nep-ene New Economics Papers
on Energy Economics
Issue of 2013‒08‒23
fourteen papers chosen by
Roger Fouquet
London School of Economics

  1. Measuring fuel poverty: General considerations and application to German household data By Heindl, Peter
  2. Household transitions to energy efficient lighting By Mills, Bradford; Schleich, Joachim
  3. Oil Price Shocks and Volatility in Australian Stock Returns ‎ By Ratti, Ronald A.; Hasan, M. Zahid
  4. Consumer Loss in Czech Photovoltaic Power Plants By Jan Prusa; Andrea Klimesova; Karel Janda
  5. Boom or gloom? Examining the Dutch disease in a two-speed economy By Hilde C. Bjørnland; Leif Anders Thorsrud
  6. Resource Return on Investment under Markup Pricing By Kemp-Benedict, Eric
  7. Spatial Aspects of Firm-level Carbon Dioxide Emissions in Japan (Japanese) By OKUBO Toshihiro; Robert J.R. ELLIOTT; Matthew A. COLE; Ying ZHOU
  8. Price Formation and Intertemporal Arbitrage within a Low-Liquidity Framework: Empirical Evidence from European Natural Gas Markets By Nick, Sebastian
  9. Oil Windfalls, Fiscal Policy and Money Market Disequilibrium By Salman Huseynov; Vugar Ahmadov
  10. Estimating the Global Impacts of Climate Variability and Change During the 20th Century By Richard S.J. Tol; Francisco Estrada
  11. Emergence of Asymmetric Solutions in the Abatement Game By Yukihiro Nishimura
  12. Local Natural Resource Curse? By Lars-Erik Borge; Pernille Parmer; Ragnar Torvik
  13. A pricing measure to explain the risk premium in power markets By Fred Espen Benth; Salvador Ortiz-Latorre
  14. Optimal Resource Rent By Rustam Jamilov

  1. By: Heindl, Peter
    Abstract: Fuel poverty may become an increasingly severe problem in developed countries in cases when real prices for fossil fuels increase at high rates or when real energy prices increase due to policies for greenhouse gas abatement. Fuel poverty measurement consists of two largely independent parts, firstly, the definition of an adequate fuel poverty line, and secondly, the application of techniques to measure fuel poverty given some poverty line. This paper reviews options for the definition of fuel poverty lines as well as techniques for fuel poverty measurement. Based on household data from Germany, figures that would result from different fuel poverty lines are derived. Different fuel poverty lines partly yield highly different results with respect to which households are identified as fuel poor. Thus, the choice of the fuel poverty line matters decisively for the resulting fuel poverty assessment. Options for fuel poverty measurement and subgroup comparison in order to identify most vulnerable types of households are discussed in the light of the literature and based on applications to German household data. --
    Keywords: Fuel Poverty,Energy Poverty,Poverty Measurement,Energiearmut
    JEL: I32 Q28 Q48
    Date: 2013
  2. By: Mills, Bradford; Schleich, Joachim
    Abstract: New energy efficient lighting technologies have the potential to significantly reduce household electricity consumption. But adoption of many technologies has been slow. This paper employs a unique dataset of German households to examine the factors associated with the replacement of old incandescent lamps (ILs) with new energy efficient compact fluorescent lamps (CFLs) and light emitting diodes (LEDs). The 'rebound' effect of increased light luminosity during the transition to energy efficient bulbs is analyzed jointly with the replacement decision to control for household self-selection in bulb-type choice. The results indicate that the EU ban on ILs accelerated the pace of transition to CFLs and LEDs, while storage of bulbs significantly dampened the speed of the transition. Households also appear responsive to new bulb attributes, as those with stated preferences for energy efficient, environmentally friendly, and durable lighting are more likely to replace ILs with CFLs and LEDs. Higher lighting needs generally spur IL replacement with CFLs or LEDs. However, electricity gains from new energy efficient lighting are mitigated by increases in bulb luminosity; with average increases in luminosity of 23% and 47% upon transitioning to CFLs and LEDs, respectively. --
    Date: 2013
  3. By: Ratti, Ronald A.; Hasan, M. Zahid
    Abstract: This paper examines the effect of oil shocks on return and volatility in the sectors of ‎Australian stock market and finds significant effects for most sectors. For the overall market ‎index, an increase in oil price return significantly reduces return, and an increase in oil price ‎return volatility significantly reduces volatility. An advantage of looking at sector returns ‎rather than a general index of stock returns is that sectors may well differ markedly in how ‎they respond to oil price shocks. The energy and material sectors (as expected) and the ‎financial sector (surprisingly) are out of step (in different ways) with results for the other ‎sectors and for the overall index. A rise in oil price increases returns in the energy and material ‎sectors and an increase in oil price return volatility increases stock return volatility in the ‎financial sector. Explanation for the negative (positive) association between oil return (oil ‎return volatility) and returns (volatility of returns) in the financial sector must be based on the ‎association via lending to and/or holdings of corporate bonds issued by firms with significant ‎exposure to oil price fluctuations and their speculative positions in oil related instruments. ‎
