nep-ene New Economics Papers
on Energy Economics
Issue of 2014‒11‒28
thirty-six papers chosen by
Roger Fouquet
London School of Economics

  1. How Do Natural Gas Prices Affect Electricity Consumers and the Environment? By Linn, Joshua; Anna Muehlenbachs, Lucija; Wang, Yshuang
  2. Fossil Fuels, Alternative Energy and Economic Growth By Raul Barreto
  3. How Effective Are Energy-Efficiency Incentive Programs? Evidence from Italian Homeowners By Massimo Anna Alberini; Andrea Bigano
  4. The Market Structure of Shale Gas Drilling in the United States By Wang, Zhongmin; Xue, Qing
  5. Electricity Market Price Volatility: The Importance of Ramping Costs By Werner, Dan
  6. Price Volatility Transmission: Linking the U.S. Crude Oil, Corn and Plastics Markets By Jiang, Jingze; Marsh, Thomas L.; Tozer, Peter R.
  7. Causal linkages between electricity consumption and GDP in Thailand: evidence from the bounds test By Jiranyakul, Komain
  8. Conversion of Shipping Fleets from Diesel to Compressed Natural Gas: A Real Options Analysis By Xian, Hui; Colson, Gregory J.; Karali, Berna; Wetzstein, Michael
  9. The Relationship of U.S. Agricultural Commodities with Oil and Ethanol Prices By Lymperis, Georgios
  10. There will be blood: Crime rates in shale-rich U.S. counties By Alexander James; Brock Smith
  11. Leverage effect in energy futures By Kristoufek, Ladislav
  12. Climate cooperation with technology investments and border carbon adjustment By Carsten Helm; C. Schmidt
  13. Forecasting the Brent oil price: addressing time-variation in forecast performance By Manescu, Cristiana; Van Robays, Ine
  14. On the Dynamics of Price Discovery: Energy and Agricultural Markets with and without the Renewable Fuels Mandate By Shiva, Layla; Bessler, David A.; McCarl, Bruce A.
  15. The optimal short-term management of flexible nuclear plants in a competitive electricity system as a case of competition with reservoir By Pascal Gourdel; Maria Lykidi
  16. The Impact of Intermittent Renewable Production and Market Coupling on the Convergence of French and German Electricity Prices By Boureau, Charlotte; Le Pen, Yannick; PHAN, Sébastien; Keppler, Jan Horst
  17. The Impact of Oil Price Shocks on the Stock Market Return and Volatility Relationship By Wensheng Kang; Ronald A. Ratti; Kyung Hwan Yoon
  18. Farmers' willingness to grow oilseeds as biofuel feedstocks for jet fuel production: A latent class approach By Andrango, Graciela; Bergtold, Jason; Shanoyan, Aleksan; Archer, David; Flora, Cornelia
  19. Consumer Perceptions of Climate Changes and WTP for Mandatory Implementation of Low Carbon Labels: The Case of South Korea By Kim, Hyeyoung; House, Lisa; Kim, Tae-Kyun
  20. Effectiveness of the Easing of Monetary Policy in the Japanese Economy, Incorporating Energy Prices By Naoyuki Yoshino; Farhad Taghizadeh-Hesary
  21. Mandates and the Incentives for Innovation By Clancy, Matthew; Moschini, GianCarlo
  22. On the Interplay between Resource Extraction and Polluting Emissions in Oligopoly By L. Lambertini
  23. Climate Policy and Border Measures: The Case of the US Aluminum Industry By Sheldon, Ian; McCorriston, Steve
  24. The role of short-termism and uncertainty in organizational inaction on climate change: multilevel framework By Natalie Slawinski; Jonatan Pinkse; Timo Busch; Subhabrata Bobby Banerjeed
  25. The Economics of Attribute-Based Regulation: Theory and Evidence from Fuel-Economy Standards By Koichiro Ito; James M. Sallee
  26. Food for the Stomach or Fuel for the Tank: What do Prices Tell Us? By Kafle, Kashi R.; Pullabhotla, Hemant K
  27. Point-Nonpoint Heresy?! An Endogenous Risk Explanation for Point-Nonpoint Trading Ratios Less than One By Horan, Richard; Shortle, James
  28. Consumer Preferences for Second-Generation Bioethanol By Li, Tongzhe; McCluskey, Jill J.
  30. Substitution Elasticities between GHG Polluting and Non-polluting Inputs in Agricultural Production: A Meta-Regression By Liu, Boying; Shumway, C. Richard
