nep-ene New Economics Papers
on Energy Economics
Issue of 2010‒09‒18
24 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Estimate of Search Cost Frictions in the British Electricity Market By Monica Giulietti; Michael Waterson; Matthijs R. Wildenbeest
  2. Energy demand and energy efficiency in the OECD countries: a stochastic demand frontier approach By Massimo Filippini; Lester C Hunt
  3. Inter-fuel Substitution in the Chinese Iron and Steel Sector By Russell Smyth; Paresh Kumar Narayan; Hongliang Shi
  4. Export Restraints on Russian Natural Gas and Raw Timber: What are the Economic Impacts? By David G. Tarr
  5. The Effects of Transport Regulation on the Oil Market: Does Market Power Matter? By Kverndokk, Snorre; Einar Rosendahl, Knut
  6. Transportation Oil Demand Consumer Preferences and Asymmetric Price Responses: Some UK Evidence By David C Broadstock; Alan Collins; Lester C Hunt
  7. Oil and the Duration of Dictatorships By Jesus Crespo Cuaresma; Harald Oberhofer; Paul Raschky
  8. Conditional Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns By Roengchai Tansuchat; Chia-Lin Chang; Michael McAleer
  9. Investor Preferences for Oil Spot and Futures Based on Mean-Variance and Stochastic Dominance By Hooi Hooi Lean; Michael McAleer; Wing-Keung Wong
  10. Market Efficiency of Oil Spot and Futures: A Stochastic Dominance Approach By Hooi Hooi Lean; Michael McAleer; Wing-Keung Wong
  11. Retrofitting the Brazilian Biodiesel Programme: Implications for Policy Design By Clovis Zapata; Sara Brune; Jackline Achieng Adero
  12. Pollution Abatement as a Source of Stabilisation and Long-Run Growth By Theodore Palivos; Dimitrios varvarigos
  13. A new version of Edgeworth's taxation paradox By Robert A. Ritz
  14. Excise Tax Policy and Cross-border Purchases of Automotive Fuels By Joze Mencinger
  15. Emission Tax or Standard? The Role of Productivity Dispersion By Zhe Li; Shouyong Shi
  16. An Economic Theory of Emission Cap Determination By an International Agreement By Sudhir A. Shah
  17. CO2 Highways for Europe: Modeling a Carbon Capture, Transport and Storage Infrastructure for Europe By Roman Mendelevitch; Johannes Herold; Pao-Yu Oei; Andreas Tissen
  18. Innovative Financing at a Global Level By European Commission
  19. Environmental Protection and Natural Resources By Sánchez-Rodríguez, Roberto; Mumme, Stephen
  20. Transboundary Pollution and abatement By Luisito Bertinelli; Benteng Zou
  21. 'The Voracity Effect' and Climate Change: The Impact of Clean Technologies By Benchekroun, H.; Ray Chaudhuri, A.
  22. Après Copenhague : le climat dans le nouvel équilibre du monde By Patrick Criqui; Constantin Ilasca
  23. Sharing the Cost of Global Warming By Leroux, Justin; de Villemeur, Étienne
  24. What Are the Implications of the Global Crisis and Its Aftermath for Poverty Reduction, 2010?2020? By Andy Sumner; Joe Ballantyne; Andrew Curry

  1. By: Monica Giulietti (Nottingham University Business School); Michael Waterson (University of Warwick); Matthijs R. Wildenbeest (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: This paper studies consumer search and pricing behaviour in the British domestic electricity market following its opening to competition in 1999. We develop a sequential search model in which an incumbent and an entrant group compete for consumers who find it costly to obtain information on prices other than from their current supplier. We use a large data set on prices and input costs to structurally estimate the model. Our estimates indicate that consumer search costs must be relatively high in order to rationalize observed pricing patterns. We confront our estimates with observed switching behaviour and find they match well.
    Keywords: electricity, consumer search, price competition
    JEL: C14 L13 D83
    Date: 2010–08
  2. By: Massimo Filippini (Centre for Energy Policy and Economics (cepe), ETH Zurich and Department of Economics, University of Lugano); Lester C Hunt (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)
    Abstract: This paper attempts to estimate a panel ‘frontier’ whole economy aggregate energy demand function for 29 countries over the period 1978 to 2006 using parametric stochastic frontier analysis (SFA). Consequently, unlike standard energy demand econometric estimation, the energy efficiency of each country is also modelled and it is argued that this represents a measure of the underlying efficiency for each country over time, as well as the relative efficiency across the 29 OECD countries. This shows that energy intensity is not necessarily a good indicator of energy efficiency, whereas by controlling for a range of economic and other factors, the measure of energy efficiency obtained via this approach is. This is, as far as is known, the first attempt to econometrically model OECD energy demand and efficiency in this way and it is arguably particularly relevant in a world dominated by environmental concerns with the subsequent need to conserve energy and/or use it as efficiently as possible. Moreover, the results show that although for a number of countries the change in energy intensity over time might give a reasonable indication of efficiency improvements; this is not always the case. Therefore, unless this analysis is undertaken, it is not possible to know whether the energy intensity of a country is a good proxy for energy efficiency or not. Hence, it is argued that this analysis should be undertaken to avoid potentially misleading advice to policy makers.
