nep-ene New Economics Papers
on Energy Economics
Issue of 2008‒10‒07
twenty-two papers chosen by
Roger Fouquet
Imperial College, UK

  1. EU-ETS and Nordic Electricity: A CVAR Approach By Fell, Harrison
  2. The growth of transport cector CO2 emissions and underlying factors in Latin America and the Caribbean By Timilsina, Govinda R.; Shrestha, Ashish
  3. Is Sugar Sweeter at the Pump? The Macroeconomic Impact of Brazil’s Alternative Energy Program By Marc D. Weidenmier; Joseph H. Davis; Roger Aliaga-Diaz
  4. “Night of the Living Dead” or “Back to the Future”? Electric Utility Decoupling, Reviving Rate-of-Return Regulation, and Energy Efficiency By Brennan, Timothy J.
  5. Long-Term Risks and Short-Term Regulations: Modeling the Transition from Enhanced Oil Recovery to Geologic Carbon Sequestration By Bandza, Alexander J.; Vajjhala, Shalini P.
  6. A Taxonomy of Instruments to Reduce Greenhouse Gas Emissions and their Interactions By Romain Duval
  7. An international perspective on oil price shocks and U.S. economic activity By Nathan S. Balke; Stephen P. A. Brown; Mine K. Yücel
  8. Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade By Murray, Brian C.; Newell, Richard G.; Pizer, William A.
  9. Equilibrium Non-Oil Current Account Assessments for Oil Producing Countries By Jun Il Kim; Aqib Aslam; Alun H. Thomas
  10. Designing A Carbon Tax to Reduce U.S. Greenhouse Gas Emissions By Gilbert E. Metcalf
  11. Metrics for Aggregating the Climate Effect of Different Emissions: A Unifying Framework By Tol, Richard S. J.; Berntsen, Terje K.; O’Neill, Brian C.; Fuglestvedt, Jan S.; Shine, Keith P.; Balkanski, Yves; Makra, Laszlo
  12. The Incidence of U.S. Climate Policy: Where You Stand Depends on Where You Sit By Burtraw, Dallas; Sweeney, Richard; Walls, Margaret
  13. Comparing the impact of food and energy price shocks on consumers : a social accounting matrix analysis for Ghana By Parra, Juan Carlos; Wodon, Quentin
  14. Perspectives of the European Natural Gas Markets until 2025 By Franziska Holz; Christian von Hirschhausen; Claudia Kemfert
  15. Correct (and misleading) arguments for using market based pollution control policies By Larry Karp
  16. Prices versus Quantities versus Bankable Quantities By Fell, Harrison; MacKenzie, Ian A.; Pizer, William A.
  17. The Impact of Oil-Related Income on the Equilibrium Real Exchange Rate in Syria By Maher Hasan; Jemma Dridi
  18. Automobile fuel efficiency policies with international innovation spillovers By Philippe Barla; Stef Proost
  19. Taxes Versus Quantities for a Stock Pollutant with Endogenous Abatement Costs and Asymmetric Information By Larry Karp; Jiangfeng Zhang
  20. Is the Benefit of Reserve Requirements in the “Reserve” or the “Requirement”? By Brennan, Timothy J.
  21. Maitriser les émissions de CO2 dans le transport : vers des marchés de droits à consommer du carburant By Charles Raux
  22. Bidding and Drilling on O®shore Wildcat Tracts By Nicolas Melissas

  1. By: Fell, Harrison (Resources for the Future)
    Abstract: A cointegrated vector autoregressive (CVAR) model is estimated to determine the dynamic relationship between Nordic wholesale electricity prices and EU emissions trading scheme (EU-ETS) CO2 allowance prices. An impulse response analysis reveals that electricity prices have large short-term responses to CO2 price shocks, but that this response dampens over time. Using hourly Nordic electricity spot market prices, I find that the value of short-term response of electricity prices to a shock in CO2 prices in off-peak hours is consistent with expected values for near complete pass-through of CO2 emission costs when coal-generated power is at the margin. Likewise, the estimates reveal that peak hour electricity price responses to CO2 price shocks are as expected for a market that has near complete passthrough of CO2 emission costs when natural gas-generated power is at the margin. These results further suggest the Nordic electricity market is pricing as a competitive market.
