nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒01‒24
eighteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. The Valuation of the Alberta Oil Sands By Andrew Sharpe; Jean-François Arsenault; Alexander Murray; Sharon Qiao
  2. "Twin Peaks" in Energy Prices: A Hotelling Model with Pollution and Learning By CHAKRAVORTY, Ujjayant; LEACH, Andrew; MOREAUX, Michel
  3. Asymmetric Price Responses and the Underlying Energy Demand Trend: Are they Substitutes or Complements? Evidence from Modelling OECD Aggregate Energy Demand By Olutomi I Adeyemi; David C Broadstock; Mona Chitnis; Lester C Hunt; Guy Judge
  4. Non-linear technological progress and the substitutability of energy for capital: an application using the translog cost function. By David C. Broadstock
  5. An Analysis of a Demand Charge Electricity Grid Tariff in the Residential Sector By Andreas V. Stokke, Gerard L. Doorman, Torgeir Ericson
  6. Frontier Analysis of UK Distribution Networks and the Question of Mergers: A Critique of Ofgem By Ziver Olmez
  7. Technological Change and the Roaring Twenties: A Neoclassical Perspective By Sharon Harrison; Mark Weder
  8. New renewable electricity capacity under uncertainty: The potential in Norway By Fleten, Stein-Erik; Ringen, Geir
  9. Integrating Biofuels into the DART Model By Bettina Kretschmer; Sonja Peterson; Adriana Ignaciuk
  10. Pyrolysis and Gasification of Industrial Waste Towards Substitution Fuels Valorisation By Céline Gisèle Jung
  11. The Comovements Along the Term Structure of Oil Forwards in Periods of High and Low Volatility: How Tight Are They? By Marzo, Massimiliano; Zagaglia, Paolo
  12. What beyond oil and gas? Russian trade specialisation in manufactures By Garanina, Olga
  13. Efficient and Optimal Capital Accumulation under a Non Renewable Resource Constraint By AMIGUES, Jean-Pierre; MOREAUX, Michel
  14. Health Damage Cost of Automotive Air Pollution: Cost Benefit Analysis of Fuel Quality Upgradation for Indian Cities By Ramprasad Sengupta
  15. Essays on Environmental and Development Economics - Public Policy, Resource Prices and Global Warming By Sahlén, Linda
  16. Multilateral Trade Measures in a Post-2012 Climate Change Regime?: What Can Be Taken from the Montreal Protocol and the WTO? By Zhang, ZhongXiang
  17. Pricing Strategies Under Emissions Trading: An Experimental Analysis By Mandell, Svante; Wråke, Markus; Myers, Erica C.; Burtraw, Dallas; Holt, Charles A.
  18. Economic Growth and Carbon Dioxide Emissions in Italy, 1861-2003 By Annicchiarico, Barbara; Bennato, Anna Rita; Costa, Andrea

  1. By: Andrew Sharpe; Jean-François Arsenault; Alexander Murray; Sharon Qiao
    Abstract: The Alberta oil sands reserves represent a very valuable energy resource for Canadians. In 2007, Statistics Canada valued the oil sands at $342.1 billion, or 5 per cent Canada?s total tangible wealth of $6.9 trillion. Given the oil sands? importance, it is essential to value them appropriately. In this report, we critically review the methods used by Statistics Canada in their valuation of the Alberta oil sands. We find that the official Statistics Canada estimates of the reserves (22.0 billion barrels) of Alberta?s oil sands are very small compared to those obtained using more appropriate definitions, which results in an underestimation of the true value of the oil sands. Moreover, the failure to take into account the projected growth of the industry significantly magnifies this underestimation. We provide new estimates of the present value of oil sands reserves based on a set of alternative assumptions that are, we argue, more appropriate than those used by Statistic Canada. We find that the use of more reasonable measures of the total oil sands reserves (172.7 billion barrels), extraction rate (a linear increase from 482 million barrels per year in 2007 to 1,350 million barrels in 2015, and constant thereafter) and price ($70 per barrel, 2007 CAD) increases the estimated present value of the oil sands to $1,482.7 billion (2007 CAD), 4.3 times larger than the official estimate of $342.1 billion. Using our preferred estimate, Canada?s total tangible wealth increases by $1.1 trillion (17 per cent), and reaches $8.0 trillion with oil sands now accounting for 18 per cent of Canada?s tangible wealth. The importance of these revisions is also demonstrated by their impact on the per-capita wealth of Canadians, which increases from $209,359 to $243,950, or by $34,591 (or 17 per cent). Given the importance of the oil sands for Canada, Statistics Canada should undertake a review of its methodology. In light of the growing body of climatologic literature supporting an association between anthropogenic GHG emissions and global climate change, no analysis of the „true value? of the oil sands would be complete without an accounting of the social costs of the GHG emissions that arise from oil sands development. According to our baseline estimates, the oil sands impose a total social cost related to GHG emissions of $69.4 billion. In making this estimate, we assume that each barrel of oil sands output imposes a social cost of $2.25 (based on a cost of $30/tCO2-e and an intensity of 0.075 tCO2-e/bbl). Our preferred estimate of the net present value of oil sands wealth net of GHG cost is thus $1,413.3 billion, 4.1 times greater than the Statistics Canada estimate which does not account for any environmental costs. This report does not account for non-GHG related environmental and social costs. A comprehensive valuation of all environmental costs are needed to assess whether future benefits derived from oil sands development are outweighed by even larger environmental costs.
