nep-ene New Economics Papers
on Energy Economics
Issue of 2016‒01‒18
23 papers chosen by
Roger Fouquet
London School of Economics

  1. The environmental Kuznets curve after 25 years By David I. Stern
  2. Cross-Country Electricity Trade, Renewable Energy and European Transmission Infrastructure Policy By Jan Abrell; Sebastian Rausch
  3. The Supply-side Effects of Energy Efficiency Labels By David Comerford; Ian Lange; Mirko Moro
  4. Rational habits in residential electricity demand By Massimo Filippini; Bettina Hirl; Giuliano Masiero
  5. Long-run evolution of the global economy - Part 2: Hindcasts of innovation and growth By Timothy J. Garrett
  6. Revisiting the emissions-energy-trade nexus: Evidence from the newly industrializing By Ahmed, Khalid; Shahbaz, Muhammad; Kyophilavong, Phouphet
  7. Do Global CO2 Emissions from Fuel Consumption Exhibit Long Memory? A Fractional Integration Analysis By José Belbute; Alberto Marvão Pereira
  8. Driving Forces of CO2 Emissions in Emerging Countries: LMDI Decomposition Analysis on China and India’s Residential Sector By Yeongjun Yeo; Dongnyok Shim; Jeong-Dong Lee; Jorn Altmann
  9. Inequalities in accessing LPG and electricity consumption in India: The role of caste, tribe, and religion By Vibhor Saxena; P.C. Bhattacharya
  10. Modelling and forecasting rig rates on the Norwegian Continental Shelf By Terje Skjerpen; Halvor Briseid Storrøsten; Knut Einar Rosendahl; Petter Osmundsen
  11. On the Comparative Advantage of U.S. Manufacturing: Evidence from the Shale Gas Revolution By Arezki, Rabah; Fetzer, Thiemo
  12. Self-enforcing environmental agreements and trade in fossil energy deposits By Thomas Eichner; Rüdiger Pethig
  13. Long-Run Energy Use and the Efficiency Paradox By Jan Abrell; Sebastian Rausch; Hagen Schwerin
  14. Dominion Virginia Power and Clean Power Plan Costs: A brief review of the Dominion Power 2015 Integrated Resource Plan compliance cost estimates By William M. Shobe
  15. On the Comparative Advantage of U.S. Manufacturing: Evidence from the Shale Gas Revolution By Rabah Arezki; Thiemo Fetzer
  16. Optimal Policies to Promote Efficient Distributed Generation of Electricity By Brown, David P.; Sappington, David E. M.
  17. Oil price volatility and stock returns in the G7 economies By Elena María Díaz; Juan Carlos Molero; Fernando Pérez de Gracia
  18. Oil price forecastability and economic uncertainty By Stelios D. Bekiros; Rangan Gupta; Alessia Paccagnini
  19. Climate Change Policy under Polar Amplification By William Brock; Anastasios Xepapadeas
  21. Buy coal for preservation and act strategically on the fuel market By Thomas Eichner; Rüdiger Pethig
  22. Do long-haul truckers undervalue future fuel savings? By Adenbaum, Jacob; Copeland, Adam; Stevens, John J.
  23. Outward Foreign Direct Investments Patterns of Italian Firms in the EU ETS By Simone Borghesi; Chiara Franco; Giovanni Marin

  1. By: David I. Stern (Crawford School of Public Policy, The Australian National University)
    Abstract: The environmental Kuznets curve (EKC) has been the dominant approach among economists to modeling aggregate pollution emissions and ambient pollution concentrations over the last quarter century. Despite this, the EKC was criticized almost from the start and decomposition approaches have been more popular in other disciplines working on global climate change. More recently, convergence approaches to modeling emissions have become popular. This paper reviews the history of the EKC and alternative approaches. Applying an approach that synthesizes the EKC and convergence approaches, I show that convergence is important for explaining both pollution emissions and concentrations. On the other hand, while economic growth has had a monotonic positive effect on carbon and sulfur emissions, the EKC holds for concentrations of particulates. Negative time effects are important for sulfur emissions. The EKC seems to be most useful for modeling the ambient concentrations of pollutants it was originally applied to.
