nep-ene New Economics Papers
on Energy Economics
Issue of 2013‒09‒26
thirteen papers chosen by
Roger Fouquet
London School of Economics

  1. Oil price volatility, economic growth and the hedging role of renewable energy By Rentschler, Jun E.
  2. The Market Value of Variable Renewables. The Effect of Solar and Wind Power Variability on their Relative Price By Lion Hirth
  3. Russian Oil and Gas Sector in 2012 By Yury Bobylev
  4. Free allocations in EU ETS Phase 3: The impact of emissions-performance benchmarking for carbonintensive industry By Stephen Lecourt; Clement Palliere; Oliver Sartor
  5. German Energy Market Fallout from the Japanese Earthquake By Grossi, Luigi; Waterson, Michael
  6. Carbon Taxes vs. Cap and Trade: A Critical Review By Lawrence H. Goulder; Andrew Schein
  7. How capital-based instruments facilitate the transition toward a low-carbon economy : a tradeoff between optimality and acceptability By Rozenberg, Julie; Vogt-Schilb, Adrien; Hallegatte, Stephane
  8. The U.S. Shale Gas Revolution and Its Effect on International Gas Markets By Aruga, Kentaka
  9. Indirect Land Use Changes (ILUC): The Seen and the Unseen By Pierre Garello; Pierre Bentata
  10. Beyond inducement in climate change: Does environmental performance spur environmental technologies? By Claudia Ghisetti; Francesco Quatraro
  11. Cointegration Analysis of Oil Prices and Consumer Price Index in South Africa using STATA Software By Sukati, Mphumuzi
  12. Technology Adoption and Energy Efficiency in Irrigation: First Results from a Coordination Game in Andhra Pradesh, India By Müller, Malte; Rommel, Jens
  13. Proofs to "Free Trade and Global Warming: A Trade Theory View of the Kyoto Protocol" By M. Scott Taylor; Brian Copeland

  1. By: Rentschler, Jun E.
    Abstract: This paper investigates the adverse effects of oil price volatility on economic activity and the extent to which countries can hedge against such effects by using renewable energy. By considering the Realized Volatility of oil prices, rather than following the standard approach of considering oil price shocks in levels, the effects of factor price uncertainty on economic activity are analyzed. Sample countries represent developed and developing, oil importing and exporting and service/industry-based economies (United States, Japan, Germany, South Korea, India, and Malaysia) and thus complement the standard literature's analysis of Western OECD countries. In a vector auto-regressive setting, Granger causality tests, impulse response functions, and variance decompositions show that oil price volatility has more-adverse effects in all sample countries than oil price shocks alone can explain. The paper finds that the sensitivity to oil price volatility varies widely across countries and discusses various factors which may determine the level of sensitivity (such as sectoral composition and the energy mix). This implies that the standard approach of solely considering net oil importer-exporter status is not sufficient. Simulations of volatility shocks in hypothetical energy mixes (with increased renewable shares) illustrate the potential economic benefits resulting from efforts to disconnect the macroeconomy from volatile commodity markets. It is concluded that expanding renewable energy can in principle reduce an economy's vulnerability to oil price volatility, but a country-specific analysis would be necessary to identify concrete policy measures. Overall, the paper provides an additional rationale for reducing exposure and vulnerability to oil price volatility for the sake of economic growth.
    Keywords: Energy Production and Transportation,Climate Change Economics,Markets and Market Access,Energy Demand,Emerging Markets
    Date: 2013–09–01
  2. By: Lion Hirth
    Abstract: This paper provides a comprehensive discussion of the market value of variable renewable energy (VRE). The inherent variability of wind speeds and solar radiation affects the price that VRE generators receive on the market (market value). During wind and sunny times the additional electricity supply reduces the prices. Because the drop is larger with more installed capacity, the market value of VRE falls with higher penetration rate. This study aims to develop a better understanding how the market value with penetration, and how policies and prices affect the market value. Quantitative evidence is derived from a review of published studies, regression analysis of market data, and the calibrated model of the European electricity market EMMA. We find the value of wind power to fall from 110 percent of the average power price to 50-80 percent as wind penetration increases from zero to 30 percent of total electricity consumption. For solar power, similarly low values levels are reached already at 15 percent penetration. Hence, competitive large-scale renewables deployment will be more difficult to accomplish than many anticipate.• The variability of solar and wind power affects their market value.• The market value of variable renewables falls with higher penetration rates.• We quantify the reduction with market data, numerical modeling, and a lit review.• At 30% penetration, wind power is worth only 50-80% of a constant power source.
