nep-ene New Economics Papers
on Energy Economics
Issue of 2013‒05‒24
sixteen papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao

  1. Reforming Subsidies for Fossil Fuel Consumption: Killing Several Birds with One Stone By Charles E. McLure, Jr.
  2. Model projections and policy reviews for energy saving in China's service sector By Zhang, Lin
  3. A Nested Logit Model of Green Electricity Consumption in Western Australia By Ma, Chunbo; Burton, Michael
  4. Vehicle Scrappage and Gasoline Policy By Mark R. Jacobsen; Arthur A. van Benthem
  5. What drives oil prices? Emerging versus developed economies By Knut Are Aastveit; Hilde C. BjØrnland (Corresponding author)
  6. A green reform is not always green By Fosgerau, Mogens; Jensen, Thomas C.
  7. Uncertainty and International Climate Change Negotiations By Yiyong Cai; Warwick J. McKibbin
  8. The Benefit of Coordinating Congestion Management in Germany By Friedrich Kunz; Alexander Zerrahn
  9. Identifying social determinants of urban low carbon transitions: the case of energy transition in Bilbao, Basque Country By Marta Olazabal; Unai Pascual
  10. Oil price impact on financial markets: co-spectral analysis for exporting versus importing countries By Anna Créti; Zied Ftiti; Khaleb Guesmi
  11. Going green: Agent-based modeling of the diffusion of dynamic electricity tariffs By Anna Kowalska-Pyzalska; Katarzyna Maciejowska; Katarzyna Sznajd-Weron; Rafal Weron
  12. Overcoming the difficulties of developing and transferring an input-output model for electricity consumption forecasts to the users By Paixão, Paulo; Buratini, Ricardo; Guilhoto, Joaquim José Martins
  13. Risk Premia in Crude Oil Futures Prices By James D. Hamilton; Jing Cynthia Wu
  14. Price cap regulation with capacity withholding By A. Lemus; Diego Moreno
  15. Tarifications dynamiques et efficacité énergétique : l'apport des Smart Grids By Claire Bergaentzlé; Cédric Clastres
  16. Les voies de la réforme du secteur gazier russe By Catherine Locatelli

  1. By: Charles E. McLure, Jr. (Hoover Institution, Stanford University)
    Abstract: This paper examines subsidies for the consumption of fossil fuels provided by developing countries and oil-exporting countries. (In what follows all unqualified references to fuel subsidies are to subsidies for the consumption of fossil fuels, including electricity that is generated by combusting fossil fuel. Thus neither production subsidies nor subsidies for other types of energy, such as hydro, solar, wind, and nuclear, are considered.6 In this context, “consumption” does not mean only household consumption; it includes consumption by business and governments.) The next section describes the negative effects of fuel subsidies mentioned above in greater detail. Although emphasis in this paper, as in most of the literature and in policy discussions, is on eliminating fuel subsidies, it should be emphasized that reforming fuel subsidies does not necessarily mean eliminating them quickly. There may be cases in which temporary, limited, and well-targeted fuel subsidies are appropriate. No effort has been made to identify these cases, which would require case-by-case analysis of the situation in particular countries. Progress has been made in recent years in reducing or eliminating subsidies to the consumption of fossil fuels, but much remains to be done.7 Section III discusses briefly how fuel subsidies are defined, describes the price-gap methodology commonly used in cross-country comparisons of consumption subsidies, indicates some shortcomings in that methodology, and notes that the level of subsidies is quite sensitive to international fuel prices, moving in concert with them. Section IV presents estimates of fossil fuel consumption subsidies for the 37 countries on which the International Energy Agency has complete data. The section then briefly describes some of the implications of eliminating subsidies, focusing on potential budget impacts in countries that, as a fraction of GDP, run significant budget deficits and spend significant amounts on fuel subsidies. Fuel consumption subsidies are often defended as alleviating poverty, and some subsidies may further this objective. But, because fuel subsidies are often poorly targeted, the distributional impact of many subsidies is regressive, or at best proportionate to income. Regressivity is especially likely in most of the countries of Sub-Saharan Africa and some of those in Asia, where only a small minority of the population – fewer than 10 percent in many countries – uses modern fuels and may not even have access to them. It is often the middle class who benefit the most from fuel subsidies – and who defend them most adamantly.8 Section V discusses the distributional impact of eliminating subsidies, which varies from country to country, as well as by the type of fuel subsidized. Although fuel subsidies are costly and are not well-targeted to relieve poverty, eliminating subsidies may impose onerous burdens on the poor. It may thus be necessary, for humanitarian as well as political reasons, to accompany subsidy reform with measures to alleviate the burden on the poor. Section VI examines measures that can be used to protect the poor when fuel consumption subsidies are reformed. Lack of space and expertise precludes discussion of the important issues involved in implementing fuel