nep-ene New Economics Papers
on Energy Economics
Issue of 2014‒04‒05
twenty-one papers chosen by
Roger Fouquet
London School of Economics

  1. Market Power, Fuel Substitution and Infrastructure: A Large-Scale Equilibrium Model of Global Energy Markets By Daniel Huppmann; Ruud Egging
  2. Carbon Leakage: Pollution, Trade or Politics? By Gabriela Michalek; Reimund Schwarze
  3. Carbon prices and CCS Investment:comparative study between the European Union and China By Renner, Marie
  4. Is China on Track to Comply with Its 2020 Copenhagen Carbon Intensity Commitment? By Yang, Yuan; Zhang, Junjie; Wang, Can
  5. Regulation, Innovation and Technology Diffusion: Evidence from Building Energy Efficiency Standards in Germany By Makram El-Shagi; Claus Michelsen; Sebastian Rosenschon
  6. Interactions between CO2 and RES targets: A cost assessment of European Energy Climate Policies with POLES model By Florent Le Strat; Elaine Pelourdeau; Benoît Peluchon; Jean-Yves Caneill; Yasmine Arsalane; Kimon Keramidas
  7. Energy-growth nexus and energy demand in Ghana: A review of empirical studies By Kwakwa, Paul Adjei
  8. Switching to biomass co-firing in European coal power plants: Estimating the biomass and CO 2 breakeven prices By Bertrand, Vincent
  9. Exploring the optimality of cyclical emission rates By Halkos, George; Papageorgiou, George
  10. Global Environmental Emissions Estimate: Application of Multiple Imputation By Miyama, Eriko; Managi, Shunsuke
  11. Elasticities of Supply for the US Natural Gas Market By Micaela Ponce; Anne Neumann
  12. Social Acceptance and Optimal Pollution: CCS or Tax ? By Jouvet, Pierre-André; Renner, Marie
  13. Oil price shocks and volatility do predict stock market regimes By Stavros Degiannakis; Timotheos Angelidis; George Filis
  14. La réforme de l’EU ETS dans le Paquet Energie Climat 2030 : Premières leçons à partir du modèle ZEPHYR By De Perthuis, Christian; Gonand, Frédéric; Trotignon, Raphaël
  15. The Impact of Oil Revenues on the Iranian Economy and the Gulf States By Christian Dreger; Teymur Rahmani
  16. Firms' energy costs and competitiveness in Italy By Ivan Faiella; Alessandro Mistretta
  17. Agro-ecological Zone Emission Factor (AEZ-EF) Model (v47) By Plevin, Richard; Holly Gibbs; James Duffy; Sahoko Yui; Sonia Yeh
  18. Tradable pollution permits in dynamic general equilibrium: Can optimality and acceptability be reconciled? By Rotillon, Gilles; Jouvet, Pierre-André; Bréchet, Thierry
  19. “Let’s do it ourselves”: Individual motivations for investing in renewables at community level By Gabriella Doci; Eleftheria Vasileiadou
  20. Network effects, homogeneous goods and international currency choice: new evidence on oil markets from an older era By Eichengreen, Barry; Chiţu, Livia; Mehl, Arnaud
  21. Implications of governance structures on urban climate action: evidence from Italy and Spain By Sonia De Gregorio Hurtado; Marta Olazabal; Monica Salvia; Filomena Pietrapertosa; Eduardo Olazabal; Davide Geneletti; Valentina D?Alonzo; Efrén Feliú; Senatro Di Leo; Diana Reckien

  1. By: Daniel Huppmann; Ruud Egging
    Abstract: Assessing and quantifying the impacts of technological, economic, and policy shifts in the global energy system requires large-scale numerical models. We propose a dynamic multi-fuel market equilibrium model that combines endogenous fuel substitution within demand sectors and in power generation, detailed infrastructure capacity constraints and investment, as well as strategic behaviour and market power aspects by suppliers in a unified framework. This model is the first of its kind in which market power is exerted across several fuels. Using a dataset based on the IEA World Energy Outlook 2013 (New Policies scenario, time horizon 2010-2050, 30 regions, 10 fuels), we illustrate the functionality of the model in two scenarios: a reduction of shale gas availability in the US relative to current projections leads to an even stronger increase of power generation from natural gas in the European Union relative to the base case; this is due to a shift in global fossil fuel trade. In the second scenario, a tightening of the EU ETS emission cap by 80% in 2050 combined with a stronger bio-fuel mandate spawns a renaissance of nuclear power after 2030 and a strong electrification of the transportation sector. We observe carbon leakage rates from the unilateral mitigation effort of 60-70 %.
