nep-ene New Economics Papers
on Energy Economics
Issue of 2014‒11‒07
thirty-six papers chosen by
Roger Fouquet
London School of Economics

  1. The Korean Energy and GHG Target Management System: An Alternative to Kyoto-Protocol Emissions Trading Systems? By Stefan Niederhafner
  2. Power Sector in Developing Asia: Current Status and Policy Issues By Hong, Jong Ho; Kim, Changhun; Shin, Heeyoung
  3. Energy Efficiency Improvements in Asia: Macroeconomic Impacts By Sharma, Deepak; Sandhu, Suwin; Misra, Suchi
  4. Testing the causality between electricity consumption, energy use and education in Africa By Oussama BEN ABDELKARIM; Adel BEN YOUSSEF; Hatem M'HENNI; Christophe RAULT
  5. Directing Technical Change from Fossil-Fuel to Renewable Energy Innovation: An Application using Firm Level Patent Data By Joelle Noailly; Roger Smeets
  6. Tradable Renewable Quota vs. Feed-In Tariff vs. Feed-In Premium under Uncertainty By Robert Marschinski; Philippe Quirion
  7. Linking emission trading to environmental innovation: evidence from the Italian manufacturing industry By Simone Borghesi; Giulio Cainelli; Massimiliano Mazzanti
  8. Cost Implications of GHG Regulation in Hawai‘i By Makena Coffman; Paul Bernstein; Sherilyn Wee
  9. Energy Price and Redistribution in Czech Republic By Ladoux, Norbert; Scasny, Milan
  10. The elephant in the ground: managing oil and sovereign wealth By Ton van den Bremer; Frederick van der Ploeg; Samuel Wills
  11. Energy use and Economic Growth in Africa: A Panel Granger-Causality Investigation By Mohamed El Hedi Arouri; Adel Ben Youssef; Hatem M'Henni; Christophe Rault
  12. Optimal Carbon Sequestration Policies in Leaky Reservoirs By Jean-Marie, Alain; Moreaux, Michel; Tidball, Mabel
  13. Monetary Policy in Oil Exporting Economies By Drago Bergholt
  14. Fat Tails and the Social Cost of Carbon By Weitzman, Martin L.
  15. The competitiveness of U.S. manufacturing By Diez, Federico J.; Gopinath, Gita
  16. Voluntary Disclosure, Greenhouse Gas Emissions and Business Performance: Assessing the First Decade of Reporting By David C Broadstock; Alan Collins; Lester C Hunt; Konstantinos Vergos
  17. Pollution Offshoring and Emission Reductions in European and US Manufacturing By Claire Brunel
  18. Jumps and stochastic volatility in crude oil futures prices using conditional moments of integrated volatility By Christopher F Baum; Paola Zerilli
  19. Robust Dynamic Optimal Taxation and Environmental Externalities By Li, Xin; Narajabad, Borghan N.; Temzelides, Theodosios
  20. Electricity distribution investments: no country for old rules? A critical overview of UK and Italian regulations By Simona Benedettini; Federico Pontoni
  21. Model Simulations of Resource Use Scenarios for Europe By Kurt Kratena; Mark Sommer
  22. FTR Allocations to Ease Transition to Nodal Pricing: An Application to the German Power System By Friedrich Kunz; Karsten Neuhoff; Juan Rosellón
  23. Price versus Quantities versus Indexed Quantities By Frédéric Branger; Philippe Quirion
  24. Subsidies to Electricity Consumption and Housing Demand in Bogotá By Camila Casas
  25. The Europe 2020 strategy at midterm: Disappointing assessment calls for an urgent change driven by long run priorities By Karl Aiginger
  26. Petro Populism By Egil Matsen; Gisle J. Natvik; Ragnar Torvik
  27. Moral Behaviour, Altruism and Environmental Policy By Marc Daube; David Ulph
  28. Transition énergétique, projets de société et tensions du présent By Minh Ha-Duong; Dominique Finon
  29. Boom or gloom? Examining the Dutch disease in two-speed economies By Hilde C. Bjørnland; Leif Anders Thorsrud
  30. The Potential Contribution of Innovation Systems to Socio-Ecological Transition By Georg Licht; Bettina Peters; Christian Köhler; Franz Schwiebacher
  31. Services, Inequality, and the Dutch Disease By Richard Chisik; Bill Battaile; Harun Onder
  32. La recherche controversée d'énergies " propres " By Minh Ha-Duong; Dominique Finon
  33. An optimal policy mix for resource use By Marina Fischer-Kowalski; Dominik Wiedenhofer
  34. The Distribution of Natural Resource Rents and the Dutch Disease By Richard Chisik; Bill Battaile; Harun Onder
  35. Consumer Behaviour in a Social Context: Implications for Environmental Policy By Partha Dasgupta; Dale Southerton; Alistair Ulph; David Ulph
  36. The Resource Curse Hypothesis: Evidence from Ecuador By Andrea Cori; Salvatore Monni

  1. By: Stefan Niederhafner (College of Social Sciences, Seoul National University)
    Abstract: The Energy and Greenhouse Gas (GHG) Target Management System (TMS) is one of South Korea’s major instruments to achieve national energy policy as well as GHG reduction targets. The TMS was introduced in the late 1990s, focusing on energy only and aiming to reduce the level of South Korea’s energy consumption and fossil fuel imports. During the presidency of Lee Myung-bak, the system was reformed and a GHG abatement function was integrated. This paper applies an analytical governance perspective to investigate the main procedural logic of the TMS. Even though South Korea’s GHG policy is closely linked to the Kyoto Protocol, the Energy and GHG TMS does not rely on market-based instruments. In fact, it combines command-and-control components with strong voluntary network-like mechanisms. The analysis indicates that the Korean TMS thus represents a policy alternative to an emissions trading system. In conclusion and in reference to an eventual Kyoto follow-up agreement, the paper recommends a better integration of such not market based, energy consumption and GHG abatement addressing instruments with global climate change politics.