  31. Have Mining Royalties Been Beneficial to Australia? By Jonathan Pincus
  32. The Crucial Role of Policy Surveillance in International Climate Policy By Aldy, Joseph E.
  33. The Natural Resource Curse and Institutions in Post-Soviet Countries By Roman Horváth; Ayaz Zeynalov
  34. Loaded DICE: Refining the Meta-analysis Approach to Calibrating Climate Damage Functions By Howard, Peter; Sterner, Thomas
  35. Greener Skills and Jobs for a Low-Carbon Future By OECD
  36. Infrastructutre Investments for Power Trade and Transmission in ASEAN+2: Costs, Benefits, Long-Term Contracts, and Prioritised Development By Yanfei LI; Youngho CHANG

  1. By: Linn, Joshua (Resources for the Future); Anna Muehlenbachs, Lucija (Resources for the Future); Wang, Yshuang
    Abstract: Between 2008 and 2012, the delivered price of natural gas to the U.S. power sector fell 60 percent. This paper addresses, in theory and in practice, the effects of this negative price shock on electricity consumers and the environment. We demonstrate with a simple model that the larger the effects of gas prices on consumer welfare, the smaller the effects on pollution emissions and the smaller the increase in profits of existing natural gas–fired generators. Using detailed data on electricity prices, fuel consumption, and fuel prices from 2001 to 2012, we confirm this hypothesis. Regions that experience greater reductions in pollution emissions experience smaller reductions in electricity prices and consumer welfare.
    Keywords: Electricity Demand, Natural Gas, Coal, Shale Gas, Pollution
    JEL: Q41 Q53
    Date: 2014–07–18
  2. By: Raul Barreto (School of Economics, University of Adelaide)
    Abstract: We present a theoretical framework that incorporates energy within an endogenous growth model. The model explicitly allows for the interaction and substitution between fossil fuels, defined as a non-renewable resource derived from some fixed initial stock, and alternative energy, defined as renewable resource whose production requires capital input. The dynamics of the model depict a unique balance growth to a saddle point. The consumption path temporarily peaks, when fossil fuels are plentiful and cheap, followed by a fall, as fossil fuel become more scarce and alternative energy production has yet to take over, until finally the steady state is reached where alternative energy production fuels the entire economy. The model depicts a sort of energy heyday when fossil fuels are still plentiful and cheap. As oil stocks fall, alternative energy sources become ever more viable until the day in the future when alternative energy has almost completed replaced oil. Whether or not the peak oil type picture of consumption the model depicts actually represents a sort of energy rich heyday depends analytically on the productivity differential between alternative energy and fossil fuels now and in the future.
    Keywords: Endogenous growth, non-renewable resources, renewable resources, energy, oil, fossil fuels, alternative energy, peak oil
    JEL: O41 Q21 Q31
    Date: 2013–04
  3. By: Massimo Anna Alberini (University of Maryland,USA); Andrea Bigano (CIP - Climate Impacts and Policy Division)
    Abstract: We evaluate incentives for residential energy upgrades in Italy using data from an original survey of Italian homeowners. In this paper, attention is restricted to heating system replacements, and to the effect of monetary and non-monetary incentives on the propensity to replace the heating equipment with a more efficient one. To get around adverse selection and free riding issues, we ask stated preference questions to those who weren’t planning energy efficiency upgrades any time soon. We argue that these persons are not affected by these behaviors. We use their responses to fit an energy-efficiency renovations curve that predicts the share of the population that will undertake these improvements for any given incentive level. This curve is used to estimate the CO2 emissions saved and their cost-effectiveness. Respondents are more likely to agree to a replacement when the savings on the energy bills are larger and experienced over a longer horizon, and when rebates are offered to them. Reminding about CO2 (our non-monetary incentive) had little effect. Even under optimistic assumptions, the cost-effectiveness of incentives of size comparable to that in the Italian tax credit program is generally not favorable.
    Keywords: Energy-efficiency incentives; Free riding; Adverse selection; Stated Preferences; CO2 emissions reductions; CO2 emissions reductions supply curves; residential energy consumption.
    JEL: Q41 Q48 Q54 Q51
    Date: 2014–11
  4. By: Wang, Zhongmin (Resources for the Future); Xue, Qing
    Abstract: This paper provides the first empirical study of the market structure of the shale gas drilling industry in the United States. Modern shale gas drilling, which is a major revolution in the energy industry, was highly concentrated during its experimental stage, roughly from the early 1980s to the early 2000s, and has since become less concentrated, exhibiting a long tail of infrequent drillers. Nevertheless, even during the latter stage, the vast majority of shale gas wells have been drilled by a limited number of large independent oil and gas producers.
