nep-ene New Economics Papers
on Energy Economics
Issue of 2010‒11‒27
forty-one papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Why the New Market for New Passenger Cars Generally Undervalues Fuel Economy By David Greene
  2. Transport Energy Efficiency: Implementation of IEA Recommendations since 2009 and Next Steps By Kazunori Kojima; Lisa Ryan
  3. Demand-side Management Strategies and the Residential Sector: Lessons from International Experience By Brophy Haney, A.; Jamasb, T.; Platchkov, L.M.; Pollitt, M.G.
  4. Consumer needs and their satiation properties as drivers of the rebound effect - The case of energy-efficient washing machines By Julia Sophie Wörsdorfer
  5. Penalizing consumers for saving electricity. By Salies, Evens
  6. Technical change, carbon dioxide reduction and energy consumption in the Swedish pulp and paper industry 1973-2006 By Lindmark, Magnus; Bergquist, Ann-Kristin; Andersson, Lars Fredrik
  7. Money Matters: Mitigating Risk to Spark Private Investments in Energy Efficiency: Mitigating Risk to Spark Private Investments in Energy Efficiency By Philippine de T’Serclaes
  8. Economic growth, electricity consumption and foreign dependence in Italy between 1963 and 2007 By Vecchione, Gaetano
  9. Nonparametric modeling and forecasting electricity demand: an empirical study By Han Lin Shang
  10. International Evidence on Aggregate Short-Run and Long-Run Interfuel Substitution By Apostolos Serletis; Govinda Timilsina; Olexandr Vasetsky
  11. Capacity Development for Environmental Management and Governance in the Energy Sector in Developing Countries By George Matheson; Laurie Giroux
  12. Evaluating the New Greek Electricity Market Rules By Sakellaris, Kostis; Perrakis, Kostis; Angelidis, George
  13. Properties of Electricity Prices and the Drivers of Interconnector Revenue By Parail, V.
  14. Estimation of the Semiparametric Factor Model: Application to Modelling Time Series of Electricity Spot Prices. By Liebl, Dominik
  15. Modeling the effects of nuclear fuel reservoir operation in a competitive electricity market. By Maria Lykidi; Jean-Michel Glachant; Pascal Gourdel
  16. An analysis of Turkish hydropower policy By Erdogdu, Erkan
  17. Bypassing Russia: Nabucco project and its implications for the European gas security By Erdogdu, Erkan
  18. The impact of oil shocks on the G-7 countries GDP growth By Al-mulali, Usama
  19. Oil shocks and the zero bound on nominal interest rates By Martin Bodenstein; Luca Guerrieri; Christopher Gust
  20. Oil Shocks and Kuwait’s Dinar Exchange Rate: the Dutch Disease Effect By Al-mulali, Usama; Che Sab, Normee
  21. Do Natural Resources Attract FDI? Evidence from non-stationary sector-level data By Steven Poelhekke; Rick van der Ploeg
  22. Absorbing A Windfall Of Foreign Exchange: Dutch disease dynamics By Rick van der Ploeg; Anthony J Venables
  23. Local Labor Market Impacts of Energy Boom-Bust-Boom in Western Canada By Marchand, Joseph
  24. Impact on Ethanol, Corn, and Livestock from Imminent U.S. Ethanol Policy Decisions By Bruce A. Babcock
  25. Embedded interests and the managerial local state: methanol fuel-switching in China By Kostka, Genia; Hobbs, William
  26. Towards an Emissions Trading Scheme for Air Pollutants in India: A Concept Note By Esther Duflo; Michael Greenstone; Nicholas Ryan; Rohini Pande
  27. An Empirical Study of the Relationships between CO2 Emissions, Economic Growth and Openness By Choi, Eunho; Heshmati, Almas; Cho, Yongsung
  28. A Semiparametric Panel Model for unbalanced data with Application to Climate Change in the United Kingdom By Alev Atak; Oliver Linton; Zhijie Xiao
  29. Tax or no tax? Preferences for climate policy attributes By Brännlund, Runar; Persson, Lars
  30. Distributional effects of a carbon tax on car fuels in France By Benjamin Bureau
  31. Risk-Neutral Pricing of Financial Instruments in Emission Markets By Sam Howison; Daniel Schwarz
  32. Environmental Taxation and Revenue for Development By Agnar Sandmo
  33. Macroeconomics, finance, commodities: Interactions with carbon markets in a data-rich model. By Chevallier, Julien
  34. Detecting instability in the volatility of carbon prices. By Chevallier, Julien
  35. EUA and sCER Phase II Price Drivers: Unveiling the reasons for the existence of the EUA-sCER spread. By Alberola, Emilie; Chevallier, Julien; Mansanet-Bataller, Maria; Hervé-Mignucci, Morgan
  36. Implementing Cost-Effective Policies in the United States to Mitigate Climate Change By David Carey
  37. Embedding CCS infrastructure into the European electricity system: A policy coordination problem By Nadine Heitmann; Christine Bertram; Daiju Narita
  38. Carbon Capture and Storage: Model Regulatory Framework By OECD
  39. The Impact of Climate on Life Satisfaction By David Maddison; Katrin Rehdanz
  40. Climate Policy and Profit Efficiency By Lundgren, Tommy; Marklund, Per-Olov
  41. What Are the Costs of Meeting Distributional Objectives in Designing Domestic Climate Policy? By Parry, Ian W.H.; Williams, Roberton C. III

  1. By: David Greene
    Abstract: Passenger vehicles are a major source of greenhouse gas emissions and prodigious consumers of petroleum, making their fuel economy an important focus of energy policy. Whether or not the market for fuel economy functions efficiently has important implications for both the type and intensity of energy and environmental policies for motor vehicles. There are undoubtedly imperfections in the market for fuel economy but their consequences are difficult to quantify. The evidence from econometric studies, mostly from the US, is reviewed and shown to vary widely, providing evidence for both significant under- and over-valuation and everything in between. Market research is scarce, but indicates that the rational economic model, in general, does not appear to be used by consumers when comparing the fuel economy of new vehicles. Some recent studies have stressed the role of uncertainty and risk or loss aversion in consumers’ decision making. Uncertainty plus loss aversion appears to be a reasonable theoretical model of consumers’ evaluation of fuel economy, with profound implications for manufacturers’ technology and design decisions. The theory implies that markets will substantially undervalue fuel economy relative to its expected present value. It also has potentially important implications for welfare analysis of alternative policy instruments.
