nep-ene New Economics Papers
on Energy Economics
Issue of 2013‒11‒09
seventeen papers chosen by
Roger Fouquet
London School of Economics

  1. Literature Review of Energy-Economics Models, Regarding Technological Change and Uncertainty By Pablo Salas
  2. The social cost of atmospheric release By Shindell, Drew T.
  3. Optimum Growth and Carbon Policies with Lags in the Climate System By Lucas Bretschger; Christos Karydas
  4. Nash equilibrium for coupling of CO2 allowances and electricity markets By Mireille Bossy; Nadia Maizi; Odile Pourtallier
  5. Projections of future emissions and energy use from passenger cars as a result of policies in the EU with a dynamic model of technological change By Aileen Lam
  6. Carbon Tax Scenarios and their Effects on the Irish Energy Sector By di Cosmo, Valeria; Hyland, Marie
  7. Dynamic climate policy with both strategic and non-strategic agents : taxes versus quantities By Karp, Larry; Siddiqui, Sauleh; Strand, Jon
  8. Green industrial policies : when and how By Hallegatte, Stephane; Fay, Marianne; Vogt-Schilb, Adrien
  9. Catching the rebound: Economy-wide implications of an efficiency shock in the provision of transport services by households By Koesler, Simon
  10. The Transmission of Oil and Food Prices to Consumer Prices: Evidence for the MENA Countries By Ansgar Belke; Christian Dreger
  11. The Economic Role of RIN Prices By Bruce A. Babcock; Sebastien Pouliot
  12. Modelling production cost scenarios for biofuels and fossil fuels in Europe By Festel, Gunter; Würmseher, Martin; Rammer, Christian; Boles, Eckhard; Bellof, Martin
  13. Technology and pro-environmental behavior in urban households: how technologies mediate domestic routines By Elena Chernovich
  14. Acting on Climate Finance Pledges: Inter-Agency Dynamics and Relationships with Aid in Contributor States By Jonathan Pickering; Jakob Skovgaard; Soyeun Kim; J. Timmons Roberts; David Rossati; Martin Stadelmann; Hendrikje Reich
  15. How Much E85 Can Be Consumed in the United States? By Bruce A. Babcock; Sebastien Pouliot
  16. An Empirical Analysis of Liquidity and its Determinants in The German Intraday Market for Electricity By Simon Hagemann; Christoph Weber
  17. When does cooperation win and why? Political cycles and participation in international environmental agreements By Antoine CAZALS; Alexandre SAUQUET

  1. By: Pablo Salas (Cambridge Centre for Climate Change Mitigation Research, Department of Land Economy, University of Cambridge)
    Abstract: The power sector contributes with more than one third of the anthropogenic green house gas (GHG) emissions, and therefore it is a relevant target for climate change mitigation measures. However, its technological evolution is co-dependent with many other complex phenomena, such as climate policies, energy investment, natural resources availability, social and political change, among others. In order to create the appropriate policies that help us to adopt low carbon energy technologies, it is necessary to understand how these uncertain phenomena interact, and what are the implications in terms of carbon emissions. This paper is an overview of some of the energy-economic models available to study the evolution of the power sector, with particular emphasis in the uncertain drivers of technological change, and the consequent impacts on GHG emissions.
    Keywords: Energy Modelling, Technological Change, Uncertainty
    JEL: O33 Q47 D81
    Date: 2013–10
  2. By: Shindell, Drew T.
    Abstract: The author presents a multi-impact economic valuation framework called the Social Cost of Atmospheric Release (SCAR) that extends the Social Cost of Carbon (SCC) used previously for carbon dioxide (CO2) to a broader range of pollutants and impacts. Values consistently incorporate health and agricultural impacts of air quality along with climate damages. The latter include damages associated with aerosol-induced hydrologic cycle changes that lead to net climate benefits when reducing cooling aerosols. Evaluating a 1% reduction in current global emissions, benefits with a high discount rate are greatest for reductions of sulfur dioxide (SO2), followed by co-emitted products of incomplete combustion (PIC) and then CO2 and methane. With a low discount rate, benefits are greatest for CO2 reductions, and are nearly equal to the total from SO2, PIC and methane. These results suggest that efforts to mitigate atmosphere-related environmental damages should target a broad set of emissions including CO2, methane and aerosols. Illustrative calculations indicate environmental damages are $150-510 billion per year for current US electricity generation (~6-20¢ per kWh for coal, ~2-11¢ for gas) and $0.73±0.34 per gallon of gasoline ($1.20±0.70 per gallon for diesel). These results suggest that total atmosphere-related environmental damages plus generation costs are greater for coal-fired power than other sources, and damages associated with gasoline vehicles exceed those for electric vehicles. --
    Keywords: environmental economics,valuation,air pollution,climate,government policy
    JEL: Q51 Q53 Q54 Q58
    Date: 2013
  3. By: Lucas Bretschger (ETH Zurich, Switzerland); Christos Karydas (ETH Zurich, Switzerland)
    Abstract: We study the effects of greenhouse gas emissions on optimum growth and environmental policy by using an expansion-in-varieties growth model with polluting non-renewable resources. Climate change harms the capital stock. Our main contribution is to introduce and extensively explore the naturally determined time lag between greenhouse gas emission and the damages due to climate change which proves to be crucial for the transition of the economy towards its steady state. The social optimum and optimal abatement policies are fully characterized. The inclusion of a green technology delays optimal resource extraction. The optimal tax rate on emissions is proportional to output. Poor understanding of the emissions dissusion process leads to suboptimal carbon taxes and suboptimal growth and resource extraction.