    Keywords: cointegrated vector autoregression, impulse response, electricity markets, CO2 cost pass-through, EU-ETS
    JEL: Q40 Q48 Q52 C32
    Date: 2008–08–15
  2. By: Timilsina, Govinda R.; Shrestha, Ashish
    Abstract: This study examines the factors responsible for the growth of transport sector carbon dioxide emissions in 20 Latin American and Caribbean countries during 1980-2005 by decomposing the emissions growth into components associated with changes in fuel mix, modal shift, and economic growth, as well as changes in emission coefficients and transportation energy intensity. The key finding of the study is that economic growth and the changes in transportation energy intensity are the main factors driving transport sector carbon dioxide emissions growth in the countries considered. The results imply that fiscal policy instruments - such as subsidies to clean fuels and clean vehicles - would be more effective in reducing emissions in countries where the economic activity effect is the primary driver for transport sector carbon dioxide emissions growth. By contrast, regulatory policy instruments - such as vehicle efficiency standards and vehicle occupancy standards - would be more effective in countries where the transportation energy intensity effect is the main driver of carbon dioxide emissions growth. Both fiscal and regulatory policy instruments would be useful in countries where both economic activity and transportation energy intensity effects are responsible for driving transport sector carbon dioxide emissions growth.
    Keywords: Transport Economics Policy&Planning,Energy Production and Transportation,Oil Refining&Gas Industry,Environment and Energy Efficiency,Energy and Environment
    Date: 2008–09–01
  3. By: Marc D. Weidenmier; Joseph H. Davis; Roger Aliaga-Diaz
    Abstract: The recent world energy crisis raises serious questions about the extent to which the United States should increase domestic oil production and develop alternative sources of energy. We examine the energy developments in Brazil as an important experiment. Brazil has reduced its share of imported oil more than any other major economy in the world in the last 30 years, from 70 percent in the 1970s to only 10 percent today. Brazil has largely achieved this goal by: (1) increasing domestic oil production and (2) developing one of the world’s largest and most competitive sources of renewable energy -- sugarcane ethanol -- that now accounts for 50 percent of Brazil's total gasoline consumption. A counterfactual analysis of economic growth in Brazil from 1980-2008 suggests that GDP is almost 35 percent higher today because of increased domestic oil production and the development of sugarcane ethanol. We also find a notable reduction in business-cycle volatility as a result of Brazil's progression to a more diversified energy program. Nearly three-fourths of the welfare benefits have come from domestic oil drilling, however, as rents have been paid to domestic factors of production during a time of rising oil prices. We discuss the potential implications of Brazil's energy program for the U.S. economy by conducting historical counterfactual exercises on U.S. real GDP growth since the 1970s.
    JEL: E3 N1
    Date: 2008–09
  4. By: Brennan, Timothy J. (Resources for the Future)
    Abstract: The distribution grid for delivering electricity to the user has been paid for as part of the charge per kilowatt-hour that covers the cost of the energy itself. Conservation advocates have promoted the adoption of policies that “decouple” electric distribution company revenues or profits from how much electricity goes through the lines. Their motivation is that usage-based pricing leads utilities to encourage use and discourages conservation. Because decoupling divorces profits from conduct, it runs against the dominant finding in regulatory economics in the last twenty years -— that incentive-based regulation outperforms rate-of-return. Even if distribution costs are independent of use, some usage charges can be efficient. Price-cap regulation may distort utility incentives to inform consumers about energy efficiency -— getting more performance from less electricity. Utilities will subsidize efficiency investments, but only when prices are too low. Justifying policies to subsidize energy efficiency requires either prices that are too low or consumers who are ignorant.
