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on Energy Economics |
| By: | Shawkat Hammoudeh; Amine Lahiani; Duc Khuong Nguyen; Ricardo M. Sousa |
| Abstract: | We use the recently developed nonlinear autoregressive distributed lags (NARDL) model to examine the pass-through of changes in crude oil prices, natural gas prices, coal prices and electricity prices to the CO2 emission allowance prices. This approach allows one to simultaneously test the short- and long-run nonlinearities through the positive and negative partial sum decompositions of the predetermined explanatory variables. It also offers the possibility to quantify the respective responses of the CO2 emission prices to positive and negative shocks to the prices of their determinants from the asymmetric dynamic multipliers. We find that: (i) the crude oil prices have a long-run negative and asymmetric effect on the CO2 allowance prices; (ii) the falls in the coal prices have a stronger impact on the carbon prices in the short-run than the increases; (iii) the natural gas prices and electricity prices have a symmetric effect on the carbon prices, but this effect is negative for the former and positive for the latter. Policy implications are provided. |
| Keywords: | CO2 allowance price, energy prices, NARDL model, asymmetric passthrough |
| JEL: | Q47 |
| Date: | 2014–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-082&r=ene |
| By: | Shawkat Hammoudeh; Duc Khuong Nguyen; Ricardo M. Sousa |
| Abstract: | This paper analyzes the short-term dynamics of the prices of CO2 emissions, using the vector autoregression (VAR) and the vector error-correction Models (VECM). The data are monthly for the prices of oil, coal, natural gas, electricity and carbon emission allowances. The results show that: (i) a positive shock to the crude oil prices has a negative effect on the CO2 prices; (ii) an unexpected increase in the natural gas prices raises the price of CO2 emissions; (iii) a positive shock to the prices of the fuel of choice, coal, has virtually no significant impact on the CO2 prices; (iv) there is a clear positive effect of the coal prices on the CO2 prices when the electricity prices are excluded from the VAR system; and (v) a positive shock to the electricity prices reduces the price of the CO2 allowances. We also find that the energy price shocks have a persistent impact on the CO2 prices, with the largest effect occurring 6 months after the shock. The effect is particularly strong in the case of the natural gas price shocks. Additionally, we estimate that it takes between 7.3 and 9.6 months to halve the gap between the actual and the equilibrium prices of the CO2 allowances, i.e., to erase any price over- or under-valuations after a shock strikes. Finally, the empirical findings suggest an important degree of substitution between the three primary sources of energy (i.e., crude oil, natural gas and coal), particularly, when electricity prices are excluded from the VAR system. |
| Keywords: | CO2 emissions prices, crude oil, natural gas, coal, electricity |
| JEL: | Q47 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-081&r=ene |
| By: | Sahbi Farhani; Anissa Chaibi; Christophe Rault |
| Abstract: | This article contributes to the literature by investigating the dynamic relationship between Carbone dioxide (CO2) emissions, output (GDP), energy consumption, and trade using the bounds testing approach to cointegration and the ARDL methodology for Tunisia over the period 1971-2008. The empirical results reveal the existence of two causal long-run relationships between the variables. In the short-run, there are three unidirectional Granger causality relationships, which run from GDP, squared GDP and energy consumption to CO2 emissions. To check the stability in the parameter of the selected model, CUSUM and CUSUMSQ were used. The results also provide important policy implications. |
| Keywords: | CO2 emissions, Energy consumption, ARDL bounds testing approach |
| JEL: | Q56 Q43 C51 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-056&r=ene |
| By: | Frederick van der Ploeg |
| Abstract: | A classroom model of global warming, fossil fuel depletion and the optimal carbon tax is formulated and calibrated. It features iso-elastic fossil fuel demand, stock-dependent fossil fuel extraction costs, an exogenous interest rate and no decay of the atmospheric stock of carbon. The optimal carbon tax reduces emissions from burning fossil fuel, both in the short and medium run. Furthermore, it brings forward the date that renewables take over from fossil fuel and encourages the market to keep more fossil fuel locked up. A renewables subsidy induces faster fossil fuel extraction and thus accelerates global warming during the fossil fuel phase, but brings forward the carbon-free era, locks up more fossil fuel reserves and thus ultimately curbs cumulative carbon emissions and global warming. For relatively large subsidies social welfare is more likely to fall as the economic costs rises more than proportionally with the size of the subsidy. Our calibration suggests that such subsidies are not a good second-best climate policy. |