    Date: 2010–01
  2. By: Kazunori Kojima; Lisa Ryan
    Abstract: Transport is the sector with the highest final energy consumption and, without any significant policy changes, is forecast to remain so. In 2008, the IEA published 25 energy efficiency recommendations, among which four are for the transport sector. The recommendations focus on road transport and include policies on improving tyre energy efficiency, fuel economy standards for both light-duty vehicles and heavy-duty vehicles, and eco-driving. Implementation of the recommendations has been weaker in the transport sector than others. This paper updates the progress that has been made in implementing the transport energy efficiency recommendations in IEA countries since March 2009. Many countries have in the last year moved from "planning to implement" to "implementation underway", but none have fully implemented all transport energy efficiency recommendations. The IEA calls therefore for full and immediate implementation of the recommendations."
    Date: 2010–09
  3. By: Brophy Haney, A.; Jamasb, T.; Platchkov, L.M.; Pollitt, M.G.
    Abstract: This paper explores demand side management (DSM) strategies, including both demand response and energy efficiency policies. The aim is to uncover what features might strengthen DSM effectiveness. We first look at key features of residential energy demand and the limits to energy indicators. We then turn to historical energy intensity trends in the sector which uncover its large untapped potential. A range of barriers to energy efficiency accounting for this gap are surveyed as well as a number of potential policy responses. This reveals the necessity of a portfolio approach with bundled strategies that simultaneously impact different parts of the market, enhance the strengths of individual measures while compensating for their weaknesses through the use of complementary policies. Evidence from the international experience, in Denmark, Germany, Japan, and US is reviewed. This helps us to contrast and shed some light on the UK experience. We conclude with an emphasis on the need for a holistic underpinning approach and the indentification of a number of attributes that reinforce DSM strategies.
    Keywords: Electricity, heat, energy policies, demand-side management, energy efficiency, residential sector, portfolio approach
    JEL: Q41 Q48 D10
    Date: 2010–10–01
  4. By: Julia Sophie Wörsdorfer
    Abstract: The possibility of the "rebound effect" to technological progress has triggered a debate in energy economics concerning the usefulness of the promotion of efficiency progress. Until now, a multitude of empirical evidence has been gathered so to assess the magnitude of the effect in the first place. Progress in theoretical research has been rather modest, however. In this paper, we argue for a broadening of the theoretical basis beyond neoclassical consumer theory. We more specifically suggest turning toward consumption theories that deal with consumer needs and learning processes. We postulate that the rebound effect to energy efficiency progress is a special case of behavioral reactions to technological change more in general. Our central hypothesis is that rebound effects will only occur as long as the consumer needs appealed to by the product are not yet satiated. We exemplarily illustrate how to apply these arguments for the case of energyefficient washing machines.
    Keywords: rebound effect, consumer needs, washing machines Length 29 pages
    Date: 2010–11
  5. By: Salies, Evens (Centre de recherche en économie de Sciences Po)
    Abstract: In response to climate change, many electric utilities introduce pricing schemes to induce their customers to consume less electricity. When a significant portion of the consumer population finds it more costly to economize electricity, one would expect utilities to offer incentives in return for lower usage of electricity. The model put forward in this paper enhances understanding of why a typical electric utility may instead prefer to increase prices, in so doing discriminating against environmentally conscious customers. This result holds even when the utility is charged for its greenhouse gas emissions. But in this case the price increase is sufficiently small to induce energy savings also from customers for whom there is a net cost in doing so.
    Date: 2010–05
  6. By: Lindmark, Magnus (CERE); Bergquist, Ann-Kristin (CERE); Andersson, Lars Fredrik (CERE)
    Abstract: This study examines the historical relation between carbon dioxide emission and output growth in the Swedish pulp and paperindustry 1973-2006. We find that the industry achieved an 80 per cent reduction in CO2 emission. Foremost energy substitution but also efficiently improvement contributed to the reduction. Growing prices of fossil fuel due to market price change and taxes and subvention, explains most of the efficiency improvements and substitution. Taxes on energy explain 40 per cent of the total reduction in CO2 intensity. Most of the reduction took place before the implementation of active climate policy in 1991.
    Keywords: Sweden; Climate policy; economic growth; carbon dioxide reduction; carbon tax; paper and plant industry
    JEL: N54
    Date: 2010–05–03
  7. By: Philippine de T’Serclaes
    Abstract: Scaling-up investment in energy efficiency is essential to achieving a sustainable energy future. Despite energy efficiency’s recognised advantages as a bankable investment with immense climate change mitigation benefits, most of the energy efficiency potential remains untapped and the investment gap to achieve climate goals is tremendous. This report seeks to improve understanding as to why this is so, and what can be done about it.
    Date: 2010–10
  8. By: Vecchione, Gaetano
    Abstract: The energy sector is assuming an increasing importance in the global economy. As a consequence, there is a vast literature on the causal relation between energy use and others economic variables. In this paper, I investigate the relationship between electricity consumption and economic growth for Italy using yearly data covering the period 1963–2007. Unlike previous works, this paper specifically concerns the causal link between the dynamics of GDP and the different sources of electricity production. Regarding the dependence from foreign suppliers, the paper tests the hypothesis of a causal relationship between economic growth and electricity imports. The results show a unidirectional causality from economic activity to other variables. More specifically, economic growth Granger cause total electricity consumption, industrial consumption and electricity import. For the others source of generation, any specific causal relationship has been found.
