nep-ene New Economics Papers
on Energy Economics
Issue of 2013‒10‒05
fifteen papers chosen by
Roger Fouquet
London School of Economics

  1. The Carbon Cost of an Educated Future: A Consumer Lifestyle Approach. By Ethan Sharygin
  2. China's energy statistics in a global context: A methodology to develop regional energy balances for East, Central and West China By Mischke, Peggy
  3. What if Energy Time Series are not Independent? Implications for Energy-GDP Causality Analysis By Bruns, Stephan B.; Gross, Christian
  4. Is There Really Granger Causality Between Energy Use and Output? By Bruns, Stephan B.; Gross, Christian; Stern, David I.
  5. Accounting for asymmetric price responses and underlying energy demand trends in OECD industrial energy demand By Olutomi I Adeyemi; Lester C. Hunt
  6. How do oil producers respond to oil demand shocks? By Jochen Güntner
  7. Gasoline Pricing, Taxation and Asymmetry: The Case of Turkey By Özgür Bor; Mustafa Ýsmihan
  8. Instability and time-varying dependence structure between oil prices and stock markets in GCC countries By Heni Boubaker; Nadia Sghaier
  9. Price Dynamics in Electricity Markets By Paraschiv, Florentina
  10. Spot-forward Model for Electricity Prices By Stein-Erik, Fleten; Paraschiv, Florentina; Schürle, Michel
  11. Domestic Incentive Measures for Renewable Energy With Possible Trade Implications By Heymi Bahar; Jagoda Egeland; Ronald Steenblik
  12. Illustrated implications of the Terrifying New Math of Meinshausen and McKibben By Colin Hunt
  13. Reviewing electricity production cost assessments By Larsson, Simon; Fantazzini, Dean; Davidsson, Simon; Kullander, Sven; Hook, Mikael
  14. Measuring Environmental Regulatory Stringency By Claire Brunel; Arik Levinson
  15. Impacts of the EU biofuel policy on agricultural markets and land use - Modelling assessment with AGLINK-COSIMO (2012 version) By Sophie Hélaine; Robert M’barek; Stephan Hubertus Gay

  1. By: Ethan Sharygin
    Abstract: Demographic and economic growth will account for most of the anticipated growth in greenhouse gas (GHG) emissions in the next century. Education is associated with development, and the world population in the near future is likelyto be significantly better educated than today. Previous studies ofhousehold energy demand and associated emissions have not directly considered the consequences of a more educated population. In this study, I estimate the energy intensity of consumption dollars and the total impact of households according to their demographic characteristics, with particular attention to differences in spending habits by education and the environmental consequences. I find that education results in fewer emissions per household, holding other household characteristics constant. Each year of education is associated with an average effect in CO2-equivalent (CO2e) emission of -466kg/yr.After controlling for household characteristics, the effect of a year of education is -163.1kg per year. Educated households spend less on home energy and transportation by car, two of the most important sources of household level atmospheric GHG production. They spend relatively more on investment goods, public transport, and other activities which have a low environmental footprint.
    Keywords: Human capital, environmental impact, household emissions.
    Date: 2013–09
  2. By: Mischke, Peggy
    Abstract: Reliable, timely and accurate economic and energy data are critical to carry out analysis of energy system changes. An energy balance, characterizing fuels/commodities used in energy supply, transformation and sectoral end uses is an essential tool to calibrate energy system models used for research and policy analysis. An improved understanding of the quality and reliability of Chinese economic and energy data is becoming more important to to understanding global energy markets and future greenhouse gas emissions. China's national statistical system to track such changes is however still developing and, in some instances, energy data remain unavailable in the public domain. This working paper discusses China's energy and economic statistics in view of identifying suitable indicators to develop a simplified regional energy systems for China from a variety of publicly available data. As China's national statistical system continuous to be debated and criticised in terms of data quality, comparability and reliability, an overview of the milestones, status and main issues of China's energy statistics is given. In a next step, the energy balance format of the International Energy Agency is used as an international benchmark to analyze China's national energy statistics in detail and identify indicators to establish regional energy balances inside China. Although this methodology includes a range of data uncertainties, it is intended to stimulate the discussion about current and future regional energy system developments in China in a broader global context. More international comparable and transparent research is needed to better understand and assess China’s progress toward meeting energy supply security targets and emission reduction goals, both at a regional, national and global level.
    Keywords: China Statistics; China Energy Economy; China Regional Energy Balance; IEA; UN ISIC
    JEL: Q41 R1
    Date: 2013–09–30
  3. By: Bruns, Stephan B. (Max Planck Institute of Economics); Gross, Christian (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: Time series of electricity, petroleum products, and renewables are found to be highly correlated with total energy consumption. Applying this insight to the huge literature on energy-GDP causality explains that the results of energy-GDP causality tests frequently coincide with the results of energy type-GDP tests. Using the test by Toda-Yamamoto in combination with a cointegration-based testing approach, we detect such cases of concordance for 92 per cent of the countries in our sample of 65 countries. As a consequence, it is difficult to draw specific economic conclusions regarding single types of energy from bivariate causality analysis.
