nep-ene New Economics Papers
on Energy Economics
Issue of 2017‒07‒16
nineteen papers chosen by
Roger Fouquet
London School of Economics

  1. Energy efficiency programs in the context of increasing block tariffs: The case of residential electricity in Mexico By Hancevic, Pedro; Lopez-Aguilar, Javier
  2. Electricity in Eastern Africa: The Case for Mini Hydro By Helyette Geman
  3. Analysis of Public Subsidies to the Solar Energy Sector: Corruption and the Role of Institutions By Fabio Moliterni
  4. Why are individuals likely to change to sustainable modes of transport like carsharing and electric vehicles? An empirical analysis By Dütschke, Elisabeth; Peters, Anja
  5. Optimal Extraction Paths with Electric Power Generation By Andreas A. Renz; Christoph Weber
  7. Illicit dealings: Fossil fuel subsidy reforms and the role of tax evasion and smuggling By Jun E Rentschler; Nobuhiro Hosoe
  8. Climate policy under firm relocation: The implications of phasing out free allowances By Daniel Nachtigall
  9. Trade Liberalization, Transboundary Pollution and Market Size By Rikard Forslid; Toshihiro Okubo; Mark Sanctuary
  10. بررسی اثرگذاری واردات کالاهای مصرفی، واسطه‌ای و سرمایه‌ای در روند انتقال نوسانات قیمت نفت خام به بخش صنعت و معدن در ایران By Heidari, Hassan; Babaei Balderlou, Saharnaz; Ebrahimi Torki, Mahyar
  11. Does globalization worsen environmental quality in developed economies? By Shahbaz, Muhammad; Syed, Jawad; Kumar, Mantu; Hammoudeh, Shawkat
  12. Choices for spending government revenue: New African oil, gas, and mining economies By Sophie Witter; Maja Jakobsen
  13. Prices versus Quantities: The Impact of Fracking on the Choice of Climate Policy Instruments in the Presence of OPEC By Daniel Nachtigall
  14. Macroeconomic Effects of Oil Price Fluctuations in Colombia By Leonardo Quero-Virla
  15. Do Environmental Regulations Effect FDI decisions? The Pollution Haven Hypothesis Revisited By Yoon, Haeyeon; Heshmati, Almas
  16. Efficiency versus transaction costs in multidimensional auctions: the case of Brazilian oil and gas lease auctions By Miguel Vazquez; Michelle Hallack
  17. Mobile Phone Innovation and Environmental Sustainability in Sub-Saharan Africa By Simplice Asongu; Jacinta C. Nwachukwu
  18. The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets By Tomaso Duso; Jo Seldeslachts; Florian Szücs
  19. Natural resource rents, autocracy and the composition of government spending By Morten Endrikat

  1. By: Hancevic, Pedro; Lopez-Aguilar, Javier
    Abstract: Increasing block pricing schemes represent difficulties for applied researchers who try to recover demand parameters, in particular, price and income elasticities. The Mexican residential electricity tariff structure is amongst the most intricate around the globe. In this paper, we estimate the residential electricity demand and use the corresponding structural parameter estimates to simulate an energy efficiency improvement scenario, as suggested by the Energy Transition Law of December 2015. The simulated program consists of a massive replacement of electric appliances (air conditioners, fans, refrigerators, washing machines, and light-bulbs) for more energy-efficient units. The main empirical findings are the following: overall residential electricity consumption decreases 8.9% and the associated expenditure falls 11.1%. Additionally, the electricity subsidy decreases 360 million of USD per year and there is an annual cut in CO2 emissions of 3.5 million of tons.
    Keywords: increasing block pricing; energy efficiency; residential electricity users; electric appliances; energy subsidies; air pollution.
    JEL: D12 L50 L94 Q40 Q53
    Date: 2017–07
  2. By: Helyette Geman
    Abstract: We argue in this paper that electricity production needs to be multiplied by a large factor in the coming years for East Africa to reach the economic growth rate it deserves after the improvement of its socio-political situation. The rural electrification rate in North Africa as represented for instance by Morocco was higher than 99.50% in the first quarter of 2017 while it was barely 10% in some parts of Western Kenya. We also make the case for hydroelectricity as the adequate renewable source of energy, and more precisely minihydro as it preserves the environment and allows reaching remote regions with an optimal cost of financing. Some technicalities around run-off river hydro are presented as well as the limited risks at stake as water-at-risk, a concept we introduced in prior work, is a phenomenon that has been statistically document for millennia in the case of the Nile River, for centuries in the case of the other African rivers. Lastly, grid connections – existing and to come, large grids and mini grids - are discussed, and their crucial role in the joint development of farming, mining and industrial activities across the beautiful continent.
