nep-ene New Economics Papers
on Energy Economics
Issue of 2011‒01‒23
37 papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Public Support for the Financing of RD&D Activities in New Clean Energy Technologies By Luis Olmos; Sophia Ruester; Siok Jen Liong; Jean-Michel Glachant
  2. Towards a Sustainable Global Energy Supply Infrastructure: Net Energy Balance and Density Considerations By Ioannis N. Kessides; David C. Wade
  3. Smart Cities Initiative: how to foster a quick transition towards local sustainable energy systems By Leonardo Meeus; Erik Delarue; Isabel Azevedo; Jean-Michel Glachant; Vitor Leal; Eduardo de Oliveira Fernandes
  4. Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies By Paul L. Joskow
  5. The Achievement of the EU Electricity Internal Market through Market Coupling By Jean-Michel Glachant
  6. A Novel Business Model for Aggregating the Values of Electricity Storage By Xian He; Erik Delarue; William D'haeseleer; Jean-Michel Glachant
  7. Volatility transmission and volatility impulse response functions in European electricity forward markets. By Le Pen, Yannick; Sévi, Benoît
  8. Power market reforms and privatization of the electricity industry in the Iranian energy sector; an uphill struggle? By Nasrollahi Shahri, Nima
  9. Modelling the effects of nuclear fuel reservoir operation in a competitive electricity market By Maria Lykidi; Jean-Michel Glachant; Pascal Gourdel
  10. The French Nuclear Energy Experience: Lessons for India By Manpreet Sethi
  11. Gas Balancing Rules Must Take into Account the Trade-off between Offering Pipeline Transport and Pipeline Flexibility in Liberalized Gas Markets By Nico Keyaerts; Michelle Hallack; Jean-Michel Glachant; William D'haeseleer
  13. Long memory in an oil market: a spectral approach By Yuriy Balagula; Yulia Abakumova
  14. Review of approaches to oil price modeling By Yulia Raskina
  15. Investor Preferences for Oil Spot and Futures based on Mean-Variance and Stochastic Dominance By Hooi Hooi Lean; Michael McAleer; Wing-Keung Wong
  16. Oil price influence on Russian macroeconomic indicators By Olga Podkorytova; Tatyana Chigvintseva
  17. Investigation of cointegration of oil prices and Russian market indices By Alexander Alexeev
  18. Dynamic Hedging Strategies: An Application to the Crude Oil Market. By Lautier, Delphine; Galli, Alain
  19. Stakeholding as a new development strategy for Saudi Arabia By Corneo, Giacomo
  20. Oil Rents, Corruption, and State Stability: Evidence from Panel Data Regressions By Rabah Arezki; Markus Brückner
  21. Will Biofuel Mandates Raise Food Prices? By Chakravorty, Ujjayant; Hubert, Marie-Helene; Moreaux, Michel; Nostbakken, Linda
  22. Trade-off between Bioenergy and Emissions When Land Is Scarce, The By Nathan S. Kauffman; Dermot J. Hayes
  23. Path dependence: Biofuels policy under uncertainty about greenhouse gas emissions By Jussila Hammes, Johanna
  24. The Early Diffusion of the Steam Engine in Britain, 1700-1800. A Reappraisal By Alessandro Nuvolari; Bart Verspagen; Nick Von Tunzelmann
  25. Long Run Dynamics of Energy-Related External Costs By Roger Fouquet
  26. Natural Resource Management: Challenges and Policy Options By Coria, Jessica; Sterner, Thomas
  27. Spatial Structure and CO2 Emissions Due to Commuting: an Analysis on Italian Urban Areas By Andrea CIRILLI; Paolo VENERI
  28. How Emission Certificate Allocations Distort Fossil Investments: The German Example By Michael Pahle; Lin Fan; Wolf-Peter Schill
  29. Price versus tradable quantity regulation. Uncertainty and endogenous technology choice By Halvor Briseid Storrøsten
  30. Carbon Prices Required to Make Digesters Profitable on U.S. Dairy Farms of Different Sizes By Lazarus, William F.; Goodkind, Andrew; Gallagher, Paul; Conway, Roger
  31. Synergy effects of international policy instruments to reduce deforestation: a cross-country panel data analysis By Solenn Leplay; Sophie Thoyer
  32. Decision-making and Action Taking: Fisheries Management in a Changing Climate By David Fluharty
  33. Uncertain climate policy and the green paradox. By Smulders, Sjak A.; Tsur, Y; Zemel, A.
  34. Network Regulation under Climate Policy Review By Per J. Agrell; Peter Bogetoft
  35. Essays on the Economics of Environmental Management and Green Reputation By Komarek, Timothy
  36. Is Democracy Good for the Environment? Quasi-Experimental Evidence from Regime Transitions By Laura Policardo
  37. Discounting when income is stochastic and climate change policies By Boyarchenko, Svetlana; Levendorskii, Sergei

  1. By: Luis Olmos; Sophia Ruester; Siok Jen Liong; Jean-Michel Glachant
    Abstract: Several market failures, as well as other technical, economic and regulatory barriers to the market penetration of clean energy technologies result in under-investment of private innovators in RD&D. Therefore, public support is needed in order to induce innovations. Policy tools creating market conditions that are attractive for the exploitation of clean technologies (market pull) must be combined with other tools directly supporting the development of these technologies through the provision of public funds (technology push). Thereby, financing policy instruments should be chosen so that their characteristics match with those of the specific innovation process being targeted at the same time that social welfare is maximized. We develop an analytical framework to define the form of public support and to provide recommendations on the optimal choice of both technology push and market pull instruments.
