nep-ene New Economics Papers
on Energy Economics
Issue of 2010‒07‒03
twenty-one papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Impacts of Climate Change on European Critical Infrastructures: The Case of the Power Sector By Dirk Rübbelke; Stefan Vögele
  2. Renewable sources, technology mix, and competiton in liberalized electricity markets: the case of Spain By Nikolaos Georgantzis; Aitor Ciarreta; Carlos Gutiérrez-Hita
  3. Long-Run Cost Functions for Electricity Transmission By Juan Rosellón; Ingo Vogelsang; Hannes Weigt
  4. A Dynamic Incentive Mechanism for Transmission Expansion in Electricity Networks: Theory, Modeling, and Application By Juan Rosellón; Hannes Weigt
  5. The Prospects for Coal: Global Experience and Implications for Energy Policy By Dr. Xunpeng SHI
  6. Technical Efficiency of Automobiles – A Nonparametric Approach Incorporating Carbon Dioxide Emissions By Hampf, Benjamin; Krüger, Jens
  7. The Impact of Oil Prices on the Real Exchange Rate of the Dirham: a Case Study of the United Arab Emirates By Al-mulali, Usama; Che Sab, Normee
  8. The Impact of Index and Swap Funds on Commodity Futures Markets: Preliminary Results By Scott H. Irwin; Dwight R. Sanders
  9. Exploration of Certain Aspects of CARB's Approach to Modeling Indirect Land Use from Expanded Biodiesel Production, An By Bruce A. Babcock; Miguel Carriquiry
  10. Dynamics of Biofuel Stock Prices: A Bayesian Approach By Xiaodong Du; Dermot J. Hayes; Cindy L. Yu
  12. The EU as a global ecological power : The logics of market integration By Eloi Lauren; Jacques Le Cacheux
  13. Policy options for carbon taxation in the EU By Eloi Lauren; Jacques Le Cacheux
  14. Distributional Impacts in a Comprehensive Climate Policy Package By Gilbert E. Metcalf; Aparna Mathur; Kevin A. Hassett
  15. Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures By Sebastian Rausch; Gilbert E. Metcalf; John M. Reilly; Sergey Paltsev
  16. The Double Divident Hypothesis in a CGE Model:Specific Factors and Variable Labour Supply* By Iain Fraser; Robert Waschik
  18. Adaptation to climate extremes in developing countries : the role of education By Blankespoor, Brian; Dasgupta, Susmita; Laplante, Benoit; Wheeler, David
  19. Global Climate Change and the Resurgence of Tropical Disease: An Economic Approach By Douglas Gollin; Christian Zimmermann
  20. What is the growth potential of green innovation? An assessment of EU climate policy options By Andrea Conte; Ariane Labat; Janos Varga; Žiga Žarnić
  21. WIATEC: A World Integrated Assessment Model of Global Trade Environment and Climate Change By Truong P. Truong; Claudia Kemfert

  1. By: Dirk Rübbelke; Stefan Vögele
    Abstract: Anthropogenic emissions of greenhouse gases cause climate change and this change in turn induces various direct impacts, e.g., changes in regional weather patterns. The frequency of heat waves and droughts in Europe is likely to rise. Yet, beyond these immediate effects of climate change, there are more indirect effects: Droughts may cause water scarcity and a lack in water supply which in turn would affect further sectors and critical infrastructures. An arising lack in water supply for cooling purposes, for example, will negatively affect the electricity generation in power plants. <br /> In this paper we analyse such interplays between climate-change affected sectors. We investigate whether and to which extent power generation and supply in Europe is threatened by climate change because of the higher risk of water supply shortages due to more frequent drought and heat-wave incidences. Our proposed approach cannot only be applied to analyse the climate change effects on individual power plant sites or the overall economy but also on electricity exchanges between countries.<br />
    Keywords: adaptation, climate change, critical infrastructures, electricity trading, energy security, nuclear power plants, vulnerability
    Date: 2010–06
  2. By: Nikolaos Georgantzis (Universitat Jaume I); Aitor Ciarreta (Universidad de Alicante); Carlos Gutiérrez-Hita (Universidad de Alicante)