    Keywords: air pollution; economic growth; environmental Kuznets curve; convergence; climate change
    JEL: Q53 Q56
    Date: 2015–12
  2. By: Jan Abrell (ETH Zurich, Switzerland); Sebastian Rausch (ETH Zurich, Switzerland)
    Abstract: This paper develops a multi-country multi-sector general equilibrium model, integrating high-frequency electricity dispatch and trade decisions, to study the eects of electricity transmission infrastructure (TI) expansion and re- newable energy (RE) penetration in Europe for gains from trade and carbon dioxide emissions in the power sector. TI can benet or degrade environ- mental outcomes, depending on RE penetration: it complements emissions abatement by mitigating dispatch problems associated with volatile and spa- tially dispersed RE but also promotes higher average generation from low- cost coal if RE production is too low. Against the backdrop of European decarbonization and planned TI expansion, we nd that emissions increase for current and targeted year-2020 levels of RE production and decrease for year-2030 targets. Enhanced TI yields sizeable gains from trade that de- pend positively on RE penetration, without creating large adverse impacts on regional equity.
    JEL: F18 Q28 Q43 Q48 C68
    Date: 2016–01
  3. By: David Comerford (Division of Economics, University of Stirling); Ian Lange (Division of Economics and Business, Colorado School of Mines); Mirko Moro (Division of Economics, University of Stirling)
    Abstract: We build on research documenting demand-side consequences of energy-efficiency labels for buildings by testing for a supply-side response. We exploit a natural experiment to test whether the introduction of mandatory energy labels for residential homes influenced investment in home energy efficiency. From 2008, vendors and lettors in the UK were required to publish a property's energy performance certificate (EPC). The EPC evaluates home energy efficiency overlaying a color-coded letter grade (from a green A to red G, respectively) on a pre-existent 0-100 point scale, the Standard Assessment Procedure (SAP) score. We hypothesize that the salient color letter grades will serve as targets when home owners are deciding the scale of investment to make in home energy efficiency. Consistent with this hypothesis, we find fewer homes just below, and more homes just above, the D grade threshold in the treatment years relative to the control years. This clustering is higher for homes that were traded after the EPC requirement was in effect. We conclude that there is a supply-side response to energy-efficiency labels.
    Keywords: energy efficiency, bunching, labels, thresholds
    JEL: Q48 L15 Q58 H23
    Date: 2016–01
  4. By: Massimo Filippini (ETH Zurich, Switzerland); Bettina Hirl (Institute of Economics, Università della Svizzera italiana); Giuliano Masiero (Institute of Economics, Università della Svizzera italiana)
    Abstract: Dynamic partial adjustment models of residential electricity demand account for the fact that households may not adjust electricity consumption immediately in response to changes in prices, income, and other relevant factors, because of behavioral habits or adjustment costs for the capital stock of appliances. However, forward-looking behavior is generally neglected. Expectations about future prices or consumption may have an impact on current decisions. In this paper we propose rational habit models for residential electricity demand and apply them to a panel of 48 US states between 1995 and 2011. We estimate lead consumption models using fixed effects, instrumental variables, and the GMM Blundell-Bond estimator. We find that expectations about future consumption significantly influence current consumption decisions, which suggests that households behave rationally when making electricity consumption decisions. This novel approach may improve our understanding of the dynamics of residential electricity demand and the evaluation of the effects of energy policies.
    Keywords: Residential electricity, Partial adjustment models, Dynamic panel data models, Rational habits
    JEL: D12 D84 D99 Q41 Q47 Q50
    Date: 2016–01
  5. By: Timothy J. Garrett
    Abstract: Long-range climate forecasts use integrated assessment models to link the global economy to greenhouse gas emissions. This paper evaluates an alternative economic framework outlined in part 1 of this study (Garrett, 2014) that approaches the global economy using purely physical principles rather than explicitly resolved societal dynamics. If this model is initialized with economic data from the 1950s, it yields hindcasts for how fast global economic production and energy consumption grew between 2000 and 2010 with skill scores > 90 % relative to a model of persistence in trends. The model appears to attain high skill partly because there was a strong impulse of discovery of fossil fuel energy reserves in the mid-twentieth century that helped civilization to grow rapidly as a deterministic physical response. Forecasting the coming century may prove more of a challenge because the effect of the energy impulse appears to have nearly run its course. Nonetheless, an understanding of the external forces that drive civilization may help development of constrained futures for the coupled evolution of civilization and climate during the Anthropocene.