subsidy reform, including means of increasing support for reform by addressing distributional concerns.9 The use of biomass (firewood, charcoal, straw, agricultural residue, or dung) or coal for cooking and heating has several serious disadvantages: inter alia, emissions of GHGs are greater than with fossil fuels other than coal, dangerous indoor air pollution leads to impaired health, especially for women and small children, use of biomass often requires devotion of many hours to gathering fuel, again commonly by women and children, and, where dung is used for fuel, it causes deterioration of soil fertility. In recent years substantial attention has been devoted to assuring access to clean energy for all.10 An alternative argument for subsidizing the use of fossil fuels, albeit one that probably does not explain the prevalence of subsidies, is thus to induce poor households to shift from biomass and coal (solid or “traditional fuels”) to modern (non-solid) fuels (kerosene, gas, and electricity). Section VII discusses the use of fuel subsidies to encourage consumers to switch from traditional fuels to modern fuels. A short concluding section draws some tentative conclusions, based on the analysis presented earlier. There is clearly a strong case for reforming subsidies to the consumption of fossil fuels, as reform would improve environmental, economic, and budgetary, performance in countries now providing fuel subsidies. Care must be taken, however, to avoid or offset adverse effects on the real income of the poor.
    Date: 2013–04–07
  2. By: Zhang, Lin
    Abstract: Energy efficiency of buildings in the service sector is becoming increasingly important in China due to the structural shift of the economy from industry to services. This paper employs a bottom-up cohort model to simulate current energy saving policies and to make projections for future energy use and CO2 emissions for the period 2000-2030 in the Chinese service sector. The analysis shows that energy demand in the service sector will approximately triple in 2030, far beyond the target of quadrupling GDP while only doubling energy use. However, it is feasible to achieve the target of emission reduction by 40% in 2020 even under the poor state of compliance rate of building standard. This paper also highlights four crucial aspects of designing optimal energy saving policies for China's service sector based on the model results.
    Keywords: Energy saving policy; Bottom-up; Service sector
    JEL: C63 Q43 Q47 Q48
    Date: 2013
  3. By: Ma, Chunbo; Burton, Michael
    Abstract: Green electricity products are increasingly made available to consumers in many countries in an effort to address a number of environmental and social concerns. Most of the existing literature on this green electricity market focuses on consumer’s characteristics and product attributes that could affect participation. However, the contribution of this environmental consumerism to the overall environmental good does not depend on participation alone. The real impact made relies on market penetration for green consumers (the proportion of green consumers) combined with the level of green consumption intensity – the commitment levels, or proportion of consumption that is green. We design an online interface that closely mimics the real market environment for electricity consumers in Western Australia and use a three-level nested logit model to analyze consumers’ choice of green electricity products as well as their commitment levels. Our main conclusions are that the choice of green products is strongly influenced by beliefs in the nature of climate change, and trust in the government and utilities in delivering the product. When green products are selected, the vast majority select the minimum commitment possible, and this is insensitive to the premium being charged on green power, suggesting that we are largely observing a ‘warm glow’ for carbon mitigation
    Keywords: Green Power, Nested Logit, Warm Glow, Green Electricity, Environmental Economics and Policy, Institutional and Behavioral Economics, Resource /Energy Economics and Policy,
    Date: 2013–04–26
  4. By: Mark R. Jacobsen; Arthur A. van Benthem
    Abstract: We estimate the sensitivity of scrap decisions to changes in used car values – the "scrap elasticity" – and show how it influences used car fleets under policies aimed at reducing gasoline use. Large scrap elasticities will tend to produce emissions leakage under efficiency standards as the longevity of used vehicles is increased, a process known as the Gruenspecht effect. To explore the magnitude of this leakage we assemble a novel dataset of U.S. used vehicle registrations and prices, which we relate through time via differential effects in gasoline cost: A gasoline price increase or decrease of $1 alters the number of fuel-efficient vs. fuel-inefficient vehicles scrapped by 18%. These relationships allow us to provide what we believe are the first estimates of the scrap elasticity itself, which we find to be about -0.7. When applied in a model of fuel economy standards, the elasticities we estimate suggest that 13-23% of the expected fuel savings will leak away through the used vehicle market. This considerably reduces the cost-effectiveness of the standard, rivaling or exceeding the importance of the often-cited mileage "rebound" effect.
