nep-ene New Economics Papers
on Energy Economics
Issue of 2010‒05‒08
eleven papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. This paper discusses the level and features of support schemes used to promote renewable electricity By Joan Canton; Åsa Johannesson Lindén
  2. Modelling energy spot prices by Lévy semistationary processes By Ole E. Barndorff–Nielsen; Fred Espen Benth; Almut E. D. Veraart
  3. Large-scale risks and technological change: What about limited liability? By Julien Jacob; Sandrine Spaeter
  4. Reform of the Fiscal and Subsidy Regime for the Petroleum Sector (Based on a Report Commissioned by the Petroleum Federation of India) By Morris Sebastian; Varma Jayanth R; Barua Samir K
  5. Religious Peace Activism—The Rational Element of Religious Elites’ Decision-making Processes Revisiting the Oil-Violence Link in the Niger Delta By Alexander De Juan; Johannes Vüllers
  6. Impact of CCS on the Economics of Coal-Fired Power Plants: Why Investment Costs Do and Efficiency Doesn’t Matter By Lohwasser, Richard; Madlener, Reinhard
  7. Carbon price and optimal esxtraction of a polluting fossil fuel with restricted carbon capture By Renaud Coulomb; Fanny Henriet
  8. Strategic investment in climate friendly technologies: the impact of permit trade By Mads Greaker and Cathrine Hagem
  9. Options for International Financing of Climate Change Mitigation in Developing Countries By Mark Hayden; Paul J.J. Veenendaal; Žiga Žarnić
  10. Climate Change Mitigation Potential in South Africa: A National to Sectoral Analysis By Witi Jongikhaya; Chaturvedi Vaibhav
  11. A closed form solution to Stollery's global warming problem with temperature in utility By Bazhanov, Andrei

  1. By: Joan Canton; Åsa Johannesson Lindén
    Abstract: This paper discusses the level and design of support schemes used to promote renewable electricity in Europe. A theoretical model is presented to determine optimal renewable energy policies. Policies that solely aim to address environmental externalities and energy security risks are unlikely to make renewable power technologies competitive. Learning effects and spillovers are necessary to justify the need for support schemes. The analysis suggests that feed-in premiums guaranteed in addition to the electricity market price should be preferred over feed-in tariffs, which provide the eligible power producer with a guaranteed price. The premiums should be time limited and frequently reviewed. Once the technology becomes competitive, tradable green certificates would be a more suitable support instrument. As regards wind energy, the available estimates of externalities suggest that levels are probably too high in many Member States. In addition, the current promotion of photovoltaics could possibly be more cost-efficient if it targeted technology development more directly.
    Keywords: european union eu setzer wolff van den Noord euro area money heterogeneity money holdings
    JEL: Q42 Q48 H23
    Date: 2010–04
  2. By: Ole E. Barndorff–Nielsen (Thiele Center, Department of Mathematical Sciences and CREATES); Fred Espen Benth (Centre of Mathematics for Applications, University of Oslo and Faculty of Economics University of Agder); Almut E. D. Veraart (CREATES, School of Economics and Management Aarhus University)
    Abstract: This paper introduces a new modelling framework for energy spot prices based on Lévy semistationary processes. Lévy semistationary processes are special cases of the general class of ambit processes. We provide a detailed analysis of the probabilistic properties of such models and we show how they are able to capture many of the stylised facts observed in energy markets. Furthermore, we derive forward prices based on our spot price model. As it turns out, many of the classical spot models can be embedded into our novel modelling framework.
    Keywords: Energy markets, forward price, Lévy semistationary process, stochastic integration, spot price
    JEL: C0 C1 C5 G1
    Date: 2010–04–27
  3. By: Julien Jacob; Sandrine Spaeter
    Abstract: We consider a firm that has to choose a technology to produce a given good. This technology drives a multiplicative large-scale risk of incident for Society: the total potential level of damage increases with the level of activity. Contrary to what is often argued in the literature, we show that limited liability can be more incentive for technical change than an unlimited liability rule, depending on the magnitude of the technological change and on the firm's size. In a second part of the paper, taxes are introduced. We show how manipulating the tax rate with respect to the technological choice made by the firm still enlarges the set of parameters that lead to technological change under a limited liability rule. Our normative results provide some arguments in favor of the limited liability rule, often considered as the main explanation of partial large-scale risk internalization by firms.
    Keywords: Technological risk, limited liability, incentives, technical choice, taxes.
