nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒03‒21
eighteen papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Do Biofuel Mandates Raise Food Prices? By Ujjayant Chakravorty; Marie-Hélène Hubert; Michel Moreaux; Linda Nøstbakken
  2. Oil Price Shock, Pass-through Policy and its Impact on India. By Bhanumurthy, N. R.; Das, Surajit; Bose, Sukanya
  3. Ownership structures, corporate governance and earnings management in the European Oil Industry. By Greco, Giulio
  4. Energy Consumption and Economic Growth: Evidence from Nonlinear Panel Cointegration and Causality Tests By Tolga Omay; Mubariz Hasanov; Nuri Uçar
  5. Energy Flow: Argentina (2008) By Lenin Balza; Carlos Sucre
  6. Costs and benefits of relaunching nuclear energy in Italy By Ivan Faiella; Luciano Lavecchia
  7. Cultural and Political Determinants of Air Quality By Francisca Guedes de Oliveira; Alexandra Leitão
  8. The Transitional Costs of Sectoral Reallocation: Evidence from the Clean Air Act and the Workforce By William Walker
  9. 'Green'growth,'green'jobs and labor markets By Bowen, Alex
  10. Banking of Surplus Emissions Allowances: Does the Volume Matter? By Karsten Neuhoff; Anne Schopp; Rodney Boyd; Kateryna Stelmakh; Alexander Vasa
  11. Designing emissions trading in practice general considerations and experiences from the EU Emissions Trading Scheme (EU ETS) By Heindl, Peter; Löschel, Andreas
  12. The timeline of trading fricions in the European Carbon Market By Vicente Medina Martínez; Ángel Pardo Tornero; Roberto Pascual
  13. Developing economies in the current climate regime : new prospects for resilience and sustainability ? The case of CDM projects in Asia By Pauline Lacour; Jean-Christophe Simon
  14. On the Obligation to Provide Environmental Information in the 21st Century – Empirical Evidence from Germany By Massier, Philipp; Römer, Daniel
  15. Facing China's Coal Future: Prospects and Challenges for Carbon Capture and Storage By Dennis Best; Ellina Levina
  16. Policy options for climate policy in the residential building sector: The case of Germany By Schröer, Sebastian
  17. Unilateral Action and Negotiations about Climate Policy By Kai A. Konrad; Marcel Thum
  18. Second-best Climate Policy By Hoel, Michael

  1. By: Ujjayant Chakravorty (University of Alberta and Toulouse School of Economics (INRA, LERNA)); Marie-Hélène Hubert (University of Rennes 1 - CREM, (UMR 6211 CNRS)); Michel Moreaux (Toulouse School of Economics (IDEI, LERNA)); Linda Nøstbakken (Department of Marketing, Business Economics and Law, University of Alberta)
    Abstract: Biofuels have received a lot of attention as a substitute for gasoline in transportation. They have been blamed universally for recent increases in world food prices. Both the United States and the European Union have adopted mandatory blending policies that require a sharp increase in their use. Many studies have shown that these energy mandates may have a large (30-60%) impact on food prices. We develop a model that takes into account dietary preferences - the fact that with rising incomes, people in the developing world will consume more meat and dairy products, which are land-intensive relative to cereals. On the supply side, we allow for conversion of new lands to farming. We show that about half the increase in food prices can be attributed to population growth and dietary changes, and only the remaining come from biofuel policy. Moreover, with endogenous land supply, food price increases are likely to be much smaller than predicted by other studies. Finally, these biofuel policies do not lead to any reduction in carbon emissions.