    JEL: H23 Q52 Q58
    Date: 2013–05
  5. By: Knut Are Aastveit; Hilde C. BjØrnland (Corresponding author)
    Abstract: This paper explores the role of demand from emerging and developed economies as drivers of the real price of oil. Using a method that allows us to identify and compare demand from different groups of countries across the world, we find that demand from emerging economies (most notably from Asian countries) is more than twice as important as demand from developed countries in accounting for the fluctuations in the real price of oil and in oil production. Furthermore, we find that different geographical regions respond differently to adverse oil market shocks that drive up oil prices, with Europe and North America being more negatively affected than emerging economies in Asia and South America. We demonstrate that this heterogeneity in responses is not only attributable to differences in energy intensity in production across regions but also to degree of openness and the investment share in GDP.
    Keywords: Oil prices, emerging and developed countries, demand and supply shocks, factor augmented vector autoregressions
    JEL: C32 E32 F41
    Date: 2013–02
  6. By: Fosgerau, Mogens; Jensen, Thomas C.
    Abstract: This paper analyses a tax reform, explicitly conceived by policy makers to be climate-friendly, that partly replaces a high vehicle registration tax by road user charging and allows for differentiation of the remaining registration tax by fuel efficiency. A microeconomic framework is proposed to analyse such a reform. For the case of Denmark, the analysis shows that the reform is likely to yield a significant and robust welfare gain. However, it seems not unlikely that CO2 emissions from passenger cars may increase as a result of the reform.
    Keywords: Congestion; Road user charging; Tax reform; CO2; Welfare economics; Registration tax
    JEL: H2 R41
    Date: 2013
  7. By: Yiyong Cai; Warwick J. McKibbin
    Abstract: This paper explores the failure of countries to coordinate climate policies as an equilibrium outcome of a game where countries optimize in the face of both unprecedented economic and environmental uncertainty. Because issues associated with climate change are historically unprecedented and thus policymakers do not have a prior distribution over possible outcomes, the usual theoretical framework based on governments maximizing expected utility may not be suitable for analyzing climate policy choice. Under an alternative plausible assumption that policymakers act strategically but choose the policy that incurs the highest possible gain in the worst-case scenario, this paper shows how coordination can be inferior to unilateralism in both carbon mitigation and economic loss minimization. In order to make progress in reaching a global agreement in this situation, additional restrictions that help to reduce uncertainty can lead to a coordinated outcome that benefits the environment and minimizes economic cost.
    Keywords: climate change, policy game, coordination, robust control
    JEL: C71 C72 Q52 Q54
    Date: 2013–03
  8. By: Friedrich Kunz; Alexander Zerrahn
    Abstract: The management of congestion within the German electricity transmission network has become more important during the last years. This emerging relevance is caused by the increase of renewable generation and the partial phaseout of nuclear power plants. Both developments yield a change in the transmission flow pattern and thus the need for congestion management. Currently, four German transmission system operators (TSOs) are in charge of managing congestion using curative methods, particularly re-dispatch of power plants. However, the existence of four TSOs within Germany induces the question whether coordination between them in managing national congestion would be beneficial. To address this issue, we apply a generalized Nash equilibrium model to analyze different degrees of coordination, covering the German electricity market with a detailed representation of the generation and network structure. Our results indicate that the costs of congestion management decrease in a rising degree of coordination as TSOs take into account congestion in other operators' zones. Total costs are highest in case each TSO is solely responsible for its own zone, and lowest if one integrated entity is in charge of mitigating congestion. We conclude that, in a setup with multiple TSOs, inducing coordination, for instance through a common market, has the potential of lowering the overall costs of congestion management.