    Keywords: Energy system model, infrastructure investment, strategic behaviour, mixed complementarity problem (MCP), generalized Nash equilibrium (GNE)
    JEL: Q41 C61 D43
    Date: 2014
  2. By: Gabriela Michalek; Reimund Schwarze
    Keywords: Carbon leakage, Environmental leakage, Environmental policy, Emission transfers, MRIO, EEBT
    Date: 2014–04
  3. By: Renner, Marie
    Abstract: As policy makers assess strategies to reduce greenh ouse gas emissions (GHG), they need to know the available technical options and the conditions unde r which these options become economically attractive. Carbon Capture and Storage (CCS) techniques are widely considered as a key option for climate change mitigation. But integrating CCS tech niques in a commercial scale power plant adds significant costs to the capital expenditure at the start of the project and to the operating expenditure throughout its lifetime. Its additional costs can b e offset by a sufficient CO2 price but most markets have failed to put a high enough price on CO2 emissions: currently, the weak Emission Unit Allowances price threatens CCS demonstration and deployment in the European Union (EU). A different dynamic is rising in China: a carbon regulation is setting up and CCS techniques seem to encounter a rising interest as suggest their inclusion in the 12th Five-Year Plan and the rising number of CCS projects identifies/planned. However, there are very few in-depth techno-economic studies on CCS costs. This study investigates two related questions: how much is the extra-cost of a CCS plant in the EU in comparison with China? And then, what is the CO2 price beyond which CCS power plants become more profitable/economically attractive than classic power plants, in the EU and in China? To answer these questions, I first review, analyze and compare publ ic studies on CCS techniques in order to draw an objective techno-economic panorama in the EU and China. Then, I develop a net present value (NPV) model for coal and gas plants, with and without CCS, in order to assess the CO2 price beyond which CCS plants become the most profitable power plant type. This CO2 value is called CO2 switching price. I also run some sensitivity analyses to assess the impact of different parameter variations on this CO2 switching price. I show that CCS power plants become the most profita ble baseload power plant type with a CO2 price higher than 115 €/t in the EU (offshore transport and storage costs) against 33 €/t (onshore transport and storage costs) or 47 €/t (offshore tr ansport and storage costs) in China. When the CO2 price is high enough, CCS gas plants are the most profitable power plant type in the EU whereas these are CCS coal plants in China. Through this study, I advise investors on the optimal power plant type choice depending on the CO2 market price, and suggest an optimal timing for CCS investment in the EU and China.
    Keywords: Politique de l'environnement; Fiscalité écologique; Taxe sur le dioxyde de carbone; Captage et stockage du dioxyde de carbone; Gaz à effet de serre; Réduction;
    JEL: Q58 Q56 Q53
    Date: 2014
  4. By: Yang, Yuan; Zhang, Junjie; Wang, Can
    Abstract: In the 2009 Copenhagen Accord, China agreed to slash its carbon intensity (carbon dioxide emissions/GDP) by 40% to 45% from the 2005 level by 2020. We assess whether China can achieve the target under the business-as-usual scenario by forecasting its emissions from energy consumption. Our preferred model shows that China’s carbon intensity is projected to decline by only 33%. The results imply that China needs additional mitigation effort to comply with the Copenhagen commitment. In addition, China’s baseline emissions are projected to increase by 56% in the next decade (2011-2020). The emission growth is more than triple the emission reductions that the European Union and the United States have committed to in the same period.
    Keywords: Social and Behavioral Sciences, climate change, carbon dioxide emissions, China, spatial econometrics.