| Keywords: | global warming, social cost of carbon, optimal carbon tax, renewables |
| JEL: | D81 H20 Q31 Q38 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:119&r=ene |
| By: | Bonilla, Jorge (Department of Economics, School of Business, Economics and Law, Göteborg University); Coria, Jessica (Department of Economics, School of Business, Economics and Law, Göteborg University); Mohlin, Kristina (Department of Economics, School of Business, Economics and Law, Göteborg University); Sterner, Thomas (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | This paper studies how different NOx abatement technologies have diffused under the Swedish system of refunded emissions charges and analyzes the determinants of the time to adoption. The policy, under which the charge revenues are refunded back to the regulated firms in proportion to energy output, was explicitly designed to affect investment in NOx-reducing technologies. The results indicate that a higher net NOx charge liability, i.e. a reduction in tax liabilities net of the refund due to the new technology, increases the likelihood of adoption, but only for end-of-pipe post-combustion technologies. We also find some indication that market power considerations in the heat and power industry reduce the incentives to abate emissions through investment in postcombustion technologies. Adoption of post-combustion technologies and the efficiency improving technology of flue gas condensation are also more likely in the heat and power and waste incineration sectors, which is possibly explained by a large degree of public ownership in these sectors. |
| Keywords: | technology diffusion; NOx; abatement technologies; environmental regulations; refunded emission charge |
| JEL: | H23 O33 O38 Q52 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0585&r=ene |
| By: | Armon Rezai; Frederick van der Ploeg |
| Abstract: | Climate change must deal with two market failures, global warming and learning by doing in renewable use. The social optimum requires an aggressive renewables subsidy in the near term and a gradually rising carbon tax which falls in long run. As a result, more renewables are used relative to fossil fuel, there is an intermediate phase of simultaneous use, the carbonfree era is brought forward, more fossil fuel is locked up and global warming is lower. The optimal carbon tax is not a fixed proportion of world GDP. The climate externality is more severe than the learning by doing one. |
| Keywords: | climate change, integrated assessment, Ramsey growth, carbon tax, renewables subsidy, learning by doing, directed technical change, multiplicative damages, additive damages |
| JEL: | H21 Q51 Q54 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:123&r=ene |
| By: | Yuanjing LI |
| Abstract: | The pro-competitive effects of forward contracts in electricity market cannot be regarded alone without examining the market structure. In this paper, we show that under retail competition, spot market demand uncertainty and risk aversion, partially or fully integrated electricity generators and retailers have less incentives to be involved in trading electricity under forward contracts. Therefore, the effect of market power mitigation of forward contracts is countered by this vertical relationship between retailers and generators since it provides a natural hedging device as a substitute of forward contracts to the retailers. Both analytic framework and numerical simulation suggest that the optimal quantity of forward sales decreases and spot price increases with the degree of vertical control of retailers over generators' assets. We thus conclude that the retailers' ownership over generators' profits could give rise to generators exercising market power in electricity spot market. |
| Keywords: | Electricity, forward contracts, vertical integration |
| Date: | 2013–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2013-018&r=ene |
| By: | Rania Jammazi; Duc Khuong Nguyen |
| Abstract: | We propose an enhanced regime-switching model to investigate the relationships between oil price surges and stock market cycles in five oil-dependent countries over the period from January 1989 to December 2007. Our model accounts for the joint effects of the WTI (West Texas Intermediate) and Brent oil markets and allows to simultaneously capture asymmetry, volatility persistence and regime shifts contained in the underlying financial data. We find that stock market returns strongly exhibit a regime-switching behavior, but they react differently to the increases in the price of oil. More precisely, the conditional volatility of studied stock markets during the bear market phases is found to be less affected by oil price shocks than during the bull market phases. Whether the effects of oil shocks are positive and negative depends greatly on the degree of reliance on imported oil, the share of the cost of oil in the national income and the degree of improvement in energy efficiency of a given country. Finally, the relatively opposite effects of the WTI and Brent oil markets suggest the potential of substitution between them as well as the necessity of a diversification strategy of oil supply sources. |