    Keywords: Congestion Management, Coordination, Electricity Economics, Generalized Nash Equilibrium, Germany
    JEL: C61 L94 Q40
    Date: 2013
  9. By: Marta Olazabal; Unai Pascual
    Abstract: Cities are widely defined as complex systems formed by coupled social, ecological and economical systems. The complexity of urban dynamics goes far beyond its boundaries due to the strong influence of larger scales and the deep dependence of cities on outside resources. Such crucial cross-scale effects can fuel maladaptive behaviour, conducting cities to rigid and unsustainable traps. Urban energy systems have all the ingredients of complexity, dependence and vulnerability to global environmental change. Presumably, transformability, like adaptability, depends on perceptions, values and culture of each society. Here it is hypothesized that often social behaviours related to the scepticism, close-minded attitudes, traditional economic models, lack of trust in institutions and in self-capacities are those which limit the potential of transformation in cities (favouring lock-in status). The type of energy and the way it is supplied depends largely on utilities, urban planning and design, economic incentives, regulations, investment opportunities etc. These determinants, together with household factors depending on lifestyle, rent, etc. affect the level of consumption and choices. Altogether, these determinants play a decisive role in decision making processes at individual and institutional level and therefore can limit the transformation potential. We use a case study in Bilbao (Basque Country) to illustrate barriers and hidden opportunities of a local energy transition through an analysis of its cognitive dimension. <br /> <br /> This is done by applying a semi-quantitative methodology (Q method) which aids to investigate the stakeholders’ perceived capacity of change. This results in four distinct discourses with direct implications in the potential of transformation of the city of Bilbao.<br />
    Keywords: urban sustainability, transitions, low carbon, Q method, Bilbao
    Date: 2013–05
  10. By: Anna Créti (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense); Zied Ftiti (IPAG - Business School, University of Tunis - High Institute of Management); Khaleb Guesmi (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense, IPAG - Business School)
    Abstract: The aim of this paper is to study the degree of interdependence between oil price and stock market index into two groups of countries: oil-importer countries (US, Italy, Germany, Netherland and France) and exporter ones (Emirate Arab Units, Kuwait Saudi Arabia and Venezuela). The dataset consists of monthly data from 03/09/2000 to 03/12/2010. We propose a new empirical methodology setting a time-varying dynamic correlation measure between the stock market index and the oil price series. We use the frequency approach proposed by Priestley and Tong (1973), and developed by Ftiti (2010) that is the evolutionary co-spectral analysis. This method allows us to distinguish between short-run and long-run dependence. We find that interdependence between oil price and stock markets is higher in the exporters countries than in the importers one.
    Keywords: oil prices, stock markets, evolutionary co-spectraL analysis
    Date: 2013–05–14
  11. By: Anna Kowalska-Pyzalska; Katarzyna Maciejowska; Katarzyna Sznajd-Weron; Rafal Weron
    Abstract: Using an agent-based modeling approach we show how personal attributes, like conformity or indifference, impact the opinions of individual electricity consumers regarding switching to innovative dynamic tariff programs. We also examine the influence of advertising, discomfort of usage and the expectations of financial savings on opinion dynamics. Our main finding is that currently the adoption of dynamic electricity tariffs is virtually impossible due to the high level of indifference in today's societies. However, if in the future the indifference level is reduced, e.g., through educational programs that would make the customers more engaged in the topic, factors like tariff pricing schemes and intensity of advertising will became the focal point.
    Keywords: Dynamic pricing; Time-of-use tariff; Demand response; Diffusion of innovations; Agent-based model; Spinson
    JEL: C63 O33 Q48 Q55
    Date: 2013–05–17
  12. By: Paixão, Paulo; Buratini, Ricardo; Guilhoto, Joaquim José Martins
    Abstract: This paper relates an ongoing experience of developing and transferring the knowledge required to understand and operate a regionally disaggregated supply and use input-output model. This R&D project is financed by ANEEL, the Brazilian regulatory agency for electricity generation and distribution, and it is conducted in partnership between an electricity utility company, CPFL, and the Department of Economics at the University of São Paulo (FEA/USP) in Brazil. A brief account of the model theoretical structure is provided, from which three major improvements are expected: a) a better impact assessment of structural economic changes on the consumption of electricity; b) analyses tailored to the specific regional boundaries of the CPFL area of operation; and c) the identification of direct and indirect changes on electricity consumption accruing from regional development. In order to establish an in-company team capable of applying the model in response to their day to day managerial demands, a training program was devised in order to make them as familiar as possible with the necessary input-output theoretical background, and also skillful enough so as to efficiently apply the model. The paper relates the challenges that have been found in doing so, which means not only transferring academic knowledge to an audience not familiarized to input-output economics within a time schedule severely constrained by the pressure of daily work, but also to match this knowledge to the company technical interests.