    JEL: D81 H23 K39 Q55
    Date: 2010
  4. By: Morris Sebastian; Varma Jayanth R; Barua Samir K
    Abstract: Reform of the oil sector is long overdue. The problems in the sector emanate from the structure of central taxes and the system of subsidisation through prices. Solutions to the problems necessarily have to address both tax and subsidy simultaneously. The social losses include, misuse / wasteful use of scarce petroleum resources, diversion, adulteration, other avoidable negative externalities, improper substitution between products, tax arbitrage, distortion of consumer preferences and input choices of industries, and international cross hauling of petroleum. Nearly all these costs, and problems arise not because of subsidisation per se but due to the use of varying retail prices that are used to subsidise. Prices for the same product vary for different consumers besides. They also vary across products. These tax /subsidy variations are the root cause of nearly all problems in the sector. Autonomous price variations (i.e. those resulting from the actions of firms (under a regime of non-distortionary subsidies) would be small and not subject to ‘arbitrage’ i.e. to the realisation of rents through diversion and adulteration. Tax reform – viz casting all taxes in the form of value added taxes has not taken place in the sector despite the passage of nearly 15 years since such reform was put in place in nearly all other sectors of manufacturing. Complete deregulation of the sector allowing oil producers, oil refiners, marketing companies, and integrated operators to price their products as they deem fit. Recast central indirect taxes (excise whether specific or ad valorem) into a value added tax, as for any other product., i.e., allowing input credit for all registered intermediate users of petroleum products is overdue. Central government revenues can be protected by working out a revenue neutral value added tax rate. This we have estimated approximately to be 110-120% of value added uniformly to all segments in the industry. Such a tax regime would also be neutral to the degree of vertical integration and remove the biases in the use of products. The Public Distribution System (PDS) is not necessary and ought to be dismantled. Kerosene would then be sold in the open market for all consumers. Kerosene could also be sold by retail outlets, kirana shops, other retail outlets, and by current PDS retailers on par with kirana shops/ ROs. Ditto for LPG. Subsidies are administered through endowments defined upfront, which allows the subsidised consumer to access his/her endowments, trade the same, convert the same into cash all without the causing any distortion. Only pipelines are subject to regulation by the Petroleum and Natural Gas Regulator. The second best proposals involve the changes/recommendations as before but additionally creates a “Crude Price Stabilisation Fund†(CSF) that allows crude prices (both sharp rises and sudden falls) to be moderated, so that pass thru is influenced by the managers of the CSF. It is important that the CSF is set up as in independent body and insulated from the government and is governed by strict and automatic rules that make rapid price adjustment (to the market prices) necessary when the fund position is low, so that the probability of the fund going bankrupt is kept at nearly zero. A fund between $ 25 to 40 billion is envisaged. A fund of $40 billion (Rs. 200,000 crore) envisaged as a credit line would work in most situations. The fund would operate with strict limits on the quantum of the credit line used to pay out stabilization subsidies during the boom phase of the price cycle as also on the accumulated reserves built up from stabilization taxes during the bust phase of the price cycle. To ensure that such crude stabilisation measures do not affect the competitiveness of the industry exports of product (and crude) are taxed when crude is subsidised, and subsidised when crude is taxed. Appropriate conversion factors would apply. The conversion factor should be based on a refinery loss of between 10 and 7% say 8.5%.
    Date: 2010–03–28
  5. By: Alexander De Juan (University of Tübingen); Johannes Vüllers (GIGA German Institute of Global and Area Studies)
    Abstract: Religious elites are active for peace in many violent conflicts. Normative explanations often do not suffice to explain their engagement. In this paper we draw on the findings of social-movement research to identify the factors that induce rationally acting religious elites to be active for peace. It is their relationships to the government, other religious elites, and believers that can motivate them to call for peace. However, they will do so only if they anticipate—based on the overall influence of other religious peace (co-)activists, the structure of the religious community, and the frame environment—that they will not be penalized for their engagement. Religious norms are an important motivation behind religious peace activism, but rational decision-making also has to be taken into account if religious engagement for peace is to be explained fully.
    Keywords: Religion, conflict, peace, elites, rational choice, framing
    Date: 2010–04
  6. By: Lohwasser, Richard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In this paper we analyze how development of the economics related to CCS technology in coal-fired power plants affects market diffusion. Specifically, we (1) show the (significant) variance in economic expectations for commercial-grade CCS hard coal power plants observed in selected recent scientific publications; (2) analyze the impact of economic factors related to CCS on electricity generation costs; and (3) study possible deployment of CCS technology in Europe using the bottom-up electricity sector model HECTOR. Simulation results show that investment costs strongly influence the market deployment of coal-fired CCS power plants, leading to a share of 16% in European generation capacity by 2025 with the lowest observed investment costs of 1400 €/kW, but only 2% with the highest of 3000 €/kW. A variation of conversion efficiency between 37% and 44%, the minimum and maximum observed values, only leads to a share of CCS-equipped power plants between 13 and 15%. These findings are robust for the Base Case with a CO2 price of 43 €/t and also for sensitivities with 30 and 20 €/t CO2, but with a lower effect, as the overall share of CCS is significantly reduced at these prices.
