nep-ene New Economics Papers
on Energy Economics
Issue of 2011‒03‒26
twelve papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Gas market developments and their effect on relations between Russia and the EU By Sadek Boussena; Catherine Locatelli
  2. A Generalized Nash-Cournot Model for the North-Western European Natural Gas Markets with a Fuel SubstitutionDemand Function: The GaMMES Model By Ibrahim Abada; Vincent Briat; Steve A. Gabriel; Olivier Massol
  3. US Oil Price Exposure: The Industry Effects By Don Bredin; John Elder
  4. Flattening of the Phillips Curve and the Role of Oil Price: An Unobserved Components Model for the USA and Australia By Paradiso, Antonio; Rao, B. Bhaskara
  5. The impact of oil prices, real effective exchange rate and inflation on economic activity: Novel evidence for Vietnam By Le Viet Trung; Nguyen Thi Thuy Vinh
  6. Modelling Long-Term Electricity Contracts at EEX By Robert Flasza; Milan Rippel; Jan Šolc
  7. Could Sri Lanka afford sustainable electricity consumption practices without harming her economic growth? By Shanthini, Rajaratnam
  8. How uncertainty reduces greenhouse gas emissions By Schenker, Oliver
  9. A reassessment of Argentina´s GHG proposed target By Mariana Conte Grand; Vanesa V. D´Elía
  10. Pollution permits, Strategic Trading and Dynamic Technology Adoption By Santiago Moreno-Bromberg; Luca Taschini
  11. Global Temperature Trends By Trevor Breusch; Farshid Vahid
  12. Economic Doctrines and Approaches to Climate Change Policy By Atkinson, Robert D.; Hackler, Darrene

  1. By: Sadek Boussena (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II); Catherine Locatelli (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: The changes on the EU gas market are likely to affect Europe's relations with its natural gas suppliers who are facing increasing competition. Heading this list of producing countries is Russia. Gas relations between Russia and the EU are characterized by strong interdependence. But these relations are currently being hampered by serious lack of understanding, making it difficult for the two parties to reach agreement on a new energy partnership. The aim of this article is to analyse the effects of this new European gas context on Gazprom's strategy and how the issues of energy security and cooperation between Russia and the EU will be affected by this new order.
    Date: 2011–03
  2. By: Ibrahim Abada; Vincent Briat; Steve A. Gabriel; Olivier Massol
    Abstract: This article presents a dynamic Generalized Nash-Cournot model to describe the evolution of the natural gas markets. The aim of this work is to provide a theoretical framework that would allow us to analyze future infrastructure and policy developments, while trying to answer some of the main criticisms addressed to Cournot-based models of natural gas markets. The major gas chain players are depicted including: producers, consumers, storage and pipeline operators, as well as intermediate local traders. Our economic structure description takes into account market power and the demand representation tries to capture the possible fuel substitution that can be made between the consumption of oil, coal and natural gas in the overall fossil energy consumption. We also take into account the long-term aspects inherent to some markets, in an endogenous way. This particularity of our description makes the model a Generalized Nash Equilibrium problem that needs to be solved using specialized mathematical techniques. Our model has been applied to represent the European natural gas market and forecast, until 2030, after a calibration process, consumption, prices, production and natural gas dependence. A comparison between our model, a more standard one that does not take into account energy substitution, and the European Commission natural gas forecasts is carried out to analyze our results. Finally, in order to illustrate the possible use of fuel substitution, we studied the evolution of the natural gas price as compared to the coal and oil prices. This paper mostly focuses on the model description.
    Keywords: Energy markets modeling, Game theory, Generalized Nash-Cournot equilibria, Quasi-Variational Inequality
    Date: 2011
  3. By: Don Bredin (University College Dublin); John Elder (Colorado State University)
    Abstract: This paper investigates the exposure of industry level portfolios to oil price shocks. Our paper utilizes the Campbell (1991) decomposition of stock returns based on a log-linear approximation to the discounted present value relation while allowing for time varying expected returns. The results from our baseline regressions indicate that there is little sensitivity in industry level portfolios to unexpected movements in oil prices, with the gold, oil & gas and retail industries being the only exception. In contrast, based in the Campbell (1991) decomposition, we identify extensive exposure to oil prices in industry level returns in particular channels. The extent of the exposure is particularly significant for a number of the industries, with positive (negative) permanent implications for gold, and the oil and gas industries (retail and meals, restaurants and hotels).