    Keywords: decoupling, price caps, electricity, energy efficiency, conservation
    JEL: L51 L94 Q41
    Date: 2008–08–15
  5. By: Bandza, Alexander J.; Vajjhala, Shalini P. (Resources for the Future)
    Abstract: Recent policy debates suggest that geologic carbon sequestration (GS) will play an important role in any carbon-constrained future. As GS evolves from its current role as an end-stage process within enhanced oil recovery (EOR) operations to a long-term, dedicated emissions mitigation option, regulations must simultaneously evolve to address the risks of potential carbon dioxide (CO2) migration underground and leakage to the surface. Because CO2 injection practices are currently based on petroleum industry extraction techniques, risk assessment and regulatory frameworks are also derived from these experiences, and EOR serves as a critical point of departure for GS. In this paper, we develop a basic engineering–economic model of four strategies associated with key deployment pathways in the portfolio of EOR and GS projects -- (a) an indifferent strategy, where EOR is the priority without any consideration for long-term sequestration, (b) an afterthought strategy, where EOR is the primary goal, and a site is later secured for sequestration, (c) a planned strategy, where oil extraction and CO2 injection are co-optimized from the start, and (d) a dedicated strategy, where GS is the sole priority. We evaluate these strategies based on scenarios of oil and CO2 prices; leakage estimates; and transportation, injection, and monitoring costs from the literature and practice. Major results reveal that the afterthought strategy is the dominant strategy (i.e. the strategy with the greatest revenues) under a range of scenarios. This finding suggests that GS regulatory design needs to anticipate the use of the potentially leakiest or “worst” sites first.
    Keywords: carbon sequestration, enhanced oil recovery, leakage, regulatory design, risk management
    JEL: Q42 Q48
    Date: 2008–09–15
  6. By: Romain Duval
    Abstract: This paper reviews alternative (national and international) climate change mitigation policy instruments and interactions across them. Carbon taxes, cap-and-trade schemes, standards and technology-support policies (R&D and clean technology deployment) in particular are assessed according to three broad costeffectiveness criteria, their: i) static efficiency, defined to cover not just whether the instrument is costeffective per se but also whether it provides sufficient political incentives for wide adoption; ii) dynamic efficiency, which implies an efficient level of innovation and diffusion of clean technologies in order to lower future abatement costs; iii) ability to cope effectively with climate and economic uncertainties. Multiple market failures and political economy obstacles need to be addressed in order to meet these criteria. In this regard, carbon taxes or cap-and-trade schemes appear to perform better than alternatives. However, their cost-effectivenes can be enhanced through targeted use of other instruments. There is therefore room for climate policy packages. <P>Une taxonomie des instruments de réduction des émissions de gaz à effet de serre et de leurs interactions <BR>Cet article passe en revue les différents instruments de politique économique (nationaux et internationaux) envisageables dans la lutte contre le changement climatique, ainsi que leurs interactions. Taxes carbone, marchés de permis négociables, standards et politiques de soutien au progrès technique (R&D et déploiement de technologies propres) en particulier sont évalués au regard de trois critères d’efficacité coût, à savoir: i) l'efficience statique, qui recouvre non seulement l’efficacité coût intrinsèque de l’instrument, mais aussi les incitations politiques à son adoption à grande échelle ; ii) l'efficience dynamique, impliquant un niveau efficient d’innovation et de diffusion des technologies propres permettant de réduire les coûts futurs de réduction des émissions ; iii) la capacité à s’adapter aux incertitudes climatiques et économiques. De multiples échecs de marché et obstacles relevant de l’économie politique doivent être surmontés pour vérifier ces critères. De ce point de vue, il apparaît que les taxes carbone et les marchés de permis négociables sont plus performants que les alternatives. Néanmoins, leur efficacité coût peut être améliorée par un usage ciblé des autres instruments. Il y a donc matière à la mise en place d’un éventail de politiques.