    Abstract: Este artículo trata el problema de cómo la competencia oligopolística es afectada por el desarrollo de las tecnologías que utilizan energías renovables dentro del marco de reducción de emisiones de CO2 y seguridad en el mercado eléctrico. En un modelo oligopolístico donde las empresas poseen plantas que utilizan recursos tanto renovables como no renovables, mostramos que los precios en el mercado mayorista decrecen a medida que las tecnologías que utilizan recursos renovables incrementan su eficiencia, hecho que también depende de la subvención fijada por el regulador. Sin embargo, encontramos que un subsidio excesivo puede distorsionar la competencia cuando la madurez tecnológica de los recursos renovables es lo suficientemente alta comparada con el coste de los recursos no renovables. Por último, contrastamos las predicciones del modelo utilizando datos del mercado eléctrico español. The paper addresses the question of how oligopolistic competition is affected by the development of renewable source technologies within the new framework of electricity supply security and reduction of emissions of CO2. In an oligopoly model where firms own renewable as well as non-renewable source technologies, we show that wholesale prices tend to decline the larger the efficiency achieved by renewable technologies depending also on the feed-in-tariff fixed by regulators. We found however that a high subsidy can distort competition when technical maturity of renewables is large as compared with the costs incurred by fossil sources. Finally, we test the predictions of the model using data from the Spanish electricity market.
    Keywords: electricity technology mix, renewable energy sources, technical maturity, feed-in tariffs. mix tecnológico eléctrico, recursos energéticos renovables, madurez tecnológica, subvenciones
    JEL: L13 L51 L94
    Date: 2010–05
  3. By: Juan Rosellón; Ingo Vogelsang; Hannes Weigt
    Abstract: Electricity transmission has become the pivotal industry segment for electricity restructuring. Yet, little is known about the shape of transmission cost functions. Reasons for this can be a lack of consensus about the definition of transmission output and the complexitity of the relationship between optimal grid expansion and output expansion. Knowledge of transmission cost functions could help firms (Transcos) and regulators plan transmission expansion and could help design regulatory incentive mechanisms. We explore transmission cost functions when the transmission output is defined as point-to-point transactions or financial transmission right (FTR) obligations and particularly explore expansion under loop-flows. We test the behavior of FTR-based cost functions for distinct network topologies and find evidence that cost functions defined as FTR outputs are piecewise differentiable and that they contain sections with negative marginal costs. Simulations, however, illustrate that such unusual properties do not stand in the way of applying price-cap incentive mechanisms to real-world transmission expansion.
    Keywords: Electricity transmission, cost function, incentive regulation, merchant investment, congestion management
    JEL: L51 L L94 Q40
    Date: 2010
  4. By: Juan Rosellón; Hannes Weigt
    Abstract: We propose a price-cap mechanism for electricity-transmission expansion based on redefining transmission output in terms of financial transmission rights. Our mechanism applies the incentive-regulation logic of rebalancing a two-part tariff. First, we test this mechanism in a three-node network. We show that the mechanism intertemporally promotes an investment pattern that relieves congestion, increases welfare, augments the Transco´s profits, and induces convergence of prices to marginal costs. We then apply the mechanism to a grid of northwestern Europe and show a gradual convergence toward a common-price benchmark, an increase in total capacity, and convergence toward the welfare optimum.