    Keywords: Clean Energy, Food Demand, Land Quality, Renewable Fuel Standards, Transportation
    JEL: Q24 Q32 Q42
    Date: 2012–03
  2. By: Bhanumurthy, N. R. (National Institute of Public Finance and Policy); Das, Surajit (National Institute of Public Finance and Policy); Bose, Sukanya (National Institute of Public Finance and Policy)
    Abstract: This paper analyses the impact of transmission of international oil prices and domestic oil price pass-through policy on major macroeconomic variables in India with the help of a macroeconomic policy simulation model. Three major channels of transmission viz. import channel, price channel and fiscal channel are explored with the help of a comparative static macroeconomic general equilibrium framework. The policy option of deregulation of domestic oil prices in the scenario of occurrence of a one-time shock in international oil prices as well as no oil price shock situation analysed through its impact on growth, inflation, fiscal balances and external balances during the 12th Plan period of 2012-13 to 2016-17. The simulation results indicate that the deregulation policy as such would have adverse impact on the growth as well as on the inflation. But if this policy is complemented with the policy of switching of subsidy bill to capital expenditure might result in positive growth effects only in the medium term. Given, the current pass-through policy, one-time oil shock has more intense adverse impact on growth and inflation in the year of shock while it mitigates slowly over time. The model shows that with the oil shock and with current partial pass-through regime, a 10 per cent rise in oil prices result in a 0.6 per cent fall in growth while in the full pass-through situation, it can reduce the growth by 0.9 per cent. Overall, the paper argues that the pass-through has diferential impact on growth and inflation over the 12th Plan period. Hence, the policy of oil price deregulation must be carefully weighed and prioritized.
    Keywords: Policy simulation ; International price shock ; Transmission channels ; Macroeconomic modelling ; Growth ; Inflation ; Current account deficit ; Subsidies ; Fiscal deficit ; India
    JEL: C32 E10 E17 E30 E60 H60
    Date: 2012–03
  3. By: Greco, Giulio
    Abstract: In this paper we investigate the impact of corporate governance and ownership structure variables on earnings management in the European oil industry. We used quarterly data and a panel data methodology. The findings show non-linear relationships among institutional investors ownership and governmental ownership with the magnitude of earnings management. For institutional investors ownership we found a positive association within lower levels of ownership (consistently with the short-term transient view of institutional investors shareholding) and a negative association within higher levels of ownership (consistently with the long-term orientation view of institutional investors, playing a monitoring role over the company’s financial performance). For governmental ownership, we found that a positive association within lower levels of ownership, consistently with the incentives for oil companies to avoid closer political scrutiny on the reported results (political costs hypothesis). We found a negative association with earnings management magnitude in firms where governments are the controlling shareholders or a large blockholders. The findings also show that relevant governance variables, such as the proportion of independent directors, the audit committees size and meeting frequency, contribute to constrain earnings management. Overall, the results suggest that key variables related to ownership and governance structures impact on earnings management across different national settings and governance systems. Moreover, the relationship of ownership structures with earnings management appears to be complex and varying at different levels of ownership. This study could have several practical implications. Firstly, accountability and stricter control could be two issues for firms where governments are shareholders that engages in earnings management practices. Secondly, higher participation of institutional investors in the ownership and in the governance may be beneficial may be an effective monitoring device over earnings manipulation. Finally, the homogeneous results could mean that governance practices are more integrated at an European level than the national governance models and codes’ recommendations are.
    Keywords: earnings management; ownership structures; corporate governance
    JEL: M41 G3
    Date: 2012–03
  4. By: Tolga Omay (Cankaya University, Department of International Trade Management); Mubariz Hasanov (Hacettepe University, Department of Economics); Nuri Uçar (Hacettepe University, Department of Economics)
    Abstract: In this paper, we propose a nonlinear cointegration test for heterogeneous panels where the alternative hypothesis is an exponential smooth transition (ESTAR) model. We apply our tests for investigating cointegration relationship between energy consumption and economic growth for the G7 countries covering the period 1977-2007. Moreover, we estimate a nonlinear Panel Vector Error Correction Model in order to analyze the direction of the causality between energy consumption and economic growth. By using nonlinear causality tests we analyze the causality relationships in low economic growth and high economic growth regimes. Furthermore, we deal with the cross section dependency problem in both nonlinear panel cointegration test and nonlinear Panel Vector Error Correction Model.
