nep-ene New Economics Papers
on Energy Economics
Issue of 2010‒02‒20
34 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Long term issues to be addressed by regulators in liberalised electricity systems: generation adequacy and indicative planning. Justification, available mechanisms, and a simulation study on some concrete policies By Álvaro López-Peña; Efraim Centeno; Julián Barquín
  2. Reconsidering the Regulation of Merchant Transmission Investment in the Light of the Third Energy Package: The Role of Dominant Generators By Adrien de Hauteclocque; Vincent Rious
  3. Regional Initiative: Which Appropriate Market Design? By Jan Moen
  4. How Do Firms Exercise Unilateral Market Power? Evidence from a Bid-Based Wholesale Electricity Market By Shaun D. MCRAE; Frank A. WOLAK
  5. Academic Opinion of Economic Scholars on Champsaur Commission’s Paper By François Lévêque
  6. From Comparing Regulatory Agencies. Report on the results of a worldwide survey By Chris Hanretty; Christel Koop
  7. Transmission Network Investment as an Anticipation Problem By Vincent Rious; Jean-Michel Glachant; Philippe Dessante
  8. Catching the maximum market value of electricity storage – technical, economic and regulatory aspect By Xian HE; Georg ZACHMANN
  9. No PUN intended: A time series analysis of the Italian day-ahead electricity prices By Andrea Petrella; Sandro Sapio
  10. An empirical comparison of alternate regime-switching models or electricity spot prices By Janczura, Joanna; Weron, Rafal
  11. Reconciling WTP to actual adoption of green energy tariffs: A diffusion model of an induced environmental marke By Ivan Diaz-Rainey; Dionisia Tzavara
  12. Memo to the new Commissioner for Energy By Georg Zachmann
  13. Climate Change and Energy Security - Obama’s Historic Challenge By Yuji Takagi
  14. The Design of the Internal Energy Market in Relation to Energy Supply Security and Climate Change By Vincent Rious
  15. Understanding Industrial Energy Use: Physical Energy Intensity Changes in Indian Manufacturing Sector By Binay Kumar Ray; B. Sudhakara Reddy
  16. Revisiting the Need of Improved Stoves: Estimating Health, Time and Carbon Benefits By Min Bikram Malla Thakuri
  17. Manufacturing the EU Energy Markets. The Current Dynamics of Regulatory Practice By Leigh Hancher; Adrien de Hauteclocque
  18. Supply and Demand Trends and Plans for Natural Gas in South Korea By An Tae-Hoon
  19. Usefulness of the Forward Curve in Forecasting Oil Prices By Akira Yanagisawa
  20. Crude Oil Hedging Strategies Using Dynamic Multivariate GARCH By Tansuchat, R.; Chang, C-L.; McAleer, M.J.
  21. Conditional Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns By Tansuchat, R.; Chang, C-L.; McAleer, M.J.
  22. Dutch Disease in Former Soviet Union: Witch-Hunting By Balázs Égert
  23. Impact Analysis on Gasoline Demand and CO2 Emissions of the Reduction in Expressway Toll, Free Expressways and Repeal of Temporary Tax on Gasoline By Akira Yanagisawa
  24. Market Efficiency of Oil Spot and Futures: A Stochastic Dominance Approach By Lean, H.H.; McAleer, M.J.; Wong, W-K.
  25. Environmental Labeling By Andrea Podhorsky
  26. High-Speed Rail:Lessons for Policy Makers from Experiences Abroad By Daniel Albalate; Germà Bel
  27. Flexible Global Carbon Pricing: A Backward-Compatible Upgrade for the Kyoto Protocol By Steven Stoft
  28. A Structural nonparametric reappraisal of the CO2 emissions-income relationships. By Theophile T. Azomahou; Micheline Goedhuys; Phu Nguyen-Van
  29. Climate Sensitivity of Indian Agriculture Do Spatial Effects Matter? By K S Kavi Kumar
  30. Modeling the Impact of Warming in Climate Change Economics By Robert S. Pindyck
  31. Temperature and the Allocation of Time: Implications for Climate Change By Joshua Graff Zivin; Matthew J. Neidell
  32. Sustainable Development Concerning with Mankind’s Climate Changes By Dobrescu, Emilian M.; Susanu, Monica; Oprea, Raducan
  33. Cold Start for the Green Innovation Machine By Philippe Aghion; Reinhilde Veugelers; Clément Serre
  34. No Green Growth Without Innovation By Philippe Aghion; Reinhilde Veugelers; David Hemous

  1. By: Álvaro López-Peña; Efraim Centeno; Julián Barquín
    Abstract: For ensuring electricity security of supply in the long run, liberalised electric systems’ regulators have to worry, not only about the presence of enough installed capacity, but also about the generation mix. Hence, indicative planning must be taken into account as well, for limiting dependence upon nonindigenous fuels, for instance. This can, simultaneously, help in meeting growing environmental constraints: renewables promotion is a clear example. There exist several mechanisms for addressing the adequacy problem (having enough megawatts) and for promoting renewables (having the good megawatts). In this study, a brief review of these mechanisms is done, and some are chosen for assessing their efficacy and efficiency over a system similar to the Spanish one, concretely capacity payments and capacity markets for the first problem and renewable energy premiums for the second. A simulation study is performed, which confirms the better characteristics of capacity markets in stabilising reserve margins, but whose effects may be damaged by an inadequate renewables promotion policy.