    Keywords: Energy Policy, GHG Reduction, South Korea, Governance, Global Climate Change, Emission Trading, Kyoto Protocol.
    JEL: F53 H10 H23 H41 L50 L52 K23 N55 N75 O13 O14 O25 P41 Q4 Q54
    Date: 2014–09
  2. By: Hong, Jong Ho (Seoul National University); Kim, Changhun (Korea Energy Economics Institute); Shin, Heeyoung (Korea Development Institute)
    Abstract: We examine the current status and future prospects of the electricity sectors and key policy issues in the People’s Republic of China (PRC), India, Japan, and the Republic of Korea. Fuel mix and energy efficiency are key to providing stable, affordable power, while curtailing future emissions in the PRC. In India, power plants cannot operate efficiently because of problems in the coal industry; transmission losses also need to be immediately addressed. In Japan, nuclear accounted for 27% of output in 2009 which fell to 18% following the Fukushima Daiichi accident. Currently, only two reactors are in operation. Japan aims to diversify its generation portfolio by expanding renewables. In the Republic of Korea, the average electricity price does not recover production costs which may have led to overconsumption. The budget for renewables should increase two-fold in the next 2 to 3 years but has instead decreased by 15% compared to 2012. The PRC, India, and the Republic of Korea plan to build more nuclear power plants. The cost of the entire life cycles of those plants needs to be analyzed, and the impacts of nuclear power on current and future generations must be considered in full.
    Keywords: power sector; government policy; energy efficiency; nuclear; renewables
    JEL: Q40 Q48
    Date: 2014–09–01
  3. By: Sharma, Deepak (University of Technology, Sydney); Sandhu, Suwin (Clean Energy Regulator); Misra, Suchi
    Abstract: We examine various macroeconomic impacts of improving energy efficiency in the People’s Republic of China, India, Indonesia, Japan, the Republic of Korea, Malaysia, and Thailand from 2010 to 2050. Energy efficiency policies would have a positive impact on private consumption, government expenditures, and investment and would lead to a significant increase in trade within Asia while reducing trade outside. Adopting them would shift employment from energy and mining to manufacturing and services. There will be a significant decrease in energy intensity in all countries under the high growth scenario which implies that sustained growth depends on efficient energy use. Without measures to improve efficiency, emissions would increase significantly in most countries. In the People’s Republic of China, policies should emphasize reducing primary energy demand and emissions while minimizing the negative impacts on the economy. For India and Indonesia, policies should emphasize reducing primary energy demand and emissions while promoting economic growth. In Japan and Thailand, improvements in energy productivity could promote economic growth significantly and should be the policy focus. Best practice technologies in the Republic of Korea could significantly reduce primary energy requirements and emissions. They would also be most beneficial for Malaysia.
    Keywords: energy efficiency; energy demand; economic growth; Asia
    JEL: Q40 Q43
    Date: 2014–09–01
  4. By: Oussama BEN ABDELKARIM; Adel BEN YOUSSEF; Hatem M'HENNI; Christophe RAULT
    Abstract: We investigate the existence of causal relationships between energy consumption and education (enrollment in primary secondary and higher education) for a sample of 16 African countries over the period 1971-2010 (according to availability of countries' data). We use the panel-data approach of Kónya (2006), which is based on SUR systems and Wald tests with country specific bootstrap critical values. Our results show that education and energy use are strongly linked in Africa. There is bidirectional causality between primary, secondary and higher education and energy use for several countries. Moreover, electricity consumption plays a crucial role in the energy-education links in Africa.
    Keywords: Education, Energy use, Electricity consumption, Education for All, VAR.
