nep-ene New Economics Papers
on Energy Economics
Issue of 2013‒07‒28
thirty papers chosen by
Roger Fouquet
London School of Economics

  1. The Reform of China‘s Energy Policies By Joachim Betz
  2. Explaining the Diffusion of Renewable Energy Technology in Developing Countries By Birte Pohl; Peter Mulder
  3. Sector Effects of the Shale Gas Revolution in the United States By Krupnick, Alan; Wang, Zhongmin; Wang, Yushuang
  4. Technology Flexibility and Stringency for Greenhouse Gas Regulations By Burtraw, Dallas; Woerman, Matt
  5. The Effect of Weather Uncertainty on the Financial Risk of Green Electricity Producers under Various Renewable Policies By Nagl, Stephan
  6. Is Energy Efficiency Capitalized into Home Prices? Evidence from Three US Cities By Walls, Margaret; Palmer, Karen; Gerarden, Todd
  7. The Dynamics of Road Energy Demand and Illegal Fuel Activity in Turkey: A Rolling Window Analysis By A. Talha Yalta
  8. The added value from a general equilibrium analyses of increased efficiency in household energy use By Patrizio Lecca; Peter McGregor; J. Kim Swales; Karen Turner
  9. A Blessing in Disguise: The Implications of High Global Oil Prices for the North American Market By Ron Alquist; Justin-Damien Guénette
  10. The Nexus between Electricity Consumption and Economic Growth in Bahrain By Hamdi, Helmi; Sbia, Rashid; Shahbaz, Muhammad
  11. Modelling energy spot prices by volatility modulated L\'{e}vy-driven Volterra processes By Ole E. Barndorff-Nielsen; Fred Espen Benth; Almut E. D. Veraart
  12. Investment Coordination in Network Industries: The Case of Electricity Grid and Electricity By Höffler, Felix; Wambach, Achim
  13. The Political Economy of Oil and the Crisis of the Arab State System By Daniel Atzori
  14. Spatial Dependencies of Wind Power and Interrelations with Spot Price Dynamics By Elberg, Christina; Hagspiel, Simeon
  15. The Impact of Fuel Ownership on Intrastate Violence By Tim Wegenast
  16. A Fear Index to Predict Oil Futures Returns By Julien Chevallier; Benoît Sévi
  17. Toward the Green Economy: Assessing Countries’ Green Power By Babette Never
  18. Developing Resource use Scenarios for Europe By Marina Fischer-Kowalski; Dominik Wiedenhofer; Willi Haas; Irene Pallua; Daniel Hausknost
  19. Current and Prospective Costs of Electricity Generation until 2050 By Andreas Schröder; Friedrich Kunz; Jan Meiss; Roman Mendelevitch and Christian von Hirschhausen
  20. An Economic Investigation of Corruption and Electricity Theft By Faisal Jamil; Eatzaz Ahmad
  21. Towards a more comprehensive policy mix conceptualization for environmental technological change: A literature synthesis By Rogge, Karoline S.; Reichardt, Kristin
  22. Macroeconomic Modelling of the Global Economy-Energy-Environment Nexus - An Overview of Recent Advancements of the Dynamic Simulation Model GINFORS By Mark Meyer; Martin Distelkamp; Gerd Ahlert; Prof. Dr. Bernd Meyer
  23. Energy Codes and the Landlord-Tenant Problem By Papineau, Maya
  24. When to Invest in Carbon Capture and Storage Technology in the Presence of Uncertainty: a Mathematical Model By Walsh, Darragh; O'Sullivan, K.; Lee, W. T.; Devine, M.
  25. Truth-telling by Third-party Auditors and the Response of Polluting Firms: Experimental Evidence from India By Esther Duflo; Michael Greenstone; Rohini Pande; Nicholas Ryan
  26. The Effects of Driving Restrictions on Air Quality and Driver Behavior By Carnovale, Maria; Gibson, Matthew
  27. Demand and Price Uncertainty: Rational Habits in International Gasoline Demand By Scott, K. Rebecca
  28. Are benefits from oil - stocks diversification gone? A new evidence from a dynamic copulas and high frequency data By Krenar Avdulaj; Jozef Barunik
  29. Further investigation of natural resources and economic growth: Do natural resources depress economic growth? By Lkhagva Gerelmaa; Koji Kotani
  30. Environmental Protection, Rare Disasters, and Discount Rates By Robert J. Barro

  1. By: Joachim Betz (GIGA Institute of Asian Studies)
    Abstract: China’s shift in energy policies has been broader, deeper and more successful than that of most other emerging economies, although the economic costs of this transition are tremendous because China is an over-industrialized country whose production is highly energy-intense and it depends on emission-intensive coal as main energy source. Factors that have influenced energy reforms, which focus on saving and conserving energy, developing renewable sources and nuclear power, are – on the international level – the impact of climate change on India, the desire to be recognized as a responsible power in the international community, China’s dangerously growing dependence on energy imports, and the uncertain prospects of equity oil abroad for energy security. Domestic factors are the growing assertiveness of environmental NGOs, relatively effective sectorial governance, and the embedding of energy policies in a blueprint for industrial upgrading.