| Keywords: | oil price shocks, stock market cycles, regime-switching model |
| JEL: | C58 F30 G15 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-080&r=ene |
| By: | Khaled Guesmi; Salma Fattoum |
| Abstract: | This paper aims to explore the links between Brent crude oil index and stock markets index in OECD countries. We estimate time-varying conditional correlation relationships among these variables by employing Engle’s (2002) Dynamic Conditional Correlation (DCC). This process detects eventual volatility spillovers, which are typically observed in stock markets and oil prices. Our sample consists of monthly frequencies stock indexes and oil price, covering 10 OECD countries for the period of January1990- September 2012. Oil price shocks in periods of world turmoil and political events have an important impact on the relationship between oil and stock market prices. |
| Keywords: | Multivariate Fractional Cointegration, Oil Prices, stock markets, GARCH-DCC. |
| JEL: | C10 E44 G15 |
| Date: | 2014–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-090&r=ene |
| By: | Zied Ftiti; Khaled Guesmi; Frédéric Teulon |
| Abstract: | This paper assesses the impact of oil prices on economic growth of the four major OPEC countries (United Arab Emirates, Kuwait, Saudi Arabia and Venezuela) over the period spanning from 03/09/2000 to 03/12/2010. We aim at complementing the results from existing analyses (mainly focused on oil-importing countries) by using the evolutionary co-spectral analysis as defined by Priestley and Tong (1973). We find that co-movements between oil and economic growth have different patterns depending of the studied horizons. This interdependence is a mediumlived phenomenon, revealed on a three years and one quarter horizon, being weak in the short-run (ten months). We show that oil price shocks in periods of world turmoil or during fluctuations of the global business cycle (downturn or growth, as for instance the 2008 financial crisis) have a significant impact on the relationship between oil and economic growth in oil-exporting countries. |
| Keywords: | oil prices shocks, stock markets, evolutionary co-spectral analysis, OPEC |
| JEL: | C14 C22 G12 G15 Q43 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-064&r=ene |
| By: | Aymen Belgacem; Anna Creti; Khaled Guesmi; Amine Lahiani |
| Abstract: | The paper employs an event study methodology to investigate the macroeconomic announcements effects on S&P500 and oil prices. Our results provide evidence of a significant impact of the US macroeconomic news on oil prices. This impact is split into two components, namely the direct effect (common response) and indirect effect (volatility transmission). Altogether our results show that the volatility transmission is bidirectional since a significant volatility transmission from the oil market to the US stock market is revealed. Furthermore, a higher volatility transmission is recorded from the oil market to the stock market especially after the release of consumption indicators. |
| Keywords: | Stock Prices, Oil prices, Macroeconomic Announcements, Volatility Spillovers. |
| JEL: | G14 G15 C58 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-050&r=ene |
| By: | Anna Creti; Khaled Guesmi; Ilyes Abid |
| Abstract: | This paper aims to explore the links between Brent crude oil index and stock markets index in OECD countries. We estimate time-varying conditional correlation relationships among these variables by employing a Multivariate Fractionally Integrated Asymmetric, Power ARCH model with dynamic corrected conditional correlations of Engle (1982) M-FIAPARCH-c-DCCE with a Student-t distribution. This process detects eventual volatility spillovers, asymmetries and persistence, which are typically observed in stock markets and oil prices. Our sample consists of monthly frequency stock indexes and oil price, covering 17 OECD countries for the period January, 1990- September, 2012. We find that at the beginning of our sample, oil has offered diversification opportunities with respect to the stock market, but this trend has been reversed in the last decade. We regroup the countries sample in 5 groups which present quite similar patterns of dynamic correlation between oil and their stock market and corroborate our geographical clustering by multivariate correlations among stock markets. |
| Keywords: | Multivariate Fractional Cointegration, Oil Prices, stock markets, M-FIAPARCH-c-DCCE. |
| JEL: | C10 E44 G15 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-065&r=ene |
| By: | Karlygash Kuralbayeva |
