nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒02‒22
forty-one papers chosen by
Roger Fouquet
Imperial College, UK

  1. The EU’s Emissions Trading Scheme: A Proto-Type Global System By A. Denny Ellerman
  2. CO2 Abatement in the UK Power Sector: Evidence from the EU ETS Trial Period By Meghan McGuinness; A. Denny Ellerman
  3. Compliance Behavior in THE EU-ETS: Cross Border Trading, Banking and Borrowing By R. Trotignon; A. Denny Ellerman
  4. Grandfathering and the endowment effect - An Assessment in the context of the Spanish National Allocation Plan By Mar Reguant; A. Denny Ellerman
  5. Designing a US Market for CO2 By John E. Parsons; A. Denny Ellerman; Stephan Feilhauer
  6. A Top-down and Bottom-up look at Emissions Abatement in Germany in response to the EU ETS By A. Denny Ellerman; Stephan Feilhauer
  7. Does the Clean Development Mechanism have a viable future? By Cathrine Hagem and Bjart Holtsmark
  8. The Role of R&D and Technology Diffusion in Climate Change Mitigation: New Perspectives using the WITCH Model By Valentina Bosetti; Carlo Carraro; Romain Duval; Alessandra Sgobbi; Massimo Tavoni
  9. International Trade and the Negotiability of Global Climate Change Agreements By John Whalley; Yuezhou Cai; Raymond Riezman
  10. The Measurement of CO2 Embodiments in International Trade : Evidence from the Harmonised Input-Output and Bilateral Trade Database By Satoshi Nakano; Asako Okamura; Norihisa Sakurai; Masayuki Suzuki; Yoshiaki Tojo; Norihiko Yamano
  11. Discounting for Climate Change By Anthoff, David; Tol, Richard S. J.; Yohe, Gary W.(Wesleyan University, CT, USA)
  12. The Cost of Climate Change to the German Fruit Vegetation Sector By Claudia Kemfert; Hans Kremers
  13. Optimal Global Dynamic Carbon Taxation By Anthoff, David
  14. The Great climate debate : A Developing country perspective By B. Sudhakara Reddy; Gaudenz B. Assenza
  15. L’Europe face au changement climatique : pour une régulation commerciale climat-compatible By Mehdi Abbas
  16. A constant-utility criterion linked to an imperfect economy affected by irreversible global warming By Andrei V. Bazhanov
  17. "Twin Peaks" in Energy Prices: A Hotelling Model with Pollution Learning By Chakravorty, Ujjayant; Leach, Andrew; Moreaux, Michel
  18. Macroeconomic Factors and Oil Futures Prices: A Data-Rich Model By Zagaglia, Paolo
  19. Oil Prices and Real Exchange Rates in Oil-Exporting Countries: A Bounds Testing Approach By Jahan-Parvar, Mohammad R.; Mohammadi, Hassan
  20. Income and Health Spending: Evidence from Oil Price Shocks By Daron Acemoglu; Amy Finkelstein; Matthew J. Notowidigdo
  21. World Oil: Market or Mayhem? By James L. Smith
  22. Taxation of Oil Products and GDP Dynamics of Oil-rich Countries By DAUBANES Julien
  23. The Effect of Power Plants on Local Housing Values and Rents: Evidence from Restricted Census Microdata By Lucas W. Davis
  24. Energy Use and Appliance Ownership in Ireland By Leahy, Eimear; Lyons, Seán
  25. Understanding industrial energy use: Physical energy intensity changes in Indian manufacturing sector By Binay Kumar Ray; B. Sudhakara Reddy
  26. An Entrepreneurship model for energy empowerment of Indian households: An Eonomic and policy analysis By B. Sudhakara Reddy; P. Balachandra; Hippu Salk Kristle Nathan
  27. European natural gas markets: resource constraints and market power By Gijsbert Zwart
  28. Liberalisation of Natural Gas Market – EU Vision vs. Reality By Monika Slabá
  29. Modeling Freight Markets for Coal By Andersson, Jonas; Jörnsten, Kurt; Strandenes, Siri Pettersen; Ubøe, Jan
  30. Democracy and the curse of natural resources By Antonio Cabrales; Esther Hauk
  31. Enhancing Agriculture and Energy Sector Analysis in CGE Modelling: An Overview of Modifications to the USAGE Model By R. Ashley P. Winston
  33. A time delay model for a new technology By Lucia Maddalena; Viviana Fanelli
  34. Modelling electricity forward curve dynamics in the Italian market By Silvana Musti; Viviana Fanelli
  35. An Empirical Model of Imperfect Dynamic Competition and Application to Hydroelectricity Storage By Olli Kauppi; Matti Liski
  36. Do Trading and Power Operations Mix? The Case of Constellation Energy Group 2008 By John E. Parsons
  37. Expectations and Forward Risk Premium in the Spanish Power Market By María Dolores Furió; Vicente Meneu
  38. Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy By Adrien de Hauteclocque; Jean-Michel Glachant
  39. Moving Beyond the Privatisation Debate: Different Approaches to financing Water and Electricity in Developing Countries By Daniel Platz
  40. Regulatory federalism in network industries By Francesc Trillas
  41. Challenges for Creating a Comprehensive National Electricity Policy By Paul Joskow

  1. By: A. Denny Ellerman
    Abstract: The European Union's Emission Trading Scheme (EU ETS) is the world's first multinational cap-and-trade system for greenhouse gases. As an agreement between sovereign nations with diverse historical, institutional, and economic circumstances, it can be seen as a prototype for an eventual global climate regime. Interestingly, the problems that are often seen as dooming a global trading system — international financial flows and institutional readiness — haven't appeared in the EU ETS, at least not yet. The more serious problems that emerge from the brief experience of the EU ETS are those of (1) developing a central coordinating organization, (2) devising side benefits to encourage participation, and (3) dealing with the interrelated issues of harmonization, differentiation, and stringency. The pre-existing organizational structure and membership benefits of the European Union provided convenient and almost accidental solutions to the need for a central institution and side benefits, but these solutions will not work on a global scale and there are no obvious substitutes. Furthermore, the EU ETS is only beginning to test the practicality of harmonizing allocations within the trading system, differentiating responsibilities among participants, and increasing the stringency of emissions caps. The trial period of the EU ETS punted on these problems, as was appropriate for a trial period, but they are now being addressed seriously. From a global perspective, the answers that are being worked out in Europe will say a great deal about what will be feasible on a broader, global scale.