    Keywords: Cost-Benefit, Oil Sands, Environmental Damage, CO2 Emissions, Alberta, Energy, Natural Resources, Valuation
    JEL: E20 E21 Q43 Q51 Q54 O51
    Date: 2008–11
  2. By: CHAKRAVORTY, Ujjayant; LEACH, Andrew; MOREAUX, Michel
    JEL: Q12 Q32 Q41
    Date: 2008–12
  3. By: Olutomi I Adeyemi (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey); David C Broadstock (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey); Mona Chitnis (Surrey Energy Economics Centre (SEEC) and Research Group on Lifestyles Values and Environment (RESOLVE), University of Surrey); Lester C Hunt (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey); Guy Judge (Department of Economics, University of Portsmouth)
    Abstract: A number of energy demand studies have considered the importance of modelling Asymmetric Price Responses (APR), for example, the often-cited work of Gately and Huntington (2002). Griffin and Schulman (2005) questioned the asymmetric approach arguing that this is only capturing energy saving technical progress. Huntington (2006), however, showed that for whole economy aggregate energy and oil demand there is a role statistically for both APR and exogenous energy saving technical change. In a separate strand of the literature the idea of the Underlying Energy Demand Trend (UEDT) has been developed, see for example Hunt et al. (2003a and 2003b) and Dimitropoulos et al. (2005). They argue that it is important, in time series energy demand models, to allow for stochastic trends (or UEDTs) based upon the structural time series/dynamic regression methodology recommended by Harvey (1989, 1997). This paper attempts to bring these strands of the literature together by conducting tests for the UEDT and APR in energy demand models within both a panel context (consistent with the Huntington, 2006 approach) and the structural time series modelling framework. A set of tests across a range of specifications using time-series and panel data are therefore undertaken in order to ascertain whether energy saving technical change (or the more general UEDT) and APR are substitutes for each other when modelling energy demand or whether they are actually picking up different influences and are therefore complements. Using annual whole economy data for 17 OECD countries over the period 1960 – 2004 the results suggest that in general the UEDT and ARP are complementary estimation methodologies when modelling aggregate energy demand. It is argued therefore that energy demand modellers should not assume at the outset that one method is superior to the other. Moreover, wherever possible, a general model (be it in a time series or panel context) that includes a ‘non linear UEDT’ and APR should be initially estimated, and only if accepted by the data should symmetry and/or a more restrictive UEDT be imposed.
    Keywords: Energy Demand, OECD, Asymmetric Price Responses, Underlying Energy Demand Trend.
    JEL: C22 C23 C52 Q41
    Date: 2008–10
  4. By: David C. Broadstock (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)
    Abstract: This paper analyses the production process of four industries over four separate time periods using datasets taken form Berndt and Wood (1975, 1979), Hunt (1984a, 1986), Norsworthy and Harper (1981) and Jorgensen and Stiroh (2000). In their initial paper Berndt and Wood failed to explore the alternative options available to them to represent technological progress, a deficiency noted by Hunt (1986) who tested for alternative representations of technology (inter alia) using the Berndt and Wood data. This paper extends this line of reasoning/research by allowing technological progress to take more flexible non-linear forms using both deterministic and stochastic trend models. The results reveal that ‘non-linear trend’ models are generally preferred to ‘linear trend’ or ‘no trend’ models hence raising a question over the validity of assumptions used in much previous empirical research. Further the results reveal that the different assumptions lead to different results for the energy-capital elasticity of substitution.