    Keywords: Electricity transmission expansion, incentive regulation
    JEL: L51 L91 L94 Q40
    Date: 2010
  5. By: Dr. Xunpeng SHI (Associate Researcher, Economic Research Institute for ASEAN and East Asia (ERIA))
    Abstract: This paper argues that coal and its industry is promising. It is found that the Western European (including the British) case has been misunderstood and the US case shows a developing coal industry under increasing levels of environmental pressure. The demonstration of the declining emissions intensity of coal provides an additional mean of reconciling the development of the coal industry with the environment. In the long term the enforcement of environmental regulations can benefit the coal industry in several ways, and the alternatives to coal are not yet available in a sufficiently large scale. Based on the positive prospects of coal, issues related to climate change, clean coal technology and energy policy are discussed.
    Date: 2009–09–01
  6. By: Hampf, Benjamin; Krüger, Jens
    Abstract: We conduct an empirical analysis of the technical efficiency of cars sold in Germany in 2010. The analysis is performed using traditional data envelopment analysis (DEA) as well as directional distance functions (DDF). The approach of DDF allows incorporating the reduction of carbon dioxide emissions as an environmental goal in the efficiency analysis. A frontier separation approach is used to gain deeper insight for different car classes and regions of origin. Natural gas driven cars and sports-utility-vehicles are also treated as different groups. The results show that the efficiency measurement is significantly influenced by the incorporation of carbon dioxide emissions. Moreover, we find that there is indeed a trade-off between technological performance and environmental performance.
    Keywords: nonparametric efficiency measurement, directional distance function, automobiles, air pollution
    Date: 2010–06
  7. By: Al-mulali, Usama; Che Sab, Normee
    Abstract: This study investigated the impact of oil shocks on the real exchange rate of the United Arab Emirates (UAE) dirham. Time series data were used for the period 1977 to 2007 covering four important oil shocks. Five variables have been used in this study, with the real exchange rate of the dirham as the dependent variable and the gross domestic product per capita, oil price, trade balance, and foreign direct investment inflows as the independent variables. In this study we used the Johansen-Juselius cointegration procedure, and conducted the Granger causality tests based on the VECM. Through this research, we found that a fixed exchange rate to the U.S. dollar is not an appropriate exchange rate regime for the UAE. This is because when the price of oil increases, and with a fixed exchange rate regime, this would lead to rapid growth in GDP and liquidity in the UAE economy. This in turn causes domestic prices to increase, which results in high levels of inflation.
    Keywords: oil Prices; real exchange rate; UAE; VAR
    JEL: E30 F31 Q43
    Date: 2009–06–23
  8. By: Scott H. Irwin; Dwight R. Sanders
    Abstract: This preliminary study examines the impact of index and swap fund participation in agricultural and energy commodity futures markets. Based on new data and empirical analysis the study finds that index funds did not cause a bubble in agricultural futures prices. Using Granger causality methods the study finds no statistically significant relationship between changes in index and swap fund positions and increased market volatility. The evidence is strongest for agricultural futures markets because the data on index trader positions are measured with reasonable accuracy. The evidence is not as strong in the two energy markets examined here because of considerable uncertainty about the degree to which the available data actually reflect index trader positions in these markets.
    Keywords: speculation, agricultural futures markets, speculative bubbles, futures price volatility, index funds and swaps
    Date: 2010–06
  9. By: Bruce A. Babcock (Center for Agricultural and Rural Development (CARD); Midwest Agribusiness Trade Research and Information Center (MATRIC)); Miguel Carriquiry (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI))
    Abstract: This report provides insight into four aspects of modeling indirect land use caused by expanded biofuels production. The report was motivated by the National Biodiesel Board's interest in better understanding how the California Air Resources Board (CARB) estimated an indirect land-use factor for soybean-based biodiesel of 66 gCO2e/MJ, which is more than three times greater than the direct emissions from the fuel. Four aspects of CARB's modeling approach were examined: (1) why CARB estimates that more U.S. forest than pasture will be converted to cropland; (2) whether CARB's predicted land-use changes are consistent with observed U.S. land-use changes in the past decade; (3) how CARB could account for double cropping; and (4) whether CARB's assumption that land brought into production has lower yields than land that was already in production. Results indicate that (1) much of the predicted U.S. forestland conversion is likely due to restrictions on cross-price elasticities imposed by use of the Constant Elasticity of Transformation supply function; (2) a stock of idled cropland could have accommodated the increase in U.S. cropland in 2007 and 2008; (3) the soybean yield elasticity with respect to price can be adjusted to account for double-cropped acres; and (4) there is no empirical support for the assumption that yields in Brazil on new land are lower than yields on old land. The analysis shows how much work needs to be done in this area if the models used to estimate indirect land use are to become widely accepted.