    Keywords: Nonlinear panel cointegration; nonlinear Panel Vector Error Correction Model; cross section dependency
    JEL: C12 C22
    Date: 2012
  5. By: Lenin Balza; Carlos Sucre
    Abstract: An energy flow is an innovative graphical depiction of the energy matrix of a country or region. Using homogenous data provided by the International Energy Agency (IEA), which allows for cross-country comparisons, the flow shows the supply of primary energy, produced domestically and imported, along with exports of primary energy and imports of secondary energy. The flow then moves to the transformation and consumption of this supply, depicting inputs towards electricity generation and the final consumption of primary and secondary energy, by product and by sector of the economy. The different sources of energy are measured in thousand barrels of oil equivalent per day (kboe/day), in order to provide a method for comparing distinct energy sources. These flows are part of a larger project that also takes into account the institutional frameworks of the energy sector of each country in Latin America and are produced yearly since 2008 and by historical periods: 1971-1974, 1984-1987, 1999-2002 and 2005-2008. The project gives Bank officers a clear, more thorough understanding of a country's energy sector, in an easy-to-use fashion, allowing them to be better informed during lending and partnering processes. It similarly allows country policymakers to identify energy patterns and direct investments with more ease.
    Keywords: Energy & Mining :: Energy Markets, energy, Argentina, energy matrix, energy flow, energy market
    Date: 2012
  6. By: Ivan Faiella (Banca d'Italia); Luciano Lavecchia (Banca d'Italia)
    Abstract: This paper supplies elements for assessing the costs and benefits of electronuclear energy in order to pursue three objectives: security of supply, cost reduction, and environmental sustainability. The study reached the following conclusions: 1) the use of nuclear energy increases the diversification of the energy mix and of energy suppliers, raising energy security levels, but it does not reduce Italy’s dependence on foreign energy; 2) the use of nuclear energy would not imply a reduction in power generation costs, but it would contain their volatility, with benefits in terms of decreasing uncertainty; 3) environmental impacts would differ depending on the time horizon considered: in the medium term, this technology would provide an important contribution to curbing greenhouse gas emissions; the long-term effects are more ambiguous and raise important intergenerational issues.
    Keywords: nuclear energy, energy security, environmental impact of energy use
    JEL: Q42 Q53 Q54
    Date: 2012–02
  7. By: Francisca Guedes de Oliveira (Faculdade de Economia e Gestão - Universidade Católica Portuguesa, Porto); Alexandra Leitão (Faculdade de Economia e Gestão - Universidade Católica Portuguesa, Porto)
    Abstract: This paper investigates empirically the determinants of air quality in a large cross-section of countries. We assess air quality by sulfur emissions and, following the literature, we consider three different groups of determinants: economic, political and cultural. We confirm the existence of an EKC for sulfur (inverted-U shaped relation between wealth and pollution). Political determinants are proxied by ethnic or religious fractionalization indexes and the country’s legal origin (we consider five possible legal origins: English common law, French civil law, German civil law, Scandinavian legal system and Socialist legal system). Cultural determinants are assessed by the percentage of a country’s population that belongs to one of the three main religions (Catholic, Muslim or Protestant). Our goal is to establish the economic, political and cultural profile of a country that manages to be efficient in providing good air quality. We conclude that a country will provide higher air quality if it has one or more of the following characteristics: it is ethnic and/or religious homogeneous, it has a German or Scandinavian legal tradition; it is Protestant.