    Keywords: climate change, changement climatique, global warming, greenhouse gas, mitigation, international climate policy, réchauffement climatique, gaz à effet de serre, réduction des émissions, politique climatique international
    JEL: H23 Q54
    Date: 2008–09–17
  7. By: Nathan S. Balke; Stephen P. A. Brown; Mine K. Yücel
    Abstract: The effect of oil price shocks on U.S. economic activity seems to have changed since the mid-1990s. A variety of explanations have been offered for the seeming change?including better luck, the reduced energy intensity of the U.S. economy, a more flexible economy, more experience with oil price shocks and better monetary policy. These explanations point to a weakening of the relationship between oil prices shocks and economic activity rather than the fundamentally different response that may be evident since the mid-1990s. Using a dynamic stochastic general equilibrium model of world economic activity, we employ Bayesian methods to assess how economic activity responds to oil price shocks arising from supply shocks and demand shocks originating in the United States or elsewhere in the world. We find that both oil supply and oil demand shocks have contributed significantly to oil price fluctuations and that U.S. output fluctuations are derived largely from domestic shocks.
    Keywords: Petroleum industry and trade ; Petroleum products - Prices ; International trade ; Economic conditions - United States
    Date: 2008
  8. By: Murray, Brian C.; Newell, Richard G.; Pizer, William A.
    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.
    Keywords: climate change, regulation, uncertainty, welfare, prices, quantities
    JEL: Q54 Q58 L51 D8
    Date: 2008–07–15
  9. By: Jun Il Kim; Aqib Aslam; Alun H. Thomas
    Abstract: This paper introduces a methodology for assessing external balance in countries with large stocks of non-renewable resources based on oil stock data, and applies it to selected oil producing countries. The methodology uses a stock approach (instead of the more traditional flow approach) to estimate the equilibrium non-oil current account consistent with optimal consumption smoothing. One of the benefits of the stock approach is that geological data for oil reserves can be used to estimate oil wealth; however, the methodology makes the estimated non-oil current account norm very sensitive to oil price projections. Based on an oil price about US$70 per barrel prevailing in the summer of 2007, the baseline estimates indicate that the non-oil current accounts for most of the countries in the sample are broadly in equilibrium. By the same token, using oil price projections as of the summer of 2008 implies large disparities between the equilibrium non-oil current account position and the medium term forecast for all countries in the sample except for Malaysia.
    Keywords: Nonoil sector , Oil producing countries , Current account balances , Oil prices , Exchange rate assessments , Economic models , Working Paper ,
    Date: 2008–08–20
  10. By: Gilbert E. Metcalf
    Abstract: This article describes a revenue and distributionally neutral approach to reducing U.S. greenhouse gas emissions that uses a carbon tax. The revenue from the carbon tax is used to finance an environmental earned income tax credit designed to be distributionally neutral. The credit is linked to earned income and helps offset the regressivity of the carbon tax. The carbon tax reform proposal is also revenue neutral and avoids conflating carbon policy with debates over the appropriate size of the federal budget. The article provides a distributional analysis of the proposal and also makes a number of political, economic and administrative arguments in favor of a carbon tax and responds to the arguments that have commonly been made against using a tax-based approach to reducing U.S. emissions.