    Keywords: : Energy and Growth; Italy; Vector Error Correction Model; Granger Causality
    JEL: C32 Q48 Q40
    Date: 2010–11–22
  9. By: Han Lin Shang
    Abstract: This paper uses half-hourly electricity demand data in South Australia as an empirical study of nonparametric modeling and forecasting methods for prediction from half-hour ahead to one year ahead. A notable feature of the univariate time series of electricity demand is the presence of both intraweek and intraday seasonalities. An intraday seasonal cycle is apparent from the similarity of the demand from one day to the next, and an intraweek seasonal cycle is evident from comparing the demand on the corresponding day of adjacent weeks. There is a strong appeal in using forecasting methods that are able to capture both seasonalities. In this paper, the forecasting methods slice a seasonal univariate time series into a time series of curves. The forecasting methods reduce the dimensionality by applying functional principal component analysis to the observed data, and then utilize an univariate time series forecasting method and functional principal component regression techniques. When data points in the most recent curve are sequentially observed, updating methods can improve the point and interval forecast accuracy. We also revisit a nonparametric approach to construct prediction intervals of updated forecasts, and evaluate the interval forecast accuracy.
    Keywords: Functional principal component analysis; functional time series; multivariate time series, ordinary least squares, penalized least squares; ridge regression; seasonal time series
    JEL: C88 C63 C14 C22
    Date: 2010–10–18
  10. By: Apostolos Serletis; Govinda Timilsina; Olexandr Vasetsky
    Abstract: In this paper, we build on recent work by Serletis et al. (2010a,b) and report short- and long-run estimates of aggregate interfuel substitution for a number of OECD and non-OECD countries. In doing so, we use recent pooled intercountry data (since 1980), and state-of-the-art advances in microeconometrics, including duality theory and ‡flexible functional forms. Also, motivated by the widespread practice in the empirical energy demand literature of ignoring theoretical regularity, we estimate our model subject to global curvature (but not monotonicity), using methods developed by Diewert and Wales (1987). We provide inference, and also a policy perspective, using parameter estimates that are consistent with the theoretical regularity conditions of neoclassical microeconomic theory.
    JEL: C2 D4
    Date: 2010–11–01
  11. By: George Matheson; Laurie Giroux
    Abstract: The relationships between energy, the environment, and development are deep and complex. The International Energy Agency has noted that energy is deeply implicated in each of the economic, social and environmental dimensions of human development. Energy services provide an essential input to economic activity, contribute to social development, and help meet basic human needs. But energy production and use also has significant environmental implications that must be managed if countries are to meet their long term sustainable development goals. The purpose of this paper is to highlight the importance of environmental management and governance in the energy sector; to present environmental goals, requirements, entry points, and strategies/approaches to capacity development for the environment (CDE) in this sector; and to discuss implications for donors. The focus is on CDE in a developing country context. The paper recognises that CDE must be seen as part of an endogenous process of change, and that it must operate at multiple levels: the enabling environment, the organisation, and the individual. The paper argues that capacity development is not an end in itself; instead, defined environmental goals should be the basis for determining capacity requirements, which in turn should be the basis for defining capacity development priorities. Based on this, the paper further argues that CDE should focus on sustainable energy sources of relevance to the majority of the population, and on increased efficiency of energy use. The paper links these concepts to the country systems approach to development assistance advocated in the Paris Declaration on Aid Effectiveness, and discusses some of the challenges donors face in providing CDE assistance that responds to these concepts and principles.
    Keywords: developing countries, energy sector, renewable energy, energy efficiency, environmental management, Capacity development, environmental governance, sustainable energy, country systems
    JEL: H23 O13 O17 O19 O29 O33 Q01 Q4 Q5
    Date: 2010–11–17
  12. By: Sakellaris, Kostis; Perrakis, Kostis; Angelidis, George
    Abstract: The Greek Regulatory Authority for Energy (RAE), in view of the initiation of the new wholesale electricity market on January 1st 2009 as a Day-Ahead mandatory pool, undertook the design and implementation of a simulator for the market. The simulator consists of several interacting modules representing all key market operations and dynamics including day-ahead scheduling, natural gas system constraints, unplanned variability of loads and available capacity driven either by uncertain stochastic outcomes or deliberate participant schedule deviations, real time dispatch, and financial settlement of day ahead and real-time schedule differences. The modules are integrated into one software package. The intended use of the simulator is to elaborate on and allow RAE to investigate the impact of participant decision strategies on market outcomes. The ultimate purpose is to evaluate the effectiveness of Market Rules, whether existing or contemplated, in providing incentives for competitive behaviour and in discouraging gaming and market manipulation. In this paper the simulator is used to analyze market design aspects and rules concerning the co-optimization of energy and reserves in the Day-Ahead energy market and the efficiency of the imbalance settlement procedure compared to real-time pricing.
    Keywords: Electricity Market Design; Market Simulation; Regulation; Unit Commitment
    JEL: Q48 C61
    Date: 2010–11–08
  13. By: Parail, V.
    Abstract: This paper examines the drivers behind revenues of merchant electricity interconnectors and the effect of arbitrage trading over interconnectors on the level and volatility of electricity prices in the connected markets. It sets out a simulation methodology that allows the stochastic and deterministic properties of prices, as well as most model parameters, to be varied freely. The effect of electricity flows over interconnectors on prices and thus on interconnector revenues is modelled explicitly by a mathematical algorithm. It is found that arbitrage can reduce the volatility and to some extent the mean of electricity prices in both markets when two markets with a similar distribution of prices are connected. It is also found that it is possible for interconnectors to generate considerable revenues without any consistent price differences between the connected markets. This shows that interconnectors between seemingly very similar electricity markets can be an attractive proposition for a profit-seeking investor.