    Keywords: Air quality, political determinants, cultural determinants,environmental efficiency
    JEL: H40 H89 Q53 Q59
    Date: 2012–03
  8. By: William Walker
    Abstract: New environmental regulations lead to a rearrangement of production away from polluting industries, and workers in those industries are adversely affected. This paper uses linked worker-firm data in the United States to estimate the transitional costs associated with reallocating workers from newly regulated industries to other sectors of the economy. The focus on workers rather than industries as the unit of analysis allows me to examine previously unobserved economic outcomes such as non-employment and long run earnings losses from job transitions, both of which are critical to understanding the reallocative costs associated with these policies. Using panel variation induced by the 1990 Clean Air Act Amendments (CAAA), I find that the reallocative costs of environmental policy are significant. Workers in newly regulated plants experienced, in aggregate, more than $9 billion inforegone earnings for the years after the change in policy. Most of these costs are driven by non-employment and lower earnings in future employment, while earnings of workers who remain with their firm change little. Relative to the estimated benefits of the 1990 CAAA, these one-time transitional costs are small. However, the estimated costs far exceed the workforce compensation policies designed to mitigate some of these earnings losses.
    Date: 2012–01
  9. By: Bowen, Alex
    Abstract: The term'green jobs'can refer to employment in a narrowly defined set of industries providing environmental services. But it is more useful for the policy-maker to focus on the broader issue of the employment consequences of policies to correct environmental externalities such as anthropogenic climate change. Most of the literature focuses on direct employment created, with more cursory treatment of indirect and induced job creation, especially that arising from macroeconomic effects of policies. The potential adverse impacts of green growth policies on labor productivity and the costs of employment tend to be overlooked. More attention also needs to be paid in this literature to how labor markets work in different types of economy. There may be wedges between the shadow wage and the actual wage, particularly in developing countries with segmented labor markets and after adverse aggregate demand shocks, warranting a bigger and longer-lasting boost to green projects with high labor content. In these circumstances, the transition to green growth and job creation can go hand in hand. But there are challenges, especially for countries that have built their industrial development strategies around cheap carbon-based energy. Induced structural change, green or otherwise, should be accompanied by active labor market policies.
    Keywords: Environmental Economics&Policies,Climate Change Mitigation and Green House Gases,Labor Markets,Climate Change Economics,Labor Policies
    Date: 2012–03–01
  10. By: Karsten Neuhoff; Anne Schopp; Rodney Boyd; Kateryna Stelmakh; Alexander Vasa
    Abstract: In the European Emission Trading scheme the supply of allowances exceeds emissions - cumulating, according to our estimates, in a surplus of 2.7 billion tonnes by 2013/2014. We find that initially the surplus was acquired by power companies so as to hedge future carbon costs. As the surplus exceeds this hedging demand, additional allowances need to be acquired as speculative investment. This requires higher rates of return and implies that expected future carbon prices are highly discounted. This could explain the recent drop in carbon prices. The analysis shows that the volume of unused allowances matters for the discount applied to future carbon prices. We use our supply-demand framework to assess currently discussed policy options set-aside, reserve price for auctions and adjustments of emission targets.
    Keywords: European emission trading scheme, banking, discount rates
    JEL: G18 Q48
    Date: 2012
  11. By: Heindl, Peter; Löschel, Andreas
    Abstract: This paper deals with designing emissions trading in practice. After a short introduction to the general idea of emissions trading, practical requirements for the introduction of an emissions trading scheme are considered, including the temporal and spatial dimension as well as administrative requirements and the role of markets. Historical developments regarding emissions trading are discussed. Currently, the largest trading scheme is the EU Emissions Trading Scheme (EU ETS) that aims to reduce greenhouse gas emissions in the European industry by 21 percent until 2020 compared to 2005 levels. Because of its prominent role, the basic design and the process of introducing the EU scheme are reviewed in more detail. Finally, the impact of the EU ETS on the regulated entities is analyzed based on an annual survey among German companies regulated by the EU ETS which is conducted by the Centre for European Economic Research (ZEW) in a common project with KfW Bankengruppe. --
    Keywords: Emissions Trading,Low Carbon Economy,EU ETS
    JEL: Q48 Q53 Q58
    Date: 2012
  12. By: Vicente Medina Martínez (Facultad de Economía); Ángel Pardo Tornero (Dpto. Economía Financiera y Actuarial); Roberto Pascual (Universitat de les Illes Balears)
    Abstract: We evaluate the quality of prices of the EU-ETS, the most active European derivative market for greenhouse gas emissions allowances (EUAs). So far, this market has had two phases, a trial phase (from 2005 to 2007) and a commitment phase (from 2008 to 2012). The true value of a trial-phase EUA at the beginning of 2008 was inevitably zero because it could not be used in the commitment phase to cover emission targets. However, continued rumors of over-allocation of EUAs led to an early collapse of the market by May 2007. We study whether this market breakdown and the subsequent outbreak of the international financial crisis had a persistent effect on the quality of the commitment phase. We provide robust evidence of substantial improvements in terms of liquidity, adverse selection costs, and friction-related volatility from the trial phase to the commitment phase. However, price quality (the proportion of friction-unrelated price return volatility) during the commitment phase has been below the levels achieved before the 2007 collapse. Our findings suggest that the carbon market has not fully recovered from the negative effects of its 2007 breakdown and the subsequent financial crisis.