    Date: 2008–09
  2. By: Meghan McGuinness; A. Denny Ellerman
    Abstract: This paper provides an empirical assessment of CO2 emissions abatement in the UK power sector during the trial period of the EU ETS. Using an econometrically estimated model of fuel switching, it separates the impacts of changes in relative fuel prices and changes in the EUA price on the utilization and emissions of coal and natural gas-fired generating units. We find clear statistical evidence that the CO2 price did impact dispatch decisions, resulting in natural gas utilization that was from 19% to 24% higher and coal utilization that was 16% to 18% lower than would have otherwise occurred in 2005 and 2006. Abatement as a result of fuel switching in the power sector is estimated to have been between 13 million and 21 million tons of CO2 in 2005 and 14 and 21 million tons in 2006.
    Date: 2008–09
  3. By: R. Trotignon; A. Denny Ellerman
    Abstract: This paper exploits a little used data resource within the central registry of the European Union’s Emissions Trading System (EU ETS) to analyze cross border flows of allowances for compliance purposes during the first trading period (2005- 2007). The extent of cross border trading is small in the aggregate but remarkably frequent in matching allowance deficits and surpluses at the installation level throughout the EU. As such, these data provide evidence of the high and wide-spread market participation that is the precondition of efficient abatement in a cap-and-trade system. There is also remarkable little difference in the monetization of allowance surpluses between participants in the EU15 and those in the East European New Member States. Finally, comparison of these data with the more commonly reported data on allocations and verified emissions reveals considerable recourse to a novel feature of the EU ETS: borrowing from the next year’s allocation to satisfy current compliance requirements.
    Date: 2008–09
  4. By: Mar Reguant; A. Denny Ellerman
    Abstract: In this paper, we test the Coase theorem in the context of carbon emissions trading. We investigate whether generating firms were influenced in their operational decisions by the initial amount of grandfathered emissions in the trial period of the European Union Emission Trading Scheme (EU-ETS). Theory suggests that under certain assumptions, the initial allocation should not affect production outcomes. We exploit a non-linearity in the allocation rule of CO2 allowances across coal plants in Spain to test for the relevance of the initial allocation to abatement outcomes. The evidence suggests no systematic relationship between the initial endowment and production decisions at the unit level.
    Date: 2008–11
  5. By: John E. Parsons; A. Denny Ellerman; Stephan Feilhauer
    Abstract: This is a speech given to the National Press Club, September 26, 2008 outlining the need for comprehensive reform of the electric power sector in the U.S. It outlines the centrality of the electricity sector to the economy and to any national energy and climate policies. The U.S. electric power sector is the last energy sector in the U.S. to be brought into the 21st century with organization and regulatory governance institutions that are compatible with modern technology, future technological opportunities, reliability and environmental goals. The speech details the elements needed in a comprehensive national policy for the electric power sector.
    Date: 2009–01
  6. By: A. Denny Ellerman; Stephan Feilhauer
    Abstract: This paper uses top-down trend analysis and a bottom-up power sector model to define upper and lower boundaries on abatement in Germany in the first phase of the EU Emissions Trading Scheme (2005-2007). Long-term trend analysis reveals the decoupling of economic activity and carbon emissions in Germany that has occurred since 1996 and has accelerated since 2005, in response to rising commodities prices, the introduction of a carbon trading, and other measures undertaken in Germany. Differing emission intensity trends and emissions counterfactuals are constructed using emissions, power generation, and macroeconomic data. Resulting top-down estimates set the upper bound of abatement in Phase I at 121.9 mn tons for all EU-ETS sectors and 56.7 mn tons for the power sector only. Using the tuned version of the model “E-simulate” a lower boundary of Phase I abatement is established at 13.2 million tons, based only on fuel switching in the power sector, which constitutes 61% of German ETS sector emissions. The paper characterizes abatement, critically discusses the underlying assumptions of the outcomes, and examines the impact of two main factors on power sector abatement, namely price and load.
    Date: 2008–11
  7. By: Cathrine Hagem and Bjart Holtsmark (Statistics Norway)
    Abstract: The developed countries can meet part of their Kyoto commitments by investing in emission-reducing projects in developing countries (the Clean Development Mechanism, CDM). Since the developing countries have so far not been willing to accept binding emission commitments, the CDM has been the only mechanism available for ensuring emission-abatement measures in developing countries. We argue that the CDM is not an efficient tool for achieving deep cuts in global emissions and conclude that maintaining the CDM as an option for developing countries may in itself be a serious obstacle to more binding participation by these countries.
    Keywords: Clean development mechanism; climate agreement; emissions trading; emissions reductions.
