic general equilibrium model that captures empirical links between CO2 emissions associated with energy use, the rate and direction of technical change and the economy. We specify CO2 capture and storage (CCS) as the backstop technology whose competitiveness is anticipated or not. We find that the discounted welfare loss associated with the environmental target is lower if CCS is not anticipated and that CO2 shadow prices are then relatively high in the years before CCS is competitive. By not simply postponing the implementation of an emission reduction strategy until CCS is competitive, one relies more on economy-wide technical change and its welfare-enhancing technology externalities, thus allowing for a higher steady state. Dieses Papier untersucht die Implikationen von Unsicherheit bezüglich der Verfügbarkeit einer kompetitiven Technologie zur Kohlenstoffabscheidung und –speicherung auf die Ausgestaltung kosteneffektiver CO2 Emissionshandelssysteme. Zu diesem Zweck wird ein dynamisches rechenbares allgemeines Gleichgewichtsmodell entwickelt, welches den empirischen Zusammenhang zwischen CO2 Emissionen, Rate und Richtung des technischen Wandels und wirtschaftlichen Aktivitäten berücksichtigt. Kohlenstoffabscheidung und –speicherung wird als sogenannte Backstop-Technologie modelliert, deren Wirtschaftlichkeit antizipiert wird oder eben nicht. Die Simulationsergebnisse zeigen, dass die diskontierten Wohlfahrtsverluste der Klimapolitik niedriger sind, wenn die Technologie zur Kohlenstoffabscheidung und –speicherung nicht antizipiert wird. In diesem Fall sind die Preise für CO2 Emissionszertifikate vor der unerwarteten Einführung der Backstop-Technologie relativ hoch. Es wird nicht einfach auf die Wirtschaftlichkeit der Kohlenstoffabscheidung und – speicherung gewartet. Vielmehr wird ohne die Berücksichtigung von Kohlenstoffabscheidung und – speicherung ein strikterer Politikpfad zur Erreichung der klimapolitischen Ziele implementiert, der die Internalisierung von technologischen Externalitäten und somit ein höheres Wohlfahrtsniveau ermöglicht. Die Umweltpolitik sollte gegeben der großen technologischen Unsicherheiten vorsichtig sein, Vermeidungsanstrengungen zu verschieben und auf eine Wunderwaffe zu Lösung des Klimaproblems im Energiesektor zu warten.
    Keywords: CO2 capture and storage, computable general equilibrium modeling, directed technical change, emission trading, technological uncertainty
    JEL: D58 D83 H23 O33 Q43
    Date: 2008
  10. By: Vincent Rious (SUPELEC-Campus Gif - SUPELEC); Jean-Michel Glachant (ADIS - Analyse des Dynamiques Industrielles et Sociales - Université Paris Sud - Paris XI); Yannick Perez (ADIS - Analyse des Dynamiques Industrielles et Sociales - Université Paris Sud - Paris XI); Philippe Dessante (SUPELEC-Campus Gif - SUPELEC)
    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.
    Keywords: design of TSOs; management of power flows; governance structure of transmission
    Date: 2008–07–10
  11. By: Timilsina, Govinda R.; Dulal, Hari B.
    Abstract: This paper reviews the literature on the fiscal policy instruments commonly used to reduce transport sector externalities. The findings show that congestion charges would reduce vehicle traffic by 9 to 12 percent and significantly improve environmental quality. The vehicle tax literature suggests that every 1 percent increase in vehicle taxes would reduce vehicle miles by 0.22 to 0.45 percent and CO2 emissions by 0.19 percent. The fuel tax is the most common fiscal policy instrument; however its primary objective is to raise government revenues rather than to reduce emissions and traffic congestion. Although subsidizing public transportation is a common practice, reducing emissions has not been the primary objective of such subsidies. Nevertheless, it is shown that transport sector emissions would be higher in the absence of both public transportation subsidies and fuel taxation. Subsidies are also the main policy tool for the promotion of clean fuels and vehicles. Although some studies are very critical of biofuel subsidies, the literature is mostly supportive of clean vehicle subsidies.
