nep-ene New Economics Papers
on Energy Economics
Issue of 2013‒05‒11
thirty-two papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao

  1. How Should Benefits and Costs Be Discounted in an Intergenerational Context? The Views of an Expert Panel By Arrow, Kenneth J.; Cropper, Maureen L.; Gollier, Christian; Groom, Ben; Heal, Geoffrey M.; Newell, Richard G.; Nordhaus, William D.; Pindyck, Robert S.; Pizer, William A.; Portney, Paul R.; Sterner, Thomas; Tol, Richard S. J.; Weitzman, Martin L.
  2. Energy intensive infrastructure investments with retrofits in continuous time : effects of uncertainty on energy use and carbon emissions By Framstad, Nils Christian; Strand, Jon
  3. Designing Renewable Electricity Policies to Reduce Emissions By Fell, Harrison; Linn, Joshua; Munnings, Clayton
  4. Des modes de capture du carbone et de la compétitivité relative des énergies primaires By Amigues, Jean-Pierre; Lafforgue, Gilles; Moreaux, Michel
  5. Policies To Encourage Home Energy Efficiency Improvements: Comparing Loans, Subsidies, and Standards By Walls, Margaret
  6. Regulating Greenhouse Gases from Coal Power Plants under the Clean Air Act By Linn, Joshua; Mastrangelo, Erin; Burtraw, Dallas
  7. The private and social monetary costs and the energy consumption of a car. An estimate for seven cars with different vehicle technologies on sale in Italy By Rusich, Andrea; Danielis, Romeo
  8. The Economics of Climate Change and Science of Global Warming Debate:African Perspectives By Nwaobi, Godwin
  9. Reforms for a Cleaner, Healthier Environment in China By Sam Hill
  10. Carbon Markets: Past, Present, and Future By Newell, Richard G.; Pizer, William A.; Raimi, Daniel
  11. Modeling the Electricity Sector: A Summary of Recent Analyses of New EPA Regulations By Beasley, Blair; Morris, Daniel
  12. Mercury and Air Toxics Standards Analysis Deconstructed: Changing Assumptions, Changing Results By Beasley, Blair; Woerman, Matt; Paul, Anthony; Burtraw, Dallas; Palmer, Karen
  13. Risk-Return Incentives in Liberalised Electricity Markets By Richard S.J. Tol; Muireann Lynch; Aonghus Shortt; Mark O’Malley
  14. Cooperation and Climate Change: Can Communication Facilitate the Provision of Public Goods in Heterogeneous Settings? By Brick, Kerri; Van der Hoven, Zoe; Visser, Martine
  15. The Dynamics of Electric Cookstove Adoption: Panel Data Evidence from Ethiopia By Alem, Yonas; Hassen, Sied; Kohlin, Gunnar
  17. A Macroeconomic Analysis of Energy Subsidies in a Small Open Economy By Gerhard Glomm; Juergen Jung
  18. Climate Change and Carbon Capture and Storage By Moreaux, Michel; Withagen, Cees
  19. Lin, B., Jiang, Z, 2012. Designation and influence of household increasing block electricity tariffs in China. Energy Policy 42, pp. 164–173: How biased is the measurement of household’s loss? By Salies, Evens
  20. Linking by Degrees: Incremental Alignment of Cap-and-Trade Markets By Burtraw, Dallas; Palmer, Karen; Munnings, Clayton; Weber, Paige; Woerman, Matt
  21. Foreign aid, green cities and buildings By Kablan, Sandrine
  22. Bridging the Energy Efficiency Gap: Insights for Policy from Economic Theory and Empirical Analysis By Gillingham, Kenneth; Palmer, Karen
  23. What Changes Energy Consumption, and for How Long? New Evidence from the 2001 Brazilian Electricity Crisis By Gerard, Francois
  24. Environmental policy and incentives to adopt abatement technologies under endogenous uncertainty By Federico Boffa; Stefano Clò; Alessio D'Amato
  25. Foreign aid for climate change related capacity building By Chen, Zexian; He, Jingjing
  26. Economic Ideas for a Complex Climate Policy Regime By Burtraw, Dallas; Woerman, Matt
  27. Centralization and accountability: Theory and evidence from the Clear Air Act By Federico Boffa; Giacomo A.M. Ponzetto; Amedeo Piolatto
  28. The Distributive Effect and Food Security Implications of Biofuels Investment in Ethiopia: A CGE Analysis By Gebreegziabher, Zenebe; Mekonnen, Alemu; Ferede, Tadele; Guta, Fantu; Levin, Jörgen; Köhlin, Gunnar; Alemu, Tekie; Bohlin, Lars
  29. Source of Cost Reduction in Solar Photovoltaics By Pillai, Unni; Cruz, Kyle
  30. A Model of Competition in the Solar Panel Industry By Pillai, Unni; McLaughlin, Jamison
  31. Environmental taxes in the long run By Vetter, Henrik
  32. How Much do We Care about Air Quality Improvements? Evidence from Italian Households Data By Chiara Martini; Silvia Tiezzi

  1. By: Arrow, Kenneth J.; Cropper, Maureen L. (Resources for the Future); Gollier, Christian; Groom, Ben; Heal, Geoffrey M.; Newell, Richard G.; Nordhaus, William D.; Pindyck, Robert S.; Pizer, William A.; Portney, Paul R.; Sterner, Thomas; Tol, Richard S. J.; Weitzman, Martin L.