| Abstract: | I build an equilibrium search and matching model of an economy with an informal sector and rural-urban migration to analyze the effects of budget-neutral green tax policy (raising pollution taxes, while cutting payroll taxes) on the labor market. The key results of the paper suggest that when general public spending varies endogenously in response to tax reform and higher energy taxes can reduce the income from self-employed work in the informal sector, green tax policy can produce a triple dividend: a cleaner environment, lower unemployment rate and higher after-tax income of the private sector. This is due to the ability of the government, by employing public spending as an additional policy instrument, to reduce the overall tax burden when an increase in energy tax rates does not exceed some threshold level. Thus governments should employ several instruments if they are concerned with labor market implicatoins of green tax policies. |
| Keywords: | informal sector, matching frictions, pollution taxes, double dividend subsidy, learning by doing, directed technical change, multiplicative damages, additive damages |
| JEL: | H20 H23 H30 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:125&r=ene |
| By: | Nikolaos Antonakakis (nikolaos.antonakakis@wu.ac.at); Ioannis Chatziantoniou (Department of Economics and Finance, University of Portsmouth); George Filis (Department of Accounting, Finance and Economics, Bournemouth University) |
| Abstract: | This study examines the dynamic relationship between changes in oil prices and the economic policy uncertainty index for a sample of both net oil-exporting and net oil-importing countries over the period 1997:01-2013:06. To achieve that, we extend the Diebold and Yilmaz (2009, 2012) dynamic spillover index using structural decomposition. The results reveal that economic policy uncertainty (oil price shocks) responds negatively to aggregate demand oil price shocks (economic policy uncertainty shocks). Furthermore, during the Great Recession of 2007-2009, total spillovers increase considerably, reaching unprecedented heights. Moreover, in net terms, economic policy uncertainty becomes the dominant transmitter of shocks between 1997 and 2009, while in the post-2009 period there is a significant role for supply-side and oil specific demand shocks, as net transmitters of spillover effects. These results are important for policy makers, as well as, investors interested in the oil market. |
| Keywords: | Policy uncertainty, Oil price shock, Spillover index, Structural Vector Autoregression, Variance Decomposition, Impulse Response Function |
| JEL: | C32 C51 E31 E60 Q41 Q43 Q48 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp166&r=ene |
| By: | Kakorina, Ekaterina |
| Abstract: | In the 90th the Kyoto Protocol was signed and a market for emissions emerged. This market has one problem: it is too difficult to measure how much the company is polluting. The USA solved this problem by creating a similar market, namely the RIN (Renewable Identification Number) market. Unlike emissions, presently RINs are traded without the exchange. The importance of the RIN trading is likely to increase in the future and the goal of this paper is to research the RIN price behavior and to forecast the prices using ARMA-t-GARCH models. This paper shows that it is not important how to estimate these series (separately or together), because the estimation of parameters are very similar and the forecasted gaps are similar too. Also the common estimation using DCC-GARCH model made it possible to ascertain that these series have positive correlation in each pair. |
| Keywords: | Energy, RIN market, RIN, Renewable Identification Number, ecology, security, DCC-GARCH, ARMA-t-GARCH, price behavior, price forecast |
| JEL: | G00 Q20 Q40 |
| Date: | 2014–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53715&r=ene |
| By: | Ahdi Noomen Ajmi; Ghassen El Montasser; Shawkat Hammoudeh; Duc Khuong Nguyen |
| Abstract: | This article investigates the potential of nonlinear causal relationships between world oil prices and stock markets in MENA countries during a black swan period that is characterized by rarity and devastating impacts. By using the nonlinear and asymmetric causality test of Kyrtsou and Labys (2006), we mainly find that: i) oil prices and MENA stock markets interact in a nonlinear manner; ii) the signs of changes in the causing variables are important for detecting the true causality links between the variables; and iii) the nonlinear causality is more pronounced in the case of the Brent than WTI oil prices. |
| Keywords: | MENA countries, stock markets, oil prices, nonlinear causality. |
| JEL: | C52 G15 Q43 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-079&r=ene |
| By: | Schleich, Joachim; Mills, Bradford; Dütschke, Elisabeth |