    Keywords: Oil, Industry Stock Returns, Vector autoregression
    JEL: E32 C32
    Date: 2011–03–11
  4. By: Paradiso, Antonio; Rao, B. Bhaskara
    Abstract: We use the unobserved components model of Harvey (1989 and 2011) to estimate the Phillips curve (PC) for the USA and Australia, by augmenting it with oil prices. We found that the level coefficient of inflation and the coefficient of demand pressure have declined and contributed to the flattening of the Phillips curve. But the coefficient of oil prices has increased and has partly offset these effects. Therefore, oil prices are likely to play a significant role in future inflation rates.
    Keywords: Unobserved components; Harvey; USA; Australia; Flattening of the Phillips curve and Oil prices
    JEL: C12 C2 E3
    Date: 2011–03–06
  5. By: Le Viet Trung (Research Institute for Economics and Business Administration, Kobe University); Nguyen Thi Thuy Vinh (Graduate School of Economics, Kobe University)
    Abstract: The goal of this paper is to examine the impact of oil prices on Vietnam's economic activity using vector autoregressive (VAR) modeling and cointegration techniques. We use monthly data for the period 1995 – 2009 and include inflation and the real effective exchange rate as additional determinants of economic activity. We find evidence of a long-run relationship between oil prices, inflation, exchange rate, and economic activity. The results suggest that both oil prices and the real effective exchange rates have strongly significant impact on economic activity. An increase in oil price or depreciation may enhance economic activity. Vietnamese economic activity is influenced more by changes of value of Vietnamese currency than the fluctuations of oil prices. Inflation has a positive impact on economic activity however its impact is not highly significant. This suggests that moderate inflation is helpful rather than harmful to economic activity.
    Keywords: Oil price, Economic activity, Vietnam
    JEL: E60 F41 O53 Q43 P20
    Date: 2011–03
  6. By: Robert Flasza (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Milan Rippel (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jan Šolc (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The main aim of this paper is to develop and calibrate an econometric model for modelling prices of long term electricity futures contracts. The calibration of our model is performed on data from EEX AG allowing us to capture the specific features of German electricity market. The data sample contains several structural breaks which have to be taken into account for modelling. We model the data with an ARIMAX model which reveals high correlation between the price of electricity futures contracts (namely Phelix Base Fututes with next year´s delivery) and prices of long-term futures contracts of fuels (namely coal, natural gas and crude oil). Besides this, also a share price index of representative electricity companies traded on Xetra, spread between 10Y and 1Y German bonds and exchange rate between EUR and USD appeared to have significant explanatory power over these futures contracts on EEX.
    Keywords: electricity futures, EEX, ARIMAX, emission allowances
    JEL: C32 C53 G13 O13
    Date: 2011–03
  7. By: Shanthini, Rajaratnam
    Abstract: The existence and direction of Granger causality between electricity consumption and economic growth, proxied by gross domestic product (GDP), has been investigated in this study using annual data covering the period 1971 to 2007. The results of the augmented Dickey-Fuller, GLS-detrended Dickey-Fuller and Phillips-Perron tests show that the natural logarithms of both the times series are individually I(1). The autoregressive distributed lag bounds testing approach to cointegration used in this study reveals that the two times series are cointegrated. The estimated long-run equilibrium relationship shows that 1% growth in GDP induces 1.45% growth in electricity consumption, and any deviation from the long-run equilibrium following a short-run disturbance is corrected within 17 months. Granger causality test results reveal uni-directional causality running from economic growth to electricity consumption without any feedback effect. The outcome of such results is beneficial to Sri Lanka’s economic growth since it is not dependent on electricity consumption, and thereby production. It is therefore possible to initiate energy policies towards minimizing wasteful electricity production and consumption practices, without compromising Sri Lanka’s GDP growth, to take her on an electricity-wise sustainable economic development path.