    Keywords: Electricity market; simulation; model; CCS; power plant economics; technology adoption
    JEL: O33
    Date: 2009–11
  7. By: Renaud Coulomb; Fanny Henriet
    Abstract: Among technological options to mitigate greenhouse gas (GHG) emissions, Carbon Capture and Storage technology (CCS) seems particularly promising. This technology allows to keep on extracting polluting fossil fuels without drastically increasing CO2 atmospheric concentration. We examine here a two-sector model with two primary energy resources, a polluting exhaustible resource and an expensive carbon-free renewable resource, in which an environmental regulation is imposed through a cap on the atmospheric carbon stock. We assume that only the emissions from one sector can be captured. Previous literature, based on one-sector models in which all emissions are capturable, finds that CCS technology should not be used before the threshold has been reached. We find that, when technical constraints make it impossible to capture emissions from both sectors, this result does not always hold. CCS technology should be used before the ceiling is reached if non capturable emissions are large enough. In that case, we find that energy prices paths must differ between sectors reflecting the difference of social cost of the resource according to its use. Numerical exercise show that, when the ceiling is set at 450ppm CO2, the initial carbon tax should equal 52$/tCO2 and that using CCS before the ceiling is optimal.
    Date: 2010
  8. By: Mads Greaker and Cathrine Hagem (Statistics Norway)
    Abstract: Our point of departure is that a group of developed countries invest in the development of greenhouse gas (GHG) abatement technologies both at home and in developing countries. Such investments reduce the cost of future GHG abatement, and influence the future GHG abatement choices of both developed and developing countries. We show how a common permit market affects the industrialized countries' strategic investment decisions. As opposed to a situation without a permit market, the industrialized countries may want to overinvest in new GHG abatement technologies both at home and abroad. That is, they increase their R&D investment to such an extent that the cost reductions from the least profitable project actually fall short of the R&D costs. Earlier research has only pointed to overinvestment abroad. Moreover, the effects of investment abroad may be tougher emission reduction targets at home, which is not possible without permit trade.
    Keywords: greenhouse gas abatement technologies; climate policy; strategic investments; permit trade.
    JEL: D62 H41 O38 Q58
    Date: 2010–04
  9. By: Mark Hayden; Paul J.J. Veenendaal; Žiga Žarnić
    Abstract: This paper provides a model-based analysis of the potential macro-economic impacts of different options for international financing of climate change mitigation in developing countries. The model used is the multi-region and multi-sector climate change version of the WorldScan model. Following the outcome of the UNFCCC conference in Copenhagen, it makes no specific assumptions about the future international climate regime. The analysis shows that the environmental prospects systematically improve in a transition from the Clean Development Mechanism projects towards a global carbon market, while the opposite is foreseen for the economic costs. The more of a carbon market we have when moving from the project-based CDM to sectoral crediting mechanisms and internationally linked cap-and-trade, the more finance the carbon market will channel to developing countries.
    Keywords: european union eu annex I non-annex I climate conference in Copenhagen climate change mitigation clean development mechanism emission trading system the US brazil china india own participation of developing countries sectoral crediting mechanisms hayden Veenendaal Zarnic
    JEL: D58 Q40 Q50 Q51
    Date: 2010–03
  10. By: Witi Jongikhaya; Chaturvedi Vaibhav
    Abstract: This paper discusses some of the impacts attributed to climate change that are likely to hit Southern Africa as a result of increasing global greenhouse gas emissions into the atmosphere. As South Africa is a significant contributor to greenhouse gas emissions and currently ranked first in Africa, the paper assesses the country.s greenhouse gas emissions profile and possible future projections of emissions and their implications. It then discusses the strategic interventions proposed by South Africa in reducing the gap in emissions between what is required by science and what would happen if development continues at current rates without abating greenhouse gas emissions. Given that the majority of emissions are a result of energy consumption, the paper provides practical solutions to themes such as energy efficiency mostly for the industrial and commercial sectors. With international treaties on the reduction of greenhouse gas emissions (e.g. Kyoto protocol), there are business opportunities in the area of climate change mitigation. Thus, the paper finally discusses the Clean Development Mechanism (CDM) scenario in South Africa and how the country can benefit from other emission trading schemes being practiced in different regions of the world.
    Date: 2009–10–24
  11. By: Bazhanov, Andrei
    Abstract: Stollery (1998) studied a polluting oil extracting economy governed by the constant utility criterion. The pollution caused the growth of temperature, negatively affecting production and utility. Stollery provided a closed form solution for the case with the Cobb-Douglas production function and temperature affecting only production. This paper offers a closed form solution to a non-trivial example of this economy with utility affected by temperature.
    Keywords: essential nonrenewable resource; polluting economy; sustainable development; special function representation
    JEL: Q32 Q38 O13
    Date: 2010–04–29

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