    Keywords: energy policy, climate change, energy institutions, international climate summits, political system, civil society
    Date: 2013–02
  2. By: Birte Pohl (GIGA German Institute of Global and Area Studies); Peter Mulder (GIGA German Institute of Global and Area Studies)
    Abstract: In this paper we study the diffusion of non-hydro renewable energy (NHRE) technologies for electricity generation across 108 developing countries between 1980 and 2010. We use two-stage estimation methods to identify the determinants behind the choice of whether or not to adopt NHRE as well as about the amount of electricity to produce from renewable energy sources. We find that NHRE diffusion accelerates with the implementation of economic and regulatory instruments, higher per capita income and schooling levels, and stable, democratic regimes. In contrast, increasing openness and aid, institutional and strategic policy support programs, growth of electricity consumption, and high fossil fuel production appear to delay NHRE diffusion. Furthermore, we find that a diverse energy mix increases the probability of NHRE adoption. Finally, we find weak support for a positive influence of the Kyoto Protocol on NHRE diffusion and no evidence for any influence resulting from financial sector development.
    Keywords: renewable energy technologies, developing countries, electricity, technology diffusion, sample selection
    Date: 2013–03
  3. By: Krupnick, Alan (Resources for the Future); Wang, Zhongmin (Resources for the Future); Wang, Yushuang
    Abstract: This paper reviews the impact of the shale gas revolution on the sectors of electricity generation, transportation, and manufacturing in the United States. Natural gas is being substituted for other fuels, particularly coal, in electricity generation, resulting in lower greenhouse gas emissions from this sector. The use of natural gas in the transportation sector is currently negligible but is projected to increase with investments in refueling infrastructure and natural gas vehicle technologies. Petrochemical and other manufacturing industries have responded to lower natural gas prices by investing in domestically located manufacturing projects. This paper also speculates on the impact of a possible shale gas boom in China.
    Keywords: shale gas, electricity, transportation, and manufacturing
    JEL: L71 L9 Q4
    Date: 2013–07–19
  4. By: Burtraw, Dallas (Resources for the Future); Woerman, Matt
    Abstract: The Clean Air Act provides the primary regulatory framework for climate policy in the United States. Tradable performance standards (averaging) emerge as the likely tool to achieve flexibility in the regulation of existing stationary sources. This paper examines the relationship between flexibility and stringency. The metric to compare the stringency of policies is ambiguous. The relevant section of the act is traditionally technology based, suggesting an emissions rate focus. However, a specific emissions rate improvement averaged over a larger set of generators reduces the actual emissions change. A marginal abatement cost criterion to compare policy designs suggests cost-effectiveness across sources. This criterion can quadruple the emissions reductions that are achieved, with net social benefits exceeding $25 billion in 2020, with a 1.3 percent electricity price increase. Under the act, multiple stringency criteria are relevant. EPA should evaluate state implementation plans according to a portfolio of attributes, including effectiveness and cost.
    Keywords: climate policy, efficiency, EPA, Clean Air Act, coal, compliance flexibility, regulation
    JEL: K32 Q54 Q58
    Date: 2013–07–23
  5. By: Nagl, Stephan (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: In recent years, many countries have implemented policies to incentivize renewable power generation. In this paper, we analyze the variance in profits of renewable-based electricity producers due to weather uncertainty under a `feed-in tariff' policy, a `fixed bonus' incentive and a `renewable quota' obligation. In a first step, we discuss the price effects of fluctuations in the feed-in from renewables and their impact on the risk for green electricity producers. In a second step, we numerically solve the problem by applying a spatial stochastic equilibrium model to the European electricity market. The simulation results allow us to discuss the variance in profits under the different renewable support mechanisms and how different technologies are affected by weather uncertainty. The analysis suggests that wind producers benefit from market integration, whereas producers from biomass and solar plants face a larger variance in profits. Furthermore, the simulation indicates that highly volatile green certificate prices occur when introducing a renewable quota obligation without the option of banking and borrowing. Thus, all renewable producers face a higher variance in profits, as the price effect of weather uncertainty on green certificates overcompensates the negatively correlated fluctuations in production and prices.