    Keywords: clean energy technologies; innovation finance; public support; technology push; market pull
    Date: 2010–09–17
  2. By: Ioannis N. Kessides; David C. Wade
    Abstract: This paper employs a framework of dynamic energy analysis to model the growth potential of alternative electricity supply infrastructures as constrained by innate physical energy balance and dynamic response limits. Coal- red generation meets the criteria of longevity (abundance of energy source) and scalability (ability to expand to the multi-terawatt level) which are critical for a sustainable energy supply chain, but carries a very heavy carbon footprint. Renewables and nuclear power, on the other hand, meet both the longevity and environmental friendliness criteria. However, due to their substantially di¤erent energy densities and load factors, they vary in terms of their ability to deliver net excess energy and attain the scale needed for meeting the huge global energy demand. The low power density of renewable energy extraction and the intermittency of renewable ows limit their ability to achieve high rates of indigenous infrastructure growth. A signi cant global nuclear power deployment, on the other hand, could engender serious risks related to proliferation, safety, and waste disposal. Unlike renewable sources of energy, nuclear power is an unforgiving technology because human lapses and errors can have ecological and social impacts that are catastrophic and irreversible. Thus, the transition to a low carbon economy is likely to prove much more challenging than early optimists have claimed.
    Keywords: dynamic energy analysis; alternative electricity supply; coal; nuclear energy
    Date: 2010–09–22
  3. By: Leonardo Meeus; Erik Delarue; Isabel Azevedo; Jean-Michel Glachant; Vitor Leal; Eduardo de Oliveira Fernandes
    Abstract: The European Commission has recently launched the Smart Cities Initiative to demonstrate and disseminate how to foster a quick transition towards local sustainable energy systems. Within this initiative, the three main challenges faced by pioneering cities, are to reduce or modify the demand for energy services, to improve the uptake of energy efficient technologies and to improve the uptake of renewables in the urban environment. We find that enough resources will need to be provided to a significant number of pioneering cities, and propose that the initiative would allocate these resources through project competition, rewarding innovation, ambition and performance, which have been ingredients of success at Member State level.
    Keywords: Smart Cities; sustainable local energy systems; city authority incentives; EU energy policy
    Date: 2010–09–21
  4. By: Paul L. Joskow
    Abstract: Economic evaluations of alternative electric generating technologies typically rely on comparisons between their expected life-cycle production costs per unit of electricity supplied. The standard life-cycle cost metric utilized is the “levelized cost” per MWh supplied. This paper demonstrates that this metric is inappropriate for comparing intermittent generating technologies like wind and solar with dispatchable generating technologies like nuclear, gas combined cycle, and coal. Levelized cost comparisons are a misleading metric for comparing intermittent and dispatchable generating technologies because they fail to take into account differences in the production profiles of intermittent and dispatchable generating technologies and the associated large variations in the market value of the electricity they supply. Levelized cost comparisons overvalue intermittent generating technologies compared to dispatchable base load generating technologies. They also overvalue wind generating technologies compared to solar generating technologies. Integrating differences in production profiles, the associated variations in the market value of the electricity supplied, and life-cycle costs associated with different generating technologies is necessary to provide meaningful comparisons between them. This market-based framework also has implications for the appropriate design of procurement auctions created to implement renewable energy procurement mandates, the efficient structure of production tax credits for renewable energy, and the evaluation of the additional costs of integrating intermittent generation into electric power networks.
    Date: 2010–09
  5. By: Jean-Michel Glachant
    Abstract: The achievement of the internal market for energy is going ahead in the EU 15 since a model is emerging for “coupling the national markets for electricity”. For about 15 years the EU 15 was made up of national markets open to each other through rules of access to the grids while organized market pricing was kept national. The main exception was in the Nordic countries (Sweden, Finland and Denmark plus Norway –not a member of the EU). In this region the coupling of national markets is obtained through a single Power Exchange being a common subsidiary of the Nordic transmission system operators (TSOs). This single PX runs a single Day Ahead market pricing zone when the grid is not constrained and splits itself into different pricing areas when structural constraints arise. This model is known as “market splitting”. The Netherlands, Belgium and France did later create a less centralized single pricing mechanism by “coupling” their three national PXs with a common pricing algorithm coordinating the price formation among the three national exchanges. The empirical success of this new model has validated it as an EU model for other regional markets. A counter-model has been experimented between Germany and Denmark. It consisted of a coupling of “volumes” linking the quantities offered and demanded in the two exchanges while keeping the price formation in these two markets separated. That experiment failed and started to work again only when elements of price coupling have been introduced. Having now three workable models of market coupling, the European Union (at least EU 15) should be able to successfully achieve one layer of its internal market soon. However, several further questions are kept open such as how to successfully bridge several regional markets all over the EU 15 or how to integrate more and more PXs having different regulatory frames. A centralized approach (known as CMU) is advocating creating a single pan-European trading entity by a mandatory restructuring of all existing PXs plus a clubbing of all TSOs and the extensive harmonization of all existing national regulatory frames. An alternative approach is the one known as PCR (“Price Coupling of Regions”). It allows building a less demanding common pricing mechanism to coordinate existing PXs in a decentralized network. It is permitting grid access and trading to keep a national flavour when requested by particular local preferences.