    Keywords: Transport Economics Policy&Planning,Environmental Economics&Policies,Transport and Environment,Taxation&Subsidies,Transport in Urban Areas
    Date: 2008–06–01
  12. By: Toto Same, Achille
    Abstract: Referring to the original context of Dutch Disease, the term refers to the fears of de-industrialization that gripped the Netherlands as a result of the appreciation of the Dutch currency that followed the discovery of natural gas deposits. Expansion of petroleum exports in the 1960s not only crowded out other exports, it actually reduced other exports disproportionately and fueled the fears of dire consequences for Dutch manufacturing. In the case of Equatorial Guinea, the secondary sector represents about 2 percent of the gross domestic product, manufacturing represents less than 1 percent, and oil represents more than 95 percent. The negative impact of the Dutch Disease in this context would be limited given the structure of the economy and on the contrary may even be a good thing because it fuels the structural transformational process of the economy, which is needed in Equatorial Guinea. This paper argues that the ongoing Dutch Disease is a natural and necessary reallocation of resources in the economy of Equatorial Guinea. The magnitude of negative macroeconomic consequences of the Dutch Disease depends on the country's economic structure and stage of development. In a country where the manufacturing sector barely exists or where the non-oil primary sector is structurally deficient, as has been the case of Equatorial Guinea, there is little to fear about the disease. The oil boom is a blessing, given that oil revenues when properly managed can play a special and critical role in overall economic development and poverty reduction in low-income countries. To promote good governance in the management of the country's oil wealth, the government may wish to adhere to clear standards of accountability and transparency; especially by complying with the Extractive Industries Transparency Initiative (EITI++).
    Keywords: Debt Markets,Economic Theory&Research,,Banks&Banking Reform,Currencies and Exchange Rates
    Date: 2008–04–01
  13. By: Michael Finus (University of Stirling); Dirk T.G. Rübbelke (Center for International Climate and Environmental Research)
    Abstract: Several studies found ancillary benefits of environmental policy to be of considerable size. These additional private benefits imply not only higher cooperative but also noncooperative abatement targets. However, beyond these largely undisputed important quantitative effects, there are qualitative and strategic implications associated with ancillary benefits: climate policy is no longer a pure but an impure public good. In this paper, we investigate these implications in a setting of non-cooperative coalition formation. In particular, we address the following questions. 1) Do ancillary benefits increase participation in international environmental agreements? 2) Do ancillary benefits raise the success of these treaties in welfare terms?
    Keywords: Ancillary Benefits, Climate Policy, Coalition Formation, Game Theory, Impure Public Goods
    JEL: C72 H87 Q54
    Date: 2008–07
  14. By: David Anthoff (Economic and Social Research Institute (ESRI)); Richard S. J. Tol (Economic and Social Research Institute (ESRI)); Gary W. Yohe (Wesleyan University)
    Abstract: The Stern Review reported a social cost of carbon of over $300/tC, calling for ambitious climate policy. We here conduct a systematic sensitivity analysis of this result on two crucial parameters: the rate of pure time preference, and the rate of risk aversion. We show that the social cost of carbon lies anywhere in between 0 and $120,000/tC. However, if we restrict these two parameters to match observed behavior, an expected social cost of carbon of $60/tC results. If we correct this estimate for income differences across the world, the social cost of carbon rises to over $200/tC.
    Date: 2008–09
  15. By: Contreras, Javier; Krawczyk, Jacek; Zuccollo, James
    Abstract: Consider an electricity market populated by competitive agents using thermal generating units. Generation often emits pollution which a planner may wish to constrain through regulation. Furthermore, generators’ ability to transmit energy may be naturally restricted by the grid’s facilities. The existence of both pollution standards and transmission constraints can impose several restrictions upon the joint strategy space of the agents. We propose a dynamic, game-theoretic model capable of analysing coupled constraints equilibria (also known as generalised Nash equilibria). Our equilibria arise as solutions to the planner’s problem of avoiding both network congestion and excessive pollution. The planner can use the coupled constraints’ Lagrange multipliers to compute the charges the players would pay if the constraints were violated. Once the players allow for the charges in their objective functions they will feel compelled to obey the constraints in equilibrium. However, a coupled constraints equilibrium needs to exist and be unique for this modification of the players’ objective functions ..[there was a “to” here, incorrect?].. induce the required behaviour. We extend the three-node dc model with transmission line constraints described in [10] and [2] to utilise a two-period load duration curve, and impose multi-period pollution constraints. We discuss the economic and environmental implications of the game’s solutions as we vary the planner’s preferences.
    JEL: C63 C72
    Date: 2008–08–30
  16. By: Gøril Bjerkhol Havro; Javier Santiso
    Abstract: The “raw materials curse” is far from being an inevitability, as shown by Norway and Chile. Both examples offer valuable lessons to developing countries on how to sensibly manage mining and oil resources. Following Norway’s example, Chile could build upon its experience and become a key player in the field of technological assistance, particularly through the creation of a World Copper Institute.
    Date: 2008–09
  17. By: Alain Grandjean (Carbone 4 - Carbone 4); Patrick Criqui (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: Le Grenelle de l'environnement a marqué une date importante dans l'élaboration de la politique environnementale de la France. Il a permis notamment de montrer que les différentes parties-prenantes étaient capables de s'entendre sur des objectifs précis. Mais il manque encore le signal de fiscalité environnementale qui permettra de déclencher la transition énergétique.
    Keywords: politique environnementale ; politique énergétique ; incitation ; France
    Date: 2008–05

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