    Keywords: Translog, energy-capital substitution, productivity
    JEL: O33 O47 Q49
    Date: 2008–06
  5. By: Andreas V. Stokke, Gerard L. Doorman, Torgeir Ericson (Statistics Norway)
    Abstract: This paper analyses the demand response from residential electricity consumers to a demand charge grid tariff. The tariff charges the maximum hourly peak consumption in each of the winter months January, February and December, thus giving incentives to reduce peak consumption. We use hourly electricity consumption data from 443 households, as well as data on their network and power prices, the local temperature, wind speed and hours of daylight. The panel data set is analysed with a fixed effects regression model. The estimates indicate a demand reduction between 0.07 and 0.27 kWh/h in response to the tariff. This is on average a 5 percent reduction, with a maximum reduction of 9 percent in hour 8. The consumers did not receive any information on their continuous consumption or any reminders when the tariff was in effect. It is likely that the consumption reductions would have been even higher with more information to the consumers.
    Keywords: Electricity consumption; demand charge tariff; demand response
    JEL: D10 Q40
    Date: 2009–01
  6. By: Ziver Olmez (Independent researcher)
    Abstract: Since privatization, the 14 UK electricity distribution network operators (DNOs), being natural monopolies, have been subject to RPI-X regulation by the UK regulator (Ofgem). Mergers between the 14 DNOs have formed 7 identifiable ownerships (management teams). It is argued in this research that Ofgem has not used a sufficiently robust approach to benchmarking, and has therefore failed to accurately assess network efficiency gains. Furthermore, Ofgem has used invalid arguments against further mergers. By using more informative panel datasets, as well as a more robust estimation technique (Stochastic Frontier Analysis), this research reveals two crucial facts. Firstly, there is almost no more room for the DNOs in question to become more cost efficient, as the industry is operating close to minimum efficient scale. This suggests that Ofgem needs to widen its scope of benchmarking and regulation (e.g. quality-incorporated benchmarking). Secondly, there seems to be no increasing returns to scale in the industry, a more appropriate reason why further mergers should not take place.
    Keywords: Ofgem, Frontier Analysis, Mergers.
    JEL: L51 L52
    Date: 2008–12
  7. By: Sharon Harrison; Mark Weder
    Abstract: In this paper, we address the causes of the Roaring Twenties in the United States. In particular, we use a version of the real business cycle model to test the hypothesis that an extraordinary pace of productivity growth was the driving factor. Our motivation comes from the abundance of evidence of signi?cant technological progress during this period, fed by innovations in manufacturing and the widespread introduction of electricity. Our estimated total factor productivity series generate arti?cial model output that shows high conformity with the data: the model economy sucessfully replicates the boom years from 1922-1929.
    Keywords: Real Business Cycles, Roaring Twenties.
    JEL: E32 N12
    Date: 2009–01
  8. By: Fleten, Stein-Erik; Ringen, Geir
    Abstract: Uncertainty affecting project values makes investors hesitate to build new capacity unless profitability is significant. When analysing the potential for new renewable power system capacity in a region, it is therefore necessary to properly capture both uncertainty effects and decision-making behaviour of investors. Important stochastic factors typically include wholesale electricity prices and certificate prices. We calculate trigger levels for the sum of these factors, and compare these with the current long-term contract prices to estimate the potential for new renewable electricity capacity. We take into account the cost and technical potential of small hydro and wind in Norway, the number of prenotifications, concession applications and grants, and the capacity targets of subsidising governmental bodies. With an electricity certificate policy target of 41 TWh per year of new renewables for Sweden and Norway combined until 2016, we estimate that 12 TWh wind power and 6.2 TWh hydropower will be built in Norway. Due to the option value of waiting, most of this capacity will come after 2010.
    Keywords: Finance; Hydroelectric power generation; Power system planning; Stochastic processes; Uncertainty; Wind energy
    JEL: Q28 O13 Q42 G13 Q2
    Date: 2009–01
  9. By: Bettina Kretschmer; Sonja Peterson; Adriana Ignaciuk
    Abstract: Biofuels and other forms of bioenergy have received increased attention in recent times: They have partly been acclaimed as an instrument to contribute to rural development, energy security and to fight global warming but have been increasingly come under attack for their potential to contribute to rising food prices. It has thus become clear that bioenergy cannot be evaluated independently of the rest of the economy and that national and international feedback effects are important. In this paper we describe how the CGE model DART is extended to include first-generation biofuel production technologies. DART can now be used to assess the efficiency of combined climate and bioenergy policies. As a first example the effects of a 10% biofuel target in the EU are analyzed
    Keywords: biofuels, CGE model, climate policy
    JEL: D58 Q48 Q54
    Date: 2008–12
  10. By: Céline Gisèle Jung (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
    Abstract: Industrial waste is usually sorted in order to valorise most of minerals, polymers and metals. This sorting does generate a sorting residue with a rather high calorific value. The present study shows the opportunities of producing gaseous or liquid substitution fuels by pyrolysis or gasification of industrial sorting residues. By the use of the predictive model, it is possible to evaluate, for various inputs (tyres, fluffs, mixed plastics and biomass residues), the mass en energy balance for each of these thermal treatments. Opportunities to produce substitution fuels issued from these waste streams are evaluated.