    Keywords: shale gas, market structure, concentration, entry
    JEL: L11 L71 Q4
    Date: 2014–09–12
  5. By: Werner, Dan
    Abstract: Although electricity market price behavior generally has been well studied in the last decade, the literature is sparse when discussing the importance of generator ramping costs to price volatility. This paper contributes to the literature by first formalizing the intuitive link between ramping costs and price volatility in a multi-period competitive equilibrium. The fundamental result of the model shows how price volatility rises with ramping costs. This notion is tested empirically using a pooled event study regression, a two-stage least squares (2SLS) specification, and a generalized autoregressive conditional heteroskedasticity (GARCH) model. The econometric results all confirm that price volatility is significantly decreased by additional natural gas capacity, which has comparatively low ramping costs. This marks the first rigorous study to quantify the pecuniary externalities within the New England market's generating profile, showing over a million dollars worth of price stability provided per year by each new natural gas generator. A simulation also explores how this value changes over time, noting that value of price stability from natural gas generators will increase with the proportion of non-dispatchable renewable generators.
    Keywords: price volatility, electricity market, ramping cost, natural gas, forward premium, resource planning, Demand and Price Analysis, Financial Economics, Resource /Energy Economics and Policy, Risk and Uncertainty, Q47, Q42, G13, G14, L94,
    Date: 2014
  6. By: Jiang, Jingze; Marsh, Thomas L.; Tozer, Peter R.
    Abstract: Policy changes and the evolution of green technology have induced new links among markets. In this research, we study a representative market system, the U.S. crude oil, corn and plastics markets affected by policies promoting corn-based energy and corn-based bioplastics production. The vector error correction model (VECM) proxies the mean equation for the ARCH process is established to study price transmission among markets in United States, especially price volatility spillover effects. We find that plastics prices and corn futures prices are moving together in the long run, but that the crude oil futures prices is weakly exogenous to this system. We also show the existence of volatility spillover from crude oil futures price to corn futures price, but not from crude oil futures price to plastics price. Moreover, after EISA 2007 taken effect, the risk spillover effects from crude oil market to corn market is greater, and the significant bidirectional volatility transmission between corn future and plastics market is established as well, which brings new challenges to stake holders on both markets and requires them to re-evaluate the risk management strategy.
    Keywords: corn future, crude oil future, plastics price, volatility spillover, long-run comovement, Resource /Energy Economics and Policy, Risk and Uncertainty, Q480, Q420,
    Date: 2014–07
  7. By: Jiranyakul, Komain
    Abstract: This paper investigates the causal relationship between electricity consumption and real GDP by applying the bounds testing for cointegration in a multivariate framework. The error correction mechanism is employed to detect causal relationship in the presence of cointegration among three variables. Empirical results for Thailand during 2001Q1 and 2014Q2 suggest that there is long-run bidirectional causality between electricity consumption and real GDP. The source of causation in the long run is found by the significance of the error correction terms in both directions. In the short-run dynamics analysis, the positive relationship between electricity consumption and economic growth is not observed. The findings give implications for electricity efficiency and alternative energy sources in the long run.
    Keywords: Causality, electricity consumption, economic growth
    JEL: C32 Q43
    Date: 2014–11
  8. By: Xian, Hui; Colson, Gregory J.; Karali, Berna; Wetzstein, Michael
    Abstract: This study incorporates Real Options to determine the conditions under which it would be profitable for a regional shipping company to consider CNG (Compressed Natural Gas) as opposed to conventional diesel for the heavy-duty truck fleets. Such analysis can avoid the shipping industry adopting alternative energies, which are feasible under net present value (NPV) but infeasible in terms of market conditions. Ultimately, given fuel price patterns, our model could indicate an optimal selection of fuels, which provides some guidelines for a regional heavy-duty truck fleet company to make fuel selections and policy implications for government incentives about alternative fuels.
    Keywords: Compressed Natural Gas (CNG), Diesel, Energy Switch, Real Options, Demand and Price Analysis, Resource /Energy Economics and Policy, Risk and Uncertainty, Q40, Q42,
    Date: 2014
  9. By: Lymperis, Georgios
    Abstract: MSc Banking and Finance, Queen Mary University of London, School of Economics and Finance. Supervisor: Dario Maimone Ansaldo Patti
    Keywords: ethanol, crude oil, wheat, corn, soybean, time-series analysis, causality, impulse response., Agricultural and Food Policy, Resource /Energy Economics and Policy,
    Date: 2014–08–22
  10. By: Alexander James (Department of Economics and Public Policy, University of Alaska Anchorage); Brock Smith (Center for the Analysis of Resource Rich Economies, Department of Economics, University of Oxford)
    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, robbery, burglary, larceny and grand-theft auto. These results are particularly robust for rates of assault, and less so for other types of crimes. Examining the migratory behavior of convicted sex offenders indicates that boomtowns disproportionately attract convicted felons. Policy makers should anticipate these effects and invest in public infrastructure accordingly.