    Keywords: system-dynamics, generation capacity investment analysis, feed-in-premiums, capacity mechanisms
    Date: 2009–12–22
  2. By: Adrien de Hauteclocque; Vincent Rious
    Abstract: Following the grant of exemptions from the EC rules on third party access to the interconnectors BritNed, Estlink and East West Cables, the regulation of merchant transmission investment has become an important issue in the electricity sector. The creation of a new Agency for the Cooperation of Energy Regulators (ACER), which will enjoy decision powers on this issue, is therefore a unique occasion to question and maybe re-design the current strategy. This paper shows that the recent decisions evidence a strong bias against dominant generators and that incumbent or new entrant TSOs are generally favoured by European regulators and the European Commission. It argues that this strategy is misguided as it fails to recognize both the conflict of interest between the regulated and non-regulated activities of incumbent TSOs and the new incentives of generators. The opportunity to let dominant generators undertake merchant investment is then investigated and we find that it is generally welfare-improving as long as potential abuses of dominance can be mitigated. To deter possible anti-competitive effects, the paper proposes a new and feasible allocation of regulatory powers based on a clear demarcation between the monitoring of transparency requirements by ACER and antitrust enforcement by the European Commission.
    Keywords: Merchant transmission investment, European Union, third energy package
    Date: 2009–11–04
  3. By: Jan Moen
    Abstract: The European Union has a long experience and many success stories when it comes both to build a borderless Europe and to ensure that benefits are fairly distributed among producers and end-use customers. In some sectors results and benefits arise quickly, but sometimes borders remain difficult to cross despite numerous initiatives. A typical example of this is the completion of the single market for electricity. The process has been ongoing since the early 1990s and major progress has been made. However, we are still far from a borderless and truly competitive electricity market across Europe. A new legislative framework, the Third Package, will enter into force shortly and yield strong expectations. However, growing concerns become apparent among policy makers and in the market place on its ability to effectively foster the completion of the internal market and tackle market power issues. This paper argues that the approach adopted in the Third Package is not adapted to the challenges the European Union faces in electricity. The current lack of focus on implementing a better market design architecture leads the EU regulatory framework to overlooks important issues such as the promotion of power exchanges. The paper reviews the current state of the art on ‘smart’ market design in the economic literature and confronts it with the concrete experiences pursued at the regional level, in the European Union and beyond. Some of the issues discussed in depth include the TSOs’ roles and institutional design, generation adequacy and the design of capacity mechanisms and the development of demand-side response programs. It shows that the EU should learn from some of the on-going initiatives pursued at the domestic and regional level and that a sound market design based on a pool/TSO central dispatch is probably the way forward.
    Keywords: Market Design, Electricity, European Union, Regional Initiatives
    Date: 2009–11–11
  4. By: Shaun D. MCRAE; Frank A. WOLAK
    Abstract: This paper uses the framework in Wolak (2003a,b and 2007) and data on half-hourly offer curves and market-clearing prices and quantities from the New Zealand wholesale electricity market over the period January 1, 2001 to June 30, 2007 to characterize how the four large suppliers in this imperfectly competitive industry exercise market power. To accomplish this we introduce half-hourly measures of the firm-level ability and incentive of an individual supplier to exercise unilateral market power that are derived from a simplified model of expected profit-maximizing offer behaviour in a multi-unit auction market. We then show that half-hourly market-clearing prices are highly correlated with the half-hourly values of the firm-level and firm-average measures of both the ability and incentive of the four large suppliers in New Zealand to exercise market power. We then present evidence consistent with the view that this increasing relationship between the ability or incentive of individual suppliers to exercise market power and higher market-clearing prices is caused by the four large suppliers submitting higher offer prices when they have a greater ability or incentive to exercise unilateral market power. We show that after controlling for changes in input fossil fuel prices and other factors that impact the opportunity cost of producing electricity during that half hour, each of the four suppliers submits a higher offer price into the wholesale market when it has a greater ability or incentive to exercise unilateral market power. To strengthen the case that this increasing relationship between market prices and the ability and incentive of each of the suppliers to exercise unilateral market power is actually caused by the four large suppliers exercising unilateral market power by changing their offer prices in response to their ability and incentive to exercise market power, we also perform a test of the implications of the null hypothesis that the four large suppliers behave as if they had no ability to exercise market power. We find strong evidence against this null hypothesis and instead find that these hypothesis testing results are consistent with the perspective that these suppliers are exercising all available unilateral market power.Classification-JEL:
    Keywords: Unilateral Market power analysis,New Zealand,Electricity Market,multi-unit auction
    Date: 2009–07–15
  5. By: François Lévêque
    Abstract: This paper is the joint position taken by nine academics on the French debate introduced by the “Rapport de la commission présidée par Paul Champsaur sur l’organisation du marché de l’électricité” on April 2009. In order to reform the French reform, the Champsaur commission has made three main recommendations: (i) withdrawing the current retail administered tariff for business (ii) maintaining retail administered tariffs for households (iii) introducing a wholesale administered tariff on electricity from nuclear power generation. This rapport invites discussions on the French market design. Our academic joint position challenges these propositions. The authors welcome to the fact the commission proposes to abandon the tariff for business as very complex to implement (and hence costly) and freezes competition. However, authors have reservations about the other two recommendations. They are mainly based on the classical two-prong economic test to support a new regulation: (i) assessing its costs and benefits to ensure the latter offsets the former; (ii) comparing the recommended regulation with alternative instruments to verify that it is the best choice.
