nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒03‒14
twenty papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Global energy trade flows and constraints on conventional and renewable energies: A computable modeling approach By Grogro, Ole
  2. Econometric Modelling of World Oil Supplies: Terminal Price and the Time to Depletion By Mohaddes, K.
  3. Gasoline Taxes and Consumer Behavior By Li, Shanjun; Linn, Joshua; Muehlegger, Erich
  4. Oil price forecasting under asymmetric loss By Pierdzioch, Christian; Rülke, Jan-Christoph; Stadtmann, Georg
  5. Optimal Tariffs on Exhaustible Resources: The Case of Quantity Setting By Kenji Fujiwara; Ngo Van Long
  6. Optimum Commodity Taxation with a Non-Renewable Resource By Julien Daubanes; Pierre Lasserre
  7. Commodity derivatives pricing with inventory effects By Christian Bach; Matt P. Dziubinski
  8. Disentangling Demand and Supply Shocks in the Crude Oil Market: How to Check Sign Restrictions in Structural VARs By Helmut Lütkepohl; Aleksei Netsunajev
  9. Coordination Under Uncertain Conditions : An Analysis of the Fukushima Catastrophe By Masahiko Aoki; Geoffrey Rothwell
  10. Electric mobility in China: A policy review By Tagscherer, Ulrike
  11. Assessment of CO2-Oriented Vehicle Tax Reforms: A Case Study of Greece Keywords: CO2 emissions, automobile market, feebates, carbon taxation. By Adamos Adamou; Sofronis Clerides; Theodoros Zachariadis
  12. The Correlated Factors of the Uneven Performances of the CDM Countries By Zhu, Jinshan
  13. Potential Irreversible Catastrophic Shifts of the Assimilative Capacity of the Environment By Amigues, Jean-Pierre; Moreaux, Michel
  14. Climate Change and Poverty Reduction—Where Does Official Development Assistance Money Go? By Kaliappa Kalirajan,; Kanhaiya Singh; Shandre Thangavelu; Anbumozhi Venkatachalam; Kumidini Perera
  15. Mainstreaming the Adaptations and Reducing the Vulnerability of the Poor due to Climate Change By C. R. Ranganathan; K. Palanisami; K. R. Kakumanu; A. Baulraj
  16. Gender Inclusion in Climate Change Adaptation By Midori Aoyagi; Eiko Suda; Tomomi Shinada
  17. Leveraging Environment and Climate Change Initiatives for Corporate Excellence By Venkatachalam Anbumozhi; Mari Kimura; Kumiko Isono
  18. International environmental agreements under endogenous uncertainty By Bruno Nkuiya; Walid Marrouch; Eric Bahel
  20. Distinguished Fellows Address: Climate change policy and the science of design By King, Robert P.

  1. By: Grogro, Ole
    Abstract: This paper introduces the computable partial equilibrium energy model 'Global Resource Extraction and Energy Transformation' (GREET), its structure, assumptions and the outcomes of two exemplary scenarios. GREET is characterized by a comprehensive modelling of constraints on the diffusion of renewable energy, where physical constraints on the regional deployment of renewable energy technologies are complemented by the need to provide storage capacities for renewable production of electricity. The consumption of conventional primary energy carriers, on the other hand, is constrained by regional resource endowments as well as the need for capacity investments in primary energy carrier extraction-, trade- and ransformation processes. In comparison to most contrastable global energy models, there is an explicit modelling of interregional trade flows in primary energy carriers, for which originating and destinating regions of the energy trades can clearly be specified. Thus, GREET, covering global primary energy trades for eleven world model regions, is very applicable for looking into future developments of energy trade flows. At the same time GREET doesn't miss to cover the point that predominantly renewable based energy systems of the future are confined by constraints on renewable energy production technologies, such as the need to provide electricity storage capacities. --
    Date: 2012
  2. By: Mohaddes, K.
    Abstract: This paper develops a novel approach by which to identify the price of oil at the time of depletion; the so-called "terminal price" of oil. It is shown that while the terminal price is independent of both GDP growth and the price elasticity of energy demand, it is dependent on the world real interest rate and the total life-time stock of oil resources, as well as on the marginal extraction and scarcity cost parameters. The theoretical predictions of this model are evaluated using data on the cost of extraction, cumulative production, and proven reserves. The predicted terminal prices seem sensible for a range of parameters and variables, as illustrated by the sensitivity analysis. Using the terminal price of oil, we calculate the time to depletion, and determine the extraction and price profiles over the life-time of the resource. The extraction profiles generated seem to be in line with the actual production and the predicted prices are generally in line with those currently observed.