    Date: 2016–01
  6. By: Ahmed, Khalid; Shahbaz, Muhammad; Kyophilavong, Phouphet
    Abstract: This paper applies Pedroni's panel cointegration approach to explore the causal relationship between trade openness, carbon dioxide emissions, energy consumption and economic growth for the panel of newly industrialized economies (i.e. Brazil, India, China and South Africa) over the period of 1970–2013. Our panel cointegration estimation results found majority of the variables cointegrated and confirm the long-run association among the variables. The Granger causality test indicates bi-directional causality between carbon dioxide emissions and energy consumption. A uni-directional causality is found running from trade openness to carbon dioxide emission and energy consumption, and economic growth to carbondioxide emissions. The results of causality analysis suggest that the trade liberalization in newly industrialized economies induces higher energy consumption and carbon dioxide emissions. Furthermore, the causality results are checked using an innovative accounting approach which includes forecast-error variance decomposition test and impulse response function. The long-run coefficients are estimated using fully modified ordinary least square (FMOLS) method and results conclude that the trade openness and economic growth reduce carbon dioxide emissions in the long-run. The results of FMOLS test sound the existence of environmental Kuznets curve hypothesis. It means, trade liberalization induces carbon dioxide emission with increased national output, but it offsets that impact in the long-run with reduced level of carbon dioxide emissions.
    Keywords: Newly industrialized economies; Gross domestic production (GDP); Carbon dioxide emissions; Trade liberalization; Energy consumption
    JEL: O1 O10
    Date: 2016–01–01
  7. By: José Belbute (University of Évora, Department of Economics and CEFAGE-UE, Portugal); Alberto Marvão Pereira (Department of Economics, College of William and Mary, Williamsburg)
    Abstract: In this paper we use an ARFIMA approach to measure the degree of fractional integration of aggregate world CO2 emissions and its five components – coal, oil, gas, cement, and gas flaring. We find that all variables are stationary and mean reverting, but exhibit long-term memory. With aggregate CO2 emissions as a reference, our results suggest that both coal and oil combustion emissions have the weakest degree of long-range dependence, while emissions from gas, and gas flaring have the strongest. With evidence of long memory, we conclude that transitory policy shocks are likely to have long-lasting effects. Although the effects of any active policy on CO2 emissions take longer to disappear, they preserve their temporary nature. Accordingly, permanent effects on CO2 emissions require a more permanent policy stance. In this context, if one were to rely only on testing for stationarity and non-stationarity, one would likely conclude in favor of non-stationarity, and therefore that even transitory policy shocks have permanent effects. Our fractional integration analysis highlights that this is not the case.
    Keywords: CO2 emissions, Long memory, ARFIMA model.
    JEL: C22 O13 Q41
    Date: 2015
  8. By: Yeongjun Yeo (College of Engineering, Seoul National University); Dongnyok Shim (College of Engineering, Seoul National University); Jeong-Dong Lee (College of Engineering, Seoul National University); Jorn Altmann (College of Engineering, Seoul National University)
    Abstract: The main objective of this paper is to identify and analyze the key drivers behind changes of CO2 emissions in the residential sectors of the emerging economies, China and India. This paper also aims to draw policy implications in terms of finding challenges and opportunities to reduce residential CO2 emissions in both countries. For the analysis, we investigate to what extent changes in residential emissions are due to changes in energy emissions coefficients, energy consumption structure, energy intensity, households’ income, and population size. We decompose the changes in residential CO2 emissions in China and India into these five contributing factors from 1990 to 2011 by applying the Logarithmic Mean Divisia Index (LMDI) method. According to our results, the increase in per capita income level is the biggest contributor to the increase of residential CO2 emissions, while the energy intensity effect had the largest effect on CO2 emissions reduction in the residential sectors in both countries. This implies that investments for energy savings, technological improvements, and energy efficiency policies were effective in mitigating CO2 emissions. It is also found that the change in CO2 emission coefficients for fuels, which is the ratio of CO2 emissions arising from consumption of fuels to the consumption level slowed down the increase of residential emissions. In addition, results demonstrate that changes in the population and energy consumption structure drove the increase in CO2 emissions.