    Keywords: RES-E policy; financial risk; mixed complementarity problem
    JEL: C61 L50 Q40
    Date: 2013–06–24
  6. By: Walls, Margaret (Resources for the Future); Palmer, Karen (Resources for the Future); Gerarden, Todd
    Abstract: We look for evidence of capitalization of energy efficiency features in home prices using data from real estate multiple listing services (MLS) in three metropolitan areas: the Research Triangle region of North Carolina; Austin, Texas; and Portland, Oregon. These home listings include information on Energy Star certification and, in Portland and Austin, local green certifications. Our results suggest that Energy Star certification increases the sales prices of homes built between 1995 and 2006 but has no statistically significant effect on sales prices for newer homes. The local certifications appear to have larger effects on sales prices, and that effect holds for both newer and older homes. The estimated home price premiums from certification imply annual energy cost savings that are sizeable fractions of estimated annual energy costs for homes in our sample, in some cases even above 100 percent. This suggests that the certifications either embody other attributes beyond energy efficiency that are of value to homebuyers or that buyers are overpaying for the energy savings. Further research is needed to better understand how consumers interpret home certifications and how they value the combination of “green” characteristics that many of those certifications embody.
    Keywords: Energy Star homes, energy efficiency, green certifications, hedonic model
    JEL: L94 L95 Q40
    Date: 2013–07–19
  7. By: A. Talha Yalta
    Date: 2013–01
  8. By: Patrizio Lecca (Department of Economics, University of Strathclyde); Peter McGregor (Department of Economics, University of Strathclyde); J. Kim Swales (Department of Economics, University of Strathclyde); Karen Turner (Department of Accounting, Economics and Finance, School of Management and Languages, Heriot-Watt University)
    Abstract: The aim of the paper is to identify the added value from using general equilibrium techniques to consider the economy-wide impacts of increased efficiency in household energy use. We take as an illustrative case study the effect of a 5% improvement in household energy efficiency on the UK economy. This impact is measured through simulations that use models that have increasing degrees of endogeneity but are calibrated on a common data set. That is to say, we calculate rebound effects for models that progress from the most basic partial equilibrium approach to a fully specified general equilibrium treatment. The size of the rebound effect on total energy use depends upon: the elasticity of substitution of energy in household consumption; the energy intensity of the different elements of household consumption demand; and the impact of changes in income, economic activity and relative prices. A general equilibrium model is required to capture these final three impacts.
    Keywords: Energy efficiency, indirect rebound effects, economy-wide rebound effects, household energy consumption, CGE models
    JEL: C68 D57 D58 Q41 Q43 Q48
    Date: 2013–06
  9. By: Ron Alquist; Justin-Damien Guénette
    Abstract: We examine the implications of increased unconventional crude oil production in North America. This production increase has been made possible by the existence of alternative oil-recovery technologies and persistently elevated oil prices that make these technologies commercially viable. We first discuss the factors that have enabled the United States to expand production so rapidly and the glut of oil inventory that has accumulated in the Midwest as result of logistical challenges and export restrictions. Next, we assess the extent to which the increase in U.S. domestic production will affect global supply conditions and whether the U.S. experience can be repeated in other countries with rich unconventional oil sources. The evidence suggests that even in the best-case scenario, the increase in U.S. production will not make a large contribution to global production, so its effect on the price of oil is expected to be limited. Furthermore, the United States enjoys unique infrastructural and technological advantages that make it unlikely that similarly rapid increases in unconventional production can be achieved elsewhere.
    Keywords: International topics; Recent economic and financial developments
    JEL: Q41 Q43 Q47
    Date: 2013
  10. By: Hamdi, Helmi; Sbia, Rashid; Shahbaz, Muhammad
    Abstract: This paper explores the relationship between electricity consumption, foreign direct investment, capital and economic growth in case of the Kingdom of Bahrain. The Cobb-Douglas production is used over the period of 1980Q1–2010Q4. We have the ARDL bounds testing approach and found that cointegration exists among the series. Electricity consumption, foreign direct investment and capital add in economic growth. The VECM Granger causality analysis has reported the feedback effect between electricity consumption and economic growth and same is true for foreign direct investment and electricity consumption. This suggests us to explore sources of energy to achieve sustainable economic development for long run.
