nep-ene New Economics Papers
on Energy Economics
Issue of 2009‒10‒31
eighteen papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Estimating Historical Energy Security Costs By Arnold, Steven; Markandya, Anil; Hunt, Alistair
  2. Defining European Wholesale Electricity Markets: An “And/Or” Approach By Elbert Dijkgraaf; Maarten C.W. Janssen
  3. Choice Experiment Study on the Wilingness to Py to Improve Electricity Services By Abdullah, Sabah; Mariel, P
  4. Why are the 2000s so different from the 1970s? A structural interpretation of changes in the macroeconomic effects of oil prices By Olivier J. Blanchard; Marianna Riggi
  5. Oil Prices and Bank Profitability: Evidence from Major Oil-Exporting Countries in the Middle East and North Africa By Heiko Hesse; Tigran Poghosyan
  6. Efectos del incremento del precio del petróleo en la economía española: Análisis de cointegración y de la política monetaria mediante reglas de Taylor By Hernandez Martinez, Fernando
  7. On the Theory of Exhaustible Resources: Ricardo vs. Hotelling By Heinz D. Kurz; Neri Salvadori
  8. Eastern Europe and the former Soviet Union since the fall of the Berlin Wall: Review of the changes in the environment and natural resources By Markandya, Anil; Chou, Wan Jung
  9. Renewable Resource Management with Alternative Sources: the Case of Multiple Aquifers and a "Backstop" Resource By James Roumasset; Christopher Wada
  10. Biofuel subsidies: an open-economy analysis By Subhayu Bandyopadhyay; Sumon Bhaumik; Howard J. Wall
  11. European Policies towards Palm Oil - Sorting Out some Facts By Gernot Pehnelt; Christoph Vietze
  12. Patents as a Measure for Eco-Innovation By Vanessa OLTRA (GREThA UMR CNRS 5113); René KEMP (University of Maastrich); Frans P. de VRIES (University of Stirling)
  13. The Environment and Directed Technical Change By Daron Acemoglu; Philippe Aghion; Leonardo Bursztyn; David Hemous
  14. Unilateral Measures and Emissions Mitigation By Shurojit Chatterji; Sayantan Ghosal; Sean Walsh; John Whalley
  15. Evaluation of post Kyoto GHG emission reduction paths By Ciscar, Juan Carlos; Paroussos, Leonidas; Van Regemorter, Denise
  16. Price Floors for Emissions Trading By Peter J Wood; Frank Jotzo
  17. The European Union’s Emission Trading Scheme: Political Economy and Bureaucratic Rent-Seeking By Mallard, Graham
  18. Climate Change and China: Technology, Market and Beyond By Dale Jiajun Wen

  1. By: Arnold, Steven; Markandya, Anil; Hunt, Alistair
    Abstract: Energy Security is of increasing importance in today’s world, yet little research has been carried out on the costs or benefits of energy security policies. This paper looks at the period after the 1970s to estimate the cost premium of electricity generation due to energy security policies. The cost premium is estimated for France, Germany, Italy and Spain for the period 1980-2000 by estimating actual versus hypothetical lowest cost generation mixes. The cost premium is estimated to be lowest for France, which had a clear energy security policy based around developing nuclear power and reducing reliance on oil and coal.
    Keywords: Energy security; electric energy; historic cost estimation
    Date: 2009
  2. By: Elbert Dijkgraaf (Erasmus School of Economics, Erasmus University Rotterdam); Maarten C.W. Janssen (University of Vienna, and Erasmus School of Economics)
    Abstract: An important question in the dynamic European wholesale markets for electricity is whether to define the geographical market at the level of an individual member state or more broadly. We show that if we currently take the traditional approach by considering for each member state whether there is one single other country that provides a substitute for domestic production, the market in each separate member state has still to be considered a separate market. However, if we allow for the possibility that at different moments in time there is another country that provides a substitute for domestic production, then the conclusion should be that certain member states do not constitute a separate geographical market. This is in particular true for Belgium, but also for The Netherlands, France, and to some extent also for Germany and Austria. We call this alternative approach the "and/or" approach.
    Keywords: Electricity; convergence; market definition; market coupling
    JEL: L94 L40
    Date: 2009–09–14
  3. By: Abdullah, Sabah; Mariel, P
    Abstract: Modern forms of energy are an important vehicle towards poverty alleviation in rural areas of developing countries. Most developing countries’ households heavily rely on wood fuel which impact their health and social–economic status. To ease such a dependency, other modern forms of energy, namely electricity, need to be provided. However, the quality of the electricity service, namely reliability, is an important factor in reducing this dependency. This paper discusses a choice experiment valuation study conducted among electrified rural households located in Kisumu, Kenya, in which the willingness to pay (WTP) to avoid power outages or blackouts was estimated. A mixed logit estimation was applied to identify the various socio-economic and demographic characteristics which determine preferences to reduce power outages among a household’s users. In conclusion, several of the socio-economic and demographic characteristics outlined in this paper were identified and can assist service differentiation to accommodate the diverse households’ preferences towards the improvement of the electricity service.