    JEL: Q54 Q56
    Date: 2009–02
  8. By: Valentina Bosetti; Carlo Carraro; Romain Duval; Alessandra Sgobbi; Massimo Tavoni
    Abstract: This paper uses the WITCH model, a computable general equilibrium model with endogenous technological change, to explore the impact of various climate policies on energy technology choices and the costs of stabilising greenhouse gas concentrations. Current and future expected carbon prices appear to have powerful effects on R&D spending and clean technology diffusion. Their impact on stabilisation costs depends on the nature of R&D: R&D targeted at incremental energy efficiency improvements has only limited effects, but R&D focused on the emergence of major new low-carbon technologies could lower costs drastically if successful – especially in the non-electricity sector, where such low-carbon options are scarce today. With emissions coming from multiple sources, keeping a wide range of options available matters more for stabilisation costs than improving specific technologies. Due to international knowledge spillovers, stabilisation costs could be further reduced through a complementary, global R&D policy. However, a strong price signal is always required.<P>Le rôle de la R&D and de la diffusion des technologies dans l’atténuation du changementclimatique : nouvelles perspectives à l’aide du modèle WITCH<BR>Cet article utilise le modèle WITCH, un modèle d’équilibre général calculable à progrès technique endogène, afin d’explorer l’impact de diverses politiques climatiques sur les choix de technologies énergétiques et les coûts de stabilisation des concentrations de gaz à effet de serre. Il apparaît que les prix courants et anticipés du carbone ont des effets puissants sur la dépense en R&D et la diffusion des technologies propres. Leur impact sur les coûts de stabilisation dépend de la nature de la R&D : une R&D améliorant l’efficacité énergétique de façon incrémentale a des effets limités, mais une R&D visant à l’émergence de nouvelles technologies sobres en carbone pourrait drastiquement réduire les coûts en cas de succès – notamment dans le secteur non-électrique, où de telles options sobres en carbone sont aujourd’hui rares. Les émissions provenant de sources multiples, garder un éventail d’options aussi large que possible influence davantage les coûts de stabilisation qu’améliorer certaines technologies spécifiques. Du fait des externalités internationales liées à la R&D, les coûts de stabilisation peuvent être encore réduits par une politique complémentaire de R&D mondiale. Cependant, un signal de prix fort est toujours nécessaire.
    Keywords: climate policy, energy R&D, politique climatique, R&D énergétique, fund, fonds, stabilisation costs, coûts de stabilisation
    JEL: H0 H2 H3 H4 O3 Q32 Q43 Q54
    Date: 2009–02–06
  9. By: John Whalley; Yuezhou Cai; Raymond Riezman
    Abstract: Country incentives to participate in cooperative arrangements which either fully or partially internalize climate change externalities from carbon emissions involve critical asymmetries. Small countries trade off own country costs of carbon mitigation actions against their own benefits from global improvements in climate which benefit all. Small countries thus have limited incentive to participate as their actions, while costly to them, have a significant impact on global temperature change which mainly benefits others. Here we build on the work of Shapley and Shubik (1969) which suggests that the core of a global warming game without transferable utility may be empty and use numerical simulation methods to analyse country incentives to participate in carbon emission limitation negotiations using a micro global warming structure related to that used by Uzawa(2003).We discuss how the presence of international trade in goods affects the willingness of countries to join international negotiations on climate change. We calibrate our simulation structure to business as usual scenarios for the period 2006-2036. We go significantly beyond the PAGE model relied on in the Stern (2006) report in capturing multi-country interactive effects on the benefit side of climate change mitigation. We show how the perceived severity of global climate change damage influences participation decisions, and importantly how international trade makes participation more likely.
    JEL: F13 Q54
    Date: 2009–02
  10. By: Satoshi Nakano; Asako Okamura; Norihisa Sakurai; Masayuki Suzuki; Yoshiaki Tojo; Norihiko Yamano
    Abstract: Efforts to reduce greenhouse gas (GHG) emissions which are linked to the global climate system such as the Kyoto Protocol might fail, if emission-restricted states relocate their carbon-intensive production activities to non-restricted countries where the primary production factors depend on more GHG-intensive sources. Such a relocation process and increased ‘carbon trade’ appear to be contrary to the GHG reductions envisioned in international agreements. This study addresses the issue of carbon embodiments in trade using internationally-comparable OECD data sources (Input-Output, Bilateral Goods Trade and CO2 emissions) for 41 countries/regions by 17 industries. Simulation results under base case scenarios for the mid-1990s and the early 2000s suggest that “trade deficits” of CO2 emissions are observed in 21 OECD countries in the early 2000s and that for 16 countries, the magnitude of the trade deficit increased in the late 1990s. While a third (860 Mt CO2) of the global increase in production-based emissions took place within the non-OECD economies in the late 1990s, more than half of the consumption-based emission (1550 Mt CO2) is still attributable to OECD consumption. The sensitivity simulations imply that an increase in global trade intensity has an increasing impact on embodied emissions while technology transfers from carbon-intensive countries to high carbon-intensive countries reduce global emissions and carbon trade gaps.<BR>Les efforts visant à réduire les émissions de gaz à effet de serre (GES) liées au système climatique mondial, notamment dans le cadre du Protocole de Kyoto, risquent d’échouer si les États où s’appliquent des limitations des émissions délocalisent leurs activités de production à forte intensité de carbone vers des pays où ces restrictions ne sont pas imposées et où les facteurs de production primaire sont tributaires de sources qui émettent plus de GES. Ce processus de délocalisation et l’augmentation des ‘échanges de carbone’ vont à l’encontre des réductions des GES envisagées dans les accords internationaux. Cette étude aborde la question des quantités de carbone incorporées dans les échanges en utilisant des sources de données de l’OCDE comparables au plan international (entrées-sorties, commerce bilatéral et émissions de CO2) concernant 41 pays/régions et 17 branches d’activité. Dans les résultats des simulations effectuées avec des scénarios de référence couvrant le milieu des années 1990 et le début des années 2000, on observe des “déficits des échanges” d’émissions de CO2 dans 21 pays de l’OCDE au début des années 2000 et, s’agissant de 16 pays, un accroissement du solde négatif de ces échanges à la fin des années 1990. Si un tiers (860 Mt de CO2) de l’augmentation mondiale des émissions dues à la production a été produit dans des économies non membres de l’OCDE à la fin des années 1990, plus de la moitié des émissions associées à la consommation (1550 Mt de CO2) sont encore imputables à la consommation de la zone OCDE. Les simulations des sensibilités laissent supposer qu’un accroissement de l’intensité des échanges mondiaux a un effet à la hausse sur les émissions incorporées, tandis que les transferts de technologie des pays moins émetteurs de carbone vers les pays gros émetteurs réduisent les émissions mondiales et les soldes négatifs des échanges de carbone.
