nep-ene New Economics Papers
on Energy Economics
Issue of 2014‒07‒13
twenty papers chosen by
Roger Fouquet
London School of Economics

  1. Canada: Selected Issues By International Monetary Fund. Western Hemisphere Dept.
  2. The environmental implications of Russia's accession to the world trade organization By Bohringer, Christoph; Rutherford, Thomas F.; Tarr, David G.; Turdyeva, Natalia
  3. Contracting for the second best in dysfunctional electricity markets By Nikandrova, Arina; Steinbuks, Jevgenijs
  4. The global carbon budget:a conflicting claims problem By Giménez Gómez, José M. (José Manuel); Teixidó Figueras, Jordi Josep; Vilella Bach, Misericòrdia
  5. Efficient Energy Investment and Fiscal Adjustment in Senegal By Salifou Issoufou; Edward F. Buffie; Mouhamadou Bamba Diop; Kalidou Thiaw
  6. There Will Be Blood: Crime Rates in Shale-Rich US Counties By Alexander James; Brock Smith
  7. Catching on the Rebound: Why Price Elasticities are Generally Inappropriate Measures of Rebound Effects By Lester C. Hunt; David L Ryan
  8. Towards a general "Europeanization" of EU Member States' energy policies? By Strunz, Sebastian; Gawel, Erik; Lehmann, Paul
  9. The effects of international politics on oil-exporting developing countries By Kashcheeva, Mila; Tsui, Kevin K.
  10. Economic Optimal Operation of Community Energy Storage Systems in Competitive Energy Markets By Reza Arghandeh; Jeremy Woyak; Ahmet Onen; Jaesung Jung; Robert P. Broadwater
  11. On the risk comovements between the crude oil market and the U.S. dollar exchange rates By Gilles de Truchis; Benjamin Keddad
  12. Why do oil importers diversify their import sources politically? : evidence from U.S. firm-level data By Kashcheeva, Mila; Tsui, Kevin K.
  13. Climate change, industrial transformation, and"development traps" By Golub, Alexander; Toman, Michael
  14. Output-based rebating of carbon taxes in the neighbor’s backyard. Competitiveness, leakage and welfare By Christoph Böhringer; Brita Bye; Taran Fæhn; Knut Einar Rosendahl
  15. Optimal strategies for operating energy storage in an arbitrage market By Flatley, Lisa; Mackay, Robert; Waterson, Michael
  16. Balancing Forecast Errors in Continuous-Trade Intraday Markets By Garnier, Ernesto; Madlener, Reinhard
  17. Probabilistic forecasting of electricity spot prices using Factor Quantile Regression Averaging By Katarzyna Maciejowska; Jakub Nowotarski; Rafal Weron
  18. The U.S. Manufacturing Recovery: Uptick or Renaissance? By Oya Celasun; Gabriel Di Bella; Tim Mahedy; Chris Papageorgiou
  19. Oil price volatility and real effective exchange rate: the case of Thailand By Jiranyakul, Komain
  20. How ICT Investment Influences Energy Demand in South Korea and Japan? By Khayyat, Nabaz T.; Lee, Jongsu; Lee, Jeong-Dong

  1. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: The unconventional energy boom has had significant positive effects on Canada’s economic activity and has the potential to contribute even more in the future with the appropriate extension of infrastructure capacity. Our findings suggest that while limited exports capacity would result in output losses over the medium term, the potential output gains from a full market access of Canada’s energy products could reach about 2 percent of GDP over a ten year horizon. Actions can be taken on a number of fronts to resolve transportation constraints and address domestic market segmentation. These include diversifying international export markets for Canadian energy products, which would require building pipeline and export infrastructure to facilitate access to non-U.S. markets. Energy integration between Canada’s western and eastern provinces can be strengthened further, and recent initiatives in this direction are welcome. More generally, there appears to be an important scope to increase inter-industry linkages across Canada that would lead to wider sharing of benefits from the energy sector.