    Abstract: In September 2011, the US Environmental Protection Agency asked 12 economists how the benefits and costs of regulations should be discounted for projects that affect future generations. This paper summarizes the views of the panel on three topics -- the use of the Ramsey formula as an organizing principle for determining discount rates over long horizons, whether the discount rate should decline over time, and how intra- and intergenerational discounting practices can be made compatible. The panel members agree that the Ramsey formula provides a useful framework for thinking about intergenerational discounting. We also agree that theory provides compelling arguments for a declining certainty-equivalent discount rate. In the Ramsey formula, uncertainty about the future rate of growth in per capita consumption can lead to a declining consumption rate of discount, assuming that shocks to consumption are positively correlated. This uncertainty in future consumption growth rates may be estimated econometrically based on historic observations, or it can be derived from subjective uncertainty about the mean rate of growth in mean consumption or its volatility. Determining the remaining parameters of the Ramsey formula is, however, challenging.
    Keywords: discount rate, uncertainty, declining discount rate, benefit-cost analysis
    JEL: D61
    Date: 2012–12–19
  2. By: Framstad, Nils Christian; Strand, Jon
    Abstract: Energy-intensive infrastructure may tie up fossil energy use and carbon emissions for a long time after investments, making the structure of such investments crucial for society. Much or most of the resulting carbon emissions can often be eliminated later, through a costly retrofit. This paper studies the simultaneous decision to invest in such infrastructure, and retrofit it later, in a model where future climate damages are uncertain and follow a geometric Brownian motion process with positive drift. It shows that greater uncertainty about climate cost (for given unconditional expected costs) then delays the retrofit decision by increasing the option value of waiting to invest. Higher energy intensity is also chosen for the initial infrastructure when uncertainty is greater. These decisions are efficient given that energy and carbon prices facing the decision maker are (globally) correct, but inefficient when they are lower, which is more typical. Greater uncertainty about future climate costs will then further increase lifetime carbon emissions from the infrastructure, related both to initial investments, and to too infrequent retrofits when this emissions level is already too high. An initially excessive climate gas emissions level is then likely to be worsened when volatility increases.
    Keywords: Climate Change Mitigation and Green House Gases,Climate Change Economics,Transport Economics Policy&Planning,Energy Production and Transportation,Environmental Economics&Policies
    Date: 2013–04–01
  3. By: Fell, Harrison; Linn, Joshua (Resources for the Future); Munnings, Clayton (Resources for the Future)
    Abstract: A variety of renewable electricity policies to promote investment in wind, solar, and other types of renewable generators exist across the United States. The federal renewable energy investment tax credit, the federal renewable energy production tax credit, and state renewable portfolio standards are among the most notable. Whether the benefits of promoting new technology and reducing pollution emissions from the power sector justify these policies’ costs has been the subject of considerable debate. We argue in this paper that the debate is misguided because it does not consider two important interactions between renewable electricity generators and the rest of the power system. First, the value of electricity from a renewable generators depends on the generation and investment it displaces. Second, a large increase in renewable generation can reduce electricity prices, increasing consumption and emissions from fossil generators, and offsetting some of the environmental benefits of the policies. Two policy conclusions follow. First, existing renewable electricity policies can be redesigned to promote investment in the highest-value generators, which can greatly reduce the cost of achieving a given emissions reduction. Second, subsidies financed out of general tax revenue reduce emissions less than subsidies financed by charges to electricity consumers.
    Keywords: renewable portfolio standard, production tax credit, investment tax credit, feed-in tariff, clean energy standard, cost-effectiveness, intermittency, wind energy, solar energy
    JEL: Q40 Q54 L94
    Date: 2012–12–12
  4. By: Amigues, Jean-Pierre; Lafforgue, Gilles; Moreaux, Michel
    Abstract: We characterize the optimal exploitation paths of two perfect substitute primary energy resources, a non-renewable polluting resource and a carbon-free renewable one. Both resources can supply the energy needs of two sectors. Sector 1 is able to reduce its carbon footprint at a reasonable cost owing to a CCS device. Sector 2 has only access to the air capture technology, but at a significantly higher cost. We assume that the atmospheric carbon stock cannot exceed some given ceiling. We show that it is optimal to begin by fully capturing the sector 1's emissions before the ceiling is reached and next, to deploy the air capture in order to partially abate sector 2’s emissions. The optimal carbon tax is first increasing during the pre-ceiling phase and next, it declines in stages down to 0.
    Keywords: Climate change; Energy; CCS; Air capture; Carbon tax.