    Keywords: Champsaur commission,French Electricity market reform,Nuclear industry reform,Market design,redistribution of scarcity rents
    Date: 2009–07–16
  6. By: Chris Hanretty; Christel Koop
    Abstract: Although regulatory agencies have been created all over the world in the past decade, their design may vary considerably. In this report, we offer more insight into the variation in design by presenting the findings of a worldwide survey among regulators in seven policy areas: competition, energy, environmental, financial market, food safety, pharmaceutical and telecommunication policy. On the basis of the answers of 175 regulatory agencies from 88 countries, we conclude that although their design shows huge variation, a picture of the modal regulator can be drawn. The modal regulator is managed by a head and board members who serve for a fixed and renewable term of five years, who can be dismissed for reasons unrelated to their decisions, who cannot hold other offices in the public administration, and who need to be formally independent. The regulator is typically obliged to submit to politicians an annual report, whilst politicians can give the regulator policy instructions, can start an inquiry into the regulator’s operations, and can control the budget. Finally, the regulator is formally independent, has exclusive competence, decides on its own internal organisation and personnel policy, and makes policy decisions which cannot be reversed by another body than a court.
    Keywords: administrative law, structure of government, public administration, independent regulatory agencies
    Date: 2009–11–19
  7. By: Vincent Rious; Jean-Michel Glachant; Philippe Dessante
    Abstract: This paper proposes a probabilistic model to evaluate if a proactive TSO that anticipates the connection of new generators with short construction duration compared to the time needed to reinforce the network is more efficient than a reactive TSO that does not make any anticipation but that may then face higher congestion while the network is being reinforced. This evaluation is made in presence of anticipation costs both related to the study of the project of network investment and to the administrative procedures needed to obtain the building agreement. Our results in terms of social costs clearly show a limit of probability for the connection of generators beyond which a proactive TSO is more efficient than a reactive TSO. Evaluated on realistic cases of connection, this limit of probability is found quite low, which indicates that the proactive behaviour for a TSO shall generally be the optimal one.
    Keywords: Liberalised power system, Transmission Network, Planning, Investment, Anticipation
    Date: 2010–01–19
  8. By: Xian HE; Georg ZACHMANN
    Abstract: The creation of competitive wholesale electricity markets allows to evaluate the “arbitrage value” of an electricity storage unit, which stems from buying and storing electricity when prices are low, and selling it when prices are high. The focus of this paper is to demonstrate that the arbitrage value can be highly sensitive with respect to the dimensioning of an electricity storage unit. A simulation model is explored to calculate the arbitrage value of different storage units by finding the optimal hourly operating strategy during one-year period. The results of simulation show that optimizing the dimensioning of a storage unit is as important as choosing the fittest technology. Furthermore we provide evidence that the optimal set-up of a storage unit can adapt to exogenous factors such as grid tariff and local electricity price characteristics. These findings suggest that the maximisation of market value of electricity storage should be based on the optimisation of the dimensioning of the storage unit in specific economic and regulatory environment.