    JEL: Q43 Q53 Q56
    Date: 2014–09–01
  5. By: Joelle Noailly; Roger Smeets (The Centre for International Environmental Studies, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: This paper investigates the determinants of directed technical change at the Firm level in the electricity generation sector. We use firm-level data on patents filed in renewable (REN) and fossil fuel (FF) technologies by 5,261 european firms over the period 1978-2006. We investigate how energy prices, market size and knowledge stocks affect firms' incentives to innovate in one technology relative to another and how these factors may thereby induce a shift from FF to REN technology in the electricity generation sector. We separately study small specialized firms, which innovate in only one type of technology during our sample period, and large mixed firms, which innovate in both technologies. We also separate the extensive margin innovation decision (i.e. whether to conduct innovation) from the intensive margin decision (i.e. how much to innovate). Overall, we find that all three factors - energy prices, market sizes and past knowledge stocks - matter to redirect innovation towards REN and away from FF technologies. Yet, we find that these factors have a larger impact on closing the technology gap through the entry (and exit) of small specialized firms, rather than through large mixed firms' innovation. An implication of our results is that firm dynamics are of direct policy interest to induce the replacement of FF by REN technologies in the electricity generation sector.
    Keywords: Directed technical change; Renewable energy; Fossil fuel energy; Patents; Innovation; Firm dynamics
    Date: 2014–02–01
  6. By: Robert Marschinski (MCC, PIK, TU-Berlin); Philippe Quirion (CNRS et CIRED)
    Abstract: We study the performance under uncertainty of three renewable energy policy instruments: Tradable Renewable Quota (TRQ), Feed-In-Tariff (FIT), and Feed-In-Premium (FIP). We develop a stylized model of the electricity market, where renewables are characterized by a positive learning externality, which the regulator aims to internalize. Assuming shocks on the fossil-based electricity supply, renewables supply, or on total electricity demand, we analytically derive the conditions determining the instruments’ relative welfare ranking. Although we generally confirm the key role of the slopes of marginal benefits and costs associated with the policy, the specific ranking depends on which type of uncertainty is considered, and whether shocks are permanent or transitory. However, a high learning rate generally favours the FIT, while TRQ is mostly dominated by the other two instruments. These results are confirmed in a numerical application to the US electricity market, in which the FIP emerges as the most robust overall choice and TRQ as the least robust.
    Keywords: Feed-in premium, Feed-in tariff, Renewable energy policy, Renewable portfolio standard, Tradable renewable quota.
    JEL: Q42 Q54 Q55
    Date: 2014–10
  7. By: Simone Borghesi (University of Siena, Italy.); Giulio Cainelli (University of Padova, Italy.); Massimiliano Mazzanti (University of Ferrara, Italy; SEEDS, Ferrara, Italy.)
    Abstract: This paper examines the different forces underlying the adoption of environmental innovations (EI), with a focus on policy related EI. In particular, exploiting the 2006-2008 wave of the Italian Community Innovation Survey (CIS), we investigate whether the first phase of the European Emissions Trading Scheme (EU-ETS) exerted some effects on EI in CO2 abatement and energy efficiency controlling for other variables, grouped as internal/external to the firm, and additional environmental regulation factors. Our empirical analyses show that a few factors emerge as particularly relevant such as relationships with other firms and institutions, sectoral energy expenditure intensity, and current and future expected environmental regulation. For the specific role of the EU ETS, we find that, on the one hand ETS sectors are more likely to innovate than non-ETS sectors but on the other hand that sector specific policy stringency is negatively associated with EI, possibly due to anticipatory behavior from early moving innovative firms and some sector idiosyncratic factors.
    Keywords: Environmental innovation, EU-ETS, CIS EU data, manufacturing
    Date: 2014–10
  8. By: Makena Coffman (Department of Urban and Regional Planning Research, UHERO); Paul Bernstein (Operations Research, UHERO); Sherilyn Wee (UHERO, University of Hawai‘i at Manoa)
    Abstract: The State of Hawai‘i and the U.S. are developing greenhouse gas (GHG) emissions reduction regulations in parallel. The State requires that economy-wide GHG emissions be reduced to 1990 levels by the year 2020 and the U.S. Environmental Protection Agency is developing new source performance standards (NSPS) for new electricity generation units. The State Department of Health has proposed rules that would reduce existing large emitting electricity generating units by 16% from 2010 levels. The NSPS proposes GHG concentration limits for new electricity units. We use a comprehensive model of Hawai‘i’s electricity sector to study the potential cost and GHG impacts of State and Federal GHG regulations. Given uncertainty about the final form and implementation of these regulations, we adopt a series of scenarios that bracket the range of possible outcomes. First we consider the State’s GHG cap (for existing units) and NSPS (for new units) being implemented at the facility level. Next, we consider the implications of allowing for partnering to meet the State GHG cap and the NSPS at a system-wide level. We also consider the case where the State GHG cap is extended to apply to both existing and new units. The current proposed State GHG rules exclude biogenic sources of emissions. We address the impacts of this decision through sensitivity analysis and explore the impact of GHG policy on new coal-fired units. We find that regulating GHGs at the facility level leads to greater reductions in GHG emissions but at higher cost. Over the 30-year period that we study, when biogenic sources of emissions are ignored, facility-level implementation of policy will add $3 billion to the cost of electricity generation at an average cost of $180/ton of GHG abatement. If biogenic sources of emissions are included within the accounting framework, abatement costs rise to $340/ton.
