nep-ene New Economics Papers
on Energy Economics
Issue of 2014‒06‒07
fifteen papers chosen by
Roger Fouquet
London School of Economics

  1. The State of Play in Poland's Unconventional Shale and Oil Development By J. Wesley Burnett; Randall W. Jackson; Robert Blobaum
  2. Worse off from reduced cost? The role of policy design under uncertain technological advancement By Matthias Weitzel
  3. An Analysis of the Investment Decisions on the European Electricity Markets, over the 1945-2013 Period By Pascal Da Costa; Bianka Shoai Tehrani
  4. Three Investment Scenarios for Future Nuclear Reactors in Europe By Bianka Shoai Tehrani; Pascal Da Costa; Danièle Attias
  5. The Value of Transmission in Electricity Markets: Evidence from a Nuclear Power Plant Closure By Lucas Davis; Catherine Hausman
  6. Unit root properties of natural gas spot and futures prices: The relevance of heteroskedasticity in high frequency data By Vinod Mishra; Russell Smyth
  7. Britain's electricity capacity auctions: lessons from Colombia and New England By Harbord, David; Pagnozzi, Marco
  8. Household fuel choice in urban China: A random effect generalized probit analysis By Zhang, Xiao-Bing; Hassen, Sied
  9. Convergence in energy consumption per capita among ASEAN countries By Vinod Mishra; Russell Smyth
  10. SafeTREC - UCTC Seminar: Flexible Work Schedules and Transportation Behavior at UC Berkeley By Ng, Wei-Shiuen
  11. Applied Econometrics and a Decade of Energy Economics Research By Paresh Narayan; Russell Smyth
  12. Which Incentives Does Regulation Give to Adapt Network Infrastructure to Climate Change? - A German Case Study By Anna Pechan
  13. Semi-Endogenous Growth and Pollution: No Double Dividend in the Long Term By Pascal Da Costa
  14. A Foursquare Quality of Life Agenda:Governing European Neighbourhood Policy, Open Method of Neighbourhoods Coordination, Smart Cross-Continental Regions Specialisation, and an Adaptive Synchronous European Strategic Energy Technology Plan By Serdar Türkeli
  15. Mitigating Hypothetical Bias – Evidence on the Effects of Correctives from a Large Field Study By Mark Andor; Manuel Frondel; Colin Vance

  1. By: J. Wesley Burnett (Division of Resource Management, West Virginia University); Randall W. Jackson (Regional Research Institute, West Virginia University); Robert Blobaum (Eberly College of Arts and Sciences, West Virginia University)
    Abstract: Following the huge gas and oil rush in the US, the world’s gas and oil companies have been eyeing reserves in other countries including Poland, which is believed to be sitting on one of the largest reserves in the European Union. The Poles, seeking to diversify their energy sources and meet EU emissions standards, which are driving up electricity costs, met the news with tremendous fanfare. Following initial geological assessments, major international oil and gas companies soon made announcements to begin drilling operations in Poland. However, one of the major challenges of shale gas development is that is often requires voluminous speculative activity before the gas is successfully extracted. In the U.S. this was not such a problem because of several adventuresome energy firms willing to take on risk, but in Poland (and Europe in general) such firms are rare, and in former communist countries these firms are rarer still. This lack of critical infrastructure coupled with bureaucratic red tape in the permitting process has led to slow growth in exploration activities in Poland. Will Poland be able to successfully develop these resources? This manuscript explores the current state of play in Poland’s unconventional gas and oil development.
