nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒08‒02
twenty-one papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Forecasting electricity spot market prices with a k-factor GIGARCH process By Abdou Kâ Diongue; Dominique Guegan; Bertrand Vignal
  2. The Effect of Power Outages and Cheap Talk on Willingness to Pay to Reduce Outages By Carlsson, Fredrik; Martinsson, Peter; Akay, Alpaslan
  3. Broadband over Power Lines (BPL): Developments and Policy Issues By Byung-Wook Kwon
  4. Towards Green ICT Strategies: Assessing Policies and Programmes on ICT and the Environment By Christian Reimsbach-Kounatze
  5. Resource curse and institutional quality in oil countries By MOHSEN MEHRARA*, MOHSEN; ALHOSSEINI, SEYEDMOHAMMADSADEGH; BAHRAMIRAD, DUMAN
  6. Can Norway Be a Role Model for Natural Resource Abundant Countries? Keywords: cross-section models, economic development, natural resources, resource booms By Cappelen, Adne; Mjoset, Lars
  7. Entrepreneurship in Qatar By Yochanan Shachmurove
  8. Entrepreneurship in Oman By Yochanan Shachmurove
  9. Interaction of carbon reduction and green energy promotion in a small fossil-fuel importing economy By Rüdiger Pethig; Christian Wittlich
  10. The impact of the European Union Emission Trading Scheme on electricity generation sectors By Djamel Kirat; Ibrahim Ahamada
  11. Options introduction and volatility in the EU ETS By Julien CHEVALLIER; Yannick LE PEN; Benoît SEVI
  12. An economic view of carbon allowances market By Marius-Cristian Frunza; Dominique Guegan
  13. The role of fiscal instruments in environmental policy By Katri Kosonen; Gaetan Nicodeme
  14. Enhanced financial mechanisms for post 2012 mitigation By Figueres, Christiana; Streck, Charlotte
  15. Climate Change Mitigation Strategies in Fast-Growing Countries: The Benefits of Early Action By Valentina Bosetti; Carlo Carraro; Massimo Tavoni
  16. Implications for climate-change policy of research on cooperation in social dilemmas By Irwin, Timothy
  17. Uncertainty and Climate Treaties: Does Ignorance Pay? By Finus, Michael; Dellink, Rob
  18. The Zero discounting and maximin optimal paths in a simple model of global warming By Antoine D'Autume; John M. Hartwick; Katheline Schubert
  19. Zero discounting and optimal paths of depletion of an exhaustible resource with an amenity value By Antoine D'Autume; Katheline Schubert
  20. Forecasting local climate for policy analysis : a pilot application for Ethiopia By Blankespoor, Brian; Pandey, Kiran Dev; Wheeler, David
  21. Curva de Kuznets ambiental: Evidencia para Europa By Javier Capó Parrilla

  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: Carlsson, Fredrik (University of Gothenburg); Martinsson, Peter (University of Gothenburg); Akay, Alpaslan (IZA)
    Abstract: Using an open-ended contingent valuation survey, we analyze how (i) experience of a power outage due to one of the worst storms ever to hit Sweden and (ii) a cheap talk script affect respondents' WTP to avoid power outages. Experience significantly increases and a cheap talk script decreases the proportion of respondents with zero WTP. There is no significant effect in either case on stated WTP conditional on a positive WTP. The paper concludes with a discussion on the use of valuation studies shortly after the occurrence of an undesirable event.
    Keywords: contingent valuation, cheap talk, experience, power outages
    JEL: C25 D12 Q41
    Date: 2009–07
  3. By: Byung-Wook Kwon
    Abstract: The focus of this paper is to provide an overview of developments in broadband power line technologies and related policy issues. The electric power grid is a hostile environment for high-speed data transmission, but after years of development, the technology to deliver high-speed data over the existing electric power delivery network has emerged, somewhat tentatively, in the marketplace. This technology, referred to as Broadband over Power Lines (BPL), uses medium- and low-voltage power lines to provide broadband Internet access to residential users and businesses and is considered by some as a third access technology offering potential competition to xDSL telecommunication lines and cable modems. Recent trends, however, indicate that the focus of BPL technology is shifting from providing broadband connectivity to smart meter usage allowing households to reduce energy costs and allow energy companies to better manage their networks by developing a “smart grid”.