    Keywords: market coupling; market splitting; power exchange; electricity internal market; day ahead market
    Date: 2010–12–10
  6. By: Xian He; Erik Delarue; William D'haeseleer; Jean-Michel Glachant
    Abstract: Electricity storage is considered a valuable source of flexibility whose applications cover the whole electricity value chain. However, most of the existing evaluation methods for electricity storage are conceived for only one specific use of the storage, which often leads to the conclusion that the investment on storage does not pay off. We think that the value of storage cannot be properly estimated without taking into account the possibility of aggregating the services that storage can offer to different actors. In this paper, we propose a new business model that allows aggregating multiple revenue streams of electricity storage in a systematic way. The main idea of the business model is to coordinate a series of auctions in which the right to utilize the storage unit is auctioned in different time horizons. The model consists of an optimization module and a coordination mechanism. The former simulates the optimal strategy of a certain actor using the available storage capacities in a certain auction, while the latter ensures non-conflicting uses of storage by actors in different auctions. The functioning of the model is demonstrated by a case study. The results show that a storage unit can achieve a higher return on investment in the manner proposed in the business model.
    Keywords: electricity storage; business model; optimization
    Date: 2010–11–19
  7. By: Le Pen, Yannick; Sévi, Benoît
    Abstract: Résumé : A  l’aide de données quotidiennes  sur  la période mars  2001 à  juin  2005, nous estimons un modèle VAR‐BEKK  et montrons  l’existence  de  transmissions  au  niveau  des  rendements  et  des  volatilités  entre  les marchés  forward  de  l’électricité  pour  l’Allemagne,  les  Pays‐Bas  et  la  Grande‐Bretagne. Nous  appliquons  la fonction VIRF de Hafner and Herwartz [2006, Journal of  International Money and Finance 25, 719‐740] afin de mesurer  l’impact  d’un  choc  sur  la  volatilité  conditionnelle. Nous  observons  qu’un  choc  a  un  impact  positif important seulement si son amplitude est grande en regard du niveau de la volatilité à cet instant. Finalement, nous estimons  la densité des  fonctions VIRF pour différents horizons de prévisions.  Ces distributions lissées  sont asymétriques  et montrent que des  évènements extrêmes sont  possibles même si leur  probabilité est faible. Ces résultats on t des implications intéressantes pour le s participants au marché dont la politiq ue de gestion des risques est basée sur  les prix des options, eux‐mêmes dépendan t du niveau de volatilité.
    Abstract: Using daily data from March 2001 to June 2005, we estimate a VAR-BEKK model and find evidence of return and volatility spillovers between the German, the Dutch and the British forward electricity markets. We apply Hafner and Herwartz [2006, Journal of International Money and Finance 25, 719–740] Volatility Impulse Response Function (VIRF) to quantify the impact of shock on expected conditional volatility. We observe that a shock has a high positive impact only if its size is large compared to the current level of volatility. The impact of shocks are usually not persistent, which may be a consequence of the non-storability of power. Finally, we estimate the density of the VIRF at different forecast horizons. These fitted distributions are asymmetric and show that large increases in expected conditional volatilities are possible even if their probability is low. These results have interesting implications for market participants whose risk management policy depends on option prices which themselves depend on the characteristics of volatility.
    Keywords: Fonction impulsion réponse de volatilité; GARCH multivarié; marché forward de l’électricité; transmission de volatilité; volatility impulse response function; multivariate GARCH; electricity forward markets; volatility spillovers;
    JEL: Q43 G1 C3
    Date: 2010
  8. By: Nasrollahi Shahri, Nima
    Abstract: Following the successful experience of some developed counties in Power market restructuring and reforms, many developing countries have followed suit. Iran has for the last thirty years, since its Islamic revolution of 1979, had an economy dominated by the state, but has been pushed to take some legal steps towards private participation in the electricity sector so as to meet the rapidly rising electricity demand. This paper aims to appraise the stressfulness of Power market restructuring and privatization of electricity industry in Iran. A few years from the commencement of the reforms, the program can be assessed as realistically successful. However, there are plentiful challenges which need to be addressed through legislation. In this study, challenges to competition and Pitfalls of the reforms in the Iranian restructured electricity market will be reviewed. as well as this, a number of recommendations will be offered.