    Keywords: CO2 Emissions, Emerging Economy, Residential Sector, Logarithmic Mean Divisia Index (LMDI) Method.
    JEL: C02 C15 C43 C65 O32 O33 Q01 Q48 Q55 Q56 R11 R22
    Date: 2015–12
  9. By: Vibhor Saxena (School of Economics and Finance, University of St Andrews); P.C. Bhattacharya (Heriot-Watt University)
    Abstract: Using the National Sample Survey Organisation data from the 68th round (2011–12) of 88,939 households, this paper investigates the inequalities in access to Liquid Petroleum Gas (LPG) and electricity usage by the households belonging to the three major disadvantaged groups in India, viz., the scheduled castes, the scheduled tribes, and the Muslims. The results of our analysis suggest that, after controlling for the other socio-economic factors which impinge on the households’ demand and supply characteristics, the households belonging to these disadvantaged groups do have poorer access to LPG and electricity usage as compared to the upper caste households. It is the scheduled caste and scheduled tribe households who would appear to face most discrimination in the equality spaces of the electricity usage and LPG distribution. Policy implications of the findings are considered.
    Keywords: Energy inequality; Cooking fuel; Electricity usage;
    JEL: O13 Q41 Q48
    Date: 2015–11–02
  10. By: Terje Skjerpen; Halvor Briseid Storrøsten; Knut Einar Rosendahl; Petter Osmundsen (Statistics Norway)
    Abstract: Knowledge about rig markets is crucial for understanding the global oil market. In this paper we first develop a simple bargaining model for rig markets. Then we examine empirically the most important drivers for rig rate formation of floaters operating at the Norwegian Continental Shelf in the period 1991q4 to 2013q4. We use reduced form time series models with two equations and report conditional point and bootstrapped interval forecasts for rig rates and capacity utilization. We then consider two alternative simulations to examine how the oil price and remaining petroleum reserves influence rig rate formation of floaters. In the first alternative simulation we assume a relatively high crude oil price equal to 100 USD (2010) per barrel for the entire forecast period, whereas the reference case features the actual oil price with extrapolated values for the last quarters in the forecast period. According to our results, the rig rates will be about 34 percent higher in 2016q4 with the higher oil price. In the second alternative simulation we explore the effects of opening the Barents Sea and areas around Jan Mayen for petroleum activity. This contributes to dampening the fall in the rig rates and capacity utilization over the last part of the forecast period.
    Keywords: Rig rates; Capacity utilization; Oil price; Forecasting; Bootstrapping
    JEL: C32 C51 C53 L71 Q47
    Date: 2015–12
  11. By: Arezki, Rabah (International Monetary Fund); Fetzer, Thiemo (Department of Economics, University of Warwick)
    Abstract: This paper provides the first empirical evidence of the newly found comparative advantage of the United States manufacturing sector following the so-called shale gas revolution. The revolution has led to (very) large and persistent differences in the price of natural gas between the United States and the rest of the world owing to the physics of natural gas. Results show that U.S. manufacturing exports have grown by about 6 percent on account of their energy intensity since the onset of the shale revolution. We also document that the U.S. shale revolution is operating both at the intensive and extensive margins.