    Date: 2014–04
  9. By: Ladoux, Norbert; Scasny, Milan
    Abstract: This paper studies environmental taxation in a Mirrlees setting when energy, a polluting good, is used both as a factor of production and a final consumption good. The model is calibrated for the Czech economy. We study two different tax systems. Both consider a non-linear income tax but the first one considers a linear energy tax, while the second one allows for a non-linear taxation of energy. We show that: (i) households' energy consumption should be subsidized except if the environmental external costs of energy consumption are sufficiently high (ii) The subsidy applied to energy consumption should decrease with income.
    Keywords: energy tax, Pigouvian tax, redistributive concerns
    JEL: H21 H23
    Date: 2014–05
  10. By: Ton van den Bremer; Frederick van der Ploeg; Samuel Wills
    Abstract: Oil exporters typically do not consider below-ground assets when allocating their sovereign wealth fund portfolios, and ignore above-ground assets when extracting oil. We present a unified framework for considering both. Subsoil oil should alter a fund’s portfolio through additional leverage and hedging. First-best spending should be a share of total wealth, and any unhedged volatility must be managed by precautionary savings. If oil prices are pro-cyclical, oil should be extracted faster than the Hotelling rule to generate a risk premium on oil wealth. We then discuss how the management of Norway’s fund can practically be improved with our analysis.
    Keywords: oil, portfolio allocation, sovereign wealth fund, leverage, hedging, optimal extraction
    JEL: E21 G11 G15 O13 Q32 Q33
    Date: 2014–10
  11. By: Mohamed El Hedi Arouri (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans); Adel Ben Youssef (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université Nice Sophia Antipolis (UNS)); Hatem M'Henni (LARIME - Laboratoire de Recherche Interdisciplinaire sur les Mutations des Economies et des Entreprises - Université de Tunis (TUNISIA)); Christophe Rault (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans, CESifo - Center for Economic Studies and Ifo for Economic Research - CESifo Group Munich)
    Abstract: We make use of a bootstrap panel analysis of causality between energy use and economic growth for a sample of sixteen African countries over the period 1988-2010. Our results show that growth and energy use are strongly linked in Africa. However, African countries are heterogeneous and there is no "one way" recommendation about energy-growth relationship that may work for all countries in Africa.
    Keywords: energy use; growth; VAR
    Date: 2014–06–18
  12. By: Jean-Marie, Alain; Moreaux, Michel; Tidball, Mabel
    Abstract: We study in this report a model of optimal Carbon Capture and Storage in which the reservoir of sequestered carbon is leaky, and pollution eventually is released into the atmosphere. We formulate the social planner problem as an optimal control program and we describe the optimal consumption paths as a function of the initial conditions, the physical constants and the economical parameters. In particular, we show that the presence of leaks may lead to situations which do not occur otherwise, including that of non-monotonous price paths for the energy.
    Date: 2014–05–26
  13. By: Drago Bergholt
    Abstract: How should monetary policy be constructed when national income depends on oil exports? I set up a general equilibrium model for an oil exporting small open economy to analyze this question. Fundamentals include an oil sector and domestic non-oil firms – some of which are linked to oil markets via supply chains. In the model, the intermediate production network implies transmission of international oil shocks to all domestic industries. The presence of wage and price rigidities at the sector level leads to non-trivial trade-offs between different stabilization tar- gets. I characterize Ramsey-optimal monetary policy in this environment, and use the framework to shed light on i) welfare implications of the supply chain channel, and ii) costs of alternative policy rules. Three results emerge: First, optimal policy puts high weight on nominal wage stability. In contrast, attempts to target impulses from the oil sector can be disastrous for welfare. Second, while oil sector activities contribute to macroeconomic fluctuations, they do not change the nature of optimal policy. Third, operational Taylor rules with high interest rate inertia can approximate the Ramsey equilibrium reasonably well.
    Keywords: Monetary policy, oil exports, small open economy, Ramsey equilibrium, DSGE
    JEL: E52 F41 Q33 Q43
    Date: 2014–07
  14. By: Weitzman, Martin L.
    Abstract: At high enough greenhouse gas concentrations, climate change might conceivably cause catastrophic damages with small but non-negligible probabilities. If the bad tail of climate damages is sufficiently fat, and if the coefficient of relative risk aversion is greater than one, the catastrophe-reducing insurance aspect of mitigation investments could in theory have a strong influence on raising the social cost of carbon. In this paper I exposit the influence of fat tails on climate change economics in a simple stark formulation focused on the social cost of carbon. I then attempt to place the basic underlying issues within a balanced perspective.
    Date: 2014
  15. By: Diez, Federico J. (Federal Reserve Bank of Boston); Gopinath, Gita (Harvard University)
    Abstract: We study the competitiveness of U.S. manufacturing. For the period 1999–2012 we find little support for a significant offshoring reversal. We show that the share of domestic demand that is met by imports and the terms of trade show no signs of reversal, even in sectors dominated by imports from China. We do, however, find some evidence consistent with the U.S. shale-gas energy revolution raising the competiveness of U.S. energy-intensive sectors.