| Abstract: | This paper quantifies the direct rebound effects associated with the switch from incandescent lamps (ILs) or halogen bulbs to more energy efficient compact fluorescent lamps (CFLs) or light emitting diodes (LEDs) using a large nationally representative survey of German households. The direct rebound effect is measured as the elasticity of useful lighting demand with respect to changes in energy efficient lamps. In particular, the rebound effect is decomposed into changes in lamp luminosity and burn time. On average, more efficient replacement bulbs are 23% brighter and burn about 6.5 minutes per day longer than replaced bulbs. For the most frequent (modal) bulb switch, i.e. the replacement of the main bulb in the living or dining room, luminosity increases by 10% and burn time increases by 9 minutes per day. For the average bulb, the associated total direct rebound effect is estimated at 6.3%. The larger part (around 60%) of this rebound effect results from increases in bulb luminosity. For the modal bulb the total direct rebound effect is smaller at 2.6%, with around 60% attributable to an increase in burn time. Average and modal bulb differences suggest that the magnitude to the rebound effect may decrease with intensity of initial bulb use. The magnitude of the direct rebound and the relative contributions of changes in luminosity and burn time also tend to differ by initial bulb type and by replacement bulb type. Finally, about a third of the bulb switches entail a negative rebound effect, i.e. energy savings are larger than expected if luminosity and burn time remained unchanged, highlighting significant heterogeneity in household responses to the adoption of energy efficient bulbs. -- |
| Keywords: | rebound effect,lighting,energy efficiency,energy demand |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fisisi:s32014&r=ene |
| By: | James Cust; Torfinn Harding |
| Abstract: | The spatial distribution of oil is determined by natural geography alone. However, we show that the distribution of oil exploration is affected by the quality of countries’ institutions.A global data set on the precise location of oil wells and national borders allows for a regression discontinuity design and causal inference. Crossing a national border, moving from the average worse to average better institutional quality, generates a positive jump in the predicted number of wells by 150% in the sample of developing countries. Correspondingly, a one standard deviation increase in institutional quality increases the likelihood of drilling by about 250%. The findings underscore that proved oil reserves are an endogenous economic outcome and lend support to the hypothesis that institutions are a fundamental determinant of economic performance. |
| Keywords: | institutions, investment, oil exploration, regression discontinuity design |
| JEL: | F21 O13 O43 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:127&r=ene |
| By: | Hwang, In Chang; Reynes, Frederic; Tol, Richard |
| Abstract: | We construct an endogenous (Bayesian) learning model with fat-tailed uncertainty on the equilibrium climate sensitivity and solve the model with stochastic dynamic programming. In our model a decision maker updates her belief on the climate sensitivity through temperature observations each time period and takes a course of action (carbon reductions) based on her belief. We find that the uncertainty is partially resolved over time, although the rate of learning is relatively slow, and the decision maker with a possibility of learning lowers the efforts to reduce carbon emissions relative to the no-learning case. The larger the tail effect, the larger the counteracting learning effect. Learning at least partly offsets the tail-effect of deep uncertainty. This is intuitive in that the decision maker fully utilizes the information revealed to reduce uncertainty, and thus she can make a decision contingent on the updated information. In addition, with various scenarios, we find that learning enables the economic agent to have less regrets for her past actions after the true value of the uncertain variable turns out to be different from the initial best guess. Furthermore the optimal decisions in the learning case are less sensitive to the true value of the uncertain variable than the decisions in the uncertainty case. The reason is that learning lets uncertainty converge to the true value of the state in the sense that the variance approaches 0 as information accumulates. |
| Keywords: | Climate policy; deep uncertainty; Bayesian learning; integrated assessment; stochastic dynamic programming |
| JEL: | C61 H23 Q54 Q58 |
| Date: | 2014–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53681&r=ene |
| By: | Akira Miyaoka (Graduate School of Economics, Osaka University) |
| Abstract: | This study considers a Cournot duopoly market in which a clean firm can transfer its less polluting technology to a dirty firm through a fixed-fee licensing contract. We analyze the impacts of emissions taxes on the incentives of firms to transfer technology as well as on the total pollution level, and examine the properties of the optimal emissions tax policy. We first show that higher emissions taxes weaken incentives for technology transfer and that this can lead to a perverse increase in the level of total pollution. We then compare the optimal emissions tax when technology licensing is possible with that when licensing is infeasible and show that the relationship between the optimal tax rate and the degree of the initial technology gap between firms when licensing is possible can be the opposite of that when licensing is infeasible. |