    Keywords: shale gas development, energy policy, unconventional energy resources, Europe
    JEL: Q40 Q41 Q48
    Date: 2013–06
  2. By: Matthias Weitzel
    Abstract: A simple model is used to illustrate the effects of a reduction in (marginal) abatement cost in a two country setting. It can be shown that a the country experiencing a cost reduction can actually be worse off. This holds true for a variety of quantity and price based emission policies. The most important channel is that a country with lower abatement costs engages in additional abatement effort for which it is not compensated. Under a quantity based policy with a given allocation, a seller of permits can also be negatively affected from a lower carbon price. We also argue that abatement cost shocks to renewable energy and carbon capture and storage (CCS) are different in terms of their effects on international energy markets. A shock to renewable energy reduces fossil fuel rents benefiting energy importers, while the opposite holds for a shock to CCS. The channels obtained in the theoretical model can be confirmed in a more complex global computable general equilibrium model. Some regions are indeed worse off from shock that lowers their abatement costs
    Keywords: Climate policy, prices vs. quantities, renewable energy, CCS, technological uncertainty, CGE model
    JEL: C68 Q54 Q58
    Date: 2014–05
  3. By: Pascal Da Costa (LGI - Laboratoire Génie Industriel - EA 2606 - Ecole Centrale Paris); Bianka Shoai Tehrani (LGI - Laboratoire Génie Industriel - EA 2606 - Ecole Centrale Paris, ITESE - Institut de Technico-Economie des Systèmes Energétiques - CEA : DEN/ITESE)
    Abstract: The aim of the article is to understand how the drivers for investment decisions in the capacities of electricity production have evolved over time, from 1945 to the present day, in the specific context of Europe facing wars and conflicts, scientific and technological progress, strong political and academic developments. We study the electric investment decisions by comparing the history of the European electricity markets with the successively dominant economic theories in this field. Therefore, we highlight differences between rational behaviors, such as described by the theories, and actual behaviors of investors and governments. Thus the liberalization of electricity markets in the European Union, more than twenty-five years ago, parts of a rationalization prescribed by new economic theories. It is clear that liberalization is being discussed. First, it remains very heterogeneous, which complicates the goal of creating a large single market for electricity in the Union. Second, we see a recent re-centralization of energy policy in the European Union (EU), which takes the form of a new regulation mainly relating to climate and renewables. However, this re-regulation is different from centralized control experienced by all European electricity markets until the mid-1980s.
    Keywords: European Electricity Market, Electricity Investments, European Energy Market Liberalisation, Climatic issues, Renewables.
    Date: 2013–12–13
  4. By: Bianka Shoai Tehrani (LGI - Laboratoire Génie Industriel - EA 2606 - Ecole Centrale Paris, ITESE - Institut de Technico-Economie des Systèmes Energétiques - CEA : DEN/ITESE); Pascal Da Costa (LGI - Laboratoire Génie Industriel - EA 2606 - Ecole Centrale Paris); Danièle Attias (LGI - Laboratoire Génie Industriel - EA 2606 - Ecole Centrale Paris)
    Abstract: While nuclear power may experience a technological breakthrough in Europe with Generation IV nuclear reactors within a few decades (2040), several events and drivers could question this possibility: as the Fukushima accident, the climate issues and the electricity market liberalization. This paper analyzes how the necessary conditions for their industrial development from now up to 2040 can be either favorable or detrimental to future nuclear reactors compared with other technologies and according to four main investment drivers: 1) technical change, 2) policy, 3) market and 4) power company drivers. Twenty-four scenarios have been identified through structural analysis, with only three proving to be favorable to the development of future nuclear reactors.
    Keywords: Power System Economics; Electricity Investments; Nuclear Energies
    Date: 2014–05–27
  5. By: Lucas Davis; Catherine Hausman
    Abstract: Reliable estimates of the value of electricity transmission are critical if these heavily-regulated investments are to be made cost-effectively. In this paper, we exploit the abrupt closure of the San Onofre Nuclear Generating Station (SONGS) in February 2012. During the previous decade, SONGS had produced about 8% of the electricity generated in California, so its closure had a pronounced impact on the wholesale market, requiring large and immediate increases in generation from other sources. We find that in the months following the closure, almost all of the lost generation from SONGS was met by natural gas plants inside California at an average cost of almost $68,000 per hour. During high demand hours, we find that as much as 75% of the lost generation was met by plants located in the southern part of the state. Although lower-cost production was available elsewhere, transmission constraints and other physical limitations of the grid severely limited the ability of other producers to sell into the southern California market. These constraints also made it potentially more profitable for certain plants to exercise market power, and we find evidence consistent with one company acting non-competitively. Overall, the constraints increased generation costs by an average of $4,500 per hour, implying that the value of additional transmission capacity is about $380 million.
    JEL: L51 L94 Q41 Q54
    Date: 2014–05
  6. By: Vinod Mishra; Russell Smyth
    Abstract: We apply a unit root test that allows for heteroskedasticity and two structural breaks to daily data for natural gas spot and futures prices. In contrast to previous findings, the main result is that natural gas spot and futures prices are mean reverting. More generally, the results emphasize the need to allow for heteroskedasticity when applying unit root tests to energy spot and futures prices with high frequency data, such as daily data.
