nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒09‒05
fourteen papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Analysis of ESCO Activities Using Country Indicators By Okay, Nesrin; Akman, Ugur
  2. Quality of Supply in Energy Regulation Measurement,Assessment and Experience from Norway By Growitsch, C.; Jamasb, T.; Mueller, C.; Wissner, M.
  3. Sources of Over-Costs and Distortions in State-Owned Utilities in Mexico. By Eduardo Martínez Chombo
  4. The Effect of Power Plants on Local Housing Values and Rents: Evidence from Restricted Census Microdata By Lucas Davis
  5. Policies, Natural Resource Governance and Local Development By Massuanganhe, Israel Jacob
  6. Carbon Markets and Technological Innovation By Weber, T.A.; Neuhoff, K.
  7. Absorptive Capacity, R&D Spillovers, Emissions Taxes and R&D Subsidies By Ben Youssef, Slim; Zaccour, Georges
  8. CO2 mitigation in road transport: Gasoline taxation and/or fuel-efficiency regulation? By Rüdiger Pethig
  9. Taxing and trading carbon emissions in the EU: Distributional comparisons of mixed policies By Thomas Eichner; Rüdiger Pethig
  10. EU-type carbon emissions trade and the distributional impact of overlapping emissions taxes By Thomas Eichner; Rüdiger Pethig
  11. Intraday price formation and volatility in the European Union emissions trading scheme: an introductory analysis By Rotfuß, Waldemar
  12. Carbon leakage, the green paradox and perfect future markets By Thomas Eichner; Rüdiger Pethig
  13. How clean is clean?: incremental versus radical technological change in coal-fired power plants By Rennings, Klaus; Markewitz, Peter; Vögele, Stefan
  14. Optimal Climate Change Policies When Governments Cannot Commit By Alistair Ulph; David Ulph

  1. By: Okay, Nesrin; Akman, Ugur
    Abstract: Energy Service Companies (ESCOs) are private sector instruments that offer energy-/emission-improvement (energy saving, energy efficiency, energy conservation, emission reduction) projects in the developed and in some developing countries. Literature reveals that energy-/emission-improvements of countries may be related to their innovation- and R&D-activity levels. In this work, we use a literature data on the activities and the sectors targeted by ESCOs in 38 countries, summarized in terms of the age of ESCO market (AEM), number of ESCO companies (NE), and total value of ESCO projects (VE). Along with the Global Innovation Index (GII) data of the countries, we investigate the relationships among the ESCO Indicators (EIs: AEM, NE, VE, sectors targeted by ESCOs), and the Country Indicators (CIs: GII and per-capita GDP, energy consumption, CO2 emission). We observe noteworthy dependencies between the EIs and CIs. Using the simple trend equations we estimate the missing VEs in the original data. We also project, as a hint for the size and orientation of the upcoming Turkish ESCO market, the set of EIs and the distribution of the sectors that are likely to be targeted by ESCOs in Turkey.
    Keywords: Energy service companies; ESCO; Global Innovation Index; GDP; Energy consumption; Greenhouse-gas (CO2) emission; R&D
    JEL: O1 Q55 L52 O3 Q43 Q4 Q58
    Date: 2009–08–29
  2. By: Growitsch, C.; Jamasb, T.; Mueller, C.; Wissner, M.
    Abstract: In order to overcome the incentive of excessive maintenance reductions and insufficient network investments in incentive regulation of electricity distribution companies, regulators throughout Europe have started regulating quality of service in the energy sector. In this paper, we discuss the issue of assessing and implementing quality-related incentives based on customers’ WTP for network reliability and analyse the impact of such regulatory measures by means of a concrete casestudy. Surveying the most prominent methodological approaches to quantify customers’ WTP for quality we find that survey techniques such as contingent valuation and conjoint analysis cover regulatory purposes well. As Norway has put the measurement and assessment of quality of supply into practice, we empirically examine how network operators have adapted to quality-incorporated regulation. We find that the external cost for quality has not played a major role in Norwegian electricity distribution.