    Keywords: Electricity storage,arbitrage value,regulation
    Date: 2010–02–08
  9. By: Andrea Petrella; Sandro Sapio
    Abstract: How do changes in the market architecture affect the dynamics of deregulated electricity prices? We investigate this issue in the context of the Italian Power Exchange (IPEX), using data on the daily average day-ahead price (PUN) between April 2004 and December 2008. Estimates of baseline time series models (ARMAX and ARMAX-EGARCH) and their forecasting performances suggest that the trend in natural gas prices, deterministic weekly patterns, the impact of perceived temperatures, persistence in conditional volatility and the inverse leverage effect are essential features of the PUN dynamics. We then augment the best-performing models with dummies that account for changes in the market architecture, such as the introduction of contracts for differences (CfDs) to support renewables, trading of white certificates for energy efficiency, and the demandside liberalization. The findings show that changes in the market architecture have only affected the PUN volatility. Specifically, CfDs have mitigated volatility, while white certificates and demand liberalization have increased it. Moreover, after controlling for reforms the inverse leverage effect vanishes, and the persistence in volatility is lower than in the baseline estimates.
    Keywords: Electricity prices, Italian Power Exchange, Market architecture, ARMA,EGARCH
    Date: 2010–01–22
  10. By: Janczura, Joanna; Weron, Rafal
    Abstract: One of the most profound features of electricity spot prices are the price spikes. Markov regime-switching (MRS) models seem to be a natural candidate for modeling this spiky behavior. However, in the studies published so far, the goodness-of-fit of the proposed models has not been a major focus. While most of the models were elegant, their fit to empirical data has either been not examined thoroughly or the signs of a bad fit ignored. With this paper we want to fill the gap. We calibrate and test a range of MRS models in an attempt to find parsimonious specifications that not only address the main characteristics of electricity prices but are statistically sound as well. We find that the most universal and robust structure is that of an independent spike 3-regime model with heteroscedastic diffusion-type base regime dynamics and shifted spike regime distributions.
    Keywords: Electricity spot price; Spikes; Markov regime-switching; Heteroscedasticity
    JEL: C51
    Date: 2010–02–06
  11. By: Ivan Diaz-Rainey; Dionisia Tzavara
    Abstract: This paper develops a formal model that links the willingness to pay (WTP) literature with the established innovation diffusion literature. This concern arises from an attempt to reconcile the large disparities that have been observed between actual adoption of green energy tariffs and WTP for such tariffs. These disparities have often been attributed to upward response bias and the free rider problem. However, empirical research indicates that other factors have hindered the development of green energy markets, including supply side problems and poor regulation. Using an epidemic diffusion framework our model shows how increasing consumer environmental concern driven by word of mouth and mass media communication channels results in a growing number of people who state they are WTP for green energy. The presence of upward response bias and the free rider problem result in 'feasible adoption' being below stated WTP. Feasible adoption is, in turn, differentiated from actual adoption by the extent of market imperfections. It is concluded that; (1) the potential of such markets may take time to reap and that the low penetration rates of today may reflect a conventional diffusion trajectory and (2); low and stable energy prices appear to be a precondition if consumers are to contribute substantively to the funding of renewables investments through green tariffs.
    Keywords: Willingness-to-pay, innovation diffusion, green energy, environmental valuation
    Date: 2009–06–26
  12. By: Georg Zachmann
    Abstract: In this paper Resident Scholar Georg Zachmann analyses the recent developments in European energy policy and looks at the upcoming challenges in this area making a number of recommendations to the newly appointed Energy Commissioner. Zachmann notes that while liberalising energy markets and combating climate change will remain top priorities in the next term of office, securing energy supplies and energy price issues might temporarily lose some appeal due to the crisis-induced energy demand dip. He claims that mitigating climate change, directing investments in network infrastructure and creating a single energy market should be the three interlinked priorities for the Energy Commissioner.  This policy contribution is a supplement to Bruegel memos to the new Commission: Europe's economic priorities 2010-2015' published 27 August 2009 and available at tml
    Date: 2009–12
  13. By: Yuji Takagi (The Institute of Energy Economics, Japan)
    Abstract: It was a long 35 years ago that Richard Nixon proclaimed, “Our national goal should be to meet our own energy needs without depending on any foreign sources.” Even now that goal of energy security remains elusive although it has occupied an attention almost continuously. Under the sharp increase in oil prices until last year, the past several years have made a huge impact on public awareness and have contributed to a growing concern about energy independence. At the same time, a big difference has come about in attitudes toward climate change. In December 1997, when tough negotiators agreed to the Kyoto Protocol, the United States Senate was at odds with the international community, voting 95-0 against the accord. Now the cultural landscape is full of cover articles in major media publications on such topics as powerful hurricanes, 100 year storms, disappearing species, as well as Al Gore’s book and film “An Inconvenient Truth” and his Nobel Peace Prize. Global warming has arrived at center stage as a major concern for economics and national security. Governors are taking dynamic steps to fight climate change, major companies are working for strategic measures, venture capitalists are pouring money into alternative energy, military specialists are engaged by the global security dangers of climate change, and civil societies are demonstrating against global warming.