    Keywords: Natural gas spot and futures prices, unit root, heteroskedasticity
    Date: 2014–04
  7. By: Harbord, David; Pagnozzi, Marco
    Abstract: The jury is still out on the need for government-organized capacity markets in order to achieve efficient long-run investments in electricity generation. When new capacity markets are introduced, however, it is important that they are well designed and take account of existing experience and previous design failures. Experience in both Colombia and New England provide a stark warning about the dangers of placing descending clock auctions at the center of electricity capacity markets. Among alternative auction design options, a sealed-bid auction is a better choice.
    Keywords: Capacity markets; auctions; New England; Colombia; UK
    JEL: D44 L5 L94
    Date: 2014–04–10
  8. By: Zhang, Xiao-Bing (Department of Economics, School of Business, Economics and Law, Göteborg University); Hassen, Sied (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Using seven rounds of household survey data that span more than a decade, this paper analyzes the determinants of household fuel choice in urban China. Unlike the existing studies, we use an empirical strategy that takes into account the potential heterogeneous effects of socio-economic factors in households’ preference ordering. Robustness of this empirical strategy is checked against alternative methods. The results show that household fuel choice in urban China is related to fuel prices, household’s economic status and size, and household head’s gender, education and occupation. Our results suggest that policies and interventions that raise household income, reduce prices of clean fuel sources, and empower women in the household are of great significance in encouraging the adoption of clean energy sources.
    Keywords: Household fuel choice; Panel data; Random effect generalized probit model; Urban China
    JEL: C25 Q23 Q40 Q42
    Date: 2014–05
  9. By: Vinod Mishra; Russell Smyth
    Abstract: We test for convergence in energy consumption per capita among the ASEAN-5 over the period 1971 to 2011 using the univariate and panel KPSS stationarity test with, and without, structural breaks and the univariate and panel lagrange multiplier (LM) unit root test with, and without, structural breaks. There is mixed evidence of convergence with the univariate tests with breaks, depending on whether the null is specified as stationarity or a unit root. The results for the panel stationarity and unit root tests with structural breaks find support for energy convergence in the ASEAN-5.
    Keywords: Energy consumption per capita; Convergence; Unit root
    Date: 2014–04
  10. By: Ng, Wei-Shiuen
    Abstract: Flexible work schedules could be a solution to the problems of increasing transportation demand, congestion, energy use, and carbon emissions. The higher the flexibility of work schedule, the less time employees would spend commuting to work. Hence, reducing trip frequency and total distance traveled. Flexible work schedules have been studied extensively in transportation studies, especially in areas of peak period congestion, road pricing, transit services peak and off-peak utilization, and flexibility of departure time for work. However, fewer studies have examined how the flexibility of work schedules could affect transportation mode and parking choices. This presentation will focus on the relationship amongst work schedule flexibility, mode choice and parking preferences at the University of California, Berkeley. campus. Understanding this complex relationship will enable a better evaluation of future transportation and parking policies.
    Keywords: Engineering
    Date: 2014–04–01
  11. By: Paresh Narayan; Russell Smyth
    Abstract: Developments in applied econometrics, particularly with regard to unit root tests and cointegration tests, have motivated a rich empirical literature on energy economics over the last decade. This study reviews recent developments in time series econometrics applications in the energy economics literature. We first consider the literature on the integration properties of energy variables. We begin with a discussion of the implications of whether energy variables contain a unit root and proceed to examine how results differ according to the specific unit root or stationarity test employed. We then proceed to examine recent developments in the literature on cointegration, Granger causality and long-run estimates between (disaggregated) energy consumption and economic growth. We review both single country and panel studies and pay particular attention to studies which have expanded the literature through adding variables such as financial development and trade, in addition to energy consumption to the augmented production function, as well as studies which have extended the literature through examining disaggregated energy consumption by type. In each case we highlight best practice in the literature, point to limitations in the literature, including econometric modelling challenges, and suggest recommendations for future research. A key message of our survey is that the profession needs to guard against ‘overload’ of research in these areas as most applied studies are no longer adding anything more to what is already known.
