nep-ene New Economics Papers
on Energy Economics
Issue of 2013‒07‒05
twenty-two papers chosen by
Roger Fouquet
London School of Economics

  1. A Retrospective Review of Shale Gas Development in the United States: What Led to the Boom? By Wang, Zhongmin; Krupnick, Alan
  2. Why Fracking Won't Bring Back the Factories (Yet) By Bown, Chad; Denevers, Michele; Harrison, Ann
  3. Revisiting Jansen et al.’s Modiï¬ed Cournot Model of the European Union Natural Gas Market By Zaifu Yang; Rong Zhang; Zongyi Zhang
  4. Resource discoveries, learning, and national income accounting By Hamilton, Kirk; Atkinson, Giles
  5. Tying up loose ends: A note on the impact of omitting MA residuals from panel energy demand models based on the Koyck lag transformation By David C Broadstock; Lester C Hunt
  6. How much does an increase in oil prices affect the global economy ? some insights from a general equilibrium analysis By Timilsina, Govinda R.
  7. Long-term impacts of household electrification in rural India By van de Walle, Dominique; Ravallion, Martin; Mendiratta, Vibhuti; Koolwal, Gayatri
  8. Revisiting the Merit-Order Effect of Renewable Energy Sources By Marcus Hildmann; Andreas Ulbig; G\"oran Andersson
  9. Connection charges and electricity access in Sub-Saharan Africa By Golumbeanu, Raluca; Barnes, Douglas
  10. Market and Welfare Effects of Renewable Portfolio Standard in the Vertically Differentiated U.S. Energy Markets By Bhattacharya, Suparna; Giannakas, Konstantinos; Schoengold, Karina
  11. Comparative Life Cycle Assessments: Carbon Neutrality and Wood Biomass Energy By Sedjo, ROger A.
  12. An economic model of Brazil's ethanol-sugar markets and impacts of fuel policies By de Gorter, Harry; Kliauga, Erika M.; Timilsina, Govinda R.
  13. Arbitrage between ethanol and gasoline: evidence from motor fuel consumption in Brazil By Pouliot, Sebastien
  14. Should Zambia produce biodiesel from soybeans ? some insights from an empirical analysis By de Gorter, Harry; Drabik, Dusan; Timilsina, Govinda R.
  15. Are biofuels economically competitive with their petroleum counterparts ?production cost analysis for Zambia By Sinkala, Thomson; Timilsina, Govinda R.; Ekanayake, Indira J.
  16. Optimizing the Cost and Greenhouse Gas Emissions of Switchgrass Supply System to Biorefineries: A Case Study of Tennessee By Wang, Zidong; Yu, T. Edward; English, Burton C.; Larson, James A.
  17. Stochastic viability of second generation biofuel chains: Micro-economic spatial modeling in France By Laure Bamière; Vincent Martinet; Christophe Gouel
  18. Macroeconomic and distributional impacts of jatropha-based biodiesel in Mali By Boccanfuso, Dorothee; Coulibaly, Massa; Timilsina, Govinda R.; Savard, Luc
  19. Zu Risiken und Nebenwirkungen des Erneuerbare-Energien-Gesetzes By Hessler, Markus; Loebert, Ina
  20. A Spatial Dynamic Panel Analysis of the Environmental Kuznets Curve in European Countries By Hermann Pythagore Pierre Donfouet; P. Wilner Jeanty; Eric Malin
  21. Mixing It Up: Power Sector Energy and Regional and Regulatory Climate Policies in the Presence of a Carbon Tax By Burtraw, Dallas; Palmer, Karen L.
  22. Economic Ideas for a Complex Climate Policy Regime By Burtraw, Dallas; Woerman, Matt

  1. By: Wang, Zhongmin (Resources for the Future); Krupnick, Alan (Resources for the Future)
    Abstract: This is the first academic paper that reviews the economic, policy, and technology history of shale gas development in the United States. The primary objective of the paper is to answer the question of what led to the shale gas boom in the United States to help inform stakeholders in those countries that are attempting to develop their own shale gas resources. This paper is also a case study of the incentive, process, and impact of technology innovations and the role of government in promoting technology innovations in the energy industry. Our review finds that government policy, private entrepreneurship, technology innovations, private land and mineral rights ownership, high natural gas prices in the 2000s, and a number of other factors all made important contributions to the shale gas boom.