    Keywords: competitiveness; U.S. manufacturing; reshoring; onshoring
    JEL: F41 L60
    Date: 2014–06–01
  16. By: David C Broadstock (TIERS, Southwestern University of Finance and Economics, China and Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey, UK.); Alan Collins (Portsmouth Business School, University of Portsmouth, Portsmouth, UK and Department of Economics and Economic History, Rhodes University, Grahamstown, Eastern Province, South Africa.); Lester C Hunt (Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.); Konstantinos Vergos (Department of Economics, University of Alberta, Edmonton, Canada.)
    Abstract: This study explores patterns in the voluntary disclosure of greenhouse gas (GHG) emissions and empirical relationships between GHG emissions and an extensive range of business performance measures for UK FTSE-350 listed firms over the first decade of such reporting and highlighting the level of consistency among these measures. Despite the popular and policy generated environmental imperatives over this period, an extensive pattern of non-reporting of such emissions is apparent by year and sector. Accordingly, a two-stage (Heckman type) selection model is used to analyse the emissions-performance nexus conditional upon the firm choosing to report, using bootstrap inference to further ensure robustness of the results. The results demonstrate firstly that emissions reporting are not directly influenced by the social/governance disclosure attitudes of a firm, thus suggesting that firms disassociate environmental responsibility from social responsibility. Additionally it is demonstrated that for those firms that do report, there is a clear non-linear relationship, initially increasing with firm performance and then elasticities.
    Keywords: voluntary disclosure, carbon emissions, business performance, environmental reporting.
    Date: 2014–10
  17. By: Claire Brunel (Department of Economics, Georgetown University)
    Abstract: Between 1995 and 2008, the European Union and the United States raised environmental standards and concurrently experienced important reductions in emissions from manufacturing despite a rise in output. Levinson (2009) finds that the offshoring of polluting industries to countries with lower environmental standards played only small role in the cleanup of US manufacturing, which was largely due to improvements in production technique. But there is no evidence of whether US patterns hold in other developed economies. I provide the first analysis of the pollution intensity of EU production and imports to examine which forces drove the EU cleanup. I find that concerns about the effect of pollution offshoring were unfounded in the European Union, not because the effect was small like in the United States, but because the patterns of specialization of EU production and imports were actually exactly opposite to what pollution offshoring would predict. Starting in the early 2000s, EU manufacturing increasingly produced more pollution-intensive goods while imports became progressively less pollution- intensive, especially from low-income countries. The "brown" specialization of EU production is difficult to explain, but about a quarter can be matched by increased demand for EU exports of polluting goods. However, similar to the US cleanup, changes in production and imports were overwhelmed by improvements in production technique, which were the main drivers of the cleanup of manufacturing.
    Keywords: Trade and environment, Environmental account and accounting, Technological innovation, Input output table
    JEL: D57 F18 Q55 Q56
    Date: 2014–01–01
  18. By: Christopher F Baum (Boston College; DIW Berlin); Paola Zerilli (Department of Economics and Related Studies, University of York)
    Abstract: We evaluate alternative models of the volatility of commodity futures prices based on high-frequency intraday data from the crude oil futures markets for the October 2001-December 2012 period. These models are implemented with a simple GMM estimator that matches sample moments of the realized volatility to the corresponding population moments of the integrated volatility. Models incorporating both stochastic volatility and jumps in the returns series are compared on the basis of the overall fit of the data over the full sample period and subsamples. We also find that jumps in the returns series add to the accuracy of volatility forecasts.
    Keywords: stochastic volatility, commodity futures prices, crude oil futures
    JEL: G13 Q41
    Date: 2014–10–01
  19. By: Li, Xin (International Monetary Fund); Narajabad, Borghan N. (Board of Governors of the Federal Reserve System (U.S.)); Temzelides, Theodosios (Rice University)
    Abstract: We study a dynamic stochastic general equilibrium model in which agents are concerned about model uncertainty regarding climate change. An externality from greenhouse gas emissions damages the economy's capital stock. We assume that the mapping from climate change to damages is subject to uncertainty, and we use robust control theory techniques to study efficiency and optimal policy. We obtain a sharp analytical solution for the implied environmental externality and characterize dynamic optimal taxation. A small increase in the concern about model uncertainty can cause a significant drop in optimal fossil fuel use. The optimal tax that restores the socially optimal allocation is Pigouvian. Under more general assumptions, we develop a recursive method and solve the model computationally. We find that the introduction of uncertainty matters qualitatively and quantitatively. We study optimal output growth in the presence and in the absence of concerns about uncertainty and find that these concerns can lead to substantially different conclusions.
    Keywords: Climate change; optimal dynamic taxation; uncertainty; robust
    Date: 2014–05–29
  20. By: Simona Benedettini; Federico Pontoni
    Abstract: The increase in distributed generation and the increasingly pro-active role of mass consumers demand smart distribution networks. To this aim, regulation too must innovate, in order to promote innovative and additional infrastructural investments.his paper develops, first, a methodological framework addressing the relevant drivers for the regulation of distribution network investments. In the light of this framework, we then perform a critical overview of the British and Italian regulatory approach to distribution network investments. Finally, we discuss some policy insights for the Italian regulator.