    Keywords: Power market restructuring; privatization;Islamic Republic of Iran
    JEL: N70 O13 Q4
    Date: 2011–01–07
  9. By: Maria Lykidi; Jean-Michel Glachant; Pascal Gourdel
    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 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 could stay marginal during most of the year including the months of low demand.
    Keywords: Electricity Market; nuclear generation; optimal reservoir operation; electricity fuel mix; perfect competition with reservoir
    Date: 2010–09–15
  10. By: Manpreet Sethi
    Abstract: This study seeks to derive lessons from the French nuclear energy experience that can be used to guide the Indian programme as it steps on the pedal to fast track nuclear expansion. [Occasional Paper No. 28].
    Keywords: India, French, nuclear energy, expansion, Indian programme, nuclear cooperation, PHWR, FBR, China, Pakistani scientist, US, waste management,
    Date: 2011
  11. By: Nico Keyaerts; Michelle Hallack; Jean-Michel Glachant; William D'haeseleer
    Abstract: This paper analyses the value and cost of line-pack flexibility in liberalized gas markets through the examination of the techno-economic characteristics of gas transport pipelines and the trade-offs between the different ways to use the infrastructure: transport and flexibility. Line-pack flexibility is becoming increasingly important as a tool to balance gas supply and demand over different periods. In the European liberalized market context, a monopolist unbundled network operator offers regulated transport services and flexibility (balancing) services according to the network code and the balancing rules. Therefore, gas policy makers should understand the role and consequences of line-pack regulation. The analysis shows that the line-pack flexibility service has an important economic value for the shippers and the TSO. Furthermore, the analysis identifies distorting effects in the gas market due to inadequate regulation of line-pack flexibility: by disregarding the fixed cost of the flexibility in the balancing rules, the overall efficiency of the gas system is decreased. Because a full market based approach to line-pack pricing is unlikely, a framework is presented to calculate a cost reflective price for pipeline flexibility based on the trade-offs and opportunity costs between the right to use the linepack flexibility and the provision of transport services.
    Keywords: gas flexibility; gas balancing rules; EU gas market
    Date: 2010–09–20
  12. By: Vladimir Hlasny
    Abstract: Causes and consequences of deregulation and restructuring in utility markets in US states continue to draw heated debate. It is unclear why different utilities choose retail restructuring, price caps or sliding-scale plans. Various economic and political reasons lend themselves to explaining regulatory decisions. This study uses a stylized capture model to formulate predictions about regulators’ net benefits from a particular form of deregulation. Empirical hazard model evaluates the revealed choice at each regulator-utility pair. Among state-level political factors, frequency and timing of commissioner re-elections, system of selection of commissioners, and party composition of the commissions and state legislatures are significant in explaining the pattern of deregulation. Utilities’ prices, capacity and scope of operations help explain the timing of deregulation. Market concentration contributes. A negative significant association between the prevalence of restructuring (and sliding-scale plans), and of price caps across utility industries is identified.
    Keywords: gas, deregulation, restructuring, commissioner elections, hazard model
    JEL: L51 L95
    Date: 2010–12
  13. By: Yuriy Balagula (Department of Economics, European University at St. Petersburg); Yulia Abakumova (Department of Economics, European University at St. Petersburg)
    Abstract: In the paper, we propose a spectral approach to estimation of the long-memory effect in time series and its practical application for oil prices analysis.
    Keywords: econometrics, long memory, oil price
    JEL: C32 O13 E3
    Date: 2010–11–16
  14. By: Yulia Raskina
    Abstract: A huge size of an oil market and its relation to economic growth and global wealth distribution make the oil an unique commodity. Oil price prediction is associated with plans of development of states as well as firms. Jumps in oil prices influence world economy similarly to natural disasters of planet scale. There is no surprise that a lot of publications are devoted to research of an oil market, modeling and forecasting of oil prices. This paper gives main facts describing an oil market and oil prices behavior. We give a review of modern literature devoted to an oil market and consider main approaches to modeling and forecasting oil prices.
    Keywords: oil price, modeling, forecasting
    JEL: O13 E3
    Date: 2010–10–19
  15. By: Hooi Hooi Lean (School of Social Sciences, Universiti Sains Malaysia); Michael McAleer (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, and Institute of Economic Research, Kyoto University); 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 of spot 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.
    Keywords: Stochastic dominance, risk averter, risk seeker, futures market, spot market.
    JEL: C14 G12 G15
    Date: 2011–01
  16. By: Olga Podkorytova (Department of Economics, European University at St. Petersburg; St. Petersburg State University); Tatyana Chigvintseva (Department of Economics, European University at St. Petersburg)
    Abstract: We investigate macroeconomics effects of an oil price in Russia in 2000-2010. We find long-run relations associating the oil price, the GDP, the CPI and the interbank interest rate.