    Keywords: climate change, energy security, energy forecasting
    JEL: Q54 Q40 Q42
    Date: 2009
  14. By: Vincent Rious
    Abstract: The Clingendael International Energy Programme (CIEP), the Loyola de Palacio Chair on EU Energy Policy of the Robert Schuman Centre of Advanced Studies (European University Institute), the Fondazione Eni Enrico Mattei (FEEM) and Wilton Park Conferences (WPC) organize a four-tier program for discussing the potential for a smart EU Energy Policy. The Florence workshop is then the first one in a series of four where academics will discuss the various interactions between the three objectives of the EU Energy Policy with stakeholders from governments, regulators and the industry. This workshop addressed the internal energy market design and its consequences for energy supply security and climate change policies. The workshop gathered over one day and a half 42 experts to discuss current problems and possible solutions for a smart EU Energy Policy.
    Keywords: Smart energy policy,3d EU directive,Market design,Renewable energy,gas reform
    Date: 2009–07–15
  15. By: Binay Kumar Ray; B. Sudhakara Reddy
    Abstract: Physical energy intensity indicators for Indian manufacturing sector is developed and analyzed. Energy consumption in five industrial sub-sectors, namely, iron and steel, aluminium, textiles, paper and cement is examined for the period 1990─2005.
    Keywords: physical energy, Indian, manufacturing, sector, energy, consumption, textiles, industrial
    Date: 2010
  16. By: Min Bikram Malla Thakuri
    Abstract: This study generates some evidence on the costs and benefits of a particular indoor air pollution control initiative. The study is based on a survey of 400 households in Rasuwa district, Nepal,
    Keywords: Nepal, costs, benefits, air pollution, indoor, Cooking energy, Solid biomass fuel, health problems, Green House Gases, Cost Benefit Analysis
    Date: 2010
  17. By: Leigh Hancher; Adrien de Hauteclocque
    Abstract: This chapter aims to analysis the new dynamics at work in EU energy regulation. Since the publication of the European Commission’s ‘Sector Inquiry Report’ in January 2007, European energy companies have felt the cold wind of competition law - many for the first time. In addition, national competition authorities (NCAs) have been actively pursuing abusive market practices - sometimes making innovative use of competition law in the process. Certain energy giants have agreed to unbundle their transmission networks - even when their national governments opposed the inclusion of ownership unbundling in the draft ‘Third Package’ of electricity and gas legislation. In parallel, the Third Package envisages the creation of a new regulatory agency - ACER - to co-ordinate technical crossborder regulatory issues in the internal market. So who will be in the driving seat in the next decade - and will co-ordinated regulatory powers be the preferred approach to market design? Will regulatory rules co-exist alongside competition based controls or will the latter gradually supersede the former? This chapter will examine these critical issues.
    Keywords: Antitrust, Third Legislative Package, ACER, European Union
    Date: 2010–01–14
  18. By: An Tae-Hoon (The Institute of Energy Economics, Japan)
    Abstract: South Korea, which imported around 26 million tons of LNG (Liquefied Natural Gas) in 2007, is the world’s second largest LNG importing country after Japan. It has recently experienced a tight supply and demand of natural gas due to both domestic and overseas issues, such as the domestic consumption pattern concentrated in winter, the delay of concluding long-term contracts caused by domestic gas industry restructuring, and rapidly increasing global LNG demand. Meanwhile, both Japan and South Korea, which are close in geographical and cultural terms, also share many similarities in natural gas industries. For example, both countries depend on imports for the majority of their natural gas supply, the total amount of natural gas is imported in the form of LNG, the import volume by spot contract is increasing in order to make up shortfall in winter, and so on. To cope with the LNG market circumstance positively, both countries have recently developed their bilateral business relationship more closely, with the introduction of cargo swapping between their gas and electric power companies. In this report, natural gas supply and demand trends as well as future plans concerning gas industry in South Korea are examined based on the background of South Korea’s natural gas demand pattern.
    Keywords: natural gas, LNG, energy demand, energy supply,
    JEL: Q40 Q41
    Date: 2009
  19. By: Akira Yanagisawa (Institute of Energy Economics, Japan)
    Abstract: When people analyse oil prices, the forward curve is often referred to as it reflects the average view among market participants. In this paper, to what extent the forward curve provides useful information in forecasting oil prices was analysed quantitatively. Although the usefulness of the forward curve is confirmed in forecasting oil prices, the effect in reducing forecast error is small. Additionally, the forward curve is actually useful for one week ahead and for one month ahead in daily and weekly forecasts, respectively. However, the forward curve is scarcely useful in long-term forecast.