    JEL: H23 Q54
    Date: 2008–10
  11. By: Tol, Richard S. J. (Economic and Social Research Institute (ESRI)); Berntsen, Terje K. (CICERO – Center for International Climate and Environmental Research – Oslo, P.O. Box 1129 Blindern, N-0318 Oslo, NORWAY); O’Neill, Brian C. (Institute for the Study of Society and Environment, National Center for Atmospheric Research P.O. Box 3000 Boulder, CO 80307 USA); Fuglestvedt, Jan S. (CICERO – Center for International Climate and Environmental Research – Oslo, P.O. Box 1129 Blindern, N-0318 Oslo, NORWAY); Shine, Keith P. (Department of Meteorology, University of Reading, Earley Gate, Reading RG6 6BB, UK); Balkanski, Yves (LSCE/IPSL, Laboratoire CEA-CNRS-UVSQ, 91191 Gif-sur-Yvette, France); Makra, Laszlo (SZTE, University of Szeged, Hungary, 6722 Szeged, Hungary)
    Abstract: Multi-gas approaches to climate change policies require a metric establishing “equivalences” among emissions of various species. Climate scientists and economists have proposed four classes of such metrics and debated their relative merits. We present a unifying framework that clarifies the relationships among them. We show that the Global Warming Potential, used in international law to compare greenhouse gases, is a special case of the Global Damage Potential, assuming (1) a finite time horizon, (2) a zero discount rate, (3) constant atmospheric concentrations, and (4) impacts that are proportional to radiactive forcing. We show that the Global Temperature change Potential is a special case of the Global Cost Potential, assuming (1) no induced technological change, and (2) a short-lived capital stock. We also show that the Global Cost Potential is a special case of the Global Damage Potential, assuming (1) zero damages below a threshold and (2) infinite damage after a threshold. The UN Framework Convention on Climate Change uses the Global Warming Potential, a simplified cost-benefit concept, even though the UNFCCC frames climate policy as a cost-effectiveness problem and should therefore use the Global Cost Potential or its simplification, the Global Temperature Potential.
    Keywords: Climate change; multi-gas climate policy; Global Warming Potential; equivalences between greenhouse gases
    Date: 2008–09
  12. By: Burtraw, Dallas (Resources for the Future); Sweeney, Richard; Walls, Margaret
    Abstract: Federal policies aimed to slow global warming would impose potentially significant costs on households that vary depending on the policy approach that is used. This paper evaluates the effects of a carbon dioxide cap-and-trade program on households in each of 11 regions of the country and sorted into annual income deciles. We find tremendous variation in the incidence (the distribution of cost) of the policy. The most important feature that affects households is how the policy distributes the value created by placing a price on CO2 emissions. We evaluate 10 policy alternatives that yield results that range from moderately progressive (expansion of the Earned Income Tax Credit, investments in efficiency and capand- dividend) to severely regressive (reduce income taxes, free distribution to incumbent emitters and reduction of the payroll tax). To varying degrees the allocation of the value of emissions allowances amplifies or potentially resolves the tradeoff between equity and efficiency.
    Keywords: cap-and-trade, allocation, distributional effects, cost burden, equity
    JEL: H22 H23 Q52 Q54
    Date: 2008–09–15
  13. By: Parra, Juan Carlos; Wodon, Quentin
    Abstract: Many countries have been affected by food and oil price shocks. Rising energy costs have manifested themselves through higher prices of gas at the pump and through price increases for many other goods such as kerosene and transport. But in some countries there has also been some degree of protection for consumers for example when authorities have chosen to try to keep electricity tariffs affordable through implicit subsidies (which are unfortunately often poorly targeted). For food prices, the effect on consumers has often been more rapid than for oil-related products, as the increase in import prices have been typically fully passed on to consumers and has often been accompanied by increases in the prices of domestically produced foods. Recent attention has therefore rightly been focused on food prices, but the issue of oil prices is important as well. While food prices tend to have a larger direct impact on consumers due to the larger share of food in total household consumption, oil prices may have larger multiplier effects than food prices because oil-related products are used as intermediary products in many productive sectors. It therefore remains an open question as to whether the medium-term impact of food or oil prices is likely to be larger in any given country. It also remains open to question as to whether urban as opposed to rural households are most likely to be affected. While urban households are likely to rely on consumption of imported goods more than rural households, the weight of food and possibly oil-related products may well be larger in the consumption patterns of rural than urban households. Answering these questions may be useful to guide discussions on compensatory measures that governments can take to respond to the twin crisis of higher food and oil prices. In this context the objective of this paper is to provide a comparative analysis of the multiplier impact of both types of price shocks using a recent Social Accounting Matrix for Ghana. The paper finds that both the direct impacts of food prices and the indirect impacts of oil prices are potentially large, so that both should be dealt with by authorities when considering compensatory measures to protect households from higher consumer prices.