    Keywords: oil price, GDP, CPI, macroeconomics, econometrics, cointegration
    JEL: C32 O13 E3
    Date: 2010–10–15
  17. By: Alexander Alexeev (Department of Economics, European University at St. Petersburg)
    Abstract: We perform an econometric analysis of cointegration of the Brent oil price and general and industrial indices of the RTS and MICEX stock exchanges. Positive relation between the oil price and the MICEX industrial index for an oil sector. It is interesting to note that a cointegration between the oil price and industrial RTS index is not detected. A cointegration between the oil price and the general indices is found both for the RTS and the MICEX, and in both cases it is positive. This result differs from those obtained earlier by researchers for other countries where negative influence of the oil price on financial markets was obtained.
    Keywords: oil price, stock index, econometrics, cointegration
    JEL: C32 O13 E3
    Date: 2010–09–28
  18. By: Lautier, Delphine; Galli, Alain
    Abstract: This article analyzes long-term dynamic hedging strategies relying on term structure models of commodity prices and proposes a new way to calibrate the models which takes into account the error associated with the hedge ratios. Different strategies, with maturities up to seven years, are tested on the American crude oil futures market. The study considers three recent and efficient models respectively with one, two, and three factors. The continuity between the models makes it possible to compare their performances, which are judged on the basis of the errors associated with a delta hedge. The strategies are also tested for their sensitivity to the maturities of the positions and to the frequency of the portfolio rollover. We found that our method gives the best of two seemingly incompatible worlds: the higher liquidity of short-term futures contracts for the hedge portfolios, together with markedly improved performances. Moreover, even if it is more complex, the three-factor model is by far, the best.
    Keywords: Dynamic Hedging; Commodities; Futures; Long-term commitment; Calibration;
    JEL: Q49 C52 C13 G13
    Date: 2010
  19. By: Corneo, Giacomo
    Abstract: The transition from an oil-based to a knowledge-based economy requires that the Saudi population dramatically increases its level of human capital. This paper argues that noncognitive skills may be a bottleneck in the formation of human capital and proposes a policy to indirectly strengthen those skills. The core of the proposal is a government-financed gift to each Saudi citizen reaching adult age, the SSGY. --
    Keywords: Saudi Arabia,Stakeholder Society,Value Systems,Economic Development
    JEL: O0 Z1
    Date: 2010
  20. By: Rabah Arezki (International Monetary Fund (IMF)); Markus Brückner (School of Economics, University of Adelaide)
    Abstract: We examine the effects of oil rents on corruption and state stability exploiting the exogenous within-country variation of a new measure of oil rents for a panel of 30 oil-exporting countries during the period 1992 to 2005. We find that an increase in oil rents significantly increases corruption, significantly deteriorates political rights while at the same time leading to a significant improvement in civil liberties. We argue that these findings can be explained by the political elite having an incentive to extend civil liberties but reduce political rights in the presence of oil windfalls to evade redistribution and conflict. We support our argument documenting that there is a significant effect of oil rents on corruption in countries with a high share of state participation in oil production while no such link exists in countries where state participation in oil production is low.
    Keywords: oil rents; corruption; state stability; state participation
    JEL: C33 D73 D74 D72 H21
    Date: 2011–01
  21. By: Chakravorty, Ujjayant (University of Alberta, Department of Economics); Hubert, Marie-Helene (University of Rennes); Moreaux, Michel (Toulouse School of Economics); Nostbakken, Linda (University of Alberta, School of Business)
    Abstract: Biofuels have received a lot of attention as a substitute for gasoline in transportation. They have also been blamed for recent increases in food prices. Both the United States and the European Union have adopted mandatory blending policies that require a sharp increase in the use of biofuels. In this paper, we examine the effect of these mandates on food prices and carbon emissions. The model we use considers future world population growth and income-driven changes in dietary preferences towards higher meat and dairy consumption as well as heterogenous land quality. We find that food prices increase anyway because of increased demand for food, especially due to the higher consumption of meat products, and scarcity of fertile arable lands. The contribution of the biofuel mandates to food prices is quite small, about 5% at most. However, biofuel mandates actually increase global emissions due to land conversion and terms of trade effects, undermining the main reason for imposing the mandates.
    Keywords: agriculture; energy policy; global warming; land quality; renewable fuel standards
    JEL: Q24 Q32 Q42
    Date: 2011–01–01
  22. By: Nathan S. Kauffman; Dermot J. Hayes (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI))
    Abstract: Agricultural biofuels require the use of scarce land, and this land has opportunity cost. We explore the objective function of a social planner who includes a land constraint in the optimization decision to minimize environmental cost. The results show that emissions should be measured on a per acre basis. Conventional agricultural life cycle assessments for biofuels report carbon emissions on a per gallon basis, thereby ignoring the implications of land scarcity and implicitly assuming an infinite supply of the inputs needed for production. Switchgrass and corn are then modeled as competing alternatives to show how the inclusion of a land constraint can influence life cycle rankings and alter policy conclusions.
