nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒04‒25
nineteen papers chosen by
Roger Fouquet
Imperial College, UK

  1. Forecasting electricity spot market prices with a k-factor GIGARCH process By Abdou Kâ Diongue; Dominique Guegan; Bertrand Vignal
  2. A game theoretic model for generation capacity adequacy in electricity markets: A comparison between investment incentive mechanisms By Mohamed Haikel Khalfallah
  3. Did Unexpectedly Strong Economic Growth Cause the Oil Price Shock of 2003-2008? By Hicks, Bruce; Kilian, Lutz
  4. EU Energy Policy and Regional Co-operation in South-East Europe: managing energy security through diversification of supply? By Diana Bozhilova
  5. Identifying Free-Riding in Energy-Conservation Programs Using Revealed Preference Data By Peter Grösche; Christoph M. Schmidt; Colin Vance
  6. Oil price shocks and their short- and long-term effects on the Chinese economy By Tang, Weiqi; Wu, Libo; Zhang, ZhongXiang
  7. Income and Health Spending: Evidence from Oil Price Shocks By Acemoglu, Daron; Finkelstein, Amy; Notowidigdo, Matthew J.
  8. Oil in Colombia: History, Regulation and Macroeconomic Impact By Juan Carlos Echeverry; Jaime Navas; Verónica Navas; María Paula Gómez
  9. Safety of Nuclear Power Plants: Design Safety Reqiurements By International Atomic Energy Agency IAEA
  10. Can Nuclear Power Supply Clean Energy in the Long Run? A Model with Endogenous Substitution of Resources By Chakravorty, Ujjayant; Magne, Bertrand; Moreaux, Michel
  11. Economic Optimality of CCS Use: A Resource-Economic Model By Daiju Narita
  12. Biofuels impact on crop and food prices: using an interactive spreadsheet By Scott Baier; Mark Clements; Charles Griffiths; Jane Ihrig
  13. Robust Control in Global Warming Management: An Analytical Dynamic Integrated Assessment By Hennlock, Magnus
  14. Global Warming and Economic Externalities By Armon Rezai, Duncan K. Foley, and Lance Taylor
  15. Economic Growth and Climate Change: Cap-And-Trade or Emission Tax? By Edward Nell, Willi Semmler, and Armon Rezai
  16. Growth and Climate Change: Threshold and Multiple Equilibria By Alfred Greiner, Lars Grüne and Willi Semmler
  17. Climate Feedbacks on the Terrestrial Biosphere and the Economics of Climate Policy: An Application of Fund By Tol, Richard S. J.
  18. It Is Fair To Act Now! The Distributional Impact Of A Carbon Tax Policy In Indonesia By Arief Anshory Yusuf
  19. Green Serves the Dirtiest. On the Interaction between Black and Green Quotas By Christoph Böhringer and Knut Einar Rosendahl

  1. By: Abdou Kâ Diongue (UFR SAT - Université Gaston Berger - Université Gaston Berger de Saint-Louis); Dominique Guegan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Bertrand Vignal (EDF - EDF - Recherche et Développement)
    Abstract: In this article, we investigate conditional mean and variance forecasts using a dynamic model following a k-factor GIGARCH process. We are particularly interested in calculating the conditional variance of the prediction error. We apply this method to electricity prices and test spot prices forecasts until one month ahead forecast. We conclude that the k-factor GIGARCH process is a suitable tool to forecast spot prices, using the classical RMSE criteria.
    Keywords: Conditional mean - conditional variance - forecast - electricity prices - GIGARCH process
    Date: 2009–04
  2. By: Mohamed Haikel Khalfallah (University of Lyon, Lyon, F-69003, France; CNRS, UMR 5824, GATE, Ecully, F-69130, France; ENS LSH, Lyon, F-69007, France)
    Abstract: In this paper we study the problem of long-term capacity adequacy in electricity markets. We implement a dynamic model in which operators compete for investment and electricity production under imperfect Cournot competition. The main aim of this work is to compare three investment incentive mechanisms: reliability options, forward capacity market - which are both market-based - and capacity payments. Apart from the oligopoly case, we also analyze collusion and monopoly cases. Stochastic dynamic programming is used to deal with the stochastic environment of the market (future demand) and mixed complementarity problem formulation is employed to find a solution to this game. The main finding of this study is that market-based mechanisms would be the most cost-efficient mechanism for assuring long-term system adequacy and encouraging earlier and adequate new investments in the system. Moreover, generators would exert market power when introducing capacity payments. Finally, compared with a Cournot oligopoly, collusion and monopolistic situations lead to more installed capacities with market-based mechanisms and increase end-users’ payments.