    Keywords: Energy sector;Corporate sector;Money;Capital;Selected issues;Canada;oil, natural gas, gas production, gas extraction, gas sector, pipeline transportation, gas industry, pipeline capacity, oil extraction, gas pipelines, gas consumption, animal production, gas prices, coal
    Date: 2014–02–03
  2. By: Bohringer, Christoph; Rutherford, Thomas F.; Tarr, David G.; Turdyeva, Natalia
    Abstract: This report investigates the environmental impacts of Russia's accession to the World Trade Organization. A 10-region, 30-sector model of the Russian economy is developed. The model is innovative and more accurate empirically in that it contains foreign direct investment, imperfectly competitive sectors, and endogenous productivity effects triggered by World Trade Organization accession along with environmental emissions data in Russia for seven pollutants that are tracked for all 30 sectors in each of the 10 regions. The decomposition analysis shows that despite the fact that World Trade Organization accession allows Russia to import better technologies and reduce pollution from the"technique effect,"on balance World Trade Organization accession alone will increase environmental pollution in Russia through a shift toward dirty industries (the"composition effect") and the expansion of output with its associated increase in pollution ("scale effect"). The paper assesses the costs of three types of environmental regulations to reduce carbon dioxide emissions by 20 percent. The paper simultaneously implements a central case scenario with each of the carbon dioxide emission reduction policy initiatives. The analysis finds that the welfare gains of World Trade Organization accession are large enough to pay for the costs of any of the three environmental abatement policies, while leaving a net welfare gain. But the political economy implications are that the non-market-based policies are more costly and the command and control policy, which is not well targeted, is very costly. Based on a constant returns to scale model, the estimated welfare gains are insufficient to finance the costs of environmental regulation.
    Keywords: Environmental Economics&Policies,Climate Change Mitigation and Green House Gases,Climate Change Economics,Economic Theory&Research,Environment and Energy Efficiency
    Date: 2014–06–01
  3. By: Nikandrova, Arina; Steinbuks, Jevgenijs
    Abstract: Power pools constitute a set of sometimes complex institutional arrangements for efficiency-enhancing coordination among power systems. Where such institutional arrangements do not exist, there still can be scope for voluntary electricity-sharing agreements among power systems. This paper uses a particular type of efficient risk-sharing model with limited commitment to demonstrate that second-best coordination improvements can be achieved with low to moderate risks of participants leaving the agreement. In the absence of an impartial market operator who can observe fluctuations in connected power systems, establishing quasi-markets for trading excess electricity through the kind of mechanism described here helps achieve sustainable cooperation in mutually beneficial electricity sharing.
    Keywords: Energy Production and Transportation,Energy Technology&Transmission,Infrastructure Economics,Political Economy,Power&Energy Conversion
    Date: 2014–06–01
  4. By: Giménez Gómez, José M. (José Manuel); Teixidó Figueras, Jordi Josep; Vilella Bach, Misericòrdia
    Abstract: Despite global environmental governance has traditionally couched global warming in terms of annual CO2 emissions (a flow), global mean temperature is actually determined by cumulative CO2 emissions in the atmosphere (a stock). Thanks to advances of scientific community, nowadays it is possible to quantify the \global carbon budget", that is, the amount of available cumulative CO2 emissions before crossing the 2oC threshold (Meinshausen et al., 2009). The current approach proposes to analyze the allocation of such global carbon budget among countries as a classical conflicting claims problem (O'Neill, 1982). Based on some appealing principles, it is proposed an efficient and sustainable allocation of the available carbon budget from 2000 to 2050 taking into account different environmental risk scenarios. Keywords: Carbon budget, Conflicting claims problem, Distribution, Climate change. JEL classification: C79, D71, D74, H41, H87, Q50, Q54, Q58.
    Keywords: Teoria de jocs, Elecció social, Decisió de grup, Béns públics, Economia del medi ambient, Escalfament global, Política del medi ambient, 33 - Economia, 504 - Ciències del medi ambient,
    Date: 2014
  5. By: Salifou Issoufou; Edward F. Buffie; Mouhamadou Bamba Diop; Kalidou Thiaw
    Abstract: Senegal's fiscal deficit and public debt have been on the rise in recent years owing partly to an ailing and inefficient oil-based energy sector. In this paper we use a two-sector, open-economy, dynamic general equilibrium model to investigate the effects of varying fiscal policy instruments one at a time and of policy packages that increase public investment in energy and infrastructure in scenarios with varying degrees of debt finance and with different types of supporting fiscal adjustment. Lowering the fiscal deficit by raising taxes and cutting government expenditure has adverse effects on growth, real wages and the supply of public services. Senegal does not need, however, to undertake such difficult fiscal adjustment. A public investment program that coordinates new investment in low-cost hydroelectric, coal or gas-fired power with a phased contraction of the oil-based sector raises the total supply of energy by 70 percent, increases real wages and real GDP, stimulates private investment, and significantly reduces the fiscal deficit in the medium long term. More aggressive investment programs borrow against future fiscal gains to combine new energy investments with either delayed or frontloaded investments in non-energy infrastructure. These programs lead to much higher real wages and real GDP while keeping public debt sustainable and the fiscal deficit low in the medium and long term.
