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

  1. Heat or Eat?: An empirical analysis of U.K. cold weather income support By Beatty, Timothy K.M.; Blow, Laura; Crossley, Thomas
  2. Determinants of Fuelwood Use in Rural Orissa: Implications for Energy Transition By ARABINDA MISHRA
  3. Luck or Skill? An Examination of the Ehrlich - Simon Bet By Katherine A. Kiel; Victor Matheson; Kevin Golembiewski
  4. Oil Price Shock and Structural Changes in CMEA Trade By Beckmann, Elisabeth; Fidrmuc, Jarko
  5. Unit Root Properties of Crude Oil Spot and Futures Prices By Svetlana Maslyuk; Russell Smyth
  6. External shocks and international inflation linkages: a Global VAR analysis. By Alessandro Galesi; Marco J. Lombardi
  7. Non-Linear Unit Root Properties of Crude Oil Production By Svetlana Maslyuk; Russell Smyth
  8. Petrodollars and Imports of Oil Exporting Countries. By Roland Beck; Annette Kamps
  9. The Design of Voluntary Agreements in Oligopolistic Markets By Rinaldo Brau; C. Carraro
  10. A Simple Model of an Oil Based Global Savings Glut : The "China Factor" and the OPEC Cartel By Ansgar Belke; Daniel Gros
  11. Ökonomische, technologische und soziodemographische Einflussfaktoren der Energienachfrage By Kurt Kratena; Ina Meyer; Michael Wüger
  12. Long-term risk management for utility companies: the next challenges By René Aïd
  13. Policies and Strategies for Radioactive Waste Management By International Atomic Energy Agency IAEA
  14. Global Land Use and Greenhouse Gas Emissions Impacts of U.S. Maize Ethanol: The Role of Market-Mediated Responses By Hertel, Thomas; Golub, Alla; Jones, Andrew; O'Hare, Michael; Plevin, Richard; Kammen, Daniel
  15. GHG Trading Framework for the U.S. Biofuels Sector By Kumarappan, Subbu; Joshi, Satish
  16. Pollution and International Trade in Services By Arik Levinson
  17. Carbon Sequestration and Permit Trading on the Competitive Fringe By Arthur J. Caplan
  18. CARBON OFFSETS, REVERSAL RISK AND US CLIMATE POLICY By Bryan K. Mignone; Matthew D. Hurteau; Yihsu Chen; Brent Sohngen
  19. The Impact of Extreme Weather Events on Budget Balances and Implications for Fiscal Policy. By Eliza M. Lis; Christiane Nickel
  21. Is Fuel-Switching a No-Regrets Environmental Policy? VAR Evidence on Carbon Dioxide Emissions, Energy Consumption and Economic Performance in Portugal By Alfredo M. Pereira; Rui Manuel Marvão Pereira
  22. Do consumers select food products based on carbon dioxide emissions? Evidence from a buying experiment in Japan By Keiko Aoki
  23. New Estimates of Efficient Approaches to the Control of Global Warming By William D. Nordhaus

  1. By: Beatty, Timothy K.M.; Blow, Laura; Crossley, Thomas
    Abstract: We investigate whether households trade off spending on food and spending on heating. We use a large sample of households from the United Kingdom and Norther Ireland over the period 1974-2007. We find evidence that low-income households reduce food expenditure during periods of colder than average weather. In contrast, wealthier households increase spending on food during colder than average weather. Further we investigate the efficacy of the Winter Fuel Payment, a social program designed to mitigate the effects of energy costs.
    Keywords: Deprivation, Food Expenditure, Heat or Eat, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, D12, Q18,
    Date: 2009
    Abstract: This study examines household behaviour related to fuelwood collection and use. The focus is on identifying the behavioral transition of fuelwood-using households from collection to purchase. The study examines the theory linking households’ labour allocation decisions to choice of fuel and models household decision using a three-stage least squares probit specification. Household fuelwood choice (purchase/collection) is predicted based on an endogenously determined wage income that depends on the opportunity cost of fuelwood collection.