| Keywords: | Technology transfer; Cournot duopoly; Pollution; Emissions tax |
| JEL: | L13 L24 Q58 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1408&r=ene |
| By: | Frederick van der Ploeg |
| Abstract: | Optimal climate policy should act in a precautionary fashion to deal with tipping points that occur at some future random moment. The optimal carbon tax should include an additional component on top of the conventional present discounted value of marginal global warming damages. This component increases with the sensitivity of the hazard to temperature or the stock of atmospheric carbon. If the hazard of a catastrophe is constant, no correction is needed of the usual Pigouvian tax. The results are applied to a tipping point resulting from an abrupt and irreversible release of greenhouse gases from the ocean floors and surface of the earth, which set in motion a positive feedback loop. Convex enough hazard functions cause overshooting of the carbon tax, but a linear hazard function gives rise to undershooting. A more convex hazard function and a high discount rate speed up adjustment. |
| Keywords: | social cost of carbon, tipping point, positive feedback, climate |
| JEL: | D81 H20 Q31 Q38 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:122&r=ene |
| By: | Bonzanigo, Laura; Kalra, Nidhi |
| Abstract: | Governments invest billions of dollars annually in long-term projects. Yet deep uncertainties pose formidable challenges to making near-term decisions that make long-term sense. Methods that identify robust decisions have been recommended for investment lending but are not widely used. This paper seeks to help bridge this gap and, with a demonstration, motivate and equip analysts better to manage uncertainty in investment decisions. The paper first reviews the economic analysis of ten World Bank projects. It finds that analysts seek to manage uncertainty but use traditional approaches that do not evaluate options over the full range of possible futures. Second, the paper applies a different approach, Robust Decision Making, to the economic analysis of a 2006 World Bank project, the Electricity Generation Rehabilitation and Restructuring Project, which sought to improve Turkey's energy security. The analysis shows that Robust Decision Making can help decision makers answer specific and useful questions: How do options perform across a wide range of potential future conditions? Under what specific conditions does the leading option fail to meet decision makers'goals? Are those conditions sufficiently likely that decision makers should choose a different option? Such knowledge informs rather than replaces decision makers'deliberations. It can help them systematically, rigorously, and transparently compare their options and select one that is robust. Moreover, the paper demonstrates that analysts can use the same data and models for Robust Decision Making as are typically used in economic analyses. Finally, the paper discusses the challenges in applying such methods and how they can be overcome. |
| Keywords: | Energy Production and Transportation,Climate Change Economics,Debt Markets,Non Bank Financial Institutions,Climate Change Mitigation and Green House Gases |
| Date: | 2014–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6765&r=ene |
| By: | Ton van den Bremer; Frederick van der Ploeg; Samuel Wills |
| Abstract: | Many oil exporters accumulate large sovereign wealth funds, though their portfolio allocation does not take into account below-ground assets, like oil. Similarly, the above-ground portfolio does not affect the decision to extract oil. This paper shows that subsoil oil wealth should change a country’s above-ground asset allocation in two ways. First, the holding of all risky assets is leveraged because there is additional wealth outside the fund. Second, more (less) is invested in financial assets that are negatively (positively) correlated with oil to hedge against the riskiness of subsoil exposure. Furthermore, if marginal oil rents move pro-cyclically with the value of the financial assets in the fund, then oil will be extracted slower than predicted by the standard Hotelling rule. This leaves a buffer of oil to be extracted when both oil prices and asset returns are high. Finally, any unhedged residual volatility must be managed through additional precautionary saving. |
| Keywords: | oil, portfolio allocation, sovereign wealth fund, optimal extraction |
| JEL: | E21 G11 G15 O13 Q32 Q33 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:129&r=ene |
| By: | Zied Ftiti; Aviral Tiwari; Ibrahim Fatnassi |