    Keywords: input-output; energy
    JEL: Q40 R15
    Date: 2012
  13. By: James D. Hamilton; Jing Cynthia Wu
    Abstract: If commercial producers or financial investors use futures contracts to hedge against commodity price risk, the arbitrageurs who take the other side of the contracts may receive compensation for their assumption of nondiversifiable risk in the form of positive expected returns from their positions. We show that this interaction can produce an affine factor structure to commodity futures prices, and develop new algorithms for estimation of such models using unbalanced data sets in which the duration of observed contracts changes with each observation. We document significant changes in oil futures risk premia since 2005, with the compensation to the long position smaller on average in more recent data. This observation is consistent with the claim that index-fund investing has become more important relative to commerical hedging in determining the structure of crude oil futures risk premia over time.
    JEL: G13 G23 Q14
    Date: 2013–05
  14. By: A. Lemus; Diego Moreno
    Abstract: A monopolist facing an uncertain demand makes ex-ante capacity decisions involving irreversible investments, and then chooses its output up to capacity upon the realization of demand. In equilibrium, capacity is low and underused. Imposing a binding price cap leads to an increase of capacity as well as expected output and total surplus, and to a decrease of expected price. The optimal price cap trades off the incentives for capacity investment and capacity withholding, and is well above the marginal cost. Price cap regulation alone cannot eliminate inefficiencies. When the unit cost of capacity is high the comparative static properties of price caps relative to the price cap than maximizes capacity investment ?* are analogous to those obtained when the demand is known with certainty, and the optimal price cap is ?*. When the unit cost of capacity is low, however, the expected output and surplus decrease with the price cap above and around ?*, and therefore the optimal price cap is below ?*.
    Keywords: Monopoly, Market power, Price cap regulation, Capacity investment, Capacity withholding, Demand uncertainty
    Date: 2013–05
  15. By: Claire Bergaentzlé (PACTE - Politiques publiques, ACtion politique, TErritoires - Institut d'Études Politiques [IEP] - Grenoble - CNRS : UMR5194 - Université Pierre Mendès-France - Grenoble II - Université Joseph Fourier - Grenoble I); Cédric Clastres (PACTE - Politiques publiques, ACtion politique, TErritoires - Institut d'Études Politiques [IEP] - Grenoble - CNRS : UMR5194 - Université Pierre Mendès-France - Grenoble II - Université Joseph Fourier - Grenoble I)
    Abstract: Le développement des réseaux intelligents apparaît aujourd'hui comme l'une des mesures d'activation de la demande électrique, qui servira à atteindre des objectifs d'efficacités énergétiques et environnementales grâce à la maîtrise des consommations. Depuis maintenant une dizaine d'années, les programmes de gestion de la demande (DSM) obtiennent des résultats significatifs et des recommandations peuvent en être tirées. Ces recommandations dépendent notamment des offres tarifaires et de maîtrise de la demande ainsi que du mix de production des régions étudiées.
    Keywords: Smart Grids ; Effacement ; Tarification Dynamique ; réseau électrique intelligent
    Date: 2013–02
  16. By: Catherine Locatelli (PACTE - Politiques publiques, ACtion politique, TErritoires - Institut d'Études Politiques [IEP] - Grenoble - CNRS : UMR5194 - Université Pierre Mendès-France - Grenoble II - Université Joseph Fourier - Grenoble I)
    Abstract: Le secteur gazier russe est aujourd'hui l'objet d'évolutions en profondeur même s'il reste dominé par la puissante société Gazprom, détenue par l'Etat. Ces évolutions se caractérisent principalement par une restructuration de Gazprom, des hausses conséquentes de prix et surtout l'introduction de formes concurrentielles qui tendent à normer le comportement de Gazprom. Cette réorganisation ne suit cependant pas le modèle de restructuration des industries gazières mises en œuvre dans l'UE. Ce modèle est principalement basé sur la dé-intégration des monopoles verticalement intégrés et des marchés concurrentiels. Alors que c'était le projet initial (discuté en 2002), ce modèle s'avère de fait dans les conditions institutionnelles et économiques de la Russie impossible à mettre en œuvre.
    Date: 2013–03

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