    Keywords: shale gas, policy, research and development, technology, hydraulic fracturing, horizontal drilling
    JEL: Q4 O3 L71
    Date: 2013–04–24
  2. By: Bown, Chad; Denevers, Michele; Harrison, Ann
    Abstract: Since last fall, President Obama has repeatedly declared that manufacturing jobs are coming back to America. In this article, however, we suggest that the return of U.S. manufacturing is still more promise than reality.In particular, while the recent increase in natural gas exploration and production has been optimistically linked to a U.S. manufacturing revival, the boom has not led to significant growth in employment. Paradoxically, for the U.S. to reap the greatest benefit possible from the extraction of its natural gas reserves, both more and fewer regulations are needed. On the one hand, current restrictions on natural gas exports must to be lifted to provide the right incentives for domestic producers, who receive much lower prices at home than they would abroad. On the other hand, more comprehensive environmental regulations would reassure critics that natural gas does indeed providea clean and sustainable promise for the U.S. economy.
    Keywords: environment; fracking; natural gas, climate change; methane
    JEL: Q4 Q5 Q55 Q58
    Date: 2013
  3. By: Zaifu Yang; Rong Zhang; Zongyi Zhang
    Abstract: In this paper we reconsider Jansen et al.’s (2012) Cournot model of the European Union natural gas market with three major suppliers Russian Gazprom, Norwegian Statoil, and Algerian Sonatrach. To reflect Russia’s geopolitical consideration, we incorporate a relative market share to Gazprom’s objective function. Compared with Jansen et al.’s use of standard market share, our study shows that the introduction of relative market share makes it not only possible to derive the same results in a more general environment, but also permits us to obtain clear-cut quantitative analysis results for equilibrium solution, consumer surplus, and social welfare. Our analysis also demonstrates for this modiï¬ed Cournot model that by seeking a proper market share, Gazprom can achieve the same profits of a Stackelberg leader in a simultaneous move model as in the classical sequential move leader-follower model. When Gazprom pursues the control of market share besides proï¬ts, it will be good news for the EU’s consumers but bad news for its rivals.
    Keywords: Natural gas market; Cournot model; Stackelberg leader’s advantage; Nonproï¬t incentives; Relative market share; European Union
    JEL: C62 C72 L13 L95 Q41
    Date: 2013–06
  4. By: Hamilton, Kirk; Atkinson, Giles
    Abstract: Questions about the ultimate size of mineral and energy resource endowments and the degree of fiscal prudence which should be exercised by countries engaged in resource extraction have become central for many developing countries during the recent resource boom. To explore these questions, this paper develops a model of optimal resource extraction and discovery that combines two polar assumptions: (i) that discovering a resource today drives up the cost of future resource discoveries, and (ii) that extracting resources yields knowledge that reduces the cost of discovery. Although the model shows that resource discoveries should be valued at marginal discovery cost in measures of national saving and income, the ultimate size of the resource that can be exploited is the result of the interplay between rising discovery costs and accumulating knowledge. Empirical tests of the model show that the resulting income estimates would be extremely volatile for many extractive economies, owing to the lumpiness of resource discoveries. Two alternative accounting approaches, based on Hicksian concepts, yield more intuitive and less volatile income estimates. The question of fiscal prudence for extractive economies hinges on how optimistic countries are about the risks in future mineral and energy markets, and how far into the future these countries are willing to project optimistic trends when making decisions about how much to consume and how much to save of current resource revenues.
    Keywords: Environmental Economics&Policies,Economic Theory&Research,Debt Markets,Climate Change Economics,Banks&Banking Reform
    Date: 2013–06–01
  5. By: David C Broadstock (Research Institute of Economics and Management (RIEM), Southwestern University of Finance and Economics, Sichuan, China and Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey, UK.); Lester C Hunt (Surrey Energy Economics Centre (SEEC), University of Surrey, UK.)
    Abstract: Energy demand functions based on Koyck lag transformation result in an MA error process that is generally ignored in estimated panel data models. This note explores the implications of this assumption by estimating panel energy demand functions with asymmetric price responses and an MA process modelled explicitly. It is found that although the models with an MA term might be preferred statistically, they result in inferential problems implying that there might be a need to revisit the specification of panel energy demand functions used in a number of previous studies.
    Keywords: Koyck-lag transformation, Moving average errors, Panel data, Aggregate energy demand.