    Keywords: Natural Resources, Hydraulic Fracturing, Crime, Resource Curse
    JEL: Q3 R11 K42
    Date: 2014–09
  11. By: Kristoufek, Ladislav
    Abstract: We propose a comprehensive treatment of the leverage effect, i.e. the relationship between returns and volatility of a specific asset, focusing on energy commodities futures, namely Brent and WTI crude oils, natural gas and heating oil. After estimating the volatility process without assuming any specific form of its behavior, we find the volatility to be long-term dependent with the Hurst exponent on a verge of stationarity and non-stationarity. To overcome such complication, we utilize the detrended cross-correlation and the detrending moving-average cross-correlation coefficients and we find the standard leverage effect for both crude oils and heating oil. For natural gas, we find the inverse leverage effect. Additionally, we report that the strength of the leverage effects is scale-dependent. Finally, we also show that none of the effects between returns and volatility is detected as the long-term cross-correlated one. These findings can be further utilized to enhance forecasting models and mainly in the risk management and portfolio diversification.
    Keywords: quadratic variation,realized variance,jumps,market microstructure noise,wavelets
    JEL: C10 G10 Q40
    Date: 2014
  12. By: Carsten Helm; C. Schmidt (Humboldt University, Berlin)
    Abstract: A central question in climate policy is whether early investments in low-carbon technologies are a useful first step towards a more effective climate agreement in the future. We introduce a climate cooperation model with endogenous R&D investments where countries protect their international competitiveness via border<br>carbon adjustments (BCA). BCA raises the scope for cooperation and leads to a non-trivial relation between countries' prior R&D investments and participation in the coalition. We find that early investments in R&D render free-riding more attractive. Therefore, with delayed cooperation on emission abatement and ex-ante<br>R&D investments, the outcome is often characterized by high participation but inefficiently low technology investments and abatement.
    Keywords: climate treaty, border carbon adjustment, border tax adjustment, coalitions, R&D
    JEL: D62 F53 H23 Q55
    Date: 2014–11
  13. By: Manescu, Cristiana; Van Robays, Ine
    Abstract: This paper demonstrates how the real-time forecasting accuracy of different Brent oil price forecast models changes over time. We find considerable instability in the performance of all models evaluated and argue that relying on average forecasting statistics might hide important information on a model`s forecasting properties. To address this instability, we propose a forecast combination approach to predict quarterly real Brent oil prices. A four-model combination (consisting of futures, risk-adjusted futures, a Bayesian VAR and a DGSE model of the oil market) predicts Brent oil prices more accurately than the futures and the random walk up to 11 quarters ahead, on average, and generates a forecast whose performance is remarkably robust over time. In addition, the model combination reduces the forecast bias and predicts the direction of the oil price changes more accurately than both benchmarks. JEL Classification: Q43, C43, E32
    Keywords: Brent oil prices, central banks, forecast combination, real-time, time-variation
    Date: 2014–09
  14. By: Shiva, Layla; Bessler, David A.; McCarl, Bruce A.
    Abstract: We model the energy–agriculture linkage through structural vector autoregression (VAR) model. This model quantifies the relative importance of various contributing factors in driving prices in both markets. The LiNGAM algorithm from the machine learning literature is used to help identify structural parameters in contemporaneous time. We perform conditional forecasting, taking into account the renewable fuel standards policies, and compare the forecasted path of prices with and without the renewable fuels mandates.
    Keywords: ethanol, vector autoregression, renewable fuel standard, graph theory, Agricultural and Food Policy, Environmental Economics and Policy, Resource /Energy Economics and Policy,
    Date: 2014
  15. By: Pascal Gourdel (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Maria Lykidi (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: In many countries, the electricity systems are quitting the vertically integrated monopoly organization for an operation framed by competitive markets. It therefore questions how flexible nuclear plants capable of load-following should be operated in an open market framework. A number of technico-economical features of the operation of flexible nuclear plants drive our modelling complex which makes difficult to determine the optimal management of the nuclear production within our model. In order to examine the existence of an equilibrium and calculate it, we focus on a short-term (monthly) management horizon of the fuel of nuclear reactors. The marginal cost of nuclear production being (significantly) lower than that of thermal production induces a discontinuity of producer's short-term profit. The problem of discontinuity makes the resolution of the optimal short-term production problem extremely complicated and even leads to a lack of solutions. That is why it is necessary to study an approximate problem (continuous problem) that constitutes a "regularization" of our economical problem (discontinuous problem). Its resolution provides us with an equilibrium which proves the existence of an optimal production trajectory.
    Keywords: Electricity market; nuclear generation; competition with reservoir; optimal short-term production problem; price discontinuity; quadratic programming
    Date: 2014–01
  16. By: Boureau, Charlotte; Le Pen, Yannick; PHAN, Sébastien; Keppler, Jan Horst
    Abstract: Interconnecting two adjacent areas of electricity production generates benefits in combined consumer surplus and welfare by allowing electricity to flow from the low cost area to the high cost area. It will lower prices in the high cost area, raise them in the low cost area and will thus have prices in the two areas converge. With unconstrained interconnection capacity, price convergence is, of course, complete and the two areas are merged into a single area. With constrained interconnection capacity, the challenge for transport system operators (TSOs) and market operators is using the available capacity in an optimal manner. This was the logic behind the “market coupling” mechanism installed by European power market operators in November 2009 in the Central Western Europe (CWE) electricity market, of which France and Germany constitute by far the two largest members. Market coupling aims at optimising welfare by ensuring that buyers and sellers exchange electricity at the best possible price taking into account the combined order books all power exchanges involved as well as the available transfer capacities between different bidding zones. By doing so, interconnection capacity is allocated to those who value it most.