    Keywords: Markets and Market Access,Food&Beverage Industry,Energy Production and Transportation,Emerging Markets,Access to Markets
    Date: 2008–10–01
  14. By: Franziska Holz; Christian von Hirschhausen; Claudia Kemfert
    Abstract: We apply the EMF 23 study design to simulate the effects of the reference case and the scenarios to European natural gas supplies to 2025. We use GASMOD, a strategic severallayer model of European gas supply, consisting of upstream natural gas producers, traders in each consuming European country (or region), and final demand. Our model results suggest rather modest changes in the overall supply situation of natural gas to Europe, indicating that current worries about energy supply security issues may be overrated. LNG will likely increase its share of European natural gas imports in the future, Russia will not dominate the European imports (~ share of 1/3), the Middle East will continue to be a rather modest supplier, the UK is successfully converting from being a natural gas exporter to become a transit node for LNG towards continental Europe, and congested pipeline infrastructure, and in some cases LNG terminals, will remain a feature of the European gas markets, but less than in the current situation.
    Keywords: Natural gas, Europe, modeling, LNG, supply security
    JEL: L95 L13 F14
    Date: 2008
  15. By: Larry Karp (University of California, Berkeley and Giannini Foundation)
    Abstract: Disagreement over the form of regulation of greenhouse gasses motivates a comparison of market based and command and control policies. More efficient policies can increase aggregate marginal abatement cost, resulting in higher emissions. Multiple investment equilibria and "regulatory uncertainty" arise when firms anticipate command and control policies. Market based policies eliminate this uncertainty. Command and control policies cause firms to imitate other firms' investment decisions, leading to similar costs and small potential efficiency gains from trade. Market based policies induce firms to make different investment decisions, leading to different costs and large gains from trade. We imbed the regulatory problem in a "global game" and show that the unique equilibrium to that game is constrained socially optimal.
    Keywords: tradable permits, coordination games, multiple equilibria, global games, regulatory uncertainty, climate change policies, California AB32,
    Date: 2008–08–02
  16. By: Fell, Harrison (Resources for the Future); MacKenzie, Ian A.; Pizer, William A.
    Abstract: Welfare comparisons of regulatory instruments under uncertainty, even in dynamic analyses, have typically focused on price versus quantity controls despite the presence of banking and borrowing provisions in existing emissions trading programs. This is true even in the presence of banking and borrowing provisions in existing emissions trading programs. Nonetheless, many have argued that such provisions can reduce price volatility and lower costs in the face of uncertainty, despite any theoretical or empirical evidence. This paper develops a model and solves for optimal banking and borrowing behavior with uncertain cost shocks that are serially correlated. We show that while banking does reduce price volatility and lowers costs, the degree of these reductions depends on the persistence of shocks. For plausible parameter values related to U.S. climate change policy, we find that bankable quantities eliminate about 20 percent of the cost difference between price and nonbankable quantities.
    Keywords: welfare, prices, quantities, climate change
    JEL: Q55
    Date: 2008–07–01
  17. By: Maher Hasan; Jemma Dridi
    Abstract: This paper examines the impact of oil-related income, among other fundamentals, on the equilibrium real effective exchange rate (ERER) in Syria. After reviewing the evolution of the Syrian multiple exchange rate regime since 1960 and assessing alternative measures for the exchange rate, the paper analyzes the impact of oil-related income on the ERER in the context of a behavioral equilibrium exchange rate model. The analysis concludes that ERER appreciates with higher oil-related income, productivity and net foreign assets, but, at odds with the conventional wisdom, depreciates with higher government expenditures given that an increase in expenditures usually translates into higher imports and weaker current account position. In light of the projected real shocks associated with the depletion of oil and the change in other fundamentals in the context of the ongoing transition to a market economy, a more flexible regime would serve Syria better in the future.