    JEL: C8 Q4
    Date: 2013–03
  6. By: Timilsina, Govinda R.
    Abstract: A global computable general equilibrium model is used to analyze the economic impacts of rising oil prices with endogenously determined availability of biofuels to mitigate those impacts. The negative effects on the global economy are comparable to those found in other studies, but the impacts are unevenly distributed across countries/regions or sectors. The agricultural sectors of high-income countries, which are relatively energy intensive, would suffer more from rising oil prices than would those in lower-income countries, whereas the reverse is true for the impacts across manufacturing sectors. The impacts are especially strong for oil importers with relatively energy-intensive manufacturing and trade, such as India and China. Although the availability of biofuels does mitigate some of the negative impacts of rising oil prices, the benefit is small because the capacity of biofuels to economically substitute for fossil fuels on a large scale remains limited.
    Keywords: Energy Production and Transportation,Energy Demand,Oil Refining&Gas Industry,Environment and Energy Efficiency,Energy and Environment
    Date: 2013–06–01
  7. By: van de Walle, Dominique; Ravallion, Martin; Mendiratta, Vibhuti; Koolwal, Gayatri
    Abstract: India's huge expansion in rural electrification in the 1980s and 1990s offers lessons for other countries today. The paper examines the long-term effects of household electrification on consumption, labor supply, and schooling in rural India over 1982-99. It finds that household electrification brought significant gains to consumption and earnings, the latter through changes in market labor supply. It finds positive effects on schooling for girls but not for boys. External effects are also evident, whereby households without electricity benefit from village electrification. Wage rates were unaffected. Methodologically, the results suggest sizeable upward biases in past estimates of the gains from electrification associated with how past analyses dealt with geographic effects.
    Keywords: Energy Production and Transportation,Engineering,Labor Policies,Economic Theory&Research,Electric Power
    Date: 2013–06–01
  8. By: Marcus Hildmann; Andreas Ulbig; G\"oran Andersson
    Abstract: An on-going debate in the energy economics and power market community has raised the question if energy-only power markets are increasingly failing due to growing in-feed shares from subsidized renewable energy sources (RES). The short answer to this is: No, they are not failing! Energy-based power markets are, however, facing several market distortions, namely from the gap between the electricity volume traded at spot markets versus the overall electricity consumption as well as the (wrong) regulatory assumption that variable RES generation, i.e., wind and PV, have zero marginal operation costs. This paper shows that both effects overamplify the well-known merit-order effect of RES power in-feed beyond a level that can still be explained by the underlying physical realities.In this paper we analyze the current situation of wind and photovoltaic (PV) power in-feed in the German electric power system and their effect on the spot market. We show a comparison of the FIT-subsidized renewable energy sources (RES) energy production volume to the spot market volume and the overall load demand. Furthermore, a spot market analysis based on the assumption that renewable energy sources (RES) units have to feed-in with their assumed true marginal costs, i.e., operation and maintenance costs, is performed. Our combined analysis results show that, if the necessary regulatory adaptations are taken, i.e., significantly increasing the spot market's share of overall load demand and using true marginal costs of RES units in the merit-order, energy-based power markets can remain functional despite very high RES power in-feed.
    Date: 2013–07
  9. By: Golumbeanu, Raluca; Barnes, Douglas
    Abstract: Sub-Saharan Africa trails other regions in providing access to electricity for poor urban and rural residents. This poor performance can be linked to various factors, including political interference in utility policy, higher investment costs and lower profitability of extending service to rural areas. But a major obstacle to wider access is the high charges consumers must pay to connect to the electricity network. The connection charges in Sub-Saharan Africa are among the highest in the world, which has resulted in low rates of electrification in many countries. This paper reviews ways to improve electrification rates by addressing the issue of high connection charges. Essential to the success of such efforts is concurrent political commitment to identify, examine, and implement various low-cost electrification approaches and financing solutions as part of a broad plan to improve access. Electricity companies can lower their connection-related costs, and thus consumer charges, by using a variety of low-cost technologies and materials in distribution networks and household connections; making bulk purchases of materials; and adjusting technical standards to reflect the lower loads of households that use a minimum amount of electricity. Strategies for lowering connection charges may also include spreading charges over a reasonable period, rolling them into monthly service payments, subsidizing connections, or amortizing them through loans. Lowering connection charges is not the only step, but it is an essential part of any strategy for addressing the electricity access gap between rich and poor households in Sub-Saharan Africa, a gap that denies millions of poor Africans the benefits of electricity.