    Date: 2008–09
  11. By: Marzo, Massimiliano (Universita di Bologna); Zagaglia, Paolo (Dept. of Economics, Stockholm University)
    Abstract: We study the pattern of contagion in volatility along the term structure of oil forwards. We use measures of codependence of returns from quantile regressions to discriminate between integration of the markets for different maturities in the cases of low and high volatility of the returns. Our results provide evidence of decoupling: for most of the maturities we consider, the probability of contagion falls during periods of high volatility.
    Keywords: conditional quantiles; oil prices
    JEL: C22 G15
    Date: 2009–01–15
  12. By: Garanina, Olga (BOFIT)
    Abstract: The objective of the paper is to study Russia's pattern of specialisation in the manufactures trade since 1998. Russia's global trade balance for manufactures is rapidly deteriorating. However, the trade pattern in manufactures should be differentiated according to Russia’s main trading partners: the European Union (EU), the Commonwealth of Independent States (CIS) and China. On the basis of trade indicator analysis (revealed comparative advantages and Grubel-Lloyd index of intra-industry trade), we show that Russia is globally disadvantaged in the manufactures trade vis-à-vis the EU and China, and advantaged in the trade with the within the CIS. Russia is managing to expand its manufactured exports to other CIS countries. However, it is gradually losing its role of main supplier of capital goods in the post-Soviet space.
    Keywords: international trade; trade specialisation; revealed comparative advantage; intra-industry trade; Russia
    JEL: F14
    Date: 2009–01–13
  13. By: AMIGUES, Jean-Pierre; MOREAUX, Michel
    JEL: O30 O41 Q01 Q32
    Date: 2008–11
  14. By: Ramprasad Sengupta
    Abstract: An analysis of the economic implication of judicial activism of the apex court of India in the regulation of automotive air pollution is analysed. It estimates the health damage cost of urban air pollution for 35 major urban agglomerations of India arising from automotive emissions and the savings that can be achieved by the regulation of fuel quality so as to conform to the Euro norms. It has used the results of some US based study and has applied the transfer of benefit method from the US to the Indian situation for the purpose. The paper finally makes a benefit cost analysis of refinery upgradation for such improvement of fuel quality.
    Keywords: fuel quality, health, urban pollution, air, cost benefit analysis, US, Indian, ecoomic implication, automotive, Euro, ,
    Date: 2009
  15. By: Sahlén, Linda (Department of Economics, Umeå University)
    Abstract: This thesis consists of four self-contained papers, which are all related to important environmental and natural resource issues from a developing country perspective. Paper [I] concerns climate policy and addresses the potential welfare gains of introducing a technology transfer from the North (richer countries) to the South (poorer countries). The results largely depend on the environmental policy in the pre- transfer resource allocation and, in particular, whether or not the South abates its own emissions. Although the technology transfer is desirable from a “global social planners” point of view, it is shown that the incentives to use the transfer might be weak from the perspective of the North; at least if the South takes its own measures to reduce emissions. However, in a situation where the North is committed to emission reductions according to the Kyoto protocol, it is shown that there will clearly be incentives for the North to use the technology transfer in order to reach the Kyoto targets in a more cost efficient way. In paper [II], the likely effects of an environmental fiscal reform in Namibia are examined by means of a Computable General Equilibrium (CGE) model. The results show that the introduction of an environmental fiscal reform, where taxes on natural and environmental resources (fish rents, energy and water) are recycled to the economy in different ways might give rise to benefits in terms of GDP, employment and income distribution, in addition to the environmental impacts. While subsidizing unskilled labour would give the most favourable outcome in terms of real GDP and employment impacts, a decrease in food taxes might be a more interesting option if GDP, employment, income distribution and environmental impacts are considered in combination. In paper [III], the value of irrigation water used for different crop alternatives in the Hardap region in Southern Namibia is estimated. The study finds that all crop alternatives that farmers in the region currently choose among, will remain financially viable after the planned increases in user charges. However, if full cost recovery is to be achieved in the future, substantial changes in the agricultural production will most likely be necessary. The method is also extended in order to study the potential effects on total water demand if further increases in user charges are implemented. Paper [IV] studies the likely effects of exogenous international food and oil price shocks on the Namibian economy. This is particularly interesting in a country where the domestic consumption of corn and petroleum products is mainly imported, and where water scarcity represents one of the main constraints to agricultural expansion. The results show that the Namibian economy will be negatively affected from the food and oil price increases, and water scarcity will further limit the ability of the economy to adapt to international oil and food price increases.