| Abstract: | The aim of this paper is to focus on whether or not an interaction relationship (or dependence) exists between the oil price and fundamental macroeconomic variables (that is industrial production, a proxy of macroeconomic activity, and inflation, measured by wholesale price index, Trade deficit, a measure of external account sustainability, and India-US exchange rate), calling upon the notion of correlation and then dynamic correlation. In our contribution we used the evolutionary co-spectral analysis (ESA) as presented Priestley and Tong (1973) and based on the methodology of Ftiti (2010), to analyze the impact of oil price changes in three macroeconomic variables namely industrial production, CPI based inflation and trade deficit. The ESA illustrates the evolution of the co-variance of a time-series at the different frequencies; the ESA demonstrates the correlation coefficient in the time–frequency space; and the information on the delay between the oscillations of two time-series i.e., lead–lag relationships provided by phase-difference. Our results show. Our results show that the degree of co-movement between the oil price index and the overall macroeconomic variables exhibit different patterns across the macroeconomic indicators. However, a common feature among the calculated comovements is that they re are higher in the short-term than in long-term. As economic implication, this later traduces that an oil shocks has lower long-run effect (weak persistent effect) on the India macroeconomy. |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-068&r=ene |
| By: | Samuel Wills |
| Abstract: | Monetary policy can play an important role in managing oil discoveries. Ideally governments will use fiscal policy to smooth consumption of oil income. In practice this often does not happen, as governments delay spending until oil revenues are received. This induces changes in the economy, both at discovery and when spending begins. In this paper we consider how monetary policy should respond.The paper makes three contributions. The first is to show that an oil discovery causes the real exchange rate to appreciate twice: when forward-looking households and then the government increase their consumption. This can cause a recession under standard monetary regimes, as firms anticipate the second appreciation. The second contribution is to micro-found the objective of monetary policy. The central bank should stabilise inflation, the output gap and the fiscal gap. It will also try to appreciate the non-oil terms of trade, to exploit the asymmetry from owning oilwealth. The third is to derive a closed form for optimal monetary policy, which willrespond in advance to expected changes in government demand. This will delay the second real appreciation until the government can take up the slack left by private demand. Optimal policy significantly improves welfare relative to standard monetary regimes, and is well approximated by a simple Taylor rule that responds to expected changes in the natural level of output. |
| Keywords: | Natural resources, oil, optimal monetary policy, small open economy, anticipated windfall |
| JEL: | E52 E62 F41 O13 Q30 Q33 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:121&r=ene |
| By: | Amélie Charles (Audencia Recherche - Audencia); Olivier Darné (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272) |
| Abstract: | Financial market participants and policy-makers can benefit from a better understanding of how shocks can affect volatility over time. This study assesses the impact of structural changes and outliers on volatility persistence of three crude oil markets - Brent, West Texas Intermediate (WTI) and Organization of Petroleum Exporting Countries (OPEC) - between January 2, 1985 and June 17, 2011. We identify outliers using a new semi-parametric test based on conditional heteroscedasticity models. These large shocks can be associated with particular event patterns, such as the invasion of Kuwait by Iraq, the Operation Desert Storm, the Operation Desert Fox, and the Global Financial Crisis as well as OPEC announcements on production reduction or US announcements on crude inventories. We show that outliers can bias (i) the estimates of the parameters of the equation governing volatility dynamics; (ii) the regularity and non-negativity conditions of GARCH-type models (GARCH, IGARCH, FIGARCH and HYGARCH); and (iii) the detection of structural breaks in volatility, and thus the estimation of the persistence of the volatility. Therefore, taking into account the outliers on the volatility modelling process may improve the understanding of volatility in crude oil markets. |
| Keywords: | Crude oil ; Volatility persistence ; Structural breaks |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00940312&r=ene |
| By: | Rabah Arezki; Kaddour Hadri; Prakash Loungani; Yao Rao |