    Date: 2009–02–06
  11. By: Anthoff, David (ESRI); Tol, Richard S. J. (ESRI); Yohe, Gary W.(Wesleyan University, CT, USA) (ESRI)
    Abstract: It is well-known that the discount rate is crucially important for estimating the social cost of carbon, a standard indicator for the seriousness of climate change and desirable level of climate policy. The Ramsey equation for the discount rate has three components: the pure rate of time preference, a measure of relative risk aversion, and the rate of growth of per capita consumption. Much of the attention on the appropriate discount rate for long-term environmental problems has focussed on the role played by the pure rate of time preference in this formulation. We show that the other two elements are numerically just as important in considerations of anthropogenic climate change. The elasticity of the marginal utility with respect to consumption is particularly important because it assumes three roles: consumption smoothing over time, risk aversion, and inequity aversion. Given the large uncertainties about climate change and widely asymmetric impacts, the assumed rates of risk and inequity aversion can be expected to play significant roles. The consumption growth rate plays four roles. It is one of the determinants of the discount rate, and one of the drivers of emissions and hence climate change. We find that the impacts of climate change grow slower than income, so that the effective discount rate is higher than the real discount rate. The differential growth rate between rich and poor countries determines the time evolution of the size of the equity weights. As there are a number of crucial but uncertain parameters, it is no surprise that one can obtain almost any estimate of the social cost of carbon. We even show that, for a low pure rate of time preference, the estimate of the social cost of carbon is indeed arbitrary ? as one can exclude neither large positive nor large negative impacts in the very long run. However, if we probabilistically constrain the parameters to values that are implied by observed behaviour, we find that the social cost of carbon, corrected for uncertainty and inequity, is 61 US dollar per metric tonne of carbon.
    Keywords: Climate change/income elasticity/inequity aversion/pure time preference/risk aversion/Social cost of carbon/time horizon/uncertainty/policy/growth
    JEL: Q54
    Date: 2009–01
  12. By: Claudia Kemfert; Hans Kremers
    Abstract: This paper applies the concept of damage coefficients introduced in Houba and Kremers (2008) to provide an estimate of the cost of climate change - in particular the cost of changes in mean regional temperature and precipitation - to the fruit vegetation sector. We concentrate on the production of apples in the German 'Alte Land' region. The estimated cost of climate change on apple-growing in the 'Alte Land' is dependent on the assumptions regarding developments in the rentability of land not related to climate change in the fruit sector.
    Keywords: fruit vegetation, Alte Land, climate change, land productivity, land rentability, cost of climate change
    JEL: D01 D21 D24 D61 D62 Q12 Q24 Q51 Q54 R32
    Date: 2009
  13. By: Anthoff, David (ESRI)
    Abstract: A necessary condition of an efficient global climate change mitigation policy is to equate marginal abatement costs across world regions to ensure use of the cheapest abatement options available. The welfare economic justification for such an approach rests on lump sum transfers between regions to compensate for any unwanted distributional consequences of such a policy. I contrast this efficient solution with a second best situation in which lump sum transfers between regions are impossible. I derive that in a dynamic setting optimal taxes are different in such a case for regions with different per capita consumption. I estimate the optimal tax rates with the integrated assessment model FUND and find that optimal mitigation is less stringent when equity is explicitly considered for widely used parameter choices of a utilitarian social welfare function.
    Keywords: Climate change
    Date: 2009–02
  14. By: B. Sudhakara Reddy (Indira Gandhi Institute of Development Research); Gaudenz B. Assenza (Palacky University Olomouc, Czech Republic)
    Abstract: For over two decades, scientific and political communities have debated whether and how to act on climate change. The present paper revisits these debates and synthesizes the longstanding arguments. Firstly, it provides an overview of the development of international climate policy and discusses clashing positions represented by sceptics and supporters of action on climate change. Secondly, it discusses the market-based measures as a means to increase the win-win opportunities and to attract profit-minded investors to invest in climate change mitigation. Finally, the paper examines whether climate protection policies can yield benefits both for the environment and the economy. The paper suggests the possibility of building environmental and climate policies around development priorities that are vitally important for developing countries and stresses the need for using sustainable development as a framework for climate change policies.