    Date: 2009–06–04
  4. By: Christian Reimsbach-Kounatze
    Abstract: This survey analyses 92 government programmes and business initiatives across 22 OECD countries plus the European Commission. Fifty of these have been introduced by governments and the remaining 42 have been developed by business associations, mostly international. Over two-thirds of these focus on improving performance in the ICT industry. Only one third focus on using ICTs across the economy and society in areas where there is major potential to dramatically improve performance, for example in “smart” urban, transport and power distribution systems, despite the fact that this is where ICT have the greatest potential to improve environmental performance.
    Date: 2009–05–22
    Abstract: The examination of the relationship between oil resources and economic growth reveals that oil curse in oil countries is not reliable and these countries can be divided into countries with poor and rich institutions. In the first group, oil revenues have a negative and significant effect on the economic growth; in the second group, oil revenues have a positive and significant effect on economic growth. In other words, what causes curse or blessing of oil resources is the institution qualities of the countries; the lower the institution quality, the more negative effect of the oil revenues on the economic growth. In this article we derive the kink point of institutional index whereby oil revenues effect on the economic growth changes from positive to negative.
    Keywords: economic growth, institutions, oil resources
    JEL: O13 O50 Q30
    Date: 2008–09
  6. By: Cappelen, Adne; Mjoset, Lars
    Abstract: During the 1950-70s Norway had relatively low GDP per capita compared to the OECD average and even more so compared to Denmark and Sweden. During the 1970s there was a significant catch-up in incomes and from the early 1990s a .take-off. in relative income. Norway is currently ranked among the countries with the highest GDP per capita in the world and is at the top according to UNDP.s human development indicator. We argue that this development is related to the growth of the Norwegian petroleum sector, although many studies of economic growth conclude that countries abundant in natural resources are not blessed but cursed by gifts of nature. How has Norway avoided so many of the possible problems that follow in the wake of a natural resource-based development? Nowadays the standard answer to this question is .good institutions. and .clever policies.. In this paper we detail the institutions and policies that may explain the peculiar development success of Norway. There are lessons here that can contribute to policy learning, but only on the provision that the specificities of the .learning. country are understood.
    Date: 2009
  7. By: Yochanan Shachmurove (Department of Economics, University of Pennsylvania)
    Abstract: The State of Qatar is driven mainly by hydrocarbon revenues, which are estimated to support this tiny country for hundreds of years. The Qatari economy is becoming diversified with industries such as manufacturing, banking, social services, and tourism. Additionally, government financed health and educational services have increased rapidly. However, the Qatari government is not able to establish necessary laws and procedures which business requires. Despite recent changes, Qatari laws and regulations are not always friendly towards business ventures or foreign investment, hindering economic growth. Furthermore, enforcement of existing business regulations and rules are occasionally lacking.
    Keywords: Entrepreneurship; Small and Medium Sized Enterprises; Business Ventures; Qatar; Middle East; Oil; Tourism; Natural Gas; Foreign Direct Investment; Index of Economic Freedom
    JEL: D23 E0 F14 F16 F23 F3 G2 K33 L26 L83 O1 O53 P1 P2 Q4
    Date: 2009–07–20
  8. By: Yochanan Shachmurove (Department of Economics, University of Pennsylvania)
    Abstract: The Sultanate of Oman has a diversified economy, unlike many of its neighboring nations that rely almost entirely on oil revenues. Natural gas and several non-energy business sectors, such as tourism, fishing, light manufacturing, and agriculture are expanding rapidly. The Omani economy is one of the freest in its region. A relatively stable government and low taxes make Oman a desirable location for entrepreneurial ventures. Furthermore, foreign direct investment is welcomed. Tourism is the most attractive area for international entrepreneurs. Oil revenues, coupled with increasing foreign investment are likely to both diversify the Omani economic base and strengthen it.