    Keywords: CET supply function, double cropping, idle cropland, indirect land use.
    Date: 2010–02
  10. By: Xiaodong Du (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Dermot J. Hayes (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); Cindy L. Yu
    Abstract: We use Bayesian Markov Chain Monte Carlo methods to investigate the linkage between the volatility of ethanol security prices and the uncertainty surrounding the profitability of ethanol production and the price variations of non-ethanol energy securities. The joint evolution of return and volatility is modeled as a stochastic process that incorporates jumps in both return and volatility. While a strong and significant correlation is found between the volatility of ethanol securities and profit uncertainty from June 2005 to July 2008, the dynamic pattern of ethanol stock volatility is strikingly similar to that of the S&P 500 energy sector index in the more recent period. Our evidence lends support to the findings in the literature on rational learning from uncertainty in determining the equity price and volatility during the adoption and development of a technological innovation.
    Keywords: jumps, rational learning, stochastic volatility, technological innovation.
    JEL: C11 G12 Q42
    Date: 2009–09
  11. By: Renée Alicia Anschau; Noelia Flores Marco; Stella Maris Carballo; Jorge Hilbert
    Abstract: En el presente trabajo se muestran los resultados obtenidos a partir de la evaluación del cultivo de Caña de Azúcar; La puesta en vigencia de las leyes argentinas, que fija incentivos específicos para este cultivo, reabren las posibilidades de retomar la producción de bioetanol anhidro para uso como combustible. El objetivo final del presente estudio es entonces, contribuir al uso ordenado del territorio a partir de las potencialidades agroecológicas que ofrece el mismo, considerando también variables de índole ambiental, económico y social. Con análisis confiables sobre las posibilidades de expansión de los cultivos que vayan a ser destinados a la producción de biocombustibles y con estudios que contabilicen la disponibilidad de recursos biomásicos que puedan ser orientados a la producción de energía. ABSTRACT: The current work shows the results obtained from the evaluation of the Sugar Cain crop; the activation of the Argentinean laws that fixes specific incentives for this crop, reopen the possibilities to restart the production of unhydro bioethanol for use as fuel. The final objective of this current study is then to contribute to the organized use of the territory based on the agro-ecological potentialities that it self offers, considering also environmental, economic and social variables. With reliable analysis about the expansion possibilities of crops that are destined for the production of bio-fuels, and with studies that account for the availability of biomass resources that could be oriented towards energy production.
    Date: 2010–06–23
  12. By: Eloi Lauren (Observatoire Français des Conjonctures Économiques); Jacques Le Cacheux (Observatoire Français des Conjonctures Économiques)
    Date: 2010–03
  13. By: Eloi Lauren (Observatoire Français des Conjonctures Économiques); Jacques Le Cacheux (Observatoire Français des Conjonctures Économiques)
    Date: 2010–05
  14. By: Gilbert E. Metcalf; Aparna Mathur; Kevin A. Hassett
    Abstract: This paper provides a simple analytic approach for measuring the burden of carbon pricing that does not require sophisticated and numerically intensive economic models but which is not limited to restrictive assumptions of forward shifting of carbon prices. We also show how to adjust for the capital income bias contained in the Consumer Expenditure Survey, a bias towards regressivity in carbon pricing due to underreporting of capital income in higher income deciles in the Survey. Many distributional analyses of carbon pricing focus on the uses-side incidence of carbon pricing. This is the differential burden resulting from heterogeneity in consumption across households. Once one allows for sources-side incidence (i.e. differential impacts of changes in real factor prices), carbon policies look more progressive. Perhaps more important than the findings from any one scenario, our results on the progressivity of the leading cap and trade proposals are robust to the assumptions made on the relative importance of uses and sources side heterogeneity.