    Keywords: Energy; GDP; Granger causality; Correlation; Electricity; Petroleum products; Renewables; Toda-Yamamoto; Johansen-Juselius
    JEL: C32 C52 Q43
    Date: 2013–09–26
  4. By: Bruns, Stephan B. (Max Planck Institute of Economics); Gross, Christian (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Stern, David I. (Crawford School of Public Policy)
    Abstract: We carry out a meta-analysis of the very large literature on testing for Granger causality between energy use and economic output to determine if there is a genuine effect in this literature or whether the large number of apparently significant results is due to publication or misspecification bias. Our model extends the standard meta-regression model for detecting genuine effects in the presence of publication biases using the statistical power trace by controlling for the tendency to over-fit vector autoregression models in small samples. Granger causality tests in these over-fitted models have inflated type I errors. We cannot find a genuine causal effect in the literature as a whole. However, there is a robust genuine effect from output to energy use when energy prices are controlled for.
    JEL: C32 C52 Q43
    Date: 2013–08
  5. By: Olutomi I Adeyemi (Alexander Brookes Associates Limited, London, UK.); Lester C. Hunt (Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.)
    Abstract: This paper explores the way technical progress and improvements in energy efficiency are captured when modelling OECD industrial energy demand. The industrial sectors of the developed world involve a number of different practices and processes utilising a range of different technologies. Consequently, given the derived demand nature of energy, it is vital that when modelling industrial energy demand the impact of technical progress is appropriately captured. However, the energy economics literature does not give a clear guide on how this can be achieved; one strand suggests that technical progress is ‘endogenous’ via asymmetric price responses whereas another strand suggests that it is ‘exogenous’. More recently, it has been suggested that potentially there is a role for both ‘endogenous’ and ‘exogenous’ technical progress and consequently the general model should be specified accordingly. This paper therefore attempts to model OECD industrial energy demand using annual time series data over the period 1962 -2010 for 15 OECD countries. Using the Structural Time Series Model framework, the general specifications allow for both asymmetric price responses (for technical progress to impact endogenously) and an underlying energy demand trend (for technical progress and other factors to impact exogenously, but in a non-linear way). The results show that almost all of the preferred models for OECD industrial energy demand incorporate both a stochastic underlying energy demand trend and asymmetric price responses. This gives estimated long-run income elasticities in the range of 0.34 to 0.96; long-run price-maximum elasticity in the range of -0.06 to -1.22; long-run price-recovery elasticity in the range of 0.00 to -0.71; and long-run price-cut elasticity in the range of 0.00 to -0.13. Furthermore, the analysis suggests that when modelling industrial energy demand there is a place for ‘endogenous’ technical progress and an ‘exogenous’ underlying energy demand trend; consequently, it is argued that, any modelling strategy should start by including both and only imposing restrictions if accepted by the data.
    Keywords: OECD industrial energy demand, Asymmetric Price Responses (APR), Underlying energy demand trend (UEDT)
    JEL: C32 C33 C51 C52 L60 Q41
    Date: 2013–09
  6. By: Jochen Güntner
    Abstract: This paper analyzes the response of international oil producers to demand-induced changes in the real price of oil during 1975–2011. The goal is to disentangle fluctuations in OPEC and non-OPEC production and to derive consistent estimates of the short-run price elasticity of crude oil supply at the country level. I find that oil producers hardly respond to demand shocks within the same month, and that the corresponding impact price elasticities of supply are not statistically different from zero. Although there is little evidence of a systematic response following a typical flow demand shock, the medium-run responses to a speculative demand shock differ between OPEC and non-OPEC producers, i.e., on average over the sample period, OPEC members seem to curtail production, whereas non-OPEC supply expands significantly. Flow and speculative demand shocks account for a non-negligible fraction of the total variability in country-level crude oil production.
    Keywords: Oil demand shocks, OPEC, Crude oil production, Price elasticity of crude oil supply
    JEL: C32 N50 Q41
    Date: 2013–07
  7. By: Özgür Bor (Atýlým University, Turkey); Mustafa Ýsmihan (Atýlým University, Turkey)
    Abstract: This study analyzes the role of tax policy in gasoline prices in Turkey by utilizing time series techniques. It provides and compares empirical results by using daily gasoline prices between January 2005 and July 2012, with and without the effect of taxation. Our results, based on the standard asymmetric error-correction model, indicate no evidence of asymmetry in retail gasoline prices, which implies that the government does not benefit from the adjustment of gasoline prices through taxation. However, one can miss the big picture in gasoline pricing by concentrating only on the short term price adjustment dynamics via error-correction models. Therefore, we analyzed the long-run relationships between crude oil and gasoline prices with and without taxes. The results indicate that Turkish government succeeded at implicitly imposing an exceptionally high tax burden on gasoline (about 70%) over the longer term by adjusting non-salient excise tax amounts on gasoline and benefited from the resultant tax revenues as means of public finance.