    Keywords: fuelwood, wage income, energy transition, rural orissa, reverse switch, India, households, labour allocation, wage, energy transition, least square probit, opportunity cost
    Date: 2009
  3. By: Katherine A. Kiel (Department of Economics, College of the Holy Cross); Victor Matheson (Department of Economics, College of the Holy Cross); Kevin Golembiewski (Department of Economics, College of the Holy Cross)
    Abstract: In 1980, Paul Ehrlich and Julian Simon placed a famous bet on whether the prices of a bundle of natural resources would rise or fall over the ensuing decade. Simon won the bet as the real price of the bundle fell significantly, and the result of this bet has been taken as proof that technological progress is likely overcome any Neo-Malthusian concerns about natural resource scarcity. Contrary to the popular perception, however, an examination of the price history of the identical bundle of goods from 1900-2007 shows that Ehrlich and not Simon would have won a majority of the bets over the past century and would have done so by a wide margin.
    Keywords: Natural resources, scarcity, Neo-Malthusian
    JEL: Q30 Q31
    Date: 2009–07
  4. By: Beckmann, Elisabeth; Fidrmuc, Jarko
    Abstract: We analyse trade between countries of the Council of Mutual Economic Assistance in Eastern Europe between 1950 and 1990. Despite central planning and political motivation of the CMEA, we show that trade could be explained by standard demand factors surprisingly well. Moreover, we document that the oil price crisis had several repercussions on Eastern Europe. The Soviet Union as a supplier of crude oil benefited from the energy crisis in the 1970s. In particular, it used energy exports as an instrument of foreign policy. In turn, the responses of the individual CMEA countries in Central Europe were largely different.
    Keywords: economic history; free trade areas; political economy; structural break; gravity model; oil price; CMEA trade
    JEL: F14 C22 N74
    Date: 2009–08–01
  5. By: Svetlana Maslyuk; Russell Smyth
    Abstract: In this paper we examine whether WTI and Brent crude oil spot and futures prices (at one, three and six months to maturity) contain a unit root with one and two structural breaks, employing weekly data over the period 1991-2004. To realize this objective we employ Lagrange Multiplier (LM) unit root tests with one and two endogenous structural breaks proposed by Lee and Stazicich (2003, 2004). We find that each of the oil price series can be characterized as a random walk process and that the endogenous structural breaks are significant and meaningful in terms of events that have impacted on world oil markets.
    Keywords: Crude oil prices, Unit root, Stationarity
    Date: 2009–08
  6. By: Alessandro Galesi (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Marco J. Lombardi (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: Amid the recent commodity price gyrations, policy makers have become increasingly concerned in assessing to what extent oil and food price shocks transmit to the inflationary outlook and the real economy. In this paper, we try to tackle this issue by means of a Global Vector Autoregressive (GVAR) model. We first examine the short-run inflationary effects of oil and food price shocks on a given set of countries. Secondly, we assess the importance of inflation linkages among countries, by dis-entangling the geographical sources of inflationary pressures for each region. Generalized impulse response functions reveal that the direct inflationary effects of oil price shocks affect mostly developed countries while less sizeable effects are observed for emerging economies. Food price increases also have significative inflationary direct effects, but especially for emerging economies. Moreover, significant second-round effects are observed in some countries. Generalized forecast error variance decompositions indicate that considerable linkages through which inflationary pressures spill over exist among regions. In addition, a considerable part of the observed headline inflation rises is attributable to foreign sources for the vast majority of the regions. JEL Classification: C32, E31.
    Keywords: oil shock, commodity prices, inflation, second-round effects, Global VAR.