    JEL: Q32 Q42 Q54 Q58
    Date: 2013–04
  5. By: Walls, Margaret (Resources for the Future)
    Abstract: Residential buildings are responsible for approximately 20 percent of U.S. energy consumption, and single-family homes alone account for about 16 percent. Older homes are less energy efficient than newer ones, and although many experts have identified upgrades and improvements that can yield significant energy savings at relatively low, or even negative, cost, it has proved difficult to spur most homeowners to make these investments. In this study, I analyze the energy and carbon dioxide (CO2) impacts from three policies aimed at improving home energy efficiency: a subsidy for the purchase of efficient space heating, cooling, and water heating equipment; a loan for the same purchases; and efficiency standards for such equipment. I use a version of the U.S. Energy Information Administration’s National Energy Modeling System, NEMS-RFF, to compute the energy and CO2 effects and standard formulas in economics to calculate the welfare costs of the policies. I find that the loan is quite cost-effective but provides only a very small reduction in emissions and energy use. The subsidy and the standard are both more costly but generate emissions reductions seven times larger than the loan. The subsidy promotes consumer adoption of very high-efficiency equipment, whereas the standard leads to purchases of equipment that just reach the standard. The discount rate used to discount energy savings from the policies has a large effect on the welfare cost estimates.
    Keywords: energy efficiency, building retrofits, welfare costs, cost-effectiveness
    JEL: L94 L95 Q40
    Date: 2012–12–06
  6. By: Linn, Joshua (Resources for the Future); Mastrangelo, Erin; Burtraw, Dallas (Resources for the Future)
    Abstract: The Clean Air Act has assumed the central role in US climate policy, directing the development of regulations governing greenhouse gas emissions from existing coal-fired power plants. This paper examines the operation of coal-fired generating units over 25 years to estimate the marginal costs and potential magnitude of emissions reductions from improving their efficiency. We find that a 10 percent increase in coal prices causes a 0.2 to 0.5 percent heat rate reduction, broadly consistent with engineering assessments. We also find that coal prices have a significant effect on utilization. The results are used to compare cost-effectiveness of alternative policies.
    Keywords: efficiency, regulation, greenhouse gas, carbon dioxide, coal, performance standards
    JEL: L94 Q54
    Date: 2013–02–19
  7. By: Rusich, Andrea; Danielis, Romeo (University of Trieste, Italy)
    Abstract: This paper estimates the total private and social cost of seven cars (the gasoline VW Polo, the diesel Ford Fiesta, the CNG Fiat Punto Evo Natural Power, the LPG Alfa Romeo MiTo, the Hybrid Toyota Yaris, the BEV with leased-battery Renault Zoe and the BEV Peugeot iOn.), making use of the Italian data with reference to the vehicles’ purchase and maintenance costs, fuel and electricity costs, energy mix, pollution and noise costs. Among the selected cars, the diesel Ford Fiesta currently performs best from the private and social cost as well as energy consumption point of view. From the social point of view, both the Toyota Yaris (Hybrid) and the Alfa R. MiTo (bi-fuel LPG) perform as well as the BEVs, and the absolute difference with the conventional fuel cars is quite small. A scenario analysis is also performed to evaluate how the cars’ ranking is affected by how many years a car is kept, by how many kilometers per year a car is driven, by the subsidies enacted by the Italian government, by an increase in the price of fuel and by a decrease in the price of the batteries.
    Date: 2013
  8. By: Nwaobi, Godwin
    Abstract: As at today, it is an indisputable fact that the climate is changing and there is a scientific consensus that the world is becoming a warmer place principally attributable to human activities. Regrettably, the physical impacts of future climate change on humans and the environment will include increasing stresses on and even collapses of ecosystems, biodiversity loss, changing timing of growing seasons, coastal erosion, and ocean acidification as well as shifting ranges for pests and diseases. Consequently, development goals are threatened by climate change with heaviest impacts on poor countries and poor people. In particular, African countries will bear the brunt of effects of climate change, even as they strive to overcome poverty and advance economic growth. For these countries, climate change threatens to deepen vulnerabilities, erode hard-won gains and seriously undermine prospects for development. Using environmental impact and sustainability applied general equilibrium model, this paper argues that climate change will negatively affect agricultural productivity in Africa. Although the obligations to mitigate and adapt to climate change (and to go green) may be costly, it can actually represent an opportunity for African economies. As latecomers, Africa has indeed an opportunity to be at the forefront of the green revolution by implementing green development strategies based on low energy –intensity, low-carbon emissions and clean technologies.