    Date: 2017–04
  3. By: Fabio Moliterni (Fondazione Eni Enrico Mattei)
    Abstract: This study investigates the connection between rent-seeking behaviour, corruption activity and quality of institutions to empirically evaluate the unexpected implications of an energy policy for criminal activity. The object of this research is a program of public subsidies introduced in Italy in 2005, which successfully boosted the solar energy sector but seems to have generated a growth of corruption activity, arisen from the opportunity of rent extraction. In particular, according to the main hypothesis of this research, bribery is expected to rise significantly where big photovoltaic plants are concentrated and administrative procedures are more complicated. To determine the causal effect of the subsidies on corruption, the study employs a Difference-in-Difference methodology on a sample of 76 Italian provinces and exploits solar radiation as exogenous variable to discriminate the profitability of investments and bribing. Results confirm that, in poor-institutions areas, the growth of the solar sector in sunniest provinces has gone hand in hand with increasing corruption. Results suggest that policy makers should pay additional attention to the potential distortions of public policies implying large rent opportunities, in areas where the weakness of institutional settings and the bureaucratic complexities encourage illegal behaviour.
    Keywords: Renewable Energy, Corruption, Public Subsidies, Legal Institutions
    JEL: O13 D73 P47 H23
    Date: 2017–07
  4. By: Dütschke, Elisabeth; Peters, Anja
    Abstract: Replacing conventional vehicles by electric vehicles (EVs) and increasing the use of carsharing are two strategies to reduce the environmental impact of car driving. However such a societal transition towards the use of more sustainable modes of transport will strongly depend on citizens' willingness to support this process. For this reason, this paper tries to identify factors which are related to the individual likelihood to change to more sustainable modes of transport. It draws on an adapted version of Rogers' diffusion of innovation model (DOI) and earlier work by the authors. It presents new findings from an online survey (n=1548) in one of Germany's show case regions for electric vehicles. Findings point out that relatively small shares of respondents already use these sustainable modes of transport (.6% for EV ownership and 5.3% for carsharing). Similarly, the shares of individuals who are very likely to use them in the near future (4.2% and 4.6% respectively) are also small. Much more individuals are interested in EVs (55.9%) than in carsharing (21.2%), and large groups are not interested (37.7% for EVs, 68.9% for carsharing). There are several significant sociodemographic differences between the respective four adoption groups. Furthermore, consistently, evluations are significantly more positive the higher the likeliness of adoption across groups. Based on regression models, it turns out that perceived compatibility with daily life is the most important factor influencing the attitudes towards EVs or carsharing across all groups.
    Keywords: Electric vehicles,Carsharing,Adoption,Diffusion of Innovation
    Date: 2017
  5. By: Andreas A. Renz; Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen))
    Abstract: It would seem that Hotelling's rule and its related models of resource extraction and electricity production as largest consumer of scarce resources are closely related. However, although fixed costs and a non-storable product are essential in characterizing electricity markets, they can hardly be found in respective literature. We show optimal extraction paths when coal, gas and a renewable with differing fixed and variable costs as well as carbon intensities are considered. The technology with lowest fixed costs will then "–" though relying on a scarce resource "–" always be used in perpetuity. The high fixed-cost fossil technology may be exploited at a definite point of time if it is relatively scarce or also used ad infinitum.
    Keywords: Scarce resource, Optimal control theory, Hotelling, Valuation, Non-renewable resource, Pollution target, Climate change, Peak-load-pricing
    JEL: C61 Q32 Q48 L94
    Date: 2017–07
  6. By: RAWSKI, Thomas G.
    Abstract: China’s electricity industry has recorded immense achievements in many areas: growth, technical upgrading and innovation, improved reliability, and universal service. This record of excellence coexists with massive inefficiency. Despite China’s multiple cost advantages, the unit cost of producing, transmitting and delivering electricity is at least 30 percent higher in China than in the United States. Latent potential for cost reduction clusters in coal-fired generation that supplies about two-thirds of total output. New reforms that deepen the influence of market forces will strengthen financial pressures and thus increase the likelihood of achieving potential cost reductions, perhaps increasing the output and share of coal-fired thermal plants.