    Keywords: Electricity markets, capacity adequacy, dynamic programming, Nash-Cournot model, mixed complementarity problem
    JEL: C61 C68 C73 D58 L13 Q41
    Date: 2009
  3. By: Hicks, Bruce; Kilian, Lutz
    Abstract: Recently developed structural models of the global crude oil market imply that the surge in the real price of oil between mid-2003 and mid-2008 was driven by repeated positive shocks to the demand for all industrial commodities, reflecting unexpectedly high growth mainly in emerging Asia. This note evaluates this proposition using an alternative data source and a different econometric methodology. Rather than inferring demand shocks from an econometric model, we utilize a direct measure of global demand shocks based on revisions of professional real GDP growth forecasts. We show that recent forecast surprises were associated primarily with unexpected growth in emerging economies (and to a lesser extent in Japan), that markets were repeatedly surprised by the strength of this growth, that these surprises were associated with a hump-shaped response of the real price of oil that reaches its peak after 12 to 16 months, and that news about global growth predict much of the surge in the real price of oil from mid-2003 until mid-2008 and much of its subsequent decline.
    Keywords: Demand; EIU; Forecast Revisions; Global Real Activity; News; Oil price; Shocks
    JEL: C42 C53 Q43
    Date: 2009–04
  4. By: Diana Bozhilova
    Abstract: For decades after founding the ECSC (1951) the member states have relegated the issue of joint supranational energy policy development. The situation changed decisively in the early 1990s, with the dramatic shift in the geo-politics of the resource-rich Eurasia, following such developments as the collapse of the USSR and the Gulf War. In light of these developments, European states gradually consolidated their position in favour of supranational energy policy development. This paper presents an analysis of developments in EU energy policy given the ongoing realignment of strategic interest. It outlines the process of Europeanization, identifying caveats in the security of energy supply. It then proposes a solution to the main problematic of diversification of hydrocarbons supply through the fostering of regional co-operation amongst the states of South-East Europe (mainly Greece, Bulgaria and Turkey). The paper argues that this is the only viable and lasting solution to EU energy dependency away from Russia, at once showing the fundamental importance of pipeline ‘mapping’ in the area.
    Keywords: Energy, Regional Co-operation, Europeanization, Transmission Pipelines.
    Date: 2009–03
  5. By: Peter Grösche; Christoph M. Schmidt; Colin Vance
    Abstract: Identifying the incidence of free-ridership is significant to a range of issues relevant to program evaluation, including the calculation of net program benefits and more general assessments of political acceptability. Estimates of freeridership in the area of energy policy frequently rely on ex-post surveys that ask program participants whether they would have behaved differently in the absence of program support.The present paper proposes an ex-ante approach to the calculation of the free-rider share using revealed preference data on home renovations from Germany’s residential sector.We employ a discretechoice model to simulate the effect of grants on renovation choices, the output from which is used to assess the extent of free-ridership under a contemporary subsidy program. Aside from its simplicity, a key advantage of the approach is that it bestows policymakers with an estimate of free-ridership prior to program implementation.
    Keywords: Energy efficiency, residential sector,random utility model, discrete choice simulation
    JEL: C25 D12 Q4
    Date: 2009–03
  6. By: Tang, Weiqi; Wu, Libo; Zhang, ZhongXiang
    Abstract: A considerable body of economic literature shows the adverse economic impacts of oil-price shocks for the developed economies. However, there has been a lack of empirical study of this kind on China and other developing countries. This paper attempts to fill this gap by answering how and to what extent oil-price shocks impact China’s economy, emphasizing on the price transmission mechanisms. To that end, we develop a structural vector auto-regressive model. Our results show that an oil-price increase negatively affects output and investment, but positively affects inflation rate and interest rate. However, with the differentiated price control policies for materials and intermediates on the one hand and final products on the other hand in China, the impact on real economy, represented by real output and real investment, lasts much longer than that to price/monetary variables. Our decomposition results also show that the short-term impact, namely output decrease induced by the cut of capacity-utilization rate, is greater in the first one to two years, but the portion of the long-term impact, defined as the impact realized through an investment change, increases steadily and exceeds that of short-term impact at the end of the second year. Afterwards, the long-term impact dominates, and maintains for quite some time.