    Keywords: Oil prices and extraction, terminal price of oil, time to depletion, nonrenewable resources, oil demand estimations, and oil extraction costs.
    JEL: C23 Q31 Q47
    Date: 2012–03–02
  3. By: Li, Shanjun (Cornell University); Linn, Joshua (Resources for the Future, Washington, DC); Muehlegger, Erich (Harvard University)
    Abstract: Gasoline taxes can be employed to correct externalities associated with automobile use, to reduce dependency on foreign oil, and to raise government revenue. Our understanding of the optimal gasoline tax and the efficacy of existing taxes is largely based on empirical analysis of consumer responses to gasoline price changes. In this paper, we directly examine how gasoline taxes affect consumer behavior as distinct from tax-exclusive gasoline prices. Our analysis shows that a 5-cent tax increase reduces gasoline consumption by 1.3 percent in the short-run, much larger than that from a 5-cent increase in the tax-exclusive gasoline price. This difference suggests that traditional analysis could significantly underestimate policy impacts of tax changes. We further investigate the differential effect from gasoline taxes and tax-exclusive gasoline prices on both the intensive and extensive margins of gasoline consumption. We discuss implications of our findings for the estimation of the implicit discount rate for vehicle purchases and for the fiscal benefits of raising taxes.
    JEL: H30 Q40 Q50
    Date: 2012–02
  4. By: Pierdzioch, Christian; Rülke, Jan-Christoph; Stadtmann, Georg
    Abstract: Based on the approach advanced by Elliott et al. (Rev. Ec. Studies. 72, 1197-1125), we found that the loss function of a sample of oil price forecasters is asymmetric in the forecast error. Our findings indicate that the loss oil price forecasters incurred when their forecasts exceeded the price of oil tended to be larger than the loss they incurred when their forecast fell short of the price of oil. Accounting for the asymmetry of the loss function does not necessarily make forecasts look rational. --
    Keywords: oil price,forecasting,loss function,rationality of forecasts
    JEL: F31 D84
    Date: 2012
  5. By: Kenji Fujiwara; Ngo Van Long
    Abstract: Constructing a dynamic game model of trade of an exhaustible resource, this paper compares feedback Nash and Stackelberg equilibria when the exporting country sets quantity rather than price. We consider two different leadership scenarios: leadership by the importing country, and leadership by the exporting country. We numerically show that as compared to the Nash equilibrium, both countries are better off if the importing country is a leader, but that the follower is worse off if the exporting country is a leader. Consequently, the world welfare is highest under the importing country's leadership and lowest under the exporting country's leadership. <P>On construit un modèle d’un jeu dynamique d’échange en ressource non-renouvelable sous l’hypothèse que le pays exportateur détermine la quantité au lieu du prix. L’objectif est de comparer l’équilibre de Nash avec les équilibres de Stackelberg. Dans un premier temps, c’est le pays importateur qui est le leader. Dans un deuxième temps, le pays exportateur assume le leadership. On démontre numériquement que, par rapport à l’équilibre de Nash , le niveau de bien-être des deux pays est plus élevé sous l’équilibre de Stackelberg dans le cas où l’importateur est le leader. Dans le cas où le pays exportateur est le leader, le niveau de bien-être du pays importateur est moins élevé que celui de l’équilibre de Nash. Le bien-être du monde entier dans le cas du leadership du pays importateur est plus élevé que dans le cas opposé.
    Keywords: dynamic game, exhaustible resource, Stackelberg leadership., jeu dynamique, ressources non-renouvelables, leadership de Stackelberg.