    Keywords: Non-Renewable Resource Extraction; Climate Policy; Optimum Growth; Pollution Diusion lag.
    JEL: Q54 O11 Q52 Q32
    Date: 2013–11
  4. By: Mireille Bossy; Nadia Maizi; Odile Pourtallier
    Abstract: In this note, we present an existence result of a Nash equilibrium between electricity producers selling their production on an electricity market and buying CO2 emission allowances on an auction carbon market. The producers' strategies integrate the coupling of the two markets via the cost functions of the electricity production. We set out a clear Nash equilibrium that can be used to compute equilibrium prices on both markets as well as the related electricity produced and CO2 emissions covered.
    Date: 2013–11
  5. By: Aileen Lam (Cambridge Centre for Climate Change Mitigation Research, Department of Land Economy, University of Cambridge)
    Abstract: Transport is the only sector in the EU in which greenhouse gas emissions are still rising. This paper uses the FTT (future technology transformation) framework to project energy use and emissions from passenger cars in the EU 27 until 2050. Projections are made based on four policy scenarios in order to explore the effect of different policies on penetration and diffusion of cleaner transport technologies. All our scenario projections support the dominance of hybrid cars in 2050. However, our results illustrate that strong emission targets cannot be achieved by only encouraging low-emitting cars, but requires strong policies targeting the cleanest cars. Further emission reductions can be achieved by non-pecuniary measures such as car use reductions and scrappage schemes.
    Keywords: Transport, Technological change, Emissions, Fuel use
    JEL: O33 O38 R41
    Date: 2013–10
  6. By: di Cosmo, Valeria; Hyland, Marie
    Keywords: Carbon Tax/scenarios/taxes
    Date: 2013–07
  7. By: Karp, Larry; Siddiqui, Sauleh; Strand, Jon
    Abstract: This paper studies a dynamic game where each of two large blocs, of fossil fuel importers and exporters respectively, sets either taxes or quotas to exercise power in fossil-fuel markets. The main novel feature is the inclusion of a"fringe"of non- strategic (emerging and developing) countries which both consume and produce fossil fuels. Cumulated emissions over time from global fossil fuel consumption create climate damages which are considered by both the strategic importer and the non-strategic countries. Markov perfect equilibria are examined under the four combinations of trade policies and compared with the corresponding static games where climate damages are given (not stock-related). The main results are that taxes always dominate quota policies for both the strategic importer and exporter and that"fringe"countries bene?t from a tax policy as compared with a quota policy for the strategic importer, as the import fuel price then is lower, and the strategic importer's fuel consumption is also lower, thus causing fewer climate damages.
    Keywords: Economic Theory&Research,Climate Change Economics,Markets and Market Access,Debt Markets,Emerging Markets
    Date: 2013–10–01
  8. By: Hallegatte, Stephane; Fay, Marianne; Vogt-Schilb, Adrien
    Abstract: Green industrial policies can be defined as industrial policies with an environmental goal -- or more precisely, as sector-targeted policies that affect the economic production structure with the aim of generating environmental benefits. This paper provides a framework to assess their desirability depending on the effectiveness and political acceptability of price instruments. The main messages are the following. (i) Greening growth processes to the extent and with the speed needed cannot be done without industrial policies, even if prices can be adjusted to reflect environmental objectives. (ii)"Sunrise"green industrial policies are needed because they support the development of critical new technologies and sectors, bring down costs, and allow for reduced emissions in the short term even in the absence of carbon pricing. (iii)"Sunset"green industrial policies and trade policies may be needed in conjunction with safety nets to make carbon pricing politically or socially acceptable. They can help mitigate the impact of a carbon price on competitiveness and unemployment and smooth the transition by helping industries adjust to the new conditions. (iv) Green or not, industrial policy requires carefully navigating the twin dangers of market and governance failure. The viability of supported technologies and sectors is difficult to assess through a market-test given their dependence on continued environmental policies or pricing -- such as a carbon price. Particular attention must be paid to avoid potential unintended negative effects, such as rebound effects (especially if prices are inappropriate), misallocation of capital, or capture and rent-seeking behaviors.