    Keywords: Structural vector auto-regressive model; Unit root test; Error-correction model; Oil-price shocks; Price transmission mechanisms; Investment; Output; Producer/consumer price index; Census X-12 approach; China
    JEL: Q41 O53 Q48 E22 O13 E23 P22 Q43
    Date: 2009–03
  7. By: Acemoglu, Daron; Finkelstein, Amy; Notowidigdo, Matthew J.
    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.
    Keywords: health care; income; technology
    JEL: H51 I1
    Date: 2009–04
  8. By: Juan Carlos Echeverry; Jaime Navas; Verónica Navas; María Paula Gómez
    Abstract: Colombia’s oil history began in 1918 and reached its golden era at the end of the 1980s. Regulation in the oil industry changed several times since 1974, mainly responding to the discoveries made. Although agreed contract terms have been honored for oil fields allocated in the past, regulation instability has affected long term the relationships with private investors, since new conditions were imposed for future contracts. Once too onerous conditions, too low prices and international competition drove investors away from the country, regulation was softened. Recently, the Colombian government has improved contractual terms and made tributary and royalty conditions more attractive to private investors. The important discoveries made in the last two decades led Colombia to an expenditure spiral, paired with a huge fiscal deficit and a high public debt, drastically changing a seven decade long record of fiscal stability. The cycle of cheap-expensive oil has exhibited a full swing, and although exploration contracts and investment have increased, no important discoveries have been made, revealing a complicated geology that might pose a challenge to the country’s hydrocarbons’ self-sufficiency.
    Date: 2009–03–12
  9. By: International Atomic Energy Agency IAEA
    Abstract: The document takes into account the developments relating to the safety of nuclear power plants since the Code on Design was last revised. These developments include the issuing of the Safety Fundamentals publication, The Safety of Nuclear Installations, and the present revision of various safety standards and other publications relating to safety.
    Keywords: ENGINEERING, QUALITY ASSURANCE, nuclear power plants, safety, radiation, defence, radioactive material, management, design management
    Date: 2009
  10. By: Chakravorty, Ujjayant (University of Alberta, Department of Economics); Magne, Bertrand (Paul Scherer Institut); Moreaux, Michel (Toulouse School of Economics)
    Abstract: This paper models nuclear energy by developing a dynamic model with endogenous substitution among polluting nonrenewable resources. Nuclear power can reduce the cost of generating clean energy significantly. However, continued expansion of nuclear capacity at historical rates is likely to cause a scarcity of uranium and make nuclear power costlier than other energy sources within a few decades. Renewables such as solar, wind and biomass, clean coal and next generation nuclear power may supply significant amounts of clean energy late this century. The cost of generating low carbon energy increases sharply if global carbon concentration targets are set at 450 ppm instead of 550 ppm. A policy implication is that the current political and regulatory impediments to the expansion of nuclear power generation may prove to be costly in a post-Kyoto world.
    Keywords: energy resources; environmental regulation; global warming; hotelling models; resource substitution
    JEL: Q32 Q41 Q48
    Date: 2009–04–16
  11. By: Daiju Narita
    Abstract: CCS (carbon dioxide capture and storage) is an issue which has received increasing attention in the debate on climate change over the last several years because of its relative technical simplicity and very large potential in reducing carbon dioxide emissions. The absence of secondary benefits and uncertainties associated with this approach, however, would require analysts to conduct fine cost-benefit comparisons vis-à-vis other mitigation options. The paper is to provide a perspective on future cost-benefit discussions of CCS by highlighting the optimality of CCS use viewed as a non-renewable resource with a limited capacity. Scarcity of CCS (storage) capacity should involve a shadow price which could raise CCS’s effective price – this is a fair assumption given the technological assessments of CCS so far, but no economic study has explicitly investigated this characteristic before. By using a simple analytical dynamic optimization model, we examine the optimal paths of CCS use, CCS’s real price inclusive of the shadow price, and their difference from the operational price. A particular implication of the model is that if all else is equal, the shadow price of CCS could make the technology relatively less attractive than renewable energy due to CCS’s reliance on scarce reservoirs and the resultant shadow value. This serves as a justification for giving differentiated incentives to different CO2 reduction options: more precisely, more encouragement should be given to renewable energy in comparison to CCS
    Keywords: Carbon dioxide capture and storage (CCS), climate change, energy, dynamic optimization
    JEL: Q3 Q4 Q54
    Date: 2009–04
  12. By: Scott Baier; Mark Clements; Charles Griffiths; Jane Ihrig