    Keywords: Electricity Consumption, Economic Growth, Foreign Direct Investment, Bahrain
    JEL: C5 C51
    Date: 2013–07–05
  11. By: Ole E. Barndorff-Nielsen; Fred Espen Benth; Almut E. D. Veraart
    Abstract: This paper introduces the class of volatility modulated L\'{e}vy-driven Volterra (VMLV) processes and their important subclass of L\'{e}vy semistationary (LSS) processes as a new framework for modelling energy spot prices. The main modelling idea consists of four principles: First, deseasonalised spot prices can be modelled directly in stationarity. Second, stochastic volatility is regarded as a key factor for modelling energy spot prices. Third, the model allows for the possibility of jumps and extreme spikes and, lastly, it features great flexibility in terms of modelling the autocorrelation structure and the Samuelson effect. We provide a detailed analysis of the probabilistic properties of VMLV processes and show how they can capture many stylised facts of energy markets. Further, we derive forward prices based on our new spot price models and discuss option pricing. An empirical example based on electricity spot prices from the European Energy Exchange confirms the practical relevance of our new modelling framework.
    Date: 2013–07
  12. By: Höffler, Felix (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Wambach, Achim (Department of Economics, University of Cologne)
    Abstract: Liberalization of network industries frequently separates the network from the other parts of the industry. This is important in particular for the electricity industry where private firms invest into generation facilities, while net- work investments usually are controlled by regulators. We discuss two regulatory regimes. First, the regulator can only decide on the network extension. Second, she can additionally use a "capacity market" with payments contingent on private generation investment. For the first case, we find that even absent asymmetric information, a lack of regulatory commitment can cause inefficiently high or inefficiently low investments. For the second case, we develop a standard handicap auction which implements the first best under asymmetric information, if there are no shadow costs of public funds. With shadow costs, no simple mechanism can implement the second best outcome.
    Keywords: Regulation; commitment; capacity markets; transmission system investment
    JEL: D44 K23 L51 L94
    Date: 2013–06–24
  13. By: Daniel Atzori (FEEM and Agenzia Giornalistica Italia (AGI))
    Abstract: This paper argues that the so-called Arab spring is part of a tectonic shift which signals the frailty of the Arab state system as such. Countries benefitting from oil and gas rents have been more resilient, because of their potential to create systems of incentives and disincentives in order to prevent disruptive social change. Islamism, whose emergence is connected with rentier state dynamics is, at the same time, an opportunity and a threat for the survival of the Arab state and, in general, of the Arab states system. In this context, national oil companies can increasingly be conceptualized not merely as instruments of the state, but as bulwarks of nation-state legitimacy in a period of chaos.
    Keywords: Oil, Energy, Political Economy, MENA, Globalization, Arab Spring
    JEL: N5 O1 P1 Q3 Q4
    Date: 2013–06
  14. By: Elberg, Christina (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Hagspiel, Simeon (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: Wind power has seen a strong growth over the last decade. Due to its high intermittency, spot prices have become more volatile and exhibit correlated behavior with wind power fed into the system. In this paper, we develop a stochastic simulation model that incorporates the spatial dependencies of wind power and its interrelations with spot prices: We employ a structural supply and demand based model for the electricity spot price that takes into account stochastic production quantities of wind power. Spatial dependencies are modeled with the help of copulas, thus linking the single turbine wind power to the aggregated wind power in a market. The model is applied to the German electricity market where wind power already today makes up a significant share of total power production. Revenue distributions and the market value of different wind power plants are analyzed. We fi nd that the speci fic location of the considered wind turbine, i.e. its spatial dependency with respect to the aggregated wind power in the system, is of high relevance for its market value. Many of the analyzed locations show an upper tail dependence that adversely impacts the market value. This effect becomes more important for increasing levels of wind power penetration.
    Keywords: Market Value; Wind Power; Market Integration; Copula; Structural Supply and Demand Model; Spot Price Model; Monte Carlo Simulation
    JEL: C15 C51 Q41
    Date: 2013–06–24
  15. By: Tim Wegenast (GIGA German Institute of Global and Area Studies)
    Abstract: The impact of natural resources on intrastate violence has been increasingly analyzed in the peace and conflict literature. Surprisingly, little quantitative evidence has been gathered on the effects of the resource-ownership structure on internal violence. This paper uses a novel dataset on oil and natural gas property rights covering 40 countries during the period 1989–2010. The results of regression analyses employing logit models reveal that the curvilinear effect between hydrocarbon production and civil conflict onset – often found in previous studies – only applies to countries in which oil and gas production is mainly state controlled. The findings suggest that only state-owned hydrocarbons may entail peace - buying mechanisms such as specific clientelistic practices, patronage networks, welfare policies, and/or coercion. At the same time, it seems that greed and grievance are more pronounced whenever resources lie in the hands of the state. Exploring the within - country variation, further analyses reveal that divergent welfare spending patterns are likely to be one causal channel driving the relationship between resource ownership and internal violence.