    Date: 2013
  8. By: Heni Boubaker; Nadia Sghaier
    Abstract: This paper investigates the dependence structure between daily oil price changes and stock market returns in six GCC countries (Bahrain, Kuwait,Oman, Qatar, Saudi Arabia and United Arab Emirates) during the period from June 1, 2005 to February 11, 2013. For that, we apply three Archimedean copulas (Gumbel, Clayton and Frank) that capture several dependence structures. The empirical results show evidence of asymmetric dependence between oil price changes and stock market returns. In particular, we …nd that all countries except Oman exhibit left tail dependence while Oman provides right tail dependence. Moreover, we check whether estimated copula parameters and tail dependence coefficients are constant over time using change point testing method. The empirical results provide also evidence of change point in copula parameters and tail dependence coefficients for all countries. The dates of change point are associated with the recent global …nancial crisis. Finally, we …nd that the copula parameters and the tail dependence coefficients are greater during the …nancial period than in tranquil period implying a presence of contagion effect.
    Keywords: oil price changes, stock market returns, Archimedean copulas,asymmetric dependence structure, change point testing method, contagion effect.
    Date: 2013–09–25
  9. By: Paraschiv, Florentina
    Abstract: With the liberalization of global power markets, modeling of exchange traded electricity contracts has attracted significantly the attention of both academic and industry. In this paper we offer an overview of the most common deseasonalization techniques and modeling approaches in the literature. We extract the deterministic component of EEX Phelix hourly electricity prices and we discuss different financial and time series models for their stochastic component. Additionally, we apply Extreme Value Theory (EVT) to investigate the tails of the price changes distribution. Generally our results suggest EVT to be of interest to both risk managers and portfolio managers in the highly volatile electricity markets.
    Date: 2013–07
  10. By: Stein-Erik, Fleten; Paraschiv, Florentina; Schürle, Michel
    Abstract: We propose a novel regime-switching approach for the simulation of electricity spot prices that is inspired by the class of fundamental models and takes into account the relation between spot and forward prices. Additionally the model is able to reproduce spikes and negative prices. Market prices are derived given an observed forward curve. We distinguish between a base regime and an upper as well as a lower spike regime. The model parameters are calibrated using historical hourly price forward curves for EEX Phelix and the dynamic of hourly spot prices. We further evaluate different time series models such as ARMA and GARCH that are usually applied for modeling electricity prices and conclude a better performance of the proposed regime-switching model.
    Keywords: electricity prices, regime-switching model, negative prices, spikes, price forward curves
    Date: 2013–07
  11. By: Heymi Bahar; Jagoda Egeland; Ronald Steenblik
    Abstract: In recent years the manufacturing of renewable-energy technologies has become truly global. The associated rise in international investment and trade in goods and services related to renewable energy has been rapid, but it has not always been smooth. Already there have been challenges at the WTO, and the unilateral imposition of countervailing and anti-dumping duties, in response to some countries‘ policies on the grounds that they distort trade. Against this background, this paper surveys, through the lenses of market-pull and technology-push policies, the numerous domestic incentives used by governments to promote renewable energy, focusing on those that might have implications for trade — both those that are likely to increase opportunities for trade and those that may be inhibiting imports or promoting exports. Many OECD countries, and an increasing number of non-OECD countries, have established national targets for renewable energy. To help boost the rate of penetration of renewable energy in their economies, most of the same countries are providing additional incentives. Market-pull incentives for the deployment of renewable-energy-based electricity generating plants include quota systems, usually administrated through "green" certificates, and fixed per kilowatt-hour feed-in tariffs and premiums. Renewable fuels for transport are typically promoted by governments through obliging fuel suppliers to mix ethanol or biodiesel with their corresponding petroleum-derived fuels. Frequently, renewable fuels for transport also benefit from exemptions, or reductions in, fuel-excise taxes, and in a few countries from production bounties. Many national and sub-national governments also support capital formation in these industries with grants, subsidised loans, loan guarantees, or a combination of instruments. In some jurisdictions, access to government support schemes have been made conditional upon meeting certain minimum levels of domestic content. Such domestic-content requirements are highly controversial because of their direct effects on trade. These effects, and the effects of other policies in combination and in isolation, are examined through a graphical analysis of generic policies, using a simplified stylised representation of the relevant markets. The basic message is that while many domestic incentives are both increasing the supply of renewable energy and facilitating trade in associated technologies and renewable fuels, some — especially those combined with border protection or domestic-content requirements — are likely reducing export opportunities for foreign suppliers, and raising domestic prices for renewable energy as a consequence.