    Keywords: Electricity market;
    JEL: L11 L94
    Date: 2014–10
  17. By: Wensheng Kang; Ronald A. Ratti; Kyung Hwan Yoon
    Abstract: This paper examines the impact of structural oil price shocks on the covariance of U.S. stock market return and stock market volatility. We construct from daily data on return and volatility the covariance of return and volatility at monthly frequency. The measures of daily volatility are realized-volatility at high frequency (normalized squared return), conditional-volatility recovered from a stochastic volatility model, and implied-volatility deduced from options prices. Positive shocks to aggregate demand and to oil-market specific demand are associated with negative effects on the covariance of return and volatility. Oil supply disruptions are associated with positive effects on the covariance of return and volatility. The spillover index between the structural oil price shocks and covariance of stock return and volatility is large and highly statistically significant.
    Keywords: Stock return and volatility, oil price shocks, stock volatility, structural VAR
    JEL: E44 G10 Q41 Q43
    Date: 2014–11
  18. By: Andrango, Graciela; Bergtold, Jason; Shanoyan, Aleksan; Archer, David; Flora, Cornelia
    Keywords: Latent class model, biofuel, oilseeds, Resource /Energy Economics and Policy,
    Date: 2014
  19. By: Kim, Hyeyoung; House, Lisa; Kim, Tae-Kyun
    Abstract: Voluntarily implemented carbon labels have shown that there is a lack of motivation by companies to develop technology to reduce carbon emissions. This study examined consumer values for mandatory carbon labels in South Korea. Considering the altruistic nature of carbon labels, we asked about individuals’ perceptions about the impact of climate change on their personal lives to measure consumer preference for carbon labels. Significant preference for mandatory carbon labels reflected Koreans’ high level of concern about climate change. As an increasing number of consumers feel the impact of climate change, the gap of WTPs between low carbon labels and carbon measured labels is sufficient. The lower value of low-carbon labels as compared to GM labels indicates that consumers’ guilt is not an appropriate strategy with carbon labels.
    Keywords: Carbon-labels, Willingness-to-pay, South Korea, Agricultural and Food Policy,
    Date: 2014
  20. By: Naoyuki Yoshino (Asian Development Bank Institute (ADBI)); Farhad Taghizadeh-Hesary
    Abstract: Japan has reached the limits of conventional macroeconomic policy. In order to overcome deflation and achieve sustainable economic growth, the Bank of Japan (BOJ) recently set an inflation target of 2% and implemented an aggressive monetary policy so this target could be achieved as soon as possible. Although prices started to rise after the BOJ implemented monetary easing, this may have been for other reasons, such as higher oil prices. Oil became expensive as a result of the depreciated Japanese yen and this was one of the main causes of the rise in inflation. This paper shows that quantitative easing may not have stimulated the Japanese economy either. Aggregate demand, which includes private investment, did not increase significantly in Japan with lower interest rates. Private investment displays this unconventional behavior because of uncertainty about the future and because Japan’s population is aging. We believe that the remedy for Japan’s economic policy is not to be found in monetary policy. The government needs to implement serious structural changes and growth strategies.
    Keywords: Easing of Monetary Policy, the Japanese economy, energy price, Bank of Japan, aging population
    JEL: E47 E52 Q41 Q43
    Date: 2014–11
  21. By: Clancy, Matthew; Moschini, GianCarlo
    Abstract: One prominent feature of the US biofuels sector is its reliance on mandates to enforce use. The performance of this policy tool has been mixed, with corn-based ethanol production successfully meeting targets but cellulosic ethanol falling well short of them. A crucial difference in this setting is that corn-based ethanol relies on a mature technology whereas the prospect of meeting cellulosic ethanol mandates was always predicated on the development of new technologies. Is it reasonable to expect that mandates would work well as an incentive for innovation? To address this question, we develop a partial equilibrium model with endogenous innovation to examine the incentives for innovation in production under a mandate and compare this policy to two benchmark situations: laissez-faire and a carbon tax. We find that a mandate creates relatively strong incentives for investment in R&D in low-quality innovations, but relatively weak incentives to invest in high-quality innovations. Moreover, mandates are likely to underperform carbon taxes in welfare terms.