    Keywords: oil price shocks, volatility in stock returns, Australian sector returns
    JEL: G1 G10 Q4
    Date: 2013–01–01
  4. By: Jan Prusa; Andrea Klimesova; Karel Janda
    Abstract: This article provides a financial survey of a small sample of Czech photovoltaic (PV) plants. To evaluate the extent of market losses, we calculate the shadow market price of solar electricity. From the profit and loss accounts of the PV plants and the shadow market price we estimate the total economic loss generated by PV electricity sector in the Czech Republic. The presented microeconomic approach has two main advantages: Firstly, we work with real observed data, which offsets the drawback of a limited sample. Secondly, the profit accounting calculation enables sensitivity analysis with respect to key variables of the plants. We show that money invested in PV plants would generate an annual loss of 8%. Given the estimated solar assets of CZK 165.6 billion (EUR 6.6 billion) as of December 2011, this translates in at least CZK 12.6 billion lost in the Czech solar sector in 2012. About 43% of this loss is due to high technology costs and corresponds to pure dead weight loss, while the remaining 57% constitute the redistributive profit component of subsidies. Finally, we calculate that unless electricity prices increase or technology costs decrease approximately sevenfold, PV plants will remain loss making.
    Keywords: energy subsidies; photovoltaic; renewables
    JEL: Q42 H23 M21
    Date: 2013–08
  5. By: Hilde C. Bjørnland; Leif Anders Thorsrud
    Abstract: Traditional studies of the Dutch disease do not typically account for productivity spillovers between the booming energy sector and non-oil sectors. This study identifes and quantifes these spillovers using a Bayesian Dynamic Factor Model (BDFM). The model allows for resource movements and spending effects through a large panel of variables at the sectoral level, while also identifying disturbances to the real oil price, global demand and non-oil activity. Using Norway as a representative case study, we find that a booming energy sector has substantial spillover effects on the non-oil sectors. Furthermore, windfall gains due to changes in the real oil price also stimulates the economy, but primarily if the oil price increase is caused by global demand. Oil price increases due to, say, supply disruptions, while stimulating activity in the technologically intense service sectors and boosting government spending, have small spillover effects on the rest of the economy, primarily because of reduced cost competitiveness. Yet, there is no evidence of Dutch disease. Instead, we find evidence of a two-speed economy, with non-tradables growing at a much faster pace than tradables. Our results suggest that traditional Dutch disease models with a fixed capital stock and exogenous labor supply do not provide a convincing explanation for how petroleum wealth affects a resource rich economy when there are productivity spillovers between sectors.
    Keywords: Resource boom, oil prices, Dutch disease, learning by doing, two-speed economy, Bayesian Dynamic Factor Model (BDFM)
    JEL: C32 E32 F41 Q33
    Date: 2013–08
  6. By: Kemp-Benedict, Eric
    Abstract: In the (very) long run, a sustainable economy must rely on renewable resources. Until that time, an economy can be based on either renewable resources alone or a mix of renewable and non-renewable resources, but the particular mix may constrain the types of economic structures that are possible. A particularly important consideration is the quantity of resources required to extract the resources on which the economy is based, whether it is seeds retained for planting or petroleum used to extract oil. In the case of energy this is called “energy return on energy investment”, or EROI. More generally, it can be considered “resource return on resource investment”, or RROI. EROI has drawn attention lately both because the EROI of fossil fuels is falling and because the EROI of some renewable alternatives – especially for liquid fuels – is low compared to fossil fuels. In conventional economic analysis it is not clear what the relation between EROI, energy price, and macroeconomic outcomes might be. However, it raises immediate concerns within an Ecological Economic framework, in which resources – which may contribute only a small amount to GDP – are viewed as essential to the functioning of the economy. Resources are pictured as sitting at the base of an inverted pyramid, with the rest of the economy balanced on top of them. In this paper we show that when prices are set by markup, a standard Post-Keynesian assumption, then the “inverted pyramid” picture of the economy emerges naturally. We use this result to develop a computational framework for a “markup economy”, and apply it to the question of the macroeconomic impact of changes in resource prices and resource return on investment. We use the resulting model to explore several macroeconomic questions, demonstrating that the model is quite useful for exploring the role of natural resources in the macroeconomy. We then show our main result, that RROI has a surprisingly limited effect on real wages until it reaches quite low values.