    Keywords: Climate change, Sceptic, Supporter, Developing country
    JEL: Q4 Q5
    Date: 2008–04
  15. By: Mehdi Abbas (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: L'article pose l'enjeu d'une régulation de l’échange international climat-compatible. Une mesure d’ajustement aux frontières ne constituerait qu’un instrument au sein d’un dispositif global visant à articuler le régime commercial de l’OMC au régime de lutte contre le changement climatique tel que défini par la Convention-cadre des Nations unies sur les changements climatiques (CCNUCC) et le protocole de Kyoto. L’instauration d’une politique environnementale de protection, à laquelle renvoie le projet d’une taxe CO2, ne représente pas la solution unique et suffisante. Au contraire, il convient de la concevoir dans le cadre d’une architecture globale de la gouvernance climatique.Après un rappel des enjeux des mesures d’ajustement aux frontières, puis une analyse des difficultés considérables à la mise en œuvre de solutions fiscales, nous identifierons quatre stratégies alternatives pour l’Union. La première est celle d’une offre de libéralisation commerciale comme incitation à la lutte contre le changement climatique. La deuxième s’appuierait sur la rénovation de certaines dispositions des accords commerciaux multilatéraux. La troisième serait l’option d’une dérogation à la norme multilatérale. Enfin, la dernière solution consisterait à élargir la perspective en vue de l’élaboration d’un système de gouvernance combinée OMC-CCNUCC.
    Date: 2009–02
  16. By: Andrei V. Bazhanov
    Abstract: The question of formulation of a social planner criterion for an imperfect economy is examined using an example of a polluting economy negatively affected by growing temperature. Imperfection of the economy is expressed here in deviations from the optimal initial state. It is shown that a criterion not linked to a specific initial state almost always implies either unsustainable or inefficient paths in the economy. In this paper, I link the constant-utility criterion to the initial amount of the resource reserve. This criterion implies efficient resource use and the paths of utility asymptotically approaching some constants, which depend on the parameters of the temperature function. The criterion can be formulated for the cases when the reserve estimate changes over time and when the high level of temperature can cause extinction.
    Keywords: Essential nonrenewable resource, imperfect polluting economy, economy-linked criterion, semisustainable development, semiefficient extraction.
    JEL: O13 Q32 Q38
    Date: 2009–02–03
  17. By: Chakravorty, Ujjayant (University of Alberta, Department of Economics); Leach, Andrew (University of Alberta, School of Business); Moreaux, Michel (Laboratory of Natural Resource Economics, Toulouse School of Economics)
    Abstract: We study how environmental regulation in the form of a cap on aggregate emissions from a fossil fuel (e.g., coal) affects the arrival of a clean substitute (e.g., solar energy). The cost of the substitute decreases with cumulative use because of learning-by-doing. We show that energy prices may initially increase but then decline upon attaining the targeted level of pollution, followed by another cycle of rising and falling prices. The surprising result is that with pollution and learning, the Hotelling model predicts the cyclical behavior of energy prices in the long run. The alternating trends in upward or downward price movements we show may at least partially explain recent empirical findings by Lee, List and Strazicich (2006) that long run resource prices are stationary around deterministic trends with structural breaks in intercept and trend slope. The main implication of our results is that testing for secular price trends as predicted by the textbook Hotelling model may lead to incorrect conclusions regarding the predictive power of the theory of nonrenewable resource economics.
    Keywords: dynamic models; energy markets; environmental externalities; global warming; technological change
    JEL: Q12 Q32 Q41
    Date: 2009–02–01
  18. By: Zagaglia, Paolo (Dept. of Economics, Stockholm University)
    Abstract: I study the dynamics of oil futures prices in the NYMEX using a large panel dataset that includes global macroeconomic indicators, financial market indices, quantities and prices of energy products. I extract common factors from these series and estimate a Factor-Augmented Vector Autoregression for the maturity structure of oil futures prices. I find that latent factors generate information that, once combined with that of the yields, improves the forecasting performance for oil prices. Furthermore, I show that a factor correlated to purely financial developments contributes to the model performance, in addition to factors related to energy quantities and prices.
    Keywords: Crude Oil; Futures Markets; Factor Models
    JEL: C53 D51 E52
    Date: 2009–02–10
  19. By: Jahan-Parvar, Mohammad R.; Mohammadi, Hassan
    Abstract: We test the validity of the Dutch disease hypothesis by examining the relationship between real oil prices and real exchange rates in a sample of fourteen oil exporting countries. Autoregressive distributed lag (ARDL) bounds tests of cointegration support the existence of a stable relationship between real exchange rates and real oil prices in all countries, suggesting a strong support for the Dutch disease hypothesis.
    Keywords: Oil Prices; Real Exchange Rates; Dutch Disease; Cointegration; Autoregressive Distributed Lags.
    JEL: C32 F37 C52 F31
    Date: 2008–12–28
  20. By: Daron Acemoglu; Amy Finkelstein; Matthew J. Notowidigdo
    Abstract: Health expenditures as a share of GDP have more than tripled over the last half century. A common conjecture is that this is primarily a consequence of rising real per capita income, which more than doubled over the same period. We investigate this hypothesis empirically by instrumenting for local area income with time-series variation in global oil prices between 1970 and 1990 interacted with cross-sectional variation in the oil reserves across different areas of the Southern United States. This strategy enables us to capture both the partial equilibrium and the local general equilibrium effects of an increase in income on health expenditures. Our central estimate is an income elasticity of 0.7, with an elasticity of 1.1 as the upper end of the 95 percent confidence interval. Point estimates from alternative specifications fall on both sides of our central estimate, but are almost always less than 1. We also present evidence suggesting that there are unlikely to be substantial national or global general equilibrium effects of rising income on health spending, for example through induced innovation. Our overall reading of the evidence is that rising income is unlikely to be a major driver of the rising health share of GDP.