    Keywords: Merchant interconnectors, electricity prices, price volatility, simulation, bootstrapping
    JEL: C15 C63 G10 L94
    Date: 2010–11–16
  14. By: Liebl, Dominik
    Abstract: Classical univariate and multivariate time series models have problems to deal with the high variability of hourly electricity spot prices. We propose to model alternatively the daily mean electricity supply functions using a dynamic factor model. And to derive, subsequently, the hourly electricity spot prices by the evaluation of the estimated supply functions at the corresponding hourly values of demand for electricity. Supply functions are price (EUR/MWh) functions, that increase monotonically with demand for electricity (MW). Apart from this new conceptual approach, that allows us to represent the auction design of energy exchanges in a most natural way, our main contribution is an extraordinary simple algorithm to estimate the factor structure of the dynamic factor model. We decompose the time series into a functional spherical component and an univariate scaling component. The elements of the spherical component are all standardized having unit size such that we can robustly estimate the factor structure. This algorithm is much simpler than procedures suggested in the literature. In order to use a parsimonious labeling we will refer to the daily mean supply curves simply as price curves.
    Keywords: Factor Analysis; functional time series data; sparse data; electricity spot market prices; European Electricity Exchange (EEX)
    JEL: C14 C22 C1 C01
    Date: 2010
  15. By: Maria Lykidi (ADIS-GRJM - Université Paris-Sud); Jean-Michel Glachant (Université Paris-Sud et EUI - Florence School of regulation); Pascal Gourdel (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: In many countries, the electricity systems are quitting the vertically integrated monopoly organization for an operation framed by competitive markets. In such a competitive regime one can ask what the optimal operation/management of the nuclear generation set is. We place ourselves in a medium-term horizon of the management in order to take into account the seasonal variation of the demand level between winter (high demand) and summer (low demand). A flexible nuclear set is operated to follow a part of the demand variations. In this context, nuclear fuel stock can be analyzed like a reservoir since nuclear plants stop periodically (every 12 or 18 months) to reload their fuel. The operation of the reservoir allows different profiles of nuclear fuel uses during the different seasons of the year. We analyze it within a general deterministic dynamic framework with two types of generation : nuclear and non-nuclear thermal. We study the optimal management of the production in a perfectly competitive market. Then, we build a very simple numerical model (based on data from the French market) with nuclear plants being not operated strictly as base load power plants but within a flexible dispatch frame (like the French nuclear set). Our simulations explain why we must anticipate future demand to manage the current production of the nuclear set (myopia can not be total). Moreover, it is necessary in order to ensure the equilibrium supply-demand, to take into account the non-nuclear thermal capacities in the management of the nuclear set. They also suggest that non-nuclear thermal may remain marginal during most of the year including the months of low demand.
    Keywords: Nuclear technology, non-nuclear thermal technology, electricity, nuclear fuel "reservoir", perfect competition, merit order, follow-up of load, seasonal demand.
    JEL: C61 C63 D24 D41 L11
    Date: 2010–11
  16. By: Erdogdu, Erkan
    Abstract: Over the last decade, Turkish electricity demand has increased more than 8% per annum as a result of economic development. Being one of the renewable energy sources par excellence, non-exhaustible, non-polluting and economically more attractive than other renewable sources, hydropower has turned out to be an important contributor to the future energy mix of the country. This paper deals with hydropower policies to meet increasing electricity demand for sustainable energy development in Turkey. Turkey has a total gross hydropower potential of 433 TWh/year and 140 TWh/year of this capacity can be used economically, corresponding to the second largest economic potential in Europe. Currently only 35% of economic hydro potential of the country is utilized. After completion of hydropower plants under construction, this figure will increase to 49%. It is obvious that even after the construction of all projects there will still be a huge hydro potential in Turkey. Besides, Turkey is a poor country in terms of fossil fuels (oil, natural gas, coal and so on) and has no nuclear power plant in operation, which strengthens the role of hydro energy among other alternatives.
    Keywords: Hydro energy; Energy policy; Turkey
    JEL: Q28 Q48
    Date: 2011–01
  17. By: Erdogdu, Erkan
    Abstract: Restrictions on CO2 emissions, the nuclear phase out announced by some member states, high emissions from coal-fired power plants, and barriers to rapid development of renewable generation are factors that make the European Union (EU) highly dependent on natural gas. With three non-EU countries (Russia, Algeria and Norway) currently supplying more than half the gas consumed within the EU and with projections pointing out that by 2030 internal sources will only be able to meet 25% of demand, EU desperately looks for means to secure new sources of gas supply. In this context, the Nabucco pipeline is planned to deliver gas from Caspian and Middle East regions to EU market. It runs across Turkey and then through Bulgaria, Romania and Hungary before connecting with a major gas hub in Austria. On paper, Nabucco project makes perfect sense, offering a new export route to EU markets for Caspian gas producers (Azerbaijan, Turkmenistan and Kazakhstan) as well as Iran and, in time, Iraq. The project is backed by the EU and strongly supported by the United States. Perhaps most importantly, Nabucco would completely bypass Russia. This paper addresses issues surrounding Nabucco project and their implications for European gas security.
    Keywords: European natural gas security; Nabucco project; energy policy
    JEL: Q38 Q41 Q34 Q31 Q48
    Date: 2010–12
  18. By: Al-mulali, Usama
    Abstract: This study examines the impact of oil shocks on the G-7 countries using the time series data from 1975 to 2007. The pooled model was employed; from the results we found that oil shocks has no negative impact on the G-7 countries, due to the flexible labor markets, improvements in monetary policy and smaller share of oil in production, Indirect Tax Analogy, and flexible inflation targeting regimes.