    Keywords: Entrepreneurship; Small and Medium Sized Enterprises (SMEs); Business Ventures; Oman; Middle East; Oil; Tourism; Natural Gas; Foreign Direct Investment; Index of Economic Freedom; Oman-U.S. Free Trade Zone
    JEL: D23 E0 F14 F16 F23 F3 G2 K33 L26 L83 O1 O53 P1 P2 Q4
    Date: 2009–07–20
  9. By: Rüdiger Pethig; Christian Wittlich
    Abstract: We study the incidence of carbon-reduction and green-energy promotion policies in a general equilibrium small open economy that depends on imports of fossil fuels. The focus is on mixed policies that are either price based (emissions taxes and producer price subsidies for green energy) or quantity based (schemes of trading emissions and green certificates). Policy instruments directed head-on toward promoting green energy are shown to also reduce carbon emissions and vice versa but the direct effects are stronger than the side effects, the more so, the greater is the elasticity of substitution in consumption between energy and consumption goods. We calculate the effects of variations in individual policy parameters on all endogenous variables, among them the energy price and the welfare costs. We also determine the impact of exogenous fossil-fuel price shocks on the economy.
    Keywords: carbon reduction, green energy promotion, policy mix, interaction of policies
    JEL: Q42 Q43 Q48 Q54
    Date: 2009
  10. By: Djamel Kirat (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Ibrahim Ahamada (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)
    Abstract: In order to comply with their commitments under the Kyoto Protocol, France and Germany participate to the European Union Emission Trading Scheme (EU ETS) which concerns predominantly electricity generation sectors. In this paper we seek to know if the EU ETS gives appropriate economic incentives for an e¢ cient and strong system in line with Kyoto commitments. Because if so electricity producers in these countries should include the price of carbon in their costs functions. After identifying the di¤erent sub periods of the EU ETS during its pilot phase (2005-2007), we model the prices of various electricity contracts and look at their volatilities around their fundamentals while evaluating the correlation between the electricity prices in the two countries. We finnd that electricity producers in both countries were constrained to include the carbon price in their cost functions during the …rst two years of operation of the EU ETS. During this period, German electricity producers were more constrained than their French counterparts and the inclusion of the carbon price in the cost function of electricity generation has been so much more stable in Germany than in France. Furthermore, the European market for emission allowances has increased the market power of the historical French electricity producer and has greatly contributed to the partial alignment of the wholesale price of electricity in France with those of Germany. .
    Keywords: Carbon Emission Trading, Multivariate GARCH models, Structural break, Non Parametric Approach, Energy prices.
    Date: 2009–04–10
  11. By: Julien CHEVALLIER; Yannick LE PEN; Benoît SEVI
    Abstract: To improve risk management in the European Union Emissions Trading Scheme (EU ETS), the European Climate Exchange (ECX) has introduced option instruments in October 2006 after regulatory authorization. The central question we address is: can we identify a potential destabilizing effect of the introduction of options on the underlying market (EU ETS futures)? Indeed, the literature on commodities futures suggest that the introduction of derivatives may either decrease (due to more market depth) or increase (due to more speculation) volatility. As the identification of these effects ultimately remains an empirical question, we use daily data from April 2005 to April 2008 to document volatility behavior in the EU ETS. By instrumenting various GARCH models, endogenous break tests, and rolling window estimations, our results overall suggest that the introduction of the option market had no effect on the volatility in the EU ETS. These findings are robust to other likely influences linked to energy and commodity markets.
    Keywords: EU ETS, Option prices, volatility, GARCH, rolling estimation, endogenous structural break detection
    JEL: Q48 Q57 Q58
    Date: 2009
  12. By: Marius-Cristian Frunza (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Sagacarbon - Sagacarbon SA); 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)
    Abstract: The aim of this work is to bring an econometric approach upon the CO2 market. We identify the specificities of this market, and regarding the carbon as a commodity. We investigate the econometric particularities of CO2 prices behavior and their result of the calibration. We apprehend and explain the reasons of the non-Gaussian behavior of this market focusing mainly upon jump diffusion and generalized hyperbolic distributions. We test these results for the risk modeling of a structured product specific to the carbon market, the swap between two carbon instruments : The European Union Allowances and the Certiified Emission Reductions. We estimate the counterparty risk for this kind of transaction and evaluate the impact of different models upon the risk measure and the allocated capital.
    Keywords: Carbon, Normal Inverse Gaussian, CER, EUA, swap.