    Keywords: Greenhouse gas emissions, EUAs, European Union Emission Trading Scheme, trading frictions, price efficiency, liquidity, financial crisis, market breakdown, market microstructure.
    JEL: G1
    Date: 2012–02
  13. By: Pauline Lacour (CREG - Centre de recherche en économie de Grenoble - Université Pierre Mendès-France - Grenoble II : EA4625); Jean-Christophe Simon (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : FRE3389 - Université Pierre Mendès-France - Grenoble II)
    Abstract: This paper offers a review of the current position of developing countries in the climate regime and international negotiations based primarily on the analysis of implementation of Clean Development Mechanism (CDM). The paper will place emphasis on changes in national policies to accommodate CDM projects, focussing on the scope and rationale for bottom-up policies and measures as part of development strategies favouring more resilience and sustainability. Two issues are addressed more specifically: firstly regional specificity among developing areas and notably the pre-eminence of projects located in Asia, and secondly the relevance of CDM projects for both sustained growth and effective mitigation strategies. Regarding the latter, we consider that CDM project multiplication does question the relevance of national policies and the diversity of actors/stakeholders to foster upgraded domestic well targeted development strategies. Our research considers differences between developing countries and regions regarding selection and implementation of climate mitigation projects- with reference to their GHG emissions and national energy profiles (calculation from Enerdata source and IEA). It refers to selected cases of projects in East Asia - focus on China and Asean countries - showing particular sector selection patterns (differing between semi industrial economies and less developed countries) and diversification of stakeholders for development (role of regional actors within Asia). The analysis is based on international data base of CDM projects (United Nations) and secondary data from IGES (Japan) and Enerdata. The conclusion will examine prospects for CDM in a post 2012 climate régime for developing economies and the future relevance of CDM projects in the framework of Nationally Appropriate Mitigation Actions.
    Keywords: emerging countries ; development policy ; climate regime ; mitigation ; Clean Development Mechanism Projects ; sustainability ; national climate strategies ; South East Asia
    Date: 2011–09–19
  14. By: Massier, Philipp; Römer, Daniel
    Abstract: In this paper, we study the effectiveness of environmental information disclosure as a regulatory instrument. In particular we analyze its impact when environmental regulation is already advanced. Using German stock market data, we are able to identify the impact of the European Pollutant Emission Register (EPER) on the market value of listed firms using a Multivariate Regression Model (MVRM). First, we show that the publication of EPER data leads to negative abnormal returns of the respective listed firms in Germany. Second, we study drivers of these abnormal returns. Here, we find that the firms' individual level of non-carbon emissions can explain the observed changes in market valuation, while carbon dioxide emissions do not seem to be punished by the market. Moreover, we include information on voluntarily provided environmental reports and find that these reports can serve as a substitute to the obligatory register.
