nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒09‒19
nineteen papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Price transmission in the UK electricity market : was NETA beneficial? By Giulietti, Monica; Grossi, Luigi; Waterson, Michael
  2. Did the « Pax Electrica » agreements reduce the Suez’ power relationship on Elia, the Belgian electricity grid manager ? By Marc Levy
  3. On interfuel substitution : some international evidence By Serletis, Apostolos; Timilsina, Govinda; Vasetsky, Olexandr
  4. Size, Energy Use and Economies of Scale: Modeling of Policy Instruments to Address Small Farmsâ Advantages if Energy Is Scarcer and Ecology Matters? By Nuppenau, Ernst-August
  5. Integrating biofuels into the DART model: Analysing the effects of the EU 10% biofuel target By Kretschmer, Bettina; Peterson, Sonja; Ignaciuk, Adriana
  6. Impact of different biofuel policy options on agricultural production and land use in Germany By Banse, Martin; Sorda, Giovanni
  7. Modelling regional maize market and transport distances for biogas production in Germany By Delzeit, Ruth; Britz, Wolfgang; Holm-Müller, Karin
  8. Using Monte Carlo Simulation to Account for Uncertainties in the Spatial Explicit Modeling of Biomass Fired Combined Heat and Power Potentials in Austria By Johannes Schmidt; Sylvain Leduc; Erik Dotzauer; Georg Kindermann; Erwin Schmid
  9. Auswirkungen der Novellierung des EEG auf die Wettbewerbskraft der Biogasproduktion By Rauh, Stefan
  10. Natural Resource Booms and Inequality: Theory and Evidence By Goderis, Benedikt; Malone, Samuel W.
  11. Fuelwood consumption, restrictions about resource availability and public policies: impacts on the French forest sector By Sylvain Caurla; Philippe Delacotte; Franck Lecocq; Ahmed Barkaoui
  12. Nice guys with cold feet: The cost of responsible investing in the bond markets By Bastien Drut
  13. The Pollution Game: A Classroom Exercise Demonstrating the Relative Effectiveness of Emissions Taxes and Tradable Permits By Jay R. Corrigan
  14. Differentiating emissions targets for individual developed countries: economics and equity By Reisinger, Andy
  15. The wrath of god : macroeconomic costs of natural disasters By Raddatz, Claudio
  16. Global energy and environmental scenarios: Implications for development policy By Willenbockel, Dirk
  17. Unintended Consequences from Nested State & Federal Regulations: The Case of the Pavley Greenhouse-Gas-per-Mile Limits By Lawrence H. Goulder; Mark R. Jacobsen; Arthur A. van Benthem
  18. Optimal Climate Change Policies When Governments Cannot Commit By Alistair Ulph; David Ulph
  19. Global governance: the G20 and a global green new deal By Barbier, Edward B.

  1. By: Giulietti, Monica (Nottingham University Business School); Grossi, Luigi (University of Verona); Waterson, Michael (University of Warwick)
    Abstract: This paper explores the relationship between domestic retail electricity prices in Great Britain and their determinants in the particular context of the New Electricity Trading Arrangements (NETA) introduced in 2001. The analysis requires a consistent comparison of wholesale power price series before and after NETA, which we investigate using a range of wholesale future price series. Despite its stated intention of reducing prices, we conclude that the net effect of NETA alongside other developments instead merely rearranged where money was made in the system.
    Keywords: Electricity generation ; electricity supply ; retail pricing ; futures markets ; energy market competition
    JEL: L94 L51
    Date: 2009
  2. By: Marc Levy (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.)
    Abstract: The company Elia, which manages the grid system of electricity in Belgium, is mainly controlled by the principal producer of electricity, Electrabel, and by political powers. The Belgian state has recently constrained the French group to yield 3% of its stake in Elia as foreseen in the Pax Electrica agreements. This article studies the impact of this transfer by means of the Banzhaf index that measures the intensity of control. The results show that theoretically these agreements change the power relationship on the manager of the grid.