    Date: 2009–05
  13. By: Katri Kosonen (European Commission); Gaetan Nicodeme (European Commission)
    Abstract: Environmental protection is one of Europe's key values. The EU has set clear policy objectives to achieve its environmental goals. The EU has favoured market-based instruments, among which fiscal instruments to tackle the climate change problem. This paper takes a policy-making perspective and provides an overview of key issues on the role of fiscal instruments in energy and environmental policies. It describes fiscal instruments as cost-effective means to promote environmental goals and highlights in which cases taxes and other types of fiscal instruments can usefully complement each other to achieve environmental target.
    Keywords: Taxation, environmental policy, VAT, fiscal incentives
    JEL: H23 Q38 Q48 Q58
    Date: 2009–06
  14. By: Figueres, Christiana; Streck, Charlotte
    Abstract: Despite the many calls to reform the CDM, its conceptual underpinnings are strong and it will most likely survive in the post-2012 climate regime. Some modifications may be considered in the short term to strengthen the effectiveness and transparency of the mechanism without modifying the Marrakesh Accords. In the medium term substantially increased mitigation efforts in developing countries may require a combination of three possible financial mechanisms: the current activity-based CDM albeit improved, a second market mechanism that would seek to improve the long term emission trends of developing countries by promoting broad based emission reduction programs primarily in the private sector, and a third financial mechanism outside of the market which would be an incentive for the adoption of policy changes leading to a low carbon path, but where emission reductions would not be used as international offsets.
    Keywords: Environmental Economics&Policies,Carbon Policy and Trading,Montreal Protocol,Energy and Environment,Environment and Energy Efficiency
    Date: 2009–07–01
  15. By: Valentina Bosetti (Princeton University, Fondazione Eni Enrico Mattei and CMCC); Carlo Carraro (University of Venice, Fondazione Eni Enrico Mattei, CEPR, CESifo and CMCC); Massimo Tavoni (Princeton University, Fondazione Eni Enrico Mattei and CMCC)
    Abstract: This paper builds on the assumption that OECD countries are (or will soon be) taking actions to reduce their greenhouse gas emissions. These actions, however, will not be sufficient to control global warming, unless developing countries also get involved in the cooperative effort to reduce GHG emissions. This paper investigates the best short-term strategies that emerging economies can adopt in reacting to OECD countries’ mitigation effort, given the common long-term goal to prevent excessive warming without hampering economic growth. Results indicate that developing countries would incur substantial economic losses by following a myopic strategy that disregards climate in the short-run, and that their optimal investment behaviour is to anticipate the implementation of a climate policy by roughly 10 years. Investing in innovation ahead of time is also found to be advantageous. The degree of policy anticipation is shown to be important in determining the financial transfers of an international carbon market meant to provide incentives for the participation of developing countries. This is especially relevant for China, whose recent and foreseeable trends of investments in innovation are consistent with the adoption of domestic emission reduction obligations in 2030.
    Keywords: Energy-economy modeling, Climate Policy, Developing Countries
    JEL: Q54 Q55 Q43
    Date: 2009
  16. By: Irwin, Timothy
    Abstract: The problem of climate change seems to be a tragedy of the commons: despite the global benefits of reducing green-house gas emissions, no individual has any incentive to reduce his or her own emissions. Yet many people are making efforts to reduce emissions and putting pressure on businesses and governments to do the same. Although the size of these efforts is unclear, their very existence might seem puzzling. The efforts are consistent, however, with some theoretical and empirical evidence about the extent of cooperation in other social dilemmas. This evidence does not imply that greenhouse-gas emissions will be reduced to desirable levels, but it does suggest that the potential for voluntary cooperation should not be ignored. It also suggests that cooperation can be promoted by (i) allowing cooperators to punish defectors without withdrawing their own cooperation; (ii) publicly emphasizing the social benefits and extent of cooperation and the social norms that require it; and (iii) improving the quantity and timeliness of public information about cooperation and defection.
    Keywords: Common Property Resource Development,Access to Finance,Transport and Environment,Climate Change,Health Systems Development&Reform
    Date: 2009–07–01
  17. By: Finus, Michael; Dellink, Rob
    Abstract: Uncertainty and learning play an important role in addressing the problem of climate change. In stylized game-theoretic models of international environmental treaty formation, which capture the strategic interactions between nations, it has been shown that learning usually has a negative impact on the success of cooperation. This paper asks the question whether this negative conclusion carries over to an applied multiregional climate model. This model captures the large heterogeneity between different world regions and considers not only uncertainty about the benefits but also about the costs from climate mitigation. By exploiting differences in costs and benefits between regions and allowing transfers to mitigate free-rider incentives, we derive much more positive conclusions about the role of learning.