    Keywords: oil prices, forward curve, price forecasting
    JEL: Q40
    Date: 2009
  20. By: Tansuchat, R.; Chang, C-L.; McAleer, M.J. (Erasmus Econometric Institute)
    Abstract: The paper examines the performance of four multivariate volatility models, namely CCC, VARMA-GARCH, DCC and BEKK, for the crude oil spot and futures returns of two major benchmark international crude oil markets, Brent and WTI, to calculate optimal portfolio weights and optimal hedge ratios, and to suggest a crude oil hedge strategy. The empirical results show that the optimal portfolio weights of all multivariate volatility models for Brent suggest holding futures in larger proportions than spot. For WTI, however, DCC and BEKK suggest holding crude oil futures to spot, but CCC and VARMA-GARCH suggest holding crude oil spot to futures. In addition, the calculated optimal hedge ratios (OHRs) from each multivariate conditional volatility model give the time-varying hedge ratios, and recommend to short in crude oil futures with a high proportion of one dollar long in crude oil spot. Finally, the hedging effectiveness indicates that DCC (BEKK) is the best (worst) model for OHR calculation in terms of reducing the variance of the portfolio.
    Keywords: multivariate GARCH;conditional correlations;crude oil prices;optimal hedge ratio;optimal portfolio weights;hedging strategies
    Date: 2010–02–08
  21. By: Tansuchat, R.; Chang, C-L.; McAleer, M.J. (Erasmus Econometric Institute)
    Abstract: This paper investigates the conditional correlations and volatility spillovers between crude oil returns and stock index returns. Daily returns from 2 January 1998 to 4 November 2009 of the crude oil spot, forward and futures prices from the WTI and Brent markets, and the FTSE100, NYSE, Dow Jones and S&P500 index returns, are analysed using the CCC model of Bollerslev (1990), VARMA-GARCH model of Ling and McAleer (2003), VARMA-AGARCH model of McAleer, Hoti and Chan (2008), and DCC model of Engle (2002). Based on the CCC model, the estimates of conditional correlations for returns across markets are very low, and some are not statistically significant, which means the conditional shocks are correlated only in the same market and not across markets. However, the DCC estimates of the conditional correlations are always significant. This result makes it clear that the assumption of constant conditional correlations is not supported empirically. Surprisingly, the empirical results from the VARMA-GARCH and VARMA-AGARCH models provide little evidence of volatility spillovers between the crude oil and financial markets. The evidence of asymmetric effects of negative and positive shocks of equal magnitude on the conditional variances suggests that VARMA-AGARCH is superior to VARMA-GARCH and CCC.
    Keywords: multivariate GARCH;volatility spillovers;conditional correlations;crude oil prices;spot;forward and futures prices;stock indices
    Date: 2010–02–08
  22. By: Balázs Égert
    Abstract: This study seeks to determine the extent to which countries of the former Soviet Union are "infected" by the Dutch Disease. We take a detailed look at the functioning of the transmission mechanism of the Dutch Disease, i.e. the chains that run from commodity prices to real output in manufacturing. We complement this with two econometric exercises. First, we estimate nominal and real exchange rate models to see whether commodity prices are correlated with the exchange rate. Second, we run growth equations to analyse the possible effects of commodity prices and the dependency of economic growth on natural resources.
    Keywords: Dutch disease, exchange rate, growth, oil, commodity prices, CIS, transition
    JEL: E31 F31 O11 P17
    Date: 2009
  23. By: Akira Yanagisawa (The Institute of Energy Economics, Japan)
    Abstract: The toll on expressways is reduced as one of the economic stimulation packages of the Japanese government. The effect, however, is disputable. There are two competing views on the effect on gasoline demand and carbon dioxide (CO2) emissions, which is related to climate change. One is that this measure increases gasoline demand and CO2 emissions and another is that this measure decreases them. In this paper, the effect on gasoline demand and CO2 emissions of the reduction in expressways toll is analysed quantitatively using a gasoline demand model. Additionally, the effect on gasoline demand and CO2 emissions by free expressways and by a repeal of the temporary taxes on gasoline is estimated. The current reduction in expressways toll may seem not to lead to significant increase in gasoline demand due to the recession. It, however, is estimated that the reduction in toll actually increases gasoline demand by about 1.3% (0.8 GL per year, or 1.8 Mt of CO2 per year). If expressways become free of charge, gasoline demand is estimated to increase by about 7.2% (4.1 GL per year, or 9.6 Mt of CO2 per year). If the temporary taxes on gasoline are repealed and the taxes are reduced to the principal rates, gasoline demand is estimated to increase by about 3.1% (1.8 GL per year, or 4.1 Mt of CO2 per year). If both of these two measures are enforced, gasoline demand is estimated to increase by about 10.5% (6.0 GL per year, or 14 Mt of CO2 per year). In this case, CO2 emissions from the transport passenger sector are estimated to increase by about 10 Mt - 14 Mt depending on how much traffic will be shifted to passenger cars from other modes. This is equivalent to an increase of about 0.8% - 1.1% of Japan’s all greenhouse gases emission in the base year of the Kyoto Protocol (1990). Launch of consistent policies toward reduction of greenhouse gases emissions is more important now as the very severe emission target, reduction by 25% from 1990 level, has been announced even being premised on the formulation of a fair and effective international framework by all major economies and agreement on their ambitious targets.