    Keywords: electricity distribution network, investments, regulation
    JEL: L94 L98
  21. By: Kurt Kratena; Mark Sommer
    Abstract: This paper describes the introduction of biophysical constraints into a disaggregated dynamic New Keynesian (DYNK) model using the example of different resource use scenarios for Europe, derived from global UNEP scenarios. The DYNK model covers 59 industries and five income groups of households and has similar features to a DSGE model (e.g. QUEST). The model solution converges towards a long-run full employment equilibrium, but exhibits short-run institutional rigidities (imperfect credit and capital markets, wage bargaining). The DYNK model links physical energy and material flow data to production and consumption activities. Different sources of technical change are modelled at the disaggregate level: TFP, factor-bias and material efficiency in production and energy efficiency in private consumption. These components of technical change drive – together with relative prices – economic growth and resource use and therefore decoupling. A scenario of modest resource use reduction (per capita) is implemented by shifting the bias of technological change from labour/capital saving to energy/resource saving. As one example for a scenario of radical reduction of resource use per capita, the radical reduction of energy demand and GHG emissions is analysed. The results show the various interlinkages between different categories of material flows, which lead to co-benefits of policies. Further policy options are discussed (re-use and recycling of material in key industries, structural change in agriculture) and shall be analysed in a follow-up of this paper.
    Keywords: Decoupling of resource use, technological and structural change, policy simulation
    JEL: Q32 Q55 C54
    Date: 2014–09
  22. By: Friedrich Kunz; Karsten Neuhoff; Juan Rosellón
    Abstract: A shift from zonal pricing to smaller zones and nodal pricing improves efficiency and security of system operation. Resulting price changes do however also shift profits and surplus between and across generation and load. As individual actorscan lose, they might oppose any reform. We explore how free allocation of financial transmission rights to generation and load can be used to mitigate the distributional impact. In a three node network we explore the fundamental effects with regard to reference node/hub for FTRs, the share of FTRs to be allocated for free and the metric to determine the proportion of rights allocated to different generation and load. We test the results in a more realistic setting based on hourly modelling of the German power system at nodal representation.
    Keywords: Electricity market, financial transmission right, congestion management, market design, Germany
    JEL: L52 L94 Q40
    Date: 2014
  23. By: Frédéric Branger (AgroParisTech ENGREF et CIRED); Philippe Quirion (CNRS et CIRED)
    Abstract: We develop a stochastic model to rank different policies (tax, fixed cap and relative cap) according to their expected total social costs. Three types of uncertainties are taken into account: uncertainty about abatement costs, business-as-usual (BAU) emissions and future economic output (the two latter being correlated). Two parameters: the ratio of slopes of marginal benefits and marginal costs, and the above-mentioned correlation, are crucial to determine which instrument is preferred. When marginal benefits are relatively flatter than marginal costs, prices are preferred over fixed caps (Weitzman’s result). When the former correlation is higher than a parameter-dependent threshold, relative caps are preferred to fixed caps. An intermediate condition is found to compare the tax instrument and the relative cap. The model is then empirically tested for seven different regions (China, the United States, Europe, India, Russia, Brazil and Japan). We find that tax is preferred to caps (absolute or relative) in all cases, and that relative caps are preferred to fixed caps in the US and emerging countries (except Brazil where it is ambiguous), whereas fixed cap are preferred to relative cap in Europe and Japan.
    Keywords: Instrument, Price, Quantity, Intensity Target, Regulation, post-Kyoto, Uncertainty, Climate Policy
    JEL: Q58
    Date: 2014–09
  24. By: Camila Casas
    Abstract: In this paper, I estimate the demand for housing in Bogotá, modeling electricity consumption explicitly to take into account the crossed subsidies included in Colombian utility rates. I use household level data on housing prices, observable dwelling attributes, and demographic variables to recover the willingness to pay for housing characteristics following the three-step estimation procedure suggested by Bajari and Kahn (2005). First, I regress the price of housing against different observable dwelling characteristics to recover the implicit price of each feature. Next, I infer household-specific preference parameters from the utility maximizing first-order conditions, where a household’s utility depends on these observable characteristics. Finally, I analyze the relationship between demographic variables and the taste parameters estimated in the previous step. In order to study the impact of subsidies on households’ housing decisions, I focus on the impact of changes in the price of electricity on the choice of dwelling size. I find that subsidized households choose bigger dwellings than they would in the absence of subsidies, while those who are taxed choose smaller ones. Classification JEL: H2, H4, I3, R21.