    Keywords: Ownership and control, Electricity market, Banzhaf index
    JEL: G32 L12 L22 L94
    Date: 2009–09
  3. By: Serletis, Apostolos; Timilsina, Govinda; Vasetsky, Olexandr
    Abstract: This paper estimates interfuel substitution elasticities in selected developing and industrialized economies at the national and sector levels. In doing so, it employs state-of-the-art techniques in microeconometrics, particularly the locally flexible normalized quadratic functional forms, and provides evidence consistent with neoclassical microeconomic theory. The results indicate that the interfuel substitution elasticities are consistently below unity, revealing the limited ability to substitute between major energy commodities (i.e., coal, oil, gas, and electricity). While the study finds some evidences of larger interfuel substitution potential in high-income economies as compared to that in the middle- and low-income economies in the industrial and transportation sectors, no such evidence is observed in the residential and electricity generation sectors or at the national level. The implication is that interfuel substitution depends on the structure of the economy, not the level of economic development. Moreover, a higher change in relative prices is needed to induce switching toward a lower carbon economy.
    Keywords: Energy Production and Transportation,Environment and Energy Efficiency,Energy and Environment,Energy Demand,Markets and Market Access
    Date: 2009–08–01
  4. By: Nuppenau, Ernst-August
    Abstract: This paper contributes to the discussion on appropriate farm sizes as dependent on energy use and green house gas emission. Normally large farms use more energy than small farms and obtain higher labor productivity which is one of the reasons for their superiority. We presume energy includes a component of negative externality if fossil energy is used and carbon CO2 are counted. Moreover it can be intended to use farming for carbon sequestration. In the paper we will analyze, how a new pathway can be developed, that includes incentives (taxes and subsidies) to save energy and develop coexistence between large and small farms. In favoring small scale farming because of less emission, a contribution to global warming reduction is envisaged. The issue is how can we address farm size, make incentives visible, help to switch technologies and promote farmers who adopt CO2 saving technologies? The paper suggests a framework of linear programming and quadratic expositions of farm behavior to depict policy for optimal farm operation size and farm structures composed of large and small scale farms. A moderate position is taken with respect to sustainable farming and the question of farm size and energy use is given to policy instruments.
    Keywords: Energy use, farm size and agricultural policy, Agricultural and Food Policy, Environmental Economics and Policy, Land Economics/Use, Production Economics,
    Date: 2009–08–20
  5. By: Kretschmer, Bettina; Peterson, Sonja; Ignaciuk, Adriana
    Abstract: Biofuels and other forms of bioenergy have received increased attention in recent times: They have partly been acclaimed as an instrument to contribute to rural development, energy security and to fight global warming but have been increasingly come under attack for their potential to contribute to rising food prices. It has thus become clear that bioenergy cannot be evaluated independently of the rest of the economy and that national and international feedback effects are important. In this paper we describe how the CGE model DART is extended to include firstgeneration biofuel production technologies. DART can now be used to assess the efficiency of combined climate and bioenergy policies. As a first example the effects of a 10% biofuel target in the EU are analyzed.
    Keywords: biofuels, CGE model, EU climate policy, Environmental Economics and Policy, Resource /Energy Economics and Policy,
    Date: 2009–10
  6. By: Banse, Martin; Sorda, Giovanni
    Keywords: biofuel, Environmental Economics and Policy, Resource /Energy Economics and Policy,
    Date: 2009–10
  7. By: Delzeit, Ruth; Britz, Wolfgang; Holm-Müller, Karin
    Abstract: Our location model aims to simulate location decisions for biogas plants based on profit maximisation to generate regional demand functions for maize and corresponding plant size structure and transport distances. By linking it with an agricultural sector model we derived regional maize markets. Comparing results for the REA with a scenario applying uniform per unit subsidy and producing the same energy, we see higher subsidy costs with the REA but lower transportation distances.