    JEL: Q33 O13 N52 R11
    Date: 2016
  12. By: Thomas Eichner; Rüdiger Pethig
    Keywords: climate coalition, deposit, fuel, Nash, self-enforcing IEA
    JEL: C72 Q38 Q58
    Date: 2015
  13. By: Jan Abrell (ETH Zurich, Switzerland); Sebastian Rausch (ETH Zurich, Switzerland); Hagen Schwerin (ETH Zurich, Switzerland)
    Abstract: We develop a theory of vintage capital and energy use in businesses and households to measure the response of energy use to energy- saving technological change. Calibration of the model's balanced growth path to U.S. post-WWII data shows that energy efficiency increased on average by about three percent per year. Higher energy efficiency increased rather than reduced energy use as equipment- specific technological progress enhanced energy use by more than higher energy prices reduced it. The energy rebound in response to technological progress (higher energy prices) was 125 percent of (reduced energy use by 30 percent below) hypothetical energy savings.
    JEL: D13 E23 O30 O41 Q43
    Date: 2016–01
  14. By: William M. Shobe (University of Virginia)
    Abstract: Dominion Virginia Power's 2015 Integrated Resource Plan filed with the State Corporation Commission presents cost estimates for complying with the proposed federal regulations, known as the Clean Power Plan (CPP), that force reductions in greenhouse gas emissions from existing power plants. The IRP incorrectly attributes to the CPP costs that would occur with or without the CPP. This and other modeling choices result in substantially overstated estimates of compliance costs.
    Keywords: Dominion Power; energy; clean power plan; Virginia; climate change
    JEL: Q4 Q5
    Date: 2015–01–08
  15. By: Rabah Arezki; Thiemo Fetzer
    Abstract: This paper provides the first empirical evidence of the newly found comparative advantage of the United States manufacturing sector following the so-called shale gas revolution. The revolution has led to (very) large and persistent differences in the price of natural gas between the United States and the rest of the world owing to the physics of natural gas. Results show that U.S. manufacturing exports have grown by about 6 percent on account of their energy intensity since the onset of the shale revolution. We also document that the U.S. shale revolution is operating both at the intensive and extensive margins.
    Keywords: manufacturing, exports, energy prices, shale gas
    JEL: Q33 O13 N52 R11 L71
    Date: 2016–01
  16. By: Brown, David P. (University of Alberta, Department of Economics); Sappington, David E. M. (University of Florida)
    Abstract: We analyze the design of policies to promote efficient distributed generation (DG) of electricity. The optimal policy varies with the set of instruments available to the regulator and with the prevailing DG production technology. DG capacity charges often play a valuable role in inducing optimal investment in DG capacity, allowing payments for DG production to induce the optimal production of electricity using non-intermittent DG technologies. Net metering can be optimal in certain settings, but often is not optimal, especially for non-intermittent DG technologies.
    Keywords: electricity pricing; distributed generation; regulation
    JEL: L50 L94 Q40
    Date: 2016–01–06
  17. By: Elena María Díaz (University of Navarra); Juan Carlos Molero (University of Navarra); Fernando Pérez de Gracia (University of Navarra)
    Abstract: This study examines the relationship between oil price volatility and stock returns in the G7 economies (Canada, France, Germany, Italy, Japan, the UK and the US) using monthly data for the period 1970 to 2014. In order to measure oil volatility we consider alternative specifications for oil prices (world, nominal and real prices). We estimate a vector autoregressive model with the following variables: interest rates, economic activity, stock returns and oil price volatility taking into account the structural break in the year 1986. We find a negative response of G7 stock markets to an increase in oil price volatility. Results also indicate that world oil price volatility is generally more significant for stock markets than the national oil price volatility.
    Keywords: stock returns, oil price volatility, G7 economies, Vector autoregressive (VAR) model
    JEL: C40 G12 Q43
    Date: 2016–01–11
  18. By: Stelios D. Bekiros; Rangan Gupta; Alessia Paccagnini
    Abstract: Information on economic policy uncertainty does matter in predicting the change in oil prices. We compare the forecastability of standard, Bayesian and time-varying VAR against univariate models. The time-varying VAR model outranks all alternative models over the period 2007:1–2014:2.