    Keywords: biofuels, innovation, mandates, carbon tax, technology policy, Agricultural and Food Policy, Environmental Economics and Policy, Research and Development/Tech Change/Emerging Technologies, Resource /Energy Economics and Policy, Risk and Uncertainty,
    Date: 2014
  22. By: L. Lambertini
    Abstract: This paper offers an overview of the literature discussing oligopoly games in which polluting emissions are generated by the supply of goods requiring a natural resource as an input. An analytical summary of the main features of the interplay between pollution and resource extraction is then given using a differential game based on the Cournot oligopoly model, in which (i) the bearings on resource preservation of Pigouvian tax rate tailored on emissions are singled out and (ii) the issue of the optimal number of firms in the commons is also addressed.
    JEL: C73 H23 L13 O31 Q52
    Date: 2014–11
  23. By: Sheldon, Ian; McCorriston, Steve
    Abstract: In this paper, analysis is presented relating to the impact of border measures for climate policy on the problem of carbon leakage, and the related issue of competitiveness in the US aluminum industry, which can be characterized as oligopolistic. Specifically, it is shown that an appropriate border measure depends on the nature of competition in aluminum production, as well as the basis for assessing the trade neutrality of any border measure. If trade neutrality is defined in terms of market volume, even though carbon leakage is reduced, US aluminum producer competitiveness cannot be maintained. This compares to defining trade neutrality in terms of market share, which results in US aluminum producer competitiveness being maintained and global carbon emissions being reduced. In either case, US users of aluminum incur deadweight losses.
    Keywords: climate policy, carbon leakage, border measures, aluminum, Environmental Economics and Policy, Industrial Organization, H87, Q38,
    Date: 2014–05
  24. By: Natalie Slawinski (Memorial University of Newfoundland - Memorial University of Newfoundland); Jonatan Pinkse (MTS - Management Technologique et Strategique - Grenoble École de Management (GEM)); Timo Busch (University of Hamburg - University of Hamburg); Subhabrata Bobby Banerjeed (Cass Business School - Cass Business School)
    Abstract: Despite increasing pressure to deal with climate change, firms have been slow to respond with effective action. This paper derives a multi-level framework for a better understanding of why many firms are failing to reduce their absolute greenhouse gas emissions that contribute to climate change. To explain the phenomenon of organizational inaction on climate change, we draw on the related concepts of short-termism and uncertainty avoidance from research in psychology, sociology and organization theory. We argue that antecedents related to short-termism and uncertainty avoidance reinforce each other at three levels - individual, organizational and institutional - and result in organizational inaction on climate change. We discuss the implications of our framework for research on corporate sustainability.
    Keywords: Climate change; corporate sustainability; short-termism; uncertainty avoidance; multi-level theory.
    Date: 2014
  25. By: Koichiro Ito; James M. Sallee
    Abstract: This paper analyzes "attribute-based regulations," in which regulatory compliance depends upon some secondary attribute that is not the intended target of the regulation. For example, in many countries fuel-economy standards mandate that vehicles have a certain fuel economy, but heavier or larger vehicles are allowed to meet a lower standard. Such policies create perverse incentives to distort the attribute upon which compliance depends. We develop a theoretical framework to predict how actors will respond to attribute-based regulations and to characterize the welfare implications of these responses. To test our theoretical predictions, we exploit quasi-experimental variation in Japanese fuel economy regulations, under which fuel-economy targets are downward-sloping step functions of vehicle weight. Our bunching analysis reveals large distortions to vehicle weight induced by the policy. We then leverage panel data on vehicle redesigns to empirically investigate the welfare implications of attribute-basing, including both potential benefits and likely costs. This latter analysis concerns a "double notched" policy; vehicles are eligible for an incentive if they are above a step function in the two-dimensional fuel economy by weight space. We develop a procedure for analyzing the response to such policies that is new to the literature.
    JEL: H23 L62 Q48
    Date: 2014–09
  26. By: Kafle, Kashi R.; Pullabhotla, Hemant K
    Abstract: Food vs. Fuel, Cointegration analysis, VECM, agricultural prices, fuel prices
    Keywords: fuel, food, agricultural commodities, cointegration, VECM, Granger causality, Agricultural and Food Policy, Demand and Price Analysis, Food Security and Poverty, Resource /Energy Economics and Policy,
    Date: 2014–05–28
  27. By: Horan, Richard; Shortle, James
    Abstract: Extant point-nonpoint trading programs involve trades of relatively certain point source emissions reductions for highly uncertain estimates of nonpoint reductions. Trade ratios, or uncertainty ratios, define the rate at which these imperfect substitute commodities are traded. Economic research on optimal trade ratio design provides support for ratios greater than or less than one, depending on how nonpoint source emissions uncertainties respond to trading. While this implies optimal trade ratio magnitudes are an empirical issue, guidelines for extant programs universally call for ratios that exceed one. Such guidelines are implicitly based on a priori assumptions about risk that are akin to treating risk as a fixed, exogenous measure rather than as an endogenous one that responds to policy-induced behavioral changes. Perhaps this should not be surprising, as prior analyses do not clearly illustrate out-of-equilibrium tradeoffs involving abatement costs and environmental risks, obscuring the endogenous nature of risk. We develop a new approach that illustrates these tradeoffs explicitly. Unlike prior studies that only illustrate the unique, optimal equilibrium ratio, our approach allows us to examine economic tradeoffs and abatement outcomes associated with different trade ratios. Our results show that an optimally designed trading program reallocates abatement to nonpoint sources to reduce abatement costs or to reduce environmental risks from nonpoint sources, but not both. This outcome is in direct contrast to the stated goals of the EPA’s national trading rules. Our methodology is also useful for examining second-best program design. Here, we find theoretical support that smaller ratios may be optimal.