    Keywords: Oil prices; G-7 Countries; GDP growth; Pooled Model
    JEL: E30 Q40 A10
    Date: 2010–09–01
  19. By: Martin Bodenstein; Luca Guerrieri; Christopher Gust
    Abstract: Beginning in 2009, in many advanced economies, policy rates reached their zero lower bound (ZLB). Almost at the same time, oil prices started rising again. We analyze how the ZLB affects the propagation of oil shocks. As these shocks move inflation and output in opposite directions, their effects on economic activity are cushioned when monetary policy is constrained. The burst of inflation from an oil price increase lowers real interest rates at the ZLB and stimulates the interest-sensitive component of GDP, offsetting the usual contractionary effects. In fact, if the increase in oil prices is gradual, the persistent rise in inflation can cause a GDP expansion.
    Date: 2010
  20. By: Al-mulali, Usama; Che Sab, Normee
    Abstract: This study investigates the impact of oil prices on the exchange rate in Kuwait which uses the fixed exchange rate regime to the US dollar. Time series data from 1970-2008 covering all the oil shocks are used. In order to achieve the results of this study, the VAR model, the Johansen-Juselius Multivariate Cointegration test and the Granger causality test are implemented. Due to the results we have arrived at, we recommend that Kuwait either maintains its exchange rate regime (pegged to a basket of currencies), or uses a crawling peg regime.
    Keywords: oil shocks; real exchange rate; Kuwait; VAR
    JEL: E30 F31 Q43
    Date: 2010–10–12
  21. By: Steven Poelhekke; Rick van der Ploeg
    Abstract: A new and extensive panel of outward foreign direct investment (FDI) at the sector level is used to estimate the determinants of non-resource and resource FDI. Since FDI is I(1), we estimate panel error-correction models of FDI with spatial lags for FDI and market potential. Our main result is that subsoil assets boost resource FDI, but crowd out non-resource FDI. The effect on non-resource FDI dominates, so that aggregate FDI is less in resource-rich countries. Spatial lags aggravate this crowding out of non-export-fragmentation variety: (ii) trade openness, free trade agreements and institutional quality do not impact non-resource FDI but institutional quality does have a positive effect on resource FDI; and (iii) the short-run dynamics comes mostly from shocks to FDI itself. Our main and ancillary results are robust to different measures of resource reserves and the oil price and to allowing for sample selection bias.
    Keywords: outward sector level FDI, subsoil assets, co-integration tests, spatial econmetrics, hydrocarbon reserves, external margin, sample selection bias
    JEL: C21 C33 F21 Q33
    Date: 2010
  22. By: Rick van der Ploeg; Anthony J Venables
    Abstract: The response of an economy to a windfall of foreign exchange (be it aid or natural resource revenues) is often constrained by absorptive capacity. We provide a micro-founded analysis of absorption constraints, based on the idea that expanding the economy's capital stock (in aggregate or sectorally) requires non-traded inputs, the supply of which is constrained by the initial capital stock. Given this constraint, the economy will manifest 'Dutch disease' symptoms, although many of them are temporary. On impact there is sharp appreciation of the real exchange rate, which will then depreciate back to its equilibrium level. In contrast to the permanent income hypothesis, real consumption jumps part of the way to its new long-run level, and then continues to rise. Depending on the capital-intensity of the investments needed for the adjustment, the economy may run a current account deficit or surplus in early years.
    Keywords: absorptive capacity, absorption constraints, windfall, aid, natural resources, Dutch disease
    JEL: E21 E22 F10 F35 H63 O11 O16 Q33
    Date: 2010
  23. By: Marchand, Joseph (University of Alberta, Department of Economics)
    Abstract: The direct and indirect impacts of energy sector boom and bust upon local labor markets are analyzed through the differential growth in employment and earnings between areas with and without energy resources. The estimated differentials attributed to each of these labor demand shocks show that the direct impacts upon the energy sector are large while the indirect impacts upon non-energy sectors are smaller. The significant results of the local job multipliers indicate that job creation in energy extraction also creates new jobs in local sectors during boom periods while displaying no significant job loss spillovers during a bust.
    Keywords: boom and bust; Canada; energy; job multipliers; local labor markets; spillovers
    JEL: J20 R23
    Date: 2010–11–01
  24. By: Bruce A. Babcock (Center for Agricultural and Rural Development (CARD); Midwest Agribusiness Trade Research and Information Center (MATRIC))
    Abstract: The next few weeks should bring some clarity to the future of the 45-cent-per-gallon ethanol tax credit and the 54-cent-per-gallon import tariff because both are scheduled to expire on December 31. Although the arguments in support of and against their extension have changed little since the summer, the economic situation in the corn, livestock, and ethanol industries has changed dramatically. Heavy summer rains and some excessive heat resulted in lower-than-expected U.S. corn yields. These lower yields, combined with the failure of the Russian wheat crop and a weaker U.S. dollar, increased corn prices by about 50% in just six months. What began as a year with a bright outlook for corn farmers is turning out to be their best year on record. And while we might expect the ethanol industry to be hurt by high corn prices, the $2.00-per-bushel increase in corn prices has been accompanied by a 70-cent-per-gallon increase in the price of ethanol. The net result of these price changes is that profits for the ethanol industry have actually increased. Positive profits for the ethanol industry mean that the industry’s demand for corn has increased despite a significant drop in the U.S. supply of corn. With no rationing of demand from the ethanol industry, the burden of coping with the higher corn prices falls on other users of corn, namely, the domestic livestock and food industries, and foreign importers.