    Keywords: Energy demand; OECD; efficiency and frontier analysis; energy efficiency
    JEL: D D2 Q Q4 Q5
    Date: 2010–07
  3. By: Russell Smyth; Paresh Kumar Narayan; Hongliang Shi
    Abstract: China’s iron and steel sector is the largest in the world and has been the backbone of Chinese heavy industry. This sector is also a major consumer of energy and, in particular, coal. As a result, the iron and steel sector in China is a major contributor to greenhouse gas emissions and other pollutants. In this paper we examine the potential for inter-fuel substitution between coal, electricity, natural gas and oil in the Chinese iron and steel sector and find that these energy inputs are substitutes. The finding that these alternative energy sources are substitutes for coal suggests that China has the potential to switch from coal to cleaner energy sources; hence, retaining the ability to fuel its iron and steel sector, while reducing the adverse environmental implications.
    Keywords: China, inter-fuel substitution, iron and steel
    JEL: D24 O33 Q41
    Date: 2010–05
  4. By: David G. Tarr (New Economic School, Moscow)
    Abstract: The paper explains that the Russian gas giant, Gazprom, has failed to invest adequately, resulting in very little development of new gas supplies in Russia. The result has been progressively increasing use by Gazprom of central Asian gas supplies, at progressively higher prices for Russia. The increased prices of gas for Russian consumers have shown that it is crucial for Russian welfare to allow new entrants, and to introduce competition in the Russian domestic market. Competition among multiple gas suppliers from Russia, however, would erode or eliminate the monopoly profits of the Russian Federation on gas exports. Thus, with a more competitive domestic market, the Russian government would be expected to grant exclusive exporting rights to a single entity (as it presently does with Gazprom) or impose export taxes. Thus, Europe should not expect to achieve cheaper Russian gas as a result of structural reforms within the Russian gas market. More promising avenues for European energy diversification are new pipeline construction to open up new sources of supply independent of Russia (especially the Nabucco pipeline) and liquefied natural gas purchases. *
    Date: 2010–03
  5. By: Kverndokk, Snorre; Einar Rosendahl, Knut
    Abstract: Popular instruments to regulate consumption of oil in the transport sector include fuel taxes, biofuel requirements, and fuel efficiency. Their impacts on oil consumption and price vary. One important factor is the market setting. We show that if market power is present in the oil market, the directions of change in consumption and price may contrast those in a competitive market. As a result, the market setting impacts not only the effectiveness of the policy instruments to reduce oil consumption, but also terms of trade and carbon leakage. In particular, we show that under monopoly, reduced oil consumption due to increased fuel efficiency will unambiguously increase the price of oil.
    Keywords: transport regulations, oil market, monopoly, terms-of-trade effects, carbon leakage
    JEL: D42 Q54 R48
    Date: 2010–09–03
  6. By: David C Broadstock (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey); Alan Collins (Department of Economics, University of Portsmouth); Lester C Hunt (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)
    Abstract: The aim of this paper is to (i) establish the role of asymmetric price decompositions in UK road transportation fuel demand, (ii) make explicit the impact of the underlying energy demand trend and (iii) disaggregate the estimation for gasoline and diesel demand as separate commodities. Dynamic UK transport oil demand functions are estimated using the Seemingly Unrelated Structural Time Series Model with decomposed prices to allow for asymmetric price responses. The importance of starting with a flexible modelling approach that incorporates both an underlying demand trend and asymmetric price response function is highlighted. Furthermore, these features can lead to different insights and policy implications than might arise from a model without them. As an example, a zero elasticity for a price-cut is found (for both gasoline and diesel) implying that price reductions do not induce demand for road transportation fuel in the UK. The paper illustrates the importance of joint modelling of gasoline and diesel demand incorporating both asymmetric price responses and stochastic underlying energy demand trends.
    Keywords: Diesel; Asymmetry; Price; Underlying Energy Demand Trend (UEDT).