    JEL: H51 I1
    Date: 2009–02
  21. By: James L. Smith
    Abstract: The world oil market is regarded by many as a puzzle. Why are oil prices so volatile? What is OPEC and what does OPEC do? Where are oil prices headed in the long run? Is “peak oil” a genuine concern? Why did oil prices spike in the summer of 2008, and what role did speculators play? Any attempt to answer these questions must be informed and disciplined by economics. Such is the purpose of this essay: to illuminate recent developments in the world oil market from the perspective of economic theory.
    Date: 2008–09
  22. By: DAUBANES Julien
    Date: 2009–02
  23. By: Lucas W. Davis
    Abstract: Current trends in electricity consumption imply that hundreds of new fossil-fuel power plants will be built in the United States over the next several decades. Power plant siting has become increasingly contentious, in part because power plants are a source of numerous negative local externalities including elevated levels of air pollution, haze, noise and traffic. Policymakers attempt to take these local disamenities into account when siting facilities, but little reliable evidence is available about their quantitative importance. This paper examines neighborhoods in the United States where power plants were opened during the 1990s using household-level data from a restricted version of the U.S. decennial census. Compared to neighborhoods farther away,housing values and rents decreased by 3-5% between 1990 and 2000 in neighborhoods near sites. Estimates of household marginal willingness-to-pay to avoid power plants are reported separately for natural gas and other types of plants, large plants and small plants, base load plants and peaker plants, and upwind and downwind households.
    Date: 2008–06
  24. By: Leahy, Eimear (ESRI); Lyons, Seán (ESRI)
    Abstract: This paper examines domestic energy use and appliance ownership in Ireland. Regression analyses on a large micro-dataset reveal how household characteristics can help explain the ownership of energy using appliances. The location of the household, the number of rooms and household income are important factors, as are certain characteristics of the highest earner in the household such as education level and age. We also find evidence that household income, number of persons, accommodation characteristics, region, and age of the highest earner can help explain domestic electricity use, even after taking account of the household's endowment of appliances. The level of demand for domestic heating is also associated with housing tenure and the employment status of the highest earner.
    Keywords: appliance ownership/energy efficiency/Energy use/Ireland/education
    Date: 2009–02
  25. By: Binay Kumar Ray (Indira Gandhi Institute of Development Research); B. Sudhakara Reddy (Indira Gandhi Institute of Development Research)
    Abstract: We develop and analyze physical energy intensity indicators for Indian manufacturing sector. Energy consumption in five industrial sub-sectors, viz., iron and steel, aluminium, textiles, paper and cement is examined for the period 1990Ä2005. It is feasible to develop specific energy consumption indicators that reflect the physical reality more accurately than monetary energy intensities. These indicators allow us to analyze the effect of change in product mix over time. The use of physical energy intensity indicators improves comparability between countries, offers valuable input for policy-makers regarding intra-sectoral structural changes, and provides detailed explanation for observed changes in energy intensity. Hence, the results of the study point out the need to use physical indicators for policy making.
    Keywords: Energy intensity, manufacturing/industry sector, product mix, energy indicators
    JEL: P28 Q42 Q43
    Date: 2008–06
  26. By: B. Sudhakara Reddy (Indira Gandhi Institute of Development Research); P. Balachandra (Indian Institute of Science); Hippu Salk Kristle Nathan (Indira Gandhi Institute of Development Research)
    Abstract: Provision of modern energy services for cooking (gaseous fuels) and lighting (electricity) is an essential component of any policy aiming to address health, education or welfare issues; yet it gets little attention from policy-makers. Secure, adequate, low-cost energy of quality and convenience is core to the delivery of these services. The present study analyses the energy consumption pattern of Indian domestic sector and conceptualizes availability, accessibility, and affordability indicators of modern energy services to households and describes the practical ways of evaluating them. A comprehensive analysis is done to estimate the cost for providing modern energy services to everyone by 2030. A public-private partnership-driven business model, with entrepreneurship at the core, is developed with innovative institutional, financing and pricing mechanisms for diffusion of energy services. This approach facilitates large-scale dissemination of energy efficient and renewable technologies like small-scale biogas/biofuel plants, and solar water heating systems to provide clean, safe, reliable and sustainable energy to rural households and urban poor. It is expected to integrate the processes of market transformation and entrepreneurship development involving government, NGOs, financial institutions and community groups as stakeholders
    Keywords: Energy Service, Electricity, Biogas, Availability, Accessibility, Affordability
    JEL: Q4 L94 L95 L98
    Date: 2008–11
  27. By: Gijsbert Zwart
    Abstract: The European natural gas market is characterized by declining indigenous resources, particularly in the UK and the Netherlands, and a growing dependence on a small number of large exporters who, as a consequence, see their market power increasing.<br> In this paper we analyze long-run scenarios for the European natural gas markets in a model, NATGAS, that explicitly includes both factors, resource constraints and producers’ market power. <br> We analyze the impact of conditions on the global LNG market on market shares of pipeline gas suppliers, as well as on the speed of depletion of indigenous European resources. We focus on how shadow prices of resource constraints affect substitution patterns in the various scenarios.