    Date: 2010–11
  25. By: Kostka, Genia; Hobbs, William
    Abstract: This paper analyzes the determinants of alternative automobile fuel regulation and development support with a particular focus on methanol fuel. We find that embedded interests, bureaucratic reforms, and political circumstances in the Chinese national, provincial, and municipal governments have all shaped policy outcomes in this area. The paper seeks to explain why at, the national level, support for alternative fuels has waned and finds that the concerns of state oil majors and disorganization during the process of national bureaucratic restructuring have been the deciding factors. Interestingly, at the sub-national level promotion of methanol continues unabated in some places. At the local level, business relationships as well as the embedded economic and personal interests of local leaders help to explain managerial local government behavior and sheds light on why government officials actively create and manage methanol fuel business opportunities through local standardization, subsidies, and hands-on management of SOE opposition. The switch towards methanol fuel was more successful in localities where individuals, either government officials or enterprise managers, formed an alliance and made this their 'pet projects'. The analysis draws on 55 interviews conducted between June and October 2010 in Shanxi, a major coal-producing province which has supported methanol fuel-switching programs for over ten years. The findings contribute to debates about the condition of the local state in China. The argument put forward in this paper is that because of limited state capacity at the central level and insufficient concerns for the development of alternative fuels in the short-term, some sub-national governments with strong embedded interests promote certain alternative fuels by taking on active managerial roles, adopting creative and ad-hoc strategies to fill in the national level policy gap at the local level. --
    Keywords: China,local state,policy implementation,energy policy,governance,alternative fuel
    JEL: D73 D78 O18 R58 Q48 Q58 Q42
    Date: 2010
  26. By: Esther Duflo; Michael Greenstone; Nicholas Ryan; Rohini Pande
    Abstract: This paper connects experience with emissions trading, from programs like the U.S. Rain program, to lessons for implementation of a Trading Pilot Scheme in India. This experience suggests that four areas are especially important for successful implementation of an emissions trading scheme.
    Keywords: India, emissions trading, US, rain program, air pollutants, industry, industries, costs, pollution,
    Date: 2010
  27. By: Choi, Eunho (Korea University); Heshmati, Almas (Korea University); Cho, Yongsung (Korea University)
    Abstract: This paper investigates the existence of the environmental Kuznets curve (EKC) for carbon dioxide (CO2) emissions and its causal relationships with economic growth and openness by using time series data (1971-2006) from China (an emerging market), Korea (a newly industrialized country), and Japan (a developed country). The sample countries span a whole range of development stages from industrialized to newly industrialized and emerging market economies. The environmental consequences according to openness and economic growth do not show uniform results across the countries. Depending on the national characteristics, the estimated EKC show different temporal patterns. China shows an N-shaped curve while Japan has a U-shaped curve. Such dissimilarities are also found in the relationship between CO2 emissions and openness. In the case of Korea and Japan it represents an inverted U-shaped curve, while China shows a U-shaped curve. We also analyze the dynamic relationships between the variables by adopting a vector auto regression or a vector error correction model. These models through the impulse response functions allow for analysis of the causal variable's influence on the dynamic response of emission variables and it adopts a variance decomposition to explain the magnitude of the forecast error variance determined by the shocks to each of the causal variables over time. Results show evidence of large heterogeneity among the countries and variables impacts.
    Keywords: carbon dioxide (CO2), environmental Kuznets curve (EKC), economic growth, free trade, development
    JEL: C32 F18 F43 N55 O13 Q56
    Date: 2010–11
  28. By: Alev Atak (Queen Mary, University of London); Oliver Linton (London School of Economics); Zhijie Xiao (Boston College)
    Abstract: This paper is concerned with developing a semiparametric panel model to explain the trend in UK temperatures and other weather outcomes over the last century. We work with the monthly averaged maximum and minimum temperatures observed at the twenty six Meteorological Office stations. The data is an unbalanced panel. We allow the trend to evolve in a nonparametric way so that we obtain a fuller picture of the evolution of common temperature in the medium timescale. Profile likelihood estimators (PLE) are proposed and their statistical properties are studied. The proposed PLE has improved asymptotic property comparing the the sequential two-step estimators. Finally, forecasting based on the proposed model is studied.
    Keywords: Global warming; Kernel estimation; Semiparametric; Trend analysis
    JEL: C13 C14 C21 D24
    Date: 2010–09–01
  29. By: Brännlund, Runar (Centre for Environmental and Resource Economics); Persson, Lars (Centre for Environmental and Resource Economics)
    Abstract: Today, many countries around the world respond to the global warming and its consequences with various policy instruments such as e.g. taxes, subsidies, emission permit trading, regulations and information campaigns. In the economic literature, policy instruments have typically been analyzed with respect to efficiency, while little effort has been put on public preferences for these instruments. In this paper, an Internet-based choice experiment is conducted where respondents are asked to choose between two alternative policy instruments that both reduce the emissions of CO2 by the same amount. The policy instruments are characterized by a number of attributes; a technology-effect, an awarenesseffect, cost distribution, geographic distribution and private cost (presented in more detail in the paper). By varying the levels of each of the attributes, respondents indirectly reveal their preferences for these attributes. Half of the respondents are faced with instruments labeled by ‘tax’ and ‘other’, whereas the other half are faced with unlabeled instruments. As for the label, the results show that people dislike the ‘tax’. The results also show that people prefer instruments with a positive effect on environmentally-friendly technology and climate awareness. A progressive-like cost distribution is preferred to a regressive cost distribution, and the private cost is negatively related to the choice. Finally, the results indicate that Swedes want the reduction to take place in Europe but not necessarily in Sweden.
    Keywords: preferences; climate policy measures; choice experiment; web-survey
    JEL: H20 H31 Q48 Q50
    Date: 2010–11–12
  30. By: Benjamin Bureau (CERNA - Centre d'économie industrielle - Mines ParisTech)
    Abstract: This paper analyses the distributional effects of alternative scenarios of carbon taxes on car fuels using disaggregated French panel data from 2003 to 2006. It incorporates household price responsiveness that differs across income groups into a consumer surplus measure of tax burden. Carbon taxation is regressive before revenue recycling. However, taking into account the benefits from congestion reduction induced by the tax mitigates regressivity. We show also that recycling additional revenues from the carbon tax either in equal amounts to each household or according to household size makes poorest households better off.