    Keywords: Climate Change, Global Warming, Sustainable Development, Carbon Dioxide, Emissions, Methane, Nitrox Oxide, Simulations, Africa, Climate Finance, Abatement, Mitigation, Policies, Green Growth, Green Economy, Environment, Strategies, Perspectives, Challenges, Development Models, Temperature, Agriculture, Productivity, Poverty, Global Partnership, Ocean, Earth, Greenhouse Gases, Envisage, Cge Model, Energy Climate Change, Global Warming, Sustainable Development, Carbon Dioxide, Emissions, Methane, Nitrox Oxide, Simulations, Africa, Climate Finance, Abatement, Mitigation, Policies, Green Growth, Green Economy, Environment, Strategies, Perspectives, Challenges, Development Models, Temperature, Agriculture, Productivity, Poverty, Global Partnership, Ocean, Earth, Greenhouse Gases, Envisage, Cge Model, Energy
    JEL: D5 D62 H2 I3 L50 O1 O13 O14 O19 O2 O21 O3 O30 O33 O4 Q0 Q2 Q3 Q4 R0
    Date: 2013–05–07
  9. By: Sam Hill
    Abstract: China’s exceptional economic expansion has led to rising energy demand and pollution as well as other environmental pressures. Strong efforts by the government have moderated emissions of some types of air and water pollution from high levels but others, including greenhouse gas emissions, continue to rise. Poor air and water quality threaten human health, create other costs and reduce well-being. The 12th Five Year Plan aims at further reducing pollution and at other environmental improvements. To achieve these goals in a cost-effective manner wide-ranging reforms are needed. Reliance on command-and-control measures ought to make way gradually for well-implemented market-based approaches. Energy and water pricing need to be reformed to provide stronger incentives for end-users. So does pollution pricing. A carbon tax should be given serious consideration, especially if pilot carbon emissions trading schemes turn out to be difficult to implement. As well, stronger standards are needed, including for motor vehicles and fuels. Efforts to enhance environmental enforcement, particularly at the local level, will also be key to further progress. This Working Paper relates to the 2013 OECD Economic Survey of China (<P>Des réformes pour assainir l'environnement en Chine<BR>L’expansion économique exceptionnelle de la Chine a entraîné une demande croissante d'énergie et une hausse de la pollution ainsi que d'autres pressions environnementales. Les efforts soutenus du gouvernement ont modéré les émissions de certains types de pollution de l’air et de l’eau à des niveaux élevés, mais d'autres, y compris les émissions de gaz à effet de serre continuent d'augmenter. La mauvaise qualité de l'eau et de l’air menace la santé humaine, crée des coûts supplémentaires et réduit le bien-être. Le 12e plan quinquennal vise à réduire la pollution et à améliorer l'environnement. Pour atteindre ces objectifs d'une manière rentable de vastes réformes sont nécessaires. La dépendance à l'égard des mesures de commandement et de contrôle devrait faire place progressivement à une bonne mise en oeuvre des approches fondées sur le marché. Les prix de l'énergie et de l'eau doivent être réformés pour fournir des incitations plus fortes pour les utilisateurs finaux. Il en va de même pour la tarification de la pollution. Une taxe carbone devrait être sérieusement prise en considération, surtout si les régimes pilotes d'échange d'émissions de carbone se révèlent difficiles à mettre en oeuvre. De plus, des normes plus strictes sont nécessaires, notamment pour les véhicules à moteur et les carburants. Les efforts visant à renforcer le respect de l'environnement, en particulier au niveau local, seront également essentiels à de nouveaux progrès. Ce Document de travail se rapporte à l'Étude économique de la Chine de l’OCDE, 2013, (
    Keywords: health, environment, energy, renewable energy, China, air pollution, emissions trading scheme, carbon tax, cities, water pollution, pollution, environmental taxation, santé, environnement, énergie renouvelable, Chine, fiscalité environnementale, pollution de l'eau, pollution, taxe carbone, pollution de l’air, systèmes d'échange d'émissions
    JEL: I18 Q00 Q25 Q28 Q4 Q5 R48
    Date: 2013–04–17
  10. By: Newell, Richard G.; Pizer, William A.; Raimi, Daniel
    Abstract: Carbon markets are substantial and they are expanding. There are many lessons from experiences over the past eight years -- fewer free allowances, better management of market-sensitive information, and a recognition that trading systems require adjustments that have consequences for market participants and market confidence. Moreover, the emerging international architecture features separate emissions trading systems serving distinct jurisdictions. These programs are complemented by a variety of other types of policies alongside the carbon markets. This sits in sharp contrast to the integrated global trading architecture envisioned 15 years ago by the designers of the Kyoto Protocol and raises a suite of new questions. In this new architecture, jurisdictions with emissions trading have to decide how, whether, and when to link with one another, and policymakers overseeing carbon markets must confront how to measure the comparability of efforts among markets and relative to a variety of other policy approaches.