    Date: 2010–04
  7. By: Jesus Crespo Cuaresma; Harald Oberhofer; Paul Raschky
    Abstract: This paper studies empirically the relationship between oil endowment and the duration of autocratic leaders. A simple theoretical setting shows how the relationship between oil endowment and the duration of the dictatorial regime is mediated by the price of oil. Using a dataset on 106 dictators, our empirical analysis supports the predictions of the theoretical model and indicates that dictators in countries which are relatively better endowed in terms of oil stay longer in office. This result is robust to changes in the definition of dictatorial regimes, as well as to controlling for other economic and political variables.
    Keywords: Natural resources, dictatorship, political economy, duration
    JEL: Q34 D72 H11
    Date: 2010–05
  8. By: Roengchai Tansuchat (Faculty of Economics, Maejo University); Chia-Lin Chang (Department of Applied Economics, National Chung Hsing University); Michael McAleer (Erasmus School of Economics, Erasmus University Rotterdam)
    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), VARMAAGARCH 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.
    Date: 2010–01
  9. By: Hooi Hooi Lean (School of Social Sciences, Universiti Sains Malaysia); Michael McAleer (Erasmus School of Economics, Erasmus University Rotterdam,); Wing-Keung Wong (Department of Economics, Hong Kong Baptist University)
    Abstract: This paper examines investor preferences for oil spot and futures based on mean-variance (MV) and stochastic dominance (SD). The mean-variance criterion cannot distinct the preferences ofspot and market whereas SD tests leads to the conclusion that spot dominates futures in the downside risk while futures dominate spot in the upside profit. It is also found that risk-averse investors prefer investing in the spot index, whereas risk seekers are attracted to the futures index to maximize their expected utilities. In addition, the SD results suggest that there is no arbitrage opportunity between these two markets. Market efficiency and market rationality are likely to hold in the oil spot and futures markets.
    Date: 2010–05
  10. By: Hooi Hooi Lean (School of Social Sciences, Universiti Sains Malaysia); Michael McAleer (Erasmus School of Economics, Erasmus University Rotterdam); Wing-Keung Wong (Department of Economics, Hong Kong Baptist University)
    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.
    Date: 2010–01
  11. By: Clovis Zapata (International Policy Centre for Inclusive Growth); Sara Brune (Wageningen University, the Netherlands); Jackline Achieng Adero (Wageningen University, the Netherlands)
    Abstract: In the context of oil price volatility and the need to reduce carbon emissions, biofuels are an emerging area of interest for many developing nations as alternative energy sources that, in some instances, can also enhance livelihoods in deprived agricultural areas. There are, however, a number of questions on this front: is it economically and environmentally feasible to incorporate small-scale family farmers into biofuel value chains? Can the production of biofuel feedstocks complement rather than compete with food crops? The experience of Brazil, a pioneer in the adoption of a socially inclusive approach to the production of feedstocks for biodiesel, has elicited much interest. This Policy Research Brief seeks to take stock of recent institutional developments and draw lessons as part of an ongoing learning process in an area where there are still no obvious sustainable business models or easy pathways to foster the inclusion of small-scale farmers. The Brief suggests that incorporation into the biodiesel value chain is both feasible and productive for family farmers. But the extent of the engagement required of intermediaries can be significant in the early stages of the programme in underserviced areas, particularly where farmers are dispersed and have not been extensively involved with market processes. Those embarking on these programmes thus have to consider such a production-support role. Further, the Brief suggests that intercropping (castor and beans, for example) can mitigate the food-fuel tradeoffs. However, the choice of optimal feedstocks from the point of view of equity and sustainability remains an open question.
    Keywords: Retrofitting the Brazilian Biodiesel Programme: Implications for Policy Design
    Date: 2010–08
  12. By: Theodore Palivos (Department of Economics, University of Macedonia); Dimitrios varvarigos (Department of Economics, University of Leicester)
    Abstract: In a two-period overlapping generations model with production, we consider the damaging impact of environmental degradation on health and, consequently, life expectancy. The government’s involvement on policies of environmental preservation proves crucial for both the economy’s short-term dynamics and its long-term prospects. Particularly, an active policy of pollution abatement emerges as an important engine of long-run economic growth. Furthermore, by eliminating the occurrence of limit cycles, pollution abatement is also a powerful source of stabilisation.
    Keywords: Growth, Cycles, Enviromental quality, Pollution Abatement.