    Keywords: Climate Change Economics,Transport Economics Policy&Planning,Climate Change Mitigation and Green House Gases,Economic Theory&Research,Labor Policies
    Date: 2013–10–01
  9. By: Koesler, Simon
    Abstract: We investigate the rebound effect of a 10% energy cefficiency improvement in the provision of private transport services by German households. In the process, we take into account that household behaviour may be influenced by habits, build on a detailed representation of the provision of private transport services, and disentangle the direct and indirect rebound effect. Our analysis shows that rebound has the potential to significantly reduce the expected energy savings of an energy efficiency improvement at households. In particular if households have a flexible demand structure, rebound can erode large parts of efficiency increases. Household habits have an initial detrimental effect on rebound. They limit the ability of households to adapt to changes in the prevailing price and income system and therewith temporally block parts of the channels that lead to rebound. In the long run, however, if habits are formed on the basis of historic consumption, habits do not affect rebound. In isolation, the direct and indirect rebound effect of the efficiency shock are positive, but direct rebound is much stronger. --
    Keywords: rebound,efficiency improvement,energy efficiency,habits
    JEL: D13 D58 Q41 Q43
    Date: 2013
  10. By: Ansgar Belke; Christian Dreger
    Abstract: This paper investigates the effects of global oil and food price shocks to consumer prices in Middle East-North African (MENA) countries using threshold cointegration methods. Oil and food price shocks increase domestic prices in the long run, whereby the impact of food prices dominates. While global prices are weakly exogenous, consumer prices respond to deviations from the equilibrium relationship. The short run adjustment pattern exhibits asymmetries and is particularly strong after positive shocks. Downward rigidities on wages may play a crucial role in this regard, as the relatively weak reactions of consumer prices after negative shocks are related to labour market institutions and public subsidies. The more rigid the regulations the more pronounced are the asymmetries. Robustness checks show that international price shocks do not affect GDP growth.
    Keywords: Oil and food price transmission, asymmetric error correction, MENA region
    JEL: C22 E31 Q02
    Date: 2013
  11. By: Bruce A. Babcock (Center for Agricultural and Rural Development (CARD)); Sebastien Pouliot (Center for Agricultural and Rural Development (CARD))
    Abstract: The Environmental Protection Agency created a tradable commodity called RINs (Renewable Identification Numbers)—serial numbers that allow tracking batches of biofuels—to enforce biofuel mandates. To prove they have met their annual biofuel obligations under the Renewable Fuels Standard gasoline and diesel producers and importers accumulate RINs, by either buying biofuels with attached RINs or by buying detached RINs offered in the RIN market. RINs become detached when biofuels are blended with diesel or gasoline. Blenders who are not obligated parties have no use for their RINs; thus they are willing sellers in the RIN market. The price at which RINs are bought and sold is measured in cents per gallon of ethanol. In 2013, RIN prices have varied dramatically, from less than 10 cents per gallon in January to over 140 cents per gallon in July. As of late October, RIN prices for corn ethanol are about 25 cents per gallon.