    Keywords: electricity, quality of service, willingness-to-pay, data envelopment analysis
    JEL: L15 L51 L94
    Date: 2009–08–30
  3. By: Eduardo Martínez Chombo
    Abstract: This paper describes and tries to quantify the effects of some factors that have affected costs of state owned electric utilities in Mexico (energy losses, fuel and labor). It is noted that the impact of the increases in fuel prices on the electric utilities´ total cost in the last years has been important. However, the ´´over-cost´´ associated to energy losses and labor is also significant and comparable to the impact of the increase in fuel prices. The structure of cross subsidies in the industry is also described, pointing out that it is complex and makes the performance evaluation of the state owned electric utilities difficult.
    Keywords: Electricity sector, state-owned utility, energy losses, CFE, LyFC.
    JEL: H54 Q48
    Date: 2009–08
  4. By: Lucas 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.
    Keywords: Power Plants, Siting, Local Air Quality, Housing Markets
    JEL: D62 D63 H23 Q51
    Date: 2008–07
  5. By: Massuanganhe, Israel Jacob
    Abstract: The role that agriculture should play in economic development has been recognised for years. In recent years, concern has been expressed over rising agricultural and food prices. The world market prices for major food commodities have risen sharply to historic highs of more than 60 percent above levels just two years ago. Many factors have contributed to the rise in food commodity prices. Some factors reflect trends of slower growth in production and more rapid growth in demand that have contributed to a tightening of world balances of grains and oilseeds over the last decade. Other factors that have added to global food commodity price inflation include the declining value of the US dollar, rising energy prices, increasing agricultural costs of production, growing foreign exchange holdings by major food-importing countries, and policies adopted recently by some exporting and importing countries to mitigate their own food price inflation (Trostle, 2008). Mozambique has a vast extension of land and diversity of natural resources. Resources are inadequately used, the rural income continues to fall, and poverty is increasing. The rural standard of living has been deteriorating year by year. To date, estimations reveal that between 60 and 80 percent of cultivated land in all the provinces is concentrated in areas between 0.2 and 1 ha. For a sample of 192 farmers, using a translog stochastic production frontier like that of Bravo-Ureta and Pinheiro (1993), who estimated a Cobb-Douglas total value product frontier for analysis purposes, the study found that the average economic efficiency (EE), technical efficiency (TE) and allocative efficiency (AE) for the sample were 11.6%, 83.0% and 13.7% respectively. These results suggest that there is considerable room to maximise resource usage and increase agricultural output without additional input and given the existing technology. The adoption of new technologies designed to enhance farm output and income has received particular attention as a means to accelerate economic development. However, output growth is not only determined by technological innovations, but also by the efficiency with which available technologies are used in the absence of inefficiency factors. As Bravo-Ureta and Pinheiro (1993)noted, the evidence presented in this study suggests that there is much room for improving the efficiency of natural resource management in general. The results based on frontier methodology are generally consistent with the notion that local actors play an important role in the management of local resources; consequently, public investments designed to enhance human and social capital at local level can be expected to generate additional skills and output even in the absence of new technologies. The participation of citizens in all stages is crucial.
    Keywords: Data envelopment analysis, Efficiency, Decentralisation, Natural resource management, Land reform, Agricultural development, Governance, Participation, Local development, Agricultural and Food Policy, Community/Rural/Urban Development, Institutional and Behavioral Economics, International Development, Political Economy, Resource /Energy Economics and Policy,
    Date: 2009–07–08
  6. By: Weber, T.A.; Neuhoff, K.
    Abstract: This paper examines the effects of firm-level innovation in carbonabatement technologies on optimal cap-and-trade schemes with and without price controls. We characterize optimal cap-and-trade regulation with a price cap and price floor, and compare it to the individual cases of pure taxation and simple emissions cap. Innovation shifts the trade-off between price- and quantity-based instruments towards quantity-based emissions trading schemes. More specifically, an increase in innovation effectiveness lowers the optimal emissions cap, and leads to relaxed price controls unless the slope of the marginal environmental damage cost curve is small. Because of the decrease in the emissions cap, innovation in abatement technologies can lead to a higher expected carbon price, so as to provide sufficient incentives for private R&D investments. The expected carbon price decreases once innovative technologies are widely used.