    Keywords: Energy sector;Senegal;Public investment;Fiscal policy;Budget deficits;Public debt;Economic models;Energy Reform, Public Investment, Growth, Debt Sustainability, Fiscal Policy, Infrastructure.
    Date: 2014–03–12
  6. By: Alexander James; Brock Smith
    Abstract: Over the past decade, the production of shale oil and gas significantly increased in the United States. This paper uniquely examines how this energy boom has affected regional crime rates throughout the United States. There is evidence that, as a result of the ongoing shale-energy boom, shale-rich counties experienced faster growth in rates of both property and violent crimes including rape, assault, murder, robberty, burglary, larceny and grandtheft auto. These results are particularly robust for rates of assault, and less so for other types of crimes. Policymakers should anticipate these effects and invest in public infrastructure accordingly.
    Keywords: Natural Resources, hydraulic fracturing, crime, resource curse
    JEL: Q3 R11 K42
    Date: 2014
  7. By: Lester C. Hunt (Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.); David L Ryan (Department of Economics, University of Alberta, Edmonton, Canada.)
    Abstract: Rebound effects occur when, due to behavioural responses by consumers to the resulting fall in the implicit price of energy services, energy efficiency improvements result in energy savings that are often less than those suggested by engineering calculations. In the absence of data on energy efficiency or on the energy services (such as heating or lighting) provided by the energy that is used to produce them, rebound effects are often estimated as the negative of own-price elasticities obtained from standard energy demand equations. Using a recently developed model of demand for energy services, which facilitates estimation of a much wider range of rebound effects than has been previously considered, this approach is shown to be inappropriate unless the energy demand equations are specified in a certain way, and even in that case, often only under somewhat heroic assumptions. Illustrative empirical analysis using UK time-series data indicates the extent to which rebound effects can differ from price elasticities.
    Keywords: Energy Services Demand, Modelling Rebound Effects.
    JEL: C51 Q41
    Date: 2014–06
  8. By: Strunz, Sebastian; Gawel, Erik; Lehmann, Paul
    Abstract: It is often argued that energy policy is too fragmented across EU Member States and should be Europeanized to pave the way towards an efficiently organized European power system, which rest on the internal market for energy and a pan-European super-grid. However, this view neglects i) the factual heterogeneity of European energy policies in terms of harmonization and centralization, ii) economic arguments in favor of decentralization and iii) legal as well as political-economic obstacles against centralization of decision making. In this vain, we point out that a plea for a stronger role of the EU needs to be made with care and differentiation. --
    Keywords: centralization,energy transition,EU climate and energy policy,fiscal federalism,harmonization,political economy
    Date: 2014
  9. By: Kashcheeva, Mila; Tsui, Kevin K.
    Abstract: International politics affects oil trade. But does it affect the oil-exporting developing countries more? We construct a firm-level dataset for all U.S. oil-importing companies over 1986-2008 to examine how these firms respond to changes in "political distance" between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. We conjecture that the political pattern of oil imports from these individual firms is driven by hold-up risks, because oil trade is often associated with backward vertical FDI. To the extent that developing countries have higher hold-up risks because of their weaker institutions, the political effect on oil trade should be more significant in the developing world. We find that oil import decisions are indeed more elastic when firms import from developing countries, although the reverse is true in the short run. Our results suggest that international politics can affect oil revenue and hence long-term development in the developing world.
    Keywords: Developing countries, United States, International trade, Exports, Petroleum industry, International relations, Foreign investments, Energy resources, International politics, FDI-based imports, Hold-up risk, Energy security
    JEL: F13 F51 F59 Q34
    Date: 2014–03
  10. By: Reza Arghandeh; Jeremy Woyak; Ahmet Onen; Jaesung Jung; Robert P. Broadwater
    Abstract: Distributed, controllable energy storage devices offer several significant benefits to electric power system operation. Three such benefits include reducing peak load, providing standby power, and enhancing power quality. These benefits, however, are only realized during peak load or during an outage, events that are infrequent. This paper presents a means of realizing additional benefits by taking advantage of the fluctuating costs of energy in competitive energy markets. An algorithm for optimal charge/discharge scheduling of community energy storage (CES) devices as well as an analysis of several of the key drivers of such optimization are discussed.