    Keywords: Oil prices; Economic policy uncertainty; Forecasting
    JEL: C22 C32 C53 E60 Q41
    Date: 2015–07
  19. By: William Brock; Anastasios Xepapadeas
    Abstract: Polar amplification is an established scientific fact which has been associated with the surface albedo feedback and to heat and moisture transport from the Equator to the Poles. In this paper we unify a two-box climate model, which allows for heat and moisture transport from the southern region to the northern region, with an economic model of welfare optimization. Our main contribution is to show that by ignoring spatial heat and moisture transport and the resulting polar amplification, the regulator may overestimate or underestimate the tax on GHG emissions. The direction of bias depending on the relations between marginal damages from temperature increase in each region. We also determine the welfare cost when a regulator mistakenly ignores polar amplification. Finally we show the adjustments necessary to the market discount rate due to transport phenomena as well as how our two-box model can be extended to Ramsey-type optimal growth models. Numerical simulations confirm our theoretical results.
    Keywords: Polar amplification, spatial heat and moisture transport, optimal policy, emission taxes, market discount rate
    JEL: Q54 Q58
    Date: 2016–01–05
  20. By: Sneha Master
    Abstract: Green Accounting is basically adoption of valuation of natural capital integration in planning for development. Incorporating green accounting into national economic accounts could provide a measure of sustainability; however, considerable advanced methods of measurement and valuation are needed. There are, of course, no substitutes for the life-sustaining services of nature and the question of when and how to account for this fact is the source of many ongoing debates in green accounting. Key words: Green accounting, accounting, legal, Critical
    Date: 2015–09
  21. By: Thomas Eichner; Rüdiger Pethig
    Keywords: climate coalition, fossil fuel, deposits, extraction, fuel caps
    JEL: Q31 Q38 Q55
    Date: 2015
  22. By: Adenbaum, Jacob (Federal Reserve Bank of New York); Copeland, Adam (Federal Reserve Bank of New York); Stevens, John J. (Federal Reserve Board)
    Abstract: The U.S. federal government enacted fuel efficiency standards for medium and heavy trucks for the first time in September 2011. Rationales for using this policy tool typically depend upon frictions existing in the marketplace or consumers being myopic, such that vehicle purchasers undervalue the future fuel savings from increased fuel efficiency. We measure by how much long-haul truck owners undervalue future fuel savings by employing recent advances to the classic hedonic approach to estimate the distribution of willingness-to-pay for fuel efficiency. We find significant heterogeneity in truck owners’ willingness to pay for fuel efficiency, with the elasticity of fuel efficiency to price ranging from 0.51 at the 10th percentile to 1.33 at the 90th percentile, and an average of 0.91. Combining these results with estimates of future fuel savings from increases in fuel efficiency, we find that long-haul truck owners’ willingness-to-pay for a 1 percent increase in fuel efficiency is, on average, just 29.5 percent of the expected future fuel savings. These results suggest that introducing fuel efficiency standards for heavy trucks might be an effective policy tool to raise medium and heavy trucks’ fuel economy.
    Keywords: fuel efficiency standards; durable goods; discrete-choice demand estimation
    JEL: D22 L51 L92
    Date: 2016–01–01
  23. By: Simone Borghesi (University of Siena, Italy.); Chiara Franco (Catholic University of Sacred Heart, Milano, Italy.); Giovanni Marin (IRCrES-CNR, Milano, Italy.)
    Abstract: We consider the role played by the EU Emission Trading System (EU ETS) as a possible driver of outward Foreign Direct Investments (FDI henceforth). In particular, we aim at assessing whether EU ETS has any effect on outward FDI patterns of Italian firms. Using a novel panel dataset of about 59,000 firms covering the first two phases of the EU ETS and the pre-EU ETS period, we are able to observe the patterns of FDI by destination country of firms, distinguishing between those with plants covered by the EU ETS and other firms. Results show that, on average, firms in the EU ETS do not increase their presence in other countries. However, EU ETS firms operating in sectors particularly exposed to international competition increase their outward FDI towards countries not covered by the EU ETS.
    Keywords: EU ETS, FDI, carbon leakage
    JEL: F23 L23 Q50
    Date: 2016–01

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