    JEL: C73 L72 Q34 F18
    Date: 2012–01–01
  6. By: Julien Daubanes; Pierre Lasserre
    Abstract: Optimum commodity taxation theory asks how to raise a given amount of tax revenue while minimizing distortions. We reexamine Ramsey's inverse elasticity rule in presence of Hotelling-type non-renewable natural resources. Under standard assumptions borrowed from the non-renewable-resource-extraction and from the optimum-commodity-taxation literatures, a non-renewable resource should be taxed in priority whatever its demand elasticity and whatever the demand elasticity of regular commodities. It should also be taxed at a higher rate than other commodities having the same demand elasticity and, while the tax on regular commodities should be constant, the resource tax should vary over time. When the generation of reserves by exploration is determined by the net-of-tax rents derived during the extraction phase, reserves become a conventional form of capital and royalties tax its income; our results contradict Chamley's conclusion that capital should not be taxed at all in the very long run. When the economy is autarkic, in the absence of any subsidy to reserve discoveries, the optimal tax rate on extraction obeys an inverse elasticity rule almost identical to that of a commodity whose supply is perfectly elastic. As a matter of fact, there is a continuum of optimal combinations of reserve subsidies and extraction taxes, irrespective of whether taxes are applied on consumption or on production. When the government cannot commit, extraction rents are completely expropriated and subsidies are maximum. In general the optimum Ramsey tax not only causes a distortion of the extraction path, as happens when reserves are given, but also distorts the level of reserves developed for extraction. When that distortion is the sole effect of the tax, it is determined by a rule reminiscent of the inverse elasticity rule applying to elastically-supplied commodities. In an open economy, Ramsey taxes further acquire an optimum-tariff dimension, capturing foreign resource rents. For countries that import the resource, the result that domestic resource consumption is to be taxed at a higher rate than conventional commodities having the same demand elasticity emerges reinforced. <P>
    Keywords: Optimum commodity taxation, inverse elasticity rule, non-renewable resources, hotelling resource, supply elasticity, demand elasticity, capital income taxation,
    JEL: Q31 Q38 H21
    Date: 2012–02–01
  7. By: Christian Bach (Aarhus University and CREATES); Matt P. Dziubinski (Aarhus University and CREATES)
    Abstract: We introduce tractable models for commodity derivatives pricing with inventory and volatility eects, and illustrate with applications to the oil market. We contribute to the existing literature in several respects. First, whereas the previous literature uses futures data for investigating the relationship between inventory and volatility, we use the information available in options traded on futures. Second, performance assessment in the previous literature has primarily evolved around explaining moments of data or forecasting prices of futures. Instead, we asses the performance of our model by considering both the ability of explaining prices in-sample and out-of-sample - assessing both the pricing-performance and the hedging-performance of the models. Third, we model the futures surface rather than the spot price process, and from the no-arbitrage relationship between spot and futures prices we limit the number of parameters to calibrate. We introduce a new, maturity-wise calibration method compatible with this modeling methodology. Fourth, we use actual data on inven- tories rather than a proxy. Fifth, our model is very exible and allows for testing several dierent types of relationships between inventory and volatility.
    Keywords: Energy futures and options markets, energy price volatility, commodities, crude oil, stochastic volatility, stochastic inventories, inventories, option pricing, scarcity.
    JEL: C51 C52 G12 G13 Q40
    Date: 2012–02–07
  8. By: Helmut Lütkepohl; Aleksei Netsunajev
    Abstract: Given the growing dissatisfaction with exclusion and long-run restrictions in structural vector autoregressive analysis, sign restrictions are becoming increasingly popular. So far there are no techniques for validating the shocks identified via such restrictions. Although in an ideal setting the sign restrictions specify shocks of interest, sign restrictions may be invalidated by measurement errors, data adjustments or omitted variables. We model changes in the volatility of the shocks via a Markov switching (MS) mechanism and use this devise to give the data a chance to object to sign restrictions. The approach is illustrated by considering a small model for the market of crude oil.