    Keywords: carbon tax; distributional effects
    Date: 2010
  31. By: Sam Howison; Daniel Schwarz
    Abstract: We present a novel approach to the pricing of financial instruments in emission markets, for example, the EU ETS. The proposed hybrid model is positioned between existing complex full equilibrium models and pure risk-neutral models. Using an exogenously specified demand for a polluting good it gives a causal explanation for the accumulation of CO2 emissions and takes into account the feedback effect from the cost of carbon to the rate at which the market emits CO2. We derive a forward-backward stochastic differential equation for the price process of the allowance certificate and solve the associated semilinear partial differential equation numerically. We also show that derivatives written on the allowance certificate satisfy a linear partial differential equation. The model is extended to emission markets with multiple compliance periods and we analyse the impact different intertemporal connecting mechanisms, such as borrowing, banking and withdrawal, have on the allowance price.
    Date: 2010–11
  32. By: Agnar Sandmo
    Abstract: This paper considers the role of global environmental taxes both as instruments for improving the global environment and as a source of revenue for funding economic development. It reviews the general case for environmental taxes and the particular issues that arise for the adoption of such taxes in an international setting without a single jurisdiction. It also discusses the possibilities for political acceptance of such taxes when tax revenue is linked to the goal of economic development. The revenue potential of global environmental taxes is evaluated with special reference to a global carbon tax. It is found that this tax alone has the potential to raise sufficient revenue to finance the United Nations’ Millennium Development Goals. [Discussion Paper No. 2003/86]
    Keywords: environment, taxation, carbon tax, consumption
    Date: 2010
  33. By: Chevallier, Julien
    Abstract: This article assesses the transmission of international shocks to EUA spot, EUA futures, and CER futures carbon prices using a broad dataset that includes 115 macroeconomic, financial and commodities indicators with daily frequency from April 4, 2008 to January 25, 2010 totalling 463 observations. The framework adopted is a Factor-Augmented Vector Autoregression model with latent factors extracted from the dataset, as proposed by Bernanke et al. (2005). The main results can be summarized as follows. First, based on impulse responses, we show that carbon prices tend to respond negatively (between − 0.2 and − 1.2 standard deviation) to an exogenous shock that reduces global economic indicators by one standard deviation. Second, we find evidence that the responses are heterogeneous among the different kinds of carbon prices: CER futures prices tend to react much more significantly than EUA spot and futures prices. Third, the factors explain about 50% of the total variance of all variables in the dataset. The largest contribution is accounted for by the factor correlated with commodities markets, which explains about 28% of the total variability.
    Keywords: FAVAR; Carbon price; Macroeconomics; Finance; Commodities; Factor models;
    JEL: C53 E52 F41
    Date: 2010
  34. By: Chevallier, Julien
    Abstract: This article investigates the presence of outliers in the volatility of carbon prices. We compute three different measures of volatility for European Union Allowances, based on daily data (EGARCH model), option prices (implied volatility), and intraday data (realized volatility). Based on the methodology developed by Zeileis et al. (2003) and Zeileis (2006), we detect instability in the volatility of carbon prices based on two kinds of tests: retrospective tests (OLS-/Recursive-based CUSUM processes, F-statistics, and residual sum of squares), and forward-looking tests (by monitoring structural changes recursively or with moving estimates). We show evidence of strong shifts mainly for the EGARCH and IV models during the time period. Overall, we suggest that yearly compliance events, and growing uncertainties in post-Kyoto international agreements, may explain the instability in the volatility of carbon prices.
    Keywords: Instability test; EGARCH; Implied volatility; Realized volatility; EU ETS; Carbon price;
    JEL: C1 G1 Q5
    Date: 2010
  35. By: Alberola, Emilie; Chevallier, Julien; Mansanet-Bataller, Maria; Hervé-Mignucci, Morgan
    Abstract: This article studies the price relationships between EU emissions allowances (EUAs) - valid under the EU Emissions Trading Scheme (EU ETS) - and secondary Certified Emissions Reductions (sCERs) - established from primary CERs generated through the Kyoto Protocol's Clean Development Mechanism (CDM). Given the price differences between EUAs and sCERs, financial and industrial operators may benefit from arbitrage strategies by buying sCERs and selling EUAs (i.e. selling the EUAsCER spread) to cover their compliance position as industrial operators are allowed to use sCERs towards compliance with their emissions cap within the European system up to 13.4%. Our central results show that the spread is mainly driven by EUA prices and market microstructure variables and less importantly, as we would expect, by emissions-related fundamental drivers. This might be justified by the fact that the EU ETS remains the greatest source of CER demand to date.