    Date: 2014–10
  25. By: Karl Aiginger
    Abstract: Europe 2020 tried to overcome the failures of the Lisbon Strategy. Goals set by the European commission were allowed to be adapted to take account of the starting position and the preferences of member countries ("national ownership"), the monitoring process was improved and the coordination between different policy strands institutionalized (in the European Semester), and “flagship initiatives” were aimed at initiating processes to support the strategy goals. Nevertheless halfway to the year 2020 the most important goals - the employment ratio, the reduction of poverty and research expenditure - seem to be out of reach. For the education goals the quantitative targets could be reached, but quality goals should also be monitored. The sustainability goals maybe attained because of the crisis driven stagnation in economic activity, but were set without ambition and they do not lead to a fair European contribution to limiting global warming to two degrees as envisaged in the "Energy Roadmap 2050". Neither can it be said that Europe sufficiently inverts becoming the world leader in clean technology or energy efficiency. We analyze the reasons for this underperformance and we address what urgent changes could help Europe come closer to achieving its targets by 2020. Finally we consider how economic policy should be shaped by a longer run vision of Europe’s position in the globalized world of 2050 as put forward in the WWWforEurope project by a team of 34 European research groups and funded by the European Commission.
    Keywords: Economic Policy, Beyond GDP, Europe 2020 Strategy
    JEL: E02 E61 H12 I13 O44 O52
    Date: 2014–10
  26. By: Egil Matsen; Gisle J. Natvik; Ragnar Torvik
    Abstract: We aim to explain petro populism - the excessive use of oil revenues to buy political support. To reap the full gains of natural resource income politicians need to remain in office over time. Hence, even a rent-seeking incumbent who prioritizes his own welfare above that of citizens, will want to provide voters with goods and services if it promotes his probability of remaining in office. While this incentive benefits citizens under the rule of rent-seekers, it also has the adverse effect of motivating benevolent policymakers to short-term overprovision of goods and services. In equilibrium politicians of all types indulge in excessive resource extraction, while voters reward policies they realize cannot be sustained over time.
    Keywords: resource curse, political economy
    JEL: D72 O13 Q33
    Date: 2014
  27. By: Marc Daube (University of St Andrews); David Ulph (University of St Andrews)
    Abstract: Free-riding is often associated with self-interested behaviour. However if there is a global mixed pollutant, free-riding will arise if individuals calculate that their emissions are negligible relative to the total, so total emissions and hence any damage that they and others suffer will be unaffected by whatever consumption choice they make. In this context consumer behaviour and the optimal environmental tax are independent of the degree of altruism. For behaviour to change, individuals need to make their decisions in a different way. We propose a new theory of moral behaviour whereby individuals recognise that they will be worse off by not acting in their own self-interest, and balance this cost off against the hypothetical moral value of adopting a Kantian form of behaviour, that is by calculating the consequences of their action by asking what would happen if everyone else acted in the same way as they did. We show that: (a) if individuals behave this way, then altruism matters and the greater the degree of altruism the more individuals cut back their consumption of a ’dirty’ good; (b) nevertheless the optimal environmental tax is exactly the same as that emerging from classical analysis where individuals act in self-interested fashion.
    Keywords: Altruism; Climate Change; Environmental Economics; Environmental Tax; Externalities; Moral Behaviour; Pro-Social Behaviour; Public Goods
    JEL: Q5 Q58 D11
    Date: 2014–02–03
  28. By: Minh Ha-Duong (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - AgroParisTech); Dominique Finon (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - AgroParisTech)
    Date: 2013–10
  29. By: Hilde C. Bjørnland; Leif Anders Thorsrud
    Abstract: Traditional studies of the Dutch disease do not account for productivity spillovers between the booming resource sector and other domestic sectors. We put forward a simple theory model that allows for such spillovers. We then identify and quantify these spillovers using a Bayesian Dynamic Factor Model (BDFM). The model allows for resource movements and spending effects through a large panel of variables at the sectoral level, while also identifying disturbances to the commodity price, global demand and non-resource activity. Using Australia and Norway as representative cases studies, we find that a booming resource sector has substantial productivity spillovers on non-resource sectors, effects that have not been captured in previous analysis. That withstanding, there is also evidence of two-speed economies, with non-traded industries growing at a faster pace than traded. Furthermore, com- modity prices also stimulate the economy, but primarily if an increase is caused by higher global demand. Commodity price growth unrelated to global activity is less favourable, and for Australia, there is evidence of a Dutch disease effect with crowding out of the tradable sectors. As such, our results show the importance of distinguishing between windfall gains due to volume and price changes when analysing the Dutch disease hypothesis.
    Keywords: Resource boom, commodity prices, Dutch disease, learning by doing, two-speed economy, Bayesian Dynamic Factor Model (BDFM)
    JEL: C32 E32 F41 Q33
    Date: 2014–09
  30. By: Georg Licht; Bettina Peters; Christian Köhler; Franz Schwiebacher
    Abstract: European countries are currently faced with a variety of challenges, ranging from the new global distribution of economic activity, the diffusion of new, radical technologies to the aging of its population, youth unemployment and the aftermath of the economic and financial crisis. These challenges put the traditional growth model and the policies to foster it under strong pressure. This report summarizes the contributions of the wwwforEurope projects on the definition resp. redefinition of industrial, regional and innovation policy to characterise and stimulate the economies along a new growth path. It is argued that a new growth path needs a new vision on what Europe understands as competitiveness. The report highlights the history and the way forward of European industrial policy. As regional and innovation policy are fully intertwined with industrial policy for a new growth path, it sheds light on these domains as well. For example, the report investigates the role of clusters for the new growth path and the contribution of green innovation, especially in the energy sector, to employment creation. Finally, the report takes a look at the role of SMEs and universities, new players in the new growth model which are normally not included in discussions of competitiveness.