    Date: 2014–04
  12. By: Anna Pechan (University of Oldenburg, Department of Economics)
    Abstract: Climate change poses a new challenge in particular to long-lasting electricity networks. At the same time, this industry is highly regulated, which greatly affects the behavior of network operators. In this paper, the impact of regulation in general and of the German electricity grid regulation in particular on anticipatory adaptation investments is analyzed. The qualitative analysis shows that in general a whole set of elements of the regulatory model and their coordination influence the decision of ex ante adaptation to climate change. A careful and balanced design, e.g. of efficiency and quality measurement, is thus crucial to avoid inadequate adaptation. The regulation in Germany discourages flexible adaptation to extreme weather events (EWEs). For irreversible adaptation of new and existing infrastructure to EWEs, the incentives highly depend on the cost approval of the regulator. Currently, the regulation discourages this type of adaptation. But if the additional costs can be claimed, the network operator is indifferent to adapt. Similarly, incentives to irreversibly adapt existing and new infrastructure to slow onset events (SOEs) range between excessively high and undistorted depending on the regulator’s discretion. Undistorted means that the decision to implement adaptation measures is not biased by regulation. Undistorted are also the incentives for flexible measures to adapt to SOEs. Only in the undistorted cases, the risk of inadequate adaptation are borne by the network operator.
    Keywords: Electricity Networks, Regulation, Climate Change, Germany
    Date: 2014–05
  13. By: Pascal Da Costa (LGI - Laboratoire Génie Industriel - EA 2606 - Ecole Centrale Paris)
    Abstract: Literature on endogenous growth shows that a polluting economy can grow sustainably and that a double-dividend or win-win effect comprising growth and the environment is possible. Even with a semi- endogenous growth approach, which occur when the knowledge stock yield falls below the unit in the production of innovations, what happens to sustainability and the double dividend? This paper presents the first semi-endogenous growth model with pollution which answers this very question. We first illustrate that the dynamics of this economy can be sustainable even if its long-term growth rate is exogenous. To ensure the latter, a knowledge stock yield that is greater than a certain strictly positive threshold is required. We then demonstrate that the double dividend is impossible since the level of support for innovation no longer has a positive impact on the long-term growth rate. And the environmental policy always has a negative effect on growth.
    Keywords: Innovation; Pollution; Semi-Endogenous Growth; Double Dividend
    Date: 2014–05–22
  14. By: Serdar Türkeli (UNU-MERIT, Maastricht University)
    Abstract: In this paper, we re-construct the sphere of European Neighbourhood Policy (ENP) with respect to empirical evidence collected from Web of Science and systematically meta-analysed. This analysis provides us the dynamics of the ENP knowledge asset in terms of stock and flow in temporal, spatial (geographical), organisational and contextual dimensions. The same meta-analysis is applied to Quality of Local Governance (QoLG) and dynamics of the re-constructed sphere of Quality of Local Governance is analysed, with cross-comparison to the ENP sphere. The main result indicates the sphere of Environment, Energy and Ecology (EEE) form the main sectoral gateway between the ENP and QoLG in a multi-level (international, national, regional) setting. We constructed our conceptual framework based on these evidence bases that gathered from spheres of the ENP and QoLG with comparison to analysis of temporal evolution of governance studies, and checked for theoretical debates of Bureaucratic Planning, Public Choice Theory and Structuralist Critiques, which are shown that incomplete to grasp this emerging EEE sphere. Although promising, New Regionalism concept is discussed with the condition of those current or potentially future developmentalist tendencies in the European Neighbourhood with respect to triangulated tensions between economic, social and environmental development. We listed and concluded that technological and social innovation are the vital enablers to activate this EEE Bridge in the governance of a foursquare quality of life agenda, with enhanced information and finance-based intelligent instruments interactive between i) European Neighbourhood Policy, ii) Open Method of ‘’Neighbourhoods’’ Coordination, iii) Smart ‘’Cross-Continental Regions’’ Specialisation, and iv) European ‘’Adaptive, Synchronous’’ Strategic Energy Technology Plan (ASSET-Plan).
    Keywords: European Neighbourhood policy, governance, regional policy
    Date: 2013–12
  15. By: Mark Andor; Manuel Frondel; Colin Vance
    Abstract: The overestimation of willingness-to-pay (WTP) in hypothetical responses is a wellknown finding in the literature. Various techniques have been proposed to remove or, at least, reduce this bias. Using responses from a panel of about 6,500 German households on their WTP for a variety of power mixes, this article undertakes an analysis that combines two common ex-ante approaches – cheap talk and consequential script – with the ex-post certainty approach to calibrating hypothetical WTP responses. Based on a switching regression model that accounts for the potential endogeneity of respondent certainty, we find that while neither the cheap-talk nor the consequential script corrective bears on the estimates of WTP, there is evidence for a lower WTP among those respondents who classify themselves as definitely certain about their answers.
    Keywords: Willingness-to-pay; cheap talk; certainty approach
    JEL: D12 Q21 Q41
    Date: 2014–04

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