    Keywords: China, electricity, reform, upgrading, coverage, cost, inefficiency
    JEL: L2 L6 O14 O25 O32
    Date: 2017–07
  7. By: Jun E Rentschler (University College London, Institute for Sustainable Resources, UK / Oxford Institute for Energy Studies, Oxford, UK / National Graduate Institute for Policy Studies, Tokyo, Japan); Nobuhiro Hosoe (National Graduate Institute for Policy Studies, Tokyo, Japan)
    Abstract: This study develops a computable general equilibrium model for Nigeria to study the impact of fossil fuel subsidy reform - and energy taxes - on key economic parameters, including consumption, income distribution, tax incidence, and fiscal efficiency. The model also examines the role of informality, tax evasion, and fuel smuggling, and shows that these factors can substantially strengthen the argument in favour of subsidy reform. The study shows that redistributing revenues from subsidy reform using uniform cash transfers has a strong progressive (i.e. pro-poor) distributional effect. Moreover, redistributing reform revenues by cutting pre-existing labour taxes not only increases fiscal effciency, but also reduces the welfare losses associated with tax evasion, which in turn reduces the welfare costs of reform by up to 40%. Regardless of the method of revenue redistribution, reducing subsidies diminishes the incentives for fuel smuggling, and hence the welfare losses associated with it.
    Date: 2017–07
  8. By: Daniel Nachtigall (Freie Universität Berlin)
    Abstract: The allocation of free allowances for firms belonging to the carbon leakage list of the European Union Emissions Trading Scheme (EU ETS) was found to lead to substantial overcompensation, which is why some stakeholders recently have called for a phasing out of free allowances in the near term. This paper analyzes the consequences of phasing out free allowances in a dynamic two-period model when one group of countries unilaterally implements climate policies such as an emissions trading scheme. A carbon price induces firms to invest in abatement capital, but may also lead to the relocation of some firms. The social planner addresses the relocation problem by offering firms transfers, i.e. free allowances, conditional on maintaining the production in the regulating country. If transfers are unrestricted in both periods, then the social planner can implement the first best by setting the carbon price equal to the marginal environmental damage and using transfers to prevent any relocation. However, if transfers in the future period are restricted, it is optimal to implement a declining carbon price path with the first period price exceeding the marginal environmental damage. A high carbon price triggers investments in abatement capital and thus creates a lock-in effect. With a larger abatement capital stock, firms are less affected by carbon prices in the future and therefore less prone to relocate in the second period where transfers are restricted.
    Keywords: unilateral climate policy, relocation, lock-in effect, rebating
    JEL: Q54 Q56 Q58 H23
    Date: 2016–12–15
  9. By: Rikard Forslid (Department of Economics, Stockholm University); Toshihiro Okubo (Faculty of Economics, Keio University); Mark Sanctuary (Stockholm School of Economics)
    Abstract: This paper uses a monopolistic competitive framework to study the impact of trade liberalization on local and global emissions. We focus on the interplay of asymmetric emission taxes and the home market effect and show how a large-market advantage can counterbalance a high emission tax, so that trade liberalization leads firms to move to the large high-tax economy. Global emissions decrease when trade is liberalized in this case. We then simulate the model with endogenous taxes. The larger country, which has the advantage of the home market effect, will be able to set a higher Nash emission tax than its smaller trade partner, yet still maintain its manufacturing base. As a result, a pollution haven will typically not arise in this case as trade is liberalized. However, global emission increases as a result of international tax competition, which underscores that the importance of international cooperation increases as trade becomes freer.
    Keywords: Trade liberalization, transboundary pollution, home market effect, transportation costs, emission tax
    JEL: F12 Q52
    Date: 2017–06–23
  10. By: Heidari, Hassan; Babaei Balderlou, Saharnaz; Ebrahimi Torki, Mahyar
    Abstract: In this research, the DCC model is estimated to calculate dynamic correlation series between crude oil price and growth of Industry and Mine sector during 1367:1-1392:4. Then, Macroeconomic variables which can explain the dynamic correlation are analyzed as variables of contagion. So, the import, as an effective and affected variable from crude oil price, is separated to real import of consumption, capital and intermediate goods. We apply an MSIXH (2)-ARX (0,0) model to investigate the effects of explaining variables. Our results show that imports of intermediate goods have a positive effect and imports of consumption goods have a negative effect on correlation series. These results suggest that in order to increase Industry and Mine sector growth, increase in import of intermediate goods, reduction in government consumption expenditure and implementing policies to stabilize the general price level and government consumption expenditure against changes in oil prices are necessary.
    Keywords: Crude Oil Price, Industry and Mine Sector Growth, Imports of Consumption Goods, Imports of Intermediate Goods, Imports of Capital Goods, DCC-MGARCH, Markov Switching Model.