    Keywords: point-nonpoint trading, water quality, permit markets, emissions, uncertainty ratios, Environmental Economics and Policy, Risk and Uncertainty, Q53,
    Date: 2014
  28. By: Li, Tongzhe; McCluskey, Jill J.
    Abstract: In this study, we investigate the consumer response toward fuel from second-generation, nature-inspired lignocellulose processing systems. We conduct consumer surveys with two different information treatments. We utilize a dichotomous-choice contingent valuation methodology to estimate willingness to pay for this product and analyze factors that affect consumer choice. The results suggest that the average respondent is willing to purchase second-generation bioethanol with a 4% discount compared to conventional fuel. Some demographic variables and driving behavior are found to have significant effects on consumer willingness to pay. The effect of information regarding the second-generation, nature-inspired lignocellulose process is found to be insignificant.
    Keywords: Consumer Preferences, Second-generation Bioethanol, Contingent Valuation, Consumer/Household Economics, Demand and Price Analysis, Resource /Energy Economics and Policy, C25, C83, D12, Q16,
    Date: 2014
  29. By: McCarty, Tanner; Sesmero, Juan
    Abstract: The present study formalizes and quantifies the importance of uncertainty for investment in a corn-stover based cellulosic biofuel plant. Using a real options model we recover prices of gasoline that would trigger entry into the market and calculate the portion of that entry trigger price required to cover cost and the portion that corresponds to risk premium. We then discuss the effect of managerial flexibility on the entry risk premium and the prices of gasoline that would trigger mothballing, reactivation, and exit. Results show that the risk premium required by plants to enter the second-generation biofuel market is likely to be substantial. The analysis also reveals that a break-even approach (which ignores the portion of entry price composed of risk premium) would significantly underestimate the gasoline entry trigger price and the magnitude of that underestimation increases as both volatility and mean of gasoline prices increase. Results also uncover a great deal of hysteresis (i.e. a range of gasoline prices for which there is neither entry nor exit in the market) in entry/exit behavior by plants. Hysteresis increases as gasoline prices become more volatile. Hysteresis suggests that, at the industry level, positive (negative) demand shocks will have a significant impact on prices (production) and a limited impact on production (prices). In combination all of these results suggest that policies supporting second generation biofuels may have fallen short of their targets because of their failure to alleviate uncertainty.
    Keywords: cellulosic biofuels, real options, hysteresis, NPV, Production Economics, Resource /Energy Economics and Policy,
    Date: 2014
  30. By: Liu, Boying; Shumway, C. Richard
    Abstract: This paper reports meta-regressions of substitution elasticities between greenhouse-gas (GHG) polluting and nonpolluting inputs in agricultural production. We treat energy, fertilizer, and manure collectively as the “polluting input” and labor, land, and capital as nonpolluting inputs. We estimate meta-regressions for samples of Morishima substitution elasticities for labor, land, and capital vs. the polluting input. Much of the heterogeneity of Morishima elasticities can be explained by type of primal or dual function, functional form, type and observational level of data, input categories, the number of outputs, type of output, time period, and country categories. Each estimated long-run elasticity for the reference case, which is most relevant for assessing GHG emissions through life-cycle analysis, is greater than 1.0 and significantly different from zero. Most predicted elasticities remain significantly different from zero at the data means in the long run. These findings imply that life-cycle analysis based on fixed proportions production functions could provide grossly inaccurate measures of GHG of biofuel.