    Keywords: Markov switching model, vector autoregression, heteroskedasticity, crude oil market
    JEL: C32 Q43
    Date: 2012
  9. By: Masahiko Aoki (Asian Development Bank Institute (ADBI)); Geoffrey Rothwell
    Abstract: This paper analyzes the impacts of the 11 March 2011 earthquake and tsunami at the Fukushima nuclear power plant in Japan, which were amplified by a failure of coordination across the plant, corporate, industrial, and regulatory levels, resulting in a nuclear catastrophe, comparable in cost to Chernobyl. It derives generic lessons for industrial structure and regulatory frame of the electric power industry by identifying the two shortcomings of a horizontal coordination mechanism : instability under large shock and the lack of “defense in depth.†The suggested policy response is to harness the power of “open-interface-rule-based modularity†by creating an independent nuclear safety commission and an independent system operator owning the transmission grids in Japan. We propose a transitory price mechanism that can restrain price volatility while providing investment incentives.
    Keywords: Japan, coordination mechanism, horizontal coordination mechanism, Fukushima
    JEL: L22 L43 L94
    Date: 2011–10
  10. By: Tagscherer, Ulrike
    Abstract: --
    Date: 2012
  11. By: Adamos Adamou; Sofronis Clerides; Theodoros Zachariadis
    Abstract: Vehicle taxation based on a car’s CO2 emission levels is increasingly adopted in countries around the world. This paper describes a model of oligopolistic competition in markets with differentiated products, simulating automobile demand and supply under alternative tax regimes. The objective is to perform simulations in order to evaluate policies that could shift consumer purchases towards low-CO2 cars and thus lead to the reduction of fuel use and CO2 emissions. Focusing on an analysis of the car market of Greece, we assess the environmental and economic implications of alternative carbon-based tax schemes. Our findings, which are relevant for other European countries as well, illustrate that careful policy design, supported by an appropriate model, can bring about substantial environmental benefits without losing control of economic parameters such as public finances or firm profits. In some cases vehicle taxation can have adverse (though unintended) environmental consequences.
    Date: 2012–03
  12. By: Zhu, Jinshan
    Abstract: The Kyoto Protocol's Clean Development Mechanism (CDM) has experienced a rapid growth. Until 2010, 2763 projects have been registered, standing for about 433 million ton CO2 equivalent (CO2-eq.) of annual carbon credits. However, the performances of CDM host countries are remarkably unbalanced. Previous literatures suggested that economic and investment conditions, energy intensity, energy structure, the share of annual carbon credits from high Global Warming Potential (GWP) Green House Gas (GHG), capacity and institutional buildings of domestic CDM governance can play important roles in promoting CDM. This quantitative analysis shows that domestic economic and investment conditions are the most decisive factors determining the performance of the CDM host countries. Additionally, the influence of carbon intensity of energy consumption is relatively modest, and energy intensity of GDP as well as the share of annual carbon credits from high Global Warming Potential (GWP) Green House Gas (GHG) is less significant. Moreover, several leading CDM countries are not as successful as they seem to be, when the influences of their vast territories, distinguished economic and investment conditions are excluded. Therefore, to simply transplant the CDM governances of these countries can hardly guarantee other countries in boosting their carbon credits outputs.
    Keywords: clean development mechanism, kyoto protocol, environmental law and economics
    JEL: Q5 K32
    Date: 2012–03
  13. By: Amigues, Jean-Pierre (Toulouse School of Economics (INRA, IDEI and LERNA)); Moreaux, Michel (Toulouse School of Economics (IDEI and LERNA))
    Abstract: Pollution accumulation may result in more or less severe losses of natural self-cleaning capacities. We study a polluting resource management problem submitted to a potential shift from a high to a low pollution self-regeneration regime be crossed some critical pollution stock threshold. We rst describe the optimal resource exploitation policy absent the threshold. When at the threshold, the society has two options: either stabilizing the pollution level to avoid the loss of natural self-cleaning capacity or deliberately cross the threshold and switch to the low regeneration regime. We show under fairly general assumptions that there exists a unique critical pollution stock level such that thresholds located below this level will induce a switch from the high to the low regeneration regime while thresholds located above it will imply maintaining the high regime forever. We characterize the optimal policies in these two scenarios and show that triggering the low regeneration regime requires an upward jump of the resource consumption rate at the optimal switching time.