    Keywords: Natural resources, intrastate conflict, minor civil war, oil, gas, ownership structure, national oil companies.
    Date: 2013–05
  16. By: Julien Chevallier (Université Paris 8 (LED)); Benoît Sévi (Aix-Marseille Université (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: This paper evaluates the predictability of WTI light sweet crude oil futures by using the variance risk premium, i.e. the difference between model-free measures of implied and realized volatilities. Additional regressors known for their ability to explain crude oil futures prices are also considered, capturing macroeconomic, financial and oil-specific influences. The results indicate that the explanatory power of the (negative) variance risk premium on oil excess returns is particularly strong (up to 25% for the adjusted Rsquared across our regressions). It complements other financial (e.g. default spread) and oil-specific (e.g. US oil stocks) factors highlighted in previous literature.
    Keywords: Oil Futures, Variance Risk Premium, Forecasting
    JEL: C32 G17 Q47
    Date: 2013–06
  17. By: Babette Never (GIGA German Institute of Global and Area Studies)
    Abstract: The green power potential of a country is a central factor in the transformation to a green economy. This paper argues that green power will become a decisive factor for global change. Green power combines sustainability, innovation and power into one concept. By merging insights from political science, economics and innovation research, this paper develops a multidimensional, multilevel concept of green power that takes both resources and processes into account. A first empirical assessment of the current distribution of green power in global environmental governance shows that China and India, in particular, as well as Brazil and Costa Rica are catching up in clean technology and renewable energy. The European Union, Germany and the United States still dominate, but they are not fully maximizing their green power potential. In spite of their discursive power, the green power potential of the least developed countries is relatively small, making the jump toward a green economy unlikely.
    Keywords: climate change, power, global environmental governance, innovation, green economy.
    Date: 2013–06
  18. By: Marina Fischer-Kowalski; Dominik Wiedenhofer; Willi Haas; Irene Pallua; Daniel Hausknost
    Abstract: Chapter 1 of this report reviews a number of approaches to conceptualize and operationalize biophysical constraints for economic performance. The starting point is a scoping study by Cambridge Econometrics and Sustainable Europe Research Institute (SERI) that reviews a large number of macroeconomic models investigating their ability to provide information on the interlinkages between the economy and the environment required from a sustainability viewpoint. This scoping study yields two key recommendations for macroeconomic modelling: to incorporate resource use in the explanation of economic development, and to allow for non-linear relationships, thresholds and limits (Serice 2010). The report then turns to another useful approach from OECD that makes an effort to conceptualize causal pathways linking global environmental change (originally: climate change) to economic development via policy regulations, direct biophysical impacts and price effects on global markets (OECD/Martinez-Fernandez et al. 2010). The three types of effects are discussed. In a next section, insights from a report from the FP7-NEUjobs project are presented. In this project, a wide array of (mainly) natural science literature had been screened to identify “global megatrends” that would impact European economies and policy-making. Given far-reaching uncertainties and complex interrelations, the megatrends identified (i.e. energy transitions, rising challenges to resource security and increasing climate change impacts) are grouped to envision two future world contexts for Europe, a “tough” and a more “friendly” world. For the year 2025, the features of these worlds are sketched on the basis of a literature review (NEUjobs 2012). The chapter concludes that indeed the availability and use of natural resources provides a key link between economies and the environment, but that it is advisable to deal with them not one by one, but in a systemic fashion that takes into account their strong interrelationships on the one hand, and the high uncertainty of constraints of particular resources on the other. It concludes that the future of European resource supply may be expected to be fairly different from the past, and should be expected to change to the worse, both for environmental reasons and for reasons of strongly increasing international demand and competition. Chapter 2 is devoted to a descriptive analysis of the changes in global and European resource use in the past and emphasises the non-linearities that can be observed. It focuses on long-term structural changes in the energetic base of socio-economic systems, leading to fundamental transformations in the scale and quality of society-nature interactions. Similar fundamental transformations should be expected for the (inevitable) transition from fossil to renewable energy sources. Based on a set of case studies of industrial countries for which long term data series for resource use (material and energy use) are available, it discusses the transition from the agrarian to the