    Date: 2009–06
  7. By: Svetlana Maslyuk; Russell Smyth
    Abstract: While there is good reason to expect crude oil production to be non-linear, previous studies that have examined the stochastic properties of crude oil production have assumed that crude oil production follows a linear process. If crude oil production is a non-linear process, conventional unit root tests, which assume linear and systematic adjustment, could interpret departure from linearity as permanent stochastic disturbances. The objective of this paper is to test for non-linearities and unit roots in crude oil production. To realize our objective, this study applies a threshold autoregressive model with an autoregressive unit root to monthly crude oil production levels for 16 OPEC and non-OPEC countries over the period January 1973 to December 2006. Specifically, first we test for the presence of non-linearities (threshold effects) in the production of crude oil in two regimes. Second, we test for a unit root against a non-linear stationary process in two regimes and a partial unit root process when the unit root is present in one regime only. We find that crude oil production is characterized by threshold effects. We find that for ten of the countries a unit root was present in both regimes, while for the others a partial unit root was found to be present in either the first regime or second regime.
    Keywords: Oil production, unit root, linearities.
    JEL: Q43 C20 C50
    Date: 2009–08
  8. By: Roland Beck (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Annette Kamps (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper investigates the empirical determinants of import demand in oil exporting countries. Using a new dataset including a large cross section of oil exporting countries, we show with a panel cointegration analysis that import demand in these countries depends positively on domestic demand and exports, the real exchange rate and the price of oil. Fiscal surpluses, on the other hand, tend to reduce the demand for imports. More specifically, our import elasticities estimated for oil exporting countries are not far from estimates found in the literature on industrial countries. In particular, we conclude that the import elasticity with respect to domestic activity is larger than one – a finding which is in contrast to standard theoretical predictions but in line with most empirical findings for other countries. These results are robust over a wide set of alternative specifications. JEL Classification: F14, F01, Q43.
    Keywords: Import equation, oil exporting countries, panel cointegration.
    Date: 2009–02
  9. By: Rinaldo Brau; C. Carraro
    Abstract: This paper analyses the conditions under which a group of firms is incentivised to sign a voluntary agreement (VA) to control polluting emissions even in the presence of free-riding by other firms in the industry. We consider a policy framework in which firms in a given industry decide whether or not to sign a VA proposed by an environmental regulator. We identify the features that a VA should possess in order to incentivize firms to participate in the VA and to enhance its economic and environmental effectiveness. Under very general conditions on the shape of the demand schedule, we obtain the following results. First, a VA does not belong to the equilibrium of the coalition game when benefits from voluntary emission abatement are a pure public good. Second, in the presence of partial spillovers – i.e. when signatories obtain more benefits from the VA than non-signatories – a VA belongs to the equilibrium only if a minimum participation rule is guaranteed. Third, a VA with a minimum participation rule and a minimum mandatory emission abatement may improve welfare (and even industry profits) compared to a VA in which firms are free to set their own profit maximising abatement level.
    Keywords: Voluntary agreement; voluntary approaches; new policy instruments; environmental regulation; coalition structures; emission standards
    JEL: D21 K32 Q28
    Date: 2009
  10. By: Ansgar Belke; Daniel Gros
    Abstract: The purpose of this contribution is to illustrate the mechanism by which higher oil prices might lead to lower interest rates in the context of a simple model that takes into account the global external savings equilibrium. The simple model has interesting implications for how one views the huge US current account deficit and how the emergence of China's savings surplus and oil supply shocks impact the global economy. We show that the new equilibrium is located at a lower interest rate but also at a lower growth rate than without the China effect. Moreover, we argue that the lower real interest rates resulting from excess OPEC savings have facilitated the adjustment to the subprime crisis.
    Keywords: China factor, current account adjustment, interest rate, oil prices, saving glut
    JEL: E21 E43 F32 Q43
    Date: 2009
  11. By: Kurt Kratena (WIFO); Ina Meyer (WIFO); Michael Wüger (WIFO)
    Abstract: Lange hat sich die ökonomische Literatur auf die negativen Umweltauswirkungen von Produktionsprozessen konzentriert. Im Gegensatz dazu steht die Untersuchung der klimarelevanten Energienachfrage der privaten Haushalte im Mittelpunkt dieser Untersuchung. Um der Vielschichtigkeit der Energienachfrage der Haushalte gerecht zu werden, werden dazu Daten sowohl auf Basis von Zeitreihen- als auch auf Querschnittsebene verwendet, und es werden eigene Datenstöcke entwickelt, um konsistente Reaktionsparameter der wichtigsten Einflussfaktoren zu ermitteln. Außerdem wird die Energienachfrage der privaten Haushalte in ein Modell der Gesamtkonsumnachfrage eingebettet, um die Rückkoppelungseffekte in der Nachfrage erfassen zu können. Die Ergebnisse lassen es fraglich erscheinen, ob eine Politik, die auf eine Senkung der Energienachfrage der privaten Haushalte abstellt, allein auf technologische Effizienzverbesserungen setzen kann.