    Keywords: Energy Production and Transportation,Access to Finance,E-Business,Engineering,Electric Power
    Date: 2013–06–01
  10. By: Bhattacharya, Suparna; Giannakas, Konstantinos; Schoengold, Karina
    Keywords: Demand and Price Analysis, Production Economics, Resource /Energy Economics and Policy,
    Date: 2013
  11. By: Sedjo, ROger A. (Resources for the Future)
    Abstract: Biomass energy is expected to play a major role in the substitution of renewable energy sources for fossil fuels over the next several decades. The US Energy Information Administration (EIA 2012) forecasts increases in the share of biomass in US energy production from 8 percent in 2009 to 15 percent by 2035. The general view has been that carbon emitted into the atmosphere from biological materials is carbon neutral—part of a closed loop whereby plant regrowth simply recaptures the carbon emissions associated with the energy produced. Recently this view has been challenged, and the US Environmental Protection Agency (EPA) is considering regulations to be applied to biomass energy carbon emissions. A basic approach for analyses of environmental impacts has been the use of life cycle assessment (LCA), a methodology for assessing and measuring the environmental impact of a product over its lifetime—from raw material extraction through materials processing, manufacture, distribution, use, repair and maintenance, and disposal or recycling. However, LCA approaches vary, and the results of alternative methodologies often differ (Helin et al. 2012). This study investigates and compares the implications of these alternative approaches for emissions from wood biomass energy, the carbon footprint, and also highlights the differences in LCA environmental impacts.
    Keywords: life cycle assessment, carbon neutrality, biomass, bioenergy, carbon dioxide, energy, rational expectations
    JEL: Q2 Q23 Q4 Q54
    Date: 2013–04–25
  12. By: de Gorter, Harry; Kliauga, Erika M.; Timilsina, Govinda R.
    Abstract: The lack of growth in the Brazilian sugarcane-ethanol complex since the 2008 financial crisis has been blamed on policies: lower mandate, holding gasoline prices below world levels, high fuel taxes, and inadequate fuel tax exemptions for ethanol. This paper develops an empirical model of the Brazilian fuel-ethanol-sugar complex to analyze the impacts of these policies. Unlike biofuel mandates and tax exemptions elsewhere, Brazil's fuel-ethanol-sugar markets and fuel policies are unique such that each policy, in theory, has an ambiguous impact on the market price of ethanol and hence on sugarcane and sugar prices. The results indicate two policies that seemingly help the ethanol industry do otherwise in reality: low gasoline taxes and high anhydrous tax exemptions lower ethanol prices. But higher mandates, hydrous ethanol tax exemptions, and gasoline prices had the expected impact of increasing ethanol and sugar prices. Eliminating Brazilian ethanol tax exemptions and mandates reduces ethanol prices by 21 percent. Observed changes in prices are explained by outward shifts in fuel transportation and sugar export demand curves, and bad weather reducing sugarcane supply.
    Keywords: Energy Production and Transportation,Markets and Market Access,Transport and Environment,Renewable Energy,Alcohol and Substance Abuse
    Date: 2013–06–01
  13. By: Pouliot, Sebastien
    Abstract: Unlike regular cars, ex-fuel vehicles (FFVs) allow motorists to fuel on motor blends that contain between zero and one hundred percent of ethanol. This paper investigates how motorists arbitrage between hydrous ethanol and gasoline using aggregate fuel consumption data in Brazil. The ability of FFV motorists to arbitrage between fuel blends shapes of aggregate demands for hydrous ethanol and gasoline. I estimate using nonlinear seemingly unrelated regressions the demands for hydrous ethanol and gasoline in Brazil, and motorists preferences for hydrous ethanol. I nd that on average, accounting for the relative energy contents of the two fuels, FFV motorists in Brazil slightly discount hydrous ethanol over gasoline. Most consumers switch between fuels when their relative prices are at near parity. I nd that 20% of consumers still purchase hydrous ethanol when its price is about 10% above the price of gasoline. The distribution of preferences is not symmetric as 20% of consumers still purchase gasoline when there is a 15% discount on the price of hydrous ethanol.