industrial metabolic regime and seeks to identify structural breaks in the development of energy use in the second half of the 20th century. The main finding is that a stabilization of per capita energy and resource use in most high-income countries was reached in the early 1970ies that is still lasting, after a period of accelerated growth of resource use since the end of World War II. During this time the so-called „decoupling? of energy and materials use from economic growth became much more pronounced, a phenomenon we describe as the “1970s syndrome”. An explanation of this common and marked turn in the upward trend of energy and materials consumption needs more research and will be further pursued in work package 201. Finally, Chapter 3 suggests four scenarios for European resource use up to the year 2050, aligning with the global resource use scenarios developed by UNEP?s International Resource Panel (2011). A “trend scenario” prolonging Europe?s resource use into the future proves to be very close to the “freezing” scenario proposed by UNEP for high income industrial countries, and leads to an average per-capita resource use in Europe on the same level as in the early 2000s. A “best practice scenario” generalizes the past success of some European countries in downsizing their resource use to all European countries up to 2050. The fourth scenario, the 2 “radical transformation scenario”, follows UNEP?s “moderate contraction and convergence” scenario in halving the per capita annual resource use of European countries, leading to what is commonly called “absolute decoupling”. The last part of the chapter is devoted to the feasibility of such a scenario, on the one hand, and the consequences this might have for the European economies. The concluding remarks emphasize that a successful scenario exercise requires an intimate collaboration between macroeconomic modellers and scientists contributing from the environmental and socio-ecological angle. There will be place for such collaboration in the further course of the WWWforEurope project.
    Keywords: Biophysical constraints, CGE models, economic growth path, economic strategy, industrial innovation, industrial policy, innovation policy, socio-ecological transition
    JEL: Q3 Q4 Q5
    Date: 2013–07
  19. By: Andreas Schröder; Friedrich Kunz; Jan Meiss; Roman Mendelevitch and Christian von Hirschhausen
    Date: 2013
  20. By: Faisal Jamil (National University of Science and Technology, Islamabad); Eatzaz Ahmad (Quaid-i-Azam University, Islamabad)
    Abstract: Theft and corruption are common in electricity distribution systems worldwide. We have analysed electricity theft in the framework of an individual’s choice under uncertainty and through a three-layered principalagent- client model of corruption. The study finds that an individual steals electricity only if the subjective benefits are higher than the associated costs e.g., fine imposed in case of detection or job dismissal. The fair tariffs and efficiency wages along with higher deterrence and active consumer involvement in reporting electricity theft can help in combating corruption and pilferage in electricity sector. Moreover, deterrence through increased probability of detection and conviction are important policy measures.
    Keywords: Individual’s Choice, Principal-Agent Model, Electricity Theft
    JEL: Q4 H8 R2 K1
    Date: 2013
  21. By: Rogge, Karoline S.; Reichardt, Kristin
    Abstract: Reaching a better understanding of the politics and policies of transitions presents a main agenda item in the emerging field of sustainability transitions. One important requirement for these transitions, such as the move towards a decarbonized energy system, is the redirection and acceleration of technological change, for which policies play a key role. Several studies of policies supporting environmental technological change have argued for the need to combine different policy instruments in so-called policy mixes. However, existing policy mix studies often fall short of reflecting the complexity and dynamics of actual policy mixes, and they lack a common terminology. In this paper we take a first step towards a more comprehensive policy mix concept for environmental technological change based on a review of the bodies of literature on innovation studies, environmental economics and policy analysis. The concept we develop consists of the three building blocks elements, processes and dimensions and introduces a clear terminology, which is particularly important for the characteristics of such a policy mix, including the consistency of its elements and the coherence of its processes. Throughout the paper, we illustrate the concept using the example of the policy mix for fostering the transition of the German energy system to renewable power generation technologies. We argue that the proposed concept provides an interdisciplinary analytical framework for empirical studies analyzing the impact of the policy mix on environmental technological change and may thereby contribute to reaching a better understanding of the politics and policies of sustainability transitions. Finally, we derive policy implications and suggest avenues for future research. --
    Keywords: policy mix,policy strategy,instrument mix,policy making and implementation,consistency,coherence
    Date: 2013