    Keywords: ARDL; cointegration; Granger causality; gross domestic product; sustainable electricity consumption; Sri Lanka
    JEL: C5
    Date: 2010–05–20
  8. By: Schenker, Oliver
    Abstract: China has becoming in 2006 the world’s largest emitter of greenhouse gases (GHG), responsible for one-fifth of world’s emissions from power generation. And further strong growth in this sector is to be expected. To provide these additional power generation capacities substantial investments in China’s energy infrastructure are necessary. But the potential investors are confronted with uncertainty in the design of China’s future climate policy, which might affect the profitability of GHG emitting power plants. It is the aim of this paper to investigate the role of uncertainty in China’s climate policy on investments in the electricity sector and its consequences for GHG emissions. We analyze the topic with a stochastic dynamic computable general equilibrium model with an extended energy sector and calibrated with Chinese data. The results show that uncertainty about the timing and extent of China’s climate policy lowers emissions compared to a world with perfect information. Uncertainty lowers the present value of coal-fired electricity in pre-policy periods and has so a positive effect for the environment.
    Keywords: China; Energy Policy; Climate Policy; Investment under Uncertainty; Stochastic and Dynamic CGE Model
    JEL: O41 C68 Q41 D58 D80
    Date: 2011–02–15
  9. By: Mariana Conte Grand; Vanesa V. D´Elía
    Abstract: At the time of Argentina´s greenhouse gases emissions reduction voluntary commitment, most of the articles on intensity targets had not been published. The aim of this paper is to (re)discuss briefly the proposal made by Argentina taking into account that literature. To justify the adopted target form and stringency, we compare fixed and dynamic targets in terms of the likelihood of “hot air”, the relationship between allowed emissions and GDP, the link between abatement and GDP, and outcomes´ dispersion. But, the assumptions implicit in the design of the target may change those properties. We show how the BAU scenario taken as reference and the level of emissions reduction affects targets´ design and characteristics. Finally, considering different emissions projections, we perform a comparison between allowed emissions and projected ones during the first half commitment period (2008-2010), concluding that compliance with the commitment depends on the data source used in the calculations.
    Keywords: climate change, intensity targets, uncertainty, Argentina
    JEL: Q28 Q54
    Date: 2011–03
  10. By: Santiago Moreno-Bromberg; Luca Taschini
    Abstract: This paper analyzes the dynamic incentives for technology adoption under a transferable permits system, which allows for strategic trading on the permit market. Initially, firms can invest both in low-emitting production technologies and trade permits. In the model, technology adoption and allowance price are generated endogenously and are inter-dependent. It is shown that the non-cooperative permit trading game possesses a pure-strategy Nash equilibrium, where the allowance value reflects the level of uncovered pollution (demand), the level of unused allowances (supply), and the technological status. These conditions are also satisfied when a price support instrument, which is contingent on the adoption of the new technology, is introduced. Numerical investigation confirms that this policy generates a floating price floor for the allowances, and it restores the dynamic incentives to invest. Given that this policy comes at a cost, a criterion for the selection of a self-financing policy (based on convex risk measures) is proposed and implemented.
    Date: 2011–03
  11. By: Trevor Breusch; Farshid Vahid
    Abstract: Are global temperatures on a warming trend? It is difficult to be certain about trends when there is so much variation in the data and very high correlation from year to year. We investigate the question using statistical time series methods. Our analysis shows that the upward movement over the last 130-160 years is persistent and not explained by the high correlation, so it is best described as a trend. The warming trend becomes steeper after the mid-1970s, but there is no significant evidence for a break in trend in the late 1990s. Viewed from the perspective of 30 or 50 years ago, the temperatures recorded in most of the last decade lie above the confidence band of forecasts produced by a model that does not allow for a warming trend.
    Keywords: Land and ocean temperatures; deterministic and stochastic trends; persistence; piecewise linear trends
    JEL: C2 Q54
    Date: 2011–03
  12. By: Atkinson, Robert D.; Hackler, Darrene
    Abstract: In climate change, as in all policy issues, economic philosophy has a significant influence on how people view both the problems and the solutions. For the first time, ITIF surveys four dominant schools of economic thought and analyzes how adherents approach policy options for climate change and energy policy. With climate change and major energy legislation stalled, maybe it is time to put aside fixed philosophical notions and take a practical look on ways to address climate change in an economically feasible way. The report reviews the principles and goals of each economic doctrine, and offers a critique of the advantages and limitations of each doctrine's contribution to addressing the challenge of climate change.
    Keywords: Innovation; Economics; Climate Change; Public Policy
    JEL: B50 A10 Q54
    Date: 2010–10

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