    Date: 2014–01–01
  5. By: Makram El-Shagi; Claus Michelsen; Sebastian Rosenschon
    Abstract: The impact of environmental regulation on technology diffusion and innovations is studied using a unique data set of German residential buildings. We analyze how energy efficiency regulations, in terms of minimum standards, affects energy-use in newly constructed buildings and how it induces innovation in the residential-building industry. The data used consists of a large sample of German apartment houses built between 1950 and 2005. Based on this information, we determine their real energy requirements from energy performance certificates and energy billing information. We develop a new measure for regulation intensity and apply a panel-error-correction regression model to energy requirements of low and high quality housing. Our findings suggest that regulation significantly impacts technology adoption in low quality housing. This, in turn, induces improvements in the high quality segment where innovators respond to market signals.
    Keywords: Environmental regulation, innovation, technology diffusion, residential real estate, energy efficiency
    JEL: D2 Q4 R5
    Date: 2014
  6. By: Florent Le Strat; Elaine Pelourdeau; Benoît Peluchon; Jean-Yves Caneill; Yasmine Arsalane; Kimon Keramidas
    Abstract: In 2008, Europe chose to commit to multiple targets with the Climate Energy Package (CEP). This package of European texts (mainly Directives & Decisions) set targets for different policies, all for the 2020 time horizon. In March 2013, European Commission issued the Green Paper on “A 2030 Framework for climate and energy policies” initiating the discussions about the extension of the CEP to 2030, and its possible targets. EC explicitly stated that the different policy instruments have to be coherent because they “interact with one another”. The present study was performed in 2013 by EDF R&D and ENERDATA, in order to quantify the effects of overlapping policies with POLES model, and compare the costs generated by those interactions in the framework of CEP and Energy Roadmap. The two binding targets (CO2 and RES) were considered in this approach. In particular the results are used to identify the impact of the different targets on European electricity retail prices considering different financing options.
    Date: 2014
  7. By: Kwakwa, Paul Adjei
    Abstract: The paper reviews and assesses empirical studies on the causal relationship between energy and growth, and energy demand in Ghana over the years. It is found through the review that studies have not reached a consensus on the direction of causality between energy and growth, an outcome which could be attributed to the differences in the period for study, source of data and estimation methods. Generally, socioeconomic factors particularly affect demand for energy at the micro level, while the level of industrialization, urbanization, policy regime and industrial efficiency have been identified to influence demand for energy at the macro level. For policy purposes, other areas like intensity of energy use, conservation behavior and willingness to pay for energy services need to be researched into.
    Keywords: Energy consumption; Economic growth; Households, Granger causality; Ghana
    JEL: O1 O13 O4
    Date: 2014–03–24
  8. By: Bertrand, Vincent
    Abstract: This paper investigates the cost of biomass co-firing in European coal power stations. We propose a tractable and original method, that enables us to get expressions of biomass and CO2 breakeven points for co-firing in different types of coal plants. We call them carbon switching price and biomass switching price. They correspond to carbon and biomass prices that make coal plants equally attractive under co-firing or classical conditions (i.e. when coal is the only input). The carbon switching price is the carbon price from which it becomes profitable to include biomass in coal plants (i.e. if the actual carbon price is higher than the carbon switching price, co-firing is profitable). The biomass switching price is the biomass price beyond which including b iomass in coal plants is no longer profitable (i.e. if the actual biomass price is lower than the biomass switching price, co-firing is profitable). We also run some sensitivity analyses to investigate the effect of modifying quantity and quality of biomass entering in boilers of coal plants. Results show that the carbon switching price associated with using biomass in lignite plants is always cheaper than that of hard-coal, due to higher lignite price. Additionally, we find that the biomass switching price has higher values with lignite plants. This reflects the greater benefits associated with including biomass in lignite plants, due to greater coal cost savings with higher lignite price. Results also indicate that the carbon switching price increases, and the biomass switching price decreases, when the biomass quality decreases, due to greater losses in conversion efficiency. However, we observe no significant influence when varying the incorporation rate, reflecting the quantity of biomass in coal plants.