    Keywords: Variable renewables, wind power, solar power, power system modeling, market integration of renewables, electricity markets, intermittency, competitiveness of renewables, cost-benefit analysis
    JEL: C61 C63 Q42 D40
    Date: 2013–05
  3. By: Yury Bobylev (Gaidar Institute for Economic Policy)
    Abstract: Oil and gas production remain the core sector of Russia economy, which has a leading role in generating federal budget revenue and this country’s balance of trade. The factors that exerted the most significant influence on the development of the oil and gas sector of the Russian economy in 2012 were the situation on the world oil market; the situation on the European gas market; and the objective deterioration of the conditions for the extraction of oil and natural gas, which is associated with a declining production at the ‘old’ deposits and the considerably higher costs of the development of new ones, especially in unpopulated areas with no infrastructure..
    Keywords: Russian economy, oil world prices, oil production structure, oil and gas exports, tax regulation of the oil and gas sector
    JEL: L71 L72
    Date: 2013
  4. By: Stephen Lecourt; Clement Palliere; Oliver Sartor
    Abstract: From Phase 3 (2013-20) of the European Union Emissions Trading Scheme, carbon-intensive industrial emitters will receive free allocations based on harmonised, EU-wide benchmarks. This paper analyses the impacts of these new rules on allocations to key energy-intensive sectors across Europe. It explores an original dataset that combines recent data from the National Implementing Measures of 20 EU Member States with the Community Independent Transaction Log and other EU documents. The analysis reveals that free allocations to benchmarked sectors will be reduced significantly compared to Phase 2 (2008-12). This reduction should both increase public revenues from carbon auctions and has the potential to enhance the economic efficiency of the carbon market. The analysis also shows that changes in allocation vary mostly across installations within countries, raising the possibility that the carbon-cost competitiveness impacts may be more intense within rather than across countries. Lastly, the analysis finds evidence that the new benchmarking rules will, as intended, reward installations with better emissions performance and will improve harmonisation of free allocations in the EU ETS by reducing differences in allocation levels across countries with similar carbon intensities of production.
    Keywords: European Union Emissions Trading Scheme, CO2 allowance allocation, Emissions-performance benchmarking
    Date: 2013
  5. By: Grossi, Luigi (Verona University); Waterson, Michael (University of Warwick)
    Abstract: The German response to the Fukushima nuclear power plant incident was possibly the most significant change of policy towards nuclear power outside Japan, leading to a sudden and very significant shift in the underlying power generation structure in Germany. This provides a very useful natural experiment on the impact of changing proportions of conventional fuel inputs to power production, helping us to see how changed proportions in future as a result of policy moves in favour of renewables are likely to impact. We find through exploration of a conventional demand- supply framework that despite the swift, significant change, the main impact was a relatively modest increase in prices occasioned by a shift of the supply curve; there were no appreciable quantity effects on the market, such as power outages, despite some views that the impacts would be significant.
    Keywords: Atomausstieg; Demand-supply framework; German power market; nuclear power; renewables
    Date: 2013
  6. By: Lawrence H. Goulder; Andrew Schein
    Abstract: We examine the relative attractions of a carbon tax, a “pure” cap-and-trade system, and a “hybrid” option (a cap-and-trade system with a price ceiling and/or price floor). We show that the various options are equivalent along more dimensions than often are recognized. In addition, we bring out important dimensions along which the approaches have very different impacts. Several of these dimensions have received little attention in prior literature. A key finding is that exogenous emissions pricing (whether through a carbon tax or through the hybrid option) has a number of attractions over pure cap and trade. Beyond helping prevent price volatility and reducing expected policy errors in the face of uncertainties, exogenous pricing helps avoid problematic interactions with other climate policies and helps avoid large wealth transfers to oil exporting countries.
    JEL: H23 Q50 Q54
    Date: 2013–08
  7. By: Rozenberg, Julie; Vogt-Schilb, Adrien; Hallegatte, Stephane
    Abstract: This paper compares the temporal profile of efforts to curb greenhouse gas emissions induced by two mitigation strategies: a regulation of all emissions with a carbon price and a regulation of emissions embedded in new capital only, using capital-based instruments such as investment regulation, differentiation of capital costs, or a carbon tax with temporary subsidies on brown capital. A Ramsey model is built with two types of capital: brown capital that produces a negative externality and green capital that does not. Abatement is obtained through structural change (green capital accumulation) and possibly through under-utilization of brown capital. Capital-based instruments and the carbon price lead to the same long-term balanced growth path, but they differ during the transition phase. The carbon price maximizes social welfare but may cause temporary under-utilization of brown capital, hurting the owners of brown capital and the workers who depend on it. Capital-based instruments cause larger intertemporal welfare loss, but they maintain the full utilization of brown capital, smooth efforts over time, and cause lower immediate utility loss. Green industrial policies including such capital-based instruments may thus be used to increase the political acceptability of a carbon price. More generally, the carbon price informs on the policy effect on intertemporal welfare but is not a good indicator to estimate the impact of the policy on instantaneous output, consumption, and utility.