    Keywords: EROI,macroeconomics,input-output,ecological economics,biophysical economics,Post Keynesian
    JEL: E00 E11 E12 Q01 Q43
    Date: 2013–08–19
  7. By: OKUBO Toshihiro; Robert J.R. ELLIOTT; Matthew A. COLE; Ying ZHOU
    Abstract: In this paper, we examine the spatial distribution of Japanese pollution-intensive firms. Employing spatial econometric techniques, our results show that firm-level carbon dioxide emissions are spatially correlated and spatial correlations with our dependent variable are perhaps due to demonstration or imitation effects. We also find evidence of feedback effects where the emissions of firms affect those of other firms located nearby.
    Date: 2013–08
  8. By: Nick, Sebastian (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: In this study, the informational efficiency of the European natural gas market is analyzed by empirically investigating price formation and arbitrage efficiency between spot and futures markets. Econometric approaches are specified that explicitly account for nonlinearities and the low liquidity-framework of the considered gas hubs. The empirical results reveal that price discovery takes place on the futures market, while the spot price subsequently follows the futures market price. Furthermore, there is empirical evidence of significant market frictions hampering intertemporal arbitrage. UK’s NBP seems to be the hub at which arbitrage opportunities are exhausted most efficiently, although there is convergence in the degree of intertemporal arbitrage efficiency over time at the hubs investigated.
    Keywords: natural gas market; informational efficiency; liquidity; nonlinear causality; threshold error correction; Kalman filter
    JEL: C58 G14 Q40 Q41
    Date: 2013–08–12
  9. By: Salman Huseynov; Vugar Ahmadov
    Abstract: In this paper, we base our policy analyses and simulations on three different specifications of a DSGE model developed for a CIS oil rich country and check the impact of the oil windfalls. The first proposed specification is a classical one with a Taylor rule and the second one is a recently new specification with a money growth rule. Beside two familiar specifications, we propose a new specification which assumes a temporary money market disequilibrium in the short run. This disequilibrium is a result of the fiscal misbalance and (non-primary) pro-deficit policy pursued by the fiscal authority. We show that all three specifications allow the fiscal authority to act as the main actor in propagating and amplifying the effects of the oil price shocks to the rest of the economy. When an oil shock hits the economy, its first round effect operates through oil fund transfers to the budget. The second round effects result from an increase in government consumption and government investment expenditures, which augments public capital affecting total factor productivity (TFP) and production, as well as the aggregate demand. We also find that despite significant differences, all three specifications demonstrate similar response dynamics.
    Keywords: Fiscal Policy; Oil Windfalls; Public investment; Market Disequilibrium; Oil rich country
    JEL: E47 E58 E61
    Date: 2013–06–15
  10. By: Richard S.J. Tol (Department of Economics, University of Sussex; Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands; Department of Spatial Economics, Vrije Universiteit, Amsterdam, The Netherlands; Tinbergen Institute, Amsterdam, The Netherlands); Francisco Estrada (Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands; Centro de Ciencias de la Atmósfera, Universidad Nacional Autónoma de México, Mexico)
    Abstract: Estimates of the impacts of observed climate change during the 20th century obtained by different integrated assessment models (IAMs) are separated into their main natural and anthropogenic components. The estimates of the costs that can be attributed to natural variability factors and to the anthropogenic intervention with the climate system in general tend to show that: 1) during the first half of the century, the amplitude of the impacts associated to natural variability is considerably larger than that produced by anthropogenic factors and according to most models the effects of natural variability were mainly negative. These non-monotonic impacts are mostly determined by the low-frequency variability and the persistence of the climate system; 2) IAMs do not agree on the sign (nor on the magnitude) of the impacts of anthropogenic forcing but indicate that they steadily grew over the first part of the century, rapidly accelerated since the mid 1970's, and decelerated during the first decade of the 21st century. The economic impacts of anthropogenic forcing range in the tenths of percentage of the world GDP by the end of the 20th century; 3) the impacts of natural forcing are about one order of magnitude lower than those associated to anthropogenic forcing and are dominated by the solar forcing. Human activities became dominant drivers of the infrapolated economic impacts at the end of the 20th century, rivaling in magnitude with those of natural variability. FUNDn3.6 allows to further decompose the natural and anthropogenic contributions into different sectors. The benefits of anthropogenic contribution in agriculture and energy are shown to outweigh the losses in health and water resources.