    Keywords: Biomass; Electricity Production; Co-Firing; Switching Price; EU ETS;
    JEL: Q43 Q42 Q24 Q16 Q11
    Date: 2013
  9. By: Halkos, George; Papageorgiou, George
    Abstract: In this paper, the basic assumption is that the environment provides two different kinds of services. First, the environment may serve as an input to the production of conventional goods. For example, the exploitation of an oil source from which one firm extracts the oil which in turn is used as a fossil fuel for an industry. In the worst case, the use of the environment for industrial purposes will negatively affect the environment, e.g. the water quality of a paper mill along a river. Nevertheless, the possibility to pollute, i.e., to save abatement costs, lowers production costs. Hence, firms and consumers evaluate this service positively. Second, the environment itself-clean air, natural creeks and rivers instead of paper mills, hydro power plants, etc.-provides amenities and thus a second service that is different, because enjoying this service does not degrade environmental quality. As it is intuitively clear, the environment provides consumptive and non-consumptive uses. In renewable resources means, the environmental stock may be harvested and used as an input for conventional goods’ production but provides simultaneously a positive externality. The purpose of this paper is to study the dynamics of pollution and the possibility of cycles and instability, while the major finding of this paper is the following: Taking the simplest pollution model with one state and one control variables and extending it into two state variables, equilibrium may change from the fixed point into a limit cycle equilibrium, i.e. the optimal emissions rate may be cyclical.
    Keywords: Renewable resources; environmental economics; pollution management.
    JEL: C61 C62 D43 H21 Q50 Q52 Q53
    Date: 2014–03–31
  10. By: Miyama, Eriko; Managi, Shunsuke
    Abstract: A new database called the World Resource Table (WRT) is constructed in this study. Missing values are known to produce complications when constructing global databases. This study provides a solution for applying multiple imputation techniques and estimates the global environmental Kuznets curve (EKC) for CO2, SO2, PM10, and BOD. Policy implications for each type of emission are derived based on the results of the EKC. Finally, we predicted the future emissions trend and regional share of CO2 emissions. We found that East Asia and South Asia will be increasing their emissions share while other major CO2 emitters will still produce large shares of the total global emissions.
    Keywords: Global emissions; Multiple Imputation; Environmental Kuznets Curve; Missing data; Forecasting
    JEL: O44
    Date: 2014–03
  11. By: Micaela Ponce; Anne Neumann
    Abstract: In this paper we investigate natural gas producer's reactions to changes in market prices. We estimate price elasticities of aggregated supply in the most competitive market for natural gas: the United States. Using monthly time series data form 1987 to 2012 our analysis is based on an Autoregressive Distributed Lag (ARDL) Bound Cointegration approach to obtain short and long-run elasticities of natural gas supply. Results suggest that natural gas producers in a competitive market are not able to react to prices in the very short-run but respond inelastic in the long-run. These findings are not only of great value for policy makers but also for gas market modelers.
    Keywords: Elasticity of supply, natural gas, ARDL, ECM, competitive markets
    JEL: L95 Q41 C22 C32
    Date: 2014
  12. By: Jouvet, Pierre-André; Renner, Marie
    Abstract: The two main hurdles to a widespread carbon capture and storage (CCS) deployment are: cost and social acceptance issues. Assessing a ccurately social preferences is thus interesting to determine whether CCS is socially optimal. Unlike most academic papers that have a dichotomous approach and consider either the atmospheric pollution (first source of marginal disutility) or the underground pollution ( second source), we consider the problem as a whole: CCS techniques introduce a third source of disutility due to the simultaneous presence of CO2 in the atmosphere and in geological formations. The model and the numerical simulations show that there exist some configurations of social preferences for which CCS grants a higher social welfare provided that public authorities tax the carbon content of fossil fuels and subsidize carbon storage. CCS can even increase simultaneously the social welfare of the country with CCS and the one of the country without. From the perspective of minimizing the decarbonizing costs, we compare the case where each country defines its climate policy and when they are aggregated, in order to assess the transfers required to encourage CCS deployment.