    JEL: C32 C34 O13 O41
    Date: 2016–11–22
  11. By: Shahbaz, Muhammad; Syed, Jawad; Kumar, Mantu; Hammoudeh, Shawkat
    Abstract: We examine the causal relationship between globalization and CO2 emissions for 25 developed economies in Asia, North America, Western Europe and Oceania using both time series and panel data techniques, spanning the annual data period of 1970–2014. Because of the presence of cross-sectional dependence in the panel, we employ Pesaran’s (2007) cross-sectional augmented panel unit root (CIPS) test to ascertain unit root properties. The Westerlund (2007) cointegration test is also used to ascertain the presence of a long-run association between globalization and carbon emissions. The long-run heterogeneous panel elasticities are estimated using the Pesaran (2006) common correlated effects mean group (CCEMG) estimator and the Eberhardt and Teal (2010) augmented mean group (AMG) estimator. The causality between the variables is examined by employing the Dumitrescu and Hurlin (2012) and Emirmahmutoglu and Kose (2011) Granger causality tests. The empirical results reveal that globalization increases carbon emissions, and thus the globalization-driven carbon emissions hypothesis is valid. This empirical analysis suggests insightful policy guidelines for policy makers using ‘globalization’ as an economic tool for better long-run environmental policy.
    Keywords: Carbon Emissions, Causality, Globalization
    JEL: A10
    Date: 2017–07–01
  12. By: Sophie Witter; Maja Jakobsen
    Abstract: This paper examines a broad range of opportunities for addressing the pressing human development needs of low-income countries by using new oil, gas, and mineral discoveries. It assesses how much of an impact can be made on the funding gaps for health and education by new oil and gas revenues, and what other uses of those revenues are likely to arise. The paper argues that there is a strong case for investing natural resources revenues in social sectors, as they provide an opportunity to help to close the financing gaps in the African countries examined. However, the paper also highlights that the political economy risks of this revenue stream are higher than for other types of revenues. Finally, it illustrates how a simple diagnostic framework can be used to help to guide social sector investment decisions in the light of new natural resources revenues.
    Date: 2017
  13. By: Daniel Nachtigall (Freie Universität Berlin)
    Abstract: This paper analyzes the impact of declining extraction costs of shale oil producers on the choice of the policy instrument of a climate coalition in the presence of a monopolistic oil supplier such as OPEC. Shale oil producers' extraction costs represent an upper bound for the oil price OPEC can charge. Declining extraction costs ultimately limit OPEC's price setting behavior and thus impacts the optimal climate policy of the climate coalition. A pure cap-and-trade system is weakly welfare-inferior relative to a carbon tax for the climate coalition. While high extraction costs allow OPEC to appropriate the whole climate rent in case of quantity regulation, declining extraction costs imply OPEC to capture only a part of the climate rent. A carbon tax always generates positive revenue and thus is welfare-superior in general. However, low extraction costs prevent OPEC from exerting its market power, leading the climate coalition to implement the Pigouvian tax in the first place. Both market-based instruments are equivalent in this case. Complementing a quota with a base tax cannot outperform a pure carbon tax.
    Keywords: fossil fuel taxation, prices versus quantities, international redistribution, global warming
    JEL: H23 Q31 Q54 Q58
    Date: 2017–06–20
  14. By: Leonardo Quero-Virla
    Abstract: This research aims to study the effects of oil price changes on the Colombian economy during 2001:Q1 to 2016:Q2. A structural vector auto-regression model in the spirit of Blanchard and Galí (2010) is estimated under a recursive identification scheme, where unexpected oil price variations are exogenous relative to the contemporaneous values of the remaining variables. Drawing on impulse-response estimates, a 10% increase in the oil price generates the following accumulated orthogonalized responses: i) a contemporaneous 0.4% increase in GDP growth, later on the effect reaches its maximum in the first quarter (1.7% increase) and starts to decay after two quarters; ii) a contemporaneous 1.2% decrease in unemployment, then the effect remains slightly negative and reaches its maximum after ten quarters (5.1% decrease); iii) a contemporaneous 0.9% decrease in inflation, followed by an 0.2% increase by quarter three, and thereafter the effect remains slightly negative
    Keywords: SVAR, impulse-response, oil market, Colombia
    JEL: C50 E20 E30 Q43
    Date: 2016–12–16
  15. By: Yoon, Haeyeon; Heshmati, Almas
    Abstract: In an attempt to verify the pollution haven hypothesis, this study investigates the impact of environmental regulations on foreign direct investment (FDI). We use Korean outward FDI data covering the manufacturing sector for 2009-15. The study not only considers the stringency but also the enforcement of environmental regulations when measuring the degree of the host country’s environmental regulations. Since the pollution haven’s effects indicate moving the polluting production stages from the home country to other (host) countries, we distinguish between investments in the ‘production’ part from that in the non-production part using location information about the host country. The main results of the estimation of a FDI model show that the stricter the regulations in host countries in Asia the lower the FDI both intensively and extensively to those countries. This supports the prevalence of the effects of pollution havens. However, before we separate the FDI into the production part, the effect of environmental regulations on FDI is hindered by the FDI in the non-production part. The results indicate that environmental regulations are determinants of FDI in the production part, while environmental regulations do not have a significant effect on FDI decisions when the entire FDI is considered.