    Keywords: Carbon Emissions; Carbon Taxes; Cap-and-Trade; Environmental Regulation; Induced Technological Innovation; Price Caps; Price Floors; Prices vs. Quantities
    JEL: H23 Q28 Q54 Q55 Q58
    Date: 2009–08–30
  7. By: Ben Youssef, Slim; Zaccour, Georges
    Abstract: We consider in this paper a duopoly competing in quantities and where…firms can invest in R&D to control their emissions. We distinguish between effort carried out to acquire first-hand knowledge (original R&D)and effort to develop an absorptive capacity to be able to capture part of the knowledge developed by rival. There are also free R&D spillovers between firms. We show that a regulator can reach the social optimal outcome by implementing a taxation and subsidy policy. The regulator subsidizes at a higher rate original R&D effort than its absorptive capacity counterpart when the free spillovers are high, and the contrary may occur when the free spillovers are low. When the cost of original research is lower than the one of absorptive research, or when the learning parameter of the latter is low, then the socially optimal level of original research is higher than the one of absorptive capacity. We have the opposite result when the cost of absorptive capacity is lower than the one of original research and when the learning parameter is high.
    Keywords: Pollution Control; Original R&D; Absorptive Capacity; Taxes and Subsidies; Social Optimum
    JEL: D62 H23 C72
    Date: 2009–06
  8. By: Rüdiger Pethig
    Abstract: Although gasoline taxes are widely used (nearly) efficient CO2 emission controls, additional fuel-efficiency regulation is applied e.g. in the USA and in Europe. In a simple analytical model, we specify the welfare implications of (i) gasoline taxes, (ii) of 'gas-guzzler taxes' (iii) of fuel-efficiency standards, and of combinations of the above. Both forms (ii) and (iii) of fuel-efficiency regulation turn out to produce the same suboptimally low emission rates. Combining (i) and (ii) is also distortionary, while efficiency can be secured by combining (i) and (iii). However, in the optimal mix of the latter two instruments the fuel-efficiency standard is redundant.
    Keywords: CO2 emissions, road transport, fuel efficiency regulation, gasoline tax
    JEL: D61 H21 H22 Q52 Q53 Q58
    Date: 2009
  9. By: Thomas Eichner; Rüdiger Pethig
    Abstract: We model EU-type carbon emissions control in a group of countries to explore the distributional incidence of mixed policies that consist of an emissions trading scheme (ETS) and of emissions taxes overlapping with the ETS. Such policies impact on national welfares through both the overlapping taxes and the distribution of national emissions caps. Our main proposition is an equivalence result stating that for every mixed policy, there exists an ETS policy without overlapping taxes yielding the same levels of national welfare as the mixed policy. We also suggest two measures of the net distributional incidence of mixed policies.
    Keywords: emissions cap, emissions tax, emissions trading
    JEL: H23 Q52
    Date: 2009
  10. By: Thomas Eichner; Rüdiger Pethig
    Abstract: The European Union fulfills its emissions reductions commitments by means of an emissions trading scheme covering some part of each member state’s economy and by national emissions control in the rest of their economies. The member states also levy energy/emissions taxes overlapping with the trading scheme. Restricting our focus on cost-effective policies, this paper investigates the distributive consequences of increasing the overlapping emissions tax that is uniform across countries. For quasi-linear utility functions and for a class of parametric utility and production functions emissions tax increases turn out to be exactly offset by permit price reductions. As a consequence permit-exporting [permit-importing] countries lose [gain] from an increase in the emissions tax. These results are not general, however. By means of a numerical example we show that export-import reversals and welfare reversals are possible.