    Keywords: developing country; rural; power outages; willingness to pay; random parameter logit
    Date: 2009
  4. By: Olivier J. Blanchard; Marianna Riggi
    Abstract: In the 1970s, large increases in the price of oil were associated with sharp decreases in output and large increases in inflation. In the 2000s, and at least until the end of 2007, even larger increases in the price of oil were associated with much milder movements in output and inflation. Using a structural VAR approach Blanchard and Gali (2007a) argued that this has reflected in large part a change in the causal relation from the price of oil to output and inflation. In order to shed light on the possible factors behind the decrease in the macroeconomic effects of oil price shocks, we develop a new-Keynesian model, with imported oil used both in production and consumption, and we use a minimum distance estimator that minimizes, over the set of structural parameters and for each of the two samples (pre and post 1984), the distance between the empirical SVAR-based impulse response functions and those implied by the model. Our results point to two relevant changes in the structure of the economy, which have modified the transmission mechanism of the oil shock: vanishing wage indexation and an improvement in the credibility of monetary policy. The relative importance of these two structural changes depends however on how we formalize the process of expectations formation by economic agents.
    JEL: E3 E52
    Date: 2009–10
  5. By: Heiko Hesse; Tigran Poghosyan
    Abstract: This paper analyzes the relationship between oil price shocks and bank profitability. Using data on 145 banks in 11 oil-exporting MENA countries for 1994-2008, we test hypotheses of direct and indirect effects of oil price shocks on bank profitability. Our results indicate that oil price shocks have indirect effect on bank profitability, channeled through country-specific macroeconomic and institutional variables, while the direct effect is insignificant. Investment banks appear to be the most affected ones compared to Islamic and commercial banks. Our findings highlight systemic implications of oil price shocks on bank performance and underscore their importance for macroprudential regulation purposes in MENA countries.
    Keywords: Banks , Commodity price fluctuations , External shocks , Middle East , North Africa , Oil exporting countries , Oil exports , Oil prices , Oil sector , Profit margins , Profits ,
    Date: 2009–10–09
  6. By: Hernandez Martinez, Fernando
    Abstract: The main purpose of this paper is to show evidence about the negative impact of oil price shocks in the economy of Spain. Since oil demand is continuously increasing all around the world and OPEC countries use to act having certain power to raise them, it is necessary to study how these price levels affect to inflation rate and output growth. Oil prices, inflation and interest rates and Gross Domestic Product historical data are collected for contegration analysis. Forward-looking and Backward-looking Taylor Rules are also estimated to compare their trend with respect to official interest rates and finally conclude if the European Central Banks takes these rules patterns into account.
    Keywords: Oil prices; interest rates; inflation; Gross Direct Product; cointegration; Taylor rules
    JEL: C32 E58 E52 Q43
    Date: 2009–02
  7. By: Heinz D. Kurz; Neri Salvadori
    Abstract: The paper compares, and eventually combines, the approaches of Harold Hotelling and David Ricardo to the theory of exhaustible resources. It is argued that Hotelling and Ricardo had in mind worlds that differ in important respects. According to Ricardo the exploitation of deposits of resources is typically subject to capacity constraints which necessitate the working of differently fertile mines side by side and which imply that the classical theory of differential rent applies. Hotelling on the other hand assumed that the amount of the resource that can be extracted in a given period of time is only constrained by the amount of it left over from the preceding period; his emphasis was therefore on royalties and not differential rent. A model is then elaborated which brings together the insights of both authors and allows one to trace relative prices and income distribution over time.
    Date: 2009–09
  8. By: Markandya, Anil; Chou, Wan Jung
    Abstract: This paper reviews the environmental record of the transition countries of Eastern Europe and Central Asia since the fall of the Berlin Wall, with a focus on areas of key concern to public policy at the present time. With the impacts of environment on public health being given the highest priority, we examined several associated health indicators at the national level, as well as looking at important environmental issues at the local level. In this respect, we focus on environmental problems related to air and water quality, land contamination, and solid waste management. Despite showing a highly differentiated performance across the region, the results suggest that inadequate environmental management seen in several of the transition countries in the past 20 years has put people’s health and livelihood under huge threats. Moreover, this paper looks at the development of policy responses and resources, i.e. environmental expenditures, in these countries, during the process of transiting from centrally planned economies to market-based one. Similarly, we identify various degrees of progress across the region. The findings reinforce the need for better coherence between national environmental expenditure and international environmental assistance, as well as the actual enforcement of national regulations and international agreements in those non-EU transition countries.