    Date: 2014–07
  11. By: Gilles de Truchis; Benjamin Keddad
    Abstract: This article examines the volatility dependence between the crude oil price and four US dollar exchange rates using both fractional cointegration and copula techniques. The former exploits the long memory behavior of the volatility processes to investi
    Keywords: Comovement, Volatility linkage, Fractional cointegration, Copula, Oil market, Exchange rate
    JEL: E44 C22
    Date: 2014–06–23
  12. By: Kashcheeva, Mila; Tsui, Kevin K.
    Abstract: International politics affects oil trade. But why? We construct a firm-level dataset for all U.S. oil-importing companies over 1986-2008 to examine what kinds of firms are more responsive to change in "political distance" between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. We conjecture that the political pattern of oil imports from these individual firms is driven by hold-up risks, because oil trade is often associated with backward vertical FDI. To test this hold-up risk hypothesis, we investigate heterogeneity in responses by matching transaction-level import data with firm-level worldwide reserves. Our results show that long-run oil import decisions are indeed more elastic for firms with oil reserves overseas than those without, although the reverse is true in the short run. We interpret this empirical regularity as that while firms trade in the spot market can adjust their imports immediately, vertically-integrated firms with investment overseas tend to commit to term contracts in the short run even though they are more responsive to changes in international politics in the long run.
    Keywords: United States, International trade, International relatiolns, Petroleum industry, Imports, Foreign investments, Energy resources, International politics, FDI-based imports, Hold-up risk, Energy security
    JEL: F13 F51 F59 Q34
    Date: 2014–02
  13. By: Golub, Alexander; Toman, Michael
    Abstract: This paper examines the possibility of environmental"development traps,"or"brown poverty traps,"caused by interactions between the impacts of climate change and increasing returns in the development of"clean-technology"sectors. A simple specification is used in which the economy can produce a single homogeneous consumption good with two different technologies. In the"old"sector, technology has global diminishing returns to scale and depends on the use of fossil energy that gives rise to long-lived, damaging climate change. In the"new"sector, the technology has convex-concave production and is not dependent on the polluting energy input. If the new sector does not grow fast enough to move through the phase of increasing returns, then the economy may linger at a low level of income indefinitely or it may achieve greater progress but then get driven back down to a lower level of income by environmental degradation. Stimulating growth in the new sector thus may be a key element for avoiding an environmental poverty trap and achieving higher, sustained income levels.
    Keywords: Environmental Economics&Policies,Economic Theory&Research,Climate Change Mitigation and Green House Gases,Climate Change Economics,Economic Growth
    Date: 2014–06–01
  14. By: Christoph Böhringer; Brita Bye; Taran Fæhn; Knut Einar Rosendahl (Statistics Norway)
    Abstract: We investigate how carbon taxes combined with output-based rebating (OBR) in an open economy perform in interaction with the carbon policies of a large neighboring trading partner. Analytical results suggest that whether the purpose of the OBR policy is to compensate firms for carbon tax burdens or to maximize welfare (accounting for global emission reductions), the second-best OBR rate should be positive in most cases. Further, it should fall with the introduction of carbon taxation in the neighboring country, particularly if the neighbor refrains from OBR. Numerical simulations for Canada with the US as the neighboring trading partner, indicates that the impact of US policies on the second-best OBR rate will depend crucially on the purpose of the domestic OBR policies. If the aim is to restore the competitiveness of domestic emission-intensive, trade exposed (EITE) firms at the same level as before the introduction of its own carbon taxation for a given US carbon policy, we find that the domestic optimal OBR rates are relatively insensitive to the foreign carbon policies. If the aim is to compensate the firms for actions taken by the US following a Canadian carbon tax, the necessary domestic OBR rates will be lower if also the US regulates its emissions, particularly if the US refrains from OBR. If the goal is rather to increase the efficiency of Canadian policies in an economy-wide sense by accounting for carbon leakage, the US policies have but a minor reducing impact on domestic optimal OBR rates.
    Keywords: Carbon leakage; Second-best optimal carbon policies; Output-based rebates
    JEL: Q43 Q54 H2 D61
    Date: 2014–06
  15. By: Flatley, Lisa (Mathematics Institute, University of Warwick); Mackay, Robert (Mathematics Institute, University of Warwick); Waterson, Michael (Department of Economics, University of Warwick)
    Abstract: We characterise profit-maximising operating strategies, over some time horizon, for an energy store which is trading in an arbitrage market. Our theory allows for leakage, operating inefficiencies and general cost functions. In the special case where the operating cost of a store depends only on its instantaneous power ouput (or input), we present an algorithm to determine the optimal strategies. A key feature is that this algorithm is localised in time, in the sense that the action of the store at a time only requires information about electricity prices over some subinterval of time.