    Keywords: biofuels, biomass, energy policy, land use, life cycle analysis. JEL codes: Q16, Q48, Q58
    Date: 2011–01
  23. By: Jussila Hammes, Johanna (Statens väg- och transportforskningsinstitut, VTI and Centre for Transport Studies Stockholm, CTS)
    Abstract: We study the effect of uncertainty about the greenhouse gas emissions arising from the production of biofuels on trade policy, in the presence of lobby groups and two policy instruments, trade policy and biofuels mandates. We show that in the presence of biofuels mandates it would be optimal from a societal point of view to lower the trade tariff on biofuels when the emissions from their production are shown to be 'high' as compared to when they are believed to be 'low'. If the government is susceptible to lobbying, the tariff may be raised instead. We further show that at subsequent time periods, the biofuels sector's marginal lobbying effort will not fall compared to previous periods, and that consequently, its political contribution also does not fall. Finally we show how policy may be path dependent, i.e., that earlier tariff rates in part determine future tariff rates if the government is susceptible to lobbying and given that the domestic price of biofuels does not fall. The model can, e.g., shed light on why the EU does not lower the tariffs on Brazilian ethanol in the face of new information.
    Keywords: path dependence; trade policy; biofuels mandate; political economics
    JEL: D72 F18 H23 H25 P16 Q42
    Date: 2011–01–12
  24. By: Alessandro Nuvolari; Bart Verspagen; Nick Von Tunzelmann
    Abstract: We examine the diffusion of steam technology across British counties during the eighteenth century. First, we provide new estimates for the regional variations in the timing, pace and extent of usage of steam engines. Our main data source is an updated version of the list of steam engines erected in Britain during the eighteenth century originally compiled by Kanefsky and Robey (1980). Following a rather established approach for analysing the diffusion of new technologies we fit S-shaped growth functions to the data on the numbers of steam engines installed in each county. In this way, we are able to provide a comprehensive appraisal of the relative speed of the diffusion process in different counties. Second, in order to assess the relative importance of the variables shaping the diffusion of steam power technology, we study the relationship between the number of steam engines installed in each county with of localization factors such as coal prices, availability of water sites, number of textile mills and number of blast furnaces.
    Keywords: Steam Engine, Britain, Industrial Revolution, Diffusion of innovations
    JEL: N73 O14 O33
    Date: 2010–01–11
  25. By: Roger Fouquet
    Abstract: This paper considers how external costs can change through time and in relation to prices and consumption. In this paper, one of the proposed features of the long run dynamics of external costs is a process of externalising the costs of production and consumption. That is, as prices of goods fall and consumption increases, a rising share of the social costs will be passed on to the wider society. This proposition is examined empirically by looking at a key period in the history of energy. After a period of declining coal prices and soaring consumption which fuelled the Second Industrial Revolution, nineteenth century British economy was externalising the social costs of energy production and consumption on a massive scale (at its peak, an estimated 70% of the average social costs of coal were externalised, and were imposing damages equivalent to 17.5% of GDP).This case shows that, in periods of rapidly declining prices and/or high economic growth, average and marginal external costs can soar in relative and absolute terms, imposing a huge burden on the wider society.
    Keywords: External costs; Energy; Coal; Historical; Long Run; Air Pollution; Mining
    Date: 2011–01
  26. By: Coria, Jessica (Department of Economics, School of Business, Economics and Law, Göteborg University); Sterner, Thomas (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Much of the improvement in living standards in developed and developing countries alike is attributable to the exploitation of nonrenewable and renewable resources. The problem is to know when the exploitation occurs at rates and with technologies that are sustainable. If they are not sustainable, this state of affairs presents a serious problem for the future. A long-term management perspective is needed in order to avoid irreversible degradation of renewable resources. This paper examines major challenges to natural resource management as well as policy options.<p>
    Keywords: Natural resources; policy instruments; property rights; environmental regulations; tradable quotas; taxes; voluntary agreements; liability; subsidies; subsidy reduction; deposit-refunds.
    JEL: Q50
    Date: 2011–01–12
  27. By: Andrea CIRILLI (Universita' Politecnica delle Marche, Dipartimento di Economia); Paolo VENERI (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: The aim of this paper is to investigate whether and to what extent the spatial configuration of an urban area affects its level of environmental externalities. Starting from previous contributions to this field of research, it examines several features of urban spatial structure - such as compactness, monocentricity, concentration and functional diversity - and attempts to gauge their environmental implications in terms of per capita CO2 emissions associated with a given pattern of commuting (i.e., mode of commuting and distance travelled). The main finding of the analysis on the 111 largest Italian urban areas is that urban spatial configuration is an important determinant of travel patterns and the associated level of per capita CO2 emissions. In particular, smaller, more compact and less monocentric areas are associated with lower levels of CO2 per commuter, with socio-demographic characteristics also playing a role.