    Keywords: European natural gas market; complementarity model; market power; resource rent
    JEL: C61 L13 Q31
    Date: 2008–12
  28. By: Monika Slabá (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In the article, I focus on the goal of creating a single competitive European natural gas market. After a brief discourse on the debate between theoretical and practical economists on the best mode to liberalise the energy sector, I lay out the vision of the European Union for gas market liberalisation and its outcome. With the help of a case study from the Czech Republic, I explain that the competencies of the European Union to reach its goals in a sufficient way are limited and, moreover, that EU reforms may even create unintended, negative side effects, which in some cases deliver less benefits than costs. The cause is the basic features – or the “nature” - of the gas market and the different institutional settings of each member state within which liberalisation has been implemented. The third package of legislation introduced by the European Commission in September 2007 should boost the single competitive market. Proposed provisions influence legal andregulatory rules and have an impact on market structure; however, none of these provisions have the power to change the key characteristics of the gas market, which remain the real source of the problem, namely the lack of self-sufficiency of the EU with regard to sources of natural gas and the oligopoly nature of important gas producers out of reach of EU legislation. The impossibility to change these key characteristics of the gas market indicates that a more important challenge than the third package will be active foreign policy of the EU, aimed either at opening markets beyond the EU border or at protecting fragile competition.
    Keywords: gas sector, liberalisation, unbundling, market structure, market performance, European Union, Czech Republic
    JEL: G34 L1 L43 L95
    Date: 2009–02
  29. By: Andersson, Jonas (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Jörnsten, Kurt (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Strandenes, Siri Pettersen (Dept. of Economics, Norwegian School of Economics and Business Administration); Ubøe, Jan (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: In this paper we study bulk shipping of coal between the central regions in the world. We compare the performance of cost-minimizing models with a gravity model approach. The main finding in the paper is that cost minimizing models provide relative poor fits to data. A simple one parameter gravity model, however, provides very satisfactory fits to observed behaviour.
    Keywords: Bulk freight; cost efficiency; gravity modeling
    JEL: F10 F17 R41
    Date: 2009–02–10
  30. By: Antonio Cabrales; Esther Hauk
    Abstract: We propose a theoretical model to explain empirical regularities related to the curse of natural resources. This is an explicitly political model which emphasizes the behavior and incentives of politicians. We extend the standard voting model to give voters political control beyond the elections. This gives rise to a new restriction into our political economy model: policies should not give rise to a revolution. Our model clarifies when resource discoveries might lead to revolutions, namely, in countries with weak institutions. Natural resources may be bad for democracy by harming political turnover. Our model also suggests a non-linear dependence of human capital on natural resources. For low levels of democracy human capital depends negatively on natural resources, while for high levels of democracy the dependence is reversed. This theoretical finding is corroborated in cross section regressions.
    Date: 2009–02
  31. By: R. Ashley P. Winston
    Abstract: This paper describes some key developments to USAGE, a dynamic computable general equilibrium (CGE) model of the US economy, aimed at enhancing its utility in agricultural and bio-fuels/bio-energy analysis. The USAGE model is a large-scale dynamic CGE model of the US economy developed by the Centre of Policy Studies at Monash University in collaboration with the US International Trade Commission (USITC), and has been updated and modified for this study with assistance from the Economic Research service of the US Department of Agriculture (ERS-USDA). Additional sectoral detail and theory are developed and applied to USAGE, including a detailed modeling of land use in US agriculture involving 72 types of land, the explicit modeling of TRQ policies and by-product biomass supply (such as crop residues) using nested complementarity relationships, and careful accounting for subsidies in US ethanol production and their effects on public revenue streams.
    Keywords: USAGE, US agriculture, by-product biomass supply, complementarity relationships, ethanol production
    JEL: Q24 Q42 Q48 C68
    Date: 2009–01
  32. By: Perry, Miles
    Abstract: World trade in biomass is likely to increase in the years up to 2020 as imports are required to meet the demand created (directly or indirectly) by policy measures such as the EU Biofuels Directive. This paper assesses the macroeconomic consequences such large-scale trade for the exporting country, using a computable general equilibrium (CGE) model of Argentina. Given an exogenous increase in world prices for biomass, the model finds that production shifts towards biomass and away from other sectors. Implications of this include changes in the relative prices of goods and the purchasing power of labour. Price rises are largest in land-intensive sectors of the economy and the overall purchasing power of labour is adversely affected since biomass sectors are among the least labour intensive. When expansion of the agricultural area is permitted, relative price changes become less pronounced. However, expansion of the agricultural frontier may have adverse environmental impacts, including lowering the net GHG savings attributable to the biomass produced.
    Keywords: CGE; Biofuels; Argentina
    JEL: F18 Q17 Q5 D58
    Date: 2008–06–05
  33. By: Lucia Maddalena; Viviana Fanelli
    Abstract: In this paper we propose a mathematical model with time delay to describe the process of the diffusion for a new technology. This model is suitable for modelling diffusion processes of all those technologies, such as technologies used for producing renewable energy, that require great initial investments and public subsidies. We consider external factors, such as the government policy and the production costs, that influence the decision making process for new technology adoption. We also consider the internal influence from those who already are adopters. The time delay represents the evaluation stage at which the potential consumers decide whether to adopt the new technology or not. A delay differential equation describes the process of adoption. A qualitative analysis is carried out in order to study the stability of the equilibrium for certain parameters and to find the final level of adopters.
    Keywords: delay differential equation, innovation diffusion, global stability
    Date: 2008–10
  34. By: Silvana Musti; Viviana Fanelli
    Abstract: In this paper we discuss the modelling of electricity contracts traded in the Italian market. We directly model the forward price of the electricity. We apply the Heath Jarrow Morton model in order to simulate the forward rate dynamics and evaluate first the forward price with instantaneous delivery time and then the "swap price" with delivery over a period. We use a regime-switching model to introduce jumps and spikes that depend on the state of the system. Thus the model describes the properties of the electricity price dynamics both in a base stable regime and in a spike regime. A numerical algorithm is developed to simulate swap price trajectories.