    Keywords: Syrian Arab Republic , Real effective exchange rates , Oil production , Oil revenues , Productivity , Government expenditures , Imports , Current account balances , External shocks , Exchange systems , Working Paper ,
    Date: 2008–08–18
  18. By: Philippe Barla; Stef Proost
    Abstract: In this paper, we explore automobile fuel efficiency policies in the presence of two externalities i) a global environmental problem and ii) international innovation spillovers. Using a simple model with two regions, we show that both a fuel tax and a tax on vehicles based on their fuel economy rating are needed to decentralize the first best. We also show that if policies are not coordinated between regions, the resulting gas taxes will be set too low and each region will use the tax on fuel rating, to reduce the damage caused by foreign drivers. If standards are used instead of taxes, we find that spillovers may alleviate free-riding. Under some conditions, a strict standard in one region may favour the adoption of a strict standard in the other one.
    Keywords: Environmental policy, automobile, fuel efficiency standard, gasoline tax, innovation spillovers
    JEL: O38 Q48 Q54 Q58 R48
    Date: 2008–05
  19. By: Larry Karp (University of California, Berkeley and Giannini Foundation); Jiangfeng Zhang (Asian Development Bank)
    Abstract: Non-strategic firms with rational expectations make investment and emissions decisions. The investment rule depends on firms' beliefs about future emissions policies. We compare emissions taxes and quotas when the (strategic) regulator and (nonstrategic) firms have asymmetric information about abatement costs, and all agents use Markov Perfect decision rules. Emissions taxes create a secondary distortion at the investment stage, unless a particular condition holds; emissions quotas do not create a secondary distortion. We solve a linear-quadratic model calibrated to represent the problem of controlling greenhouse gasses. The endogeneity of abatement capital favors taxes, and it increases abatement.
    Keywords: Pollution control; Investment, asymmetric information, rational expectations, choice of instruments,
    Date: 2008–07–21
  20. By: Brennan, Timothy J. (Resources for the Future)
    Abstract: Reliability in electricity markets is, in many respects, a public good, in that one supplier’s failure to meet its customers’ demands can cause failure throughout the grid. This creates a blackout externality. One of the remedies for a blackout externality is a reserve requirement, where load-serving entities have capacity on hand to meet demand in the case of unexpected surges in demand or unit failures. Modeling the magnitude of the externality as a positive function of use and negative function of capacity reveals that a benefit of capacity requirements is that covering their costs imposes a tax on usage. After illustrating this possibility, a model addressing the sector as a whole, where spot markets can resolve individual but not overall shortfalls, illustrates that capacity requirements should be increased or decreased to exploit this usage tax effect.
    Keywords: electricity, reliability, reserve requirements, capacity
    JEL: L94 H23 D24
    Date: 2008–09–18
  21. By: Charles Raux (LET - Laboratoire d'économie des transports - CNRS : UMR5593 - Université Lumière - Lyon II - Ecole Nationale des Travaux Publics de l'Etat)
    Abstract: Parmi les mesures identifiées si l’on veut atteindre des objectifs ambitieux de maîtrise de la croissance des émissions du transport, les taxes sur le carbone et les carburants ont le meilleur rapport coût-efficacité, constate Charles Raux. Cependant, la « révolte fiscale » de septembre 2000 dans plusieurs pays européens montre que l’opinion est très réticente à l’augmentation de la fiscalité sur les carburants. C’est pourquoi l’auteur propose un autre instrument de régulation environnementale, les marchés de permis.
    Keywords: droits d’émission ; permis d’émission ; réduction des émissions de transport ; analyse coût-efficacité
    Date: 2008
  22. By: Nicolas Melissas (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    Abstract: I study a game in which ¯rms ¯rst bid on wildcat tracts and then time their drilling decisions. In an equilibrium bids are used as a coordination device: if player i bid low while player ¡i bid high, player i waits while player ¡i drills. This equilibrium is consistent with the empirical ¯ndings of Hendricks and Porter (1996). Firms know that by bidding \low" they can be allocated the right to free-ride. This induces \optimistic" ¯rms to submit \low" bids. Nonetheless, this equilibrium need not reduce expected revenues as compared to the benchmark case in which one abstracts from signalling issues.
    Keywords: Information externality, auctions, oil exploration
    JEL: D44 D82 C72 Q49
    Date: 2008–09

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