    Date: 2010
  15. By: Sebastian Rausch; Gilbert E. Metcalf; John M. Reilly; Sergey Paltsev
    Abstract: We analyze the distributional and efficiency impacts of different allowance allocation schemes for a national cap and trade system using the USREP model, a new recursive dynamic computable general equilibrium model of the U.S. economy. The USREP model tracks nine different income groups and twelve different geographic regions with the United States. Recently proposed legislation include the Waxman-Markey House bill, the similar Kerry-Boxer bill in the Senate that has been replaced by a Kerry-Lieberman draft bill, and the Cantwell-Collins Senate bill that takes a different approach to revenue allocation. We consider allocation schemes motivated by the recent proposals applied to a comprehensive national cap and trade system that limits cumulative greenhouse gas emissions over the control period to 203 billion metric tons. The policy target approximates national goals identified in pending legislation. We find that the allocation schemes in all proposals are progressive over the lower half of the income distribution and proportional in the upper half of the income distribution. Scenarios based on the Cantwell-Collins allocation proposal are less progressive in early years and have lower welfare costs due to smaller redistribution to low income households and consequently lower income-induced increases in energy demand and less savings and investment. Scenarios based on the other three allocation schemes tend to overcompensate some adversely affected income groups and regions in early years but this dissipates over time as the allowance allocation effect becomes weaker. Finally we find that carbon pricing by itself (ignoring the return of carbon revenues through allowance allocations) is proportional to modestly progressive. This striking result follows from the dominance of the sources over uses side impacts of the policy and stands in sharp contrast to previous work that has focused only on the uses side. The main reason is that lower is that lower income households derive a large fraction of income from government transfers and, reflecting the reality that these are generally indexed to inflation, we hold the transfers constant in real terms. As a result this source of income is unaffected by carbon pricing, while wage and capital income is affected.
    Date: 2010
  16. By: Iain Fraser (University of Kent); Robert Waschik (Department of Finance, La Trobe University)
    Abstract: In this paper we use a Computable General Equilibrium (CGE) model to exam- ine the Double Dividend (DD) hypothesis. Using the general equilibrium GTAP model data for Australia and the UK, we incorporate endogenous production taxes to achieve targeted abatement policies in the production of energy goods (coal, oil, gas, petroleum, electricity). Following Bento and Jacobsen (2007), we examine the role played specific factors in the production of energy goods. In particular, we employ a novel approach to model the impact of specific factors on the existence and magnitude of the DD. We also incorporate endogenous labour supply, which allows us to illustrate the size of the labour market effect of targeted abatement policies. Our results indicate that with abatement tax revenue offset by reductions in other government distortions, we can identify which specific forms of revenue recycling yield a DD. For Australia we find that the magnitude of the DD is signif- icantly larger when we employ the specific factor characterisation of an economy and we recycle the revenue through reductions in consumption taxes. However, we find no evidence of a DD for Australia when we employ income tax as the recycling instrument. Finally, we find virtually no evidence of a DD for the UK for either recycling instrument regardless of the specific factors characterisation we employ.
    Keywords: environmental taxes, double dividend, specific factors
    JEL: Q52 Q48 C68
    Date: 2010–02
  17. By: Yu-Fu Chen; Michael Funke
    Abstract: The possibility of low-probability extreme events has reignited the debate over the optimal intensity and timing of climate policy. In this paper we therefore contribute to the literature by assessing the implications of low-probability extreme events on environmental policy in a continuous-time real options model with “tail risk”. In a nutshell, our results indicate the importance of tail risk and call for foresighted pre-emptive climate policies.