    Keywords: carbon market, tradable permit, allowance, climate change, greenhouse gas
    JEL: Q54 Q52 Q58 F53 D04
    Date: 2012–12–07
  11. By: Beasley, Blair (Resources for the Future); Morris, Daniel (Resources for the Future)
    Abstract: Several different economic models have been applied to try to understand how new regulations by the U.S. Environmental Protection Agency (EPA) could impact coal-fired generation in the United States as well as the electricity system as a whole. This paper provides an overview of many of the key studies and the models used to analyze the potential impacts of EPA’s rules. The regulations surveyed include the Cross-State Air Pollution Rule (CSAPR), the Mercury and Air Toxics Standards (MATS), the proposed Clean Water Act (CWA) Section 316(b) rule, and the proposed Coal Combustion Residuals (CCR) rule. The models generally agree that these regulations will result in coal plant retirements, though there is far less agreement on how much generation may retire. Assumptions about the price of natural gas and the expected stringency of regulations play a key role in determining modeling results. The models provide useful guidance for policymakers when considering the potential impact of EPA regulation.
    Keywords: Clean Air Act, electricity, EPA regulation, modeling, power plant retirement
    JEL: C69 L51 Q47 Q48 Q52
    Date: 2012–11–16
  12. By: Beasley, Blair (Resources for the Future); Woerman, Matt (Resources for the Future); Paul, Anthony (Resources for the Future); Burtraw, Dallas (Resources for the Future); Palmer, Karen (Resources for the Future)
    Abstract: Several recent studies have used simulation models to quantify the potential effects of recent environmental regulations on power plants, including the Mercury and Air Toxics Standards (MATS), one of the US Environmental Protection Agency’s most expensive regulations. These studies have produced inconsistent results about the effects on the industry, making general conclusions difficult. We attempt to reconcile these differences by representing the variety of assumptions in these studies within a common modeling platform. We find that the assumptions, and their differences from the way MATS will be implemented, make a substantial impact on projected retirement of coal-fired capacity and generation, investments that are required, and emissions reductions. Almost uniformly, the actual regulation, when examined in its final form and in isolation, provides more flexibility than is represented in most models. We find this leads to a smaller impact on the composition of the electricity generating fleet than most studies have predicted.
    Keywords: sulfur dioxide, mercury, air toxics, nitrogen oxides, carbon dioxide, electricity, technology, generation
    JEL: Q47 Q53 Q58
    Date: 2013–04–08
  13. By: Richard S.J. Tol (Department of Economics, University of Sussex, UK; Institute for Environmental Studies, Department of Spatial Economics, Vrije Universiteit, Amsterdam, The Netherlands); Muireann Lynch (Electricity Research Centre, University College, Dublin, Ireland); Aonghus Shortt (Electricity Research Centre, University College, Dublin, Ireland); Mark O’Malley (Electricity Research Centre, University College, Dublin, Ireland)
    Abstract: We employ Monte Carlo analysis to determine the distribution of returns for various electricity generation technologies. Costs and revenues for each technology are arrived by means of a sophisticated unit commitment and economic dispatch algorithm. The results show that small amounts of coal investment along with high investment in advanced CCGT can reduce the risk of baseload-only portfolios, while flexible generation technologies appear on the efficient frontier when all technology types are considered. Diversification incentives regarding operational considerations dominate over incentives to diversify between fuel types
    Keywords: Power generation, mean-variance portfolio
    JEL: Q40
    Date: 2012–10
  14. By: Brick, Kerri; Van der Hoven, Zoe; Visser, Martine
    Abstract: International and domestic efforts to reduce greenhouse gas emissions require a coordinated effort from heterogeneous actors. This experiment uses a public good game with a climate change framing to consider whether cooperation is possible in just such a climate change context. Specifically, we examine whether groups of heterogeneous individuals can meet a collective emissions reduction target through individual contributions. Participants represent two different sectors of society with differing marginal costs of abatement. Thus, the equity considerations that make climate change such a contentious issue are implicit in the experiment framing. Subjects are able to communicate with one another in order to coordinate contribution strategies. The results indicate that participatory processes and stakeholder engagement play an important role in promoting cooperation—even when heterogeneity is present. However, heterogeneity makes it more difficult for groups to reach consensus on how to distribute an abatement burden. Further, the non-binding nature of the agreement results in significant levels of free-riding. In addition, heterogeneity appears to provide disadvantaged player-types with a justification for free-riding. Ultimately, the results indicate that participatory processes alone are not sufficient to induce widespread compliance with a mitigation obligation.
    Keywords: public good, framing, communication, heterogeneity, emissions reduction target
    JEL: H41 Q54 Q58
    Date: 2012–11–16
  15. By: Alem, Yonas; Hassen, Sied; Kohlin, Gunnar
    Abstract: Previous studies on improved cookstove adoption in developing countries use cross-sectional data, which makes it difficult to control for unobserved heterogeneity and investigate what happens to adoption over time. We use robust non-linear panel data and hazard models on three rounds of panel data from urban Ethiopia to investigate the determinants and dynamics of electric cookstove adoption. We find the price of electricity and firewood, and access to credit as major determinants of adoption and transition. Our findings have important implications for policies aiming at promotion of energy transition and reduction of the pressure on forest resources in developing countries.