    Keywords: Haushaltsenergienachfrage, Rebound Effekt, Effizienz von Geräten, Lebensstile
    Date: 2009–06–30
  12. By: René Aïd (EDF R&D - EDF, FiME Lab - Laboratoire de Finance des Marchés d'Energie - Université Paris Dauphine - Paris IX - CREST - EDF R&D)
    Abstract: Since the energy markets liberalisation at the beginning of the 1990s in Europe, electricity monopolies have gone through a profound evolution process. From an industrial organisation point of view, they lost their monopoly on their historical business, but gained the capacity to develop in any sector. Companies went public and had to upgrade their financial risk management process to international standards and implement modern risk management concepts and reporting processes (VaR, EaR...). Even though important evolutions have been accomplished, we argue here that the long-term risk management process of utility companies has not yet reached its full maturity and is still facing two main challenges. The first one concerns the time consistency of long-term and mid-term risk management processes. We show that consistencies issues are coming from the different classical financial parameters carrying information on firms' risk aversion (cost of capital and short-term risk limits) and the concepts inherited from the monopoly period, like the loss of load value, that are still involved in the utility company decision-making process. The second challenge concerns the need for quantitative models to assess their business model. With the deregulation, utilities have to address the question of their boundaries. Although intuition can provide insights on the benefits of some firm structures like vertical integration, only sound and tractable quantitative models can bring answers to the optimality of different possible firm structures.
    Keywords: electricity markets; risk management; investment decision; long-term risk
    Date: 2008–12–30
  13. By: International Atomic Energy Agency IAEA
    Abstract: The spent fuel and radioactive waste management strategy sets out the means for achieving the goals and requirements set out in the national policy. It is normally established by the relevant waste owner or nuclear facility operator, or by government (institutional waste). A typical policy should include the following elements: defined safety and security objectives, arrangements for providing resources for spent fuel and radioactive waste management, identification of the main approaches for the management of the national spent fuel and radioactive waste categories, policy on export/import of radioactive waste, and provisions for public information and participation.
    Keywords: radioactive waste, policy, fuel management policy, national, strategy, atomic energy
    Date: 2009
  14. By: Hertel, Thomas; Golub, Alla; Jones, Andrew; O'Hare, Michael; Plevin, Richard; Kammen, Daniel
    Abstract: With the recent adoption by the California Air Resources Board of California’s Low Carbon Fuel Standard, and USEPA’s Energy Independence and Security Act, greenhouse gas releases from indirect land use change triggered by crop-based biofuels have taken center stage in the debate over the role of biofuels in climate policy and energy security. This paper presents an analysis of these releases for US maize ethanol. Our analysis highlights the key role of market-mediated responses to biofuels mandates. Factoring these into our analysis reduces cropland conversion by 72%. As a consequence the associated GHG release estimated in our framework is just 800 g CO2 MJ -1y (27 g MJ-1 for 30 years of ethanol production). This figure is a quarter of the one previously published value. However, it is still large enough to eliminate the global warming mitigation benefits of most corn ethanol.