    Keywords: Environmental innovation, Social Innovation, Socio-Econological Transition, Europe
    JEL: O33 J23 L80 C21 C23
    Date: 2014–09
  31. By: Richard Chisik (Department of Economics, Ryerson University, Toronto, Canada); Bill Battaile (The World Bank); Harun Onder (The World Bank)
    Abstract: This paper shows how Dutch disease effects may arise solely from a shift in demand following a natural resource discovery. The natural resource wealth increases the demand for non-tradable luxury services due to non-homothetic preferences. Labor that could be used to develop other non-resource tradable sectors is pulled into these service sectors. As a result, manufactures and other tradable goods are more likely to be imported, and learning and productivity improvements accrue to the foreign exporters. However, once the natural resources diminish, there is less income to purchase the services and non-resource tradable goods. Thus, the temporary gain in purchasing power translates into long-term stagnation. As opposed to conventional models where income distribution has no effect on economic outcomes, an unequal distribution of the rents from resource wealth further intensifies the Dutch disease dynamics within this framework.\
    Date: 2014–07
  32. By: Minh Ha-Duong (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - AgroParisTech); Dominique Finon (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - AgroParisTech)
    Date: 2014–07
  33. By: Marina Fischer-Kowalski; Dominik Wiedenhofer
    Date: 2014–09
  34. By: Richard Chisik (Department of Economics, Ryerson University, Toronto, Canada); Bill Battaile (The World Bank); Harun Onder (The World Bank)
    Abstract: We show that the Dutch disease can arise solely because of the distribution of the natural resource rents. In particular, a less equal distribution of the natural resource rents can generate manufacturing sector stagnation and lower long-run growth even for a country with a smaller resource base and (initially) higher manufacturing productivity. In our framework the Dutch disease arises through a shift in demand. The new found wealth from the resource find increases demand for non-tradable luxury consumption services. Labor that could be used to develop the manufacturing sector is pulled into the service sector. Manufactured goods are more likely to be imported and the learning and production process improvements accrue to the foreign exporters. As opposed to conventional models where income distribution has no effect on economic outcomes, an unequal distribution of the resource wealth can generate or further intensify the Dutch disease dynamics within this framework.
    Date: 2014–10
  35. By: Partha Dasgupta (University of Cambridge and University of Manchester); Dale Southerton (University of Manchester); Alistair Ulph (University of Manchester); David Ulph (University of St Andrews)
    Abstract: In this paper we summarise some of our recent work on consumer behaviour, drawing on recent developments in behavioural economics, in which consumers are embedded in a social context, so their behaviour is shaped by their interactions with other consumers. For the purpose of this paper we also allow consumption to cause environmental damage. Analysing the social context of consumption naturally lends itself to the use of game theoretic tools, and indicates that we seek to develop links between economics and sociology rather than economics and psychology, which has been the more predominant field for work in behavioural economics. We shall be concerned with three sets of issues: conspicuous consumption, consumption norms and altruistic behaviour. Our aim is to show that building links between sociological and economic approaches to the study of consumer behaviour can lead to significant and surprising implications for conventional economic policy prescriptions, especially with respect to environmental policy.
    Keywords: consumer behaviour, social context, environmental policy, game theory, competitive consumption, consumption norms, altruism, moral behaviour, Kantian calculus
    JEL: D1 D6 H2 Q5 Z1
    Date: 2014–01–01
  36. By: Andrea Cori (Department of Economics, University of Roma 3, Italy.); Salvatore Monni (Department of Economics, University of Roma 3, Italy.)
    Abstract: The aim of this work is to evaluate the economic stability of the choices made by the Government of Ecuador regarding the management of natural resources in the context of the Revolucion Ciudadana designed to create a society based on Buen Vivir. The choice of an intensification of the mining sector not only shows a change in the government’s perspective (from Sumak Kawsayto sustainable development), but also requires an analysis that highlights the possible risks outlined in the recent theory defined as the Resource Curse Hypothesis. Indeed, in this work, the structural conditions, which the reference theoretical framework suggests are essential to avoiding the Resource Curse Hypothesis, will be analysed in order to assess the economic effectiveness of the change of perspective implemented in the Revolucion Ciudadana.
    Keywords: Buen Vivir, Ecuador, Human Capital, Natural resources, Sustainability, Resource Curse Hypothesis, Sumak Kawsay
    JEL: O21 O54 P48 Q01 Q30 Q56
    Date: 2014–10

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