    Keywords: Biogas, environmental effects, transport costs, choice of location, Agricultural Finance, Environmental Economics and Policy,
    Date: 2009–10
  8. By: Johannes Schmidt (Doctoral School Sustainable Development (dokNE), University of Natural Resources and Applied Life Sciences, Vienna); Sylvain Leduc (International Institute for Applied Systems Analysis, Schlossplatz 1, A-2361 Laxenburg, Austria); Erik Dotzauer (Mälardalen University, Box 883, SE-72123 Västerås, Sweden); Georg Kindermann (International Institute for Applied Systems Analysis, Schlossplatz 1, A-2361 Laxenburg, Austria); Erwin Schmid (Institute for Sustainable Economic Development, Department of Economics and Social Sciences, University of Natural Resources and Applied Life Sciences, Vienna)
    Abstract: Austria aims at increasing its share of renewable energy production by 11% until 2020. Combined Heat and Power (CHP) plants fired by forest wood can significantly contribute to attaining this target. However, the spatial distribution of biomass supply and of heat demand limits the potentials of CHP production. This paper assesses CHP potentials using a mixed integer programming model that optimizes locations of bioenergy plants. Investment costs of district heating infrastructure are modeled as a function of heat demand densities, which can differ substantially. Gasification of biomass in a combined cycle process is assumed as production technology. Some model parameters have a broad range according to a literature review. Monte-Carlo simulations have therefore been performed to account for model parameter uncertainty in our analysis. Optimal locations of plants are clustered around big cities in the East of Austria. At current power prices, biomass based CHP production allows producing around 3% of Austria’s total current energy demand. Yet, the heat utilization decreases when CHP production increases due to limited heat demand that is suitable for district heating.
    Keywords: Combined Heat and Power, District Heating, Bioenergy, Biomass, Mixed Integer Programming, Monte-Carlo Simulation
    JEL: C61 C63
    Date: 2009–06
  9. By: Rauh, Stefan
    Abstract: Im Zuge des Ausbaus der Biomasseproduktion für energetische Zwecke wurden zuerst insbe-sondere stillgelegte Flächen herangezogen. Doch mittlerweile sind quasi keine freien Flächen mehr verfügbar und besonders regional kommt es zu Konkurrenzen zwischen der Nahrungs-mittel- und der Energieproduktion. Welcher Bereich die notwendigen Agrarrohstoffe für sich beanspruchen darf, entscheidet der Markt. Die Fläche als Ursprung der Agrarrohstoffe ge-winnt demnach an Wert, was die Entwicklung auf dem Pachtmarkt zeigt. Zur Abschätzung welches Produktionsverfahren die höchste Entlohnung dieser knappen Ressource verspricht, dient die Bodenrente, also der Betrag, der nach Abzug aller Kosten noch zur Verfügung steht. Die erneute Novellierung des EEG im Jahr 2008 hat zu einer Erhöhung der Bodenrente und damit auch der Wettbewerbskraft der Biogasproduktion geführt. Besonders der Güllebonus erleichtert die Investition in kleinere Biogasanlagen. Unter den momentanen Rahmenbedin-gungen im Frühjahr 2009 mit relativ niedrigen Agrarrohstoffpreisen weist die Biogasproduk-tion einen Vorteil bei der Substratbeschaffung gegenüber konkurrierenden Verfahren auf. Hochpreisphasen wie 2007 können aber weiterhin die Rentabilität von Biogasanlagen mit Substratzukauf gefährden.
    Keywords: Wettbewerbskraft, Bodenrente, sunk costs, Biogasproduktion, Environmental Economics and Policy, Resource /Energy Economics and Policy,
    Date: 2009–10
  10. By: Goderis, Benedikt; Malone, Samuel W.
    Abstract: Surprisingly little is known about the impact of natural resource booms on income inequality in resource rich countries (Ross, 2007). This paper develops a theory, in the context of a two sector growth model in which learning-by-doing drives growth, to explain the time path of inequality following a resource boom. Under the condition that the nontraded sector uses unskilled labor more intensively than the traded sector, we find that income inequality will fall in the short run immediately after a boom, and will then increase steadily over time as the economy grows, until the initial impact of the boom on inequality disappears. Using dynamic panel data estimation for 90 countries between 1965 and 1999, and exploiting variation in world commodity prices to identify resource booms, we find evidence in support of the theory, especially for oil and mineral booms. We also find that uncertainty about future commodity export prices significantly increases long-run inequality.