    Keywords: cookstoves, electric mitad, firewood, panel data, random-effects probit
    JEL: Q40 Q41 Q42 Q48
    Date: 2013–01–24
  16. By: Covi, Giovanni
    Abstract: The paper aims at investigating the dependency of the Russian economy on natural resources, underlining the causes and the possible consequences of this growth model. The analysis tries to evaluate if the Russian manufacturing has contracted the “Dutch Disease”, that is, if a boom in the oil and gas industry has led to a process of de-industrialization, directly through the resource movement effect and indirectly through the spending effect. In this investigation it will be emphasized the role played by the learning curves as a crucial factor in determining the comparative advantages of a country, and why an excessive reliance on exports of a single product may reduce the welfare of a nation in the long run.
    Keywords: Economic development - Dutch disease - Natural Resource Curse – Oil dependence – Industrial policy – Russian economic growth
    JEL: E52 O11 P28 Q32 Q33 Q43 Q48
    Date: 2013–05–02
  17. By: Gerhard Glomm (Department of Economics, Indiana University - Bloomington); Juergen Jung (Department of Economics, Towson University)
    Abstract: We construct a dynamic general equilibrium model to analyze the effects of large energy subsidies in a small open economy. The model includes domestic energy production and consumption, trade in energy at world market prices, as well as private and public sector production. The model is calibrated to Egypt and used to study reforms such as reductions in energy subsidies with corresponding reductions in various tax instruments, or increases in infrastructure investment. We calculate the new steady states, transition paths to the new steady state and the size of the associated welfare losses or gains. In response to a 15 percent cut in energy subsidies, GDP may fall as less energy is used in production. Excess energy is exported and capital imports fall. Welfare in consumption equivalent terms can rise by up to 0.6 percent of GDP. Gains in output can be realized only if the government re-invests into infrastructure.
    Keywords: Energy subsidies, fiscal policy reform, public sector reform, growth.
    JEL: E21 E63 H55 J26 J45
    Date: 2013–02
  18. By: Moreaux, Michel; Withagen, Cees
    Date: 2013–04
  19. By: Salies, Evens
    Abstract: The three-tier inclining block tariff (‘‘IBT’’) issued by the Chinese government in 2010 is focusing attention of energy economists, among whom Lin and Jiang (2012. Designation and influence of household increasing block electricity tariffs in China. Energy Policy 42, 164–173) who assert that the issued tariff is unsuited to meet the social and environmental objectives it was designed for. These authors offer an alternative four-tiered IBT, the performance of which they show by evaluating its welfare and income distribution effects taking the current uniform tariff as reference. To measure the surplus loss to a representative household in a given block the authors use the trapezoid approach. But, because of the limited data on demand, they calculate the household’s response by using a constant point estimate of the own-price elasticity of electricity demand. In this note I show there is an incompatibility between these two modeling assumptions. Combining them is causing an upward bias in the surplus loss, which is of significance given the large price change associated with the IBT. I then offer a correction to this bias.
    Keywords: Increasing block tariffs, Electricity demand, Welfare measurement
    JEL: D11 D63 Q41 Q48
    Date: 2012–09
  20. By: Burtraw, Dallas (Resources for the Future); Palmer, Karen (Resources for the Future); Munnings, Clayton (Resources for the Future); Weber, Paige; Woerman, Matt (Resources for the Future)
    Abstract: National and subnational economies have started implementing carbon pricing systems unilaterally, from the bottom up. Therefore, the potential linking of individual cap-and-trade programs to capture efficiency gains and other benefits is of keen interest. This paper introduces a two-tiered framework to guide policymakers, with an interest in North American policy outcomes. One tier discusses program elements that need to be aligned before trading of allowances across programs can occur. The second identifies benefits of incremental alignment of program elements even prior to trading between programs—which we call “linking by degrees.” We apply this framework to California’s cap-and-trade program and the Regional Greenhouse Gas Initiative. These programs are already linking through cooperation and sharing of information. Many aspects of the program designs are ready for the exchange of allowances within a common market; however, the difference in allowance prices remains an issue to be considered before formal linking could occur.
    Keywords: greenhouse gas, climate change, climate policy, policy coordination
    JEL: Q58 H77
    Date: 2013–04–05
  21. By: Kablan, Sandrine
    Abstract: This paper attempts, first, to assess foreign aid effectiveness in fostering green city procedures in developing countries. For this purpose, we rely on the following aid effectiveness criteria: national ownership; harmonization; alignment and mutual acco
    Keywords: climate change; climate finance; foreign aid; green cities and buildings; carbon emissions
    Date: 2013
  22. By: Gillingham, Kenneth; Palmer, Karen (Resources for the Future)
    Abstract: The failure of consumers to make seemingly cost-effective investments in energy efficiency is commonly referred to as the energy efficiency gap. We review the most recent literature relevant to the energy efficiency gap and in particular discuss what the latest insights from behavioral economics might mean for the gap. We find that engineering studies may overestimate the size of the gap by failing to account for all costs and neglecting particular types of economic behavior. Nonetheless, empirical evidence suggests that market failures such as asymmetric information and agency problems affect efficiency decisions and contribute to the gap. Behavioral anomalies have been shown to affect economic decisionmaking in a variety of other contexts and are being increasingly cited as an explanation for the gap. The relative contributions of the various explanations for the gap differ across energy users and energy uses. This heterogeneity poses challenges for policymakers, but also could help elucidate when different policy interventions will most likely be cost-effective. If behavioral anomalies can be more cleanly linked to energy efficiency investments, then policymakers will face new challenges in performing welfare analysis of energy efficiency policies.