    JEL: Q15 Q17
    Date: 2012–02–08
  14. By: Kaliappa Kalirajan, (Asian Development Bank Institute (ADBI)); Kanhaiya Singh; Shandre Thangavelu; Anbumozhi Venkatachalam; Kumidini Perera
    Abstract: There is an urgent need to mainstream the key challenges of climate change into sector and development planning and decision making processes to create sustainable long-term development. Mainstreaming is seen as making more efficient and effective use of financial and human resources. It is implementing and managing climate change policy holistically, which sustains development, rather than undertaking piecemeal activities. This involves building mitigation and adaptation capacity in both micro and macro economic development. Climate change is not only a national phenomenon but also a global phenomenon that requires the participation of both the public and private sectors. The importance of private sector participation is highlighted by the magnitude of the investment needed to manage climate change, and the fact that market mechanisms seem to be more effective in addressing climate change than does the public sector. Public sector involvement—such as grants, overseas development assistance (ODA), and funding from other countries—is equally important in mitigation and adaptation projects. Empirical results in this study emphasize that more caution is needed in directing ODA towards climate change mitigation and adaptation due to the links between various macroeconomic variables related to growth and poverty reduction. This implies that ODA given to other important causes related to achieving the Millennium Development Goals should not be reduced. The results show that energy efficient transfer of technology to developing countries should accompany any efforts towards directing ODA towards mitigation. Without that, ODA directed towards mitigation may have adverse effects on the pace of poverty reduction in developing countries. Thus, involvement of the private sector becomes crucial for energy efficient technological innovation and transfer.
    Keywords: Climate change, financing climate change mitigation and adaptation, ODA programming
    JEL: F35 P33 Q56 O19
    Date: 2011–11
  15. By: C. R. Ranganathan (Asian Development Bank Institute (ADBI)); K. Palanisami; K. R. Kakumanu; A. Baulraj
    Abstract: Many rural poor people in developing countries depend on agriculture and are highly influenced by climatic change. Hence, sustainable livelihood approaches are used at both policy and project level to initiate new poverty reduction activities and modify existing activities to improve livelihood incomes. Practices relevant to climate change adaptation around the world are wideranging and include development of technology, management, infrastructure, livestock, groundwater, and knowledge. Both structural interventions (such as building flood embankments, dikes, or seawalls or enhancing the natural setting or landscape) and nonstructural interventions (policies, knowledge development, awareness, methods and operating practices, including participatory mechanisms) have helped to reduce the impact of climate change. Further, market-based instruments such as credits and crop insurance were also developed to help poor households in many developing countries to cope with the uncertainties. The uptake of such adaptation practices is lagging, however, but informal institutions are playing a key role as they rely on enforcement methods and are not supported by the government. Mainstreaming adaptation and enhancing adaptive capacity could be increased by encouraging partnerships between informal processes and formal interventions to facilitate adaptation by the poor. The cost of adaptation is also significantly higher in developing countries. Nonetheless, more attention is needed in addressing future climate scenarios through agricultural research and development, irrigation development, infrastructure, and improved irrigation efficiency.
    Keywords: Climate change, Adaptation, vulnerability, the poor, developing countries, climate change effects
    JEL: N55 O13 Q54
    Date: 2011–12
  16. By: Midori Aoyagi (Asian Development Bank Institute (ADBI)); Eiko Suda; Tomomi Shinada
    Keywords: Climate change, gender inclusion, agricultural production, Natural Disasters
    JEL: J16 Q54 Q58
    Date: 2011–09
  17. By: Venkatachalam Anbumozhi (Asian Development Bank Institute (ADBI)); Mari Kimura; Kumiko Isono
    Abstract: As an integral part of sustainable development, the impacts from climate change, including increasing water stress, more extreme weather events, the potential for high levels of migration and the disruption of international markets are critical challenges for all Asian countries. With rapid economic growth and modernization, the countries in the region are increasing production and consumption, calling for critical adaption measures. With the Asian countries and the energy sector exceedingly accounting for a large share of CO2 and GHG emissions, businesses in Asia need to increase efficiency in energy use, offset emissions, and use more low carbon or renewable energy resources. Businesses are no longer considered part of the environmental problem as they are progressively becoming part of the solutions, and if furthered by an ideal regulatory disposition this would encourage corporations to strive for zero emissions. To address these issues, this paper reviews selected initiatives taken by Asian countries to comply with emerging global sustainability standards, reporting, and management systems, and tracks the response of Asian businesses to global environmental concerns, examines market based innovations including new regulations that augmented corporate excellence, and identifies future directions for business that lead low carbon society. It recommends governments and business to join forces in supporting low carbon initiatives, drawing upon market mechanisms through reconfiguring national environmental policies and strategies.