    Date: 2009
  15. By: Kumarappan, Subbu; Joshi, Satish
    Abstract: Presented at: Transition to a Bio Economy, Environmental and Rural Development Impacts Conference, October 15-16, 2008, St. Louis, Missouri
    Keywords: biofuels, ethanol, biodiesel, carbon trading, GHG emissions trading, methodology, CCX, CDM, maize, lignocellulosics, well to wheel, life cycle analysis, Agribusiness, Environmental Economics and Policy, Resource /Energy Economics and Policy, Q42, D23, D4,
    Date: 2009–02–20
  16. By: Arik Levinson (Department of Economics, Georgetown University)
    Abstract: Two central topics in recent rounds of international trade negotiations have been environmental concerns, and services trade. While each is undoubtedly important, they are unrelated. In this paper I show that the services-environment link is small, for two reasons. First, services account for only a small fraction of overall pollution. For none of five major air pollutants does the service sector account for even four percent of total emissions; for three of the five services account for less than one percent. Second, those service industries that do pollute are the least likely to be traded internationally. Those services for which the U.S. collects and publishes international trade data - presumably those services that are traded internationally - are less polluting than services for which trade data do not exist - presumably because the services are not traded. Even if we limit attention to the services that are traded across borders, the service industries most intensively traded are the ones that pollute the least. The bottom line is simple. International services trade bears little relation to the environment, because services in general contribute relatively little to overall pollution, and those industries that are traded internationally are among the least polluting. Classification-JEL Codes: F18, D57, Q55, Q56
    Keywords: pollution havens, input-output, pollution intensity, TEAM
    Date: 2009–07–09
  17. By: Arthur J. Caplan (Department of Applied Economics, Utah State University)
    Abstract: This paper makes two contributions to the carbon-sequestration literature. The first is the development of a theoretical framework in which sequestration and permit trading are analyzed jointly in the context of a competitive fringe model. The second is a numerical analysis demonstrating the role market structure, or market power, might play in the determination of an equilibrium sequestration allocation and carbon price. We present three comparative-static cases, the first two of which assess the impact of relative changes in the cost structures of the dominant firm and competitive fringe. For these two cases we find that the equilibrium allocation of sequestration aligns with a higher carbon price when the competitive fringe experiences an increase in its marginal cost parameter. Conversely, the carbon price falls when the dominant firm experiences a decrease in its marginal cost parameter. In a third case we evaluate the impact of stricter regulation on the abatement decisions of the polluting firm. Our results demonstrate the importance of incorporating into empirical supply-side models demand-side information that is reflective of an underlying market structure.
    Keywords: carbon sequestration; competitive fringe; abatement credits
    JEL: D43 L13 Q54
    Date: 2009–08–01
  18. By: Bryan K. Mignone; Matthew D. Hurteau; Yihsu Chen; Brent Sohngen
    Abstract: Background - One controversial issue in the larger cap-and-trade debate is the proper use and certification of carbon offsets related to changes in land management. Advocates of an expanded offset supply claim that inclusion of such activities would expand the scope of the program and lower overall compliance costs, while opponents claim that it would weaken the environmental integrity of the program by crediting activities that yield either nonexistent or merely temporary carbon sequestration benefits. Our study starts from the premise that offsets are neither perfect mitigation instruments nor useless "hot air." Results - We show that offsets provide a useful cost containment function, even when there is some threat of reversal, by injecting additional "when-flexibility" into the system. This allows market participants to shift their reduction requirements to periods of lower cost, thereby facilitating attainment of the least-cost time path without jeopardizing the cumulative environmental integrity of the system. By accounting for market conditions in conjunction with reversal risk, we develop a simple offset valuation methodology, taking into account the two most important factors that typically lead offsets to be overvalued or undervalued. Conclusions - The result of this paper is a quantitative "model rule" that could be included in future legislation or used as a basis for active management by a future "carbon fed" or other regulatory authority with jurisdiction over the US carbon market to actively manage allowance prices.
    Date: 2009–07
  19. By: Eliza M. Lis (WHU - Otto Beisheim School of Management, Chair of Macroeconomics, Burgplatz 2, D-56179 Vallendar, Germany.); Christiane Nickel (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper explores implications of climate change for fiscal policy by assessing the impact of large scale extreme weather events on changes in public budgets. We apply alternative measures for large scale extreme weather events and conclude that the budgetary impact of such events ranges between 0.23% and 1.1% of GDP depending on the country group. Developing countries face a much larger effect on changes in budget balances following an extreme weather event than do advanced economies. Based on these findings, we discuss implications for fiscal policy and publicly-provided disaster insurance. Our policy conclusions point to the enhanced need to reach and maintain sound fiscal positions given that climate change is expected to cause an increase in the frequency and severity of natural disasters. JEL Classification: Q54, Q58, F59, H87.