    Keywords: energy efficiency, market failures, behavioral failures
    JEL: Q38 Q41
    Date: 2013–01–25
  23. By: Gerard, Francois
    Abstract: There is little evidence from impact evaluation studies of ambitious residential energy conservation programs, especially in developing countries. In this paper, I investigate the short- and long-term impacts of the most ambitious electricity conservation program to date. This was an innovative program of private incentives and conservation appeals implemented by the Brazilian government in 2001-2002 in response to supply shortages of over 20%. I find that the program reduced average electricity consumption per customer by 25% over a nine-month period in affected areas. Importantly, the program reduced consumption by 12% in the long run. Such persistent effects, which arose mostly from behavioral adjustments, may substantially improve the cost-effectiveness of ambitious conservation programs. Finally, I show that a price elasticity estimated out-of-crisis would have to be increased fivefold to rationalize conservation efforts by the private incentives alone. Appeals to social preferences likely amplify consumers' responsiveness in times of crisis.
    Keywords: residential energy conservation, price and non-price policies, long-term effects, developing countries
    Date: 2013–03–22
  24. By: Federico Boffa; Stefano Clò; Alessio D'Amato
    Abstract: We compare a carbon tax and a cap and trade mechanism in their propensity to induce carbon-reducing technological adoption, when investments are undertaken under uncertainty. In our setting, risk-neutral firms affect the variance and the correlation of the shocks they are exposed to through their technological choice,making uncertainty endogenous. We find that uncertainty associated with a given technology always impacts expected profits under a carbon tax, while under a cap and trade this is the case only as long as the shocks are not correlated across the firms; if,instead, shocks are perfectly correlated,uncertainty has no impact on profits. As a result, we show that, while under a carbon tax, initially symmetric firms tend to have symmetric strategies in equilibrium (either of adoption, or non adoption), a cap and trade system might also induce asymmetric adoption. Finally, we discuss several policy applications of our work, including an analysis of the effects of combining feed-in tariffs with carbon tax or cap and trade.
    Keywords: carbon tax, cap and trade, technology adoption, endogenous uncertainty
    JEL: L5 Q58 O33
    Date: 2013–04
  25. By: Chen, Zexian; He, Jingjing
    Abstract: The current climate change crisis has repeatedly alerted mankind to the urgency of tackling this pressing global challenge before it is too late. Developing countries, which have contributed negligibly to the present climate change problem are, neverthele
    Keywords: foreign aid, climate change, capacity building, climate change related capacity building
    Date: 2013
  26. By: Burtraw, Dallas (Resources for the Future); Woerman, Matt (Resources for the Future)
    Abstract: The parsimony of economic theory provides general insights into an otherwise complex world. However, even the most straightforward organizing principles from theory have not often taken hold in environmental policy or in the decentralized climate policy regime that is unfolding. One reason is inadequate recognition of a variety of institutions. This paper addresses three ways the standard model may inadequately anticipate the role of institutions in the actual implementation of climate policy: multilayered authority across jurisdictions, the impressionistic rather than deterministic influence of prices through subsidiary jurisdictions, and the complementary role of prices and regulation in this context. The economic approach is built on the premise that incentives affect behavior. We suggest an important pathway of influence for economic theory is to infuse incentive-based thinking into existing institutions and the conventional regulatory framework. In a complex policy regime, incentives can be shaped by shadow prices as well as market prices.
    Keywords: climate change, institutions, federalism, subsidiarity, efficiency, shadow prices, incentives, regulation
    JEL: Q54 H77 D02
    Date: 2013–03–08
  27. By: Federico Boffa (Institut d'Economia de Barcelona); Giacomo A.M. Ponzetto (Centre de Recerca en Economia Internacional - CREi); Amedeo Piolatto (Universidad de Alicante)
    Abstract: This paper studies fiscal federalism when voter information varies across regions. We develop a model of political agency with heterogeneously informed voters. Rent-seeking politicians provide public goods to win the votes of the informed. As a result, rent extraction is lower in regions with higher information. In equilibrium, electoral discipline has decreasing returns. Thus, political centralization reduces aggregate rent extraction. When the central government provides public goods uniformly across space, the model predicts that a region’s benefits from centralization are decreasing in its residents’ information. We test this prediction using panel data on pollutant emissions and newspaper circulation across the United States. The 1970 Clean Air Act centralized environmental policy at the federal level. In line with our theory, we find that centralization induced a faster decrease in pollution in less informed states.
    Keywords: Political centralization, Government accountability, Imperfect information, Interregional heterogeneity, Elections, Environmental policy, Air pollution.