| Abstract: | In this paper, we re-examine two important aspects of the dynamics of relative primary commodity prices, namely the secular trend and the short run volatility. To do so, we employ 25 series, some of them starting as far back as 1650 and powerful panel data stationarity tests that allow for endogenous multiple structural breaks. Results show that all the series are stationary after allowing for endogeneous multiple breaks. Test results on the Prebisch-Singer hypothesis, which states that relative commodity prices follow a downward secular trend, are mixed but with a majority of series showing negative trends. We also make a rst attempt at identifying the potential drivers of the structural breaks. We end by investigating the dynamics of the volatility of the 25 relative primary commodity prices also allowing for endogenous multiple breaks. We describe the often time-varying volatility in commodity prices and show that it has increased in recent years. |
| Keywords: | climate change, integrated assessment, Ramsey growth, carbon tax, renewables subsidy, learning by doing, directed technical change, multiplicative damages, additive damages |
| JEL: | H21 Q51 Q54 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:124&r=ene |
| By: | Schleich, Joachim; Dütschke, Elisabeth; Schwirplies, Claudia; Ziegler, Andreas |
| Abstract: | Relying on a recent survey of more than 3300 participants from China, Germany and the US, this paper empirically analyzes citizens' perceptions of climate change and climate policy, focusing on key guiding principles for sharing mitigation costs across countries. The ranking of the main principles for burden-sharing is identical in China, Germany and the US: accountability followed by capability, egalitarianism, and sovereignty. Thus, on a general level, citizens across these countries seem to have a common understanding of fairness. We therefore find no evidence that citizens' (stated) fairness preferences are detrimental to future burden-sharing agreements. While there is heterogeneity in citizens' perceptions of climate change and climate policy within and across countries, a substantial portion of citizens in all countries perceive a lack of transparency, fairness, and trust in international climate agreements. -- |
| Keywords: | climate policy,climate change,burden-sharing,equity,fairness,distributive justice,trust,public opinion |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fisisi:s22014&r=ene |
| By: | Frederick van der Ploeg |
| Abstract: | The principles of how best to manage the various components of national wealth are outlined, where the permanent income hypothesis, the Hotelling rule and the Hartwick rule play a prominent role. As far as managing natural resource wealth is concerned, a case is made to use an intergenerational sovereign wealth fund to smooth consumption across generations, a liquidity fund for the precautionary buffers to deal with commodity price volatility, and an investment fund to park part of the windfall until the country is ready to absorb extra spending on domestic investment. Capital scarcity implies that a positive part of the windfall should be spent on domestic investment. The conclusions highlight the political economy problems that will have to be tackled with these normative proposals for managing wealth. |
| Keywords: | permanent income, Hotelling rule, Hartwick rule, precaution, capital scarcity, absorption constraints, Dutch disease, investing to invest, political economy |
| JEL: | E21 E22 D91 Q32 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:128&r=ene |
| By: | Bataille, Marc; Hösel, Ulrike |
| Abstract: | [Fazit und Ausblick] Die angedachte Reform des EEG greift nach Ansicht der Autoren zu kurz, da die EEG-Förderung nicht zeitnah und umfassend reformiert, sondern vielmehr die derzeitige Förderlogik beibehalten wird. Innerhalb des bestehenden Fördersystems lassen sich Ineffizienzen jedoch nicht langfristig wirksam reduzieren. Die derzeit geplante Absenkung der Einspeisevergütung zur Kosteneindämmung hat damit vor allem einen geringeren Ausbau zur Folge. Eine Umstellung auf ein neues Mengenfördersystem ist erst für 2018 angedacht. Das dann anvisierte Ausschreibungsmodell ist nach Ansicht der Autoren gegenüber dem Quotenmodell eine weniger effiziente Alternative, wenngleich es zu dem jetzigen Fördersystem fixer Einspeisetarife eine Verbesserung darstellt. Unbestritten ist, dass auch eine effizienzorientierte Förderpolitik mithilfe des von der Monopolkommission vorgeschlagenen Quotenmodells allein nicht die Lösung aller Probleme der Energiewende sein kann. Weitere Aufgabenfelder sind vor allem die Bereiche Netzausbau und Versorgungssicherheit. Um dem in Deutschland massiven Netzausbau mit Alternativen gegenzusteuern, schlägt die Monopolkommission eine G-Komponente vor, welche Kraftwerksbetreiber an den Netzkosten beteiligt und hierdurch Anreize setzt, bei der Ansiedlung von Erzeugungsanlagen die Nähe zu Verbrauchsstandorten zu berücksichtigen. Des Weiteren sollte zwischen dem Europäischen Zertifikatehandelssystem und dem konkreten Ausbau der erneuerbaren Energieträger eine direkte Rückkopplung geschaffen werden, um so die nationalen klimapolitischen Fortschritte aufgrund des Ausbaus erneuerbarer Energien auf europäischer Ebene nicht redundant zu machen. -- |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:diceop:57&r=ene |