    Keywords: Carbon Capture and Storage; Pollution; Tax; Social acceptance; Social optimum;
    JEL: Q58 Q56 Q53
    Date: 2014
  13. By: Stavros Degiannakis (Bank of Greece); Timotheos Angelidis (University of Peloponnese); George Filis (Bournemouth University)
    Abstract: The paper investigates whether oil price shocks and oil price volatility provide predictive information for the state of the US stock market returns and volatility. The disaggregation of oil price shocks according to their origin allows us to assess whether they contain incremental forecasting power on the state of the stock market returns and volatility, a case that does not hold for the oil price returns. Overall, the results suggest that oil price returns and volatility possess the power to forecast the state of stock market returns and volatility. The full effects of oil price returns, though, can only be revealed when the oil price shocks are disentangled and as such we claim that the oil price shocks have an incremental power in forecasting the state of the stock market. The findings are important for stock market forecasters and investors dealing with stock and derivatives markets.
    Keywords: Decomposition of shocks; oil price shocks; oil price volatility;regime switching;stock market volatility; US stock market
    JEL: C13 C32 C58 G10 Q40
    Date: 2013–12
  14. By: De Perthuis, Christian; Gonand, Frédéric; Trotignon, Raphaël
    Keywords: Compensation carbone; Permis de pollution négociables; Politique énergétique; Économies d'énergie;
    JEL: Q58 Q53
    Date: 2014–01
  15. By: Christian Dreger; Teymur Rahmani
    Abstract: In line with the neoclassical growth model a persistent stream of oil revenues might have a long lasting impact on GDP per capita in oil exporting countries through higher investment activities. This relationship is explored for Iran and the countries of the Gulf Cooperation Council (GCC) using (panel) cointegration techniques. The existence of cointegration between oil revenues, GDP and investment can be confirmed for all countries. While the cointegration vector is found to be unique for Iran, long run equations for GDP and investment per capita are distinguished for the Gulf countries. Both variables respond to deviations from the steady state, while oil income can be treated as weakly exogenous. The long run oil elasticities for the Gulf states exceed their Iranian counterparts. In addition, investment in Iran does not react to oil revenues in the long run. Hence, oil revenues may have been spent less wisely in Iran over the past decades.
    Keywords: Oil exporting countries, oil revenues, panel cointegration
    JEL: F43 O53 Q30 C33
    Date: 2014
  16. By: Ivan Faiella (Bank of Italy); Alessandro Mistretta (University of Rome Tor Vergata)
    Abstract: This paper presents a method of estimating the energy expenditure of Italian manufacturing firms with 20 or more employees for the period 2003-11. Use is made of multiple sources in order to impute firm-level energy consumption in the dataset of the Bank of Italy’s Survey of Industrial and Service Firms; the expenditure is then obtained using the market prices of the different energy sources. According to our estimates, in 2011 the average firm spent about €740,000 to purchase energy, 61 percent more than in 2003. Energy expenditure is higher for firms located in the North, for larger firms and for those producing building materials and ceramics or in the chemical and petrochemical industry. In the period 2003-11 energy costs rose from 2.3 to 2.6 per cent as a proportion of turnover and from 27.1 to 30.8 per cent as a proportion of labour costs. Other conditions being equal, the magnitude of energy expenditure is negatively associated with firm’s performance indicators: firms with higher energy costs have both a lower rate of sales volume growth and a lower propensity to export.
    Keywords: energy costs, firms' competitiveness, statistical imputation
    JEL: C53 D24 Q41
    Date: 2014–03
  17. By: Plevin, Richard; Holly Gibbs; James Duffy; Sahoko Yui; Sonia Yeh
    Abstract: The purpose of the agro-ecological zone emission factor model (AEZ-EF) is to estimate the total CO2-equivalent emissions from land use changes, e.g., from an analysis of biofuels impacts or policy analyses such as estimating the effect of changes in agricultural productivity on emissions from land use. The model combines matrices of carbon fluxes (Mg CO2/ha/y) with matrices of changes in land use (ha) according to land-use category as projected by GTAP or similar AEZ-oriented models. As published, AEZ-EF aggregates the carbon flows to the same 19 regions and 18 AEZs used by GTAP-BIO, the version of GTAP currently used by Purdue University researchers for modeling biofuel-induced ("indirect") land-use change (ILUC) (e.g., Tyner, Taheripour et al. 2010). The AEZ-EF model, however, is designed to work with an arbitrary number of regions, as described in the accompanying report.