    Date: 2013–11
  12. By: Festel, Gunter; Würmseher, Martin; Rammer, Christian; Boles, Eckhard; Bellof, Martin
    Abstract: This paper presents the results of a calculation model for biofuel production costs in 2015 and 2020 based on raw material price projections and considering scale and learning effects. Distinguishing six types of biofuels, the paper finds that scale economies and learning effects are critical for 2nd generation biofuels to become competitive. In case these effects can be utilized, cost saving potentials for 2nd generation biofuels are significant. --
    Keywords: Biofuels,Production Cost Scenarios,Raw Material Price Projection,Conversion Costs
    JEL: L25 L26 J24
    Date: 2013
  13. By: Elena Chernovich (Junior Research Fellow, Institute for Statistical Studies and Economics of Knowledge, National Research University Higher School of Economics,)
    Abstract: This paper investigates environmental behavior in Russian households by the analysis of 24 in-depth interviews conducted in typical households of the city of Moscow. Using the STS tools such as ‘script’ and ‘moral agency’ it discovers how technologies shape domestic routines and pro-environmental behavior of their users and how the users shape the resource consumption of technological artifacts. Depending on their environmental values and believes three types of residents are identified: committed environmentalists, occasional environmentalists and non-environmentalists. Each of the group of people appeared to have different agencies in relation to their domestic technologies. Technologies also seem to play different role in shaping moral actions of the three categories of residents
    Keywords: Human-technology relations, environmentalism, domestic routines
    JEL: D19 Q01
    Date: 2013
  14. By: Jonathan Pickering; Jakob Skovgaard; Soyeun Kim; J. Timmons Roberts; David Rossati; Martin Stadelmann; Hendrikje Reich
    Abstract: Developed countries have relied heavily on aid budgets to fulfill their pledges to boost funding for addressing climate change in developing countries. However, little is known about how interaction between aid and other ministries has shaped contributors’ diverse approaches to climate finance. This paper investigates intra-governmental dynamics in decision-making on climate finance in seven contributor countries (Australia, Denmark, Germany, Japan, Switzerland, the UK and the US). While aid agencies retained considerable control over implementation, environment and finance ministries have played an influential and often contrasting role on key policy issues, including distribution between mitigation and adaptation and among geographical regions.
    Keywords: Climate policy, climate finance, development assistance, bureaucratic politics
    Date: 2013–10
  15. By: Bruce A. Babcock (Center for Agricultural and Rural Development (CARD)); Sebastien Pouliot (Center for Agricultural and Rural Development (CARD))
    Abstract: The Environmental Protection Agency is poised to release its draft rule for mandated volumes of biofuels for 2014. Earlier this year, EPA indicated that it understood that a limited demand for biofuels, particularly for ethanol, conflicts with the scheduled mandated volumes written in the law. To date, mandates for ethanol have been met with a gasoline blend that contains no more than 10 percent ethanol, referred to as E10. However, mandated volumes for ethanol are scheduled to exceed 10 percent of total gasoline consumption so new marketing channels will need to be developed to meet expanded mandates. Thus, the so-called E10 blend wall presents a real challenge to EPA.
    Date: 2013–11
  16. By: Simon Hagemann; Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen)
    Abstract: This paper presents a theoretical and empirical analysis of liquidity in the German intraday market for electricity. Two models that aim at explaining intraday liquidity are developed. The first model considers the fundamental merit-order and intraday adjustment needs as the drivers of liquidity in a perfectly competitive market. The second model relaxes the assumption of perfect competition in the intraday market and assumes that the trading behavior of profit maximizing market participants influences the liquidity provision. The relevance of commonly used liquidity indicators like the bid ask-spread, resiliency, market depth, price variance, delay and search costs as well as trading volume and the number of trades are analyzed with respect to both models of liquidity. The empirical findings indicate that liquidity in the German intraday market can be explained by the trading model while the purely fundamental model is rejected. Hence, the question arises how these different sources of uncertainty will impact the network operator's replacement decision. Further it is of interest how much value can be attributed to the reduction of the uncertainty. In this paper, an optimal replacement strategy in an analytical stationary state model is derived explicitly with local and global optima. Based on a discrete mixture model of failure rates under perfect replacement, we show how different assumptions about the underlying type of uncertainty will affect the replacement decision. In a further step, the value of information representing the cost difference between a state of parameter certainty and the state of parameter uncertainty is derived. Trough the course of some applications, it is shown that the value of information increases with the level of uncertainty. Some exemplary calculations are presented to show that the magnitude of the value of information is significant.
    Keywords: Intraday market, electricity, liquidity, fundamental model, trading model
    JEL: L94 Q41
    Date: 2013–10
  17. By: Antoine CAZALS; Alexandre SAUQUET
    Abstract: Is there a strategically beneficial time for political leaders to make international environmental commitments? Based on the political cycles theory we argue that leaders have incentives to delay costly ratification of international environmental agreements to the post-electoral period. However, the cost of participating in these agreements are often lower for developing countries, and they may benefit from indirect gains, which may make them more prone to ratifying in the pre-electoral period. These hypotheses are empirically assessed by studying the ratification process of 48 global environmental agreements censused in the ENTRI database from 1976 to 1999. We use a duration model in which time is measured on a daily basis, enabling us to precisely identify pre- and post-electoral periods -- a significant challenge in political cycles studies. Our investigation reveals the existence of political ratification cycles that are of substantial magnitude and non-linear over the pre- and post-electoral years.
    Keywords: International Environmental Agreements, Political cycles, Ratification, duration model
    Date: 2013

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