    Keywords: climate change; impacts; 20th century
    JEL: Q54
    Date: 2013–08
  11. By: Yukihiro Nishimura (Graduate School of Economics, Osaka University)
    Abstract: This paper explores the outcome of non-cooperative decision making by elected politicians under transnational externalities. We re-examine the extent of a voter’s incentives for supporting politicians who are less green than the median voter, a phenomenon called “political race to the bottom.” We provide a setup in which each country is endowed with the fixed amount of endowment available for consumption, and the part of the endowments can be used for improvement of the environment. When the degree of spillovers of public inputs becomes strong enough, there arises the following equilibrium: one of the elected politicians pays no attention to the environment, but the median voter becomes the elected politician in the other country. This equilibrium is different from the model by Buchholz et al. (2005, “International Environmental Agreements and Strategic Voting”, Scandinavian Journal of Economics 107(1), 175-195), in which countries can choose emissions without an upper bound.
    Date: 2013–07
  12. By: Lars-Erik Borge; Pernille Parmer; Ragnar Torvik
    Abstract: The large variation in revenues among Norwegian local governments can partly be explained by revenues collected from hydropower production. This revenue variation, combined with good data availability, can be used to extend the literature on the resource curse in two directions. First, to ensure that there is no problem of endogeneity in the analysis we obtain a purely exogenous measure of local revenue by instrumenting the variation in hydropower revenue, and thus total revenue, by topology, average precipitation and meters of river in steep terrain. Second, using data for revenue derived from hydropower production in Norwegian local governments we test the ’Rentier State’ hypothesis; that revenue derived from natural resources should harm efficiency more than revenue derived from other sources such as taxation. Although we do ?nd that higher local government revenue reduces the efficiency in production of public goods, we do not ?nd that this effect is stronger for natural resource revenue than for other revenue.
    Keywords: resource curse, rentier state, identi?cation, local government, political economy.
    JEL: D78 H11 H27 H71 H72 H75 Q2
    Date: 2013–06
  13. By: Fred Espen Benth; Salvador Ortiz-Latorre
    Abstract: In electricity markets, it is sensible to use a two-factor model with mean reversion for spot prices. One of the factors is an Ornstein-Uhlenbeck (OU) process driven by a Brownian motion and accounts for the small variations. The other factor is an OU process driven by a pure jump L\'evy process and models the characteristic spikes observed in such markets. When it comes to pricing, a popular choice of pricing measure is given by the Esscher transform that preserves the probabilistic structure of the driving L\'evy processes, while changing the levels of mean reversion. Using this choice one can generate stochastic risk premiums (in geometric spot models) but with (deterministically) changing sign. In this paper we introduce a pricing change of measure, which is an extension of the Esscher transform. With this new change of measure we also can slow down the speed of mean reversion and generate stochastic risk premiums with stochastic non constant sign, even in arithmetic spot models. In particular, we can generate risk profiles with positive values in the short end of the forward curve and negative values in the long end. Finally, our pricing measure allows us to have a stationary spot dynamics while still having randomly fluctuating forward prices for contracts far from maturity.
    Date: 2013–08
  14. By: Rustam Jamilov
    Abstract: This paper develops the first systematic attempt to model and empirically estimate the concept of optimal resource renting. Optimal rent is found to be positively affected by increases in the recession buffer and resource endowment, and negatively affected by the opportunity cost of hoarding. The model is then tested empirically on Norway, an oil-rich state, and actual renting is found to be systematically diverging from the optimal rent series. At least a third of the variation in actual renting is always left unexplained by the economic variables of the model, and should be attributed to the institutional and political factors that lie beyond the scope of our analysis.
    Keywords: Rent-Seeking, Resources Policy, Public Finance
    JEL: D72 L71 O17
    Date: 2013–03–15

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