    Keywords: trade, environment, renewable energy, environmental subsidies, bioenergy, biofuels
    JEL: F18 H23 L98 O38 Q42 Q56 Q58
    Date: 2013–06–27
  12. By: Colin Hunt (School of Economics, The University of Queensland)
    Abstract: There is a limit to the quantity of greenhouse gases that may be emitted to the atmosphere if catastrophic climate change is to be avoided. There is a global carbon budget that should not be exceeded by 2050. The practical implication is that most of the world’s fossil fuel inventory must be left in the ground and not burned. The article analyses the implications of adhering to the carbon budget by modelling the implied rate of reduction in emission intensity of the world economy. A delay in concerted international action increases sharply the rate required. The four major emitting countries are examined for their energy and emission policies and the trajectories of their required emission intensities derived. If the budget is adhered to, the intensities of China and Russia will need to be reduced sharply after 2020 when their present policies expire. Barriers are likely to remain to concerted international action in 2020, however. This will leave countries such as China and Russia free to pursue policies for the maintenance of economic growth as a priority, rather than the adoption of strict and economically stultifying targets for emissions or emission intensity.
    Date: 2013–09–30
  13. By: Larsson, Simon; Fantazzini, Dean; Davidsson, Simon; Kullander, Sven; Hook, Mikael
    Abstract: A thorough review of twelve recent studies of production costs from different power generating technologies was conducted and a wide range in cost estimates was found. The reviewed studies show differences in their methodologies and assumptions, making the stated cost figures not directly comparable and unsuitable to be generalized to represent the costs for entire technologies. Moreover, current levelized costs of electricity methodologies focus only on the producer's costs, while additional costs viewed from a consumer perspective and on external costs with impact on society should be included if these results are to be used for planning. Although this type of electricity production cost assessments can be useful, the habit of generalizing electricity production cost figures for entire technologies is problematic. Cost escalations tend to occur rapidly with time, the impact of economies of scale is significant, costs are in many cases site-specific, and country-specific circumstances affect production costs. Assumptions on the cost-influencing factors such as discount rates, fuel prices and heat credits fluctuate considerably and have a significant impact on production cost results. Electricity production costs assessments similar to the studies reviewed in this work disregard many important cost factors, making them inadequate for decision and policy making, and should only be used to provide rough ballpark estimates with respect to a given system boundary. Caution when using electricity production cost estimates are recommended, and further studies investigating cost under different circumstances, both for producers and society as a whole are called for. Also, policy makers should be aware of the potentially widely different results coming from electricity production cost estimates under different assumptions.
    Keywords: Electricity generation costs, levelized costs, energy market analysis, cost comparisons, policy implications
    JEL: L94 Q00 Q20 Q30 Q40 Q48
    Date: 2013–09
  14. By: Claire Brunel; Arik Levinson
    Abstract: Researchers have long been interested in whether environmental regulations discourage investment, reduce labour demand, or alter patterns of international trade. But estimating those consequences of regulations requires devising a means of measuring their stringency empirically. While creating such a measure is often portrayed as a data-collection problem, we identify four fundamental conceptual obstacles, which we label multidimensionality, simultaneity, industrial composition, and capital vintage. We then describe the long history of attempts to measure environmental regulatory stringency, and assess their relative success in light of those obstacles. Finally, we propose a new measure of stringency that would be based on emissions data and could be constructed separately for different pollutants.
    Keywords: trade and environment, environmental regulations, environmental subsidies
    JEL: C26 C43 C83 D78 F18 L51 Q52 Q53 Q58
    Date: 2013–08–22
  15. By: Sophie Hélaine (European Commission – DG AGRI); Robert M’barek (European Commission – JRC-IPTS); Stephan Hubertus Gay (European Commission – DG AGRI)
    Abstract: The report aims to analyse different scenarios that could occur in the EU in the years to come. First is an assumed situation in which by 2020 biofuels would contribute 8% towards the RE transport target; other RE in transport such as renewable electricity would have to fill the remaining gap. Secondly the EC's ILUC proposal is analysed. Finally a complete removal of the biofuel policy in the EU is simulated. All scenarios are compared to a situation without any change in policy. The simulations are run with the AGLINK-COSIMO model, described in Chapter 2. The consequences of these scenarios on the EU biofuel market are analysed in Chapter 3, the impacts on feedstock prices and balances in the EU are presented in Chapter 4, and on world prices in Chapter 5. Chapter 6 presents the main changes in land use worldwide.
    Keywords: Economic analysis, biofuels, baseline, impact assessment, agricultural trade, agricultural markets, competitiveness, modelling tools, land use
    Date: 2013–03

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