    Keywords: information disclosure; EPER; event study; environmental reports
    JEL: L51 Q52 G14
    Date: 2012–03–09
  15. By: Dennis Best; Ellina Levina
    Abstract: This paper is the first IEA analysis that focuses on country-specific trends, opportunities and challenges for carbon capture and storage (CCS). It follows previous IEA publications on CCS and studies on cleaner coal and advanced coal technologies. The paper benefitted from significant contributions and support from the China Coal Information Institute (CCII) of the State Administration of Work Safety (SAWS), and The Climate Group China. According to IEA analysis, if there are no major policy changes, carbon-intensive coal and other fossil fuels will continue to play a significant role in meeting future energy needs, both in China and globally. CCS is one technological option available to reduce carbon dioxide (CO2) emissions from the use of fossil fuels. CCS offers the opportunity to meet climate change objectives while providing energy security, as part of a portfolio of options including energy efficiency, renewable energy, nuclear energy, more efficient coal technologies and fuel switching from coal to gas. To meet global energy challenges associated with CO2 emissions, development and deployment of all available technologies will be necessary to achieve a more sustainable future. This paper discusses the status of CCS in China, providing updates on past activities in research and development (R&D), on current projects underway, and an overview of potential and challenges for CCS development in China. By exploring China’s energy and emission trends and pathways, this paper analyses China’s current CCS-related activities and policies, and options for financing CCS. The paper also provides perspectives on CCS from various Chinese stakeholders, and examples of key CCS activities with details on specific projects, and information on the regulatory and policy environment, as well as international co-operation related to CCS in China.
    Date: 2012–02–15
  16. By: Schröer, Sebastian
    Abstract: In order to achieve the climate protection goals in the building sector, a higher rate of building refurbishment is necessary to improve the energy standard of residential building stock in the European Union. Although subsidisation seems to be necessary, optimal measures concerning cost effectiveness are unclear. Using a stylised model of the German residential building stock, we analyse different refurbishment measures by simulating every relevant investment until 2030. In particular, we compare two different options that are relevant for political measures: first, comprehensive refurbishments that are expensive but achieve the greatest reductions in energy consumption and GHG emissions and second, partial refurbishments which include only low-cost improvements but can be achieved on a wide scale. We conclude that comprehensive refurbishments will require the least amount of investment costs per ton GHG emissions and provide the highest reductions in energy consumption in 2030. Hence, partial refurbishments are never optimal. However, in terms of cumulated GHG emissions in the period considered, the difference between both options is very small. This is due to their different dynamics: comprehensive refurbishments achieve fewer results in the first years but catch up quickly, which means that the higher the refurbishment rate the higher the advantage of comprehensive refurbishments. --
    Keywords: residential building sector,refurbishment,climate policy,energy saving,policy scenarios
    JEL: C60 H30 O33 Q40 Q58
    Date: 2012
  17. By: Kai A. Konrad; Marcel Thum
    Abstract: We analyze bargaining over international climate agreements in a setting with incomplete information about abatement costs. Unilateral commitment to high abatement reduces the gains from global cooperation. This reduces the probability of reaching efficient international environmental agreements.
    Keywords: mitigation, international climate agreements, bargaining, unilateral advances
    JEL: Q54 Q58 F53 H41
    Date: 2011–12
  18. By: Hoel, Michael (Dept. of Economics, University of Oslo)
    Abstract: Countries with an active climate policy often use several other policy instruments in addition to a price on carbon emissions, such as subsidies to renewable energy. An obvious reason for subsidizing alternatives to carbon energy is that the price of carbon emissions is "too low". The paper derives implications for a second-best climate policy if for some reason the price of carbon emissions is lower than the Pigovian level, and also discusses reasons policy makers might have for setting the tax rate at an ine¢ ciently low level. Even if the current tax rate is optimally set, governments cannot commit to future tax rates. In some cases this inabilty to commit may justify subsidies to investments in renewable energy.
    Keywords: carbon tax; subsidies; commitment
    JEL: Q42 Q48 Q54 Q58
    Date: 2012–01–26

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