    JEL: D72 D82 H73 H77 Q58
    Date: 2013–04
  28. By: Gebreegziabher, Zenebe; Mekonnen, Alemu; Ferede, Tadele; Guta, Fantu; Levin, Jörgen; Köhlin, Gunnar; Alemu, Tekie; Bohlin, Lars
    Abstract: In response to global opportunities and domestic challenges, Ethiopia is revising its energy policy to switch from high-cost imported fossil fuel to domestically produced biofuels. Currently, there are biofuel investment activities in different parts of the country to produce ethanol and biodiesel. However, there is no rigorous empirical study to assess impacts of such investments. This paper assesses the distributive effect and food security implications of biofuels investment in Ethiopia, using data from 15 biofuels firms and 2 NGOs in a CGE (computable general equilibrium) analysis. Findings suggest that biofuels investments in the context of Ethiopia might have a ‘win-win’ outcome that can improve smallholder productivity (food security) and increase household welfare. In particular, the spillover effects of certain biofuels can increase the production of food cereals (with the effect being variable across regions) without increasing cereal prices. When spillover effects are considered, biofuel investment tends to improve the welfare of most rural poor households. Urban households benefit from returns to labor under some scenarios. These findings assume that continued government investment in roads allows biofuels production to expand on land that is currently unutilized, so that smallholders do not lose land. Investment in infrastructure such as roads can thus maximize the benefits of biofuels investment.
    Keywords: biofuels investment, CGE model, food security, household welfare, equivalent variation, Ethiopia
    JEL: Q56 Q42 O44 O5
    Date: 2013–01–18
  29. By: Pillai, Unni; Cruz, Kyle
    Abstract: The price of solar panels has fallen rapidly over the last few decades. Using an extensive dataset of prices, costs, output, sales and technical characteristics of firms in the solar industry during 2005-2011, this paper investigates the factors that have contributed to the decline in costs and prices. While previous studies have attributed learning-by-doing and static scale economics as the main drivers of cost reduction, we find that these do not have any significant effect on cost once four other factors are taken into account, namely, (i) reduction in the cost of a principal raw material, (ii) increasing presence of solar panel manufacturers from China, (iii) technological innovations, and (iv) increase in investment at the industry level. Together, these suggest that innovations in the upstream industries that supply the solar panel industry with raw materials and capital equipment have been important drivers of technological progress in the solar panel industry.
    Keywords: Solar, Photovoltaics, Technological Change, Learning
    JEL: L6 O3 O30 Q40 Q42
    Date: 2013–05
  30. By: Pillai, Unni; McLaughlin, Jamison
    Abstract: We develop a model of competition in the solar panel industry. Solar firms manufacture panels that are differentiated both vertically and horizontally, and compete by setting quantities. The equilibrium of the model is consistent with a set of stylized facts that we document, including variation in prices, markups and market shares across firms. We calibrate the model using a new dataset data on prices, costs and shipments of leading solar companies, as well as solar sales in four leading markets. The calibrated model is applied to evaluate the impact of a decline in the price of polysilicon, a key raw material used in the manufacture of solar panels, on the equilibrium price of solar panels.
    Keywords: Solar, Photovoltaics, Competition, Polysilicon
    JEL: L11 Q40 Q42
    Date: 2013–05
  31. By: Vetter, Henrik
    Abstract: The efficiency of the Pigouvian tax suggests that price-based regulation is the proper benchmark for efficient regulation. However, results due to Carlton and Loury (1980, 1986) question this; when harm depends on scale effects a pure Pigou tax is inefficient regulation in the long run. In this note we make precise that there is an efficient tax scheme for controlling harm as long as social optimum exists. In particular, the efficient tax scheme is based on a tax rate equal to marginal harm. Hence, price regulation is the right benchmark for regulation even in the presence of scale effects in the harm function. --
    Keywords: externalities,scale effects,Pigou-taxes
    JEL: D61 D62
    Date: 2013
  32. By: Chiara Martini; Silvia Tiezzi
    Abstract: The purpose of this study is to identify the drivers of the Willingness to Pay (WTP) for air quality improvements in Italy. A better understanding of which factors, besides income, influence the willingness to pay for air quality improvements is important to guide future air quality policy. We estimate the WTP for air quality improvements in Italy using a novel approach (Ebert, 2007) and a unique dataset obtained by merging data on Italian households’ monthly current expenditure and information on a bundle of air pollutants’ concentrations. We find a WTP for air quality improvements between 2 and 10 Euros/month per household. We then consider how WTP varies by location of the household, the level of air quality and over time. We find higher WTP values for the Northwest and the Centre of Italy where the big metropolitan areas are located. We also observe that the WTP for air quality improvements declines as the level of air quality improves. Finally, the value of improvements in air quality decreases over time, maybe signaling a change of preferences.
    Keywords: Willingness to Pay, Air Quality Improvements, Demand Systems
    JEL: H22 H23 D63
    Date: 2013–05

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