    Keywords: Climate policy; technology transfer; computable general equilibrium model; environmental fiscal reform; revenue recycling; water scarcity; resource prices
    JEL: D58 D62 H21 O13 Q18 Q25 Q52
    Date: 2009–01–14
  16. By: Zhang, ZhongXiang
    Abstract: The climate-trade nexus gains increasing attention as governments are taking great efforts to forge a post-2012 climate change regime to succeed the Kyoto Protocol. This raises the issues of the scope of trade-related measures and of when and how they could be used. To gain some guidance on the scope of trade provisions in a post-2012 climate regime, this paper first discusses the Montreal Protocol in which such trade provisions have been included. The paper argues that while it is unlikely for developing country parties to agree the inclusion of trade-related measures in a post-2012 climate regime, trade-related measures should, at the very least, be contemplated for a set of industrialized countries (Annex I or II countries) as part of the evolving climate regime. It should be specified how these measures will apply to non-complying parties within this group and when and how unilateral trade measures can be used against countries outside the group. To that end, the paper emphasizes that there is a clear need to define comparable efforts towards climate mitigation and adaptation to discipline the use of unilateral trade measures at the international level, as the Lieberman-Warner bill in the U.S. Senate demonstrated great possibility that some industrialized countries, if not all, are considering the term “comparable” as the standard by which to assess the efforts made by their trading partners in order to decide on whether to impose unilateral trade measures on them. While that bill died on the floor of the Senate, this is by no means the end of the prospect for border adjustment type of unilateral trade measures bill. The paper argues that the Lieberman-Warner type of border adjustment bill, in its current form, is likely to face WTO-consistency and methodological challenges. It also holds out more sticks than carrots to developing countries. In order to encourage developing countries to do more to combat climate change, the paper suggests that developed countries should clearly focus on carrots. Sticks can be incorporated, but only if they are credible and realistic and serve as a useful supplement to push developing countries to take actions or adopt policies and measures earlier than would otherwise have been the case.
    Keywords: Post-Kyoto climate negotiations; Trade-related measures; Developing countries
    JEL: F18 Q48 Q56 Q54 Q58
    Date: 2008–09–05
  17. By: Mandell, Svante (vti - Swedish National Road and Transport Research Institute); Wråke, Markus (IVL); Myers, Erica C. (RFF - Resources for the future); Burtraw, Dallas (RFF - Resources for the future); Holt, Charles A. (University of Virginia - Department of Economics)
    Abstract: An important feature in the design of an emissions trading program is how emissions allowances are initially distributed into the market. In a competitive market the choice between an auction and free allocation should, according to economic theory, not have any influence on firms’ production choices nor on consumer prices. However, many observers expect the method of allocation to affect product prices. This paper reports on the use of experimental methods to investigate behavior with respect to how prices will be determined under a cap-and-trade program. Participants initially display a variety of pricing strategies. However, given a simple economic setting in which earnings depend on this behavior, we find that subjects learn to consider the value of allowances and overall behavior moves toward that predicted by economic theory.
    Keywords: carbon dioxide; climate change; emissions trading; distributional effects; electricity; allocation; auctions
    JEL: C91 D44
    Date: 2009–01–13
  18. By: Annicchiarico, Barbara; Bennato, Anna Rita; Costa, Andrea
    Abstract: This paper examines the relationship between economic growth and carbon dioxide emissions in Italy for the period 1861-2003. Using cointegration, rolling regression and error correction modeling techniques, we find that growth and carbon dioxide emissions are strongly interrelated, and elasticity of pollutant emissions with respect to income has been decreasing over time. For the period 1960-2003 EKC estimates provide evidence for the existence of a reasonable "turning point". However, given the heavy dependence of Italian economy upon fossil fuels, meeting the emissions targets in the accomplishing of the Kyoto Protocol is a very challenging task.
    Keywords: Environmental Kuznets Curve; Carbon Dioxide Emissions; Time Series Analysis; Italian Economy
    JEL: Q50 C22
    Date: 2009–01

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