  22. By: Mark Meyer (GWS - Institute of Economic Structures Research); Martin Distelkamp (GWS - Institute of Economic Structures Research); Gerd Ahlert (GWS - Institute of Economic Structures Research); Prof. Dr. Bernd Meyer (GWS - Institute of Economic Structures Research)
    Abstract: GINFORS (Global INterindustry FORecasting System) represents a state–of–the–art tool for integrated quantitative policy assessments of long run economic developments and associated pressures on the environment. Its empirical modelling framework rests on national input–output accounts which are bilaterally interconnected by international trade at the industry level. Assuming bounded rationality of agents and imperfect markets, an iterative solution algorithm facilitates ex ante simulation studies of the non-equilibrium features of globalizing economies. From a methodological point of view, GINFORS might thus be categorised as a dynamic econometric model. However, its powerful simulation capabilities also provide extensive insights into the broader economy–energy–environment nexus (see, i.a., or for ongoing FP7 research work with references to climate change and the transformation to a low carbon economy as well as to climate change adaptation policy issues). The GINFORS approach relies heavily on the availability of harmonised international Input–Output datasets (preferably as annual time series). As the May 2012 release of the publicly available World Input Output Database (WIOD, see also represents outstanding advancements in this regard, we decided to incorporate the WIOD datasets into the GINFORS database. This paper highlights selected issues of these most recent empirical maintenance works. Given our personal experience we intend to illustrate the significance of the WIOD database but also to stimulate a discussion of its linkages to the underlying United Nations data set on the sequence of accounts and balancing items, the second core data set within the System of National Accounts (SNA), from the viewpoint of applied economic research.
    Keywords: environmental policy, multi-region Input-Output analysis, world trade model, embodied environmental impacts
    JEL: C54 C63 C67 Q01 Q56 F17 F18
    Date: 2013
  23. By: Papineau, Maya
    Abstract: This paper assesses whether commercial real estate participants are willing to pay apremium for an energy efficient building that has not received a green label. I utilizea unique dataset of detailed building-level observations and a spatial semiparametricmatching framework that exploits quasi-experimental state-by-year variation in the implementationof mandatory building energy codes, to estimate selling price and rentpremiums for a more stringent code. I find that buildings constructed under a morestringent energy code are associated with rent and selling price premiums of approximately2.7% and 10%, respectively, compared to buildings constructed just before thecode came into effect. When tenants pay directly for utilities, buildings constructedunder an energy code are associated with 5.7% higher rents. These premiums are consistentwith complete capitalization of estimated building-level savings, and thereforecast doubt on the existence of an energy efficiency gap resulting from adverse selectionbetween landlords and tenants in commercial buildings.
    Keywords: Social and Behavioral Sciences, energy efficiency, building codes, real estate
    Date: 2013–06–01
  24. By: Walsh, Darragh; O'Sullivan, K.; Lee, W. T.; Devine, M.
    Abstract: We present a model for determining analytically the critical threshold for investment in carbon capture and storage technology in a region where carbon costs are volatile and assuming the cost of investment decreases. We first study a deterministic model with quite general dependence on carbon price and then analyse the effect of carbon price volatility on the optimal investment decision by solving a Bellman equation with an infinite planning horizon. We find that increasing the expected carbon price volatility increases the critical investment threshold and that adoption of this technology is not optimal at current prices, in agreement with other works. However, reducing carbon price volatility by switching from carbon permits to taxes or by introducing a carbon floor as in Great Britain would accelerate the optimal adoption of this technology. Our deterministic model provides a good description of this decision problem.
    Date: 2013–07
  25. By: Esther Duflo; Michael Greenstone; Rohini Pande; Nicholas Ryan
    Abstract: In many regulated markets, private, third-party auditors are chosen and paid by the firms that they audit, potentially creating a conflict of interest. This paper reports on a two-year field experiment in the Indian state of Gujarat that sought to curb such a conflict by altering the market structure for environmental audits of industrial plants to incentivize accurate reporting. There are three main results. First, the status quo system was largely corrupted, with auditors systematically reporting plant emissions just below the standard, although true emissions were typically higher. Second, the treatment caused auditors to report more truthfully and very significantly lowered the fraction of plants that were falsely reported as compliant with pollution standards. Third, treatment plants, in turn, reduced their pollution emissions. The results suggest reformed incentives for third-party auditors can improve their reporting and make regulation more effective.