    Date: 2014
  18. By: Rotillon, Gilles; Jouvet, Pierre-André; Bréchet, Thierry
    Abstract: In this paper we study the dynamic general equilibrium path of an economy and the associated optimal growth path in a two-sector overlapping generation model with a stock pollutant. A sector (power generation) is polluting, and the other (final good) is not. Pollution is regulated by tradable emission permits. The issue is to see whether the optimal growth path can be replicated in equilibrium with pollution permits, given that some permits must be issued free of charge for the sake of political acceptability. We first analyze the many adverse impacts of free allowances, and then we propose a policy rule that allows optimality and acceptability to be reconciled.
    Keywords: General equilibrium; Optimal growth; Pollution; Tradable emission permits; Acceptability;
    JEL: D61 D9 Q28
    Date: 2013–07
  19. By: Gabriella Doci; Eleftheria Vasileiadou
    Abstract: The paper analyses individual motivations for partaking in local renewable projects and generating energy jointly in an investment community. To do so, we applied a socio-psychological approach for studying renewable energy communities in Germany and the Netherlands. Our results show that mainly gain and normative considerations played a role in the decision, but in the background hedonic motivations were also present. Although, these considerations were driven mostly from the individual’s perspective we also found group motivations, such as strengthening the local community and improving the neighborhood’s condition. Each of the groups examined were formed in already existing strong communities, where trust was relatively high, which seems to be an important condition for the realization of local energy projects. Consequently, we argue that tailor-made incentives addressing the dominant motivations can help the most effectively the operation and spread of renewable energy communities.
    Keywords: renewable energy communities, motivations, goal-framing theory, joint investment
    Date: 2014–03
  20. By: Eichengreen, Barry; Chiţu, Livia; Mehl, Arnaud
    Abstract: Conventional wisdom has it that network effects are strong in markets for homogeneous goods, leading to the dominance of one settlement currency in such markets. The alleged dominance of the dollar in global oil markets is said to epitomize this phenomenon. We question this presumption with evidence for earlier periods showing that several national currencies have simultaneously played substantial roles in global oil markets. European oil import payments before and after World War II were split between the dollar and non-dollar currencies, mainly sterling. Differences in use of the dollar across countries were associated with trade linkages with the United States and the size of the importing country. That several national currencies could simultaneously play a role in international oil settlements suggests that a shift from the current dollar-based system toward a multi-polar system in the period ahead is not impossible. JEL Classification: F30, N20
    Keywords: homogeneous goods, international invoicing currency, network effects, oil markets, US dollar role
    Date: 2014–03
  21. By: Sonia De Gregorio Hurtado; Marta Olazabal; Monica Salvia; Filomena Pietrapertosa; Eduardo Olazabal; Davide Geneletti; Valentina D?Alonzo; Efrén Feliú; Senatro Di Leo; Diana Reckien
    Abstract: Cities are widely recognised as being pivotal to fight climate change. Cities magnify the drivers of climate change, experience the impacts and also concentrate the highest room for action. Given the 70% of the global emissions that cities are responsible for, national governments are unable to meet their international commitments for addressing mitigation and adaptation without the action and cooperation of cities. In turn, the capacity of local governments to address climate change is largely determined by the institutional architecture within which they are integrated. As a result, the relationship between the different arenas of authority and the integration of cities in national and international networks is considered critical in shaping the global capacity to govern climate change. This work aims to understand how multi-level climate governance and alliances of cities (national and international) are influencing the climate change capacity and performance of municipalities. This has been done by focusing on two national contexts of the European Union, Italy and Spain, in which climate policy, multi-level governance frameworks, the effects of the national and international networks of cities, and the climate response of cities are analysed through an extensive review of scientific and grey literature, and institutional documents. The results concur with existing literature on the importance of constructing collaborative multi-level climate frameworks at the national scale, that fully integrate the local level, in order to support cities to develop consistent climate action and raise awareness of the responsibility they have in this policy field.
    Keywords: urban climate action; multi-level governance; networks of cities; mitigation; adaptation; Italy; Spain.
    Date: 2014–03

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