    Keywords: EUA-sCER Spread; Arbitrage; Emissions Markets;
    JEL: Q58 Q57 Q48
    Date: 2010
  36. By: David Carey
    Abstract: The consensus view of scientists is that the build-up of greenhouse gases (GHG) in the atmosphere is causing global warming. To reduce the probability of severe climate-change impacts and costs occurring, global GHG emissions need to be reduced substantially over coming decades. The United States agreed to a global political agreement to reduce GHG emissions that was acknowledged at Copenhagen (COP15) in December 2009 and negotiations are continuing to work towards binding emissions-reduction commitments by all countries. In view of the scale of emission reductions called for, it is vital that the United States adopt a cost-effective and comprehensive climate change policy. The current Administration is endeavouring to put such a policy package in place. Its core elements are comprehensive pricing of GHG emissions and increased support for the development and deployment of GHG-emissions-reducing technologies. The alternative regulatory approach would be more costly and unlikely to deliver the required scale of reductions in emissions.<P>Mettre en oeuvre des politiques efficaces par rapport à leur coût aux États-Unis pour atténuer le changement climatique<BR>Les scientifiques s’accordent globalement à considérer que l’accumulation de gaz à effet de serre (GES) dans l’atmosphère est à l’origine d’un réchauffement de la planète. Pour réduire le risque que le changement climatique ait des répercussions graves et des coûts élevés, il faudra diminuer sensiblement les émissions mondiales de GES dans les décennies à venir. Les États-Unis ont souscrit à l’économie d’un accord politique mondial axé sur cette diminution, dont il a été pris acte à Copenhague en décembre 2009 (CdP15). Les négociations se poursuivent en vue d’obtenir de tous les pays des engagements contraignants de réduction de leurs émissions. Compte tenu de l’ampleur des réductions nécessaires, il est vital que les États-Unis adoptent une politique globale de lutte contre le changement climatique qui soit efficace par rapport à son coût. Le gouvernement en place s’efforce d’agencer ce dispositif, dont les principaux éléments sont la tarification générale des émissions de GES et le renforcement du soutien apporté au développement et au déploiement des technologies qui font diminuer ces dernières. L’approche alternative par la voie réglementaire serait plus coûteuse et peu susceptible de fournir à l’échelle requise des réductions des émissions.
    Keywords: climate change, GHG emissions, biofuels, carbon tax, cap-and-trade, United States 2010, changement climatique, bio-carburants, taxes carbone, émissions de gaz à effet de serre, système de plafonnement et d’échange, États-Unis 2010
    Date: 2010–10–22
  37. By: Nadine Heitmann; Christine Bertram; Daiju Narita
    Abstract: Carbon dioxide capture and storage (CCS) has recently been receiving increasing recognition in policy debates. Various aspects of possible regulatory frameworks for its implementation are beginning to be discussed in Europe. One of the issues associated with the wide use of CCS is that it requires the establishment of a carbon dioxide (CO2) transport network, which could result in the spatial restructuring of power generation and transmission systems. This poses a significant coordination problem necessitating public planning and regulation. This paper reviews the recent literature on energy system modeling pertaining to the problem of installing CCS-related infrastructure throughout Europe and also discusses the policy issues that need to be addressed for a potential wide implementation of CCS in the next decades
    Keywords: CCS (carbon dioxide capture and storage), the European Union, climate policy, energy system models, cost effectiveness
    JEL: Q41 Q48 Q52 Q54
    Date: 2010–11
  38. By: OECD
    Abstract: The Model Framework proposes principles for addressing twenty-nine key issues associated with regulating CCS, based on the work of early-movers such as Australia, Europe and the United States, to assist national and regional CCS regulatory framework development. For each issue, an explanation is provided as well as examples of how the issue has been addressed in existing legislation. For CO2 storage issues, base, or “starting point”, model legislative text is also provided, which countries and regions can draw on in developing CCS regulatory frameworks.
    Date: 2010–11
  39. By: David Maddison; Katrin Rehdanz
    Abstract: We analyse the influence of climate on average life satisfaction in 87 countries using data from the World Values Survey. Climate is described in terms of ‘degree-months’ calculated using an optimally-selected base temperature of 65°F (18.3°C). Our results suggest that countries with climates characterised by a large number of degree-months enjoy significantly lower levels of life satisfaction. This finding is robust to a wide variety of model specifications. Using our results to analyse a particular climate change scenario associated with the IPCC A2 emissions scenario points to major losses for African countries, but modest gains for Northern Europe
    Keywords: climate; climate change; happiness; life satisfaction; survey data
    JEL: D60 H41 I31 Q51 Q54
    Date: 2010–11
  40. By: Lundgren, Tommy (CERE); Marklund, Per-Olov (CERE)
    Abstract: As widely recognized, human mankind stands before the most challenging problem of preventing anthropogenic climate change. As a response to this, the European Union advocates an ambitious climate policy mix. However, there is no consensus concerning the impact of stringent environmental policy on firms’ competitiveness and profitability. From the traditional ‘static’ point of view there are productivity losses to be expected. On the other hand, the so called Porter hypothesis suggests the opposite; i.e., due to ‘dynamic’ effects, ambitious climate and energy policies within the EU could actually be beneficial to firms in terms of enhanced profitability and competitiveness. Based on Sweden’s manufacturing industry, our main purpose is to specifically assess the impact of the CO2 tax scheme of Sweden on firms’ profit efficiency. The empirical methodology is based on stochastic frontier estimations and, in general, the results suggest we can neither reject nor confirm the Porter hypothesis across industry sectors. Therefore, we do not generally confirm the argument of stringent environmental policies having positive dynamic effects that potentially offset costs related to environmental policy.
    Keywords: CO2 tax; efficiency; stochastic frontier analysis; Swedish industry
    JEL: D20 H23 Q52 Q55
    Date: 2010–06–02
  41. By: Parry, Ian W.H. (Resources for the Future); Williams, Roberton C. III (Resources for the Future)
    Abstract: This paper develops an analytical model to quantify the costs and distributional effects of various fiscal options for allocating the (large) rents created under prospective cap-and-trade programs to reduce domestic, energy-related carbon dioxide (CO2) emissions. The trade-off between cost-effectiveness and distribution is striking. The welfare costs of different policies, accounting for linkages with the broader fiscal system, range from –$6 billion per year to $53 billion per year in 2020, or between –$12 to almost $100 per ton of CO2 reductions. The least costly policy involves auctioning all allowances with revenues used to cut proportional income taxes, while the most costly policies involve recycling revenues in lump-sum dividends or grandfathering emissions allowances. The least costly policy is regressive, however, while the dividend policy is progressive, and grandfathering permits is both costly and regressive. A distribution-neutral policy costs $18–$42 per ton of CO2 reductions.
    Keywords: cap-and-trade, welfare cost, distributional incidence, revenue recycling
    JEL: Q48 Q54 Q58 H22
    Date: 2010–11–16

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