    Keywords: Climate Change Mitigation and Green House Gases,Economic Theory&Research,Climate Change Economics,Investment and Investment Climate,Emerging Markets
    Date: 2013–09–01
  8. By: Aruga, Kentaka
    Abstract: This paper investigated whether the effect of the shale gas revolution on the U.S. gas market is still a domestic phenomenon or this revolution is influencing the global natural gas market. We used the Bai-Perron test to identify the break date related to the shale gas revolution and tested the price linkages among the U.S., European and Japanese gas markets for the periods before and after this break date. The result indicated that the U.S. gas market had a price linkage with the international market for the period before the revolution affected the U.S. gas production, but this price linkage disappeared for the period after the revolution. This result implied that the U.S. gas market became independent after the shale gas revolution occurred and that the price linkage between the U.S. and international gas market became weaker after the shale gas revolution occurred.
    Keywords: shale gas revolution, natural gas market, structural break
    JEL: Q4
    Date: 2013–05–28
  9. By: Pierre Garello (CERGAM, FEG, Aix-Marseille Université); Pierre Bentata (CERGAM-CAE, Aix-Marseille Université)
    Abstract: The paper analyzes a policy proposition to take into account indirect land use changes in the evaluation of GHG emissions by biofuel industry. Based on an extensive survey of scientific literature onILUC, it is argued that, due to the absence of a satisfactory scientific evaluation of ILUC, the proposition should be rejected for it will necessarily translate into arbitrary decisions and push an already struggling biofuel industry into bankruptcy. The study also provides afirst approximation of the cost of implementing ILUC regulation in terms of employment and subsidies. Also, a different orientation for a policy towards cleaner and renewable energy is outlined that would be based on a realistic account of current scientific and technological knowledge.
    Keywords: Indirect land Use Change, global public goods, GHGemissions, EU energy policy
    JEL: Q42 Q48 Q51 Q56
    Date: 2013–08
  10. By: Claudia Ghisetti (Département des sciences économiques - Università di Bologna); Francesco Quatraro (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université Nice Sophia Antipolis [UNS])
    Abstract: This paper contributes to the debate on the inducement of environmental innovations by analysing the extent to which endogenous inducement mechanisms spur the generation of greener technologies in contexts characterized by weak exogenous inducement pressures. In the presence of a fragile environmental regulatory framework, inducement can indeed be endogenous and environmental innovations may be spurred by firms' reactions to their direct or related environmental performance. Cross-sector analysis focuses on a panel of Italian regions, over the time span 2003-2007, and is conducted by implementing zero-inflated regression models for count data variables. The empirical results suggest that in a context characterized by a weak regulatory framework, such as the Italian one, environmental performance has significant and complementary within- and between-sector effects on the generation of green technologies.
    Keywords: Green technologies; Environmental Performance; Regional NAMEA; Technological innovation; Knowledge production function
    Date: 2013–09–09
  11. By: Sukati, Mphumuzi
    Abstract: This paper investigates the concept of vector autoregression (VAR) and cointegration using a bivariate model of global oil prices and headline Consumer Price Index (CPI) in South Africa. The study aims to determine how much of inflation is driven by oil prices. Particular attention is paid to the theoretical underpinnings of cointergration analysis and the application of STATA software to undertake such analysis and perform test statistics. Contrary to the popular myth that a rise in global oil prices fuels inflation, this study has observed that global oil prices are not the drivers of inflation in South Africa. In this way, other macroeconomic indicators and policy developments need to be integrated in analyzing the determinants of South African inflation.
    Keywords: Consumer Price Index, Oil Prices, Vector Autoregression, Cointegration, STATA Software, South Africa
    JEL: E51 E6 E64 E65
    Date: 2013–09–13
  12. By: Müller, Malte; Rommel, Jens
    Abstract: Farmers’ technology adoption in electric irrigation has recently been analyzed as a coordination problem. To study how the Pareto-inferior equilibrium, farmers are trapped in, can be overcome we have developed a framed field experiment. Leadership and group size are varied in a full factorial experimental design. Initial results show only minor treatment effects. Further analysis is necessary to account for socio-demographic heterogeneity.
    Keywords: Coordination Game, Energy Efficiency, India, Irrigation, Technology Adoption, Community/Rural/Urban Development, Institutional and Behavioral Economics, Research Methods/ Statistical Methods,
    Date: 2013
  13. By: M. Scott Taylor (University of Calgary); Brian Copeland
    Date: 2013–07–15

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