    Keywords: gasoline demand, carbon dioxide emissions, emissions target, international framework
    JEL: Q40 Q41 Q54
    Date: 2009
  24. By: Lean, H.H.; McAleer, M.J.; Wong, W-K. (Erasmus Econometric Institute)
    Abstract: This paper examines the market efficiency of oil spot and futures prices by using a stochastic dominance (SD) approach. As there is no evidence of an SD relationship between oil spot and futures, we conclude that there is no arbitrage opportunity between these two markets, and that both market efficiency and market rationality are not rejected in the oil spot and futures markets.
    Keywords: stochastic dominance;risk averter;risk seeker;futures market;spot market
    Date: 2010–02–08
  25. By: Andrea Podhorsky (York University, Toronto)
    Abstract: This paper studies how information disclosed by voluntary environmental labels creates in- centives for firms to invest in environmentally-friendly production technologies. I develop a model with differentiated products and imperfectly-informed consumers. Consumers care about the environmental characteristics of goods (for example, how they were produced), but cannot directly observe these product characteristics. Firms differ in their abilities to develop "clean" technologies, but have no incentive to do so absent government regulation or a policy that pro- vides information to consumers. A scheme of voluntary labels, awarded to firms that achieve some chosen level of environmental friendliness, gives some firms enough incentive to develop clean technologies, while others choose to produce "dirty" goods. Each consumer is individu- ally ineffective in reducing aggregate environmental damage but consumers purchase products according to how they privately value environmental quality. I parameterize the relationship between the environmental quality consumers experience privately from their own consumption of a product and the intensity of its environmental damage. I use the model to explain how voluntary labels improve consumer welfare and characterize the welfare maximizing labeling standard. I also contrast the effects of a labeling program on consumer welfare with those of compulsory environmental regulation.
    Keywords: credence goods, disclosure, environmental policy, firm heterogeneity and product labeling.
    JEL: L15 Q58
    Date: 2009–12
  26. By: Daniel Albalate (Faculty of Economics, University of Barcelona); Germà Bel (Faculty of Economics, University of Barcelona)
    Abstract: In April 2009 the US government unveiled its blueprint for a national network of high-speed passenger rail (HSR) lines aimed at reducing traffic congestion, cutting national dependence on foreign oil and improving rural and urban environments. In implementing such a program, it is essential to identify the factors that might influence decision making and the eventual success of the HSR project, as well as foreseeing the obstacles that will have to be overcome. In this article we review, summarize and analyze the most important HSR projects carried out to date around the globe, namely those of Japan, France, Germany, Spain, and Italy. We focus our attention on the main issues involved in the undertaking of HSR projects: their impact on mobility, the environment, the economy and on urban centers. By so doing, we identify sessons for policy makers and managers working on the implementation of HSR projects.
    Keywords: Interurban Transportation, Government Investment Analysis, Transportation Planning, Rail Costs Management.. JEL classification: L91; L92; R41; R42 ; R48
    Date: 2010–02
  27. By: Steven Stoft
    Abstract: The Kyoto Protocol’s approach of assigning emission targets, or “caps,” promises certainty that it cannot deliver, because it exacerbates problems with international cooperation and commitment. Global carbon pricing addresses these problems and, with less risk and more reward, can generate and sustain stronger policies. This paper proposes a system, “flexible global carbon pricing,” designed to replace the Kyoto Protocol. It provides backward-compatibility with the Kyoto Protocol by allowing un-modified cap and trade as one form of national carbon pricing. Instead of many national “caps,” the proposal sets a global target price for carbon and specifies a pair of incentives. A Pricing Incentive rewards nations that set their carbon price higher than the global target and penalizes nations that underachieve. These rewards and penalties sum to zero by design. The strength of the Pricing Incentive is adjusted automatically so that the global average carbon price converges to the global target price. A Clean Development Incentive (CDI), free from the gaming problems that plague the U.N.’s Clean Development Mechanism, encourages full participation by low-emission countries. An example, based on a $20 price target, causes transfers from the United States of only seven cents per capita per day. Nevertheless, India’s CDI receipts cover its compliance costs. The example shows that low costs can be guaranteed.
    Keywords: Kyoto protocol,cap and trade,flexible global carbon pricing,international cooperation
    Date: 2009–07–15
  28. By: Theophile T. Azomahou; Micheline Goedhuys; Phu Nguyen-Van
    Abstract: Relying on a structural nonparametric estimation, we show that CO2 emissions clearly increase with income at low income levels. For higher income levels, we observe a decreasing relationship, though not significant. We also find that CO2 emissions monotonically increases with energy use at a decreasing rate.