    Keywords: Ethanol, Gasoline, Preferences, Flexible-fuel vehicles, Arbitrage, Consumer/Household Economics, International Development, International Relations/Trade, Research and Development/Tech Change/Emerging Technologies, Resource /Energy Economics and Policy,
    Date: 2013–06–03
  14. By: de Gorter, Harry; Drabik, Dusan; Timilsina, Govinda R.
    Abstract: Facing a huge fiscal burden due to imports of entire petroleum despite the availability of a surplus of agricultural land to produce biofuels, Zambia, a country in Sub-Saharan Africa, has recently introduced a biofuel mandate. But, a number of questions, particularly those related to the economics of biofuels, have not been fully investigated yet. Using an empirical model this study analyzes the economics of meeting the biodiesel mandate through soybean feedstock. The study finds that meeting the biodiesel mandate with biodiesel from soybeans would reduce social welfare because the country's soybean imports would cost more than the expected reduction in petroleum imports. However, if Zambia increases its domestic soybean supply along with its capacity to convert soybean to biodiesel, as well as oil yield, soybean based biodiesel is likely to be welfare-beneficial, even if biodiesel prices are above diesel prices. The study also finds that under current market prices and transportation costs and constraints, the same amount of biodiesel can be produced most cost-effectively with a tax exemption. A blend mandate would be less cost effective, while a biodiesel production subsidy represents the least efficient policy option.
    Keywords: Energy Production and Transportation,Markets and Market Access,Renewable Energy,Emerging Markets,Economic Theory&Research
    Date: 2013–06–01
  15. By: Sinkala, Thomson; Timilsina, Govinda R.; Ekanayake, Indira J.
    Abstract: With increased global interest in biofuels, Zambia, a Sub-Saharan African country that entirely depends on imports for its petroleum supply, is planning to implement blending mandates for biofuels. But, a large number of issues -- including production costs of biofuels, land requirements to meet the mandates, and environmental benefits -- have not yet been explored. This study aims to contribute in filling this gap. It finds that depending on feedstock type, costs of ethanol production range from US$0.360 a liter to US$0.680 a liter while the costs for biodiesel production range from US$0.612 a liter to US$0.952 a liter. Even if lower energy contents of biofuels are taken into account, the analysis shows that biofuels are cheaper than their petroleum counterparts. Considering the cost advantage of these biofuels over petroleum products and the availability of surplus agricultural land, Zambia is likely to benefit from the development of a biofuel industry. Biofuels is expected to reduce Zambia's petroleum import bill, which currently stands at more than US$700 million, enhance food security by providing incentives to increase yields, and increase affordability and accessibility to modern energy in the country where 77 percent of the population still lacks access to modern energy. It could also stimulate rural employment and development.
    Keywords: Energy Production and Transportation,Renewable Energy,Economic Theory&Research,Climate Change Mitigation and Green House Gases,Food&Beverage Industry
    Date: 2013–06–01
  16. By: Wang, Zidong; Yu, T. Edward; English, Burton C.; Larson, James A.
    Keywords: Crop Production/Industries, Resource /Energy Economics and Policy,
    Date: 2013
  17. By: Laure Bamière; Vincent Martinet; Christophe Gouel
    Abstract: To better understand the production of biofuels derived from lignocellulosic feedstock, we investigate the interplay between the agricultural sector and a biofuel facility, at the local level. More specifically, we investigate the economic and technological viability of a bioenergy facility over time in an uncertain economic context using a stochastic viability approach. Two viability constraints are taken into consideration: the facility's demand for lignocellulosic feedstock has to be satisfied each year and the associated supply cost has to be lower than the facility's profitability threshold. We assess the viability probability of various strategies the facility can adopt to ensure that the agricultural sector meets its demand for biomass. These supplying strategies are determined at the initial time and define the constant share of total demand met by contracting out the demand to farmers who grow perennial crops. Any remaining demand is met by annual crops or wood. The demand constraints and agricultural price scenarios over the time horizon are introduced in an agricultural and forest biomass supply model, which in turns determines the supply cost per unit of energy and computes the viability probabilities of the supplying strategies. If a facility is to be viable over time, it is best for it to ensure that 100% of its demand is contracted out to farmers supplying perennial dedicated crops. This result is robust to the price context.