    Date: 2014
  16. By: Garnier, Ernesto (RWTH Aachen University); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: Forecasting the production of photovoltaic (PV) and wind power systems inevitably implies inaccuracies. Therefore, sales made based on forecasts almost always require the vendor to make balancing efforts. In the absence of resources available within their own portfolios, operators can turn towards the intraday market in order to avoid an engagement in the imbalance market with the resulting surcharges and regulatory penalties. In this paper, we combine a novel trade value concept with options valuation and dynamic programming to optimize volume and timing decisions of an individual operator without market power when compensating PV or wind power forecast errors in the market. The model employs a multi-dimensional binomial lattice, with trade value maximized at every node to help formulating bids in view of correlated, uncertain production forecast and price patterns. Inspired by the German electricity market's characteristics, we test the sensitivity of the model's output – namely trade timing and trade volume – to changing uncertainty and transaction cost parameters in 50 different setups. It shows that the model effectively outbalances price against volumetric risks. Trades are executed early and with large batch sizes in the case of price volatility. In contrast, increasing forecast error uncertainty leads to trade delays. High transaction costs trigger batch size reductions and ultimately further trade delays. Running 10,000 simulations across ten scenarios, we find that the model translates its flexible trade execution into a competitive advantage vis-à-vis static bidding strategy alternatives.
    Keywords: Bidding strategy; Production forecast; Renewable energy; Options; Intraday market
    JEL: G12 Q42 Q47
    Date: 2014–02
  17. By: Katarzyna Maciejowska; Jakub Nowotarski; Rafal Weron
    Abstract: We examine possible accuracy gains from using factor models, quantile regression and forecast averaging for computing interval forecasts of electricity spot prices. We extend the Quantile Regression Averaging (QRA) approach of Nowotarski and Weron (2014) and use principal component analysis to automate the selection process from among a large set of individual forecasting models available for averaging. We show that the resulting Factor Quantile Regression Averaging (FQRA) approach performs very well for price (and load) data from the British power market. In terms of unconditional coverage, conditional coverage and the Winkler score, we find the FQRA-implied prediction intervals to be more accurate than those of the benchmark ARX model and the QRA approach.
    Keywords: Probabilistic forecasting; Prediction interval; Quantile regression; Factor model; Forecasts combination; Electricity spot price
    JEL: C22 C32 C38 C53 Q47
    Date: 2014–06–30
  18. By: Oya Celasun; Gabriel Di Bella; Tim Mahedy; Chris Papageorgiou
    Abstract: The notable rebound of U.S. manufacturing activity following the Great Recession has raised the question of whether the sector might be experiencing a renaissance. Using panel regressions, we find that a depreciating real exchange rate, an increasing spread in natural gas prices between the United States and other G-7 countries, and in particular decreasing unit labor costs have had a positive impact on U.S. manufacturing production. While we find it unlikely for manufacturing to become a main engine of growth in the United States, we find that U.S. manufacturing exports could provide nonnegligible growth opportunities going forward.
    Keywords: Manufacturing;United States;Demand;Industrial production;Natural gas;Energy prices;Group of seven;U.S. manufacturing sector, durable and nondurable subsectors, Global Financial Crisis, shale gas, unit labor cost, exchange rate, growth.
    Date: 2014–02–12
  19. By: Jiranyakul, Komain
    Abstract: The main objective of this study is to directly examine the relation between real oil price and real effective exchange rate in Thailand during July 1997 to December 2013. Under the floating exchange rate regime, bilateral exchange rates are expected to fluctuate more than under the fixed exchange rate regime. The monthly data of real effective exchange rate index and real oil price are used. The results from this study reveal that there is no cointegration and causality in levels of the two series. However, an increase in oil price volatility causes real exchange rate volatility to increase. This main finding gives some policy implications to policy makers.
    Keywords: Oil price, real exchange rate, bivariate GARCH, volatility spillover.
    JEL: C22 G15 Q43
    Date: 2014–07
  20. By: Khayyat, Nabaz T.; Lee, Jongsu; Lee, Jeong-Dong
    Abstract: This empirical study examines productivity changes in Japan and South Korea during 1973–2006 and 1980–2009, respectively, in order to assess how investment in information and communications technology (ICT) affects energy demand. A dynamic factor demand model is applied to link inter-temporal production decisions by explicitly recognizing that the level of certain factors of production (refer to as quasi-fixed factors) cannot be changed without incurring so-called adjustment costs, defined in terms of forgone output from current production. This study quantifies how ICT capital investment in Korea and Japan affects economic growth in general and industrial energy demand in particular. We find that ICT and non-ICT capital investment serve as substitutes for the inputs of labor and energy use. The results also demonstrate a decreasing trend for labor productivity as well as significant cost differences across industries in both countries.
    Keywords: Dynamic factor demand; Panel data; ICT investment; Energy demand
    JEL: C32 C33 O4 O41
    Date: 2014–04–09

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