    Keywords: transition countries; environmental issues; public health; land contamination; air pollution; water pollution; policy; environmental expenditure
    Date: 2009
  9. By: James Roumasset (Department of Economics, University of Hawaii at Manoa); Christopher Wada (Department of Economics, University of Hawaii at Manoa)
    Abstract: While renewable resource economics is typically confined to one source and one aggregate demand, resource managers must often decide how to manage multiple sources of a resource simultaneously. In addition, studies of extraction sequencing are typically confined to non-renewable resources. We propose a dynamic optimization model to determine the efficient allocation of groundwater when two coastal aquifers are available for exploitation. We find that Herfindahl’s least-cost-first result for nonrenewable resources does not necessarily apply to renewable resources, even when there is only one demand. Along the optimal trajectory extraction may switch from single to simultaneous use, depending on how the marginal opportunity cost of each resource evolves over time. A numerical simulation for the South Oahu aquifer system, which allows for differentiation of users by elevation and hence distribution costs, illustrates the switching behavior.
    Keywords: Renewable resources, dynamic optimization, multiple resources
    JEL: Q25 Q28 C61
    Date: 2009–10–14
  10. By: Subhayu Bandyopadhyay; Sumon Bhaumik; Howard J. Wall
    Abstract: We present a general equilibrium analysis of biofuel subsidies in an open-economy context. In the small-country case, when a Pigouvian tax on conventional fuels such as crude is in place, the optimal biofuel subsidy is zero. When the tax on crude is not available as a policy option, however, a second-best biofuel subsidy (or tax) is optimal. In the large-country case, the optimal tax on crude departs from its standard Pigouvian level and a biofuel subsidy is optimal. A biofuel subsidy spurs global demand for food and confers a terms-of-trade benefit to the food-exporting nation. This might encourage the food-exporting nation to use a subsidy even if it raises global crude use. The food importer has no such incentive for subsidization. Terms-of-trade effects wash out between trading nations; hence, any policy intervention by the two trading nations that raises crude use must be jointly suboptimal.
    Keywords: Macroeconomics ; Economic conditions
    Date: 2009
  11. By: Gernot Pehnelt (GlobEcon); Christoph Vietze (Friedrich Schiller University Jena, School of Economics and Business Administration)
    Abstract: This paper analyses the role of palm oil and its sustainability from different perspectives. We consider the role of palm oil within the GHG context. We discuss the impact of palm oil on biodiversity and analyse how palm oil can contribute to economic growth and development in tropical countries. Finally, based on this analysis, we assess the current concerns about and politics towards palm oil with special focus on the EU. Palm oil is a low-energy and low-fertilizer crop that offers much higher yields per hectare than other oil crops. Furthermore, if the energy obtained by the residuals in the production process is used properly, the energy balance of palm oil production is much more favourable compared to other biofuels. Overall, palm oil turns out to be much more efficient than other oil crops and therefore offers significant advantages within the context of GHG savings. Contrary to some recent campaigns and the perception among European citizens, oil palm plantings are not a major contributor to deforestation in tropical countries. Deforestation associated with oil palm plantings is much less significant than postulated by some recent campaigns. Furthermore, biodiversity in oil palm plantations is much higher than in most monocultures in the EU. Palm oil is an important driver of economic development and growth in tropical countries and contributes to the reduction of poverty and hunger in the developing world. The EU Renewable Energy Directive is discriminatory from the outset and the GHG saving values and their interpretation are based on wrong assumptions and faulty calculations. Therefore, the EU should reshape its policies towards palm oil, conduct objective and non-discriminatory calculations regarding the GHG emissions saving values and support palm oil imports from developing countries rather than restricting them. Together with certain initiatives to further enhance energy efficiency and to protect precious habitats combined with strategies to strengthen property rights and encourage efficient land use and successful strategies of agricultural development, this would not only prevent political conflicts and trade disputes in conjunction with the issue of palm oil but also foster economic growth and development, reduce poverty and - not least - contribute to the ambitious GHG emissions savings goals on a fair and reasonable basis.
    Keywords: Renewable Energy, Palm Oil, Biodiversity, Sustainable Development, Environmental Policy
    JEL: F14 F18 O13 Q01 Q15 Q27 Q56 Q57
    Date: 2009–10–28
  12. By: Vanessa OLTRA (GREThA UMR CNRS 5113); René KEMP (University of Maastrich); Frans P. de VRIES (University of Stirling)
    Abstract: This paper examines the usefulness of patent analysis for measuring eco-innovation. The overall conclusion is that patents are a useful means for measuring environmentally motivated innovations, such as pollution control technologies and green energy technologies, and for general purpose technologies with environmental benefits. For these types of innovations it is acceptable to use patent analysis, provided they are carefully screened. Patent analysis may be used for measuring five attributes of eco-innovation: (1) eco-inventive activities in specific technology fields, (2) international technological diffusion, (3) research and technical capabilities of companies, (4) institutional knowledge sources of eco-innovation, and (5) technological spillovers and knowledge flows. Up until now it is mainly used for measuring eco-inventive activity.