    JEL: Q41 Q56
    Date: 2010–09
  13. By: Robert A. Ritz
    Abstract: Edgworth’s taxation paradox states that an excise tax can decrease the market price of a good. This paper presents a new version of the paradox in which a tax reduces price because it attracts entry of additional firms into the market. The paper also presents two new applications: (i) an emissions tax that leads to an increase in industry emissions (due to entry), and (ii) an interest rate cut by the central bank that reduces lending by commercial banks (due to exit). Basic principles of environmental regulation and monetary policy therefore fail under the conditions of the paradox.
    Keywords: Bank lending, Cost pass-through, Edgeworth's paradox, Environmental regulation, Market structure, Taxation
    JEL: D43 G21 H22 Q50
    Date: 2010
  14. By: Joze Mencinger
    Abstract: In a small open country such as Slovenia, drivers can either purchase automotive fuel within the country or abroad. A simple demand model is used to test the proposition that changes in excise tax policy caused the decline of purchases in the country, and to delineate the effects of excise tax policy from the effects of the simultaneously occurring economic crisis. To do that, short- and long-run, and direct- and cross-price elasticities are estimated for the purchase of gasoline and automotive diesel in five regions: Slovenia's four border regions and the interior. For the estimation of "volume of transportation" elasticity, vehicle crossings through road sites with automatic traffic meters are used. The simulations indicate that more than half of the decline in the purchase of automotive fuels in 2009 can be attributed to excise tax policy and less than half to the economic crisis, and that the increase in tax revenues generated by excise tax policy significantly exceeded the decrease in the sellers' earnings.
    Keywords: retail trade, taxation, time series model
    JEL: L81 H2 C22
    Date: 2010–09
  15. By: Zhe Li; Shouyong Shi
    Abstract: When a society wants to control aggregate emission under a certain target level, is it more desirable to impose a tax or a regulatory standard on emission? To answer this question, we explore a model where plants are heterogeneous in productivity and monopolistically competitive in the production of a set of varieties of (dirty-) goods whose by-product is emission. The main result is that the standard yields higher welfare than the tax if and only if productivity dispersion is small and the monopoly power in the dirty-goods sector is strong. In the process of obtaining this result, we find that, if the plants have no access to an abatement technology, then the tax dominates the standard unambiguously. When the plants do have access to an abatement technology, there can be less price distortion under the standard than under the tax, in which case the standard can yield higher welfare. These results illustrate that productivity dispersion is important for evaluating market-based environmental policies relative to non-market based policies.
    Keywords: emission tax; standard; productivity dispersion;abatement.
    JEL: E60
    Date: 2010–09–12
  16. By: Sudhir A. Shah
    Abstract: The objective of this paper is twofold. Firstly, to propose a conceptual and institutional framework for the first step of the Kyoto procedure. This framework is formally expressed in a non-cooperative model of emission capping, i.e., the creation of endowments of emission rights. [Working Paper No.88]
    Keywords: conceptual, institutional, framework, Kyoto, non-cooperative, emission capping
    Date: 2010
  17. By: Roman Mendelevitch; Johannes Herold; Pao-Yu Oei; Andreas Tissen
    Abstract: We present a mixed integer, multi-period, cost-minimizing carbon capture, transport and storage (CCTS) network model for Europe. The model incorporates endogenous decisions about carbon capture, pipeline and storage investments; capture, flow and injection quantities based on given costs, certificate prices, storage capacities and point source emissions. The results indicate that CCTS can theoretically contribute to the decarbonization of Europe's energy and industry sectors. This requires a CO2 certificate price rising to 55 € in 2050, and sufficient CO2 storage capacity available for both on and offshore sites. However, CCTS deployment is highest in CO2-intensive industries where emissions cannot be avoided by fuel switching or alternative production processes. In all scenarios, the importance of the industrial sector as a first mover to induce the deployment of CCTS is highlighted. By contrast, a decrease of available storage capacity or a more moderate increase in CO2 prices will significantly reduce the role of CCTS as a CO2 mitigation technology, especially in the energy sector. Continued public resistance to onshore CO2 storage can only be overcome by constructing expensive offshore storage. Under this restriction, to reach the same levels of CCTS penetration will require doubling of CO2 certificate prices.
    Keywords: carbon capture and storage, pipeline, infrastructure, optimization
    JEL: C61 H54 O33
    Date: 2010
  18. By: European Commission
    Abstract: The European Commission services published a staff working document assessing the main sources of innovative financing under discussion. The analysis shows that for some of the instruments a "double dividend" of both raising revenues and improving market efficiency and stability could be reaped, in particular by putting a price on risk-taking in the financial sector and on carbon emissions.