    Keywords: Resource Booms; Inequality; Dutch Disease
    JEL: F11 O15 O13 Q33
    Date: 2009–07–28
  11. By: Sylvain Caurla (Laboratoire d'Economie Forestière, INRA - AgroParisTech); Philippe Delacotte (Laboratoire d'Economie Forestière, INRA - AgroParisTech); Franck Lecocq (Laboratoire d'Economie Forestière, INRA - AgroParisTech); Ahmed Barkaoui (Laboratoire d'Economie Forestière, INRA - AgroParisTech)
    Abstract: In the context of climate change and of increasing energy prices, the share of fuelwood in primary energy consumption may increase, especially in countries with large forest endowments. However, larger fuelwood consumption may have non-negligible impacts on forest sectors. This paper assesses those impacts for France using a new model of the French forest sector, and comparing four different policy options to boost fuelwood demand. First, supply- and demand-side policies yield very different outcomes, with a trade-off between trade balance and harvest intensity. Second, even a modest increase in fuelwood consumption leads to tensions over forest stock over time under pessimistic views about resource availability.
    Keywords: forest sector modeling, fuelwood, bioenergy, public incentives.
    JEL: Q23 Q28
    Date: 2009–08
  12. By: Bastien Drut (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussel, Credit Agricole Asset Management SGR and University of Paris Ouest, Paris.)
    Abstract: The aim of this paper is to measure the cost of investing responsibly for different risk aversion levels by taking the example of green sovereign bond portfolios. We show that for developed countries, the cost of being a nice guy is lower if you have cold feet while this is the contrary for emerging countries. It implies that managers of Socially Responsible Investment (SRI) funds should gauge investor’s risk aversion prior to evaluating the “SRI cost”, this cost being null in some cases.
    Keywords: Climate Change, Environmental Performance Index, Responsible Investing, Risk Aversion, Portfolio Selection, Socially Responsible Investment, Sovereign Bonds.
    JEL: G11 G15 Q59
    Date: 2009–09
  13. By: Jay R. Corrigan
    Abstract: This classroom exercise illustrates the strengths and weaknesses of various regulatory frameworks aimed at internalizing negative externalities from pollution. Specifically, the exercise divides students into three groups—the government regulatory agency and two polluting firms—and allows them to work through a system of uniform command-and-control regulation, a tradable emissions permit framework, and an emissions tax. Students have the opportunity to observe how flexible, market-oriented regulatory frameworks can outperform inflexible command-and-control. More importantly given the ongoing debate about how best to regulate carbon dioxide emissions, students can also observe how the introduction of abatement-cost uncertainty can cause one market-oriented solution to outperform another.
    Keywords: classroom experiments, emissions taxes, pollution, tradable emissions permits
    Date: 2009–06
  14. By: Reisinger, Andy
    Abstract: A key challenge for a future climate change agreement is allocating emissions targets for individual developed countries that are perceived as equitable given differing national circumstances. Many economics-based frameworks for evaluating future targets use as a key criterion for individual country targets the notion that mitigation measures should result in similar costs (specifically, that the required mitigation actions relative to baseline emissions result in a similar percentage reduction of individual countries' GDP in the target year or period). Such an economic criterion provides a transparent and objective basis for comparison, but it does not necessarily mean that comparable targets for individual countries are also equitable. A set of thought experiments demonstrates that such an approach indeed does not reflect equity between countries. This is because future business-as-usual emissions, against which the costs of mitigation are assessed, depend on past policy choices and mitigation pathways. An approach that sets future emissions targets at a specific date based on comparable costs, without regard to past policy choices and commitments, would penalise countries that have taken early action and provides a disincentive for taking strong domestic mitigation actions in future. This analysis suggests that the choice of 'business-as-usual' emissions against which the future costs of mitigation are assessed needs to receive more attention if economic comparability is intended to also reflect equity of emissions targets over time.