    Keywords: emissions taxes, emissions trading, international trade
    JEL: H21 H22 Q56
    Date: 2009
  11. By: Rotfuß, Waldemar
    Abstract: This paper presents an introductory analysis of price formation and volatility in the European Union Emissions Trading Scheme using highfrequency data. The results show that there are several anomalies both in the EUA spot and EUA futures market. First, price formation seems to take place on price sets that are coarser than those offered by the exchanges. Second, price formation in the EUA spot market (BlueNext) may be strongly affected by the price formation in the EUA futures market (ICE Futures). The typical U-shaped pattern of intraday volatility, that is often observed in organized financial markets, is partly present in the EUA futures market. Similar to other classical financial markets, realized volatility estimates of daily EUA volatility seem to have a long-memory property.
    Keywords: EUA,EU ETS,Intraday Price Formation,Realized Volatility
    JEL: D43 G13 Q59
    Date: 2009
  12. By: Thomas Eichner; Rüdiger Pethig
    Abstract: Policies of lowering carbon demand may aggravate rather than alleviate climate change (green paradox). In a two-period three-country general equilibrium model with finite endowment of fossil fuel one country enforces an emissions cap in the first or second period. When that cap is tightened the extent of carbon leakage depends on the interaction of various parameters and elasticities. Conditions for the green paradox are specified. All determinants of carbon leakage resulting from tightening the first-period cap work in opposite direction when the second-period cap is tightened. Tightening the second-period cap does not necessarily lead to the green paradox.
    Keywords: carbon leakage, green paradox, emissions cap
    JEL: H22 Q32 Q54
    Date: 2009
  13. By: Rennings, Klaus; Markewitz, Peter; Vögele, Stefan
    Abstract: In the discussion on innovations for sustainable development, radical innovations are frequently called for in order that the transformation of society to a system perceived as sustainable can succeed. The reason given for this is the greater environmental efficiency of these innovations. This hypothesis is, however, not supported by empirical evidence. Against the background of a globally increasing use of coal-burning power plants and the environmental impacts to be expected, the hypothesis that radical innovations are superior to incremental innovations is reviewed on the basis of fossil fuel power plants. This paper examines the diffusion of incremental and radical innovations in the field of power plants and the basic obstacles with which these innovations were confronted. To give an example, Pressurised Pulverised Coal Combustion (PPCC) as a radical innovation and supercritical coal-fired power plants as an incremental innovation are compared. An ex-post analysis of the German R&D portfolio in the past three decades in the field of power plants environmentally shows that technologies which were radical innovations had great difficulties in becoming accepted by possible investors. The future potential of radical innovations in the field of power plant technology is to be regarded as relatively low, especially due to comparatively high cost-pressure, the reluctance of utilities to take risks and the temporal dynamics of technological progress facilitating incremental innovations on the basis of conventional reference technology. The conclusion for future R&D work in the sector of large-scale power plants is that an innovation is more likely to succeed the more it follows established technological trajectories. In the context of energy market liberalisation, hardly any radical innovations are expected in this field of technology. The findings of this paper may also be helpful in evaluating risks or probabilities of success of technologies being developed. As an example technological trajectories currently favoured in CO2 capture are discussed.
    Keywords: Radical innovations,incremental innovations,carbon capture storage,coal power plants
    JEL: Q01 Q55 O31 O33
    Date: 2009
  14. By: Alistair Ulph; David Ulph
    Abstract: This paper examines the optimal design of climate change policies in the context where governments want to encourage the private sector to undertake significant immediate investment in developing cleaner technologies, but the carbon taxes and other environmental policies that could in principle stimulate such investment will be imposed over a very long future. The conventional claim by environmental economists is that environmental policies alone are sufficient to induce firms to undertake optimal investment. However this argument requires governments to be able to commit to these future taxes, and it is far from clear that governments have this degree of commitment. We assume instead that governments cannot commit, and so both they and the private sector have to contemplate the possibility of there being governments in power in the future that give different (relative) weights to the environment. We show that this lack of commitment has a significant asymmetric effect. Compared to the situation where governments can commit it increases the incentive of the current government to have the investment undertaken, but reduces the incentive of the private sector to invest. Consequently governments may need to use additional policy instruments – such as R&D subsidies – to stimulate the required investmen
    Keywords: Climate Change; Emissions Taxes; Impact on R&D; Timing and Commitment
    JEL: H23 Q54 Q55 Q58
    Date: 2009–08

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