    Keywords: CO2 emissions, commuting, environmental costs, urban spatial structure
    JEL: Q56 R14 R41
    Date: 2010–12
  28. By: Michael Pahle; Lin Fan; Wolf-Peter Schill
    Abstract: Despite political activities to foster a low-carbon energy transition, Germany currently sees a considerable number of new coal power plants being added to its power mix. There are several possible drivers for this "dash for coal", but it is widely accepted that windfall profits gained through free allocation of ETS certificates play an important role. Yet the quantification of allocation-related investment distortions has been limited to back-of-the envelope calculations and stylized models so far. We close this gap with a numerical model integrating both Germany's particular allocation rules and its specific power generation structure. We find that technology specific new entrant provisions have substantially increased incentives to invest in hard coal plants compared to natural gas at the time of the ETS onset. Expected windfall profits compensated more than half the total capital costs of a hard coal plant. Moreover, a shorter period of free allocations would not have turned investors' favours towards the cleaner natural gas technology because of preexisting economic advantages for coal. In contrast, full auctioning of permits or a single best available technology benchmark would have made natural gas the predominant technology of choice.
    Keywords: Emissions trading; Allocation rules; Power markets; Investments
    JEL: Q48 Q54 Q58
    Date: 2011
  29. By: Halvor Briseid Storrøsten (Statistics Norway)
    Abstract: This paper shows that tradable emissions permits and an emissions tax have a risk-related technology choice effect. We first examine the first- and second-order moments in the probability distributions of optimal abatement and production under the two instruments. The two instruments will, in general, lead to different expected aggregate production levels when technology choice is endogenous, given that regulation is designed to induce equal expected aggregate emissions. Moreover, either regulatory approach may induce larger variance in optimal production and optimal abatement levels, depending on the specification of the stochastic variables. Finally, because firms’ valuation of a flexible technology increases if the variance in abatement is inflated and vice versa, either of the two instruments may induce the most flexible technology. Specifically, a tax encourages the most flexibility if and only if abatement costs and the equilibrium permit price have sufficiently strong positive covariance compared with the variance in the price on the good produced.
    Keywords: Regulation; Technology choice; Uncertainty; Investment.
    JEL: H23 Q55 Q58
    Date: 2011–01
  30. By: Lazarus, William F.; Goodkind, Andrew; Gallagher, Paul; Conway, Roger
    Abstract: The objective of this analysis is to evaluate the impacts of three factors: 1) methane emission differences related to climate and manure storage type, 2) digester economies of size, and 3) electricity values on the minimum breakeven carbon dioxide (CO2) âequivalent methane (CH4) destruction prices that differentâsized dairy farms in different U.S. states would require to make anaerobic digester installation profitable. The number of digesters that would be installed at different prices, and the resulting emission reductions and electrical generation are also estimated. Dairy cows are a significant source of the greenhouse gas methane, so anaerobic digesters are receiving policy attention as a climate change mitigation strategy. Dairy farm methane emissions by state are calculated in this study using the methods used in the U.S. Environmental Protection Agencyâs annual greenhouse gas inventories. While all of the farms with 2,500âplus cows would install digesters at prices of less than $6 per metric tonne, prices of $39â55 would be required to justify digesters on the 100â199âcow farms. Supply curves are generated empirically for number of digesters, CH4 emission reductions, and digesterâgenerated electricity as a function of a carbon dioxide (CO2)âequivalent CH4 destruction prices ranging from zero to $100/metric tonne. Modeled electricity generation and CH4 destruction are complementary goods in that higher values on the destroyed CH4 encourage generation of more electricity. For example, a price of $40 would encourage as many as 4,138 digester installations with 24 teragrams of CO2âequivalent methane reductions and 468 megawatts of electrical generation. Digester CH4 destruction revenues may exacerbate consolidation in the dairy industry somewhat because digesters are not financially feasible below around 200 cows in most states. Methane destruction revenues under a $40 CO2 price will reduce the milk production cost by between $2.19 and $2.83 per 100 kilograms ($0.99 and $1.28 per 100) pounds on farms of 2,500 cows or more. On farms of 200 to 499 cows, CH4 destruction revenues would have less impact on milk production costs, from 70 cents to $1.32 per 100 kilograms (32 to 60 cents per 100 pounds).
    Keywords: anaerobic digester, biogas plant, livestock manure, electricity, methane, carbon offset value, Environmental Economics and Policy, Livestock Production/Industries,
    Date: 2011–01
  31. By: Solenn Leplay; Sophie Thoyer
    Abstract: Safeguarding tropical rainforests is one of the most important challenges for the future, particularly to mitigate climate change. The international community has actively sought international policy solutions to curb deforestation in tropical countries. Debt-for-nature swaps and certification of sustainable forest management have been implemented by NGOs. Some states are currently negotiating the implementation of the REDD (Reduced Emissions from Deforestation and Degradation) mechanism, a North-South financial transfer to compensate countries for avoided deforestation. However, little is known about the efficiency of these instruments. We argue that they may have a double effect: an expected direct impact on deforestation linked to the conditionalities of instruments, and an indirect impact due to their feedback effects on macroeconomic variables, affecting in turn the drivers of deforestation. The second effect is often overlooked by policy makers [...].