    Keywords: Pollution haven hypothesis,environmental regulation,foreign direct investment
    JEL: F23 K32 L51 Q56
    Date: 2017
  16. By: Miguel Vazquez; Michelle Hallack
    Abstract: In Brazil, a scoring auction decides which firm has the right to explore oil and gas in a region. One of its dimensions is the amount of local content that firms are willing to implement. However, local content programs are subject to significant uncertainty and complexity so mal-adaptation costs are relevant. We characterize players’ bidding behavior when they have information on local content implementation and when they do not. We test those predictions using historical bids. Our tests suggest that the mechanism would be more efficient if the definition of local content programs was left out of the auction.
    Keywords: Local content; Scoring auctions; Adaptation costs; Oil and gas industry.
    JEL: D23 D82 H57 L14 L22 L74
    Date: 2017
  17. By: Simplice Asongu (Yaoundé/Cameroun); Jacinta C. Nwachukwu (Coventry University, UK)
    Abstract: This study investigates how the mobile phone can complement knowledge diffusion in order to influence CO2 emissions in 44 Sub-Saharan African countries for the period 2000-2012. The empirical evidence is based on Generalised Method of Moments. Three knowledge diffusion variables representing three of the four pillars of the World Bank’s Knowledge Economy Index are employed: educational quality, information and communication technology (ICT) and scientific output. Six CO2 emission variables are used, namely: CO2 per capita, CO2 from electricity and heat, CO2 from liquid fuel, CO2 from manufacturing and construction, CO2 from transport and CO2 intensity. In the assessments, a decreasing tendency in these variables translates into positive conditions for environmental sustainability. Based on net effect from complementarities, the following findings are established. First, the mobile phone complements education to have a net negative effect on CO2 emissions per capita and CO2 emissions from the consumption of liquid fuel. Second, where some positive net effects of knowledge diffusion are apparent, corresponding marginal effects are negative. Corresponding mobile phone penetration thresholds at which the positive net effects on CO2 emissions can be dampened and reversed are largely within policy range. Practical and theoretical implications are discussed.
    Keywords: CO2 emissions; ICT; Economic development; Africa
    JEL: C52 O38 O40 O55 P37
    Date: 2017–05
  18. By: Tomaso Duso; Jo Seldeslachts; Florian Szücs
    Abstract: We investigate the impact of competition policy enforcement on the functioning of European energy markets, and how sectoral regulation influences these outcomes. For this purpose, we compile a new dataset on the European Commission’s (EC) and EU member states’ competition policy decisions, and combine it with firm- and sector-level data. We find that EC merger policy has a positive and robust impact on (i) the level of competition; (ii) investment; and (iii) productivity. This impact, however, only shows up in low-regulated sectors. Other competition policy decisions – EC state aid and anti-trust interventions; as well as all individual Member State policy variables – do not have a uniform effect on energy markets’ functioning. Our findings are consistent with the idea that the EC’s merger policy actions have been used to overcome significant obstacles to a well-functioning EU energy sector and may well have shaped the overall development of gas and electricity markets in Europe.
    Keywords: Ex-post evaluation, energy markets, competition policy
    JEL: D24 L4 L98 Q4
    Date: 2017
  19. By: Morten Endrikat (RWTH Aachen University)
    Abstract: This paper empirically analyzes the influence of rents from natural resources on the composition of government spending and investigates whether the relationship differs between democracies and autocracies. Both panel data and instrumental variable regressions suggest that there is a negative joint effect of autocracy and natural resource dependency on education spending. Moreover, there is slight evidence in the results of a positive joint effect on spending for social protection, while other components of government spending do not seem to be influenced. In particular, the results do not suggest that autocratic regimes in resource-dependent countries spend relatively more on military.
    Keywords: Natural Resources, resource curse, institutions, government spending
    JEL: H50 Q32 Q38
    Date: 2017

This nep-ene issue is ©2017 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.