    JEL: L51 M42 O13 Q56
    Date: 2013–07
  26. By: Carnovale, Maria; Gibson, Matthew
    Abstract: We evaluate whether driving restrictions improve air quality.  While Milan's restriction decreases overall air pollution, there is a significant behavioral response that attenuates the effect.  Our study expoits the natural experiment created by an unanticipated court injunction suspending Milan's restriction.  Drivers respond to the restriction with: 1) intertemporal substituion toward the unpriced period; 2) substitution toward exempt vehicles; and 3) spatial substitution toward unpriced roads.  Importantly, the net effect on traffic varies with public transit availability.
    Keywords: Social and Behavioral Sciences, spatial substitution, air pollution, air quality
    Date: 2013–07–01
  27. By: Scott, K. Rebecca
    Abstract: The combination of habits and a forward outlook suggests that consumers will be sensitive not justto prices but to price dynamics. In particular, rational habits models suggest 1. that price volatilityand uncertainty will reduce demand for a habit-forming good and 2. that such volatility will dampendemand’s responsiveness to price. These two implications can be tested by augmenting a traditionalpartial-adjustment or error-correction model of demand. I apply this augmented model to data ongasoline consumption, as rational habits provide a succinct representation for the investment andbehavioral decisions that determine gasoline usage. The trade-o¤s among FE 2SLS, system GMM,and pooled mean group (PMG) estimators are considered, and my preferred estimators provideevidence of rational habits in a panel of 29 countries for the years 1990-2011. Such habits mayhelp to explain some of the cross-country and cross-time variation in ‘total’price elasticity. Thesehabits also imply that the e¤ect of price uncertainty must be taken into account when projecting theimpacts of potential policies on gasoline consumption.
    Keywords: Social and Behavioral Sciences, gasoline demand, rational habits, price elasticity
    Date: 2013–03–14
  28. By: Krenar Avdulaj; Jozef Barunik
    Abstract: Oil is widely perceived as a good diversification tool for stock markets. To fully understand the potential, we propose a new empirical methodology which combines generalized autoregressive score copula functions with high frequency data, and allows us to capture and forecast the conditional time-varying joint distribution of the oil -- stocks pair accurately. Our realized GARCH with time-varying copula yields statistically better forecasts of the dependence as well as quantiles of the distribution when compared to competing models. Using recently proposed conditional diversification benefits measure which take into account higher-order moments and nonlinear dependence, we document reducing benefits from diversification over the past ten years. Diversification benefits implied by our empirical model are moreover strongly varying over time. These findings have important implications for portfolio management.
    Date: 2013–07
  29. By: Lkhagva Gerelmaa (International University of University); Koji Kotani (International University of University)
    Abstract: One of the surprising findings in the economic development literature is that natural resource-rich countries tend to have slower economic growth than resource-poor countries, i.e., the natural resource curse and Dutch disease. In this paper, we revisit these issues by applying quantile regression and using the most updated data. The results demonstrate that resource-intensive countries in 1970 suffered from slower economic growth than resource-poor countries over the next 20 years, consistent with Sachs and Warner (1995, 1997, 2001). However, contrary to initial expectation, we find that natural resource abundance in 1990 had positive impacts on economic growth between 1990 and 2010. We further test the Dutch disease theory, and the result contradicts the hypothesis. Overall, our analysis suggests that in the period from 1970 to 1990, the hypotheses of a resource curse and Dutch disease hold. However, in the period from 1990 to 2010, these hypotheses no longer hold because manufacturing sectors have grown suffciently even in resource-rich countries.
    Keywords: Natural resources, economic growth, resource curse, Dutch disease
    Date: 2013–07
  30. By: Robert J. Barro
    Abstract: Extremely low discount rates play a central role in the Stern Review’s evaluation of environmental protection, and this assumption has been criticized by many economists. The Review also stresses that great uncertainty is a critical element for optimal environmental policies. An appropriate model for this policy analysis requires sufficient risk aversion and fattailed uncertainty to get into the ballpark of explaining the observed equity premium. A satisfactory framework, based on Epstein-Zin/Weil preferences, also separates the coefficient of relative risk aversion (important for results on environmental investment) from the intertemporal elasticity of substitution for consumption (which matters little). Calibrations based on existing models of rare macroeconomic disasters suggest that optimal environmental investment can be a significant share of GDP even with reasonable values for the rate of time preference and the expected rate of return on private capital. The key parameters, yet to be pinned down, are the proportionate effect of environmental investment on the probability of environmental disaster and the baseline probability of environmental disaster.
    JEL: E1 G12 Q5
    Date: 2013–07

This nep-ene issue is ©2013 by Roger Fouquet. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.