    Keywords: Biofuel, biomass production, spatial economics, stochastic viability, Monte Carlo simulation
    JEL: Q12 Q16 Q42
    Date: 2013–06–13
  18. By: Boccanfuso, Dorothee; Coulibaly, Massa; Timilsina, Govinda R.; Savard, Luc
    Abstract: Mali, a landlocked West African nation at the southern edge of the Sahara Desert, has introduced a program to produce biodiesel using jatropha curcas, a non-edible shrub widely available throughout the country by farmers for generations as a living fence for their gardens. The aim of the program is to partially substitute diesel, which is entirely supplied through imports, with domestic biodiesel produced from a feedstock that does not have any commercial value otherwise and thus has zero opportunity cost. This paper uses a computable general equilibrium model to investigate economy-wide and distributional impacts of large-scale jatropha production on different types of lands, and conversion of jatropha oil to biodiesel for domestic consumption. It assesses impacts on agricultural and other commodity markets, resource and factor markets, and international trade. The results are fed into a detailed household survey-based micro-simulation model to assess impacts on poverty and income distribution. The study finds that the expansion of jatropha farming would be beneficial in terms of both macroeconomic and distributional impacts as long as idle lands, which have been neither used for agriculture nor protected as forests, are utilized. However, if jatropha plantation is carried out on existing agriculture lands, the economy-wide impacts would be negative although it would still help reduce rural poverty.
    Keywords: Economic Theory&Research,Rural Poverty Reduction,Renewable Energy,Markets and Market Access,Labor Policies
    Date: 2013–06–01
  19. By: Hessler, Markus (Helmut Schmidt University, Hamburg); Loebert, Ina (Helmut Schmidt University, Hamburg)
    Abstract: Im Jahr 2000 wurde das Erneuerbare-Energien-Gesetz (EEG) zur Förderung erneuerbarer Energien durch die rot-grüne Bundesregierung beschlossen. 2050 soll der Anteil der Stromerzeugung aus Erneuerbaren Energien am Bruttostromverbrauch 80% betragen. Die Energiewende scheint zu gelingen – doch zu welchem Preis? Den von Befürwortern genannten Vorteilen stehen erhebliche Probleme und Kosten gegenüber. Das Ziel des Beitrages ist es, diese näher zu beleuchten aber auch auf alternative Förderinstrumente hinzuweisen, mit denen die Energiewende unter Umständen kostengünstiger bewältigt werden kann.
    Keywords: EEG; Erneuerbare-Energien-Gesetz; Energiewende; Energiepolitik
    JEL: D78 L59 L94
    Date: 2013–06–20
  20. By: Hermann Pythagore Pierre Donfouet (CREM CNRS, UMR 6211, University of Rennes 1, France); P. Wilner Jeanty (Kinder Institute for Urban Research & Hobby Center for the Study of Texas Rice University); Eric Malin (CREM CNRS, UMR 6211, University of Rennes 1, France)
    Abstract: Previous studies in the environmental Kuznets curve have overlooked spatial interdependence and this could bias the estimates. This paper therefore addresses the issue of spatial interdependence in the environmental Kuznets curve by using panel data on European countries over the period of 1961-2009. The results obtained from the spatial dynamic panel suggest a significant degree of persistence in the per capita CO2 emissions in European countries over time. Furthermore, it has been found that per capita CO2 emissions in a nearby country lead to a domestic increase in per capita CO2 emissions and overall, the results are robust irrespective of the concept of neighborhood.
    Keywords: Environmental Kuznets curve, spatial dynamic panel
    JEL: Q56 C21
    Date: 2013–06
  21. By: Burtraw, Dallas (Resources for the Future); Palmer, Karen L. (Resources for the Future)
    Abstract: A carbon tax will interact with other policies that are intended to reduce carbon dioxide emissions and encourage clean sources of energy and energy efficiency. This paper examines these policy interactions. A well-designed carbon tax can be an efficient instrument for reducing emissions, yet whether it will be implemented in an efficient manner is uncertain. A legislatively determined tax may not fully reflect up-to-date scientific and economic information. Behavioral and institutional factors suggest that a tax may not have its fully intended effect. These considerations suggest that climate policy should and will continue to be a complex mix of regulations at various levels of government, even with a carbon price. Nonetheless, the possibility of unintended interactions among policies remains. The role for policies to encourage renewables and energy efficiency depends on the stringency of the carbon tax and presence of externalities related to technological learning and the energy efficiency gap.
    Keywords: externalities, regulation, federalism, Clean Air Act
    JEL: Q58 H23 H77
    Date: 2013–04–17
  22. 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, 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, with a US focus: 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 the conventional regulatory framework. In a complex policy regime, incentives can be shaped by shadow prices as well as market prices.
    Keywords: institutions, federalism, subsidiarity, shadow prices, incentives, regulation
    JEL: Q54 H77 D02
    Date: 2013–03–08

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