    Keywords: Nonparametric triangular systems, EKC; Energy use; CO2 emissions.
    JEL: C14 O13
    Date: 2010
  29. By: K S Kavi Kumar
    Abstract: Climate change impact studies on agriculture can be broadly divided into those that employ agro-economic approaches and those that employ the Ricardian approach. This study uses the Ricardian approach to examine the impact of climate change on Indian agriculture. Using panel data over a twenty year period and on 271 districts, we estimate the impact of climate change on farm level net revenue.
    Keywords: Environmental valuation; Spatial panel data, analysis; Adaptation, climate change, agriculture, agro-economic, ricardian approach, revenue, Indian,
    Date: 2010
  30. By: Robert S. Pindyck
    Abstract: Any economic analysis of climate change policy requires some model that describes the impact of warming on future GDP and consumption. Most integrated assessment models (IAMs) relate temperature to the level of real GDP and consumption, but there are theoretical and empirical reasons to expect temperature to affect the growth rate rather than level of GDP. Does this distinction matter in terms of implications for policy? And how does the answer depend on the nature and extent of uncertainty over future temperature change and its impact? I address these questions by estimating the fraction of consumption society would be willing to sacrifice to limit future increases in temperature, using probability distributions for temperature and impact inferred from studies assembled by the IPCC, and comparing estimates based on a direct versus growth rate impact of temperature on GDP.
    JEL: D81 Q5 Q54
    Date: 2010–01
  31. By: Joshua Graff Zivin; Matthew J. Neidell
    Abstract: In this paper we estimate the impacts of climate change on the allocation of time using econometric models that exploit plausibly exogenous variation in daily temperature over time within counties. We find large reductions in U.S. labor supply in industries with high exposure to climate and similarly large decreases in time allocated to outdoor leisure. We also find suggestive evidence of short-run adaptation through temporal substitutions and acclimatization. Given the industrial composition of the US, the net impacts on total employment are likely to be small, but significant changes in leisure time as well as large scale redistributions of income may be consequential. In developing countries, where the industrial base is more typically concentrated in climate-exposed industries and baseline temperatures are already warmer, employment impacts may be considerably larger.
    JEL: J22 Q54
    Date: 2010–02
  32. By: Dobrescu, Emilian M.; Susanu, Monica; Oprea, Raducan
    Abstract: Mankind has witnessed many outstanding weather happenings which determined radical climate changes and thus, the draught is expected further to grow. Many experts, academics and scientists all over the continents have strongly called for attention about the importance of saving the water, either for housing and industrial consumers. According to the February - 2007 UNO Report, Terra is the subject of an accelerated global heating process, firstly due to the carbon emissions. Several decades further the climate changes will continue even if, theoretically, these emissions could partly be stopped. As one of the official UNO’s institutions, the World Meteorology Organisation certified the global heating and alerts about another worrying phenomenon,namely the soil disaster.
    Keywords: environment; climate changes; global warming; greenhouse effect; sustainable development; EU policy on the environment; climate protection
    JEL: Q50 Q53 Q51 Q54 Q58
    Date: 2009–12–25
  33. By: Philippe Aghion; Reinhilde Veugelers; Clément Serre
    Abstract: This Policy Contribution accompanies the Policy Brief, No Green Growth Without Innovation?. Written by Senior Non-Resident Fellow Philippe Aghion, Senior Resident Fellow Reinhilde Veugelers and Researcher Clément Serre, this paper discusses the state of green innovation and goes into more depth in discussing the current problems in the area. Examining research and development, patent, and venture capital data, the authors point out that there is momentum for private investment in green technologies. However, they argue that, thus far, the implicit tax rate on energy in the EU27 is too low and fragmented, the carbon price in the EU Emissions Trading System is too volatile, and the public R&D expenditures dedicated to energy and environment are too low. They conclude that immediate state intervention is necessary, at least at the onset, to ensure that the green innovation machine? gets properly started.
    Date: 2009–11
  34. By: Philippe Aghion; Reinhilde Veugelers; David Hemous
    Abstract: This Policy Brief, co-written by Senior Non-Resident Fellow Philippe Aghion, Senior Resident Fellow Reinhilde Veugelers and David Hemous of Harvard University, attempts to change the terms of the debate surrounding climate change policy. The authors argue that policymakers should do more to encourage innovation and investment in green? research and development rather than focusing solely on the setting of a carbon price. Using a model developed by Aghion in a previous paper, they argue that a carbon price would have to be about 15 times higher in the first five years and 12 times higher in the next five years if innovation is not properly subsidized by governments. The authors also provide several policy recommendations for incentivising this type of green growth? in the private sector.
    Date: 2009–11

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