    Keywords: Electricity prices; HJM model, Jump-diffusions; Regimeswitches; Spikes.
    Date: 2008–11
  35. By: Olli Kauppi; Matti Liski
    Abstract: The Nordic power market presents a unique opportunity for testing the nature and degree of market power in storage behavior due to preciseness of data on market fundamentals determining hydro resource use. We develop an explicit model of dynamic imperfect competition mapping the primitive distributions to market outcomes as a function of the market structure. We estimate the market structure that best explains the main behavioral patterns in pricing, storage, and production in years 2000-05. Exceptional events in the data allow us to identify a pattern for market power. We simulate the expected effiency loss from the pattern and limited scope for social losses. Market power however increases expected reservoir and price levels, and also implies an increase in price risk.
    Date: 2008–09
  36. By: John E. Parsons
    Abstract: Constellation Energy has been a leading performer in the merchant power business since 2001. In addition to its legacy utility, Baltimore Gas and Electric, Constellation is a merchant generator and a wholesale power marketer serving the load of utilities as well as industrial, commercial and retail customers. Constellation has developed sophisticated risk management capabilities and a large trading operation in electric power and related commodities. In a recent reorganization, Constellation gave its trading operations greater organizational independence and prominence. It also increased the scale of its proprietary trading, and used its trading operation as the tool for expanded investments into upstream natural gas and coal and international freight. In August and September of 2008, Constellation experienced a major liquidity crisis that saw its stock price fall by nearly three-quarters. In an emergency search for cash, it was forced to agree to sell itself at the low price. This paper reviews Constellation’s history and the specific events precipitating its liquidity crisis. It then places Constellation’s strategy vis-à-vis its commodity trading operations in the context of the larger history of commodity trading operations and discusses the key financial and strategic questions posed by Constellation’s crisis.
    Date: 2008–11
  37. By: María Dolores Furió (Universitat de València); Vicente Meneu (Universitat de València)
    Abstract: To analyse the forward risk premium in the Spanish electricity market, we adopt not only an ex post approach, but also an ex ante. We find that the sign of the ex post forward premium depends on the unexpected variation in demand and on the unexpected variation in the hydro-energy capacity, and that the ex ante forward premium varies with the expected demand in tight market conditions, showing that the participation of forward dealing agents in the Spanish market responds to risk considerations. Moreover, we find support for the implications derived from the Bessembinder & Lemmon (2002) equilibrium model.
    Date: 2009–01
  38. By: Adrien de Hauteclocque; Jean-Michel Glachant
    Abstract: Long-term supply contracts often have ambiguous effects on the competitive structure, investment and consumer welfare in the long term. In a context of market building, these effects are likely to be worsened and thus even harder to assess. Since liberalization and especially since the release of the Energy Sector Enquiry in early 2007, the portfolio of long-term supply contracts of the former incumbents have become a priority for review by the European Commission and the national competition authorities. It is widely believed that European Competition authorities take a dogmatic view on these contracts and systemically emphasize the risk of foreclosure over their positive effects on investment and operation. This paper depicts the methodology that has emerged in the recent line of cases and argues that this interpretation is largely misguided. It shows that a multiple-step approach is used to reduce regulation costs and balance anti-competitive effects with potential efficiency gains. However, if an economic approach is now clearly implemented, competition policy is constrained by the procedural aspect of the legal process and the remedies imposed remain open for discussion.
    Date: 2008–11
  39. By: Daniel Platz
    Abstract: In today’s developing world the vast majority of water and electricity services are provided by public utilities. Rather than asking “who should provide the services”, the authors adopt a financing point of view and look at how access to basic utilities for all can be funded in a sustainable manner. The paper is based on a series of multi-stakeholder consultations which the Friedrich-Ebert-Stiftung, in cooperation with the UN Financing for Development Offi ce and the International Poverty Center of UNDP has organized in 2006 and 2007. [FES Occasional Paper]
    Keywords: water services, electricity, public provision of water, power distribution, public utilitite, public-private participation, Economics, Sociology
    Date: 2009
  40. By: Francesc Trillas (Universitat de Barcelona & IEB)
    Abstract: This article starts by surveying the literature on economic federalism and relating it to network industries. Some new developments (which focus on the role of inter-jurisdictional externalities and multiple objectives) are then added and used to analyze regulatory arrangements in telecommunications and energy in the EU and the US. Although central or federal policy making is more focused and specialized and makes it difficult for more interest groups to organize, it is not clear that under all conditions central powers will not be associated with underinvestment. When technology makes the introduction of competition in some segments possible, the possibilities for organizing the institutional architecture of regulation expand.
    Keywords: Regulation, federalism, network industries.
    JEL: L50 L94 L96 L97 K23 H77
    Date: 2008
  41. By: Paul Joskow
    Abstract: This is a speech given to the National Press Club, September 26, 2008 outlining the need for comprehensive reform of the electric power sector in the U.S. It outlines the centrality of the electricity sector to the economy and to any national energy and climate policies. The U.S. electric power sector is the last energy sector in the U.S. to be brought into the 21st century with organization and regulatory governance institutions that are compatible with modern technology, future technological opportunities, reliability and environmental goals. The speech details the elements needed in a comprehensive national policy for the electric power sector.
    Date: 2008–09

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