    Keywords: Greenhouse gas mitigation,equity of emissions targets,comparability,economic impact,path-dependence,optimal policy design
    JEL: A13 F51 Q54
    Date: 2009
  15. By: Raddatz, Claudio
    Abstract: The process of global climate change has been associated with an increase in the frequency of climatic disasters. Yet, there is still little systematic evidence on the macroeconomic costs of these episodes. This paper uses panel time-series techniques to estimate the short and long-run impact of climatic and other disasters on a country's GDP. The results indicate that a climate related disaster reduces real GDP per capita by at least 0.6 percent. Therefore, the increased incidence of these disasters during recent decades entails important macroeconomic costs. Among climatic disasters, droughts have the largest average impact, with cumulative losses of 1 percent of GDP per capita. Across groups of countries, small states are more vulnerable than other countries to windstorms, but exhibit a similar response to other types of disasters; and low-income countries responds more strongly to climatic disasters, mainly because of their higher response to droughts. However, a country's level of external debt has no relation to the output impact of any type of disaster. The evidence also indicates that, historically, aid flows have done little to attenuate the output consequences of climatic disasters.
    Keywords: Natural Disasters,Disaster Management,Hazard Risk Management,Pollution Management&Control,Population Policies
    Date: 2009–09–01
  16. By: Willenbockel, Dirk
    Abstract: As part of a wider review of existing scenario analyses in areas with direct relevance to the future of global development, this paper focuses on two major recent studies: the scenarios contained in the UN Millennium Ecosystem Assessment (MEA) and the scenarios developed by the International Energy Agency (IEA) in support of the G8 Gleneagles plan of action on climate change, clean energy and sustainable development. The paper offers a critical appraisal of these scenarios, examines the drivers of change that are considered to influence future developments, explores the implications of the scenarios for developing countries, and outlines what types of changes in development policy could be appropriate in light of the lessons learned from these scenario exercises.
    Keywords: Economic development; Low-carbon growth; Sustainable growth; Millennium development goals
    JEL: Q56 O13 Q57
    Date: 2009–06
  17. By: Lawrence H. Goulder; Mark R. Jacobsen; Arthur A. van Benthem
    Abstract: Fourteen U.S. states recently pledged to adopt limits on greenhouse gases (GHGs) per mile of light-duty automobiles. Previous analyses predicted this action would significantly reduce emissions from new cars in these states, but ignored possible offsetting emissions increases from policy-induced adjustments in new car markets in other (non-adopting) states and in the used car market. Such offsets (or “leakageâ€) reflect the fact that the state-level effort interacts with the national corporate average fuel economy (CAFE) standard: the state-level initiative effectively loosens the national standard and gives automakers scope to profitably increase sales of high-emissions automobiles in non-adopting states. In addition, although the state-level effort may well spur the invention of fuel- and emissions-saving technologies, interactions with the federal CAFE standard limit the nationwide emissions reductions from such advances. Using a multi-period numerical simulation model, we find that 70-80 percent of the emissions reductions from new cars in adopting states are offset by emissions leakage. This research examines a particular instance of a general issue of policy significance – namely, problems from “nested†federal and state environmental regulations. Such nesting implies that similar leakage difficulties are likely to arise under several newly proposed state-level initiatives.
    JEL: H23 H77 Q52 Q58
    Date: 2009–09
  18. By: Alistair Ulph (University of Manchester); David Ulph (University of St Andrews, Oxford University Centre for Business Taxation)
    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 investment.
    Date: 2009
  19. By: Barbier, Edward B.
    Abstract: In response to the world economic crisis, the international community should promote a mix of policies to sustain global recovery and create jobs through reducing carbon dependency, ecological degradation and poverty. Such a Global Green New Deal (GGND) requires implementation and coordination of green investments by the Group of 20 (G20), who should also adopt complementary pricing policies and foster international aid and other actions in support of the GGND. Developing economies should provide clean water and sanitation for the poor, create safety nets, invest in heath and education, and target energy and water poverty. Such a global strategy can revive economies, create jobs and improve the sustainability of world development.
    Keywords: Economic Recession,G20,global governance,Global Green New Deal,green stimulus,low-carbon economy,world economy
    JEL: F59 H87 O13 O19 Q01
    Date: 2009

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