    Abstract: This paper examines the effect that biofuels production has had on commodity and global food prices. The innovative contribution of this paper is the interactive spreadsheet that allows the reader to choose the assumptions behind the estimates. By allowing the reader to choose the country, time period, supply and demand elasticities, and the size of indirect effects we explicitly illustrate the sensitivity of the estimated effect of biofuels production on prices. Our best estimates suggest that the increase in biofuels production over the past two years has had a sizeable impact on corn, sugar, barley and soybean prices, but a much smaller impact on global food prices. ; Over the past two years (ending June 2008), we estimate that the increase in worldwide biofuels production pushed up corn, soybean and sugar prices by 27, 21 and 12 percentage points respectively. The countries that account for most of the upward pressure on these prices are the United States and Brazil. Our best estimates suggest that the increase in U.S. biofuels production (ethanol and biodiesel) pushed up corn prices by more than 22 percentage points and soybean prices (soybeans and soybean oil) by more than 15 percentage points, while the increase in EU biofuels production pushed corn and soybean prices up around 3 percentage points. Brazil's increase in sugar-based ethanol production accounts for the entire rise in the price of sugar. ; Although biofuels had a noticeable impact on individual crop prices, they had a much smaller impact on global food prices. Our best estimate suggests that the increase in worldwide biofuels production over the past two years accounts for just over 12 percent of the rise in the IMF's food price index. The increase in U.S. biofuels production accounts for roughly 60 percent of this effect, while Brazil accounts for 14 percent and the EU accounts for 15 percent. The key take-away point is that nearly 90 percent of the rise in global food prices comes from factors other than biofuels.
    Date: 2009
  13. By: Hennlock, Magnus (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Knightian uncertainty in climate sensitivity is analyzed in a two sectoral integrated assessment model (IAM), based on an extension of DICE. A representative household that expresses ambiguity aversion uses robust control to identify robust climate policy feedback rules that work well over IPCC climate-sensitivity uncertainty range [1]. Ambiguity aversion, together with linear damage, increases carbon cost in a similar way as a low pure rate of time preference. Secondly, in combination with non-linear damage it makes policy responsive to changes in climate data observations as it makes the household concerned about misreading sudden increases in carbon concentration rate and temperature as sources to global warming. Perfect ambiguity aversion results in an infinite expected shadow carbon cost and a zero carbon-intensive consumption path. Dynamic programming identifies an analytically tractable solution to the model.<p>
    Keywords: robust control; climate change policy; carbon cost; Knightian uncertainty; ambiguity aversion; integrated assessment models
    JEL: C61 C73 Q54
    Date: 2009–04–17
  14. By: Armon Rezai, Duncan K. Foley, and Lance Taylor (New School for Social Research, New York, NY)
    Keywords: global warming; climate change
    Date: 2009–02
  15. By: Edward Nell, Willi Semmler, and Armon Rezai (New School for Social Research, New York, NY)
    Keywords: economic growth; climate change
    Date: 2009–02
  16. By: Alfred Greiner, Lars Grüne and Willi Semmler (New School for Social Research, New York, NY)
    Keywords: climate change; global warming
    Date: 2009–03
  17. By: Tol, Richard S. J. (ESRI)
    Date: 2009–04
  18. By: Arief Anshory Yusuf (Department of Economics, Padjadjaran University)
    Abstract: It is widely acknowledged that the three dimensions of sustainable development economic, social, and environmental-are crucial, inseparable and inter- related. In many cases, however, their goals come into conflict with one another. This conflict often arises in the case of environment-related policies, the issue of climate change mitigation being no exception. Climate change mitigation policies to reduce carbon emissions from the energy sector by way of measures such as introducing a carbon tax have been widely known to be regressive i.e., the burden is borne more by lower income rather than higher income households, thereby making income distribution less equitable or fair. An expectation of such an adverse distributive effect may even prevent the policy from being implemented in the first place.
    Keywords: Carbon tax, Climate change, Indonesia
    JEL: Q58 Q54
    Date: 2008–10
  19. By: Christoph Böhringer and Knut Einar Rosendahl (Statistics Norway)
    Abstract: Tradable black (CO2) and green (renewables) quotas gain in popularity and stringency within climate policies of many OECD countries. The overlapping regulation through both instruments, however, may have important adverse economic implications. Based on stylized theoretical analysis and substantiated with numerical model simulations for the German electricity market, we show that a green quota imposed on top of a black quota does not only induce substantial excess cost but serves the dirtiest power technologies as compared to a black quota regime only.
    Keywords: Emissions Trading; Tradable Green Certificates; Overlapping Regulation
    JEL: D61 H21 H22 Q58
    Date: 2009–04

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