    Date: 2011–01
  32. By: David Fluharty
    Abstract: Decision-makers in fisheries management are confronted with the challenge of how to respond to existing and predicted changes in ocean conditions that are likely to affect the stocks of fish they manage. In order to address climate change most research and thinking advises decision-makers to ensure that fisheries are well-managed and abundant in an ecosystem context. These policies can best allow fisheries to adapt to changing climate. To address climate change, decision-makers should carefully monitor changing conditions and potential changes in factors affecting fish stock abundance. An adaptive approach to fisheries management under conditions of climate change requires that decision-makers engage with fishing interests in a transparent manner and in ways that respect the input of fishing interests and in ways that acknowledge the levels of uncertainty. This approach implies a governance approach to management that is closer to co-management or shared management responsibility than in most hierarchical processes that characterize fishery management to date. The answer to the question of when fishery decision-makers should begin to incorporate climate change into decision making processes is that they should have started yesterday. The justification for this is that even today, climate variability can affect fishery management decisions and the sooner this is understood and incorporated into the management process the better. In economic terms, a conservative decision relative to fisheries management is likely to produce a positive long term benefit whereas the failure to recognize the need to act in time may have serious immediate negative consequences especially when compounded by inadequate management. While climate change can also produce positive consequences for some species a note of caution is still advised in anticipating and responding to such opportunities.
    Keywords: governance, climate change, global warming, fishery policy, international fisheries, Fisheries management
    JEL: Q22 Q54 Q58
    Date: 2011–01
  33. By: Smulders, Sjak A. (Tilburg University); Tsur, Y; Zemel, A.
    Date: 2010
  34. By: Per J. Agrell; Peter Bogetoft
    Abstract: Climate change policy, in particular in Europe, will a¤ect the energy sector through the exposure to massive penetration of distributed energy resources or decentralized generation into electricity distribution and transmission grids. As the prerequisites for infrastructure regulation still prevail in the future, the question arises whether the current regulatory model is still valid. In this paper, we chararcterize some of the e¤ects of climate change policy on the network tasks, assets and costs and contrast this with the assumptions implicit or explicit in current economic network regulation. The resulting challenge is identi ed as the change in the direction of higher asymmetry of information and higher capital intensity, combined with ambiguities in terms of task separation. Methodolog- ically, we argue that this may require a mobilization of the litterature related to delegated and hierarchical systems, e.g. team performance, as the externalities are joint products from multiple independent stages where individual regulation may introduce distortions. To provide guidance, we present a model of investment provision under regulation between a distribution system operator (DSO) and a potential investor-generation. The results from the model con rm the hypothesis that network regulation should nd a focal point, should integrate externalities in the performance assessment and should avoid wide delegation of contracting-billing for climate change technologies.
    Keywords: network regulation; climate change; investments; distributed generation
    Date: 2010–09–16
  35. By: Komarek, Timothy
    Abstract: Many governments, firms, institutions and individuals have become increasingly cognizant of their impact on the environment, most notably with respect to global climate change. This coupled with a threat of future regulation and a desire for a âgreenâ image, among other reasons, has led firms and institutions to begin critically evaluating and managing their own âcarbon footprintâ. Effective programs to manage greenhouse gas emissions (GHG) benefit from understanding the preferences of the constituents the program intends to serve. This study uses a survey at Michigan State University to examine the preferences of constituents (students, faculty and staff) for attributes of alternative greenhouse gas (GHG) reduction strategies. The first essay examines how much respondents were willing to pay for GHG reduction program attributes and the welfare implications of several alternative policies. The second essay examines how the attributes of alternative GHG management plans influence the universityâs âgreenâ reputation.
    Keywords: 'Green' reputation, pro-environmental behavior, conjoint analysis, climate change policy, choice experiment, institution, Environmental Economics and Policy, Resource /Energy Economics and Policy, Q40, Q42, Q51,
    Date: 2010
  36. By: Laura Policardo
    Abstract: This paper tests the hypothesis that democratisation is conducive to less environmental depletion due to human activity. Using Interrupted Time Series (ITS) design for a panel of 47 transition countries and two indexes of pollution, CO2 emissions and PM10 concentrations, I find that democracies and dictatorships have two different targets of environmental quality, with those of democracies higher than those of dictatorships. Income inequality may as well alter this targets, but with opposite effects in the two different regimes
    Keywords: Democracy; Environment; Cointegration; Interrupted Time Series; Segmented Regression
    JEL: C23 D31 H23 Q58 Q51
    Date: 2010–12
  37. By: Boyarchenko, Svetlana; Levendorskii, Sergei
    Abstract: We introduce stochastic income into the standard exponential discounting model and study dependence of effective discount rates on the type of the underlying stochastic process and agent's current income level. If the income follows a process with i.i.d. increments effective discounting is exponential. If the income follows a mean reverting process, the shape of discount rate curves depends on the margin between the agent's current income and the long-run average. The model is used to study how the willingness to pay for investments in abatement technologies depends on the current wealth of a country.
    Keywords: time preference; discounted utility anomalies; uncertainty; willingness to pay
    JEL: D81 D91
    Date: 2010–11–02

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