    Keywords: European Union, taxation, financial transaction tax, bank levy, bonus tax, carbon tax, financial institutions
    JEL: G15 G18 G28 H21 H22 H23 H25 H27 H62
    Date: 2010–04
  19. By: Sánchez-Rodríguez, Roberto; Mumme, Stephen
    Abstract: Environmental issues and the management of natural resources have become a significant element of the binational relationship between Mexico and the United States during the last three decades. The environmental challenges now shaping the bilateral agenda for environmental cooperation are formidable and their address engages a rich and diverse set of institutions and stakeholders at multiple levels of government across the international boundary. This chapter studies environmental issues relevant to the two countries in the 21st century and suggests policy strategies to address them. The first part of the chapter discuss relevant environmental issues common to Mexico and the United States and their potential implications for their relationship in the short and long term. The second part analyzes binational efforts created to manage environmental issues and provide a critical perspective of their strengths and shortcomings. The last section of the chapter suggests recommendations to address those environmental challenges in the 21st century.
    Keywords: natural resources, environment, environmental policy
    Date: 2010–01–01
  20. By: Luisito Bertinelli (CREA, University of Luxembourg); Benteng Zou (CREA, University of Luxembourg)
    Abstract: Adopting clean technologies is a long term process which requires structural changes in production and consumption habits. In the present paper, we focus more on short term issues related to pollution reduction and analyze a pollution abatement game in a 2-country dynamic model. Transboundary pollution is treated as a common state variable while pollution reduction is reached via abatement rather than the adoption of cleaner technologies. Symmetric open-loop and Markovian Nash equilibrium are studied and compared as well as the analysis of Markovian strategies of more than two countries case around the steady state.
    Date: 2010
  21. By: Benchekroun, H.; Ray Chaudhuri, A. (Tilburg University, Center for Economic Research)
    Abstract: In the absence of a successful international cooperative agreement over the control of emissions there is a growing interest in the role that clean technologies may play to alleviate the climate change problem. Within a non-cooperative transboundary pollution game, we investigate, analytically and within a numerical example based on empirical evidence, the impact of the adoption of a cleaner technology (i.e., a decrease in the emission to output ratio). We show that countries may respond by increasing their emissions resulting in an increase in the stock of pollution that may be detrimental to welfare. This possibility is shown to arise for a signi…cant and empirically relevant range of parameters. It is when the damage and/or the initial stock of pollution are relatively large and when the natural rate of decay of pollution is relatively small that the perverse e¤ect of clean technologies is strongest. Cooperation over the control of emissions is necessary to ensure that the development of cleaner technologies does not exacerbate the free riding behavior that is at the origin of the climate change problem.
    Keywords: transboundary pollution;renewable resource;climate change;clean technolo- gies;differential games
    JEL: Q20 Q54 Q55 Q58 C73
    Date: 2010
  22. By: Patrick Criqui (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II); Constantin Ilasca (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: De Rio à Copenhague : grandes étapes de la négociation climatique, attentes et résultats de Copenhague 2009, perspectives pour l'après-2012
    Date: 2010
  23. By: Leroux, Justin (HEC Montréal, CIRANO and CIRPEE); de Villemeur, Étienne (Toulouse School of Economics (IDEI & GREMAQ))
    Abstract: Due to meteorological factors, the distribution of the environmental damage due to climate change bears no relationship to that of global emissions. We argue in favor of offsetting this discrepancy, and propose a "global insurance scheme" to be fincanced according to countries responsibility for climate change. Because GHG decay very slowly, we argue that the actual burden of global warming should be shared on the basis of cumulated emissions, raher than sharing the expected costs of actual emissions as in a Pigovian taxation scheme. We characterize new versions of two well-known cost-sharing schemes by adapting the responsibility theory of Bossert and Fleurbaey (1996) to a context with externalities.
    JEL: D62 D63 Q54
    Date: 2010–07
  24. By: Andy Sumner (Institute of Development Studies, Sussex); Joe Ballantyne (The Futures Company); Andrew Curry (The Futures Company)
    Abstract: Some major ?game changers? beyond the recent economic crisis and food/fuel crisis will have an impact on the Millennium Development Goals (MDGs) to 2015 and beyond, such as climate change, technological change and urbanization. Scenarios?multiple coherent and plausible futures?serve as a vehicle to act on possible future(s) andto interpret their implications (such as those developed in the box) for the prospects of reducing poverty in developing countries.
    Keywords: What Are the Implications of the Global Crisis and Its Aftermath for Poverty Reduction, 2010?2020?
    Date: 2010–08

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