    Keywords: Climate Policy, Extreme Events, Real Options, Levy process
    JEL: D81 Q54 Q58
    Date: 2010–06
  18. By: Blankespoor, Brian; Dasgupta, Susmita; Laplante, Benoit; Wheeler, David
    Abstract: Global climate models predict a rise in extreme weather in the next century. To better understand future interactions among adaptation costs, socioeconomic development, and climate change in developing countries, observed losses of life from floods and droughts during 1960-2003 are modeled using three determinants: weather events, income per capita, and female education. The analysis reveals countries with high female education weathered extreme weather events better than countries with equivalent income and weather conditions. In that case, one would expect resilience to increase with economic growth and improvements in education. The relationship between resilience in the face of extreme weather events and increases in female education expenditure holds when socioeconomic development continues but the climate does not change, and socioeconomic development continues with weather paths driven by"wet"and"dry"Global Climate Models. Educating young women may be one of the best climate change disaster prevention investments in addition to high social rates of return in overall sustainable development goals.
    Keywords: Hazard Risk Management,Population Policies,Climate Change Economics,Climate Change Mitigation and Green House Gases,Climate Change Impacts
    Date: 2010–06–01
  19. By: Douglas Gollin (Williams College); Christian Zimmermann (University of Connecticut)
    Abstract: We study the impact of global climate change on the prevalence of tropi- cal diseases using a heterogeous agent dynamic general equilibrium model. In our framework, households can take actions (e.g., purchasing bednets or other goods) that provide partial protection from disease. However, these actions are costly and households face borrowing constraints. Parameterizing the model, we explore the impact of a worldwide temperature increase of 3 degrees Celsius. We find that the impact on disease prevalence and especially output should be modest and can be mitigated by improvements in protection efficacy.
    Date: 2010–06
  20. By: Andrea Conte; Ariane Labat; Janos Varga; Žiga Žarnić
    Abstract: The aim of this paper is to analyse options for reforming the fragmented Chinese pension system that covers only 55 % of urban employees and a very small part of the rural population. After a brief history of pensions in China we present recent reform proposals and then discuss principles of pension reforms, with particular attention to reducing the pension contribution rates so that compliance could improve and coverage increase. As the Chinese population is ageing fast, we are presenting transition to a notional defined contribution (NDC) system as a model for adjusting the pension rules for increasing longevity. Transforming the accrued pension rights into NDC accounts and starting to apply the new NDC-inspired rules on indexation is not necessarily a jump into the unknown for the Chinese pensions system. Rather, it could be a useful and long-awaited clarification to the rules and a way to move towards a more uniform system nationwide. With the help of a simulation model based on Chinese data we produce scenarios for a range of pension reforms and assess their properties.
    Keywords: Oksanen,China, population ageing, pension reforms, notional defined contribution scheme,NDC
    JEL: H11 H55
    Date: 2010–06
  21. By: Truong P. Truong; Claudia Kemfert
    Abstract: This paper describes the structure of the World Integrated Assessment model of global Trade, Environmental, and Climate change (WIATEC).The model consists of a multi-regional multi-sectoral core CGE model linked to a climate model. The core CGE is based on an existing global trade and environment model called GTAP-E (Truong, 1999; Burniaux and Truong, 2002). A suite of different and interchangeable 'modules' are then built around this 'core' to enable the model to be able to handle a range of different policy issues such as CO2 emissions, abatement, trading, non-CO2 (CH4 and N2O) emissions, land use land use change and forestry (LULUCF) activities, and changing technologies in the electricity generation sector. The approach which uses a core model structure with different additional modules built around this core structure allows the overall model to be flexible and can be adapted to a range of different policy issues. We illustrate the usefulness of this approach in a policy experiment which looks at the interaction between emissions trading scheme and the promotion of renewable energy targets in the European Union climate policy.
    Keywords: Integrated Assessment Model, Technological Change, Climate Policy
    JEL: Q O38 C68
    Date: 2010

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