    Keywords: cost-benefit analysis; game theory; learning; uncertainty; international climate agreements
    Date: 2009–07
  18. By: Antoine D'Autume (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); John M. Hartwick (Queen's University - Queen's University, Kingston, Ontario); Katheline Schubert (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)
    Abstract: Following Stollery [1998], we extend the Solow, Dasgupta-Heal model to analyze the effects of global warning. The rise of temperature is caused by the use of fossil resources so that the temperature level can be linked to the remaining stock of these resources. The rise of temperature affects both productivity and utility. We characterize optimal solutions for the maximin and zero-discounting cases and present closed form solutions for the case where the production function and utility function are Cobb-Douglas, and the temperature level is an exponential function of the remaining stock of resources. We show that a greater weight of temperature in the preferences or a larger intertemporal elasticity of substitution both lead to postpone resource use.
    Keywords: Maximin ; zero discounting ; global warming
    Date: 2009–02
  19. By: Antoine D'Autume (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); Katheline Schubert (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)
    Abstract: This paper studies the undiscounted utilitarian optimal paths of the canonical Dasgupta-Heal-Solow model when the stock of natural capital is a direct argument of well-being, besides consumption. We use a Keynes-Ramsey rule wich yields a generalization of Hartwick's rule : if society has a zero discount rate but is ready to accept intertemporal substitution, net investment should not be zero as in the maximin case but should be positive, its level depending on the distance between the current and the long run bliss level of utility. We characterize solutions in the Cobb-Douglas utility and production case, and analyse the influence of the intertemporal elasticity of substitution on the time profile of the optimal paths. We show that, in the Cobb-Douglas case, the ratio of the values of the resource and capital stocks remains constant along the optimal path, and is independent of initial conditions.
    Keywords: Exhaustible resources ; Hartwick's rule ; intertemporal substitution
    Date: 2009–02
  20. By: Blankespoor, Brian; Pandey, Kiran Dev; Wheeler, David
    Abstract: This paper describes an approach to forecasting future climate at the local level using historical weather station and satellite data and future projections of climate data from global climate models (GCMs) that is easily understandable by policymakers and planners. It describes an approach to synthesize the myriad climate projections, often with conflicting messages, into an easily-interpreted set of graphical displays that summarizes the basic implications of the ensemble of available climate models. The method described in the paper can be applied to publicly-available data for any country and for any number of climate models. It does not depend on geographic scale and can be applied at the subnational, national, or regional level. The paper illustrates the results for future climate for Ethiopia using future climate scenarios projects by 8 global climate models. The graphical displays of nine possible future climate regimes (average temperature, precipitation and their seasonal distribution) for each grid-cell about 50km X 50 km). It also provides the probability associated with each of the nine-climate regimes.
    Keywords: Climate Change,Global Environment Facility,Water Conservation,Information Security&Privacy,Water Resources Assessment
    Date: 2009–07–01
  21. By: Javier Capó Parrilla (Centre de Recerca Econòmica (UIB · Sa Nostra))
    Abstract: During the last decades, the relationship between economic growth and environmental quality has generated a strong controversy among environmental academicians. The main debate is focused on responding a specific and direct question: will the economic development intensify seriously the environmental damage? In the last two decades, some studies suggest that some pollutants follow an inverse-U-shaped pattern relative to countries income. This relationship has been called Environmental Kuznets Curve (EKC). The EKC can be easily described in the following way. Initially, income growth leads to an increase of the environmental degradation but, beyond some threshold level, additional increments of income will allow an environmental improvement. This paper lays out a simple model of the air pollution-income relationship for a panel of 23 European countries over the period 1992-2003. The results show a strong evidence of an EKC. The remainder of this article is organized as follows. After an introduction, the next section provides a brief overview of previous studies. Section 3 presents the EKC estimation with the econometric method used in the study. Also, the data are analysed and the obtained results are presented. Finally, in section 4, we present the summary and conclusions of this study.
    Keywords: growth, pollution, Kuznets
    Date: 2009

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