    Keywords: greenhouse gas polluting inputs, input substitution, life-cycle analysis, meta-regression, Morishima elasticity, production function., Environmental Economics and Policy, Production Economics, greenhouse gas polluting inputs, input substitution, life-cycle analysis, meta-regression, Morishima elasticity, production function.,
    Date: 2014
  31. By: Jonathan Pincus (School of Economics, University of Adelaide)
    Abstract: The 'Henry tax review', Australia's Future Tax System (2010), recommended that royalties be abolished and replaced by a resource rent tax. Regarding abolition, AFTS drew on KPMG Econtech (2010a), a report commissioned by Treasury to investigate the efficiencies of a wide range of Australian taxes, using MM900, a proprietary CGE model. That report estimated that the average excess burden (AEB) of royalties and crude oil excise was 50 per cent, and the marginal excess burden was 70. This may have led some policy advisers and commentators to conclude that royalties, considered separately from the excise, are the most inefficient of all (non-corrective) imposts. We argue that the KPMG Econtech long run comparative static framework was inappropriate for policy purposes. By ignoring that mining is largely foreign owned, the model missed a large ‘rectangle’ of gain -which we calculate using a partial equilibrium model. Also, the modellers assumed stationary minerals prices, apparently those of 2004-05: the subsequent doubling of mineral prices halves the estimate of AEB. More fundamentally, the finding that royalties harm Australia implies that a rise in the terms of trade also harms Australia. Thus, KPMG Econtech overstated the excess burden of royalties; in fact, royalties are likely to have been beneficial.
    Keywords: Excess burden; Henry tax review; mining royalties; foreign ownership; KPMG Econtech.
    JEL: H25
  32. By: Aldy, Joseph E. (Resources for the Future)
    Abstract: An extensive literature shows that information-creating mechanisms enhance the transparency of and can support participation and compliance in international agreements. This paper draws from game theory, international relations, and legal scholarship to make the case for how transparency through policy surveillance can facilitate more effective international climate change policy architecture. I draw lessons from policy surveillance in multilateral economic, environmental, and national security contexts to inform a critical evaluation of the historic practice of monitoring and reporting under the global climate regime. This assessment focuses on how surveillance produces evidence to inform policy design, enables comparisons of mitigation effort, and illustrates the adequacy of the global effort in climate agreements. I also describe how the institution of policy surveillance can facilitate a variety of climate policy architectures. This evaluation of policy surveillance suggests that transparency is necessary for global climate policy architecture.
    Keywords: policy surveillance, climate agreements, monitoring, reporting, compliance
    Date: 2014–09–05
  33. By: Roman Horváth (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic; IOS, Regensburg); Ayaz Zeynalov (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic)
    Abstract: We examine the effect of natural resource exports on economic performance during the 1996-2011 period in the 15 independent countries that formerly comprised the Soviet Union. These countries were a largely homogeneous group with respect to social and institutional context; however, these countries began to demonstrate marked differences from one another with respect to these factors during the transition, which has resulted in unique cross-section and time variation. Using several panel regression models that address the endogeneity and clustering issues, our results suggest that natural resources crowd out manufacturing sector unless the quality of domestic institutions is sufficiently high.
    Keywords: natural resource curse, institutions, manufacturing, post-Soviet countries
    JEL: O11 O13 Q30
    Date: 2014–08
  34. By: Howard, Peter; Sterner, Thomas
    Keywords: integrated assessment model, DICE, climate change, meta-analysis, climate damage function, Environmental Economics and Policy, Research Methods/ Statistical Methods, Risk and Uncertainty,
    Date: 2014–05–27
  35. By: OECD
    Abstract: Green skills, that is, skills needed in a low-carbon economy, will be required in all sectors and at all levels in the workforce as emerging economic activities create new (or renewed) occupations. Structural changes will realign sectors that are likely to decline as a result of the greening of the economy and workers will need to be retrained accordingly. The successful transition to a low-carbon economy will only be possible if workers can flexibly adapt and transfer from areas of decreasing employment to new industries. This paper suggests that the role of skills and education and training policies should be an important component of the ecological transformation process.
    Date: 2013–12–03
  36. By: Yanfei LI (Economic Research Institute for ASEAN and East Asia (ERIA)); Youngho CHANG (Division of Economics, Nanyang Technological University)
    Abstract: This study establishes a system approach in assessing the financial viability of power infrastructure investment for the Greater Mekong Subregion (GMS) and ASEAN Power Grid (APG) in the ASEAN+2 (ASEAN plus China and India) region. It aims to identify the financial and finance-related institutional barriers of implementing such regional power interconnectivity. A whole-grid/system simulation model is built to assess both their financial and commercial viability, which implies profitability for investors and bankability for financiers of new transmission projects with the optimised pattern of power trade. The study also determines the optimised planning of new transmission capacities. Results show that the existing planning of power transmission infrastructure in the region, so-called APG+, stands as a commercially and financially viable plan. However, there is room for improvement in the planning in terms of timing, routes, and capacity of the cross-border transmission lines. The study also recommends that GMS-related projects should be prioritised.
    Keywords: cross-border power trade, power infrastructure, financial viability, commercial viability
    JEL: Q40 Q41 Q48
    Date: 2014

This nep-ene issue is ©2014 by Roger Fouquet. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.