    Keywords: Eco-innovation, patents
    JEL: C81
    Date: 2009
  13. By: Daron Acemoglu; Philippe Aghion; Leonardo Bursztyn; David Hemous
    Abstract: This paper introduces endogenous and directed technical change in a growth model with environmental constraints and limited resources. A unique final good is produced by combining inputs from two sectors. One of these sectors uses "dirty" machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare, as a function of the degree of substitutability between clean and dirty inputs, environmental and resource stocks, and cross-country technological spillovers. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both "carbon taxes" and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values (corresponding to those used in existing models with exogenous technology) and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth. We also show that in a two-country extension, even though optimal environmental policy involves global policy coordination, when the two inputs are sufficiently substitutable environmental regulation only in the North may be sufficient to avoid a global disaster.
    JEL: C65 O30 O31 O33
    Date: 2009–10
  14. By: Shurojit Chatterji; Sayantan Ghosal; Sean Walsh; John Whalley
    Abstract: We discuss global climate mitigation that builds on existing unilateral measures to cut emissions. We document and discuss the rationale for such unilateral measures argue that such measures have the potential to generate positive spillover effects both within and across countries. In a simple dynamic model of learning we show that while single countries on their own may never get to the point of switching completely to low emission activities, a learning process with positive spillovers across nations is more likely to deliver a global switch to low emissions. We discuss the key features of a new global Intellectual Property (IP) regime that builds on the positive spillovers inherent in unilateral initiatives and accelerates global convergence to low emissions.
    JEL: F53 Q50 Q54
    Date: 2009–10
  15. By: Ciscar, Juan Carlos; Paroussos, Leonidas; Van Regemorter, Denise
    Abstract: Climate change has become a critical issue in the international policy making agenda. At the UNFCC conference in Bali 2007, countries decided on a roadmap to achieve a ‘secure climate future’. Given the commitment to limit the temperature increase to 2° Celsius relative to the preindustrial levels, the EU decided in March 2007, as a first step, a 20% reduction of its GHG emissions by 2020, going to 30% if a comprehensive international agreement can be reached. This study uses the multi-sector multi-region world model GEM-E3 in order to identify the world economic implications of different participation schemes for post Kyoto. The scenarios reported in this paper have contributed to the EU communication on ‘Limiting Global Change to 2° Celsius the way ahead to 2020 and beyond’.
    Keywords: Climate change; Computable general equilibrium modeling; Emission reduction;
    JEL: D58 Q54 Q43
    Date: 2009–04
  16. By: Peter J Wood (Research School of Pacific and Asian Studies,College of Asia and Pacific, Australian National University); Frank Jotzo (Research School of Pacific and Asian Studies,College of Asia and Pacific, Australian National University)
    Abstract: Price floors in greenhouse gas emissions trading schemes can have advantages for technological innovation, price volatility, and management of cost uncertainty, but implementation has pitfalls. We argue that the best mechanism for implementing a price floor is by way of firms paying an extra fee or tax. This has budgetary advantages and is more compatible with international permit trading than alternative approaches that dominate the academic and policy debate. The fee approach can also be used to implement more general hybrid approaches to emissions pricing.
    Keywords: Price floor; price ceiling; carbon tax; emissions trading; carbon pricing; price and quantity controls; Waxman-Markey Bill.
    Date: 2009–10
  17. By: Mallard, Graham
    Abstract: A political economy model is presented that proposes an effective explanation as to why national allocation plans in the emissions trading scheme of the European Union have taken the form they have. The influence of the national bureaucracy, which is omitted in the majority of the related political economy literature, is shown to be potentially significant and costly – particularly through its interaction with the influence of the affected industrialists. The analysis suggests that the role of the national bureaucracy in the design of environmental policy should be carefully considered and structured, and suggests an avenue of potentially important and fruitful future research.
    Date: 2009
  18. By: Dale Jiajun Wen
    Abstract: The paper discusses the impacts of climate change to the environment of China and most especially to the livelihood of Chinese people there. It analyzed the Chinese government’s position and enumerates the measures that China has taken so far, as well as the commitments and concrete targets that it pledged to undertake. It explains China’s stance on the climate change negotiations; its arguments and considerations concerning its role to the international community; and its responsibilities to address its many domestic pressures in relation to geopolitics, the financial crisis, as well as global trade and technology issues. [FGS OP No. 6].
    Keywords: china, climate change, chinese, negotiations, international community, global trade, financial crisis, geopolitics, livelihood
    Date: 2009

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