    Keywords: Global warming, climate change, fiscal sustainability, disasters.
    Date: 2009–05
  20. By: Warwick J. McKibbin; Adele Morris; Peter J. Wilcoxen; Yiyong Cai
    Date: 2009–07
  21. By: Alfredo M. Pereira (Department of Economics, College of William and Mary); Rui Manuel Marvão Pereira (Thomas Jefferson Program in Public Policy, College of William and Mary)
    Abstract: The objective of this paper is to estimate the impact of carbon dioxide emissions from fossil fuel combustion activities on economic activity in Portugal in order to evaluate the economic costs of policies designed to reduce carbon dioxide emissions. We find that energy consumption has a significant impact on macroeconomic activity. In fact, a one ton of oil equivalent permanent reduction in aggregate energy consumption reduces output by €6,340 over the long term, an aggregate impact which hides a wide diversity of effects for different fuel types. More importantly, and since carbon dioxide emissions are linearly related to the amounts of fuel consumed, our results allow us to estimate the costs of reductions in carbon dioxide emissions from different energy sources. We estimate that marginal abatement costs for carbon dioxide are €45.62 per ton of carbon dioxide per year for coal, €66.52 for oil, €91.07 for gas, €191.13 for electricity and €254.23 for biomass. An important policy implication is that, once the overall economic costs of reducing carbon dioxide emissions are considered, fuel switching is a no-regrets environmental policy capable of reducing carbon dioxide emissions without jeopardizing economic activity and indeed with the potential for generating favorable economic outcomes.
    Keywords: carbon dioxide emissions, energy and the economy, environmental policy, fuel-switching, vector autoregressive model
    JEL: C32 O13 Q43
    Date: 2009–08–03
  22. By: Keiko Aoki
    Abstract: This study investigates how consumers value carbon dioxide (CO2) emissions of food by conducting a choice experiment before an ecolabel is attached on some foods in Japan. Participants are asked to buy some Satsuma mandarin oranges based on price and CO2 emissions and take them home. The following results are obtained: (i) the willingness-to-pay (WTP) estimate for the reduction of 1 g CO2 emissions per 100 g of Satsuma mandarin oranges is 0.417 JPY; (ii) people below 30 years, who are significantly conscious about the environment, do not choose Satsuma mandarin oranges based on CO2 emissions and have less value for this; and (iii) people above 30 years, who are environmentally friendly, choose the oranges based on price and have more value for this, although this implies that they do not relate food to CO2 emissions. Thus, since whether or not people select food based on CO2 emissions differs across ages, each age group has a different approach to reducing the CO2 emissions of food.
    Date: 2009–07
  23. By: William D. Nordhaus (Cowles Foundation, Yale University)
    Abstract: The present study extends earlier research by presenting the results of a new and updated version of the RICE model (Regional Integrated model of Climate and the Economy), labeled the RICE-2009 model. The model is a regionalized, dynamic model that incorporates an end-to-end treatment of economic growth, emissions, climate change, damages, and emissions controls. The model allows projections of what will occur with no policies, what an efficient set of policies would be, and how nations can undertake policies to limit climate change (in the current runs to 2 degrees C). These new estimates indicate that coordinated international policies have a substantial economic benefit. The optimal carbon tax is estimated to be $54 per ton carbon ($16 per ton CO_2) for 2010 in 2005 prices. The economic optimum would limit global temperature rise to an average of 2.1 degrees C over 1900 levels for the 22nd and 23rd century.
    Keywords: Climate change economics, Environmental policy, Economic growth
    JEL: Q54 Q5 O4
    Date: 2009–08

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