    Keywords: sustainable development, Climate change, Asian countries, environmental policies, environmental strategies
    JEL: M19 Q3 Q48 Q56
    Date: 2011–12
  18. By: Bruno Nkuiya; Walid Marrouch; Eric Bahel
    Abstract: This paper explores the implications of the possibility of a shift in environmental damages on the participation in environmental treaties. Using a two-period model where the probability of a regime shift increases with the first-period emissions, we examine the issue of coalition formation under both fixed and dynamic membership. Our analysis suggests that endogenous uncertainty may increase participation. Moreover, we find that full cooperation may be sustained, but only in the presence of endogenous uncertainty. Interestingly, when the shift in the environmental damage is large enough, the model provides a way to solve the "puzzle of small coalitions" found in the literature related to International Environmental Agreements (IEAs).
    Keywords: International Environmental Agreements; Endogenous Uncertainty; Emissions; Shift in Damage.
    Date: 2011
  19. By: Ulrich Hoffmann
    Abstract: Many economists and policy makers advocate a fundamental shift towards “green growth” as the new, qualitatively-different growth paradigm, based on enhanced material/resource/energy efficiency and drastic changes in the energy mix. “Green growth” may work well in creating new growth impulses with reduced environmental load and facilitating related technological and structural change. But can it also mitigate climate change at the required scale (i.e. significant, absolute and permanent decline of GHG emissions at global level) and pace? This paper argues that growth, technological, population-expansion and governance constraints as well as some key systemic issues cast a very long shadow on the “green growth” hopes. One should not deceive oneself into believing that such evolutionary (and often reductionist) approach will be sufficient to cope with the complexities of climate change. It may rather give much false hope and excuses to do nothing really fundamental that can bring about a U-turn of global GHG emissions. The proponents of a resource efficiency revolution and a drastic change in the energy mix need to scrutinize the historical evidence, in particular the arithmetic of economic and population growth. Furthermore, they need to realize that the required transformation goes beyond innovation and structural changes to include democratization of the economy and cultural change. Climate change calls into question the global equality of opportunity for prosperity (i.e. ecological justice and development space) and is thus a huge developmental challenge for the South and a question of life and death for some developing countries (who increasingly resist the framing of climate protection versus equity).
    Date: 2011
  20. By: King, Robert P.
    Abstract: Climate change has the potential to drive transformations in natural resource access, availability, and use that will have significant, farâreaching impacts worldwide, not only for those of us living today but also for future generations. As economists we are being called upon to assess the economic impacts of alternative climate change scenarios and the costs of efforts to mitigate and adapt to the adverse consequences of climate change. I classify these professional activities as âeconomic analysis,â and I cite John Quigginâs 2011 AAEA Fellows Address (Quiggin 2012) as one of many noteworthy contributions we have made. Equally important, we are being asked to design economic artifacts â institutions, markets, contractual relationships, measuring and monitoring procedures, and decision support systems â that will allow people to better respond to and adapt to changing circumstances. I classify these professional activities as âeconomic design.â In my AAEA Presidential Address (King 2012) I asserted that these two sets of activities, economic analysis and economic design, while closely related and highly complementary, are also distinct and different. I also asserted that, while we are familiar with and accustomed to the processes and methods of economic analysis, our shared understanding of economic design scholarship is less fully developed. This paper focuses on the general questions of how we do economic design and what constitutes good scholarship in economic design, with illustrations and examples related to the design of climate change policy.
    Keywords: Environmental Economics and Policy, Resource /Energy Economics and Policy,
    Date: 2012–02

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